Selectquote, inc. reports second quarter and fiscal year to date 2021 results
Overland park, kan.--(business wire)--selectquote, inc. (nyse: slqt), reported consolidated revenue for the second quarter of fiscal year 2021 of $358.3 million, which was a 103% increase over consolidated revenue for the second quarter of fiscal year 2020 of $176.3 million. consolidated net income for the second quarter of fiscal year 2021 was $90.4 million, which was a $51.3 million increase over consolidated net income for the second quarter of fiscal year 2020 of $39.1 million. finally, consolidated adjusted ebitda for the second quarter of fiscal year 2021 was $129.5 million, which was an 88% increase over consolidated adjusted ebitda for the second quarter of fiscal year 2020 of $69.0 million. consolidated revenue for the six months ended december 31, 2020, was $482.4 million, a 100% increase over consolidated revenue for the six months ended december 31, 2019, of $241.5 million. consolidated net income for the six months ended december 31, 2020, was $91.3 million, an increase of $53.9 million over consolidated net income for the six months ended december 31, 2019, of $37.4 million. finally, consolidated adjusted ebitda for the six months ended december 31, 2020, was $141.6 million compared to consolidated adjusted ebitda of $69.8 million for the six months ended december 31, 2019, a 103% increase. chief executive officer tim danker commented, “our second quarter results again demonstrated our strong growth potential, exceeding our internal expectations. the quarter was led by a strong aep, where our medicare advantage approved policies grew by 132% year-over-year. we continue to show our differentiated model delivers superior financial results driven by a 32% increase in average agent productivity despite adding 70% more agents. we continue to excel in a fast-growing industry, and we’re pleased that our results continue to validate our strategy.” chief financial officer raffaele sadun added, “with senior revenue growth of 127% year-over-year, this was the fourth consecutive quarter of senior revenue growth in excess of 100%. this is especially impressive given all of our hiring, onboarding, training, and licensing was done virtually. we continue to deliver industry leading and stable ltvs, which demonstrates the soundness of our strategy. as a result of our strong results during aep, we are raising our fiscal year 2021 guidance for the third time this year.” segment results we currently report on three segments: 1) senior, 2) life and 3) auto & home. the performance measures of the segments include total revenue and adjusted ebitda. costs of revenue, marketing and advertising, and technical development operating costs and expenses that are directly attributable to a segment are reported within the applicable segment. indirect costs of revenue, marketing and advertising, and technical development operating costs and expenses are allocated to each segment based on varying metrics such as headcount. adjusted ebitda is calculated as total revenue for the applicable segment less direct and allocated costs of revenue, marketing and advertising, technical development, and general and administrative operating costs and expenses, excluding depreciation and amortization expense; gain or loss on disposal of property, equipment, and software; share-based compensation expense; restructuring expenses; and non-recurring expenses such as severance payments and transaction costs. senior financial results the following table provides the financial results for the senior segment for the periods presented: three months ended december 31, six months ended december 31, (in thousands) 2020 2019 % change 2020 2019 % change revenue $ 315,510 $ 138,875 127 % $ 388,709 $ 166,458 134 % adjusted ebitda* 134,555 68,110 98 % 143,457 66,170 117 % adjusted ebitda margin* 43 % 49 % 37 % 40 % operating metrics submitted policies submitted policies are counted when an individual completes an application with our licensed agent and provides authorization to them to submit it to the insurance carrier partner. the applicant may have additional actions to take before the application will be reviewed by the insurance carrier, such as providing additional information. the following table shows the number of submitted policies for the periods presented: three months ended december 31, six months ended december 31, 2020 2019 % change 2020 2019 % change medicare advantage 246,548 108,223 128 % 294,539 129,074 128 % medicare supplement 13,273 9,179 45 % 20,549 12,680 62 % dental, vision and hearing 43,020 23,946 80 % 63,062 33,871 86 % prescription drug plan 6,250 8,374 (25) % 