Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to 001-39295 (Commission File Number) SelectQuote, Inc. (Exact name of registrant as specified in its charter) Delaware 94-3339273 (State or other ...

Part I [Business](index=9&type=section&id=Item%201.%20Business) SelectQuote operates a technology-enabled, direct-to-consumer insurance distribution platform across Senior, Life, and Auto & Home segments, earning commissions without underwriting risk - SelectQuote is a **direct-to-consumer (DTC) distribution platform** for senior health, life, and auto & home insurance, earning commissions without underwriting risk[21](index=21&type=chunk) - The business model relies on a **highly trained, licensed agent force** and a **proprietary technology platform** for lead acquisition and customer engagement[26](index=26&type=chunk)[33](index=33&type=chunk) - On May 1, 2020, the company acquired marketing firm InsideResponse for up to **$65.0 million** to bolster lead generation capabilities[23](index=23&type=chunk) - The company transitioned its entire workforce to a **remote model** due to COVID-19, leveraging technology and remote agent capabilities, potentially accelerating consumer adoption[22](index=22&type=chunk) [Our Business Model and Products](index=10&type=section&id=Item%201.%20Business%23Our%20Business%20Model%20and%20Products) SelectQuote distributes insurance across Senior, Life, and Auto & Home segments, earning commissions from over 50 carriers, with the Senior segment being the largest and fastest-growing - The company operates three segments: **SelectQuote Senior** (launched 2010), **SelectQuote Life** (founded 1985), and **SelectQuote Auto & Home** (founded 2011)[39](index=39&type=chunk) - FY2020 Policy Mix by Segment | Segment | Primary Products | % of Approved Policies/New Premium | |:--- |:--- |:--- | | **Senior** | Medicare Advantage & Supplement | 77% of approved policies | | **Life** | Term & Permanent Life | 67% of new premium | | **Auto & Home** | Homeowners & 12-month Auto | 78% of new premium | - The company maintains relationships with **over 50 insurance carriers**, including major partners like Humana, UnitedHealthcare, and Aetna[43](index=43&type=chunk) [Our Market Opportunity and Growth Strategy](index=13&type=section&id=Item%201.%20Business%23Our%20Market%20Opportunity%20and%20Growth%20Strategy) SelectQuote targets an over $180 billion market, primarily in the Senior segment, with growth strategies focused on maximizing policyholder lifetime value, agent productivity, cross-selling, and new product introductions - Estimated Total Addressable Market (Annual Commission Revenue) | Segment | Annual Commission Opportunity | |:---|:---| | Senior | ~$30 billion | | Life | ~$105 billion | | Auto & Home | ~$47 billion | - The Senior market is expanding due to demographic shifts, with nearly **4 million \"Baby Boomers\" turning 65 each year** for the next decade, driving Medicare enrollment growth[46](index=46&type=chunk) - Key growth strategies include maximizing **policyholder lifetime value**, increasing **agent force size and productivity**, driving **cross-selling**, deepening **carrier partnerships**, and introducing **new financial products**[66](index=66&type=chunk)[67](index=67&type=chunk)[68](index=68&type=chunk)[69](index=69&type=chunk)[70](index=70&type=chunk) [Competition, Regulation, and Seasonality](index=19&type=section&id=Item%201.%20Business%23Competition%20%2C%20Regulation%2C%20and%20Seasonality) SelectQuote faces competition from various channels, operates in a heavily regulated environment, and experiences significant seasonality driven by the Medicare Annual Enrollment Period - Competitors include direct-selling insurance companies, traditional agents, and online platforms like **eHealth, Inc.** and **GoHealth, Inc.**[71](index=71&type=chunk)[72](index=72&type=chunk)[73](index=73&type=chunk) - The business is subject to extensive regulation, including **state licensing**, **CMS rules** for Medicare marketing, **HIPAA** for health information privacy, and the **TCPA** for telephone marketing[75](index=75&type=chunk)[77](index=77&type=chunk)[79](index=79&type=chunk)[80](index=80&type=chunk) - The business is seasonal, with **33% of FY2020 revenue** generated in the second quarter, driven by the Medicare Annual Enrollment Period (AEP)[83](index=83&type=chunk) [Risk Factors](index=22&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from reliance on key carrier partners, regulatory changes in healthcare, technological vulnerabilities, business seasonality, revenue recognition estimates, and substantial debt obligations - The company is heavily reliant on a few key insurance carrier partners; in FY2020, **UnitedHealthcare (26%)**, **Humana (18%)**, and **Aetna (11%)** accounted for a significant portion of total revenue[95](index=95&type=chunk) - The business is substantially dependent on the Senior segment, which contributed **68% of total revenue** in FY2020, making it vulnerable to changes like \"Medicare-for-All\" proposals[101](index=101&type=chunk)[109](index=109&type=chunk) - Approximately **50% of Medicare policies** are submitted during the Annual Enrollment Period (AEP), making operational performance during this period critical and highly impactful to results[113](index=113&type=chunk) - Revenue recognition under ASC 606 relies on significant estimates of commission lifetime value, particularly **customer lapse rates**, where higher actual rates could adversely affect financial results[151](index=151&type=chunk)[152](index=152&type=chunk) - The company has substantial debt, with **$325.0 million outstanding** under a Term Loan as of June 30, 2020, requiring significant cash flow and subject to restrictive covenants[139](index=139&type=chunk) [Unresolved Staff Comments](index=46&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments - None[211](index=211&type=chunk) [Properties](index=46&type=section&id=Item%202.