Release Date: September 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- SelectQuote Inc (SLQT, Financial) achieved a highly successful fiscal 2024, outperforming internal expectations for the 10th consecutive quarter.
- The Senior Medicare Advantage business performed well, driven by strong operational execution and high margins.
- The healthcare services segment, particularly SelectRx, saw significant growth, with membership increasing by 68% year-over-year.
- SelectQuote Inc (SLQT) signed a nonbinding letter of intent for an initial securitization of around $100 million, which is expected to improve the company's capital structure.
- The company maintained stable and strong senior EBITDA production per policy, with a rev to CAC ratio increasing to 4.5x, indicating improved efficiency.
Negative Points
- Growth in 2025 will be tempered due to the later-than-expected timing of the initial securitization and a change in commission structure with a major carrier partner.
- The new commission structure with a large carrier partner will impact cash flows ahead of the Medicare Advantage busy season, leading to a 10% to 15% expected decline in policy production for fiscal 2025.
- Despite ample liquidity, SelectQuote Inc (SLQT) acknowledges that its capital structure is not as strong as it could be, necessitating further improvements.
- The company experienced modestly higher expenses per policy due to the implementation of new CMS marketing standards.
- The Auto and Home business will no longer be a material contributor to earnings, which will be a headwind for fiscal 2025 adjusted EBITDA.
Q & A Highlights
Q: Can you provide some details on the $100 million securitization and its impact on the company's capital structure?
A: (Timothy Danker, CEO) The $100 million securitization is a critical first step towards extending our term debt maturity to fall 2027 and reducing our cost of capital. This transaction will unlock further deleveraging opportunities and provide more flexibility for future securitizations.
Q: What are the expected margins for SelectRx in 2025 and its long-term potential?
A: (Ryan Clement, CFO) We expect SelectRx to have margins in the low to mid-single digits for 2025, with customer growth of 20%-25% and revenue growth of 35%-45%. Long-term, the EBITDA margin potential for SelectRx is in the low to mid-teens.
Q: How will the smaller new agent pool impact growth and retention in the Senior segment?
A: (Matthew Gunter, Chief Experience Officer) The smaller agent pool allows us to be more selective with leads, which should improve close rates and policy retention. Our tenured agents are better equipped to handle the complexity of the upcoming Medicare Advantage season, which should mitigate churn.
Q: What is the impact of the new CMS marketing standards on margins, and how is the company addressing it?
A: (William Grant, COO) We have adapted well to the new CMS marketing standards, and we do not expect additional pressure from these rules going forward. Our lead targeting strategy and operational adjustments have stabilized the impact on margins.
Q: Are there any changes to the marketing strategy for the upcoming AEP given the heightened shopping and disruptions?
A: (William Grant, COO) We are targeting areas with plan terminations and other disruptions to maximize close rates. Our wide funnel approach and ability to handle election year complexities should help us capitalize on the increased awareness and demand.
Q: What are the benefits of the new distribution facility in Kansas City for the pharmacy business?
A: (Robert Grant, President) The new facility will increase capacity and improve operational efficiency. It will also reduce shipping costs and allow us to implement newer technologies, which should enhance margins and overall business performance.
Q: Can you explain the changes in the commission structure with the large carrier and its impact on 2025?
A: (Ryan Clement, CFO) The new commission structure is more back-end loaded, which creates a temporary working capital constraint. However, it remains economically attractive and will generate more revenue in subsequent years. This change has led to a smaller agent class for 2025, but we are confident in maintaining strong margins.
Q: How does the company plan to mitigate the impact of the new commission structure on cash flows?
A: (Timothy Danker, CEO) We are focusing on securitization to create a more working capital-light model, which will help us be agnostic to different commission structures. This approach will support our long-term growth and deleveraging efforts.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
