S-1/A 1 d838810ds1a.htm AMENDMENT NO. 3 TO FORM S-1 Amendment No. 3 to Form S-1
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As filed with the Securities and Exchange Commission on May 15, 2020.

Registration No. 333-236555

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 3

to

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

SelectQuote, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   6411   94-3339273
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

6800 West 115th Street, Suite 2511

Overland Park, Kansas 66211

(913)-599-9225

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Tim Danker

Chief Executive Officer

SelectQuote, Inc.

6800 West 115th Street, Suite 2511

Overland Park, Kansas 66211

(913)-599-9225

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Mark F. Veblen, Esq.

Wachtell, Lipton, Rosen & Katz

51 West 52nd Street

New York, New York 10019

Telephone: (212) 403-1000

Telecopy: (212) 403-2000

 

Daniel A. Boulware, Esq.

SelectQuote, Inc.

6800 West 115th Street, Suite 2511

Overland Park, Kansas 66211

Telephone: (913)-599-9225

Telecopy: (913)-495-5493

 

Jonathan L. Freedman, Esq.

Samir A. Gandhi, Esq.

Sidley Austin LLP

787 Seventh Avenue

New York, New York 10019

Telephone: (212) 839-5300

Telecopy: (212) 839-5599

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ☐

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to be Registered

  Amount
to be
Registered(1)
 

Proposed
Maximum
Offering Price

Per Share(2)

  Proposed
Maximum
Aggregate
Offering Price(1)(2)
  Amount of
Registration Fee(3)

Common Stock, par value $0.01 per share

  28,750,000   $ 19.00   $ 546,250,000   $ 70,903.25

 

 

(1)

Includes the aggregate amount of additional shares the underwriters have the option to purchase.

(2)

Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(a) of the Securities Act of 1933, as amended.

(3)

The registrant previously paid $12,980 in connection with the filling of the Registration Statement.

 

 

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any state where the offer or sale is not permitted.

 

Subject to Completion, dated May 15, 2020

Preliminary Prospectus

25,000,000 shares

 

LOGO

Common Stock

 

 

This is an initial public offering of common stock by SelectQuote, Inc. We are offering 18,000,000 shares of our common stock to be sold in the offering. The selling stockholders identified in this prospectus are offering an additional 7,000,000 shares of our common stock. SelectQuote will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders.

Prior to this offering, there has been no public market for our common stock. We currently anticipate that the initial public offering price per share of our common stock will be between $17 and $19 per share.

We intend to apply to list our common stock on the New York Stock Exchange (the “NYSE”) under the symbol “SLQT.”

We are an “emerging growth company,” as that term is used in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) and, under applicable Securities and Exchange Commission (“SEC”) rules, we have elected to take advantage of certain reduced public company reporting requirements for this prospectus and future filings.

 

     Per Share      Total  

Initial public offering price

   $                    $                

Underwriting discounts and commissions(1)

   $        $    

Proceeds to SelectQuote, before expenses

   $        $    

Proceeds to selling stockholders, before expenses

   $        $    

 

(1)

See “Underwriting (Conflicts of Interest)” for additional information regarding the underwriting discount and certain expenses payable to the underwriters by us.

The selling stockholders have granted the underwriters an option for a period of 30 days to purchase up to an additional 3,750,000 shares of our common stock.

At our request, the underwriters have reserved up to 1,250,000 shares of common stock, or up to 5% of the shares of common stock offered by this prospectus for sale by the Company, at the initial public offering price, to certain individuals associated with us. See “Underwriting (Conflicts of Interest)—Directed Share Program.”

Investing in our common stock involves risks. See “Risk Factors” beginning on page 22.

Neither the Securities and Exchange Commission nor any state securities commission or other regulatory body has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

The underwriters expect to deliver the shares on or about                 , 2020.

Joint Bookrunners

 

Credit Suisse   Morgan Stanley
Evercore ISI   RBC Capital Markets
Barclays   Citigroup   Jefferies

Co-Managers

 

Cantor  

Keefe Bruyette & Woods

                         A Stifel Company

  Piper Sandler   Drexel Hamilton

                , 2020


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TABLE OF CONTENTS

 

Prospectus Summary

     1  

The Offering

     17  

Summary Historical Consolidated Financial and Operating Data

     20  

Risk Factors

     22  

Cautionary Note Regarding Forward-Looking Statements

     49  

Use of Proceeds

     51  

Dividend Policy

     52  

Capitalization

     53  

Dilution

     55  

Selected Historical Consolidated Financial and Operating Data

     57  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     62  

Business

     95  

Management

     110  

Executive Compensation

     116  

Certain Relationships and Related Party Transactions

     128  

Principal and Selling Stockholders

     132  

Description of Certain Indebtedness

     137  

Description of Capital Stock

     139  

Shares Eligible for Future Sale

     145  

Material U.S. Federal Income Tax Considerations for Non-U.S. Holders of Common Stock

     148  

Underwriting (Conflicts of Interest)

     151  

Legal Matters

     160  

Experts

     160  

Where You Can Find More Information

     160  

Index to Financial Statements

     F-1  

 

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About this Prospectus

As used in this prospectus, unless the context otherwise indicates, any reference to “SelectQuote,” “our Company,” the “Company,” “we,” “us” and “our” refers to SelectQuote, Inc., the issuer of the shares offered hereby, together with its consolidated subsidiaries.

You should rely only on the information contained in this prospectus and any free writing prospectus prepared by or on behalf of us or to which we have referred you. No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus or in any free writing prospectus that we file with the Securities and Exchange Commission. We have not, and the underwriters have not, authorized anyone to provide you with different or additional information. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date regardless of the time of delivery of this prospectus or of any sale of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

For investors outside of the United States: Neither we, the selling stockholders nor the underwriters have done anything that would permit our initial public offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside of the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of our common stock and the distribution of this prospectus outside of the United States.

Neither this prospectus nor any related free writing prospectus is a prospectus for the purposes of Regulation (EU) 2017/1129 (the “Prospectus Regulation”). This prospectus and any related free writing prospectus and any offer if made subsequently is directed only at persons in Member States of the European Economic Area (the “EEA”) who are “qualified investors” within the meaning of Article 2(e) of the Prospectus Regulation. This prospectus and any related free writing prospectus has been prepared on the basis that any offer of shares of our common stock in any Member State of the EEA will be made pursuant to an exemption under the Prospectus Regulation from the requirement to publish a prospectus for offers of the shares of our common stock. Accordingly any person making or intending to make an offer in that Member State of shares of our common stock which are the subject of the offering contemplated by this prospectus and any related free writing prospectus may only do so in circumstances in which no obligation arises for us or any of the underwriters to publish a prospectus pursuant to Article 3 of the Prospectus Regulation in relation to such offer. Neither we nor the underwriters have authorized, nor do we or they authorize, the making of any offer of shares of our common stock in circumstances in which an obligation arises for us or the underwriters to publish a prospectus for such offer.

This prospectus and any related free writing prospectus may not be distributed or circulated to any person in the United Kingdom other than to (i) persons who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Order”); and (ii) high net worth entities falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”). This prospectus and any related free writing prospectus is directed only at relevant persons. Other persons should not act on this prospectus and any related free writing prospectus or any of their contents. This prospectus and any related free writing prospectus is confidential and is being supplied to you solely for your information and may not be reproduced, redistributed or passed on to any other person or published, in whole or in part, for any other purpose.

 

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Upon the closing of this offering, each outstanding share of our Series A, B, C and D preferred stock will automatically convert into eight shares of common stock and each outstanding share of our Series E preferred stock will automatically convert into shares of common stock at a fixed discount to the initial offering price. References in this prospectus to the number of shares of our common stock outstanding after this offering are based on 144,650,597 shares of our common stock issued and outstanding as of the date of this prospectus (assuming the automatic conversion of all outstanding shares of our Series A, B, C, D and E preferred stock into an aggregate of 52,404,685 shares of common stock upon completion of this offering, and assuming, for purposes of the conversion of the Series E preferred stock, an initial offering price of $18 per share of common stock, which is the midpoint of the estimated price range set forth on the cover of this prospectus). Unless otherwise noted, these references assume:

 

   

the initial offering price of $18 per share of common stock, which is the midpoint of the estimated price range set forth on the cover of this prospectus;

 

   

no exercise of the outstanding options to purchase an aggregate of shares of common stock;

 

   

an eight-for-one forward stock split of our common stock effected on February 28, 2020; and

 

   

the filing and effectiveness of our sixth amended and restated certificate of incorporation and the adoption of our amended and restated bylaws upon the closing of this offering.

 

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FINANCIAL STATEMENTS AND BASIS OF PRESENTATION

SelectQuote operates on a fiscal year that begins on July 1st of each given calendar year and ends on June 30th of the following calendar year. This prospectus includes audited consolidated balance sheets as of June 30, 2019 and June 30, 2018 and consolidated statements of operations, statements of changes in shareholders’ equity, and statements of cash flows for the years ended June 30, 2019 and June 30, 2018 and an unaudited condensed consolidated balance sheet as of March 31, 2020 and condensed consolidated statements of operations, statements of changes in shareholders’ equity, and statements of cash flows for the nine month periods ended March 31, 2020 and March 31, 2019.

Stock Split

On February 28, 2020, we effected an eight-for-one forward stock split of our issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios for our Series A, B, C and D preferred stock, which we refer to as the “stock split.” The par value of our common stock was not adjusted as a result of the stock split. All references to common stock, options to purchase common stock, share data, per share data and related information presented in this prospectus and contained in the financial statements and footnotes have been retrospectively adjusted, where applicable, to reflect the effect of the stock split and the adjustment of the Series A, B, C and D preferred stock conversion ratios. In connection with the stock split, the number of authorized shares of our common stock was increased to 700,000,000. Our shares of treasury stock were not affected by the stock split and were retired on March 30, 2020.

INDUSTRY AND OTHER DATA

Certain industry data and market data included in this prospectus were obtained from independent third-party surveys, market research, publicly available information, reports of governmental agencies and industry publications and surveys. All of management’s estimates presented herein are based upon management’s review of independent third-party surveys and industry publications prepared by a number of sources and other publicly available information. All of the market data used in this prospectus involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. We believe that the information from these industry publications and surveys included in this prospectus is reliable. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled “Risk Factors.” These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

TRADEMARKS AND TRADE NAMES

“SelectQuote,” our logo, and other trademarks or trade names of SelectQuote, Inc. appearing in this prospectus are our property. This prospectus also contains trademarks and trade names of other companies, which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks and trade names.

 

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PROSPECTUS SUMMARY

This summary highlights information appearing elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, including the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes appearing at the end of this prospectus, before making any investment decision. In this prospectus, we make certain forward-looking statements, including expectations relating to our future performance. These expectations reflect our management’s view of our prospects and are subject to the risks described under “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” Our expectations for our future performance may change after the date of this prospectus and there is no guarantee that such expectations will prove to be accurate. Unless the context otherwise requires, we use the terms “SelectQuote,” the “Company,” “we,” “us” and “our” in this prospectus to refer to SelectQuote, Inc.

Our Company

We are united by our mission to provide solutions that help consumers with their overall financial well-being and protect their most valued assets: their families, their health and their property. Our highly skilled agents strive to deliver a best-in-class consumer experience through a comparison shopping process of leading insurance carriers to provide consumers with greater choice, transparency and value.

We are a leading technology-enabled, direct-to-consumer (“DTC”) distribution platform that provides consumers with a transparent and convenient venue to shop for complex senior health, life and auto & home insurance policies from a curated panel of the nation’s leading insurance carriers. As an insurance distributor, we do not insure the consumer, but rather identify consumers looking to acquire insurance products and place these consumers with insurance carrier partners that provide these products and, in return, earn commissions from our insurance carrier partners for the policies we sell on their behalf. Our proprietary technology allows us to take a broad funnel approach to marketing by analyzing and identifying high quality consumer leads sourced from a wide variety of online and offline marketing channels. Our primary sources of leads include search engine marketing, radio, television, and third-party marketing partners. We monitor our acquisition costs to dynamically allocate our marketing spend to the most attractive channel, benefitting from over thirty years of data accumulated through our proprietary, purpose-built technologies. Our advanced workflow processing system scores each acquired lead in real-time, matching it with an agent whom we determine is best suited to meet the consumer’s need. Our platform then captures and utilizes our experience to further build upon the millions of data points that feed our marketing algorithms, which further enhances our ability to deploy subsequent marketing dollars efficiently and target more high-quality consumer leads.

Our proprietary routing and workflow system is a key competitive advantage and driver of our business performance. Our systems analyze and intelligently route consumer leads to agents and allow us to monitor, segment and enhance our agents’ performance. This technological advantage also allows us to rapidly conduct a needs-based, bespoke analysis for each consumer that maximizes sales, enhances customer retention and ultimately maximizes policyholder lifetime revenues. Although we have the ability to conduct end-to-end enrollments online, our expertise and value add stems from the coupling of our technology with our skilled agents, which provides greater transparency in pricing terms and choice, and an overall better consumer experience. When customers are satisfied, their propensity to switch policies decreases, thereby improving retention rates, increasing policyholder lifetime values and ultimately, optimizing and increasing the visibility of our financial performance.

We generate commission revenue from selling policies on behalf of our insurance carrier partners, the majority of which compensate us through first year and renewal commissions. We have built our business model to maximize commissions collected over the life of an approved policy less the cost of acquiring the business, a metric we refer to as policyholder lifetime value and which is a key component to our overall profitability.



 

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For our fiscal year ended June 30, 2019 (“fiscal 2019”), we earned $337.5 million of revenue representing 44% growth over the $233.7 million of revenue that we earned during our fiscal year ended June 30, 2018 (“fiscal 2018”). In fiscal 2019, we generated $72.6 million in net income, an increase of 108% over fiscal 2018 when we generated $34.9 million in net income. In fiscal 2019, we generated $105.3 million in Adjusted EBITDA, an increase of 111% over fiscal 2018 when we generated $49.9 million in Adjusted EBITDA. Our Adjusted EBITDA Margin increased to 31.2% in fiscal 2019 from 21.4% in fiscal 2018.

For the nine month period ended March 31, 2020, we earned $390.1 million of revenue representing 48.3% growth over the $263.1 million of revenue that we earned for the nine month period ended March 31, 2019. Net income increased 2.4% from $59.7 million for the nine month period ended March 31, 2019 to $61.1 million for the nine month period ended March 31, 2020. During the nine month period ended March 31, 2020, we generated $113.9 million in Adjusted EBITDA, an increase of 32.8% over the nine month period ended March 31, 2019, when we generated $85.8 million in Adjusted EBITDA. Our Adjusted EBITDA Margin decreased to 29.2% for the nine month period ended March 31, 2020, from 32.6% for the nine month period ended March 31, 2019.

Adjusted EBITDA and Adjusted EBITDA Margin are Non-GAAP financial measures that we use to measure our operating performance. For a reconciliation of these Non-GAAP financial measures to our GAAP financial measures, please see “Selected Historical Consolidated Financial and Operating Data—Non-GAAP Financial Measures” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures (Adjusted EBITDA)” in this prospectus.

Our Business Model

We operate in an attractive segment of the insurance value chain, distributing insurance products on behalf of our insurance carrier partners who, in return, pay us commissions. Accordingly, we do not currently generate revenues directly from the consumers with whom we interact. In addition, because we are not the issuer of the insurance policy to the consumer, we bear no underwriting risks.

Founded over 30 years ago as what we believe was the first DTC term life insurance exchange platform in the U.S., our technology-driven, differentiated model allows consumers to easily compare pricing and policy options from over 50 of the nation’s leading insurance carriers. Working in tandem, our agents and technology systems are the foundational pillars of our franchise. Our highly trained and licensed agents are subject matter experts in the products they sell, and this, in combination with our purpose-built software and business process, differentiates the service we provide to consumers relative to other insurance distributors or “online only” offerings. We believe providing personalized advice and guidance from policy research to enrollment is a key differentiator in the senior health market as consumers tend to prefer or require more personalized attention to navigate increasingly complex and ever-changing coverage options. Our agents on the SelectQuote platform are trained to offer unbiased advice in order to be more aligned to the specific needs of each customer.

As one of the few technology-enabled distributors of scale in our end markets, we believe that we are well-positioned to capitalize on the accelerating trend of digital transformation across the insurance distribution landscape. Under the traditional insurance distribution model, consumers are often unaware of their full range of coverage options and are at risk of receiving opaque, “one size fits all” recommendations primarily intended to maximize agent commissions over their needs. In contrast, the insurance distribution landscape today is one in which consumers of insurance demand greater choice, seek more transparency in pricing and use the internet to self-research their insurance options. Recent technological innovations, including the proliferation of smart mobile devices as a means of consumer purchasing, consumer demand for price transparency and comparison shopping, and the development of machine learning for business applications, continue to transform the insurance distribution landscape. As the composition of the U.S. population gradually shifts to the mobile-first



 

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generation, consumers are becoming more tech-savvy and increasingly comfortable shopping online. We believe our ability to offer multiple carriers’ policies, proprietary technology platform, vast datasets and use of machine learning in key aspects of our business puts us in an excellent position to take advantage of these consumer trends.

Direct distribution is becoming an increasingly important part of the overall distribution strategies of insurance carriers as they drive to lower customer acquisition costs. Internet and mobile devices enable distributors to target and reach consumers directly in a highly controlled and efficient manner. Our software allows our agents to have more effective interactions with customers, driving agent productivity and sales volumes and providing an attractive distribution alternative for our insurance carrier partners. While traditional insurance distributors use a time-intensive, in-person purchasing process, consumers are increasingly researching insurance policies for their needs online and ultimately, purchasing through direct channels. Platforms like ours are well-positioned to serve these customers as we allow consumers to compare insurance in a transparent manner, without having to solicit individual quotes from carriers in the market or rely on the options presented by a traditional insurance distributor and to do so from the comfort of their homes.

Our systems allow us to gain valuable insights from the rich sources of consumer information we have gathered over three decades, and we use data analytics and proprietary algorithms to enhance our sales and marketing strategies in an effort to maximize our return on our marketing spend and enhance our agents’ close rates. As we have grown, we have continued to gather valuable data that has allowed us to further enhance our algorithms. Accordingly, we have been able to improve our lead acquisition efficiency and scoring and workflow processing capabilities, which has enabled us to serve customers more efficiently and has improved the value proposition we offer to our insurance carrier partners. As our value proposition has grown, our insurance carrier partners have come to rely more on our distribution capabilities and have collaborated with us more deeply in product design, helping fuel our growth. We expect this virtuous cycle, which we refer to as the SelectQuote “Fly Wheel,” to continue as we execute on our mission.

 

LOGO

Our Agents

Our agent force is one of two foundational pillars that support our business. The insurance products we sell are often complicated and each consumer has different needs. We believe the most effective method for matching



 

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products with each consumer’s needs requires the attention of highly-trained and skilled agents, and we believe this training and expertise differentiates us from the traditional distribution model. Each of our lines of business has dedicated licensed agents that are subject matter experts in that line which allows them to provide deep expertise and helpful advice that are specific to a client’s needs. We have developed what we believe is a best-in-class talent management system that allows us to recruit from across the U.S. and build and retain top agents. We provide each new agent with up to 10 weeks of proprietary in-house training, which is later supplemented by ongoing training during the agents’ full-time employment. Our training is designed to ensure that every agent is well-equipped with a deep understanding of the products he or she sells and the customer service and sales skills necessary to best service the customer. A goal of ours is that every agent in whom we invest will build a long and rewarding career with us.

Our need for agent capacity is seasonal, peaking during the Annual Election Period (“AEP”) and remaining elevated during the Open Enrollment Period (“OEP”). We hire additional “flex” agents during these periods to address this expected increase in transaction volume and temporarily reassign agents from our Senior business to our Life and Auto & Home businesses during non-AEP/OEP periods. Our flex agents undergo up to 10 weeks of proprietary in-house training, further supplemented by additional training. We continuously assess flex agent performance throughout AEP and OEP. The majority of our flex agents that we regard as high performers during this period move on to become “core” agents or accept other roles with us. This opportunity to assess flex agent performance before offering a permanent role within the Company is an important factor in placing employees in the right roles over the long term, which allows us to maintain our strong agent productivity and helps create a positive career path leading to strong employee engagement as evidenced by multiple awards of “Best Places to Work.” In fact, based on our past experience, average agent productivity increases by approximately 40% in an agent’s second AEP.

Our agents are segmented into multiple levels based on their productivity, with the most productive agents given first access to the highest quality leads. In our Senior segment, level one agents demonstrate higher productivity and higher close rates than similarly situated Senior agents in levels below them. In addition, we experience much lower agent attrition with our top-level agents. Essentially, this process allows us to match a lead with the appropriate agent and to optimize our agent’s most valuable asset: time. Each agent guides the potential customer through tailored policy options and provides education on complex senior health, life and auto & home products, thereby helping consumers select the option that best suits their needs and circumstances. This personalized approach enhances the customer experience and when customers are satisfied, their propensity to switch policies decreases, which extends the renewal revenue stream paid to us by our insurance carrier partners, and enhances the lifetime value of policyholder relationships. Our processes and technologies come together to drive strong economic results, allowing us to reward top agents with market leading pay, which coupled with our corporate culture, drives what we believe to be an industry-leading agent retention rate of over 93% among our level 1, or top performing, agents, and a 70% overall agent retention rate.

As of March 31, 2020, we employed a total of 922 core agents and 73 flex agents across our Senior, Life and Auto & Home segments.

Our Technology

Technology is the second foundational pillar that supports our business. Our proprietary technology permeates our business process, from lead generation to scoring and routing, product selection and eventually to customer conversion, post-sale management, and cross-selling opportunities. Applying information gathered



 

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since our founding more than 30 years ago to drive sophisticated attribution modeling, we have continued to optimize our decision-making and advance our goal of maximizing policyholder lifetime value and profitability.

 

LOGO

Lead Acquisition: We utilize a broad policyholder acquisition funnel strategy, generating new business leads through a wide variety of online and offline marketing channels, such as search engine, television, radio advertising and third-party marketing partners. Our software continuously monitors the cost of acquiring customers and uses our algorithm to dynamically adjust our bids for specific leads based on our expectation of the lead’s lifetime value. As we continue to operate, these algorithms feed a vast and ever growing pool of millions of data points, which, with the assistance of our team of highly skilled data scientists, enhances our ability to more accurately estimate a new lead’s lifetime value and enables us to make more informed decisions when generating leads. Our data science team creates algorithms that support lead buying, scoring and routing and consumer lifecycle management of closed leads. We believe what sets us apart from our competitors is our more than 30 years of proprietary data that our data scientists use as part of our bidding strategy for purchased leads, grouping phone and web leads by likelihood to purchase specific products, scoring phone and web leads using historical performance of similar leads based on demographics, tiering leads for routing to the corresponding agent levels, and performing predictive analysis of current customers’ retention rates or “persistency”.

Lead Management & Routing: Regardless of how a lead is generated, our proprietary software will score the lead in real-time on a scale of 1 to 10 based on multiple factors, then route the lead to the most appropriate level of agent to maximize expected lifetime policyholder value. This works in tandem with our bespoke, purpose-built lead routing and workflow management technology, Get A Lead (“GAL”). Based on lead score, agent level, and agent availability, GAL uses a “rapid fire approach” to quickly assign these leads to a licensed agent. We believe that our use of proprietary technology to monitor, segment and enhance agent performance, such as through real-time lead routing to the most effective agents, is a key competitive advantage and driver of our business performance.

Sales: Once assigned a lead, our highly skilled, licensed agents utilize their training, experience and our proprietary software and systems to rapidly conduct a bespoke needs-based analysis for each consumer. This coupling of our technology with our skilled agents provides the consumer with greater transparency in pricing terms and choice, and an overall better consumer experience that maximizes sales, enhances customer retention and, ultimately, maximizes our policyholder lifetime revenues.



 

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Customer Engagement & Lifecycle Management: We use advanced algorithms informed by over 1 billion consumer and third-party data points to enrich our consumer engagement strategy. Our dedicated retention-focused customer care (“CCA”) team leverages this technology to help consumers successfully onboard and to identify customers we determine to be likely to purchase additional products, thereby improving the likelihood that a consumer retains his or her policy and identifying cross-sell opportunities.

Our Products

The core products we distribute on behalf of our insurance carrier partners are needs-based and critical to the overall financial well-being of consumers and the protection of their most valued assets: their families, their health and their property. Increasing household financial obligations, rising healthcare costs, importance of health and wellbeing, and government and lender mandates for certain insurance coverage drive the need for the insurance products we distribute. These products are underwritten by leading insurance carrier partners that we carefully select across our three business lines: SelectQuote Senior, SelectQuote Life and SelectQuote Auto & Home.

SelectQuote Senior (“Senior”), our fastest growing and largest segment, was launched in 2010 and provides unbiased comparison shopping for Medicare Advantage (“MA”) and Medicare Supplement (“MS”) insurance plans as well as prescription drug plan, dental, vision and hearing and critical illness products. We represent approximately 15 leading, nationally-recognized insurance carrier partners, including Humana, UnitedHealthcare and Aetna. Medicare Advantage and Medicare Supplement plans accounted for 74% of our approved Senior policies during fiscal 2019 and 78% of our approved Senior policies during the nine month period ended March 31, 2020, with ancillary policies including prescription drug, dental, vision and hearing plans, accounting for most of the remainder.

SelectQuote Life (“Life”) is one of the country’s largest and most established DTC insurance distributors for term life insurance, having sold over 1.75 million policies nationwide since our founding in 1985. Our platform provides unbiased comparison shopping for life insurance and ancillary products including term life, guaranteed issue, final expense, accidental death and juvenile insurance. We represent approximately 15 leading, nationally-recognized insurance carrier partners, with many of these relationships exceeding 15 years. Term and permanent life products accounted for 84% of new premium within the Life segment during fiscal 2019 and 76% of new premium within the Life segment during the nine month period ended March 31, 2020, with ancillary products, primarily final expense, accident and juvenile life policies, accounting for the majority of the remainder.

SelectQuote Auto & Home (“Auto & Home”) was founded in 2011 as an unbiased comparison shopping platform for auto, home and specialty insurance lines. We offer insurance products, including homeowners, auto, dwelling fire and other ancillary insurance products, underwritten by 29 leading, nationally-recognized insurance carrier partners. Homeowners and 12-month auto products accounted for 75% of new premium within the Auto & Home segment during fiscal 2019 and 78% of new premium within the Auto & Home segment during the nine month period ended March 31, 2020, with six-month auto, dwelling and other products accounting for the remainder.

As illustrated below, we have a diverse revenue base from a variety of products and carriers across each business line. We experienced strong revenue, net income and Adjusted EBITDA growth across each of our segments in fiscal 2019 that has continued into fiscal 2020. Revenues from Senior, Life and Auto & Home grew by 88%, 12% and 5%, respectively, in fiscal 2019 compared to fiscal 2018, and have grown by 73%, 10% and 15%, respectively, for the nine month period ended March 31, 2020, compared to the nine month period ended March 31, 2019. Adjusted EBITDA and Adjusted EBITDA Margin are Non-GAAP financial measures that we use to measure our operating performance. For a reconciliation of these Non-GAAP financial measures to our GAAP financial measures, please see “Selected Historical Consolidated Financial and Operating Data—Non-GAAP Financial Measures” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures (Adjusted EBITDA)” in this prospectus.



