SelectQuote(SLQT)2024-09-13 20:03Policy Performance and Trends - Total submitted policies for all products increased 7% for the year ended June 30, 2024, compared to the year ended June 30, 2023, driven by increases in overall close rates (11%), the number of average productive agents (7%), and productivity per agent (9%)[261] - Total submitted policies for all products decreased 25% for the year ended June 30, 2023, compared to the year ended June 30, 2022, due to a strategic shift to reduce the Senior distribution business and focus on Healthcare Services[262] - Total approved policies for all products increased by 6% for the year ended June 30, 2024, compared to the year ended June 30, 2023, with fluctuations primarily due to carrier mix[265] - Total approved policies for all products decreased by 20% for the year ended June 30, 2023, compared to the year ended June 30, 2022[266] - Submitted-to-approved conversion rates improved by 6% for the year ended June 30, 2023, compared to the year ended June 30, 2022[266] Medicare Advantage and Senior Policies - Medicare Advantage plans accounted for 91%, 89%, and 82% of approved Senior policies for the years ended June 30, 2024, 2023, and 2022, respectively[249] - Medicare Advantage enrollment as a share of the eligible Medicare population grew from 19% in 2007 to 51% in 2023 and is projected to grow to 62% by 2033[254] - Senior segment revenue increased by $65.7 million (11%) to $655.8 million in 2024 compared to 2023, driven by a $71.7 million (14%) increase in commissions revenue[309] - Senior segment Medicare Advantage commissions grew by $69.1 million (14%) to $569.6 million in 2024[308] - The Senior segment's revenue is highest in the second and third quarters due to Medicare annual enrollment periods[379] Life Insurance Segment - Term life policies accounted for 45%, 47%, and 36% of new premium within the Life segment for the years ended June 30, 2024, 2023, and 2022, respectively[251] - Life segment revenue grew by $12.1 million (8%) to $157.9 million in 2024, mainly due to an $11.5 million increase in commissions revenue[309] - Adjusted EBITDA from the Life segment decreased by $2.9 million (13%) to $20.2 million for the year ended June 30, 2024, primarily due to a $15.0 million increase in operating costs[315] Auto & Home Segment - Homeowners and 12-month auto products accounted for 74% of new premium within the Auto & Home segment for the years ended June 30, 2024 and 2023, and 76% for the year ended June 30, 2022[252] - Auto & Home segment revenue rose by $14.4 million (66%) to $36.2 million in 2024, driven by a $14.8 million increase in commissions revenue[310] - Adjusted EBITDA from the Auto & Home segment increased by $14.0 million to $14.1 million for the year ended June 30, 2024, driven by a $14.4 million increase in revenue[315] - The company will realign its reportable segments effective July 1, 2024, removing Auto & Home as a separate segment due to reduced revenue growth and resource allocation challenges[300] Healthcare Services and Pharmacy Revenue - Total SelectRx members increased by 68% as of June 30, 2024, compared to June 30, 2023[271] - Average prescriptions shipped per day increased to 18,935 in 2024 from 10,657 in 2023[272] - Pharmacy revenue increased $225.3 million, or 94%, for the year ended June 30, 2024, compared to the year ended June 30, 2023[279] - Healthcare Services segment revenue surged by $226.4 million (90%) to $478.5 million in 2024, primarily due to a $225.3 million increase in SelectRx pharmacy revenue[309] - Healthcare Services pharmacy revenue surged by $225.3 million (94%) to $464.9 million in 2024[308] - SelectRx members increased by 68% in 2024 compared to 2023, contributing to higher medication and compensation costs[284] Revenue and Financial Performance - Total consolidated revenue increased by $318.9 million (32%) to $1,321.8 million in 2024 compared to 2023[308] - Total revenue for the year ended June 2024 was $1,321.8 million, a 31.8% increase from $1,002.8 million in 2023[372] - Net loss for the year ended June 2024 was $34.1 million, compared to a net loss of $58.5 million in 2023[372] - Commissions and other services revenue increased by 12.3% to $856.9 million in 2024 from $763.3 million in 2023[372] - Pharmacy revenue surged by 94.1% to $464.9 million in 2024 from $239.5 million in 2023[372] - Net loss for the fiscal year 2024 was $34.1 million, compared to $58.5 million in 2023 and $297.5 million in 2022[376] Expenses and Costs - Cost of commissions and other services revenue increased by $17.3 million (6%) in 2024 compared to 2023, driven by higher compensation costs[283] - Cost of goods sold-pharmacy revenue surged by $179.0 million (79%) in 2024 compared to 2023, primarily due to a $158.9 million increase in medication costs and a 68% growth in SelectRx members[284] - Marketing and advertising expenses rose by $57.6 million (19%) in 2024 compared to 2023, attributed to a $50.7 million increase in lead costs and higher customer acquisition costs[287] - Selling, general, and administrative expenses increased by $4.5 million (3%) in 2024 compared to 2023, mainly due to an $11.2 million rise in compensation costs related to SelectRx growth[289] - Technical development expenses grew by $7.5 million (29%) in 2024 compared to 2023, driven by a $7.3 million increase