8,675 9,901 (12) % other 3,939 1,021 286 % 5,822 1,690 244 % total 313,030 150,743 108 % 392,647 187,216 110 % *see reconciliation from non-gaap measure, adjusted ebitda, to net income on pages 11-13 approved policies approved policies represents the number of submitted policies that were approved by our insurance carrier partners for the identified product during the indicated period. not all approved policies will go in force. the following table shows the number of approved policies for the periods presented: three months ended december 31, six months ended december 31, 2020 2019 % change 2020 2019 % change medicare advantage 208,714 89,920 132 % 251,187 108,399 132 % medicare supplement 10,451 6,412 63 % 16,776 9,038 86 % dental, vision and hearing 33,614 15,630 115 % 49,853 22,924 117 % prescription drug plan 4,815 7,379 (35) % 7,447 8,881 (16) % other 3,256 779 318 % 5,080 1,197 324 % total 260,850 120,120 117 % 330,343 150,439 120 % lifetime value of commissions per approved policy lifetime value of commissions per approved policy represents commissions estimated to be collected over the estimated life of an approved policy based on multiple factors, including but not limited to, contracted commission rates, carrier mix and expected policy persistency with applied constraints. the lifetime value of commissions per approved policy is equal to the sum of the commission revenue due upon the initial sale of a policy, and when applicable, an estimate of future renewal commissions. the following table shows the lifetime value of commissions per approved policy for the periods presented: three months ended december 31, six months ended december 31, (dollars per policy): 2020 2019 % change 2020 2019 % change medicare advantage $ 1,268 $ 1,268 0 % $ 1,251 $ 1,250 0 % medicare supplement 1,233 1,367 (10) % 1,248 1,340 (7) % dental, vision and hearing 138 140 (2) % 148 140 6 % prescription drug plan 232 226 3 % 235 232 1 % other 127 211 (40) % 130 106 23 % per unit economics per unit economics represents total medicare advantage and medicare supplement commissions, other product commissions, other revenues, and costs associated with the senior segment, each shown as per number of approved medicare advantage and medicare supplement approved policies over a given time period. management assesses the business on a per unit basis to help ensure that the revenue opportunity associated with a successful policy sale is attractive relative to the marketing acquisition cost. because not all acquired leads result in a successful policy sale, all per policy metrics are based on approved policies which is the measure that triggers revenue recognition. the medicare advantage and medicare supplement commission per ma/ms policy represents the lifetime value of commissions for policies sold in the period. other commission per ma/ms policy represents the lifetime value of commissions for other products sold in the period, including dental, vision and hearing, prescription drug plan, and other products, which management views as additional commission revenue on our agents’ core function of ma/ms policy sales. other per ma/ms policy represents the production bonuses, lead sales revenue from insideresponse, and updated estimates of prior period variable consideration based on actual policy renewals in the current period. total operating expenses per ma/ms policy represent all of the operating expenses within the senior segment. the revenue to customer acquisition cost (“cac”) multiple represents total revenue per ma/ms policy as a multiple of total marketing acquisition cost, which represents the direct costs of acquiring leads which is included in marketing and advertising expense within the total operating expenses per ma/ms policy. the following table shows per unit economics for the periods presented. based on the seasonality of the senior segment and the fluctuations between quarters, we believe that the most relevant view of per unit economics is on a rolling 12-month basis. all per ma/ms policy metrics below are based on the sum of approved ma/ms policies, as both products have similar commission profiles. these metrics are the basis on which management assesses the business: twelve months ended december 31, (dollars per approved policy): 2020 2019 % change medicare advantage and medicare supplement approved policies 394,032 170,043 132 % medicare advantage and medicare supplement commission per ma / ms policy $ 1,276 $ 1,281 0 % other commission per ma/ms policy 39 57 (32) % other per ma / ms policy 168 141 19 % total revenue per ma / ms policy 1,483 1,479 0 % total operating expenses per ma / ms policy (916) (837) 9 % adjusted ebitda