 

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Revenue

for Fiscal 20191

 

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Adjusted EBITDA

for Fiscal 20192

 

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Our Insurance Carrier Partners

We maintain longstanding, deeply integrated relationships with over 50 of the nation’s leading insurance carriers, who have some of the industry’s most widely recognizable brands. Our insurance carrier partners consider us a key strategic partner, as evidenced by our standing as one of the top DTC insurance distributors for a number of our key partners, including carriers owned by Humana, UnitedHealthcare, Aetna and Prudential. These high-quality relationships have resulted in strong insurance carrier retention rates and the fact that we have never been dropped by an insurance carrier partner. We believe carriers see our method of acquiring customers as scalable and efficient and, ultimately, as cost advantageous compared to their own models, and provide us, in some cases, with marketing development funds as additional compensation to deliver policies. Marketing development funds are similar to production bonuses in that they are based on attaining various predetermined target sales levels or other agreed upon objectives for individual insurance carrier partners. Our insurance carrier partners are responsible for paying our commissions and, for these purposes, act as our customers. We do not currently generate revenues directly from the consumers to whom we sell insurance policies on behalf of our insurance carrier partners.

Separate from SelectQuote’s comparison shopping platform, we have established several carrier-specific sales platform arrangements with several of our insurance carrier partners, which we call “pods”. These arrangements give us access to various marketing assets from our insurance carrier partners, such as use of the insurance carrier’s brand, which allows us to target customers for specific insurance carrier partners to give us access to incremental sales volume. Consumers directed to a pod agent come from either leads that are not branded as SelectQuote or come directly from an insurance carrier-affiliated channel. Our software assigns a propensity score to unbranded leads, potentially assigning those with a high propensity to purchase from a specific carrier to that carrier’s pod. The number of insurance carrier partners with which we have pod relationships can vary quarter to quarter depending on the insurance carrier partner and the business line.

Our Market Opportunity

We estimate that the total addressable market for the insurance products we distribute is greater than $180 billion. Further, while these markets are already substantial, they are also growing, in part due to a number of highly attractive demographic trends. We base our market opportunity estimates on third-party demographic

 

1 

Excludes Corporate & Eliminations.

2 

Excludes Corporate & Eliminations.



 

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data, our historical policy revenue experience and customer retention expectations. According to the Kaiser Family Foundation, there are approximately 67.7 million Medicare beneficiaries in 2020. We believe this addressable market, which is the core focus of the products we distribute, presents an annual commission revenue opportunity of approximately $30 billion for our Senior segment. The products marketed by our Life and Auto & Home segments also address large markets that present annual commission revenue opportunities of approximately $105 billion and $47 billion, respectively, which present us with additional opportunities for growth. In each of our three segments, we estimate our market share to be less than 1% and we believe we can benefit from greater market penetration in addition to underlying market growth.

Senior Market

Demand for senior insurance products in the U.S. is underpinned by powerful demographic trends. The number of people reaching retirement each year took a step-change in 2011 as the first wave of the post-war “Baby Boomer” generation turned 65. The proportion of the population that is age 65 or higher increased from 12.9% in 2010 to 15.2% in 2016 and is expected to reach 16.9% by 2020, according to the United States Census Bureau. On average, 10,000 “Baby Boomers” are expected to turn 65 every day, or nearly 4 million per year, for the next 10 years. As a result, Medicare enrollment is growing steadily, with the number of Medicare enrollees expected to grow from 59.9 million in 2018 (up from 45.5 million in 2008 and 52.5 million in 2013), to approximately 68.4 million in 2023 then rising to 76.7 million by 2028, according to CSG Actuarial.

Not only is the population of people age 65 and higher growing, but according to Pew Research Center, internet usage within this group has also risen, with 73% using the internet in 2019 compared to 40% in 2009. This group is also transacting more online, with 55% of people age 65 and higher making online purchases monthly according to SheerID, and accessing online health resources, with 68% doing so according to the Journal of Medical Internet Research.

Within the growing Medicare market, Medicare Advantage plans are gaining prominence, as these private market solutions displace the traditional, government Medicare program. CSG Actuarial estimated that, at the end of 2019, there were approximately 23 million Medicare Advantage enrollees, representing approximately 38% penetration of the Medicare market. According to LEK Consulting, by 2025, the number of Medicare Advantage enrollees is expected to swell to approximately 38 million, representing a 50% penetration rate of the Medicare market. LEK Consulting projects that Medicare Advantage products will reach 60% to 70% penetration between 2030 and 2040, highlighting the pace with which this already large segment of the Medicare market is growing. The chart below illustrates the historical and projected increase in Medicare Advantage and Medicare Supplement enrollment compared to total Medicare enrollment, according to CSG Actuarial.

 

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The degree to which we will realize a corresponding increase in revenue will be determined by our ability to continue to successfully place new Medicare policies for this enlarged potential consumer base. Despite our scale, we account for only a fraction of the total market for Medicare Advantage and Medicare Supplement plans, with only 0.3 million of the 35.7 million total enrollment for such plans in 2018, providing ample opportunity for growth. From 2017 to 2018, our Medicare Supplement and Medicare Advantage active policy count grew 37.5%, or 15.6 times the 2.4% growth in total Medicare enrollment over the same time frame, according to CSG Actuarial. Accordingly, we can benefit not only from broad growth in Medicare and the increasing penetration of Medicare Advantage plans, but we can also achieve growth through market share gains in the distribution of Medicare Advantage and Medicare Supplement products. We can also grow through our offering of ancillary and non-insurance products targeting the senior market.

Life Market

DTC sales of life insurance are becoming more prevalent as an increasing proportion of consumers are conducting self-directed online research prior to buying policies. Due to the typically more complex and longer-term nature of life insurance products, we expect agent expertise and consultation to continue as a prominent aspect of the sales process prior to ultimate purchase. Our dedicated, high-touch agents coupled with our user-friendly online platform caters to these evolving consumer preferences, which we believe favorably positions us to capture an increasing share of the overall market. Our approach to consumer engagement provides transparency and, we believe, an overall better experience that generates higher conversion rates than achievable by other forms of distribution, creating a cost advantage for our distribution platform relative to others.

Auto & Home Market

Property & Casualty insurance is a large addressable market in which policyholders often have a government or lender-mandated need for coverage. The DTC channel for sales of these products is well established and growing, driven by continued adoption of online sources for research and quotes. We believe the combination of our technology and agents is an important differentiator that better enables us to help potential policyholders compare and choose between multiple products, and also to give valuable advice on bundled options that provide more holistic coverage across multiple risks. We differentiate ourselves from carrier captive agents and traditional insurance distributors on the basis of choice, convenience and consumer experience.

Our Competitive Strengths

Leading technology-based sales platform. Our primary focus is to provide best-in-class service to bring policyholders value through greater choice and transparency. Since 1985, we have helped over 2 million policyholders save time and money on critical insurance purchases. Since our founding in 1985, we have been pioneers of insurance distribution and, through our technology-driven sales model, we believe we are well placed to support policyholders and insurance carrier partners as consumers continue shifting towards online channels to make purchasing decisions for their insurance needs. We believe that our data and our technology are key competitive advantages and drivers of our business performance. We continue to upgrade and optimize our technology as new opportunities are identified by our Information Technology and Analytics teams. SelectCare is our core overarching proprietary customer relationship management (“CRM”) and parent system with phone bank, sales enablement / workflow optimization and reporting tools. SelectCare is a bespoke system that uses various algorithms to score leads, route them to agents and organize each agent’s work day, with the objective of maximizing return on investment. Operating within SelectCare are the following purpose-built systems:

 

   

SelectBid: Advanced, data-enriched lead scoring and purchasing tool that provides real-time feedback to help us determine which consumers and campaigns are generating the most valuable opportunities, allowing us to optimize marketing spend.



 

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Get A Lead (“GAL”): Bespoke, purpose-built lead routing and workflow management technology based on lead quality, agent performance and agent availability. GAL uses a targeted approach to rapidly assign consumers to a licensed agent.

 

   

Automated Rate Calculator (“ARC”) / Automated Quote Engine (“AQE”): Real-time quoting and underwriting applications integrated directly into carrier systems. ARC and AQE allow us to build quotes for potential customers in real time based on specific carrier underwriting requirements and risk tolerances.

 

   

SelectQuote Revenue Tracking System (“SRTS”): Fully integrated, proprietary revenue tracking and financial reporting tool that also supports financial and customer falloff / retention prediction algorithms, allowing for real-time workflow and actions with our customer service teams.

We currently utilize data science across all of our key business functions and systems, and our sophisticated algorithms benefit from years of data accumulation and analysis, which are continuously enriched with new data and refined by our in-house data science team. Our algorithms are informed by data accumulated through our operating history, which includes approximately 32 million leads and over 1 billion data points in our database. Our focus on data quality ensures our data scientists can draw deep insights as accurately and efficiently as possible. Our complex regression and machine learning models drive marketing spend and lead purchasing, scoring and routing, sales execution and post-sale customer engagement, all to further our goal of maximizing policyholder lifetime value. As we continue to grow, we will naturally acquire more data that will continue to better inform our decision making.

Highly scalable platform with growing network effects. Our structured recruiting, training and agent onboarding program provides flexibility to ramp up agent hiring activity to drive sales volumes. Through significant recent investments we have made to our technological, infrastructure and reporting capabilities, our platform is designed to provide us with ample support for future years of growth with minimal ongoing working capital requirements. We have built our systems to be highly adaptable, providing us with flexibility to seamlessly provide product extensions and enter into other product verticals. We continually evaluate our insurance carrier partnerships, and we have the ability to accommodate new insurance carrier relationships and new products that may further drive growth. As we expand, we expect our appeal to consumers as a one-stop shop and our appeal to carriers as a leading platform with large consumer audiences to continue to grow. These network effects will allow us to accumulate more data and insights, which serve to strengthen our algorithms and the value of our connections, thus accelerating our “Fly Wheel.”

Strong brand awareness. We were founded over 30 years ago as what we believe was the first DTC term life insurance exchange platform in the U.S. Over this time, we have built a highly successful and recognizable household brand. We continue to enhance our visibility with advertisements on nationwide TV networks (including CNN, Fox News and ESPN) and radio outlets, while also maintaining a strong online presence through our market-leading comparison websites, complemented by search engine advertising and a social media presence (Facebook, YouTube, etc.). There is also meaningful potential for us to leverage our strong brand awareness for intragroup cross sales and expansion into adjacent products and markets that further enhance revenue.

Ability to attract and retain productive, career-based agent force. We believe that a technology-enabled agent-based distribution model generates superior return on investment and policyholder lifetime value relative to solely web-based or traditional distribution models. As a result, we have built processes that allow us to attract, train and retain top talent, and to grow our agent force. Our sophisticated recruitment engine is employed across our six major city center locations and nationally with our remote agent capability and involves personality tests, multiple interviews and final approval by a senior manager. Seasonally, we utilize flex agents in our Senior segment for AEP and OEP to capitalize on the heightened activity during these windows. The use of



 

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flex agents allows us to identify top performing agents who will ultimately be transitioned to core agents or other roles at the Company following OEP. The fact that we offer our flex agents multiple career paths gives us a strategic advantage in recruiting highly talented individuals. Many of our top producing core agents previously served as flex agents. These recruiting and development processes lead to agent productivity rates that we believe are materially above the industry norm, allowing us to offer competitive compensation packages and attractive career paths, which in turn drives tenured core agent retention levels of over 93% among our most productive agents. This results in a virtuous cycle, that we believe gives SelectQuote a sustainable competitive advantage in the recruitment of new agents.

Diverse product offering. At our inception, we specialized in the distribution of term life insurance products. Since then, in addition to introducing a range of other life insurance products, SelectQuote expanded into the fast growing senior health insurance market (in 2010) and auto & home insurance market (in 2011). Our three product segments are a natural fit with consumer insurance and healthcare needs across different life stages. We believe we are unique among insurance distributors for our diverse product range, which provides us with greater stability as demand for certain products fluctuates over the calendar year, and over longer periods of time. Today we provide consumers with access to over 20 products, sourced from over 50 carriers.

Deep and broad insurance carrier partnerships. We are a key distribution partner for over 50 of the largest and most respected blue-chip insurance carriers. Our strong and long-standing relationships with many of our insurance carrier partners, some of which have been on our platform since our inception, represent a mutual commitment which we believe is difficult to replicate. While we are focused on providing consumers with greater choice, we also strive to be a meaningful component of our insurance carrier partners’ distribution strategy, and are therefore selective when it comes to which carriers we accept on to our platform. Our national presence, scale, broad consumer reach and our sales capability make us a partner of choice and a critical distribution channel for these carriers. We are a leading DTC insurance distributor for a number of insurance carrier partners, which helps us negotiate for attractive economics from our insurance carrier partners. In fiscal 2019, we sold more than 160,000 Senior policies for our Senior insurance carrier partners and produced more than $145.0 million in new premium for our Life and Auto & Home insurance carrier partners. In the nine month period ended March 31, 2020, we sold approximately 235,000 Senior policies for our Senior insurance carrier partners and produced more than $123.0 million in new premium for our Life and Auto & Home insurance carrier partners. Furthermore, our proprietary technology and tech-enabled agent model is focused on maximizing policyholder lifetime value, meaning that our insurance carrier partners enjoy higher quality business from each transaction sourced through us. Our insurance carrier partners also rely on our strong internal compliance function, which records all of our calls and audits a subset of them with our Quality Assurance team to ensure that we are complying with Centers for Medicare & Medicaid Services (“CMS”) rules and regulation, telemarketing regulations, carrier internal requirements and that the agents are meeting certain quality metrics that we deem important. Our compliance record and efficiency have led insurance carriers to partner with us on another key value proposition—our insurance carrier dedicated agent pods. These pods deepen our relationship with these insurance carrier partners and enable us to sell more policies. Pod marketing is specific to each individual pod and is separate from SelectQuote’s comparison shopping platform. This ensures a SelectQuote lead always gets presented with the comparison shopping platform.

Data driven approach to maximization of policyholder lifetime value. We use advanced algorithms informed by over 1 billion consumer data points to enrich our consumer engagement strategy. Our algorithms help agents identify opportunities for cross-sell, such as offering complementary plans at the point of sale. After a sale is made, our algorithms effectively identify customers likely to purchase additional products, thereby improving the likelihood that a policyholder retains his or her policy and generating highly predictable future income. As of March 31, 2020, our dedicated CCA team, which we launched four years ago, was comprised of 127 professionals who aim to improve the consumer experience during the post-sale carrier onboarding process, drive improved retention in the out years and improve cross selling opportunities. A number of the CCA team



 

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members are former licensed agents already familiar with the business and the consumer journey. This function allows our core agent force to allocate time towards new business generation. The CCA team leverages our systems to identify opportunities for consumers to purchase additional products and for us to implement tailored retention strategies. Part of the team’s function also involves a data-driven targeted outreach program to Medicare Advantage clients ahead of AEP to gauge potential interest in insurance shopping plans during the upcoming season. In order to make sure that we are making decisions with the best data possible, we partner with leading external industry consultants to review and validate our historical retention experience and projected performance. Our consistent track record of delivering strong customer retention rates creates additional value for our insurance carrier partners, solidifying SelectQuote’s position as a key partner with insurance carriers, which produces a positive reinforcement loop across our business. Our database is the result of more than 30 years of dedicated focus and investment, providing us with unparalleled insights that are difficult for competitors to replicate.

Attractive financial profile. As a distributor of insurance products, we benefit from favorable industry trends. We earn commission revenue on the successful sale and renewal of polices we distribute and, accordingly, our financial model does not reflect the inherent uncertainties associated with underwriting insurance risk. We have a high degree of visibility into the commission we earn at the time of sale, as well as the renewal commissions we would earn should a policyholder renew his or her policy. Our CCA team’s efforts enhance the policyholder experience and thereby improve policyholder retention and our opportunity to generate renewal commissions. Because our agents do not receive a share of renewal commissions, each dollar of renewal revenue directly adds to our income from operations, thereby improving our margins. Our platform is highly scalable, which enables margin expansion as we grow.

Strong company culture developed by an experienced management team. We maintain a unique sales and consumer service-oriented culture. We are a diverse group of women and men who are united in our mission to provide solutions that help consumers with their overall financial well-being and protect their most valued assets. Through our recruiting processes, we are able to identify people who enjoy being a part of, and are motivated by, a performance-based, meritocratic organization. This allows us to assemble a world-class team of people who envision building their careers at SelectQuote. Our company culture is promoted by a highly experienced management team with deep industry experience and a track record of industry innovation. The key members of our management team have over 60 total years of industry experience and several members of our management team have worked together to build our business over the last eight years.

Our Growth Strategy

Maximize policyholder lifetime value. Policyholder lifetime value represents commissions estimated to be collected over the life of an approved policy less the cost of acquiring the business and is a key component of our overall profitability. Our goal is to maximize policyholder lifetime value, and we do so through strategies designed to maximize the revenue opportunity and minimize our customer acquisition cost. Maximizing policyholder lifetime value involves continued investment in:

 

   

Our agent experience and customer care team, which together enhance our close rates, commissionable premium, and our ability to earn renewal and cross-sell revenue;

 

   

Carrier relationships, and in particular, negotiation of more favorable terms;

 

   

Pre-AEP outreach to our Senior segment policyholders to better understand emerging trends in consumer decision making;

 

   

Technology, data and analytics to optimize our marketing and lead acquisition spend; and

 

   

Our pod offerings, which offer an opportunity to earn economics on a more favorable basis than our broader comparison shopping platform.



 

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Increase the size and enhance the productivity of our agent force. Agents and their productivity are a key element of our ability to distribute policies and earn commission revenue. We intend to continue to invest in our agent force, widening our recruiting funnel through our new remote agent program as well as selectively expanding our physical offices and growing our agent ranks. We intend to continue to invest in training, technology and widening our product offering, all of which enable our agents to be more productive. In doing so, we believe we will be able to offer more rewarding career opportunities for our agents, which should further enhance our ability to grow our agent force.

Deepen consumer penetration and drive cross-selling opportunities. We are highly focused on the consumer experience and believe that customer satisfaction is a key driver to maximizing cross-sell opportunities and repeat business. We believe there are natural synergies across our portfolio of products, and we are focused on increasing cross-sell across our existing customer base. Our success cross-selling ancillary products (e.g., dental, vision and hearing, prescription drug plans and fixed indemnity) to our clients is improving and we continue to look at ways to broaden our cross-selling opportunities. Within our Auto & Home business, we have been successful in bundling products (selling multiple products to the same customer). For fiscal 2019 and the nine month period ended March 31, 2020, our agents sold policies to over 30,000 and 26,000 customers, respectively, with bundle rates of 47% and 50%, respectively, which we believe are significantly higher than industry averages. A large and relatively untapped opportunity is to deepen cross-sell of products to customers across our three segments, and we are currently employing technology and data designed to enable us to better track the customer life journey to allow us to identify and better execute on this opportunity.

Deepen and broaden our insurance carrier partnerships. We are selective with the carriers that we choose to do business with and seek to maintain a balance between offering consumers choice, while sustaining a meaningful relationship with carriers to ensure we are able to get the best terms for consumers. We continuously evaluate our insurance carrier partner panel and have the ability to quickly accommodate new insurance carrier relationships and new products from existing carriers. Our focus on offering high-quality products has resulted in strong retention rates, increasing the value of our distribution model to insurance carrier partners.

Introduce new products. We have an attractive and scalable platform with strong policyholder acquisition capabilities, backed by flexible systems that can be leveraged to introduce new product offerings to consumers. We also have established relationships with major carriers that are familiar with our business model, providing a natural advantage for sourcing new product opportunities. We currently offer over 20 products on behalf of our insurance carrier partners to consumers and continuously evaluate new product opportunities, including simplified annuities, retirement solutions and other financial services products.

Senior Secured Credit Facilities

On November 5, 2019, the Company entered into a credit agreement (the “Credit Agreement”) with Morgan Stanley Capital Administrators, Inc., as lender and administrative agent, UMB Bank N.A., as lender and revolver agent, and the other lenders party thereto, providing for (i) a $75.0 million senior secured revolving credit facility (the “Revolving Credit Facility”) and (ii) a $425.0 million senior secured term loan (the “Term Loan” and, together with the Revolving Credit Facility, the “Senior Secured Credit Facilities”). Morgan Stanley Capital Administrators, Inc. is an affiliate of Morgan Stanley & Co. LLC, one of the underwriters of this offering.

Proceeds from the Term Loan may be used to pay dividends, purchase shares or otherwise return capital to stockholders in an amount not to exceed $325.0 million and for general corporate purposes. The Revolving Credit Facility is available for general corporate purposes and includes a letter of credit sub-facility of up to $5.0 million. The Senior Secured Credit Facilities also include an uncommitted incremental facility, which, subject to certain conditions, provides for additional term loans or an increase of existing term loans and/or an



 

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increase in commitments under the Revolving Credit Facility, in each case, in an aggregate amount of up to $100.0 million. Notwithstanding the foregoing, the aggregate amount of increases in commitments under the Revolving Credit Facility may not exceed $15.0 million.

On November 15, 2019, the Company declared a distribution of $188.7 million on all outstanding common stock and stock options (regardless of vesting status) ($1.96 per share) and $86.3 million on all outstanding Series A, B, C and D preferred stock ($15.66 per share) from a portion of the proceeds of the Term Loan (the “Distribution”). $265.8 million of the Distribution was paid to existing stockholders and $9.2 million was paid to stock option holders.

As of the date of this prospectus, the aggregate principal amount of the Term Loan is $425.0 million and our borrowing capacity under the Revolving Credit Facility is $75.0 million.

Stock Split

On February 28, 2020, we effected an eight-for-one forward stock split of our issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios for our Series A, B, C and D preferred stock. The par value of our common stock was not adjusted as a result of the stock split. All references to common stock, options to purchase common stock, share data, per share data and related information presented in this prospectus and contained in the financial statements and footnotes have been retrospectively adjusted, where applicable, to reflect the effect of the stock split and the adjustment of the Series A, B, C and D preferred stock conversion ratios. In connection with the stock split, the number of authorized shares of our common stock was increased to 700,000,000. Our shares of treasury stock were not affected by the stock split and were retired on March 30, 2020.

Private Placement of Series E Preferred Stock

On April 17, 2020 and May 6, 2020, we issued and sold an aggregate of 100,000 shares and 35,000 shares, respectively, of our Series E preferred stock to certain “accredited investors” (as defined in Regulation D promulgated under the Securities Act of 1933, as amended (the “Securities Act”)), at a purchase price of $1,000 per share, for aggregate proceeds of approximately $135.0 million and net proceeds to the Company of approximately $129.0 million, after deducting commissions and expenses. We applied a portion of the net proceeds from the private placement of Series E preferred stock to complete our acquisition of InsideResponse, LLC (“InsideResponse”), an online marketing consulting firm from which we have historically purchased leads, and intend to use the remaining proceeds for general corporate purposes. Upon the closing of this offering, all outstanding shares of Series E preferred stock will automatically convert into shares of common stock at a fixed discount to the initial offering price.

In connection with the sale of shares of our Series E preferred stock, we entered into Investor Rights Letters with the purchasers of our Series E preferred stock (the “Series E Holders”), which grant the Series E Holders certain rights, including but not limited to certain preemptive rights and information rights. Upon the closing of this offering, these rights will terminate. See “Description of Capital Stock—Series E Preferred Stock Rights” and “Recent Sales of Unregistered Securities” for additional information.

Summary of Risk Factors

You should consider carefully the risks described under the “Risk Factors” section beginning on page 22 and elsewhere in this prospectus. These risks could materially and adversely affect our business, financial condition, operating results, cash flow and prospects, which could cause the trading price of our common stock to decline and could result in a partial or total loss of your investment. These risks include, among others, those related to:

 

   

Our reliance on a limited number of insurance carrier partners and any potential termination of those relationships;



 

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Existing and future laws and regulations affecting the healthcare and health insurance market;

 

   

Competition with brokers, exclusively online brokers and carriers who opt to sell policies directly to consumers;

 

   

Changes and developments in the regulation of the healthcare industry;

 

   

Systemic changes in our insurance carrier partners’ sales strategies;

 

   

Disruptions or failures of our technological infrastructure and platform;

 

   

Potential changes in applicable technology and consumer outreach techniques;

 

   

Our ability to attract, integrate and retain qualified personnel;

 

   

Failure to convert sales leads to actual sales of insurance policies;

 

   

The impact on our operations from the effects of public health crises, including the current COVID-19 outbreak;

 

   

Our existing and future indebtedness;

 

   

Our intellectual property and technology;

 

   

Our being a public company; and

 

   

Our common stock and this offering.

Corporate Information

We were incorporated in Delaware on August 18, 1999 under the name SelectQuote, Inc. to serve as a holding company for our business subsidiaries, including SelectQuote Insurance Services, our original operating company, which was incorporated in California on August 14, 1984. Our principal executive offices are located at 6800 West 115th Street, Suite 2511, Overland Park, Kansas 66211, and our telephone number at that address is (913) 599-9225. Our website address is www.selectquote.com. Information contained on our website is not incorporated by reference into this prospectus, and you should not consider information contained on our website to be part of this prospectus or in deciding whether to purchase shares of our common stock.

Implications of Being an Emerging Growth Company

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies, including:

 

   

Presenting only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure in this prospectus;

 

   

Reduced disclosure about our executive compensation arrangements;

 

   

Exemption from the requirements to hold non-binding advisory votes on executive compensation and golden parachute payments; and

 

   

Exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.



 

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We may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of this offering or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company earlier if we have more than $1.07 billion in annual revenue, we have more than $700.0 million in market value of our stock held by non-affiliates (and we have been a public company for at least 12 months and have filed one annual report on Form 10-K) or we issue more than $1 billion of non-convertible debt securities over a three-year period. We may choose to take advantage of some, but not all, of the available exemptions. We have taken advantage of certain reduced reporting obligations in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption and, therefore, while we are an emerging growth company we will not be subject to new or revised accounting standards at the same time that they become applicable to other public companies that are not emerging growth companies.



 

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THE OFFERING

 

Common stock offered by us

18,000,000 shares.

 

Common stock offered by the selling stockholders

7,000,000 shares (or 10,750,000 shares if the underwriters exercise in full their option to purchase an additional 3,750,000 shares from the selling stockholders).

 

Underwriters’ option to purchase additional shares of common stock from the selling stockholders

3,750,000 shares.

 

Common stock to be outstanding after this offering

162,650,597 shares.