%20Properties) As of June 30, 2020, SelectQuote leased approximately 369,000 square feet across seven US locations, with its corporate headquarters in Overland Park, Kansas, being the principal property - Principal Leased Properties as of June 30, 2020 | Location | Approx. Occupied Square Footage | Primary Use | |:---|:---:|:---| | Overland Park, KS | 253,612 | Corporate headquarters, operations for all segments | | Centennial, CO | 45,373 | Senior operations | | Des Moines, IA | 24,464 | Senior operations | | San Diego, CA | 21,396 | Life and Auto & Home operations | | Jacksonville, FL | 15,231 | Life operations | [Legal Proceedings](index=46&type=section&id=Item%203.%20Legal%20Proceedings) The company is not currently a party to any legal proceedings expected to have a material adverse effect on its business or financial condition - The company is not presently party to any legal proceedings expected to have a **material adverse effect** on its business[213](index=213&type=chunk) [Mine Safety Disclosures](index=46&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[214](index=214&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=47&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) SelectQuote's common stock began trading on the NYSE as \"SLQT\" on May 21, 2020, with the IPO raising $333.1 million in net proceeds, partially used for debt repayment, and no anticipated future dividends - The company's common stock began trading on the New York Stock Exchange under the symbol **\"SLQT\"** on May 21, 2020[216](index=216&type=chunk) - From its IPO, the company raised net proceeds of approximately **$333.1 million**, using **$100.0 million** to pay down the Term Loan and **$29.3 million** to terminate the Receivables Financing Agreement[218](index=218&type=chunk) - The company does not anticipate paying cash dividends on its common stock in the foreseeable future, intending to retain earnings for business operation and expansion[225](index=225&type=chunk) [Selected Financial Data](index=50&type=section&id=Item%206.%20Selected%20Financial%20Data) Total revenue grew from $233.7 million in FY2018 to $531.5 million in FY2020, with net income increasing to $81.1 million, and total assets expanding to over $1.07 billion - Selected Consolidated Financial Data (in thousands) | | 2020 | 2019 | 2018 | |:---|---:|---:|---:| | **Total revenue** | $531,515 | $337,469 | $233,688 | | **Income from operations** | $132,329 | $96,288 | $43,156 | | **Net income** | $81,147 | $72,579 | $34,899 | | **Total assets** | $1,073,793 | $406,940 | N/A | | **Total liabilities** | $528,104 | $143,688 | N/A | | **Total shareholders' equity** | $545,689 | $262,455 | N/A | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=51&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) FY2020 revenue increased 58% to $531.5 million, driven by Senior segment growth and increased agent count, with Adjusted EBITDA reaching $154.0 million, supported by IPO proceeds and new debt financing [Key Business and Operating Metrics](index=54&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%23Key%20Business%20and%20Operating%20Metrics) FY2020 saw a 91% increase in Senior segment submitted policies, driven by Medicare Advantage growth and agent productivity, with stable MA policy LTV and significant premium growth in Life and Auto & Home - Senior Segment Submitted Policies | Policy Type | 2020 | 2019 | 2018 | |:---|---:|---:|---:| | Medicare Advantage | 264,546 | 119,562 | 57,973 | | Medicare Supplement | 24,085 | 23,593 | 27,059 | | **Total** | **378,052** | **198,211** | **133,917** | - Senior Segment LTV of Commissions per Approved Policy | Policy Type | 2020 | 2019 | 2018 | |:---|:---:|:---:|:---:| | Medicare Advantage | $1,287 | $1,279 | $1,235 | | Medicare Supplement | $1,376 | $1,312 | $1,184 | - Life and Auto & Home Premiums (in thousands) | Segment/Product | 2020 | 2019 | 2018 | |:---|---:|---:|---:| | **Life - Core Premiums** | $75,451 | $75,681 | $71,753 | | **Life - Ancillary Premiums** | $37,346 | $14,286 | $6,601 | | **Auto & Home - Premiums** | $70,087 | $56,719 | $50,460 | [Results of Operations](index=62&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%23Results%20of%20Operations) FY2020 total revenue increased 58% to $531.5 million, driven by Senior segment commission growth, while operating expenses rose 75%, leading to $132.3 million in operating income and $81.1 million in net income despite higher interest expense - Consolidated Results of Operations (in thousands) | | 2020 | 2019 | 2018 | |:---|---:|---:|---:| | **Total