per ma / ms policy* $ 567 $ 642 (12) % adjusted ebitda margin per ma / ms policy* 38 % 43 % revenue / cac multiple 3.2x 4.1x life financial results the following table provides the financial results for the life segment for the periods presented: three months ended december 31, six months ended december 31, (in thousands) 2020 2019 % change 2020 2019 % change revenue $ 36,375 $ 28,980 26 % $ 79,198 $ 56,587 40 % adjusted ebitda* 6,414 6,240 3 % 16,891 12,059 40 % adjusted ebitda margin* 18 % 22 % 21 % 21 % operating metrics life premium represents the total premium value for all policies that were approved by the relevant insurance carrier partner and for which the policy document was sent to the policyholder and payment information was received by the relevant insurance carrier partner during the indicated period. core premiums include term life and permanent life insurance policies while ancillary premiums include various smaller products. because our commissions are earned based on a percentage of total premium, total premium volume for a given period is the key driver of revenue for our life segment. *see reconciliation from non-gaap measure, adjusted ebitda, to net income on pages 11-13 the following table shows core, final expense, and ancillary premiums for the periods presented: three months ended december 31, six months ended december 31, (in thousands) 2020 2019 % change 2020 2019 % change core premiums $ 18,751 $ 19,469 (4) % $ 37,317 $ 37,849 (1) % final expense premiums 11,263 3,424 229 % 30,713 7,339 318 % ancillary premiums 505 750 (33) % 1,162 1,251 (7) % auto & home financial results the following table provides the financial results for the auto & home segment for the periods presented: three months ended december 31, six months ended december 31, (in thousands) 2020 2019 % change 2020 2019 % change revenue $ 7,241 $ 8,566 (15) % $ 16,779 $ 18,619 (10) % adjusted ebitda* 2,150 1,517 42 % 5,767 4,007 44 % adjusted ebitda margin* 30 % 18 % 34 % 22 % operating metrics auto & home premium represents the total premium value of all new policies that were approved by our insurance carrier partners during the indicated period. because our commissions are earned based on a percentage of total premium, total premium volume for a given period is the key driver of revenue for our auto & home segment. the following table shows premiums for the periods presented: three months ended december 31, six months ended december 31, (in thousands): 2020 2019 % change 2020 2019 % change premiums $ 13,255 $ 14,716 (10) % $ 30,155 $ 32,002 (6) % update on fiscal year 2021 guidance selectquote is raising the guidance originally provided for the full-year ending june 30, 2021. as a reminder, these expectations are forward-looking statements and actual results may be materially different and are affected by the risk factors and uncertainties identified in this press release and in our annual and quarterly filings with the securities and exchange commission. selectquote is raising guidance for the full-year ending june 30, 2021 as follows: consolidated revenue is expected to be in the range of $920 million to $940 million consolidated net income is expected to be in the range of $138 million to $146 million consolidated adjusted ebitda is expected to be in the range of $230 million to $240 million* *see reconciliation from non-gaap measure, adjusted ebitda, to net income on pages 11-13 review of financial results selectquote, inc. will host a conference call with the investment community today, monday, february 8, 2021, beginning at 5 p.m. et. to register for this conference call, please use this link: http://www.directeventreg.com/registration/event/6593229. after registering, a confirmation will be sent via email, including dial in details and unique conference call codes for entry. registration is open through the live call, but to ensure you are connected for the full call we suggest registering a day in advance or, at minimum, 10 minutes before the start of the call. the event will also be webcasted live via our investor relations website https://ir.selectquote.com/investor-home/default.aspx or via this link. non-gaap financial measures this release includes certain non-gaap financial measures intended to supplement, not substitute for, comparable gaap measures. to supplement our financial statements presented in accordance with gaap and to provide investors with additional information regarding our gaap financial results, we have presented in this release adjusted ebitda and adjusted ebitda margin, which are non-gaap financial measures. these non-gaap financial measures are not based on any standardized methodology