 

Use of proceeds

We estimate that our net proceeds from the sale of our common stock in this offering will be approximately $300.0 million, assuming an initial public offering price of $18 per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any proceeds from the sale of shares by the selling stockholders.

 

  The Senior Secured Credit Facilities require that at least 25% of the net proceeds to the Company from this offering (up to $150.0 million) be applied to the prepayment of the Term Loan, which otherwise matures in November 2024. We intend to use up to $100 million of the net proceeds to the Company from the sale of shares in this offering to repay outstanding borrowings under the Term Loan. Any remaining proceeds not used to repay the outstanding borrowings will be used for working capital, capital expenditures and general corporate purposes, including, in our discretion, prepayment of obligations under the Receivables Financing Agreement. See “Use of Proceeds.”

 

Conflicts of interest

Affiliates of Morgan Stanley & Co. LLC, one of the underwriters of this offering, are lenders under the Credit Agreement with Morgan Stanley Capital Administrators, Inc., as lender and administrative agent, UMB Bank N.A., as lender and revolver agent, and the other lenders party thereto. As a result of the repayment of a portion of the borrowed funds under the Term Loan using proceeds from this offering, Morgan Stanley & Co. LLC will indirectly receive more than 5% of the proceeds from this offering and will have a “conflict of interest” pursuant to FINRA Rule 5121(f)(5)(C)(i). Accordingly, this offering will be made in compliance with the applicable provisions of FINRA Rule 5121. As such, Morgan Stanley & Co. LLC will not confirm any sales to any account over which it exercises discretionary authority without the specific written approval of the transaction from the account holder. Pursuant to FINRA Rule 5121, a



 

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“qualified independent underwriter” (as defined in FINRA Rule 5121) must participate in the preparation of the prospectus and perform its usual standard of due diligence with respect to the prospectus. Credit Suisse Securities (USA) LLC has agreed to act as qualified independent underwriter for the offering and to perform a due diligence investigation and review and participate in the preparation of the prospectus. See “Underwriting (Conflicts of Interest).”

 

Dividend policy

We do not anticipate declaring or paying any cash dividends on our capital stock in the foreseeable future. Instead, we anticipate that all of our future earnings will be retained to support our operations and finance the growth and development of our business. Any future determination to pay dividends on our common stock will be made by our Board of Directors and will depend upon our results of operations, financial condition, capital requirements, regulatory and contractual restrictions, our business strategy and other factors that our Board of Directors deems relevant. See “Dividend Policy.”

 

Risk factors

You should read the “Risk Factors” section beginning on page 22 and the other information included in this prospectus for a discussion of factors to consider before deciding to invest in shares of our common stock.

 

Listing

We intend to apply to list our common stock on the NYSE under the trading symbol “SLQT.”

 

Directed Share Program

At our request, the underwriters have reserved up to 1,250,000 shares of common stock, or up to 5% of the shares of common stock offered by this prospectus for sale by the Company, at the initial public offering price, to directors, director nominees, officers, employees, business associates and related persons of SelectQuote, Inc. The sales will be made at our direction by Morgan Stanley & Co. LLC and its affiliates through a directed share program. If purchased by these persons, these shares will be subject to a 180-day lock-up restriction described in the “Shares Eligible for Future Sale” and “Underwriting (Conflicts of Interest)” sections of this prospectus. The number of shares of our common stock available for sale to the general public will be reduced to the extent these persons purchase such reserved shares. Any reserved shares of our common stock that are not so purchased will be offered by the underwriters to the general public on the same basis as the other shares of our common stock offered by this prospectus.

The number of shares of our common stock to be outstanding after this offering is based on 144,650,597 shares of common stock issued and outstanding as of the date of this prospectus (assuming the automatic conversion of all outstanding shares of our Series A, B, C, D and E preferred stock into an aggregate of 52,404,685 shares of common stock upon the closing of this offering) and excludes:

 

   

4,095,968 shares of common stock issuable upon the exercise of options outstanding under our 2003 Stock Incentive Plan (the “2003 Stock Plan”) as of the date of this prospectus, with a weighted average exercise price of $1.03 per share;



 

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9,600,000 shares of common stock that will become available for issuance pursuant to future awards in connection with this offering under the Company’s 2020 Omnibus Incentive Plan (the “2020 Plan”); and

 

   

1,400,000 shares of common stock that will become available for issuance in connection with this offering under the Company’s ESPP.

Except as otherwise noted, all information in this prospectus assumes:

 

   

no exercise or forfeiture of the outstanding options described above;

 

   

an eight-for-one forward stock split of our common stock effected on February 28, 2020; and

 

   

the filing and effectiveness of our sixth amended and restated certificate of incorporation and amended and restated bylaws upon the closing of this offering.



 

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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA

The following tables present summary historical consolidated financial and operating data for our business as of the dates and for the periods indicated. The summary consolidated statements of operations data presented below for the fiscal years ended June 30, 2019 and June 30, 2018 and the summary consolidated balance sheet data as of June 30, 2019 and June 30, 2018 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated statements of operations data presented below for the nine month periods ended March 31, 2020 and March 31, 2019 and the summary consolidated balance sheet information as of March 31, 2020 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. Where applicable, all share and per share data for the periods shown have been adjusted, on a retroactive basis, to reflect an eight-for-one stock split, which became effective on February 28, 2020.

The summary consolidated historical financial and operating data is not necessarily indicative of the results to be expected in any future period. You should read the following summary historical financial and operating data in conjunction with the sections of this prospectus entitled “Selected Historical Consolidated Financial and Operating Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited and unaudited consolidated financial statements and related notes appearing at the end of this prospectus.

 

     Fiscal Year Ended
June 30,
    Nine Months Ended
March 31,
 
(in thousands, except per share data)    2019     2018     2020     2019  

Statements of Operations Data:

  

Revenue:

        

Commission

   $ 296,000     $ 206,611     $ 353,926     $ 231,003  

Production bonus and other

     41,469       27,077       36,142       32,067  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     337,469       233,688       390,068       263,070  

Operating Costs and Expenses:

        

Cost of revenue

     104,421       83,340       126,488       80,294  

Marketing and advertising

     110,265       82,122       132,246       84,427  

Technical development

     8,326       9,913       9,088       6,232  

General and administrative

     15,864       12,349       25,779       13,095  

Restructuring

     2,305       2,808          
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating costs and expenses

     241,181       190,532       293,601       184,048  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     96,288       43,156       96,467       79,022  

Interest expense

     (1,660     (929     (16,239     (1,122

Other expenses

     (15     (709     (20     (8
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income tax expense

     94,613       41,518       80,208       77,892  

Income tax expense

     22,034       6,619       19,110       18,200  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 72,579     $ 34,899     $ 61,098     $ 59,692  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share (1):

        

Basic

   $ 0.70     $ 0.27     $ (0.38   $ 0.59  

Diluted

   $ 0.55     $ 0.23     $ (0.38   $ 0.45  

Weighted-average common stock outstanding (1):

        

Basic

     85,378       81,314       89,989       84,976  

Diluted

     132,491       96,421       89,989       132,976  

Pro forma net income per share (1):

        

Pro forma net income per share attributable to common shareholders (unaudited):

        

Basic

   $ 0.56       $ 0.46    

Diluted

   $ 0.55       $ 0.44    

Pro forma weighted-average common stock outstanding (unaudited):

        

Basic

     129,449         134,060    

Diluted

     132,491         138,206    

 

(1)

See Note 10 to our audited financial statements and Note 8 to our unaudited consolidated financial statements appearing at the end of this prospectus for an explanation of the method used to calculate historical and pro forma net income (loss) per share, basic and diluted, and the weighted-average number of shares used in the computation of the per share amounts.

 

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     As of March 31, 2020      As of
June 30,

2019
     As of
June 30,

2018
 
(in thousands)    Actual      Pro Forma (1)      Pro Forma As
Adjusted (2)
     Actual      Actual  

Balance Sheet Data:

              

Cash, cash equivalents and restricted cash

   $ 83,627      $ 212,627      $ 512,644      $ 570      $ 958  

Accounts receivable

     76,886        76,886        76,886        59,829        51,153  

Commissions receivable—current

     46,699        46,699        46,699        36,108        27,863  

Commissions receivable—net

     411,352        411,352        411,352        279,489        196,095  

Total assets

     661,661        790,661        1,090,678        406,940        297,557  

Total current liabilities

     57,045        57,045        57,045        33,222        24,283  

Debt

     411,054        411,054        411,054        11,032        19,752  

Non-recourse debt—net

     18,689        18,689        18,689        10,615        —  

Deferred income taxes

     100,369        100,369        100,369        81,252        59,614  

Total liabilities

     597,664        597,664        597,664        143,688        109,631  

Total temporary equity

     602        —                 797        797  

Total shareholders’ equity

   $ 63,395      $ 192,997      $ 493,014      $ 262,455      $ 187,129  

 

(1)

The pro forma balance sheet data give effect to the issuance and sale of 135,000 shares of our Series E preferred stock and related receipt of net proceeds of approximately $129.0 million subsequent to March 31, 2020 and the automatic conversion of all outstanding shares of our Series A, B, C, D and E preferred stock into an aggregate of 52,404,685 shares of common stock upon the closing of this offering.

(2)

The pro forma as adjusted balance sheet data give further effect to our issuance and sale of 18,000,000 shares of common stock in this offering at an assumed initial public offering price of $18 per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The pro forma as adjusted information discussed above is illustrative only and will change based on the actual initial public offering price, the number of common shares sold in this offering, and other terms of this offering determined at pricing.

 

     Fiscal Year Ended
June 30,
    Nine Months Ended
March 31,
 
(in thousands, except for percentages and Senior Approved Policies)    2019     2018     2020     2019  

Other Unaudited Financial and Operating Data:

        

Adjusted EBITDA (1)

   $ 105,278     $ 49,926     $ 113,886     $ 85,759  

Adjusted EBITDA Margin (1)

     31.2     21.4     29.2     32.6

Senior Approved Policies

     168,742       106,882       234,955       136,636  

Life Premium

   $ 89,966     $ 78,354     $ 74,240     $ 64,663  

Auto & Home Premium

   $ 56,719     $ 50,460     $ 48,925     $ 40,117  

 

(1)

These financial measures are not calculated in accordance with GAAP. See “Selected Historical Consolidated Financial and Operating Data—Non-GAAP Financial Measures” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures (Adjusted EBITDA)” in this prospectus for information regarding our use of these non-GAAP financial measures and a reconciliation of such measures to their nearest comparable financial measures calculated and presented in accordance with GAAP.

 

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RISK FACTORS

Investing in our common stock involves risks. You should carefully consider the risks and uncertainties described below, together with all of the other information included in this prospectus, including our financial statements and the related notes appearing at the end of this prospectus, before deciding to invest in our common stock. Our business, financial condition, operating results, cash flow and prospects could be materially and adversely affected by any of these risks or uncertainties. In that case, the trading price of our common stock could decline, and you could lose all or part of your investment. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of or that we currently see as immaterial may also adversely affect our business. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. Please refer to “Cautionary Note Regarding Forward-Looking Statements.”

Risks Related to Our Business and Industry

Our business may be harmed if we lose our relationships with our insurance carrier partners or fail to develop new insurance carrier relationships.

Our contractual relationships with our insurance carrier partners, including those with whom we have carrier-branded sales arrangements, are typically non-exclusive and terminable on short notice by either party for any reason. Insurance carriers may be unwilling to allow us to sell their insurance products for a variety of reasons, including competitive or regulatory reasons, dissatisfaction with the insureds that we place with them or because they do not want to be associated with our brand. Additionally, in the future, an increasing number of insurance carriers may decide to rely on their own internal distribution channels, including traditional in-house agents and carrier websites, to sell their own products and, in turn, could limit or prohibit us from distributing their products.

If an insurance carrier partner is not satisfied with our services, it could cause us to incur additional costs and impair profitability. Moreover, if we fail to meet our contractual obligations to our insurance carrier partners, we could be subject to legal liability or loss of carrier relationships. In addition, these claims against us may produce publicity that could hurt our reputation and business and adversely affect our ability to retain business or secure new business with other insurance carriers.

We may decide to terminate our relationship with an insurance carrier partner for a number of reasons and the termination of our relationship with an insurance carrier could reduce the variety of insurance products we distribute. In connection with such a termination, we would lose a source of commissions for future sales, and, in a limited number of cases, future commissions for past sales. Our business could also be harmed if in the future we fail to develop new insurance carrier relationships or offer consumers a wide variety of insurance products.

We also may lose the ability to market and sell Medicare plans for our Medicare plan insurance carrier partners. The regulations for selling senior health insurance are complex and can change. If we or our agents violate any of the requirements imposed by the CMS, state laws or regulations, an insurance carrier may terminate our relationship or CMS may penalize an insurance carrier by suspending or terminating that carrier’s ability to market and sell Medicare plans. Because the Medicare products we sell are sourced from a small number of insurance carriers, if we lose the ability to market one of those insurance carriers’ Medicare plans, even temporarily, or if one of those insurance carriers loses its Medicare product membership, our business, operating results, financial condition and prospects could be harmed.

We currently depend on a small group of insurance carrier partners for a substantial portion of our business. If we are dependent on a limited number of insurance carrier partners, our business and financial condition may be adversely affected.

We derive a large portion of our revenues from a limited number of insurance carrier partners. For example, carriers owned by Humana, UnitedHealthcare and Aetna accounted for 23%, 14% and 12%, respectively, of our

 

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total revenue for fiscal 2019 and carriers owned by Humana, Prudential and UnitedHealthcare accounted for 14%, 13% and 13%, respectively, of our total revenue for fiscal 2018. Carriers owned by UnitedHealthcare, Humana and Aetna accounted for 27%, 19% and 13%, respectively, of our total revenue for the nine month period ended March 31, 2020, and carriers owned by Humana, UnitedHealthcare and Aetna accounted for 24%, 14% and 13%, respectively, of our total revenue for the nine month period ended March 31, 2019. Our agreements with our insurance carrier partners to sell policies are typically terminable by our insurance carrier partners without cause upon 30 days’ advance notice. Should we become dependent on fewer insurance carrier relationships (whether as a result of the termination of insurance carrier relationships, insurance carrier consolidation or otherwise), we may become more vulnerable to adverse changes in our relationships with insurance carriers, particularly in states where we distribute insurance from a relatively smaller number of insurance carrier partners or where a small number of insurance carriers dominates the market, and our business, operating results, financial condition and prospects could be harmed.

Changes in the health insurance market or in the variety, quality and affordability of the insurance products offered by our insurance carrier partners could harm our business, operating results, financial condition and prospects.

The demand for our agency services is impacted by the variety, quality and price of the insurance products we distribute. If insurance carriers do not continue to provide us with a variety of high-quality, affordable insurance products, or if as a result of consolidation in the insurance industry or otherwise their offerings are limited, our sales may decrease and our business, operating results, financial condition and prospects could be harmed.

Our insurance carrier partners could determine to reduce the commissions paid to us and change their underwriting practices in ways that reduce the number of, or impact the renewal or approval rates of, insurance policies sold through our distribution platform, which could harm our business, operating results, financial condition and prospects.

Our commission rates from our insurance carrier partners are either set by each carrier or negotiated between us and each carrier. Our insurance carrier partners have the right to alter these commission rates with relatively short notice and have altered, and may in the future alter, the contractual relationships we have with them, including in certain instances by unilateral amendment of our contracts relating to commissions or otherwise. Changes of this nature could result in reduced commissions or impact our relationship with such carriers. In addition, insurance carriers periodically change the criteria they use for determining whether they are willing to insure individuals. Future changes in insurance carrier underwriting criteria could negatively impact sales of, or the renewal or approval rates of, insurance policies on our distribution platform and could harm our business, operating results, financial condition and prospects.

Insurance carriers can offer products and services directly to consumers or through our competitors.

Because we do not have exclusive relationships with our insurance carrier partners, consumers may obtain quotes for, and purchase, the same insurance policies that we distribute directly from the issuers of those policies, or from our competitors. Insurance carriers can attract consumers directly through their own marketing campaigns or other methods of distribution, such as referral arrangements, internet sites, physical storefront operations or broker agreements. Furthermore, our insurance carrier partners could discontinue distributing their products through our agency services, which would reduce the breadth of the products we distribute and could put us at a competitive disadvantage. If consumers seek insurance policies directly from insurance carriers or through our competitors, the number of consumers shopping for insurance through our platform may decline, and our business, operating results, financial condition and prospects could be materially and adversely affected.

 

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Pressure from existing and new competitors may adversely affect our business and operating results, financial condition and prospects.

Our competitors provide services designed to help consumers shop for insurance. Some of these competitors include:

 

   

companies that operate insurance search websites or websites that provide quote information or the opportunity to purchase insurance products online;

 

   

individual insurance carriers, including through the operation of their own websites, physical storefront operations and broker arrangements;

 

   

traditional insurance agents or brokers; and

 

   

field marketing organizations.

New competitors may enter the market for the distribution of insurance products with competing insurance distribution platforms, which could have an adverse effect on our business, operating results, financial condition and prospects. Our competitors could significantly impede our ability to maintain or increase the number of policies sold through our distribution platform and may develop and market new technologies that render our platform less competitive or obsolete. In addition, if our competitors develop distribution platforms with similar or superior functionality to ours and we are not able to produce certain volumes for our insurance carrier partners, we may see a reduction in our production bonuses or marketing payments and our revenue would likely be reduced and our financial results would be adversely affected.

Our business may be harmed by competition from government-run health insurance exchanges.

Our Senior segment competes with government-run health insurance exchanges with respect to our sale of Medicare-related health insurance. Potential and existing customers can shop for and purchase Medicare Advantage and Medicare Part D Prescription Drug plans through a website operated by the federal government and can also obtain plan selection assistance from the federal government in connection with their purchase of a Medicare Advantage and Medicare Part D Prescription Drug plan. Competition from government-run health insurance exchanges could increase our marketing costs, reduce our revenue and could otherwise harm our business, operating results, financial condition and prospects.

Our business is substantially dependent on revenue from our Senior health insurance carrier partners and subject to risks related to Senior health insurance and the larger health insurance industry. Our business may also be adversely affected by downturns in the life, automotive and home insurance industries.

A majority of the insurance purchased through our platform and agency services is Senior health insurance and our financial prospects depend significantly on growing demand in an aging population for the Senior health products we provide. Our overall operating results are substantially dependent upon our success in our Senior segment. For fiscal 2019 and fiscal 2018, 57% and 44%, respectively, of our total revenue was derived from our Senior segment. For the nine month periods ended March 31, 2020 and 2019, 70% and 60%, respectively, of our total revenue was derived from our Senior segment. For fiscal 2019, our top three insurance carrier partners by total revenue were from the Senior segment. For fiscal 2018, two of our top three insurance carrier partners were from the Senior segment and one was from the Life segment. For each of the nine month periods ended March 31, 2020 and 2019, our top three insurance carrier partners by total revenue were from the Senior segment. Our success in the Senior health insurance market will depend upon a number of additional factors, including:

 

   

our ability to continue to adapt our distribution platform to market Medicare plans, including the effective modification of our agent-facing tools that facilitate the consumer experience;

 

   

our success in marketing directly to Medicare-eligible individuals and in entering into marketing partner relationships to secure cost-effective leads and referrals for Medicare plan sales;

 

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our ability to retain partnerships with enough insurance carriers offering Medicare products to maintain our value proposition with consumers;

 

   

our ability to leverage technology in order to sell, and otherwise become more efficient at selling, Medicare-related plans over the telephone;

 

   

reliance on third-party technology vendors like our voice-over IP telephone service providers and our data center and cloud computing partners;

 

   

our ability to comply with numerous, complex and changing laws and regulations and CMS guidelines relating to the marketing and sale of Medicare plans; and

 

   

the effectiveness of our competitors’ marketing of Medicare plans.

These factors could prevent our Senior segment from successfully marketing and selling Medicare plans, which would harm our business, operating results, financial condition and prospects. We are also dependent upon the economic success of the life, automotive and home insurance industries. Declines in demand for life, automotive and home insurance could cause fewer consumers to shop for such policies using our distribution platform. Downturns in any of these markets, which could be caused by a downturn in the economy at large, could materially and adversely affect our business, operating results, financial condition and prospects.

Systemic changes in our insurance carrier partners’ sales strategies could adversely affect our business.

Our business model relies on our ability to sell policies on behalf of our insurance carrier partners. We believe our insurance carrier partners view our method of acquiring customers as scalable and efficient and, ultimately, as cost advantageous compared to their own direct distribution or proprietary agent models. However, in the event that our insurance carrier partners choose to make systemic changes in the manner in which their policies are distributed, including by focusing on direct distribution themselves or on distribution channels other than ours, such changes could materially and adversely affect our business, operating results, financial condition and prospects.

Changes and developments in the regulation of the healthcare industry could adversely affect our business.

The U.S. healthcare industry is subject to an evolving regulatory regime at both the federal and state levels. In recent years, there have been multiple reform efforts made within the healthcare industry in an effort to curtail healthcare costs. For example, the Patient Protection and Affordable Care Act of 2010 (the “PPACA”) and related regulatory reforms have materially changed the regulation of health insurance. Changes to healthcare and insurance regulation arising from the effects of the COVID-19 pandemic may be possible. While it is difficult to determine the impact of potential reforms on our future business, it is possible that such changes in healthcare industry regulation could result in reduced demand for our insurance distribution services. Our insurance carrier partners may react to existing or future reforms, or general regulatory uncertainty, by reducing their reliance on our agents. Developments of this type could materially and adversely affect our business, operating results, financial condition and prospects.

Changes and developments in the health insurance system and laws and regulations governing the health insurance markets in the United States could materially and adversely affect our business, operating results, financial condition and prospects.

Our Senior segment depends upon the private sector of the U.S. insurance system, which is subject to rapidly evolving regulation. Accordingly, the future financial performance of our Senior segment will depend in part on our ability to adapt to regulatory developments. For example, healthcare reform could lead to increased competition in our industry and the number of consumers shopping for insurance through our agents may decline. Various aspects of healthcare reform could also cause insurance carriers to discontinue certain health insurance products or prohibit us from distributing certain health insurance products in particular jurisdictions. Our Senior segment, operating results, financial condition and prospects may be materially and adversely affected if we are unable to adapt to developments in healthcare reform in the United States.

 

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Healthcare laws and regulations are rapidly evolving and may change significantly in the future, impacting the coverage and plan designs that are or will be provided by certain insurance carriers. Health reform efforts and measures may expand the role of government-sponsored coverage, including single payer or so called “Medicare-for-All” proposals, which could have far-reaching implications for the insurance industry if enacted. Government regulation may change in response to the COVID-19 pandemic, which may have an adverse effect on our business. We are unable to predict the full impact of healthcare reform initiatives on our operations in light of the uncertainty regarding the terms and timing of any provisions enacted and the impact of any of those provisions on various healthcare and insurance industry participants. In particular, because our DTC platform provides consumers with a venue to shop for insurance policies from a curated panel of the nation’s leading insurance carriers, the expansion of government-sponsored coverage through “Medicare-for-All” or the implantation of a single payer system may adversely impact our business.

If we are unable to develop new offerings, achieve increased consumer adoption of those offerings or penetrate new vertical markets, our business, operating results, financial condition and prospects could be materially and adversely affected.

Our continued improvement of our product and service offerings is critical to our success. Accordingly, we must continually invest resources in product, technology and development in order to improve the comprehensiveness and effectiveness of our distribution platform.

In addition, while we have historically concentrated our efforts on the senior health, life and personal property and casualty insurance markets, our growth strategy includes penetrating additional vertical markets, such as final expense insurance and other insurance or financial service products. In order to penetrate new vertical markets successfully, it will be necessary to develop an understanding of those new markets and the associated risks, which may require substantial investments of time and resources, and even then we may not be successful and, as a result, our revenue may grow at a slower rate than we anticipate and our operating results, financial condition and prospects could be materially and adversely affected.

Risks from third-party products could adversely affect our businesses.

We offer third-party products, including senior health, life, automotive and home insurance products. Insurance involves a transfer of risk and our reputation may be harmed and we may become a target for litigation if risk is not transferred in the way expected by customers and carriers. In addition, if these insurance products do not generate competitive risk-adjusted returns that satisfy our insurance carrier partners, it may be difficult to maintain existing business with, and attract new business from, them. Significant declines in the performance of these third-party products could subject us to reputational damage and litigation risk.

If our ability to enroll individuals during AEP and OEP is impeded, our business will be harmed.

In general, approximately 50% of our Medicare Advantage and Medicare Supplement policies are submitted during AEP. Our agents, systems and processes must handle an increased volume of transactions that occur during AEP and OEP. We hire additional flex agents during these periods to address this expected increase in transaction volume and temporarily reassign agents from our Senior business to our Life and Auto & Home businesses during non-AEP/OEP periods. We must ensure that our year-round and flex agents are trained and have received all licenses, appointments and certifications required by state authorities and our insurance carrier partners before the beginning of AEP and OEP. If the relevant state authorities or our insurance carrier partners experience shutdowns or continued business disruptions due to the COVID-19 pandemic, we may be unable to secure these required licenses, appointments and certifications for our agents in a timely manner, or at all. If technology failures, any inability to timely employ, license, train, certify and retain our employees to sell senior health insurance, interruptions in the operation of our systems, issues with government-run health insurance exchanges, weather-related events that prevent our employees from coming to our offices, or any other circumstances prevent our senior health business from operating as expected during an enrollment period, we could sell fewer policies and suffer a reduction in our business and our operating results, financial condition, prospects and profitability could be materially and adversely affected.

 

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We recently implemented a work-from-home policy in response to the “shelter in place” and similar orders issued by the states, counties and cities in which we maintain facilities as a result of the COVID-19 pandemic. It may be more difficult for us to manage and monitor our agents in a remote environment and we may need to expend more management time and devote more resources and costs to do so. Working at home, while at times seamless with our technology, may prevent agents from selling policies as efficiently as they could in an office environment. If our agents are not able to effectively work from home, we may not be able to sell as many policies which could have an adverse effect on our business, financial condition and results of operations.

If we are unable to attract, integrate and retain qualified personnel, our ability to develop and successfully grow our business could be harmed.

Our business depends on our ability to retain our key executives and management and to hire, develop and retain qualified agents and enrollment and consumer service specialists. Our ability to expand our business depends on our being able to hire, train and retain sufficient numbers of employees to staff our in-house sales centers, as well as other personnel. Our success in recruiting highly skilled and qualified personnel can depend on factors outside of our control, including the strength of the general economy and local employment markets and the availability of alternative forms of employment. Furthermore, the spread of COVID-19 may materially and adversely affect our ability to recruit and retain personnel. During periods when we are unable to recruit high-performing agents and enrollment and consumer service specialists, we tend to experience higher turnover rates. The productivity of our agents and enrollment and consumer service specialists is influenced by their average tenure. Without qualified individuals to serve in consumer facing roles, we may produce less commission revenue, which could have a material and adverse effect on our business, operating results, financial condition and prospects. If the services of any of our key personnel should become unavailable for any reason, we may not be able to identify and hire qualified persons on terms acceptable to us, which could have a material and adverse effect on our business, operating results, financial condition and prospects.