revenue** | $531,515 | $337,469 | $233,688 | | **Total operating costs and expenses** | $399,186 | $241,181 | $190,532 | | **Income from operations** | $132,329 | $96,288 | $43,156 | | **Interest expense, net** | $(25,761) | $(1,660) | $(929) | | **Net income** | $81,147 | $72,579 | $34,899 | - Commission revenue increased by **$180.6 million (61%)** in FY2020, with the Senior segment contributing **$157.4 million** of this growth[289](index=289&type=chunk) - Cost of revenue increased by **$63.0 million (60%)** in FY2020, primarily due to a **$51.0 million increase** in compensation expense from a larger agent force[291](index=291&type=chunk) - Marketing and advertising expenses increased by **$73.9 million (67%)** in FY2020, mainly due to a **$56.3 million increase** in the Senior segment for lead generation[293](index=293&type=chunk) [Segment Performance](index=65&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%23Segment%20Performance) In FY2020, Senior segment revenue grew 88% to $361.7 million with 62% Adjusted EBITDA growth, while Life and Auto & Home segments also saw revenue and Adjusted EBITDA increases driven by commission and premium volume - Revenue by Segment (in thousands) | Segment | 2020 | 2019 | 2018 | |:---|---:|---:|---:| | **Senior** | $361,673 | $192,257 | $102,408 | | **Life** | $129,967 | $110,493 | $98,218 | | **Auto & Home** | $41,189 | $35,054 | $33,348 | - Adjusted EBITDA by Segment (in thousands) | Segment | 2020 | 2019 | 2018 | |:---|---:|---:|---:| | **Senior** | $145,738 | $90,174 | $36,688 | | **Life** | $27,812 | $25,821 | $22,969 | | **Auto & Home** | $8,699 | $7,817 | $9,221 | [Liquidity and Capital Resources](index=72&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%23Liquidity%20and%20Capital%20Resources) As of June 30, 2020, cash increased to $368.9 million due to $481.4 million in financing proceeds from the IPO and new Term Loan, offset by a $275.0 million shareholder distribution and $61.8 million cash used in operations - Summary of Cash Flows (in thousands) | | 2020 | 2019 | 2018 | |:---|---:|---:|---:| | Net cash (used in) provided by operating activities | $(61,776) | $113 | $(4,846) | | Net cash used in investing activities | $(51,370) | $(8,636) | $(6,020) | | Net cash provided by financing activities | $481,446 | $8,135 | $11,482 | - On November 5, 2019, the company entered a new Senior Secured Credit Facility, including a **$425.0 million Term Loan** and a **$75.0 million Revolving Credit Facility**, with **$325.0 million outstanding** under the Term Loan as of June 30, 2020[349](index=349&type=chunk) - On June 8, 2020, the company used IPO proceeds to repay its **$29.3 million obligation** under the Receivables Financing Agreement, terminating the facility[352](index=352&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=78&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are credit risk concentration from reliance on key carrier partners and interest rate risk from variable-rate debt, mitigated by an interest rate swap agreement - The company has significant credit risk concentration, with three insurance carrier partners accounting for **26%, 20%, and 10%** of total receivables as of June 30, 2020[368](index=368&type=chunk) - The company is exposed to **interest rate risk** from its variable-rate debt and has entered into interest rate swap agreements to protect against unfavorable changes[369](index=369&type=chunk) [Financial Statements and Supplementary Data](index=79&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) FY2020 consolidated financial statements show significant growth, with total assets reaching $1.07 billion, revenue at $531.5 million, and net income of $81.1 million, driven by IPO capital and new debt financing [Consolidated Balance Sheets](index=81&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data%23Consolidated%20Balance%20Sheets) As of June 30, 2020, total assets reached $1.07 billion, driven by increased cash and commissions receivable, while total liabilities rose to $528.1 million due to new debt, and shareholders' equity grew to $545.7 million from IPO proceeds - Consolidated Balance Sheet Data (in thousands) | | June 30, 2020 | June 30, 2019 | |:---|---:|---:| | **Total current assets** | $513,834 | $102,957 | | **Commissions receivable - Net** | $461,752 | $279,489 | | **Total assets** | $1,073,793 | $406,940 | | **Total current liabilities** | $95,811 | $33,222 | | **Debt** | $311,814 | $11,032 | | **Total liabilities** | $528,104 | $143,688 | | **Total shareholders' equity** | $545,689 | $262,455 | [Consolidated Statements of Comprehensive Income](index=82&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data%23Consolidated%20Statements%20of%20Comprehensive%20Income) For FY2020, total revenue increased 58% to $531.5 million, with income from operations growing to $132.3 million, resulting in net income of $81.1 million despite higher interest expense, and a net loss per share of ($0.16) - Consolidated Statements of Comprehensive Income (in thousands) | | 2020 | 2019 | 2018 | |:---|---:|---:|---:| | **Total revenue** | $531,515 | $337,469 | $233,688 | | **Income from operations** | $132,329 | $96,288 | $43,156 | | **Net income** | $81,147 | $72,579 | $34,899 | | **Net (loss) income