prescribed by gaap and are not necessarily comparable to similarly titled measures presented by other companies. we define adjusted ebitda as income before interest expense, income tax expense, depreciation and amortization, and certain add-backs for non-cash or non-recurring expenses, including restructuring and share-based compensation expenses. the most directly comparable gaap measure is net income. we monitor and have presented in this release adjusted ebitda because it is a key measure used by our management and board of directors to understand and evaluate our operating performance, to establish budgets and to develop operational goals for managing our business. in particular, we believe that excluding the impact of these expenses in calculating adjusted ebitda can provide a useful measure for period-to-period comparisons of our core operating performance. we believe that this non-gaap financial measure helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude in the calculations of this non-gaap financial measure. accordingly, we believe that this financial measure provides useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects. forward looking statement this release contains forward-looking statements. these forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. these statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. these forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. there are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following: the ultimate duration and impact of the ongoing covid-19 pandemic, our reliance on a limited number of insurance carrier partners and any potential termination of those relationships or failure to develop new relationships; existing and future laws and regulations affecting the health insurance market; changes in health insurance products offered by our insurance carrier partners and the health insurance market generally; insurance carriers offering products and services directly to consumers; changes to commissions paid by insurance carriers and underwriting practices; competition with brokers, exclusively online brokers and carriers who opt to sell policies directly to consumers; competition from government-run health insurance exchanges; developments in the u.s. health insurance system; our dependence on revenue from carriers in our senior segment and downturns in the senior health as well as life, automotive and home insurance industries; our ability to develop new offerings and penetrate new vertical markets; risks from third-party products; failure to enroll individuals during the medicare annual enrollment period; our ability to attract, integrate and retain qualified personnel; our dependence on lead providers and ability to compete for leads; failure to obtain and/or convert sales leads to actual sales of insurance policies; access to data from consumers and insurance carriers; accuracy of information provided from and to consumers during the insurance shopping process; cost-effective advertisement through internet search engines; ability to contact consumers and market products by telephone; global economic conditions; disruption to operations as a result of future acquisitions; significant estimates and assumptions in the preparation of our financial statements; impairment of goodwill; potential litigation and claims, including ip litigation; our existing and future indebtedness; developments with respect to libor; access to additional capital; failure to protect our intellectual property and our brand; fluctuations in our financial results caused by seasonality; accuracy and timeliness of commissions reports from insurance carriers; timing of insurance carriers’ approval and payment practices; factors that impact our estimate of the constrained lifetime value of commissions per policyholder; changes in accounting rules, tax legislation and other legislation; disruptions or failures of our technological infrastructure and platform; failure to maintain relationships with third-party service providers; cybersecurity breaches or other attacks involving our systems or those of our insurance carrier partners or third-party service providers; our ability to protect consumer information and other data; and failure to market and sell medicare plans effectively or in compliance with laws. for a further discussion of these and other risk factors that could impact our future results and performance, see the section entitled “risk factors” in the most recent annual report on form 10-k (the “annual report”) filed by us with the securities exchange commission. accordingly, you should not place undue reliance on any such forward-looking statements. any