Our business is dependent on our obtaining a large quantity of quality insurance sales leads in a cost-effective manner.

Our business requires access to a large quantity of quality insurance sales leads to keep our agents productive. We are dependent upon a number of lead suppliers from whom we obtain leads to support our sales of insurance policies. The loss of one or more of these lead suppliers, or our failure to otherwise compete to secure quality insurance sales leads, could significantly limit our ability to access our target market for selling policies.

We may not be able to compete successfully for high quality leads against our current or future competitors, some of whom have significantly greater financial, technical, marketing and other resources than we do. If we fail to compete successfully with our competitors to source sales leads from lead suppliers, we may experience increased marketing costs and loss of market share and our business and profitability could be materially and adversely affected.

Our business depends on our ability to convert sales leads to actual sales of insurance policies. If our conversion rate does not meet expectations, our business may be adversely affected.

Obtaining quality insurance sales leads is important to our business, but our ability to convert our leads to policy sales is also a key to our success. Many factors impact our conversion rate, including the quality of our leads, agents and our proprietary workflow technology. If lead quality diminishes, our conversion rates will be adversely affected. Competition in the marketplace and lead quality affect conversion rates. If competition for customers increases, our conversion rates may decline, even absent a degradation in lead quality. Our conversion rates are also affected by agent tenure. If agent turnover increases, leading to a decline in the average tenure of our agents, conversion rates may be adversely affected. If we are unable to recruit, train and retain talented agents, our ability to successfully convert sales leads may be adversely impacted. Our conversion rates may also

 

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be affected by issues with our workflow technology or problems with our algorithms that drive lead scoring and routing. Any adverse impact on our conversion rates could cause a material and adverse effect on our business, operating results, financial condition and prospects.

We rely on data provided to us by consumers and our insurance carrier partners to improve our technology and service offerings, and if we are unable to maintain or grow such data, we may be unable to provide consumers with an insurance shopping experience that is relevant, efficient and effective, which could adversely affect our business.

Our business relies on the data provided to us by consumers and our insurance carrier partners in addition to third-party lead suppliers. The large amount of information we use in operating our platform is critical to the insurance shopping experience we provide for consumers. If we are unable to maintain or effectively utilize the data provided to us, the value that we provide to consumers and our insurance carrier partners may be limited. In addition, the quality, accuracy and timeliness of this information may suffer, which may lead to a negative insurance shopping experience for consumers using our platform and could materially and adversely affect our business, operating results, financial condition and prospects.

We have made substantial investments into our technology systems that support our business with the goal of enabling us to provide efficient, needs-based services to consumers using data analytics. We cannot assure you that we will be able to continually collect and retain sufficient data, or improve our data technologies to satisfy our operating needs. Failure to do so could materially and adversely affect our business, operating results, financial condition and prospects.

Our ability to match consumers to insurance products that suit their needs is dependent upon their provision of accurate information during the insurance shopping process.

Our business depends on consumers’ provision of accurate information during the insurance shopping process. To the extent consumers provide us with inaccurate information, the quality of their insurance shopping experience may suffer and we may be unable to match them with insurance products that suit their needs. Our inability to suggest suitable insurance products to consumers could lead to an increase in the number of policies we submit to carriers that are ultimately rejected and could materially and adversely affect our business, operating results, financial condition and prospects.

We depend upon internet search engines to attract a significant portion of the consumers who visit our website, and if we are unable to effectively advertise on search engines on a cost-effective basis our business, operating results, financial condition and prospects could be harmed.

We derive a significant portion of our website traffic from consumers who search for health insurance through internet search engines, such as Google, Yahoo! and Bing. A critical factor in attracting consumers to our website is whether we are prominently displayed in response to certain internet searches. Search engines typically provide two types of search results, algorithmic listings and paid advertisements. We rely on both to attract consumers to our websites.

Algorithmic search result listings are determined and displayed in accordance with a set of formulas or algorithms developed by the particular internet search engine. Once a search is initiated by a consumer, the algorithms determine the hierarchy of results. Search engines may revise these algorithms from time to time, which could cause our website to be listed less prominently in algorithmic search results and lead to decreased traffic to our website. We may also be listed less prominently as a result of other factors, such as new websites, changes we make to our website or technical issues with the search engine itself. Government health insurance exchange websites have historically appeared prominently in algorithmic search results. In addition, search engines have deemed the practices of some companies to be inconsistent with search engine guidelines and decided not to list their website in search result listings at all. If we are listed less prominently in, or removed

 

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altogether from, search result listings for any reason, the traffic to our websites would decline and we may not be able to replace this traffic. An attempt to replace this traffic may require us to increase our marketing expenditures, which would also increase our cost of customer acquisition and harm our business, operating results, financial condition and prospects.

In addition to relying on algorithmic search results, we also purchase paid advertisements on search engines in order to attract consumers to our website. We typically pay a search engine for prominent placement of our website when particular terms are searched for on the search engine, without regard to the algorithmic search result listings. The prominence of the placement of our advertisement is determined by multiple factors, including the amount paid for the advertisement and the search engine’s algorithms that determine the relevance of paid advertisements to a particular search term. If the search engine revises its algorithms relevant to paid advertisements then websites other than our platform may become better suited for the algorithms, which may result in our having to pay increased costs to maintain our paid advertisement placement in response to a particular search term. We could also have to pay increased amounts should major search engines continue to become more concentrated. Additionally, we bid against our competitors, insurance carriers, government health insurance exchanges and others for the display of these paid search engine advertisements, which competition increases substantially during the enrollment periods for Medicare products as it relates to our Senior segment. The competition has increased the cost of paid advertising and has increased our marketing and advertising expenses. If paid search advertising costs increase or become cost prohibitive, whether as a result of competition, algorithm changes or otherwise, our advertising expenses could materially increase or we could reduce or discontinue our paid search advertisements, either of which would harm our business, operating results, financial condition and prospects.

Our business could be harmed if we are unable to contact consumers or market the availability of our products by telephone.

Telephone calls from our sales centers may be blocked by or subject to consumer warnings from telephone carriers. Furthermore, our telephone messages to existing or potential customers may not be reliably received due to those consumers’ call screening practices. If we are unable to communicate effectively by telephone with our existing and potential customers as a result of legislation, blockage, screening technologies or otherwise, our business, operating results, financial condition and prospects could be harmed. We are also subject to compliance with significant regulations that may affect how we are able to communicate with consumers. See “—Our communications with potential and existing customers are subject to laws regulating telephone and email marketing practices” in this section.

Global economic conditions could materially and adversely affect our revenue and results of operations.

Our business has been and may continue to be affected by a number of factors that are beyond our control, such as general geopolitical, economic and business conditions, conditions in the financial markets and the effects of the COVID-19 pandemic. A severe or prolonged economic downturn could adversely affect consumers’ financial condition and the demand for insurance products.

We are also exposed to risks associated with the potential financial instability of our insurance carrier partners and consumers, many of whom may be adversely affected by volatile conditions in the financial markets or an economic slowdown. As a result of uncertainties with respect to financial institutions and the global credit markets and other macroeconomic challenges currently or potentially affecting the economy of the U.S. and other parts of the world, consumers may experience serious cash flow problems and other financial difficulties, decreasing demand for the products of our insurance carrier partners. In addition, events in the U.S. or foreign markets, such as the U.K.’s exit from the European Union, and political and social unrest in various countries around the world, can impact the global economy and capital markets. Our insurance carrier partners may modify, delay, or cancel plans to offer new products or may make changes in the mix of products purchased that are unfavorable to us. Additionally, if our insurance carrier partners are not successful in generating sufficient revenue or are precluded from securing financing, their businesses will suffer, which may materially and adversely affect our business, operating results, financial condition and prospects.

 

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In addition, we are susceptible to risks associated with the potential financial instability of the vendors on which we rely to provide services or to whom we delegate certain functions. The same conditions that may affect consumers also could adversely affect our vendors, causing them to significantly and quickly increase their prices or reduce their output. Our business depends on our ability to perform, in an efficient and uninterrupted fashion, our necessary business functions, and any interruption in the services provided by third parties could also adversely affect our business, operating results and financial condition.

The COVID-19 pandemic could adversely affect our business, operating results and financial condition.

In December 2019, a novel strain of coronavirus, COVID-19, was reported in Wuhan, China. COVID-19 has since spread rapidly to other countries, including the United States, and the World Health Organization formally declared the COVID-19 outbreak a pandemic in March 2020. We are still assessing the effect that COVID-19 may have on our ability to effectively conduct our business operations as planned and there can be no assurance that we will be able to avoid a material effect on our business from the spread of COVID-19 or its consequences. For example, as a result of “shelter in place” and similar orders in the states, counties and cities in which we maintain facilities, all of our employees are currently working remotely, which could cause operational difficulties and impair our ability to manage our business. In addition, our insurance carrier partners and our vendors are similarly adjusting their operations in light of the COVID-19 pandemic. If our insurance carrier partners or our vendors experience shutdowns or continued business disruptions, our ability to conduct our business operations as planned could be materially and negatively affected. For example, our insurance carrier partners may experience delays in the underwriting process, and those delays could affect our ability to timely bind and sell policies. Furthermore, our business, operating results and financial condition could be adversely affected if, as a result of the macro-economic effects of the COVID-19 pandemic, demand for the insurance products we sell on behalf of our insurance carrier partners declines, our insurance carrier partners seek to renegotiate their commission arrangements with us or the policyholders to whom we have sold policies stop making their premium payments.

The extent to which the COVID-19 outbreak affects our business will depend on future developments in the United States and around the world, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions required to contain and treat it, among others. Although the extent of the effect of the COVID-19 pandemic on our business and financial results is uncertain, the effects of a continued and prolonged public health crisis such as the COVID-19 pandemic could have a material negative impact on our business, operating results and financial condition.

We may acquire other companies or technologies, which could divert our management’s attention, result in additional dilution to our stockholders and otherwise disrupt our operations and harm our operating results, financial condition and prospects.

We may determine to grow our business through the acquisition of complementary businesses and technologies rather than through internal development. The identification of suitable acquisition candidates can be difficult, time-consuming and costly, and we may not be able to successfully complete identified acquisitions or the acquisitions may cause diversion of management time and focus away from operating our business. Following any acquisition, we may face difficulty integrating technology, finance and accounting, research and development, human resources, consumer information, and sales and marketing functions; challenges retaining acquired employees; future write-offs of intangibles or other assets; and potential litigation, claims or other known and unknown liabilities.

Depending on the condition of any company or technology we may acquire, that acquisition may, at least in the near term, adversely affect our financial condition and operating results and, if not successfully integrated with our organization, may continue to have such effects over a longer period. We may not realize the anticipated benefits of any acquisitions and we may not be successful in overcoming these risks or any other problems encountered in connection with potential acquisitions. Our inability to overcome these risks could have an

 

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adverse effect on our profitability, return on equity and return on assets, our ability to implement our business strategy and enhance stockholder value, which, in turn, could have a material and adverse effect on our business, operating results, financial condition and prospects.

Future acquisitions also could result in dilutive issuances of our equity securities and the incurrence of debt, which could harm our financial condition.

We are required to make significant estimates and assumptions in the preparation of our financial statements. These estimates and assumptions may not be accurate and are subject to change.

The preparation of our consolidated financial statements in conformity with GAAP requires our management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of income and expense during the reporting periods. If our underlying estimates and assumptions prove to be incorrect or if events occur that require us to revise our previous estimates or assumptions, our business, operating results, financial condition and prospects may be materially and adversely affected.

If the goodwill that we record in connection with a business acquisition becomes impaired, it could require charges to earnings, which would have a negative impact on our business, operating results, financial condition and prospects.

Goodwill represents the amount by which the purchase price exceeds the fair value of net assets we acquire in a business combination. We review goodwill for impairment at least annually, or more frequently if events or changes in circumstances indicate the carrying value of the asset might be impaired. At March 31, 2020, our goodwill totaled $5.4 million. Although we have not recorded any impairment charges since we initially recorded the goodwill, our future evaluations of goodwill may result in findings of impairment and related impairment losses, which could have a material and adverse effect on our business, operating results, financial condition and prospects.

We may from time to time be subject to litigation, which may be extremely costly to defend, could result in substantial judgment or settlement costs or subject us to other remedies.

We are currently not a party to any material legal proceedings. From time to time, however, we may be involved in various legal proceedings, including, but not limited to, actions relating to breach of contract and intellectual property infringement or misappropriation. Claims may be expensive to defend and may divert management’s time away from our operations, regardless of whether they are meritorious or ultimately lead to a judgment against us. We cannot assure you that we will be able to successfully defend or resolve any current or future litigation matters, in which case those litigation matters could have a material and adverse effect on our business, operating results, financial condition and prospects.

Our existing and any future indebtedness could adversely affect our ability to operate our business.

As of June 30, 2019, we had $11.0 million of outstanding borrowings under a two-year Loan and Security Agreement (the “Loan and Security Agreement”) with UMB Bank N.A. Subsequently, on November 5, 2019, we terminated the Loan and Security Agreement and entered into the Senior Secured Credit Facilities, consisting of (i) a senior secured term loan facility in an aggregate principal amount of $425.0 million and (ii) a $75.0 million senior secured revolving credit facility. See “Description of Certain Indebtedness.” We used the proceeds of the Term Loan to make the Distribution and for general corporate purposes. The Revolving Credit Facility is available for general corporate purposes. A portion of the proceeds from this offering are required to be used to repay outstanding borrowings under the Term Loan. We could in the future incur additional indebtedness.

 

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Affiliates of Morgan Stanley & Co. LLC, one of the underwriters of this offering, are lenders under our Credit Agreement. As a result of the repayment of a portion of the borrowed funds under the Term Loan using proceeds from this offering, Morgan Stanley & Co. LLC will indirectly receive more than 5% of the proceeds from this offering and will have a “conflict of interest” pursuant to FINRA Rule 5121(f)(5)(C)(i). See “Underwriting (Conflicts of Interest)” for more information.

Our indebtedness could have important consequences, including:

 

   

requiring us to dedicate a substantial portion of our cash flow to payments on our indebtedness, which would reduce the amount of cash flow available to fund working capital, capital expenditures or other corporate purposes;

 

   

increasing our vulnerability to general adverse economic, industry and market conditions;

 

   

subjecting us to restrictive covenants, including restrictions on our ability to pay dividends and requiring the pledge of substantially all of our assets as collateral under our Senior Secured Credit Facilities, that may reduce our ability to take certain corporate actions or obtain further debt or equity financing;

 

   

limiting our ability to plan for and respond to business opportunities or changes in our business or industry; and

 

   

placing us at a competitive disadvantage compared to our competitors that have less debt or better debt servicing options.

In addition, our indebtedness under the Senior Secured Credit Facilities bears interest at a variable rate, making us vulnerable to increases in the market rate of interest. If the market rate of interest increases substantially, we will have to pay additional interest on this indebtedness, which would reduce cash available for our other business needs. From time to time, we may enter into interest rate swaps that involve the exchange of floating for fixed rate interest payments in order to reduce interest rate volatility. However, we may not maintain interest rate swaps with respect to all or any of our variable rate indebtedness, and any swaps we enter into may not fully mitigate our interest rate risk.

Failure to make payments or comply with other covenants under our existing debt instruments could result in an event of default. If an event of default occurs and the lender accelerates the amounts due, we may need to seek additional financing, which may not be available on acceptable terms, in a timely manner or at all. In such event, we may not be able to make accelerated payments, and the lender could seek to enforce security interests in the collateral securing such indebtedness, which includes substantially all of our assets.

Developments with respect to LIBOR may affect our borrowings under our credit facilities.

Regulators and law enforcement agencies in the U.K. and elsewhere are conducting civil and criminal investigations into whether the banks that contribute to the British Bankers’ Association (“BBA”) in connection with the calculation of daily LIBOR may have been under-reporting or otherwise manipulating or attempting to manipulate LIBOR. A number of BBA member banks have entered into settlements with their regulators and law enforcement agencies with respect to this alleged manipulation of LIBOR. Actions by the BBA, regulators or law enforcement agencies may result in changes to the manner in which LIBOR is determined or the establishment of alternative reference rates. For example, on July 27, 2017, the U.K. Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR quotes after 2021.

The Credit Agreement governing our Senior Secured Credit Facilities provides that interest may be based on LIBOR and for the use of an alternate rate to LIBOR in the event LIBOR is phased-out; however, uncertainty remains as to any such replacement rate and any such replacement rate may be higher or lower than LIBOR may have been. The establishment of alternative reference rates or implementation of any other potential changes could have a material adverse effect on our existing facilities, our interest rate swap agreements or our future debt linked to such a reference rate and may materially and adversely affect our business, operating results, financial condition and prospects.

 

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Operating and growing our business may require additional capital, and if capital is not available to us, our business, operating results, financial condition and prospects may suffer.

Operating and growing our business is expected to require further investments in our technology and operations. We may be presented with opportunities that we want to pursue, and unforeseen challenges may present themselves, any of which could cause us to require additional capital. Our business model does not require us to hold a significant amount of cash and cash equivalents at any given time and if our cash needs exceed our expectations or we experience rapid growth, we could experience strain in our cash flow, which could adversely affect our operations in the event we were unable to obtain other sources of liquidity. If we seek to raise funds through equity or debt financing, those funds may prove to be unavailable, may only be available on terms that are not acceptable to us or may result in significant dilution to you or higher levels of leverage. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to pursue our business objectives and to respond to business opportunities, challenges or unforeseen circumstances could be significantly limited, and our business, operating results, financial condition and prospects could be materially and adversely affected.

If we fail to protect our brand, our ability to expand the use of our agency services by consumers may be adversely affected.

Maintaining strong brand recognition and a reputation for delivering value to consumers is important to our business. A failure by us to protect our brand and deliver on these expectations could harm our reputation and damage our ability to attract and retain customers, which could adversely affect our business. In addition, many of our competitors have more resources than we do and can spend more advertising their brands and services. Accordingly, we could be forced to incur greater expense marketing our brand in the future to preserve our position in the market and, even with such greater expense, may not be successful in doing so. Furthermore, complaints or negative publicity about our business practices, legal compliance, marketing and advertising campaigns, data privacy and security issues and other aspects of our business, whether valid or not, could damage our reputation and brand. If we are unable to maintain or enhance consumer awareness of our brand cost-effectively, our business, operating results, financial condition and prospects could be materially and adversely affected.

Seasonality may cause fluctuations in our financial results.

As a result of AEP occurring from October 15th to December 7th and OEP occurring from January 1st to March 31st, we experience an increase in the number of submitted Medicare-related applications during the first and fourth quarters of the calendar year and an increase in Medicare plan related expense during the third and fourth quarters of the calendar year. Accordingly, our financial results are not comparable from quarter to quarter. In addition, changes to the timing of the Medicare annual or open enrollment periods could result in changes in the cyclical nature of consumer demand for Medicare products, to which our Senior segment may not be able to adapt. If our Senior segment cannot successfully respond to changes in the seasonality of the Medicare business, our business, operating results, financial condition and prospects could be harmed.

We rely on our insurance carrier partners to prepare accurate commission reports and send them to us in a timely manner.

Our insurance carrier partners typically pay us a specified percentage of the premium amount collected by the carrier or a flat rate per policy during the period that a customer maintains coverage under a policy. We rely on carriers to report the amount of commissions we earn accurately and on time. We use carriers’ commission reports to calculate our revenue, prepare our financial reports, projections and budgets and direct our marketing and other operating efforts. It is often difficult for us to independently determine whether or not carriers are reporting all commissions due to us, primarily because the majority of the purchasers of our insurance products who terminate their policies do so by discontinuing their premium payments to the carrier instead of by

 

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informing us of the cancellation. To the extent that carriers inaccurately or belatedly report the amount of commissions due to us, we may not be able to collect and recognize revenue to which we are entitled, which would harm our business, operating results, financial condition and prospects. In addition, the technological connections of our systems with the carriers’ systems that provide us up-to-date information about coverage and commissions could fail or carriers could cease providing us with access to this information, which could impede our ability to compile our operating results in a timely manner.

Our operating results fluctuate depending upon insurance carrier payment and policy approval practices and the timing of our receipt of commission reports from our insurance carrier partners.

The timing of our revenue depends upon the timing of our insurance carrier partners’ approval of the policies sold on our platform and submitted for their review, as well as the timing of our receipt of commission reports and associated payments from our insurance carrier partners. Although carriers typically report and pay commissions to us on a monthly basis, there have been instances where their report of commissions and payment has been delayed for several months or are incorrect. Incorrect or late commission reports or payments could result in a large amount of commission revenue from a carrier being recorded in a given quarter that is not indicative of the amount of revenue we may receive from that carrier in subsequent quarters, causing fluctuations in our operating results. We could report revenue below the expectations of our investors or securities analysts in any particular period if a material report or payment from an insurance carrier partner were delayed for any reason. Furthermore, we could incur substantial credit losses if one or more of the insurance carrier partners that we depend upon for payment of commissions were to fail.

Our operating results will be impacted by factors that impact our estimate of the constrained lifetime value of commissions per policyholder.

Effective July 1, 2018, we elected to early adopt Accounting Standards Update 2014-09, Revenue from Contracts with Customers (“ASC 606”), using the full retrospective method, which required us to revise our historical financial information for fiscal 2018 to be consistent with the new standard. The adoption had a material impact on our historical financial statements, including the method by which we recognize commission revenue. We now recognize revenue based on the expected value approach. This approach utilizes a number of assumptions, which include, but are not limited to, legal and enforceable rights to renewal commissions upon contract termination when determining variable consideration, renewal commission rates, historical lapse data and premium increase data. These assumptions are based on historical trends and any changes in those historical trends will affect our estimated lifetime value estimates in future periods and therefore could adversely affect our revenue and financial results in those future periods. As a result, adverse changes in the assumptions we make in computing expected values, such as increased lapse rates, would harm our business, operating results, financial condition and prospects.

In particular, if customer lapse rates exceed our expectations, we may not receive the revenues we have projected to receive over time, despite our having incurred and recorded any related customer acquisition costs up front. Any adverse impact on customer lapse rates could lead to our receipt of commission payments that are less than the amount we estimated when we recognized commission revenue. Under such circumstances, we would need to write-off the remaining commission receivable balance, which would result in a change to earnings in the period of the write-off.

Changes in lease accounting standards may materially and adversely affect us.

Beginning in July 1, 2021, the Financial Accounting Standards Board (“FASB”) rules will require that we account for our office space leases as assets and liabilities on our balance sheet. We previously accounted for such leases on an “off balance sheet” basis. As a result of these changes to the FASB rules, we will be required to record lease-related assets and liabilities on our balance sheet, and the way in which we record and classify our lease-related expenses may change as well. Though these changes will not have any direct effect on our overall financial condition, they will cause the total amount of assets and liabilities we report to increase.

 

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Changes in tax laws or exposure to additional income tax liabilities could affect our future profitability.

We are subject to income taxes in the United States and various state jurisdictions. Our effective tax rate and profitability could be subject to volatility or adversely affected by a number of factors, including:

 

   

changes in applicable tax laws and regulations, or their interpretation and application, including the possibility of retroactive effect;

 

   

changes in accounting and tax standards or practice;

 

   

changes in the valuation of deferred tax assets and liabilities; and

 

   

our operating results before taxes.

In addition, we may be subject to audits of our income, sales and other taxes by U.S. federal, state and local taxing authorities. Outcomes from these audits could have a material and adverse effect on our operating results, financial condition and prospects.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

As of June 30, 2019, the Company has net operating loss carryforwards for federal and state income tax purposes of $25.7 million and $19.4 million, respectively, available to offset future taxable income. Other than the federal net operating loss generated for the tax year ended June 30, 2019, which has an indefinite carryforward period, the federal carryforwards will expire in 2034 through 2038 if not utilized. The state carryforwards will expire in 2024 through 2039. Realization of these net operating loss carryforwards depends on our future taxable income, and there is a risk that our existing carryforwards could expire unused and be unavailable to offset future income tax liabilities, which could materially and adversely affect our operating results. In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as Section 163(j) disallowed business interest expense carryforwards, to offset its post-change income may be limited. We may experience ownership changes in the future because of subsequent shifts in our stock ownership. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carry-forwards and other tax attributes to offset U.S. federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to us.

Risks Related to Our Intellectual Property and Our Technology

If we are unable to adequately protect our intellectual property, our ability to compete could be harmed.

We do not currently have any patents or patent applications pending to protect our intellectual property rights, but we do hold trademarks on our name, “SelectQuote,” and on the phrase “We Shop. You Save.” We rely on a combination of copyright, trademark, and trade secret laws and contractual agreements, as well as our internal system access security protocols, to establish, maintain and protect our intellectual property rights and technology. Despite efforts to protect our intellectual property, these laws, agreements and systems may not be sufficient to effectively prevent unauthorized disclosure or unauthorized use of our trade secrets or other confidential information or to prevent third parties from misappropriating our technology and offering similar or superior functionality. For example, monitoring and protecting our intellectual property rights can be challenging and costly, and we may not be effective in policing or prosecuting such unauthorized use or disclosure.

We also may fail to maintain or obtain adequate protections for certain of our intellectual property or technology in the U.S. or certain foreign countries, and our intellectual property rights may not receive the same degree of protection in foreign countries as they would in the U.S. because of the differences in foreign trademark, copyright, and other laws concerning proprietary rights. Furthermore, legal standards relating to the validity, enforceability, and scope of protection of intellectual property rights are uncertain. In addition, our

 

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competitors may attempt to copy unprotected aspects of our product design or independently develop similar technology or design around our intellectual property rights. Third parties also may take actions that diminish the value of our proprietary rights or our reputation or cause consumer confusion through the use of similar service names or domain names. Litigation regarding any intellectual property disputes may be costly and disruptive to us. Any of these results would harm our business, operating results, financial condition and prospects.

Additionally, we enter into confidentiality and invention assignment agreements with our employees and enter into confidentiality agreements with third parties, including suppliers and other partners. However, we cannot guarantee that we have entered into such agreements with each party that has or may have had access to our proprietary information, know-how and trade secrets. Moreover, no assurance can be given that these agreements will be effective in controlling access to, distribution, use, misuse, misappropriation, reverse engineering or disclosure of our proprietary information, know-how and trade secrets. Further, these agreements may not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our products and platform capabilities. These agreements may be breached, and we may not have adequate remedies for any such breach.

We may become subject to intellectual property disputes, which are costly and may subject us to significant liability and increased costs of doing business.

Third parties may be able to successfully challenge, oppose, invalidate, render unenforceable, dilute, misappropriate or circumvent our trademarks, copyrights and other intellectual property rights. Our success depends, in part, on our ability to develop and commercialize our products and services without infringing, misappropriating or otherwise violating the intellectual property rights of third parties. However, we may not be aware that our products or services are infringing, misappropriating or otherwise violating third-party intellectual property rights and such third parties may bring claims alleging such infringement, misappropriation or violation.