in compensation costs for technology personnel[292] - Interest expense, net increased by $12.9 million (16%) in 2024 compared to 2023, due to higher interest rates[293] - Income tax expense increased by $15.7 million (148%) in 2024 compared to 2023, with an effective tax rate of 17.4%[295] - Marketing and advertising expenses increased by 19.1% to $358.9 million in 2024 from $301.2 million in 2023[372] - Technical development expenses rose by 28.9% to $33.5 million in 2024 from $26.0 million in 2023[372] Cash Flow and Financial Position - Net cash provided by operating activities was $15.2 million for the year ended June 30, 2024, compared to $(19.4) million in 2023 and $(338.3) million in 2022[321] - Net cash used in investing activities was $14.8 million for the year ended June 30, 2024, primarily due to $8.3 million in software purchases and $3.4 million in property and equipment purchases[329] - Net cash used in financing activities was $40.9 million for the year ended June 30, 2024, primarily due to $38.9 million of principal payments on Term Loans[333] - The company's cash and cash equivalents totaled $42.7 million as of June 30, 2024, compared to $83.2 million as of June 30, 2023[320] - Cash and cash equivalents decreased to $42.69 million in 2024 from $83.16 million in 2023, with a significant drop in money market funds from $31.93 million to $0.31 million[437] - Net cash provided by operating activities improved to $15.2 million in 2024 from a net cash used of $19.4 million in 2023 and $338.3 million in 2022[376] Market and Industry Trends - The total addressable market for the insurance products distributed by the company is estimated to be greater than $180 billion[253] - The U.S. life insurance market has experienced annual premium growth of 2.9% since 2013, driven by population growth, economic growth, and individual wealth accumulation[255] - The auto insurance industry grew at an annual rate of 5.3% from 2013 to 2021, with 2021 written premium totaling $261 billion[255] Segment Performance and Adjusted EBITDA - Senior segment Adjusted EBITDA increased by $11.7 million (8%) to $166.7 million in 2024, driven by higher revenue offset by increased operating costs[314] - Healthcare Services segment Adjusted EBITDA improved by $30.6 million to $7.8 million in 2024, due to revenue growth offset by higher operating costs[314] - Adjusted EBITDA from the Senior segment increased by $316.8 million (196%) to $155.1 million for the year ended June 30, 2023, due to a $62.2 million increase in revenue and a $254.6 million decrease in operating costs[316] - Adjusted EBITDA from Healthcare Services increased by $9.3 million to $(22.8) million for the year ended June 30, 2023, driven by a $182.0 million increase in revenue, offset by a $172.7 million increase in operating costs[316] Acquisitions and Investments - The company acquired a chronic care management platform for $4.0 million on April 2, 2024, resulting in $0.3 million of goodwill and $3.3 million of intangibles[332] - The company acquired Express Med Pharmaceuticals (now SelectRx) for up to $24.0 million, with $17.5 million paid at closing and additional payments made in 2023[421] - Simple Meds was acquired for $7.0 million in cash, with goodwill allocated to the Healthcare Services reporting unit[422] Financial Instruments and Fair Value - The company uses a combination of historical experience, insurance carrier data, and industry trends to estimate renewal commission revenue[341] - The company recognizes a significant deferred tax liability due to the timing of revenue recognition for tax purposes[343] - The company uses the Black-Scholes-Merton pricing model to determine the fair value of stock options[344] - The company's financial instruments exposed to credit risk primarily consist of accounts and commissions receivable[349] - The company's fair value estimation for reporting units involves significant unobservable inputs and judgmental assumptions[347] Assets and Liabilities - Total current assets decreased by 8.3% to $332.9 million in 2024 from $363.2 million in 2023[370] - Long-term debt, net of current portion, decreased by 4.1% to $637.5 million in 2024 from $664.6 million in 2023[370] - Total shareholders' equity declined by 8.7% to $316.8 million in 2024 from $347.0 million in 2023[370] - Total shareholders' equity decreased from $391.1 million in 2022 to $316.8 million in 2024[375] - The company's total assets decreased to $580.8 million in 2024 from $567.3 million in 2023 and $554.8 million in 2022[375] Leases and Intangible Assets - Total rental payments for leases are expected to be $3.6 million over the initial ten-year term plus a five-year extension[427] - New lease liabilities of $0.7 million and $4.5 million were incurred in 2024 due to lease amendments and additional office facilities in Overland Park, KS[428] - Operating lease right-of-use assets totaled $23.44 million in 2024, slightly down from $23.56 million in 2023[430] - Total net lease costs decreased to $4.38 million in 2024 from $6.66 million in 2023, with sublease income of $2.29 million in 2024[432] - Intangible assets' net carrying value decreased from $10,200 thousand in 2023 to $10,194 thousand in 2024[441] - The company recorded $3.3 million in intangible assets related to proprietary software from the acquisition of