per share - diluted** | $(0.16) | $0.55 | $0.23 | [Notes to Financial Statements](index=85&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data%23Notes%20to%20Financial%20Statements) Notes detail key accounting policies like ASC 606 revenue recognition and significant events including the May 2020 IPO ($333.1 million net proceeds), InsideResponse acquisition, new $425 million Term Loan, and preferred stock conversion - The company recognizes revenue under **ASC 606**, using an expected value approach to estimate variable consideration from future renewal commissions, requiring significant judgment on policy persistency[411](index=411&type=chunk)[414](index=414&type=chunk) - On May 1, 2020, the company acquired InsideResponse for up to **$67.2 million**, including a **$32.7 million cash payment** and a **$30.4 million contingent earnout**, resulting in **$41.2 million of goodwill**[435](index=435&type=chunk)[436](index=436&type=chunk)[439](index=439&type=chunk) - The company entered a new Senior Secured Credit Facility with a **$425 million Term Loan** and a **$75 million Revolving Credit Facility**, with proceeds used for a **$275 million distribution** to shareholders and option holders[464](index=464&type=chunk) - Upon the IPO in May 2020, all outstanding shares of **preferred stock (Series A-E)** were automatically converted into common stock[481](index=481&type=chunk)[482](index=482&type=chunk) [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=118&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no disagreements with its accountants on accounting principles, financial disclosure, or auditing scope - None[535](index=535&type=chunk) [Controls and Procedures](index=118&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective as of June 30, 2020, and as an emerging growth company, no management report on internal control over financial reporting is required - Management concluded that as of June 30, 2020, the company's **disclosure controls and procedures were effective**[536](index=536&type=chunk) - As an emerging growth company, the company is not required to provide a management report on **internal control over financial reporting**[538](index=538&type=chunk) [Other Information](index=118&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[540](index=540&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=119&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the company's 2020 Definitive Proxy Statement - Information is incorporated by reference from the registrant's **2020 Proxy Statement**[543](index=543&type=chunk) [Executive Compensation](index=119&type=section&id=Item%2011.%20Executive%20Compensation) Information concerning executive compensation is incorporated by reference from the company's 2020 Definitive Proxy Statement - Information is incorporated by reference from the registrant's **2020 Proxy Statement**[545](index=545&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=119&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership is incorporated by reference from the company's 2020 Definitive Proxy Statement - Information is incorporated by reference from the registrant's **2020 Proxy Statement**[546](index=546&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=119&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related party transactions and director independence is incorporated by reference from the company's 2020 Definitive Proxy Statement - Information is incorporated by reference from the registrant's **2020 Proxy Statement**[547](index=547&type=chunk) [Principal Accountant Fees and Services](index=119&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information detailing fees paid to the principal accountant is incorporated by reference from the company's 2020 Definitive Proxy Statement - Information is incorporated by reference from the registrant's **2020 Proxy Statement**[548](index=548&type=chunk) Part IV [Exhibit and Financial Statement Schedules](index=120&type=section&id=Item%2015.%20Exhibit%20and%20Financial%20Statement%20Schedules) This section lists documents filed as part of the 10-K, including consolidated financial statements in Item 8, with omitted schedules and a list of exhibits such as corporate governance and debt agreements - The **Consolidated Financial Statements** are located in Item 8 of the report[551](index=551&type=chunk) - All financial statement schedules have been omitted as they are not applicable, not material, or the information is included elsewhere in the report[552](index=552&type=chunk) [Form 10-K Summary](index=122&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is noted as 'None', indicating no summary is provided in this section of the report - None[558](index=558&type=chunk)

SelectQuote, Inc. (NYSE:SLQT) Q4 2020 Earnings Conference Call September 9, 2020 5:00 PM ET Company Participants Matt Gunter - Investor Relations Tim Danker - Chief Executive Officer Raffaele Sadun - Chief Financial Officer Bob Grant - Chief Revenue Officer Bill Grant - Chief Operating Officer Conference Call Participants Jailendra Singh - Credit Suisse Frank Morgan - RBC Capital Markets Sarah James - Piper Sandler David Styblo - Jefferies Lauren Cassel - Morgan Stanley Jonathan Young - Barclays Capital Eli ...