Actions we may take to enforce our intellectual property rights may be expensive and divert management’s attention away from the ordinary operation of our business, and our inability to secure and protect our intellectual property rights could materially and adversely affect our brand and business, operating results, financial condition and prospects. Furthermore, such enforcement actions, even if successful, may not result in an adequate remedy. In addition, many companies have the capability to dedicate greater resources to enforce their intellectual property rights and to defend claims that may be brought against them. If a third party is able to obtain an injunction preventing us from accessing such third-party intellectual property rights, or if we cannot license or develop alternative technology for any infringing aspect of our business, we would be forced to limit or stop sales of our products and platform capabilities or cease business activities related to such intellectual property.

Although we carry general liability insurance, our insurance may not cover potential claims of this type or may not be adequate to indemnify us for all liability that may be imposed. We cannot predict the outcome of lawsuits and cannot ensure that the results of any such actions will not have an adverse effect on our business, financial condition or results of operations. Such claims could subject us to significant liability for damages and could result in our having to stop using technology found to be in violation of a third party’s rights. Further, we might be required to seek a license for third-party intellectual property, which may not be available on reasonable royalty or other terms. Alternatively, we could be required to develop alternative non-infringing technology, which could require significant effort and expense. If we cannot license or develop technology for any infringing aspect of our business, we would be forced to limit our services, which could affect our ability to compete effectively. Any of these results would harm our business, operating results, financial condition and prospects.

Our business depends on our ability to maintain and improve the technological infrastructure that supports our distribution platform, and any significant disruption in service on our platform could result in a loss of consumers, which could harm our business, brand, operating results, financial condition and prospects.

Our ability to service consumers depends on the reliable performance of our technological infrastructure. Interruptions, delays or failures in these systems, whether due to adverse weather conditions, natural disasters,

 

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power loss, computer viruses, cybersecurity attacks, physical break-ins, terrorism, errors in our software or otherwise, could be prolonged and could affect the security or availability of our platform, and the ability of our agents to sell policies and our consumer care team to service those policies. The reliability and security of our systems, and those of our insurance carrier partners, is important not only to facilitating our sale of insurance products, but also to maintaining our reputation and ensuring the proper protection of our confidential and proprietary information. If we experience operational failures or prolonged disruptions or delays in the availability of our systems, we could lose current and potential customers, which could harm our operating results, financial condition and prospects.

Potential changes in applicable technology and consumer outreach techniques could have a material and adverse effect on our operating results, financial condition and prospects.

Changes in technology and consumer outreach techniques continue to shape the insurance distribution landscape. In recent years, consumers’ behavior patterns, in particular their propensity to use online sources for research, product comparison and guidance, has changed and continues to change. Similarly, available technologies for reaching targeted groups of consumers also continues to evolve. We expect that we will incur costs in the future to adjust our systems to adapt to changing behaviors and technologies. In the future, technological innovations and changes in the way consumers engage with technology may materially and adversely affect our operating results, financial condition and prospects, if our business model and technological infrastructure do not evolve accordingly.

We rely on third-party service providers for many aspects of our business, and any failure to maintain these relationships could harm our business.

Information technology systems form a key part of our business and accordingly we are dependent on our relationships with third parties that provide the infrastructure for our technological systems. If these third parties experience difficulty providing the services we require or meeting our standards for those services, or experience disruptions or financial distress or cease operations temporarily or permanently, it could make it difficult for us to operate some aspects of our business. In addition, such events could cause us to experience increased costs and delay our ability to provide services to consumers until we have found alternative sources of the services provided by these third parties. If we are unsuccessful in identifying or finding high-quality partners, if we fail to negotiate cost-effective relationships with them or if we ineffectively manage these relationships, it could materially and adversely affect our business, operating results, financial condition and prospects.

Our business could be materially and adversely affected by a cybersecurity breach or other attack involving our computer systems or those of our insurance carrier partners or third-party service providers.

Our systems and those of our insurance carrier partners and third-party service providers could be vulnerable to hardware and cybersecurity issues. Our operations are dependent upon our ability to protect our computer equipment against damage from fire, power loss, telecommunications failure or a similar catastrophic event. We could also experience a breach by intentional or negligent conduct on the part of employees or other internal sources. Any damage or failure that causes an interruption in our operations could have an adverse effect on our business, operating results, financial condition and prospects. In addition, our operations are dependent upon our ability to protect the computer systems and network infrastructure utilized by us against damage from cybersecurity attacks by sophisticated third parties with substantial computing resources and capabilities and other disruptive problems caused by the internet or other users. Such disruptions would jeopardize the security of information stored in and transmitted through our computer systems and network infrastructure, which may result in significant liability and damage our reputation.

 

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We take substantial efforts to protect our systems and data, including establishing internal processes and implementing technological measures to provide multiple layers of security, and contract with third-party service providers to take similar steps. We regularly add additional security measures to our computer systems and network infrastructure to mitigate the possibility of cybersecurity breaches, including firewalls and penetration testing. However, it is difficult or impossible to defend against every risk being posed by changing technologies as well as criminals’ intent on committing cyber-crime and these measures may not be successful in preventing, detecting, or stopping attacks. The increasing sophistication and resources of cyber criminals and other non-state threat actors and increased actions by nation-state actors make keeping up with new threats difficult and could result in a breach of security. Controls employed by our information technology department and our insurance carrier partners and third-party service providers, including cloud vendors, could prove inadequate. A breach of our security that results in unauthorized access to our data could expose us to a disruption or challenges relating to our daily operations, as well as to data loss, litigation, damages, fines and penalties, significant increases in compliance costs and reputational damage, any of which could have a material and adverse effect on our business, operating results, financial condition and prospects.

A number of the states, counties and cities in which we maintain facilities have issued “shelter in place” and similar orders in response to the recent global outbreak of COVID-19. As a result, all of our employees are currently working remotely. This transition to a remote work environment may exacerbate certain risks to our business, including increasing the stress on, and our vulnerability to disruptions of, our technology infrastructure and computer systems, increased risk of phishing and other cybersecurity attacks, and increased risk of unauthorized dissemination of personal or confidential information. See “—We collect, process, store, share, disclose and use consumer information and other data, and an actual or perceived failure to protect such information and data or respect users’ privacy could damage our reputation and brand and harm our business, operating results, financial condition and prospects” in this section.

To the extent we or our systems rely on our insurance carrier partners or third-party service providers, through either a connection to, or an integration with, those third-parties’ systems, the risk of cybersecurity attacks and loss, corruption, or unauthorized publication of our information or the confidential information of consumers and employees may increase. Third-party risks may include lax security measures, data location uncertainty, and the possibility of data storage in inappropriate jurisdictions where laws or security measures may be inadequate.

Any or all of the issues above could adversely affect our ability to attract new customers and continue our relationship with existing customers, cause our insurance carrier partners to cancel their contracts with us or subject us to governmental or third-party lawsuits, investigations, regulatory fines or other actions or liability, thereby harming our business, operating results, financial condition and prospects. Although we are not aware of any material information security breaches to date, we have detected common types of attempts to attack our information systems and data.

We collect, process, store, share, disclose and use consumer information and other data, and an actual or perceived failure to protect such information and data or respect users’ privacy could damage our reputation and brand and harm our business, operating results, financial condition and prospects.

The operation of our distribution platform involves the collection and storage of consumers’ information, including personal information, and security breaches could expose us to a risk of loss or exposure of this information, which could result in potential liability, investigations, regulatory fines, litigation and remediation costs, as well as reputational harm, all of which could materially and adversely affect our business, operating results, financial condition and prospects. For example, unauthorized parties could steal our potential customers’ names, email addresses, physical addresses, phone numbers and other information, including sensitive personal information and credit card payment information, which we collect when providing agency services. These risks may be exacerbated when our agents are working from home on personal internet network systems, including wi-fi.

 

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We receive credit and debit card payment information and related data, which we input directly into our insurance carrier portal and in some cases, submit through a third party. With respect to the Life segment, for a few of our insurance carrier partners, we retain limited card payment information and related data, which is encrypted in compliance with Payment Card Industry standards, for a period of 90 days prior to being erased from our systems.

Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to consumers or other third parties, or our privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of sensitive information, which could include personally identifiable information or other user data, may result in governmental investigations, enforcement actions, regulatory fines, litigation and public statements against us by consumer advocacy groups or others, and could cause consumers and insurance carriers to lose trust in us, all of which could be costly and have an adverse effect on our business. Regulatory agencies or business partners may institute more stringent data protection requirements or certifications than those which we are currently subject to and, if we cannot comply with those standards in a timely manner, we may lose the ability to sell a carrier’s products or process transactions containing payment information. Moreover, if third parties that we work with violate applicable laws or our policies, such violations also may put consumer or insurance carrier partner information at risk and could in turn harm our reputation, business, operating results, financial condition and prospects.

Risks Related to Laws and Regulation

Laws and regulations regulating insurance activities are complex and could have a material and adverse effect on our business, may reduce our profitability and potentially limit our growth.

The insurance industry in the United States is heavily regulated. The insurance regulatory framework addresses, among other things: granting licenses to companies and agents to transact particular business activities; and regulating trade, marketing, compensation and claims practices. For example, we are required by state regulators to maintain a valid license in each state in which we transact insurance business and comply with business practice requirements that vary from state to state. In addition, our agents who transact insurance business must also maintain valid licenses. Complying with the regulatory framework requires a meaningful dedication of management and financial resources. Due to the complexity, periodic modification and differing interpretations of insurance laws and regulations, we may not have always been, and we may not always be, in full compliance with them. There can be no assurance that we, our employees, consultants, contractors and other agents are in full compliance with current and/or future laws and regulations or interpretations. Any such non-compliance could impose material costs on us, result in limitations on the business we conduct or damage our relationship with regulatory bodies, our insurance carrier partners and consumers, any of which could have a material and adverse effect on our business, operating results, financial condition and prospects.

Regulatory authorities often have the discretion to grant, renew and revoke the various licenses and approvals we need to conduct our activities. Such authorities may require us to incur substantial costs in order to comply with such laws and regulations. Furthermore, laws and regulations are also subject to interpretation by regulatory authorities, and changes in any such interpretations may adversely impact our business and our ability to carry on our existing activities.

Furthermore, the laws and regulations governing the sale of insurance may change in ways that adversely impact our business. These changes could impact the manner in which we are permitted to conduct our business, could force us to reduce the compensation we receive or otherwise adversely impact our business, operating results, financial condition and prospects.

In addition, we are subject to laws and regulations with respect to matters regarding privacy and cybersecurity. See “—We collect, process, store, share, disclose and use consumer information and other data, and an actual or perceived failure to protect such information and data or respect users’ privacy could damage

 

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our reputation and brand and harm our business, operating results, financial condition and prospects” and “—We may not be able to maintain compliance with all current and potentially applicable U.S. federal and state or foreign laws and regulations, and actions by regulatory authorities or changes in legislation and regulation in the jurisdictions in which we operate could have a material adverse effect on our business” in this section.

Our Senior segment is subject to a complex legal and regulatory framework, and non-compliance with or changes in laws and regulations governing the marketing and sale of Medicare plans could harm our business, operating results, financial condition and prospects.

Our Senior segment is subject to a complex legal and regulatory framework and the laws and regulations governing the marketing and sale of Medicare plans, particularly with respect to regulations and guidance issued by CMS for Medicare Advantage and Medicare Part D prescription drug plans, change frequently. Changes to the laws, regulations and guidelines relating to Medicare plans, their interpretation or the manner in which they are enforced could harm our business, operating results, financial condition and prospects.

Changes to laws, regulations, CMS guidance or the enforcement or interpretation of CMS guidance applicable to our Senior segment could cause insurance carriers or state departments of insurance to object to or not to approve aspects of our marketing materials and processes. As a result, those authorities may determine that certain aspects of our Senior segment are not in compliance with the current legal and regulatory framework. Any such determinations could delay or halt the operation of our Senior segment, which would harm our business, operating results, financial condition and prospects, particularly if such delay or halt occurred during the Medicare annual or open enrollment periods.

Our business may be harmed if we do not market Medicare plans effectively or if our website and marketing materials are not timely approved or do not comply with legal requirements.

Our insurance carrier partners whose Medicare plans we sell approve our website, much of our marketing material and our call scripts for our Senior segment. In the event that CMS or an insurance carrier partner requires changes to, disapproves, or delays approval of these materials, we could lose a significant source of Medicare plan demand and the operations of our Senior segment could be adversely affected. If we are not successful in timely receiving insurance carrier partner or CMS approval of our marketing materials, we could be prevented from implementing our Medicare marketing initiatives, which could harm our business, operating results, financial condition and prospects, particularly if such delay or non-compliance occurs during AEP or OEP. The CMS rules and regulations also apply to our marketing partners’ marketing materials. If our marketing partners’ marketing materials do not comply with the CMS marketing guidelines or other Medicare program related laws, rules and regulations, such non-compliance could result in our losing the ability to receive referrals of individuals interested in purchasing Medicare plans from that marketing partner or being delayed in doing so.

If our Senior segment substantively changes its marketing materials or call scripts, our insurance carrier partners may be required to re-file those materials with CMS. Due to our inability to make CMS filings ourselves and the need for further CMS review, it is very difficult and time consuming for us to make changes to our marketing materials, and our inability to timely make changes to these materials, whether to comply with new rules and regulations or otherwise, could adversely affect the results of operations for our Senior segment. In addition, we may be prevented from using any marketing material until any changes required by CMS or our insurance carrier partners are made and approved, which would harm our business, operating results, financial condition and prospects, particularly if such delay occurred during AEP or OEP.

 

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We may not be able to maintain compliance with all current and potentially applicable U.S. federal and state or foreign laws and regulations, and actions by regulatory authorities or changes in legislation and regulation in the jurisdictions in which we operate could have a material adverse effect on our business.

We are also subject to a variety of laws and regulations that involve matters central to our business, including with respect to user privacy and the collection, processing, storing, sharing, disclosing, using, transfer and protecting of personal information and other data. These laws and regulations constantly evolve and remain subject to significant change. In addition, the application and interpretation of these laws and regulations are often uncertain. Because we store, process and use data, some of which contain personal information, we are subject to complex and evolving federal, state and local laws and regulations regarding privacy, data protection and other matters. Many of these laws and regulations are subject to change and uncertain interpretation.

New York’s cybersecurity regulation for financial services companies, including insurance entities under its jurisdiction, requires entities to establish and maintain a cybersecurity program designed to protect private consumer data. The regulation specifically provides for: (i) controls relating to the governance framework for a cybersecurity program; (ii) risk-based minimum standards for technology systems for data protection; (iii) minimum standards for cyber breach responses, including notice to the New York Department of Financial Services (“NYDFS”) of material events; and (iv) identification and documentation of material deficiencies, remediation plans and annual certification of regulatory compliance with the NYDFS.

In addition, in October 2017, the National Association of Insurance Commissioners (“NAIC”) adopted the Insurance Data Security Model Law (the “Cybersecurity Model Law”), which is intended to establish the standards for data security and for the investigation and notification of data breaches applicable to insurance licensees in states adopting such law. To date, the Cybersecurity Model Law has been adopted by Alabama, Connecticut, Delaware, Michigan, Mississippi, New Hampshire, Ohio and South Carolina, with several other states expected to adopt in the near future. The Cybersecurity Model Law could impose significant new regulatory burdens intended to protect the confidentiality, integrity and availability of information systems. The NAIC model law is functionally similar to the NYDFS rule.

Compliance with existing and emerging privacy and cybersecurity regulations could result in increased compliance costs and/or lead to changes in business practices and policies, and any failure to protect the confidentiality of client information could adversely affect our reputation, lend to private litigation against us, any of which could materially and adversely affect our business, operating results, financial condition and prospects.

Our communications with potential and existing customers are subject to laws regulating telephone and email marketing practices.

We make telephone calls and send emails and text messages to potential and existing customers. The United States regulates marketing by telephone and email and the laws and regulations governing the use of emails and telephone calls for marketing purposes continue to evolve, and changes in technology, the marketplace or consumer preferences may lead to the adoption of additional laws or regulations or changes in interpretation of existing laws or regulations. New laws or regulations, or changes to the manner in which existing laws and regulations or interpreted or enforced, may further restrict our ability to contact potential and existing customers by phone and email and could render us unable to communicate with consumers in a cost-effective fashion. The Telephone Consumer Protection Act (the “TCPA”) prohibits companies from making telemarketing calls to numbers listed in the Federal Do-Not-Call Registry and imposes other obligations and limitations on making phone calls and sending text messages to consumers. The CAN-SPAM Act regulates commercial email messages and specifies penalties for the transmission of commercial email messages that do not comply with certain requirements, such as providing an opt-out mechanism for stopping future emails from senders. We may be required to comply with these and similar laws, rules and regulations. Failure to comply with obligations and restrictions related to telephone, text message and email marketing could subject us to lawsuits, fines, statutory damages, consent decrees, injunctions, adverse publicity and other losses that could harm our business. We have

 

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policies in place to comply with the TCPA and other telemarketing laws. However, despite our legal compliance, we have in the past and may in the future become subject to claims that we have violated the TCPA.

Any legal liability for the information we communicate to consumers could harm our business and operating results.

Consumers rely upon information we communicate through our agency services regarding the insurance plans we distribute, including information relating to insurance premiums, coverage, benefits, exclusions, limitations, availability, and plan comparisons. If we provide inaccurate information or information that could be construed as misleading, or if we do not properly assist individuals in purchasing insurance, we could be found liable for related damages and our relationships with our insurance carrier partners and our standing with regulators could suffer.

Risks Related to Being a Public Company

We may incur significant additional costs and expenses and may generate losses in the future.

We incur significant expenses in developing our technology, marketing the products and services we offer and acquiring consumers, and our costs may increase due to our continued new product development and general administrative expenses, such as legal and accounting expenses related to becoming and being a public company. If we fail to manage these additional costs or increase our revenue, we may continue to incur losses in the future.

Our quarterly operating results or other operating metrics may fluctuate significantly and may not meet expectations of research analysts, which could cause the trading price of our common stock to decline.

Our quarterly operating results and other operating metrics have fluctuated in the past and may in the future fluctuate as a result of a number of factors, many of which are outside of our control and may be difficult to predict. Period to period variability or unpredictability of our results could result in our failure to meet our expectations or those of any analysts that cover us or investors with respect to revenue or other operating results for a particular period. If we fail to meet or exceed such expectations for these or any other reasons, the market price of our common stock could fall substantially, and we could face litigation, including securities class actions.

The accuracy of our financial statements and related disclosures could be affected if the judgments, assumptions or estimates used in our critical accounting policies are inaccurate.

The preparation of financial statements and related disclosure in conformity with GAAP requires us to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes. Our critical accounting policies, which are included in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus, describe those significant accounting policies and methods used in the preparation of our consolidated financial statements that we consider “critical” because they require judgments, assumptions and estimates that materially affect our consolidated financial statements and related disclosures. As a result, if future events differ significantly from the judgments, assumptions and estimates in our critical accounting policies, those events or assumptions could have a material impact on our consolidated financial statements and related disclosures.

The obligations associated with being a public company will require significant resources and management attention, which will increase our costs of operations and may divert focus from our business operations.

We have not been required in the past to comply with the requirements of the SEC, to file periodic reports with the SEC or to have our consolidated financial statements completed, reviewed or audited and filed within a specified time. As a public company following completion of this offering, we will be required to file periodic

 

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reports containing our consolidated financial statements with the SEC within a specified time following the completion of quarterly and annual periods. As a public company, we will also incur significant legal, accounting, insurance and other expenses. Compliance with these reporting requirements and other rules of the SEC and the rules of the NYSE will increase our legal and financial compliance costs and make some activities more time consuming and costly. Furthermore, the need to establish the corporate infrastructure demanded of a public company may divert management’s attention from implementing our growth strategy, which could prevent us from successfully implementing our strategic initiatives and improving our business, operating results, financial condition and prospects.

If we fail to correct any material weakness that we identify in our internal control over financial reporting or otherwise fail to maintain effective internal control over financial reporting, we may not be able to report our financial results accurately and timely, in which case our business may be harmed, investors may lose confidence in the accuracy and completeness of our financial reports and the price of our common stock may decline.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for evaluating and reporting on our system of internal control. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. As a public company, we will be required to comply with the Sarbanes-Oxley Act and other rules that govern public companies. In particular, we will be required to certify our compliance with Section 404 of the Sarbanes-Oxley Act beginning with our second annual report on Form 10-K, which will require us to furnish annually a report by management on the effectiveness of our internal control over financial reporting. In addition, unless we remain an emerging growth company and elect transitional relief available to emerging growth companies, our independent registered public accounting firm will be required to report on the effectiveness of our internal control over financial reporting, beginning as of that second annual report.

If we identify material weaknesses in our internal control over financial reporting in the future, if we cannot comply with the requirements of the Sarbanes-Oxley Act in a timely manner or attest that our internal control over financial reporting is effective, or if our independent registered public accounting firm cannot express an opinion as to the effectiveness of our internal control over financial reporting when required, we may not be able to report our financial results accurately and timely. As a result, investors, counterparties and consumers may lose confidence in the accuracy and completeness of our financial reports; our liquidity, access to capital markets and perceptions of our creditworthiness could be adversely affected; and the market price of our common stock could decline. In addition, we could become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources. These events could have a material and adverse effect on our business, operating results, financial condition and prospects.

We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act. We could continue to be considered an emerging growth company for up to five years, although we would lose that status sooner if our gross revenues exceed $1.07 billion, if we issue more than $1.0 billion in nonconvertible debt in a three-year period or if the fair value of our common stock held by non-affiliates exceeds $700.0 million (and we have been a public company for at least 12 months and have filed one annual report on Form 10-K). For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. It is unclear whether investors will find our common

 

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stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, while we are an emerging growth company we will not be subject to new or revised accounting standards at the same time that they become applicable to other public companies that are not emerging growth companies. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates, and we will incur additional costs in connection with complying with the accounting standards applicable to public companies at such time or times as they become applicable to us.

Risks Related to Our Common Stock and this Offering

An active trading market for our common stock may not develop, and you may not be able to resell your shares of our common stock at or above the initial offering price.

Prior to this offering, there has been no public market for shares of our common stock. We cannot predict the extent to which investor interest in us will lead to the development of a trading market on the NYSE or otherwise, or how liquid that market might become. If an active market does not develop, you may have difficulty selling any shares of our common stock that you purchase in this offering. The initial public offering price for the shares of our common stock has been determined by negotiations between us and the representatives of the underwriters, and may not be indicative of prices that will prevail in the open market following this offering. An inactive market may also impair our ability to raise capital by selling shares of our common stock and may impair our ability to acquire or make investments in companies, products or technologies for which we may issue equity securities to pay for such acquisition or investment.

Further, our directors, director nominees, officers, employees, business associates and related persons of SelectQuote, Inc., have the opportunity to purchase up to 1,250,000 shares of our common stock, or up to 5% of the shares offered by this prospectus for sale by the Company, at the initial public offering price, through a directed share program. To the extent these persons purchase shares in this offering, fewer shares may be actively traded in the public market because these stockholders will be restricted from selling the shares by a 180-day lock-up restriction, which would reduce the liquidity of the market for our common stock.

Our market price for our common stock may be subject to substantial fluctuations, which may make it difficult for you to sell your shares at the volume, price and times desired.

The market price of our common stock may be highly volatile, which may make it difficult for you to sell your shares at the volume, prices and times desired. Some specific factors that may have a significant effect on the market price of our common stock include:

 

   

actual or anticipated fluctuations in our operating results or those of our competitors’;

 

   

actual or anticipated changes in the growth rate of the insurance market or the growth rate of our businesses or those of companies that investors deem comparable to us;

 

   

changes in economic or business conditions;

 

   

changes in governmental regulation; and

 

   

publication of research reports about us, our competitors, or our industry, or changes in, or failure to meet, estimates made by securities analysts or ratings agencies of our financial and operating performance, or lack of research reports by industry analysts or ceasing of analyst coverage.

 

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We have broad discretion in the use of the net proceeds from this offering and our use of those proceeds may not yield a favorable return on your investment.

Our management has broad discretion over how the net proceeds from this offering are used and could spend the proceeds in ways with which you may not agree. In addition, we may not use the proceeds of this offering effectively or in a manner that increases our fair value or enhances our profitability. We have not established a timetable for the effective deployment of the proceeds and we cannot predict how long it will take to deploy the proceeds. We expect to use a portion of our net proceeds from this offering to repay outstanding borrowings under the Term Loan and any remaining proceeds not used to repay the outstanding borrowings, for working capital, capital expenditures and general corporate purposes, including, in our discretion, prepayment of obligations under the Receivables Financing Agreement. See “Use of Proceeds.” We may not be able to deploy the proceeds effectively, potentially adversely affecting stockholder returns.

You will experience immediate and substantial dilution in the book value of the shares you purchase in this offering.

If you purchase shares of our common stock in this offering, you will experience immediate and substantial dilution of $15.25 per share, representing the difference between the initial public offering price of $18 per share, which is the midpoint of the range listed on the cover page of this prospectus, and our pro forma as adjusted net tangible book value per share after giving effect to sales of shares by us in this offering and the automatic conversion of all outstanding shares of our Series A, B, C, D and E preferred stock into common stock upon the closing of this offering. Moreover, to the extent outstanding options are exercised and outstanding restricted stock units vest, you will incur further dilution. See the “Dilution” section of this prospectus.

Our issuance of additional capital stock in connection with financings, acquisitions, investments, our equity incentive plans or otherwise would dilute all other stockholders.

We may issue additional capital stock in the future. Any such issuance would result in dilution to all other stockholders. In the future, we may issue additional stock, including as a grant of equity awards to employees, directors and consultants under our equity incentive plans, to raise capital through equity financings or to acquire or make investments in companies, products or technologies for which we may issue equity securities to pay for such acquisition or investment. Any such issuances of additional capital stock may cause stockholders to experience significant dilution of their ownership interests and the per share value of our common stock to decline.

We do not intend to pay dividends in the foreseeable future.

The declaration and amount of any future dividends to holders of our common stock will be at the discretion of our Board of Directors in accordance with applicable law and after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, cash flows, impact on our effective tax rate, indebtedness, contractual obligations, legal requirements and other factors that our Board of Directors deems relevant. Our Board of Directors intends to retain future earnings to finance the operation and expansion of our business. In addition, our Credit Agreement contains restrictions on our ability to pay dividends, subject to certain exceptions. Accordingly, we do not expect to pay dividends in the foreseeable future. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.

Sales of a substantial number of shares of our common stock by our existing stockholders in the public market could cause our stock price to fall.

Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales might occur, could significantly reduce the market price of our common stock. If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market

 

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after the lock-up and legal restrictions on resale discussed in this prospectus lapse, the trading price of our common stock could substantially decline. Furthermore, approximately 7.88% of our outstanding common stock is beneficially owned by our executive officers. If one or more of them were to sell a substantial portion of the shares they hold, it could cause our stock price to decline.