a chronic care management platform in 2024[442] - Impairment charges of $15.1 million and $0.5 million were recorded for vendor relationships and non-compete agreements, respectively, in 2023 due to terminated relationships[443] - Customer relationships' net carrying amount decreased from $8,875 thousand in 2023 to $6,556 thousand in 2024[441] - Trade name's net carrying amount decreased from $983 thousand in 2023 to $447 thousand in 2024[441] - Proprietary software's net carrying amount increased from $284 thousand in 2023 to $3,153 thousand in 2024[441] - Non-compete agreements' net carrying amount decreased from $58 thousand in 2023 to $38 thousand in 2024[441] - Vendor relationships' net carrying amount was fully impaired, decreasing from $5,289 thousand in 2023 to $0 in 2024[441] Revenue Recognition and Accounting Policies - The company has two revenue streams: commissions and other services revenue, and pharmacy revenue, recognized when control of goods or services is transferred to the customer[393] - Commission revenue includes first-year commissions and renewal commissions, with renewal commission revenue estimated using a portfolio approach grouped by segment, carrier, product type, and quarter[397] - The company estimates renewal commission revenue using assumptions based on historical experience, carrier data, and industry trends, with persistency being the most sensitive assumption[399] - Production bonus revenue is recognized proportionally as policies are sold, based on agreed-upon targets in customer contracts[405] - Population Health revenue is recognized when performance obligations are met, such as HRA completion or transfers to health-related partners, with transaction prices based on volume and contractual terms[407] - SelectRx pharmaceutical sales revenue is recognized upon shipment to customers, with no future revenue streams or variable consideration as the transaction price is fixed at shipment[408] Credit Losses and Allowances - The company recorded an allowance for credit losses of $8.2 million as of June 30, 2024, compared to $2.7 million in 2023, with write-offs of $1.4 million in 2024[410] Advertising and Marketing - Advertising expenses were $294.7 million for the year ended June 30, 2024, compared to $242.5 million in 2023 and $418.0 million in 2022[415] - Marketing efficiency improved in 2023 compared to 2022, with a decrease in customer acquisition cost (CAC) per approved policy due to enhanced agent training and development[288] Property, Equipment, and Software - Property and equipment net value was $18.973 million as of June 30, 2024, compared to $27.452 million in 2023, with depreciation expenses of $12.8 million in 2024[424] - Work in progress as of June 30, 2024, primarily represents equipment for SelectRx operations not yet in service, with depreciation expenses of $12.8 million for the year[425] - Software—net decreased to $13.98 million in 2024 from $14.74 million in 2023, with capitalized internal-use software costs of $8.4 million in 2024 and $7.8 million in 2023[426] - The company recorded an impairment charge of $1.0 million in 2023 for software no longer utilized in the Healthcare Services segment[426] Other Financial Metrics - Total term premiums increased 2% for the year ended June 30, 2024, compared to the year ended June 30, 2023[272] - Final expense premiums increased 11% for the year ended June 30, 2024, compared to the year ended June 30, 2023[272] - Total premiums for Auto & Home increased 11% for the year ended June 30, 2024, compared to the year ended June 30, 2023[274] - LTV per MA approved policy increased 4% for the year ended June 30, 2024, compared to the year ended June 30, 2023[268] - The company increased the product-specific constraint for Medicare Advantage from 6% to 15% for policies sold after December 31, 2021[341] - The estimated duration of expected renewals used in the calculation of LTV is ten years[340] - Two insurance carrier customers accounted for 32% and 23% of total accounts and commissions receivable as of June 30, 2024[350] - The company recorded $44.6 million in goodwill impairment for the year ended June 30, 2022[348] - The company had $42.4 million in non-interest bearing accounts and $0.3 million in a money market account as of June 30, 2024[351] - The company capitalizes costs related to internal-use software development, with amortization generally over 3-5 years[386] - The company recognizes a right-of-use asset and lease liability at lease commencement, using the incremental borrowing rate to determine the present value of future lease payments[389] - Goodwill is tested for impairment annually and whenever events indicate potential impairment, with the annual test performed as of April 1[392] - Share-based compensation expense increased to $13.8 million in 2024 from $11.3 million in 2023 and $7.1 million in 2022[376] - Depreciation and amortization expenses were $25.0 million in 2024, $27.9 million in 2023, and $24.7 million in 2022[376] - Cash and cash equivalents include money market accounts invested in cash, U.S. Government securities, and fully collateralized repurchase agreements, classified as Level 1 fair value measurements[383] - Two insurance carrier customers accounted for 32% and 23% of total accounts and commissions receivable as of June 30, 2024[384] - For the year