forward-looking statement speaks only as of the date on which it is made, and, except as otherwise required by law, we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. about selectquote: founded in 1985, selectquote (nyse: slqt) provides solutions that help consumers protect their most valuable assets: their families, health and property. the company pioneered the direct-to-consumer model of providing unbiased comparisons from multiple, highly-rated insurance companies allowing consumers to choose the policy and terms that best meet their unique needs. two foundational pillars underpin selectquote’s success: a strong force of highly-trained and skilled agents who provide a consultative needs analysis for every consumer, and proprietary technology that sources, scores, and routes high-quality sales leads. the company has three core business lines: selectquote senior, selectquote life and selectquote auto and home. selectquote senior, the largest and fastest-growing business, serves the needs of a demographic that sees 10,000 people turn 65 each day with a range of medicare advantage and medicare supplement plans from leading, nationally-recognized carriers, as well as prescription drug plans, dental, vision and hearing plans. selectquote, inc. and subsidiaries condensed consolidated balance sheets (unaudited) (in thousands) december 31, 2020 june 30, 2020 assets current assets: cash and cash equivalents $ 209,739 $ 321,065 restricted cash 36,168 47,805 accounts receivable 146,989 83,634 commissions receivable-current 76,265 51,209 other current assets 7,383 10,121 total current assets 476,544 513,834 commissions receivable—net 655,828 461,752 property and equipment—net 24,512 22,150 software—net 10,085 8,399 operating lease right-of-use assets 29,182 — intangible assets—net 18,015 19,673 goodwill 46,456 46,577 other assets 1,427 1,408 total assets $ 1,262,049 $ 1,073,793 liabilities and shareholders’ equity current liabilities: accounts payable $ 32,420 $ 22,891 accrued expenses 15,535 14,936 accrued compensation and benefits 35,067 22,228 earnout liability 31,966 30,812 operating lease liabilities—current 5,093 — other current liabilities 20,938 4,944 total current liabilities 141,019 95,811 debt 313,336 311,814 deferred income taxes 131,121 105,844 operating lease liabilities 36,958 — other liabilities 5,480 14,635 total liabilities 627,914 528,104 commitments and contingencies shareholders’ equity: common stock, $.01 par value 1,628 1,622 additional paid-in capital 545,441 548,113 retained earnings (accumulated deficit) 88,461 (2,792) accumulated other comprehensive loss (1,395) (1,254) total shareholders’ equity 634,135 545,689 total liabilities and shareholders’ equity $ 1,262,049 $ 1,073,793 selectquote, inc. and subsidiaries condensed consolidated statements of comprehensive income (unaudited) (in thousands) three months ended december 31, six months ended december 31, 2020 2019 2020 2019 revenue: commission $ 320,974 $ 158,650 $ 427,519 $ 216,472 production bonus and other 37,300 17,647 54,924 24,992 total revenue 358,274 176,297 482,443 241,464 operating costs and expenses: cost of revenue 84,121 50,484 135,166 83,121 marketing and advertising 132,206 50,871 182,006 76,972 general and administrative 13,043 13,997 25,245 19,123 technical development 4,750 3,510 8,598 6,223 total operating costs and expenses 234,120 118,862 351,015 185,439 income from operations 124,154 57,435 131,428 56,025 interest expense, net (6,782) (6,178) (13,543) (6,883) other expenses, net (416) (3) (1,196) (16) income before income tax expense 116,956 51,254 116,689 49,126 income tax expense 26,540 12,184 25,436 11,744 net income $ 90,416 $ 39,070 $ 91,253 $ 37,382 net income (loss) per share: basic $ 0.56 $ (0.56) $ 0.56 $ (0.62) diluted $ 0.55 $ (0.56) $ 0.55 $ (0.62) weighted-average common stock outstanding used in per share amounts: basic 162,645 90,374 162,546 88,945 diluted 165,563 90,374 165,377 88,945 other comprehensive gain (loss) net of tax: gain (loss) on cash flow hedge 116 — (141) — other comprehensive gain (loss) 116 — (141) — comprehensive income $ 90,532 $ 39,070 $ 91,112 $ 37,382 selectquote, inc. and subsidiaries condensed consolidated statements of cash flows (unaudited) (in thousands) six months ended december 31, 2020 2019 cash flows from operating activities: net income $ 91,253 $ 37,382 adjustments to reconcile net income to net cash, cash equivalents, and restricted cash used in operating activities: depreciation and amortization 6,937 3,168 loss (gain) on disposal of property, equipment, and software 162 (2) share-based compensation expense 2,259 9,263 deferred income taxes 25,321 11,759 amortization