Based on shares outstanding as of the date of this prospectus, on the closing of this offering, we will have outstanding a total of 162,650,597 shares of common stock after giving effect to the automatic conversion of all of our outstanding shares of Series A, B, C, D and E preferred stock into shares of common stock. This includes the 25,000,000 shares of common stock that are being sold in this offering, which may be resold in the public market immediately. The remaining 137,650,597 shares of our common stock, which together represent 84.63% of our outstanding shares of common stock after this offering, are currently, and will be following the closing of this offering, restricted as a result of securities laws or lock-up agreements but will be able to be sold, subject to any applicable volume limitations, under federal securities laws with respect to affiliate sales. Each of our directors, executive officers and other holders of 90.97% of our outstanding shares have entered into lock-up agreements with the underwriters under which the holders of such securities have agreed that, subject to certain exceptions, without the prior written consent of Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. LLC, they will not (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock beneficially owned by them or any other securities so owned that are convertible into or exercisable or exchangeable for shares of our common stock or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of shares of our common stock. The foregoing restrictions will remain in effect for 90 days following the date of this prospectus with respect to 4,166,667 shares of our common stock issued pursuant to the conversion of our Series E preferred stock into shares of our common stock upon the completion of this offering (the “Series E Restricted Shares”), which together represent 2.56% of our outstanding shares of common stock after this offering, and for 180 days following the date of this prospectus with respect to all other shares of our common stock subject to the lock-up agreement described above. Upon each release of the foregoing restrictions, our securityholders subject to a lock-up agreement will be able to sell our shares in the public market. In addition, the underwriters may, in their sole discretion, release all or some portion of the shares subject to lock-up agreements prior to a release of the foregoing restrictions. Subject to certain exceptions, in the event that the underwriters grant such a release with respect to all or a portion of another holder’s shares, the same percentage of the Series E Restricted Shares will be automatically released from the lock-up restrictions. For a description of the lock-up agreements, see the “Shares Eligible for Future Sale” and “Underwriting (Conflicts of Interest)” sections of this prospectus.

In addition, as of the date of this prospectus, there were 4,095,968 shares of common stock subject to outstanding options, 9,600,000 shares of common stock available for issuance pursuant to future awards under our equity incentive plans and 1,400,000 shares of common stock available for issuance under our ESPP that will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, the lock-up agreements discussed above and Rules 144 and 701 under the Securities Act. Moreover, we intend to register all shares of common stock that we may issue under our employee benefit plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements and the restrictions imposed on our affiliates under Rule 144.

 

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Certain provisions in our sixth amended and restated certificate of incorporation and amended and restated bylaws and of Delaware law may prevent or delay an acquisition of SelectQuote, which could decrease the trading price of our common stock.

Our sixth amended and restated certificate of incorporation and amended and restated bylaws will contain, and Delaware law contains, provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the bidder and to encourage prospective acquirers to negotiate with our Board of Directors rather than to attempt a hostile takeover. These provisions include, among others:

 

   

the inability of our stockholders to call a special meeting;

 

   

the inability of our stockholders to act without a meeting of stockholders;

 

   

rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings;

 

   

the right of our Board of Directors to issue preferred stock without stockholder approval;

 

   

the division of our Board of Directors into three classes of directors, with each class serving a staggered three-year term, and this classified board provision could have the effect of making the replacement of incumbent directors more time consuming and difficult;

 

   

stockholders may only remove directors with cause; and

 

   

the ability of our directors, and not stockholders, to fill vacancies on our Board of Directors.

In addition, because we will not elect to be exempt from Section 203 of the Delaware General Corporation Law (the “DGCL”), this provision could also delay or prevent a change of control that you may favor. Section 203 provides that, subject to limited exceptions, persons that acquire, or are affiliated with a person that acquires, more than 15% of the outstanding voting stock of a Delaware corporation (an “interested stockholder”) shall not engage in any business combination with that corporation, including by merger, consolidation or acquisitions of additional shares, for a three-year period following the date on which the person became an interested stockholder, unless (i) prior to such time, the board of directors of such corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of such corporation at the time the transaction commenced (excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) the voting stock owned by directors who are also officers or held in employee benefit plans in which the employees do not have a confidential right to tender or vote stock held by the plan); or (iii) on or subsequent to such time the business combination is approved by the board of directors of such corporation and authorized at a meeting of stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock of such corporation not owned by the interested stockholder.

We believe these provisions will protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with our Board of Directors and by providing our Board of Directors with more time to assess any acquisition proposal. These provisions are not intended to make SelectQuote immune from takeovers. However, these provisions will apply even if the offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that our Board of Directors determines is not in the best interests of SelectQuote and its stockholders. These provisions may also prevent or discourage attempts to remove and replace incumbent directors.

Our sixth amended and restated certificate of incorporation will contain exclusive forum provisions that may discourage lawsuits against us and our directors and officers.

Our sixth amended and restated certificate of incorporation will provide that unless the Board of Directors otherwise determines, the state courts in the State of Delaware or, if no state court located within the State of

 

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Delaware has jurisdiction, the federal court for the District of Delaware, will be the sole and exclusive forum for any derivative action or proceeding brought on behalf of SelectQuote, any action asserting a claim of breach of a fiduciary duty owed by any director or officer of SelectQuote to SelectQuote or SelectQuote’s stockholders, any action asserting a claim against SelectQuote or any director or officer of SelectQuote arising pursuant to any provision of the DGCL or SelectQuote’s sixth amended and restated certificate of incorporation or amended and restated bylaws, or any action asserting a claim against SelectQuote or any director or officer of SelectQuote governed by the internal affairs doctrine under Delaware law (collectively, the “covered actions”). These exclusive forum provisions will apply to all covered actions, including any covered action in which the plaintiff chooses to assert a claim or claims under federal law in addition to a claim or claims under Delaware law. These exclusive forum provisions, however, will not apply to actions asserting only federal law claims under the Securities Act or the Securities Exchange Act of 1934, as amended (the “Exchange Act”), regardless of whether the state courts in the State of Delaware have jurisdiction over those claims. These exclusive forum provisions may limit the ability of SelectQuote’s stockholders to bring a claim in a judicial forum that such stockholders find favorable for disputes with SelectQuote or SelectQuote’s directors or officers, which may discourage such lawsuits against SelectQuote and SelectQuote’s directors and officers. Alternatively, if a court were to find one or more of these exclusive forum provisions inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings described above, SelectQuote may incur additional costs associated with resolving such matters in other jurisdictions or forums, which could materially and adversely affect SelectQuote’s business, financial condition or results of operations.

Our Board of Directors will have the ability to issue blank check preferred stock, which may discourage or impede acquisition attempts or other transactions.

Our Board of Directors will have the power, subject to applicable law, to issue series of preferred stock that could, depending on the terms of the series, impede the completion of a merger, tender offer or other takeover attempt. For instance, subject to applicable law, a series of preferred stock may impede a business combination by including class voting rights, which would enable the holder or holders of such series to block a proposed transaction. Our Board of Directors will make any determination to issue shares of preferred stock based on its judgment as to our and our stockholders’ best interests. Our Board of Directors, in so acting, could issue shares of preferred stock having terms which could discourage an acquisition attempt or other transaction that some, or a majority, of the stockholders may believe to be in their best interests or in which stockholders would have received a premium for their stock over the then prevailing market price of the stock.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus 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 are not limited to, the following:

 

   

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 AEP or OEP;

 

   

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;

 

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Global economic conditions;

 

   

The impact on our operations from the effects of public health crises, including the current COVID-19 outbreak;

 

   

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;

 

   

Failure to market and sell Medicare plans effectively or in compliance with laws;

 

   

Risks related to our being a public company;

 

   

Risks related to our common stock and this offering; and

 

   

The other risk factors described under “Risk Factors.”

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this prospectus. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Many of the important factors that will determine these results are beyond our ability to control or predict. 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. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

 

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USE OF PROCEEDS

We estimate that our net proceeds from the sale of our common stock by us in this offering will be approximately $300.0 million, assuming an initial public offering price of $18 per share, which is the midpoint of the range listed on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any proceeds from the sale of shares of common stock by the selling stockholders.

A $1.00 increase (decrease) in the assumed initial public offering price of $18 per share would increase (decrease) the net proceeds to us from this offering by approximately $17.0 million, assuming that the number of shares offered, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and offering expenses payable by us. An increase (decrease) of 1,000,000 shares in the number of shares of common stock offered by us in this offering, as set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by approximately $17.0 million, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions, estimated placement agent fees and estimated offering expenses payable by us.

The Senior Secured Credit Facilities require that at least 25% of the net proceeds to the Company from this offering (up to $150.0 million) be applied to the prepayment of the Term Loan, which otherwise matures in November 2024. We intend to use up to $100 million of the net proceeds we receive from this offering to repay outstanding borrowings under the Term Loan. Any remaining proceeds not used to repay the outstanding borrowings will be used for working capital, capital expenditures and general corporate purposes, including, in our discretion, prepayment of obligations under the Receivables Financing Agreement. See “Description of Certain Indebtedness” for further details about the Term Loan and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Delayed Draw Credit Facilities” for further details about the Receivables Financing Agreement, including the interest rate and maturity thereunder.

Affiliates of Morgan Stanley & Co. LLC, one of the underwriters of this offering, are lenders under our Credit Agreement. As a result of the repayment of a portion of the borrowed funds under the Term Loan using proceeds from this offering, Morgan Stanley & Co. LLC will therefore indirectly receive more than 5% of the proceeds from this offering. Because of the foregoing, a “conflict of interest” is deemed to exist within the meaning of FINRA Rule 5121. Accordingly, this offering will be conducted in accordance with FINRA Rule 5121, which requires, among other things, that a “qualified independent underwriter” participate in the preparation of, and exercise the usual standards of “due diligence” with respect to, the registration statement and this prospectus. Credit Suisse Securities (USA) LLC has agreed to act as a qualified independent underwriter for this offering and to undertake the legal responsibilities and liabilities of an underwriter under the Securities Act, specifically including those inherent in Section 11 of the Securities Act. Credit Suisse Securities (USA) LLC will not receive any additional fees for serving as a qualified independent underwriter in connection with this offering. The Company and the selling stockholders have agreed to indemnify Credit Suisse Securities (USA) LLC against certain liabilities incurred in connection with acting as a qualified independent underwriter, including liabilities under the Securities Act. Morgan Stanley & Co. LLC will not confirm any sales to any account over which it exercises discretionary authority without the specific written approval of the transaction from the account holder. See “Underwriting (Conflicts of Interest)” for more information.

Our management will have broad discretion in the application of the net proceeds we receive from this offering, and investors will be relying on the judgment of our management regarding the application of our net proceeds. While we expect to use the net proceeds to assist in gradually achieving cash flow neutrality while continuing to invest in growth, and for the purposes described above, the timing and amount of our actual expenditures will be based on many factors, including cash flows from operations, the anticipated growth of our business, and the availability and terms of alternative financing sources to fund our growth.

 

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DIVIDEND POLICY

We do not anticipate declaring or paying any cash dividends on our common stock in the foreseeable future. Any future determination to declare and pay cash dividends, if any, will be made at the discretion of our Board of Directors and will depend on a variety of factors, including applicable laws, our financial condition, results of operations, contractual restrictions, capital requirements, business prospects, general business or financial market conditions, and other factors our Board of Directors may deem relevant. In addition, our Credit Agreement contains covenants that restrict our ability to pay cash dividends, subject to certain exceptions. Investors should not purchase our common stock with the expectation of receiving cash dividends.

 

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CAPITALIZATION

The following table sets forth our cash and our capitalization as of March 31, 2020:

 

   

on an actual basis;

 

   

on a pro forma basis to give effect to:

 

   

the issuance and sale of 135,000 shares of our Series E preferred stock and related receipt of net proceeds of approximately $129.0 million subsequent to March 31, 2020;

 

   

the automatic conversion of all outstanding shares of our Series A, B, C, D and E preferred stock into 52,404,685 shares of common stock upon the closing of this offering; and

 

   

the filing and effectiveness of our sixth amended and restated certificate of incorporation, which provides for, among other things, the elimination of our Series A, B, C, D and E preferred stock; and

 

   

on a pro forma as adjusted basis to give further effect to our issuance and sale of 18,000,000 shares of common stock in this offering at an assumed initial public offering price of $18 per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions, estimated offering expenses payable by us and giving effect to the repayment of certain indebtedness and the use of proceeds specified in “Use of Proceeds.”

The pro forma as adjusted information set forth in the table below is illustrative only and our capitalization following the closing of this offering will be adjusted based on the actual initial public offering price, the number of common shares sold in this offering and other terms of this offering determined at pricing. You should read the following table in conjunction with our financial statements and related notes appearing at the end of this prospectus and the sections of the prospectus titled “Selected Historical Consolidated Financial and Operating Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Capital Stock.”

 

     As of March 31, 2020
(Unaudited)
 
(in thousands, except share and per share amounts)    Actual      Pro Forma      Pro Forma
As
Adjusted (1)
 

Cash, Cash Equivalents and Restricted Cash

     $83,627      $ 212,627      $
512,644
 

Current and Long-Term Debt

     435,361        435,361        435,361  

Temporary equity:

        

Series A redeemable convertible preferred stock,
$0.01 par value, 1,137,235 shares authorized, 847,776 shares issued and outstanding, actual; no shares issued and outstanding, pro forma and pro forma as adjusted

     127                

Series B convertible preferred stock,
$0.01 par value, 821,690 shares authorized, 609,774 shares issued and outstanding, actual; no shares issued and outstanding, pro forma and pro forma as adjusted

     372                

Series C convertible preferred stock,
$0.01 par value, 69,925 shares authorized, 51,369 shares issued and outstanding, actual; no shares issued and outstanding, pro forma and pro forma as adjusted

     63                

 

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     As of March 31, 2020
(Unaudited)
 
(in thousands, except share and per share amounts)    Actual     Pro Forma     Pro Forma
As
Adjusted (1)
 

Series D convertible preferred stock,
$0.01 par value, 4,000,000 shares authorized, issued and outstanding, actual; no shares issued and outstanding, pro forma and pro forma as adjusted

   $ 40              

Series E convertible preferred stock,
$0.01 par value, no shares authorized, issued and outstanding

                  
  

 

 

   

 

 

   

 

 

 

Total temporary equity

     602              
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity:

      

Common stock, $0.01 par value—700,000,000 shares authorized, 92,245,912 shares issued and outstanding, actual; 700,000,000 shares authorized, 144,650,597 shares issued and outstanding, pro forma; 700,000,000 shares authorized, 162,650,597 shares issued and outstanding, pro forma as adjusted

     922       1,446       1,626  

Additional paid-in capital

     85,314       214,392       514,229  
      

 

 

 

Treasury stock

                  

Retained earnings

     (22,841     (22,841     (22,841
  

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

   $ 63,395     $ 192,997     $ 493,014  
  

 

 

   

 

 

   

 

 

 

 

(1)

The pro forma as adjusted balance sheet data give further effect to our issuance and sale of 18,000,000 shares of common stock in this offering at an assumed initial public offering price of $18 per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The pro forma as adjusted information discussed above is illustrative only and will change based on the actual initial public offering price, the number of common shares sold in this offering and other terms of this offering determined at pricing. Each $1.00 increase (decrease) in the assumed initial public offering price of $18 per share of common stock, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted amount of each of cash, working capital, total assets, and total shareholders’ equity by $17.0 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each increase (decrease) of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted amount of each of cash, working capital, total assets, and total shareholders’ equity by $17.0 million, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The number of shares of our common stock to be outstanding after this offering is based on 144,650,597 shares of common stock issued and outstanding as of the date of this prospectus (assuming the automatic conversion of all outstanding shares of our Series A, B, C, D and E preferred stock into an aggregate of 52,404,685 shares of common stock upon the closing of this offering) and excludes:

 

   

4,095,968 shares of common stock issuable upon the exercise of options outstanding under the 2003 Stock Plan as of the date of this prospectus, with a weighted average exercise price of $1.03 per share;

 

   

9,600,000 shares of common stock that will become available for issuance pursuant to future awards in connection with this offering under the 2020 Plan; and

 

   

1,400,000 shares of common stock that will become available for issuance in connection with this offering under the Company’s ESPP.

 

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DILUTION

If you invest in our common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share and the pro forma as adjusted net tangible book value per share immediately after this offering.

Our historical net tangible book value as of March 31, 2020 was $42.0 million, or $0.46 per share of common stock. Our historical net tangible book value represents our total tangible assets less our total liabilities and Series A, B, C and D preferred stock, which is not included within our shareholders’ equity. Historical net tangible book value per share represents historical net tangible book value divided by the 92,245,912 shares of common stock outstanding as of March 31, 2020.

Our pro forma net tangible book value as of March 31, 2020 was $171.8 million, or $1.19 per share of common stock. Pro forma net tangible book value represents the amount of our total tangible assets less our total liabilities, after giving effect to the automatic conversion of all outstanding shares of our Series A, B, C, D and E preferred stock into an aggregate of 52,404,685 shares of common stock upon the closing of this offering. Pro forma net tangible book value per share represents our pro forma net tangible book value divided by 144,650,597, the total number of shares of common stock outstanding as of March 31, 2020, after giving effect to the issuance and sale of 135,000 shares of our Series E preferred stock and related receipt of net proceeds of approximately $129.0 million subsequent to March 31, 2020 and the automatic conversion of all outstanding shares of our Series A, B, C, D and E preferred stock into common stock upon the closing of this offering.

After giving further effect to our issuance and sale of 18,000,000 shares of common stock in this offering at an assumed initial public offering price of $18 per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2020 would have been $447.8 million, or $2.75 per share. This amount represents an immediate increase in pro forma as adjusted net tangible book value of $1.57 per share to our existing stockholders and immediate dilution of $15.25 per share to new investors purchasing our shares of common stock in this offering. Dilution per share to new investors is determined by subtracting the pro forma as adjusted net tangible book value per share after this offering from the initial public offering price per share of our common stock paid by new investors. The following table illustrates this dilution on a per share basis:

 

Assumed initial public offering price per share

      $ 18  

Historical net tangible book value per share as of March 31, 2020

   $ 0.46     

Increase per share attributable to the pro forma adjustment described above

     0.73     
  

 

 

    

Pro forma net tangible book value per share as of March 31, 2020

   $ 1.19     

Increase in pro forma as adjusted net tangible book value per share attributable to new investors purchasing our common stock in this offering

   $ 1.57     
  

 

 

    

Pro forma as adjusted net tangible book value per share after this offering

        2.75  
     

 

 

 

Dilution per share to new investors purchasing shares of our common stock in this offering

      $ 15.25  
     

 

 

 

The dilution information discussed above is illustrative only and will change based on the actual initial public offering price, the number of common shares sold in this offering, and other terms of this offering determined at pricing. Each $1.00 increase (decrease) in the assumed initial public offering price of $18 per share of common stock offered by us, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted net tangible book value per share after this offering by $0.10 and the dilution per share to new investors by $0.90, assuming that the number of shares of

 

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common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions. Each increase of 1,000,000 shares in the number of shares of common stock offered by us would increase our pro forma as adjusted net tangible book value per share after this offering by $0.08 and decrease the dilution per share to new investors by $0.08, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions. Each decrease of 1,000,000 shares in the number of shares of common stock offered by us would decrease our pro forma as adjusted net tangible book value per share after this offering by $0.08 and increase the dilution per share to new investors by $0.08, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions.

The following table summarizes, as of March 31, 2020, on the pro forma as adjusted basis as described above, the total number of shares of common stock purchased from us, the total consideration paid and the average price per share paid or to be paid by existing stockholders and new investors acquiring shares of common stock in this offering at an assumed initial public offering price of $18 per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

     Shares Purchased     Total Consideration     Average
Price
Per Share
 
     Number      Percent     Amount      Percent  

Existing shareholders

     144,650,597        88.93   $ 237,949,370        42.34   $ 1.64  

New investors

     18,000,000        11.07       324,000,000        57.66     $ 18.00  
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

     162,650,597        100     561,949,370        100  
  

 

 

    

 

 

   

 

 

    

 

 

   

The table above excludes 4,095,968 shares of common stock issuable as of the date of this prospectus upon exercise of outstanding stock options at a weighted average exercise price of $1.03 per share. To the extent that any of the foregoing options are exercised, investors participating in the offering will experience further dilution.

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA

The following tables present selected historical consolidated financial and operating data for our business as of the dates and for the periods indicated. The selected consolidated statements of operations data presented below for the fiscal years ended June 30, 2019 and June 30, 2018 and the selected consolidated balance sheet data as of June 30, 2019 and June 30, 2018 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected consolidated statements of operations data presented below for the nine month periods ended March 31, 2020 and March 31, 2019 and the selected consolidated balance sheet information as of March 31, 2020 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. Where applicable, all share and per share data for the periods shown have been adjusted, on a retroactive basis, to reflect an eight-for-one stock split, which became effective on February 28, 2020.

The selected consolidated historical financial and operating data is not necessarily indicative of the results to be expected in any future period. You should read the following selected historical financial and operating data in conjunction with the section of this prospectus entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited and unaudited consolidated financial statements and related notes appearing at the end of this prospectus.

 

     Fiscal Year Ended
June 30,
    Nine Months
Ended March 31,
 
(in thousands, except per share data)    2019     2018     2020     2019  

Statements of Operations Data:

  

Revenue:

        

Commission

   $ 296,000     $ 206,611     $ 353,926     $ 231,003  

Production bonus and other

     41,469       27,077       36,142       32,067  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     337,469       233,688       390,068       263,070  

Operating Costs and Expenses:

        

Cost of revenue

     104,421       83,340       126,488       80,294  

Marketing and advertising

     110,265       82,122       132,246       84,427  

Technical development

     8,326       9,913       9,088       6,232  

General and administrative

     15,864       12,349       25,779       13,095  

Restructuring

     2,305       2,808          
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating costs and expenses

     241,181       190,532       293,601       184,048  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     96,288       43,156       96,467       79,022  

Interest expense

     (1,660     (929     (16,239     (1,122

Other expenses

     (15     (709     (20     (8
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income tax expense

     94,613       41,518       80,208       77,892  

Income tax expense

     22,034       6,619       19,110       18,200  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 72,579     $ 34,899     $ 61,098     $ 59,692  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share (1):

        

Basic

   $ 0.70     $ 0.27     $ (0.38   $ 0.59  

Diluted

   $ 0.55     $ 0.23     $ (0.38   $ 0.45  

Weighted-average common stock outstanding (1):

        

Basic

     85,378       81,314       89,989       84,976  

Diluted

     132,491       96,421       89,989       132,976  

Pro forma net income per share: (1)

        

Pro forma net income per share attributable to common shareholders (unaudited):

        

Basic

   $ 0.56       $ 0.46    

Diluted

   $ 0.55       $ 0.44    

Pro forma weighted-average common stock outstanding (unaudited):

        

Basic

     129,449         134,060    

Diluted

     132,491         138,206    

 

(1)

See Note 10 to our audited financial statements and Note 8 to our unaudited consolidated financial statements appearing at the end of this prospectus for an explanation of the method used to calculate historical and pro forma net income (loss) per share, basic and diluted, and the weighted-average number of shares used in the computation of the per share amounts.

 

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     As of March 31, 2020      As of
June 30,
2019
     As of
June 30,
2018
 
(in thousands)    Actual      Pro Forma (1)      Pro Forma As
Adjusted (2)
     Actual      Actual  

Balance Sheet Data:

              

Cash, cash equivalents and restricted cash

   $ 83,627      $ 212,627      $ 512,644      $ 570      $ 958  

Accounts receivable

     76,886        76,886        76,886        59,829        51,153  

Commissions receivable—current

     46,699        46,699        46,699        36,108        27,863  

Commissions receivable—net

     411,352        411,352        411,352        279,489        196,095  

Total assets

     661,661        790,661        1,090,678        406,940        297,557  

Total current liabilities

     57,045        57,045        57,045        33,222        24,283  

Debt

     411,054        411,054        411,054        11,032        19,752  

Non-recourse debt—net

     18,689        18,689        18,689        10,615       

Deferred income taxes

     100,369        100,369        100,369        81,252        59,614  

Total liabilities

     597,664        597,664        597,664        143,688        109,631  

Total temporary equity

     602                      797        797  

Total shareholders’ equity

   $ 63,395      $ 192,997      $ 493,014      $ 262,455      $ 187,129  

 

(1)

The pro forma balance sheet data give effect to the issuance and sale of 135,000 shares of our Series E preferred stock and related receipt of net proceeds of approximately $129.0 million subsequent to March 31, 2020 and the automatic conversion of all outstanding shares of our Series A, B, C, D and E preferred stock into an aggregate of 52,404,685 shares of common stock upon the closing of this offering.

(2)

The pro forma as adjusted balance sheet data give further effect to our issuance and sale of 18,000,000 shares of common stock in this offering at an assumed initial public offering price of $18 per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The pro forma as adjusted information discussed above is illustrative only and will change based on the actual initial public offering price, the number of common shares sold in this offering, and other terms of this offering determined at pricing.

 

     Fiscal Year Ended
June 30,
    Nine Months Ended
March 31,
 
(in thousands, except for percentages and Senior Approved Policies)    2019     2018     2020     2019  

Other Unaudited Financial and Operating Data:

        

Adjusted EBITDA (1)

   $ 105,278     $ 49,926     $ 113,886     $ 85,759  

Adjusted EBITDA Margin (1)

     31.2     21.4     29.2     32.6

Senior Approved Policies

     168,742       106,882       234,955       136,636  

Life Premium

   $ 89,966     $ 78,354     $ 74,240     $ 64,663  

Auto & Home Premium

   $ 56,719     $ 50,460     $ 48,925     $ 40,117  

 

(1)

These financial measures are not calculated in accordance with GAAP. See “Non-GAAP Financial Measures” below and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures (Adjusted EBITDA)” in this prospectus for information regarding our use of these non-GAAP financial measures and a reconciliation of such measures to their nearest comparable financial measures calculated and presented in accordance with GAAP.

 

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Non-GAAP Financial 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 prospectus 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.

Adjusted EBITDA. We define Adjusted EBITDA as income before interest expense, income tax expense, depreciation and amortization, and certain addbacks 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 prospectus 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.

Adjusted EBITDA is not prepared in accordance with GAAP and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. There are a number of limitations related to the use of this non-GAAP financial measure rather than net income, which is the most directly comparable financial measure calculated and presented in accordance with GAAP. These limitations include the fact that Adjusted EBITDA excludes depreciation and amortization expense, share-based compensation expense and income tax expense. In addition, other companies may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison.

The following tables reconcile Adjusted EBITDA and net income, the most directly comparable financial measure calculated and presented in accordance with GAAP.

Adjusted EBITDA for the nine month period ended March 31, 2020

 

(in thousands)    Senior      Life      Auto &
Home
     Corp &
Elims
    Consolidated  

Net income

              $ 61,098  

Interest expense

                16,239  

Income tax expense

                19,110  

Depreciation and amortization

                5,273  

Non-recurring expenses (1)

                2,648  

Share-based compensation expense

                9,283  

Loss on disposal of property, equipment and software

                235  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Adjusted EBITDA

   $ 112,352      $ 15,552      $ 5,594      $ (19,612   $ 113,886  

 

(1)

These expenses consist of one-time consulting expenses associated with adopting ASC 606, non-recurring compensation to certain former Board members, non-restructuring severance expenses, employer payroll taxes on the one-time Distribution to stock option holders, costs related to our initial public offering, and expenses related to business continuity in response to the COVID-19 pandemic.

 

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Adjusted EBITDA for the nine month period ended March 31, 2019

 

(in thousands)    Senior      Life      Auto &
Home
     Corp &
Elims
    Consolidated  

Net income

              $ 59,692  

Interest expense

                1,122  

Income tax expense

                18,200  

Depreciation and amortization

                3,446  

Non-recurring expenses (1)

                3,180  

Share-based compensation expense

                67  

Loss on disposal of property, equipment and software

                52  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Adjusted EBITDA

   $ 77,179      $ 16,721      $ 5,540      $ (13,681   $ 85,759  

 

(1)

These expenses consist primarily of one-time consulting expenses associated with adopting ASC 606, non-recurring compensation to certain former Board members, restructuring expenses consisting primarily of expenses associated with initiatives to reduce costs and consolidate leadership and back office functions from San Francisco to Kansas City, and non-restructuring severance expenses.

Adjusted EBITDA for fiscal 2019

 

(in thousands)   Senior     Life     Auto &
Home
    Corp &
Elims
    Consolidated  

Net income

          $ 72,579  

Interest expense

            1,660  

Income tax expense

            22,034  

Depreciation and amortization

            4,702  

Non-recurring expenses (1)

            1,691  

Restructuring expenses (2)

            2,305  

Share-based compensation expense

            86  

Loss on disposal of property, equipment and software

            221  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 90,174     $ 25,821     $ 7,817     $ (18,534   $ 105,278  

 

(1)

These expenses consist primarily of one-time consulting expenses associated with adopting ASC 606, non-recurring compensation to certain Board members and non-restructuring severance expenses.

(2)

Restructuring expenses consist primarily of expenses associated with initiatives to reduce costs and consolidate leadership and back office functions from San Francisco to Kansas City.

 

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Adjusted EBITDA for fiscal 2018

 

(in thousands)   Senior     Life     Auto &
Home
    Corp &
Elims
    Consolidated  

Net income

          $ 34,899  

Interest expense

            929  

Income tax expense

            6,619  

Depreciation and amortization

            3,468  

Non-recurring expenses (1)

            436  

Restructuring expenses (2)

            2,808  

Share-based compensation expense

            67  

Loss on disposal of property, equipment and software

            700  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 36,688     $ 22,969     $ 9,221     $ (18,952   $ 49,926  

 

(1)

These expenses consist primarily of one-time consulting expenses associated with adopting ASC 606, non-recurring compensation to certain Board members and non-restructuring severance expenses.

(2)

Restructuring expenses consist primarily of expenses associated with initiatives to reduce costs and consolidate leadership and back office functions from San Francisco to Kansas City.

Adjusted EBITDA Margin. We define Adjusted EBITDA Margin as Adjusted EBITDA divided by Revenue.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

This section presents management’s perspective on our financial condition and results of operations. The following discussion and analysis is intended to highlight and supplement data and information presented elsewhere in this prospectus, including the consolidated financial statements and related notes, and should be read in conjunction with the accompanying tables and our annual audited financial statements. To the extent that this discussion describes prior performance, the descriptions relate only to the periods listed, which may not be indicative of our future financial outcomes. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management’s expectations. Factors that could cause such differences are discussed in the sections titled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors.”

Management’s discussion and analysis of our financial condition and results of operations should be read in conjunction with the sections “Prospectus Summary—Summary Historical Consolidated Financial and Operating Data,” “Selected Historical Consolidated Financial and Operating Data,” and our consolidated financial statements and notes thereto included elsewhere in this prospectus. The following discussion includes forward-looking statements that reflect our plans, estimates and assumptions and involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of this prospectus. See “Cautionary Note Regarding Forward-Looking Statements.” Future results could differ significantly from the historical results presented in this section.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is provided to supplement the consolidated financial statements and the related notes included elsewhere in this prospectus. We intend for this discussion to provide you with information that will assist you in understanding our financial statements, the changes in key items in those financial statements from year to year, and the primary factors that accounted for those changes.

Data as of and for the years ended June 30, 2019 and 2018 has been derived from our audited consolidated financial statements included elsewhere in this prospectus. Data as of and for the nine month periods ended March 31, 2020 and 2019 has been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. Where applicable, all share and per share data for the periods shown have been adjusted, on a retroactive basis, to reflect an eight-for-one stock split, which became effective on February 28, 2020.

Overview

We are a leading technology-enabled, DTC distribution platform that provides consumers with a transparent and convenient venue to shop for complex senior health, life and auto & home insurance policies from a curated panel of the nation’s leading insurance carriers. Our proprietary technology allows us to take a broad funnel approach to marketing by analyzing and identifying high quality consumer leads sourced from a wide variety of online and offline marketing channels. We continue to enhance our visibility with advertisements on nationwide TV networks (including CNN, Fox News and ESPN) and radio outlets, while also maintaining a strong online presence through our market-leading comparison websites, complemented by search engine advertising and a social media presence (Facebook, YouTube, etc.). We distribute in all 50 states and the District of Columbia, and during the year ended June 30, 2019 and the nine month period ended March 31, 2020, we provided over 225,000 and 285,000 new individuals with insurance coverage, respectively.

Founded over 30 years ago as what we believe was the first DTC term life insurance exchange platform in the U.S., our technology-driven, differentiated model allows consumers to easily compare pricing and policy options from over 50 of the nation’s leading insurance carriers. Working in tandem, our agents and technology systems are the foundational pillars of our franchise. Our highly trained and licensed agents are subject matter experts in the products they sell, and this, in combination with our purpose-built software and business process,

 

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differentiates the service we provide to consumers relative to other insurance distributors or “online only” offerings. We believe providing personalized advice and guidance from policy research to enrollment is a key differentiator in the senior health market as consumers tend to prefer or require more personalized attention to navigate increasingly complex and ever-changing coverage options. Our agents on the SelectQuote platform are trained to offer unbiased advice in order to be more aligned to the specific needs of each customer.

Direct distribution is becoming an increasingly important part of the overall distribution strategies of insurance carriers as they drive to lower customer acquisition costs. Internet and mobile devices enable distributors to target and reach consumers directly in a highly controlled and efficient manner. Our software allows our agents to have more effective interactions with customers, driving agent productivity and sales volumes. Direct channels provide consumers with a more convenient way to purchase insurance, as well as the optionality to build customized coverage.

Our core mission has been to provide solutions that help consumers with their overall financial well-being by protecting their most valued assets: their families, their health and their property. In pursuit of this, SelectQuote began distributing life insurance policies in 1985 and over time has expanded to also offer senior health and auto & home insurance products to a policyholder base of over 2 million. Key highlights of our history of innovation and growth include:

 

   

In 1985, we founded SelectQuote, as what we believe was the pioneer of direct marketing of term life insurance;

 

   

In 2011, we launched a comparison shopping platform for senior health insurance, initially focusing on Medicare Supplement and Medicare Advantage, and auto & home insurance;

 

   

In 2011, we instituted the AEP flex team to capitalize on seasonal Medicare sales volumes;

 

   

In 2014, we launched carrier pods;

 

   

In 2017, we opened a regional sales office in Denver, Colorado to drive additional AEP scale;

 

   

In 2017, Tim Danker was promoted to Chief Executive Officer and Raffaele Sadun was hired as Chief Financial Officer; and

 

   

In 2018, we moved our headquarters to a newly-built complex in Overland Park, Kansas.

These business strategies have allowed us to rapidly and efficiently scale our business. For the year ended June 30, 2019, we earned $337.5 million of revenue representing 44% growth over the $233.7 million of revenue that we earned during the year ended June 30, 2018. For the year ended June 30, 2019, we generated $72.6 million in net income, an increase of 108% over the year ended June 30, 2018 net income we generated of $34.9 million. For the year ended June 30, 2019, we generated $105.3 million in Adjusted EBITDA, an increase of 111% over the year ended June 30, 2018 when we generated $49.9 million in Adjusted EBITDA, and our Adjusted EBITDA Margin increased to 31.2% for the year ended June 30, 2019, from 21.4% for the year ended June 30, 2018.

For the nine month period ended March 31, 2020, we earned $390.1 million of revenue representing 48.3% growth over the $263.1 million of revenue that we earned for the nine month period ended March 31, 2019. Net income increased 2.4% from $59.7 million for the nine month period ended March 31, 2019 to $61.1 million for the nine month period ended March 31, 2020. During the nine month period ended March 31, 2020, we generated $113.9 million in Adjusted EBITDA, an increase of 32.8% over the nine month period ended March 31, 2019, when we generated $85.8 million in Adjusted EBITDA. Our Adjusted EBITDA Margin decreased to 29.2% for the nine month period ended March 31, 2020, from 32.6% for the nine month period ended March 31, 2019.

Adjusted EBITDA and Adjusted EBITDA Margin are Non-GAAP financial measures that we use to measure our operating performance. For a reconciliation of these Non-GAAP financial measures to our GAAP

 

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financial measures, please see “Selected Historical Consolidated Financial and Operating Data—Non-GAAP Financial Measures” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures (Adjusted EBITDA)” in this prospectus.

Industry Trends

We estimate that the total addressable market for the insurance products we distribute is greater than $180 billion. Further, while these markets are already substantial, they are also growing, in part due to a number of highly attractive demographic trends. Our Senior segment serves consumers predominantly in the over 65 age category. The over 65 age category grew at a 3.4% CAGR from 2010 to 2016, and grew from 12.9% of the total population to 15.2% of the total population according to the United States Census Bureau. The over 65 age category is expected to grow at a 3.2% CAGR from 2016 to 2025, by which point it will account for 18.9% of the population, according to the United States Census Bureau. On average, 10,000 “Baby Boomers” are expected to turn 65 every day or nearly 4 million per year, for the next 10 years. As a result, Medicare enrollment is growing steadily, with the number of Medicare enrollees expected to grow from 59.9 million in 2018 (up from 45.5 million in 2008 and 52.5 million in 2013), to approximately 68.4 million in 2023 then rising to 76.7 million by 2028, according to CSG Actuarial. Of this, Medicare Advantage plans are representing an increasing share of the Medicare market. At the end of 2017, there were approximately 20 million Medicare Advantage enrollees, representing approximately 35% penetration of the Medicare market. By 2025, the number of Medicare Advantage enrollees is expected to swell to approximately 38 million, representing a 50% penetration rate of the Medicare market. Medicare Advantage is expected to reach 60% to 70% penetration between 2030 and 2040, according to LEK Consulting, highlighting the pace with which this already large segment of the Medicare market is growing. The degree to which we will realize a corresponding increase in revenue will be determined by our ability to continue to successfully place new Medicare policies for this enlarged potential consumer base.

Our Life segment is one of the country’s largest DTC insurance distributors for term life insurance and provides unbiased comparison shopping for life insurance and ancillary products such as guaranteed issue, final expense, term life express, accidental death and juvenile insurance. The U.S. life insurance market is mature and has experienced annual premium growth of 1.4% since 2013, according to S&P Global. Growth in the life insurance sector is driven by a number of macro-economic factors including population growth, general economic growth and individual wealth accumulation.

Our Auto & Home segment predominantly sells automobile and homeowners insurance. The auto insurance industry has grown at an annual rate of 6.3% from 2013—2018 based on Statutory Direct Premiums Written, according to S&P Global, with 2018 written premium totaling $247 billion. Industry growth is driven by growth in the number of registered vehicles, increases in insurance premium rates and general economic growth. The homeowners insurance industry has grown at an annual rate of 3.8% from 2013—2018 based on Statutory Direct Premiums Written, according to S&P Global, with 2018 written premium totaling $99 billion. Industry growth is driven by growth in housing supply, increases in insurance premium rates and general economic growth.

Recent technological innovations, including the development of machine learning for business applications and the proliferation of smart mobile devices as a means of consumer purchasing, are changing the insurance distribution landscape. As the composition of the U.S. population gradually shifts to the mobile-first generation, consumers are becoming more tech-savvy and comfortable shopping online. The internet plays a role in 8 out of 10 life insurance purchases, according to LIMRA. Additionally, 71% of U.S. auto insurance shoppers obtain online quotes annually, according to Comscore. We believe our proprietary technology platform, vast datasets and use of machine learning in all aspects of our business put us in an excellent position to take advantage of these consumer trends.

Factors Affecting Our Results of Operations

We generate commission revenue from selling policies in the senior health, life and auto and home markets on behalf of our insurance carrier partners, the majority of which compensate us through first year and renewal

 

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commissions. We use our proprietary technology and processes to generate and obtain consumer leads and allocate those leads to agents who are best suited for those consumers. As a result, one of the primary factors affecting our growth is our total number of agents, comprised of both existing core agents and the number of new flex agents that we hire and train to sell new policies. We view agents as a critical component of helping consumers through the purchasing process to enable them to identify the most appropriate coverage that suits their needs. Through our years of experience, we have expanded our recruiting efforts and enhanced our training programs, both of which have allowed us to expand our agent force.

We have also developed proprietary technologies and processes that enable us to expand our lead acquisition efforts to keep pace with our expanding sales force and maintain agent productivity despite the significant growth in number of agents.

The amount of revenue we expect to recognize per policy is based on multiple factors, including our commission rates with our insurance carrier partners and the expected retention rates of different types of policies. The higher our retention rates, the more revenue we expect to generate pursuant to our carrier agreements, which generally entitle us to receive annual renewal commissions for so long as the policyholder renews his or her policy. Additionally, we earn certain volume-based bonuses from some carriers on first-year policies sold, which we refer to as production bonuses and marketing development funds, based on attaining various predetermined target sales levels or other agreed upon objectives, as presented in the consolidated statements of operations as production bonus and other revenue. These commissions that we expect to generate over the life of an approved policy less the cost of acquiring the business is a key component to our overall profitability. Our goal is to maximize policyholder lifetime value by increasing retention rates, which starts by providing consumers with a transparent, valuable and best-in-class consumer experience and making sure they are buying a policy that meets their specific needs.

Our business is highly competitive and we compete with other insurance brokers, brokerages who sell primarily or exclusively online and with insurance carriers who sell directly to consumers. We believe that we compete effectively against these competitors through our platform, which aims to provide best-in-class service to deliver greater transparency, choice and value to the consumer.

Our business is seasonal with 36% of our revenue for the year ended June 30, 2019, generated during our second quarter. This is driven by the size and seasonality of our Senior segment, which generated 45% of its revenue during the second quarter. AEP is the main driver of this seasonality and we meet this seasonal demand by hiring flex agents in our first quarter and training them for up to 10 weeks before they start selling during AEP in the second quarter.

Financial Highlights for the Nine Month Period Ended March 31, 2020

 

   

Total revenue increased 48% from the nine month period March 31, 2019 to $390.1 million;

 

   

Net income and Adjusted EBITDA, a non-GAAP measure, increased 2% and increased 33%, respectively, from the nine month period ended March 31, 2019, to $61.1 million and $113.9 million, respectively;

 

   

Senior revenue increased 73% from the nine month period ended March 31, 2019 to $273.8 million;

 

   

Senior total approved policies increased 72% from the nine month period ended March 31, 2019 to 234,955 policies;

 

   

Life revenue increased 10% from the nine month period ended March 31, 2019 to $87.5 million; and

 

   

Auto & Home revenue increased 15% from the nine month period ended March 31, 2019 to $29.1 million.

 

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Financial Highlights for the Year Ended June 30, 2019

 

   

Total revenue increased 44% from the year ended June 30, 2018 to $337.5 million;

 

   

Net income and Adjusted EBITDA, a non-GAAP measure, increased 108% and 111%, respectively, from the year ended June 30, 2018, to $72.6 million and $105.3 million, respectively;

 

   

Senior revenue increased 88% from the year ended June 30, 2018 to $192.3 million;

 

   

Senior total approved policies increased 58% from the year ended June 30, 2018 to 168,742 policies;

 

   

Life revenue increased 13% from the year ended June 30, 2018 to $110.5 million; and

 

   

Auto & Home revenue increased 5% from the year ended June 30, 2018 to $35.1 million.

Response to COVID-19

With social distancing measures having been implemented to curtail the spread of COVID-19, we enacted a robust business continuity plan, including a work-from-home policy for all of our agents and other employees. We believe our technology platform and pre-existing remote agent capabilities have allowed for a seamless transition to a remote working environment without any material impacts to our business, highlighting the resilience of our business model. We believe that a business like ours is well-suited to navigate the current environment in which consumers are particularly focused on healthcare issues and mortality and social distancing requirements push consumers to conduct business remotely, while the underlying demand dynamics for our core products remains unchanged. We further believe that our remote agent platform and our commission-based agent compensation model continue to provide agents with productivity incentives and a stable and attractive source of income, thereby allowing us to continue to retain and attract agents. Further, as consumers become more comfortable with conducting business remotely, we believe consumer adoption of distribution models such as ours may continue to accelerate long after the COVID-19 pandemic ends.

The extent to which the COVID-19 outbreak affects our business will depend on future developments in the United States and around the world, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions required to contain and treat it, among others. Although the extent of the effect of the COVID-19 pandemic on our business and financial results is uncertain, the effects of a continued and prolonged public health crisis such as the COVID-19 pandemic could have a material negative impact on our business, operating results and financial condition. See “Risk Factors—Risks Related to Our Business and Industry—The COVID-19 pandemic could adversely affect our business, operating results and financial condition” for additional information.

Key Business and Operating Metrics by Segment

In addition to traditional financial metrics, we rely upon certain business and operating metrics to estimate and recognize commission revenue, evaluate our business performance and facilitate our operations. In our Senior segment, our primary product, Medicare Advantage, pays us flat commission rates based on the number of policies we sell on behalf of our insurance carrier partners. Therefore, we have determined that units and unit metrics are the most appropriate measures to evaluate the performance of the Senior segment. In our Life and Auto & Home segments, we are typically paid a commission that is a percent of the premium that we generate for our insurance carrier partners. Therefore, we have determined that premium-based metrics are the most relevant measures to evaluate the performance of these segments. Below are the most relevant business and operating metrics for each segment:

 

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Senior

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:

 

     Fiscal Year Ended
June 30,
     Nine Months Ended
March 31,
 
     2019      2018      2020      2019  

Medicare Advantage

     119,562        57,973        205,270        98,816  

Medicare Supplement

     23,593        27,059        16,383        20,052  

Dental, Vision and Hearing

     36,619        27,571        52,806        24,941  

Prescription Drug Plan

     12,691        11,330        11,135        11,200  

Other

     5,746        9,984        3,612        5,454  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     198,211        133,917        289,206        160,463  

Total submitted policies increased by 48% for the year ended June 30, 2019 compared to the year ended June 30, 2018. The increase was driven primarily by a 106% increase in MA submitted policies and a 33% increase in dental, vision and hearing submitted policies. These increases were partially offset by a 13% decrease in Medicare Supplement submitted policies. The increase in submitted policies was primarily due to the increase in the number of agents we employ. We increased the number of core and flex productive agents by 54% and 41%, respectively, from 2018, particularly during AEP and OEP. AEP tends to drive more Medicare Advantage volume than Medicare Supplement volume, and the increase in popularity of Medicare Advantage plans, some of which have zero premiums associated with them, also contributed to the decrease in Medicare Supplement submitted policies. Additionally, the expansion of OEP for 2019, which enabled Medicare Advantage consumers to switch their plans between January 1 and March 31, also increased the number of MA policies we sold year over year, contributing to the decrease in MS submitted policies as well.

Total submitted policies increased by 80% for the nine month period ended March 31, 2020 compared to the nine month period ended March 31, 2019. The increase was driven primarily by a 108% increase in MA submitted policies and a 112% increase in dental, vision and hearing submitted policies. These increases were partially offset by an 18% decrease in Medicare Supplement submitted policies. The increase in submitted policies was primarily due to the increase in the number of agents we employ. During the nine month period ended March 31, 2020, we increased the number of average productive agents by 56% from the nine month period ended March 31, 2019. AEP and OEP tend to drive more Medicare Advantage volume than Medicare Supplement volume, and the increase in popularity of Medicare Advantage plans, some of which have zero premiums associated with them, also contributed to the decrease in Medicare Supplement submitted policies.

 

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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:

 

     Fiscal Year Ended
June 30,
     Nine Months Ended
March 31,
 
     2019      2018      2020      2019  

Medicare Advantage

     107,665        50,255        171,099        88,523  

Medicare Supplement

     16,593        19,310        11,740        14,055  

Dental, Vision and Hearing

     28,643        20,247        38,992        19,567  

Prescription Drug Plan

     11,739        10,203        10,528        10,567  

Other

     4,102        6,867        2,596        3,924  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     168,742        106,882        234,955        136,636  

In general, the relationship between submitted policies and approved policies has been steady over time. Therefore, factors impacting the number of submitted policies also impact the number of approved policies.

Total approved policies increased by 58% for the year ended June 30, 2019 compared to the year ended June 30, 2018. The increase was driven primarily by a 114% increase in MA approved policies and a 41% increase in dental, vision and hearing approved policies. These increases were partially offset by a 14% decrease in Medicare Supplement approved policies. Fluctuations in approved policies are in direct correlation to submitted policies; therefore, the increases in the number of core and flex productive agents and the dynamics of AEP and OEP noted above, also resulted in the increase in approved policies compared to the year ended June 30, 2018.

Total approved policies increased by 72% for the nine month period ended March 31, 2020 compared to the nine month period ended March 31, 2019. The increase was driven primarily by a 93% increase in MA approved policies and a 99% increase in dental, vision and hearing approved policies. These increases were partially offset by a 16% decrease in Medicare Supplement approved policies. Fluctuations in approved policies are in direct correlation to submitted policies; therefore, the increases in the number of core and flex productive agents and the dynamics of AEP noted above, also resulted in the increase in approved policies compared to the nine month period ended March 31, 2019.

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 estimate of the future renewal commissions is determined using contracted renewal commission rates constrained by a persistency-adjusted 10-year renewal period based on a combination of our historical experience and available industry and insurance carrier historical experience to estimate renewal revenue only to the extent probable that a material reversal in revenue would not be expected to occur. These factors may result in varying values from period to period. The lifetime value of commissions per approved policy represents commissions only from policies sold during the period. That figure excludes renewals during the period from policies originally sold in a prior period with insurance carrier partners whose contracts preclude us from recognizing variable consideration for estimated renewal commissions and updated estimates of prior period variable consideration based on actual policy renewals in the current period.

 

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The following table shows the lifetime value of commissions per approved policy for the periods presented:

 

     Fiscal Year Ended
June 30,
     Nine Months Ended
March 31,
 
(dollars per policy):    2019      2018      2020      2019  

Medicare Advantage

   $ 1,279      $ 1,235      $ 1,297      $ 1,283  

Medicare Supplement

     1,312        1,184        1,372        1,287  

Dental, Vision and Hearing

     152        141        146        144  

Prescription Drug Plan

     267        285        229        266  

Other

     621        362        99        623  

The lifetime value of commissions per Medicare Advantage approved policy increased 4% for the year ended June 30, 2019 compared to the year ended June 30, 2018. The increase was primarily due to an increase in our retention rates for MA policies. Medicare Supplement lifetime value of commissions per approved policy increased 11% for the year ended June 30, 2019 compared to the year ended June 30, 2018. The increase was primarily due to a carrier mix shift of policies to carriers that pay us higher commissions.

The lifetime value of commissions per Medicare Advantage approved policy increased 1% for the nine month period ended March 31, 2020 compared to the nine month period ended March 31, 2019. Medicare Supplement lifetime value of commissions per approved policy increased 7% for the nine month period ended March 31, 2020 compared to the nine month period ended March 31, 2019. The increase was primarily due to a carrier mix shift of policies to carriers that pay us higher commissions.

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, renewals from policies originally sold in a prior period with insurance carrier partners whose contracts preclude us from recognizing variable consideration for estimated renewal commissions 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.

 

 

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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:

 

     Fiscal Year Ended
June 30,
    12 Months Ended
March 31,
 
(dollars per approved policy):    2019     2018     2020     2019  

Medicare Advantage and Medicare Supplement approved policies

     124,258       69,565       204,519       115,518  

Medicare Advantage and Medicare Supplement commission per MA / MS policy

   $ 1,283     $ 1,221     $ 1,300     $ 1,267  

Other commission per MA/MS policy

     81       119       51       91  

Other per MA / MS policy

     183       133       154       178  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue per MA / MS policy

     1,547       1,473       1,505       1,536  

Total operating expenses per MA / MS policy

     (822     (945     (891     (836
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA per MA / MS policy

   $ 725     $ 528     $ 614     $ 700  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA Margin per MA / MS policy

     47     36     41     46

Revenue / CAC multiple

     4.0x       3.2x       3.6x       3.8x  

Total revenue per policy increased 5% for the year ended June 30, 2019 compared to the year ended June 30, 2018, due to a shift in mix to MA, the higher persistency of MA policies, higher commissions on MS policies due to carrier mix and an increase in the amount of marketing development funds we received from carriers. Total cost per policy decreased 13% for the year ended June 30, 2019 compared to the year ended June 30, 2018, due to an improvement in the efficiency of our marketing and advertising expenses which drove a lower cost of acquisition per approved policy and the benefit of scale within our sales and fulfillment expenses.

Total revenue per policy decreased 2% for the 12 months ended March 31, 2020 compared to the 12 months ended March 31, 2019, due to a decrease in the amount of other ancillary insurance policies sold as a percent of MA/MS policies and lower marketing development funds received per approved MA/MS policy due to a shift in mix towards carriers that do not pay us marketing development funds. These decreases were partially offset by higher commissions on MS policies due to carrier mix and a one-time positive adjustment for estimated renewal commissions related to an amendment to a carrier contract that previously precluded us from recognizing variable consideration. Total cost per policy increased 6% for the 12 months ended March 31, 2020, compared to the 12 months ended March 31, 2019, due to an increase in our marketing and advertising expense, including an increase in marketing spend intended to drive growth during OEP. Sales and fulfillment expense per approved policy also increased as a result of our employing flex agents during both AEP and OEP, instead of employing flex agents just during AEP, as in prior years.

Life

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 are for term life and permanent life insurance policies, while ancillary premiums are for other 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.