of debt issuance costs and debt discount 1,644 592 fair value adjustments to contingent earnout obligations 1,153 — non-cash lease expense 1,887 — changes in operating assets and liabilities: accounts receivable (63,355) (13,050) commissions receivable (219,132) (110,792) other assets 1,906 856 accounts payable and accrued expenses 15,692 4,985 operating lease liabilities (1,245) — other liabilities 32,371 5,237 net cash used in operating activities (103,147) (50,602) cash flows from investing activities: purchases of property and equipment (5,768) (5,499) proceeds from sales of property and equipment — 3 purchases of software and capitalized software development costs (3,449) (2,434) acquisition of business 121 — net cash used in investing activities (9,096) (7,930) cash flows from financing activities: proceeds from revolving line of credit — 83,602 payments on revolving line of credit — (91,778) net proceeds from term loan — 416,500 proceeds from other debt — 8,425 payments on other debt (108) (1,440) proceeds from common stock option exercises 391 4,819 cash dividends paid — (275,000) payments of tax withholdings related to net share settlement of equity awards (5,320) — payments of debt issuance costs — (7,694) payments of costs incurred in connection with private placement (1,771) — payments of costs incurred in connection with initial public offering (3,911) (1,603) net cash (used in) provided by financing activities (10,719) 135,831 net (decrease) increase in cash, cash equivalents, and restricted cash (122,962) 77,299 cash, cash equivalents, and restricted cash—beginning of period 368,869 570 cash, cash equivalents, and restricted cash—end of period $ 245,907 $ 77,869 selectquote, inc. and subsidiaries adjusted ebitda to net income reconciliation (unaudited) three months ended december 31, 2020 (in thousands) senior life auto & home corp & elims consolidated revenue $ 315,510 $ 36,375 $ 7,241 $ (852) $ 358,274 operating expenses (180,955) (29,961) (5,091) (12,746) (228,753) other expenses, net — — — (21) (21) adjusted ebitda 134,555 6,414 2,150 (13,619) 129,500 share-based compensation expense (1,336) non-recurring expenses (362) fair value adjustments to contingent earnout obligations (395) depreciation and amortization (3,590) loss on disposal of property, equipment, and software (79) interest expense, net (6,782) income tax expense (26,540) net income $ 90,416 three months ended december 31, 2019 (in thousands) senior life auto & home corp & elims consolidated revenue $ 138,875 $ 28,980 $ 8,566 $ (124) $ 176,297 operating expenses (70,765) (22,740) (7,049) (6,775) (107,329) other expenses, net — — — (3) (3) adjusted ebitda 68,110 6,240 1,517 (6,902) 68,965 share-based compensation expense (9,241) non-recurring expenses (564) depreciation and amortization (1,728) interest expense, net (6,178) income tax expense (12,184) net income $ 39,070 selectquote, inc. and subsidiaries adjusted ebitda to net income reconciliation (unaudited) six months ended december 31, 2020 (in thousands) senior life auto & home corp & elims consolidated revenue $ 388,709 $ 79,198 $ 16,779 $ (2,243) $ 482,443 operating expenses (245,252) (62,307) (11,012) (22,264) (340,835) other expenses, net — — — (43) (43) adjusted ebitda 143,457 16,891 5,767 (24,550) 141,565 share-based compensation expense (2,259) non-recurring expenses (822) fair value adjustments to contingent earnout obligations (1,153) depreciation and amortization (6,937) loss on disposal of property, equipment, and software (162) interest expense, net (13,543) income tax expense (25,436) net income $ 91,253 six months ended december 31, 2019 (in thousands) senior life auto & home corp & elims consolidated revenue $ 166,458 $ 56,587 $ 18,619 $ (200) $ 241,464 operating expenses (100,288) (44,528) (14,612) (12,188) (171,616) other expenses, net — — — (16) (16) adjusted ebitda $ 66,170 $ 12,059 $ 4,007 $ (12,404) 69,832 share-based compensation expense (9,263) non-recurring expenses (1,394) depreciation and amortization (3,168) gain on disposal of property, equipment, and software 2 interest expense, net (6,883) income tax expense (11,744) net income $ 37,382 selectquote, inc. and subsidiaries adjusted ebitda to net income reconciliation (unaudited) guidance net income to adjusted ebitda reconciliation, year ending june 30, 2021: (in thousands) range net income $ 138,000 $ 146,000 income tax expense 42,000 44,000 interest expense, net 28,000 28,000 depreciation and amortization 14,000 14,000 fair value adjustments to contingent earnout obligations 1,000 1,000 non-recurring expenses 2,000 2,000 share-based compensation expense 5,000 5,000 adjusted ebitda $ 230,000 $ 240,000