 

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The following table shows core premiums and ancillary premiums for the periods presented:

 

     Fiscal Year Ended
June 30,
     Nine Months Ended
March 31,
 
(in thousands):    2019      2018      2020      2019  

Core Premiums

   $ 75,681      $ 71,753      $ 56,486      $ 55,424  

Ancillary Premiums

     14,286        6,601        17,754        9,239  

Total core premiums increased 5% for the year ended June 30, 2019 compared to the year ended June 30, 2018, due to an increase in the average premium per policy sold. This was driven by new initiatives in 2019 that increased the term of policies we sell on behalf of our insurance carrier partners (longer term policies drive more premium) and enabled customers to add additional coverage once they had been approved for their policy. Total ancillary premiums increased 116% for the year ended June 30, 2019 compared to the year ended June 30, 2018, due to a 124% increase in the number of agents selling final expense and other ancillary insurance products.

Total core premiums increased 2% for the nine month period ended March 31, 2020 compared to the nine month period ended March 31, 2019, due to increases in the average face amount of policies we sell which drives up the average premium per policy sold. Total ancillary premiums increased 92% for the nine month period ended March 31, 2020 compared to the nine month period ended March 31, 2019, due to a 58% increase in the number of policies sold as a result of more agents selling final expense and other ancillary insurance products and a 22% increase in average premium per product.

Auto & Home

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:

 

     Fiscal Year Ended
June 30,
     Nine Months Ended
March 31,
 
(in thousands):    2019      2018      2020      2019  

Premiums

   $ 56,719      $ 50,460      $ 48,925      $ 40,117  

Total premiums increased 12% for the year ended June 30, 2019 compared to the year ended June 30, 2018, due to hiring more agents for the Auto & Home segment which resulted in an increase in the number of policies sold.

Total premiums increased 22% for the nine month period ended March 31, 2020 compared to the nine month period ended March 31, 2019, primarily due to hiring more agents for the Auto & Home segment which resulted in an increase in the number of policies sold.

 

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Adjusted EBITDA

Adjusted EBITDA for the Nine Month Period Ended March 31, 2020

The following table reconciles Adjusted EBITDA and net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, for the nine month period ended March 31, 2020:

 

(in thousands)    Senior      Life      Auto &
Home
     Corp &
Elims
    Consolidated  

Net income

              $ 61,098  

Interest expense

                16,239  

Income tax expense

                19,110  

Depreciation and amortization

                5,273  

Non-recurring expenses (1)

                2,648  

Share-based compensation expense

                9,283  

Loss on disposal of property, equipment and software

                235  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Adjusted EBITDA

   $ 112,352      $ 15,552      $ 5,594      $ (19,612   $ 113,886  

 

(1)

These expenses consist of one-time consulting expenses associated with adopting ASC 606, non-recurring compensation to certain former Board members, non-restructuring severance expenses, employer payroll taxes on the one-time Distribution to stock option holders, costs related to our initial public offering, and expenses related to business continuity in response to the COVID-19 pandemic.

Adjusted EBITDA for the Nine Month Period Ended March 31, 2019

The following table reconciles Adjusted EBITDA and net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, for the nine month period ended March 31, 2019:

 

(in thousands)    Senior      Life      Auto &
Home
     Corp &
Elims
    Consolidated  

Net income

              $ 59,692  

Interest expense

                1,122  

Income tax expense

                18,200  

Depreciation and amortization

                3,446  

Non-recurring expenses (1)

                3,180  

Share-based compensation expense

                67  

Loss on disposal of property, equipment and software

                52  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Adjusted EBITDA

   $ 77,179      $ 16,721      $ 5,540      $ (13,681   $ 85,759  

 

(1)

These expenses consist primarily of one-time consulting expenses associated with adopting ASC 606, non-recurring compensation to certain former Board members, restructuring expenses consisting primarily of expenses associated with initiatives to reduce costs and consolidate leadership and back office functions from San Francisco to Kansas City, and non-restructuring severance expenses.

 

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Adjusted EBITDA for the Year Ended June 30, 2019

The following table reconciles Adjusted EBITDA and net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, for the year ended June 30, 2019:

 

(in thousands)    Senior      Life      Auto &
Home
     Corp &
Elims
    Consolidated  

Net income

              $ 72,579  

Interest expense

                1,660  

Income tax expense

                22,034  

Depreciation and amortization

                4,702  

Non-recurring expenses (1)

                1,691  

Restructuring expenses (2)

                2,305  

Share-based compensation expense

                86  

Loss on disposal of property, equipment and software

                221  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Adjusted EBITDA

   $ 90,174      $ 25,821      $ 7,817      $ (18,534   $ 105,278  

 

(1)

These expenses consist primarily of one-time consulting expenses associated with adopting ASC 606, non-recurring compensation to certain Board members and non-restructuring severance expenses.

(2)

Restructuring expenses consist primarily of expenses associated with initiatives to reduce costs and consolidate leadership and back office functions from San Francisco to Kansas City.

Adjusted EBITDA for the Year Ended June 30, 2018

The following table reconciles Adjusted EBITDA and net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, for the year ended June 30, 2018:

 

(in thousands)    Senior      Life      Auto &
Home
     Corp &
Elims
    Consolidated  

Net income

              $ 34,899  

Interest expense

                929  

Income tax expense

                6,619  

Depreciation and amortization

                3,468  

Non-recurring expenses (1)

                436  

Restructuring expenses (2)

                2,808  

Share-based compensation expense

                67  

Loss on disposal of property, equipment and software

                700  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Adjusted EBITDA

   $ 36,688      $ 22,969      $ 9,221      $ (18,952   $ 49,926  

 

(1)

These expenses consist primarily of one-time consulting expenses associated with adopting ASC 606, non-recurring compensation to certain Board members and non-restructuring severance expenses.

(2)

Restructuring expenses consist primarily of expenses associated with initiatives to reduce costs and consolidate leadership and back office functions from San Francisco to Kansas City.

Key Components of our Results of Operations

Revenue

We earn commissions for the sale of first year and renewal policies from our insurance carrier partners, which are presented in our consolidated statements of operations as commission revenue. Additionally, we earn certain volume-based bonuses from some carriers on first-year policies sold, which we refer to as production bonuses and marketing development funds, based on attaining various predetermined target sales levels or other

 

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agreed upon objectives, as presented in the consolidated statements of operations as production bonus and other revenue (“other revenue”). Our contracts with our insurance carrier partners contain a single performance obligation satisfied at the point in time to which we allocate the total transaction price. The transaction price is identified as the first year commission due upon the initial sale of a policy as well as an estimate of future renewal commissions and other revenue when applicable. After a policy is sold, we have no material additional or recurring obligations to the policyholder or the insurance carrier partner. Therefore, we do not incur any additional expense related to our receipt of future renewal commissions or other revenue. All of the costs associated with the sale of an individual policy are incurred prior to or at the time of the initial sale of an individual policy.

Operating Costs and Expenses

Cost of Revenue

Cost of revenue represents the direct costs associated with fulfilling our obligations to our insurance carrier partners for the sale of insurance policies. Such costs primarily consist of compensation and related benefit costs for agents, fulfillment specialists and others directly engaged in servicing policy holders. It also includes licensing costs for our agents and allocations for facilities, telecommunications and software maintenance costs, which are all based on headcount. Facilities costs include rent and utilities expenses and other costs to maintain our office locations. Telecommunications and software maintenance costs includes costs related to the internal phone systems and various software applications that our agents use to make sales. These costs directly correlate to the number of agents we have as we are primarily charged based on per person usage for the phone systems and software applications.

Marketing and Advertising

Marketing and advertising expenses consist primarily of the direct costs associated with marketing and advertising of our services, such as television and radio commercials and online advertising. These direct costs generally represent over 90% of our marketing and advertising expenses. Other costs consist of compensation and other expenses related to marketing, business development, partner management, public relations, carrier relations personnel who support our offerings, and allocations for facilities, telecommunications and software maintenance costs. Our marketing and advertising costs increase during AEP and OEP to generate more leads during these high-volume periods.

Technical Development

Technical development expenses consist primarily of compensation and benefits costs for internal and external personnel associated with developing, maintaining and enhancing our applications, infrastructure and other IT-related functions as well as allocations for facilities, telecommunications and software maintenance costs.

General and Administrative

General and administrative expenses include compensation and benefits costs for staff working in our executive, finance, accounting, recruiting, human resources, administrative, business intelligence and data science departments. These expenses also include fees paid for outside professional services, including audit, tax and legal fees and allocations for facilities, telecommunications and software maintenance costs.

Restructuring

We account for employee-related costs, including severance and other termination benefits, included in restructuring expense based on long-standing benefit practices, local statutory requirements and contract

 

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termination costs. Restructuring liabilities are recognized at fair value in the period the liability is incurred. In some jurisdictions, we have ongoing benefit arrangements under which we record the estimated severance and other termination benefits when such costs are deemed probable and estimable, approved by the appropriate corporate management and if actions required to complete the termination plan indicate that it is unlikely that significant changes to the plan will be made or the plan will be withdrawn. In jurisdictions where there is not an ongoing benefit arrangement, we record estimated severance and other termination benefits when appropriate corporate management has committed to the plan and the benefit arrangement is communicated to the affected employees. A liability for costs to terminate a contract before the end of its term is recognized at fair value when we terminate the contract in accordance with its terms. Estimates are evaluated periodically to determine whether an adjustment is required.

The following table sets forth our operating results and related percentage of total revenues for the periods presented:

 

     Nine Months Ended March 31,  
(in thousands)    2020     2019  

Revenue

          

Commission

   $ 353,926        91   $ 231,003        88

Production bonus and other

     36,142        9     32,067        12
  

 

 

    

 

 

   

 

 

    

 

 

 

Total revenue

     390,068        100     263,070        100

Operating costs and expenses

          

Cost of revenue

     126,488        32     80,294        31

Marketing and advertising

     132,246        34     84,427        32

Technical development

     9,088        2     6,232        2

General and administrative

     25,779        7     13,095        5
  

 

 

    

 

 

   

 

 

    

 

 

 

Total operating costs and expenses

     293,601        75     184,048        70
  

 

 

    

 

 

   

 

 

    

 

 

 

Income from operations

     96,467        25     79,022        30

Interest expense

     (16,239      (4 )%      (1,122      NM (1) 

Other expenses

     (20      NM (1)      (8      NM (1) 
  

 

 

    

 

 

   

 

 

    

 

 

 

Income before income tax expense

     80,208        21     77,892        30

Income tax expense

     19,110        5     18,200        7
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income

   $ 61,098        16   $ 59,692        23
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1)

Not meaningful.

Revenue

The following table presents our commission revenue, production bonus and other revenue, and total revenue for the periods presented, and the dollar and percentage changes from the prior year:

 

(dollars in thousands)    Nine Months
Ended
March 31,
2020
    $      %     Nine Months
Ended
March 31,
2019
 

Commission

   $ 353,926     $ 122,923        53   $ 231,003  

Percentage of total revenue

     91          88

Production bonus and other

     36,142       4,075        13     32,067  

Percentage of total revenue

     9          12

Total revenue

   $ 390,068     $ 126,998        48   $ 263,070  

Commission revenue increased $122.9 million, or 53%, due to increases in Senior, Life, and Auto & Home commission revenues of $112.9 million, $7.1 million and $3.1 million, respectively. For Senior, the revenue

 

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growth was driven by the significant increase in our agent count that led to a 93% increase in Medicare Advantage commission revenue. Life’s $7.1 million revenue growth was driven by an increase of $6.7 million in ancillary revenue as a result of more agents selling final expense and other ancillary insurance products, increasing the number of policies sold by 92% over the nine month period ended March 31, 2019. The revenue growth for Auto & Home was primarily due to hiring more agents which resulted in an increase in the number of policies sold along with a 22% increase in premium sold. The $4.1 million increase in production bonus and other revenue was primarily driven by the $2.5 million increase in marketing development funds received for Senior, from $15.1 million during the nine month period ended March 31, 2019, to $17.5 million during the nine month period ended March 31, 2020.

Operating Costs and Expenses

Cost of Revenue

The following table presents our cost of revenue for the periods presented, and the dollar and percentage changes from the prior year:

 

(dollars in thousands)    Nine Months
Ended
March 31,
2020
    $      %     Nine Months
Ended
March 31,
2019
 

Cost of revenue

   $ 126,488     $ 46,194        58   $ 80,294  

Percentage of total revenue

     32          31

Cost of revenue increased $46.2 million, or 58%, primarily due to a $36.7 million increase in compensation expenses driven by the growth in the number of agents, mostly within the Senior segment. The increase in headcount also drove increases in the allocations of $4.7 million for facilities, telecommunications and software maintenance costs and $2.0 million for licensing costs.

Marketing and Advertising

The following table presents our marketing and advertising expenses for the periods presented, and the dollar and percentage changes from the prior year:

 

(dollars in thousands)    Nine Months
Ended
March 31,
2020
    $      %     Nine Months
Ended
March 31,
2019
 

Marketing and advertising

   $ 132,246     $ 47,819        57   $ 84,427  

Percentage of total revenue

     34          32

Marketing and advertising expenses increased $47.8 million, or 57%, primarily due to a $37.4 million increase in Senior marketing and advertising costs associated with generating more leads for our larger agent base to consume, especially during AEP and OEP. Marketing and advertising costs also increased $4.3 million in Life driven by an increase in leads specifically for our final expense policies. Compensation costs related to our marketing personnel increased $3.0 million as we increased the number of people supporting our marketing organization to produce more leads.

 

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Technical Development

The following table presents our technical development expenses for the periods presented, and the dollar and percentage changes from the prior year:

 

(dollars in thousands)    Nine Months
Ended
March 31,
2020
    $      %     Nine Months
Ended
March 31,
2019
 

Technical development

   $ 9,088     $ 2,856        46   $ 6,232  

Percentage of total revenue

     2          2

Technical development expenses increased $2.9 million, or 46%, primarily due to a $1.9 million increase in professional fees associated with external IT resources and $0.8 million increase in compensation costs associated with our IT personnel to support the additional agent headcount.

General and Administrative

The following table presents our general and administrative expenses for the periods presented, and the dollar and percentage changes from the prior year:

 

(dollars in thousands)    Nine Months
Ended
March 31,
2020
    $      %     Nine Months
Ended
March 31,
2019
 

General and administrative

   $ 25,779     $ 12,684        97   $ 13,095  

Percentage of total revenue

     7          5

General and administrative expenses increased $12.7 million, or 97%, primarily due to the Distribution to our stock option holders of $9.2 million. We also incurred $2.4 million in higher compensation costs due to growth in the number of general & administrative employees required to support the continued growth of our business and $2.5 million in higher professional fees driven by outside recruiting fees and higher audit costs. This was offset by a decrease in restructuring costs of $2.4 million as the majority of our restructuring activities took place in 2017 and 2018.

Interest Expense

The following table presents our interest expense for the periods presented, and the dollar and percentage changes from the prior year:

 

(dollars in thousands)    Nine Months
Ended
March 31,
2020
    $      %     Nine Months
Ended
March 31,
2019
 

Interest expense

   $ 16,239     $ 15,117        1,347   $ 1,122  

Percentage of total revenue

     4          NM (1) 

 

(1)

Not meaningful.

Interest expense increased $15.1 million, or 1,347%, primarily as a result of interest incurred on the Term Loan.

 

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Income Tax Expense

The following table presents our provision for income taxes for the periods presented, and the dollar and percentage changes from the prior year:

 

(dollars in thousands)    Nine Months
Ended
March 31,
2020
    $      %     Nine Months
Ended
March 31,
2019
 

Provision for income tax

   $ 19,110     $ 910        5   $ 18,200  

Percentage of total revenue

     5          7

Effective tax rate

     23.8          23.4

For the nine month period ended March 31, 2020, we recorded a provision for income taxes of $19.1 million, representing an effective tax rate of 23.8%, which was higher than the statutory federal rate primarily due to the net effect of state income taxes incurred and non-deductible meals and entertainment, partially offset by certain state credits. For the nine month period ended March 31, 2019, we recorded a provision for income taxes of $18.2 million, representing an effective tax rate of 23.4%, which was higher than the statutory federal rate primarily due to the net effect of state income taxes incurred and non-deductible meals and entertainment, partially offset by certain state credits.

The following table sets forth our operating results and related percentage of total revenues for the periods presented:

 

(in thousands)    Fiscal Year Ended
June 30, 2019
    Fiscal Year Ended
June 30, 2018
 

Revenue

          

Commission

   $ 296,000        88   $ 206,611        88

Production bonus and other

     41,469        12     27,077        12
  

 

 

    

 

 

   

 

 

    

 

 

 

Total revenue

     337,469        100     233,688        100

Operating costs and expenses

          

Cost of revenue

     104,421        31     83,340        36

Marketing and advertising

     110,265        33     82,122        35

Technical development

     8,326        2     9,913        4

General and administrative

     15,864        5     12,349        5

Restructuring

     2,305        1     2,808        1
  

 

 

    

 

 

   

 

 

    

 

 

 

Total operating costs and expenses

     241,181        71     190,532        82
  

 

 

    

 

 

   

 

 

    

 

 

 

Income from operations

     96,288        29     43,156        18

Interest expense

     (1,660      NM (1)      (929      NM (1) 

Other expenses

     (15      NM (1)      (709      NM (1) 
  

 

 

    

 

 

   

 

 

    

 

 

 

Income before income tax expense

     94,613        28     41,518        18

Income tax expense

     22,034        7     6,619        3
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income

   $ 72,579        21   $ 34,899        15
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1)

Not meaningful.

 

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Revenue

The following table presents our commission revenue, production bonus and other revenue, and total revenue for the years ended June 30, 2019 and 2018, and the dollar and percentage changes from the prior year:

 

(dollars in thousands)    Fiscal Year
Ended
June 30, 2019
    $      %     Fiscal Year
Ended
June 30, 2018
 

Commission

   $ 296,000     $ 89,389        43   $ 206,611  

Percentage of total revenue

     88          88

Production bonus and other

     41,469       14,392        53     27,077  

Percentage of total revenue

     12          12

Total revenue

   $ 337,469     $ 103,781        44   $ 233,688  

Commission revenue increased $89.4 million, or 43%, due to increases in Senior, Life, and Auto & Home commission revenues of $76.9 million, $11.4 million and $1.1 million, respectively. For Senior, the revenue growth was driven by the significant increase in our agent count that led to a 122% increase in Medicare Advantage commission revenue. Life’s $11.4 million revenue growth was driven by $4.1 million growth in core term revenue and $7.3 million growth in ancillary revenue. The revenue growth for Auto & Home was driven by a 15% increase in first year commission, offset by an increase in revenue from insurance carrier partners whose contracts preclude us from recognizing variable consideration for estimated renewal commissions and therefore we only recognize the first year commission revenue when a policy is initially sold and then recognize renewal commission revenue when the policy renews in future years. The $14.4 million increase in production bonus and other revenue was primarily driven by the $13.0 million increase in marketing development funds received for Senior, from $5.4 million in 2018 to $18.4 million in 2019.

Operating Costs and Expenses

Cost of Revenue

The following table presents our cost of revenue for the periods presented, and the dollar and percentage changes from the prior year:

 

(dollars in thousands)    Fiscal Year
Ended
June 30, 2019
    $      %     Fiscal Year
Ended
June 30, 2018
 

Cost of revenue

   $ 104,421     $ 21,081        25   $ 83,340  

Percentage of total revenue

     31          36

Cost of revenue increased $21.1 million in 2019 compared to 2018, primarily due to a $16.8 million increase in compensation expenses driven by the growth in the number of agents, mostly within the Senior segment. The increase in headcount also drove increases in the allocations of $2.4 million for facilities, telecommunications and software maintenance costs and $1.3 million for licensing costs.

Marketing and Advertising

The following table presents our marketing and advertising expenses for the periods presented, and the dollar and percentage changes from the prior year:

 

(dollars in thousands)    Fiscal Year
Ended
June 30, 2019
    $      %     Fiscal Year
Ended
June 30, 2018
 

Marketing and advertising

   $ 110,265     $ 28,143        34   $ 82,122  

Percentage of total revenue

     33          35

 

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Marketing and advertising expenses increased $28.1 million, or 34%, in 2019, primarily due to a $16.9 million increase in Senior marketing and advertising costs associated with generating more leads for our larger agent base to consume, especially during AEP and OEP. Marketing and advertising costs also increased $8.5 million in our Life segment driven by an increase in leads specifically for our final expense policies. Compensation costs related to our marketing personnel increased $1.9 million as we increased the number of people supporting our marketing organization to produce more leads.

Technical Development

The following table presents our technical development expenses for the periods presented, and the dollar and percentage changes from the prior year:

 

(dollars in thousands)    Fiscal Year
Ended
June 30, 2019
    $      %     Fiscal Year
Ended
June 30, 2018
 

Technical development

   $ 8,326     $ (1,587      (17 )%    $ 9,913  

Percentage of total revenue

     2          4

Technical development expenses decreased $1.6 million, or 17%, in 2019, primarily due to an increase in the capitalization of internally developed software expenses. A total of $3.8 million was capitalized during the year ended June 30, 2019, versus the year ended June 30, 2018, in which such amounts were not material.

General and Administrative

The following table presents our general and administrative expenses for the periods presented, and the dollar and percentage changes from the prior year:

 

(dollars in thousands)    Fiscal Year
Ended
June 30, 2019
    $      %     Fiscal Year
Ended
June 30, 2018
 

General and administrative

   $ 15,864     $ 3,515        28   $ 12,349  

Percentage of total revenue

     5          5

General and administrative expenses increased $3.5 million, or 28%, for the year ended June 30, 2019, primarily due to $2.4 million in higher compensation costs due to growth in the number of general & administrative employees required to support the continued growth of our business and also an increase in professional fees.

Restructuring

The following table presents our restructuring expense for the periods presented, and the dollar and percentage changes from the prior year:

 

(dollars in thousands)    Fiscal Year
Ended
June 30, 2019
    $      %     Fiscal Year
Ended
June 30, 2018
 

Restructuring charge

   $ 2,305     $ (503      (18 )%    $ 2,808  

Percentage of total revenue

     1          1

Restructuring expenses decreased $0.5 million, or 18%, in 2019, primarily due to the timing of certain restructuring activities and in some jurisdictions, the ongoing benefit arrangements which require us to record estimated severance and other termination benefits over the period.

 

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Income Tax Expense

The following table presents our provision for income taxes for the periods presented, and the dollar and percentage changes from the prior year:

 

(dollars in thousands)    Fiscal Year
Ended
June 30, 2019
    $      Fiscal Year
Ended
June 30, 2018
 

Provision for income tax

   $ 22,034     $ 15,415      $ 6,619  

Percentage of total revenue

     7        3

Effective tax rate

     23.3        15.9

For the year ended June 30, 2019, we recorded a provision for income taxes of $22.0 million, representing an effective tax rate of 23.3%, which was higher than the statutory federal rate primarily due to the net effect of state income taxes incurred. For the year ended June 30, 2018, we recorded a provision for income taxes of $6.6 million, representing an effective tax rate of 15.9%, which was lower than the statutory federal rate primarily due to the re-measurement of deferred income tax liabilities related to the corporate tax rate reduction in the JOBS Act.

Segment Information

Our reportable segments have been determined in accordance with Accounting Standards Codification (“ASC”) 280, Segment Reporting. We currently have three reportable segments: 1) Senior, 2) Life and 3) Auto & Home. In addition, we account for non-operating activity, share-based compensation expense, certain intersegment eliminations and the costs of providing corporate and other administrative services in our administrative division, Corporate & Eliminations. These services are not directly identifiable with our reportable segments and are shown in the tables below to reconcile the reportable segments to the consolidated financial statements.

We report segment information based on how our chief executive officer, who is the chief operating decision maker (“CODM”), regularly reviews our operating results, allocates resources and makes decisions regarding business operations. The performance measures of the segments include total revenue and Adjusted EBITDA because management believes that such information is the most relevant in evaluating the results of the respective segments relative to other entities that operate in the same industries.

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; 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. Our CODM does not separately evaluate assets by segment; therefore, assets by segment are not presented.

 

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The following table presents information about the reportable segments for the nine month period ended March 31, 2020 (in thousands):

 

     Senior     Life     Auto &
Home
    Corp &
Elims
    Consolidated  

Revenue

   $ 273,808     $ 87,543     $ 29,061     $ (344   $ 390,068  

Operating expenses

     (161,456     (71,991     (23,467     (19,248 )(1)      (276,162

Other expenses

     —       —       —       (20     (20
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

     112,352       15,552       5,594       (19,612     113,886  

Loss on disposal of property, equipment and software

             (235

Share-based compensation expense

             (9,283

Non-recurring expenses (2)

             (2,648

Depreciation and amortization

             (5,273

Income tax expense

             (19,110

Interest expense

             (16,239
          

 

 

 

Net Income

           $ 61,098  

 

(1)

Operating expenses in the Corp & Elims division primarily include $10.7 million in salaries and benefits for certain general, administrative, and IT related departments and $4.3 million in professional services fees.

(2)

These expenses consist of one-time consulting expenses associated with adopting ASC 606, non-recurring compensation to certain former board members, non-restructuring severance expenses, employer payroll taxes on the one-time Distribution to stock option holders, costs related to our initial public offering, and expenses related to business continuity in response to the COVID-19 pandemic.

The following table presents information about the reportable segments for the nine month period ended March 31, 2019:

 

(in thousands)    Senior     Life     Auto &
Home
    Corp &
Elims
    Consolidated  

Revenue

   $ 158,459     $ 79,585     $ 25,235     $ (209   $ 263,070  

Operating expenses

     (81,280     (62,864     (19,695     (13,464 )(1)      (177,303

Other expenses

     —       —       —       (8     (8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

     77,179       16,721       5,540       (13,681     85,759  

Loss on disposal of property, equipment and software

             (52

Share-based compensation expense

             (67

Non-recurring expenses (2)

             (3,180

Depreciation and amortization

             (3,446

Income tax expense

             (18,200

Interest expense

             (1,122
          

 

 

 

Net Income

           $ 59,692  

 

(1)

Operating expenses in the Corp & Elims division primarily include $8.5 million in salaries and benefits for certain general, administrative, and IT related departments and $3.2 million in professional services fees.

(2)

These expenses consist primarily of one-time consulting expenses associated with adopting ASC 606, non-recurring compensation to certain former board members, restructuring expenses consisting primarily of expenses associated with initiatives to reduce costs and consolidate leadership and back office functions from San Francisco to Kansas City, and non-restructuring severance expenses

 

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The following table presents information about the reportable segments for the year ended June 30, 2019:

 

(in thousands)    Senior     Life     Auto &
Home
    Corp &
Elims
    Consolidated  

Revenue

   $ 192,257     $ 110,493     $ 35,054     $ (335   $ 337,469  

Operating expenses

     (102,083     (84,672     (27,237     (18,184     (232,176

Other expenses

     —       —       —       (15     (15
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

     90,174       25,821       7,817       (18,534     105,278  

Loss on disposal of property, equipment and software

             (221

Share-based compensation expense

             (86

Restructuring

             (2,305

Non-recurring expenses

             (1,691

Depreciation and amortization

             (4,702

Income tax expense

             (22,034

Interest expense

             (1,660
          

 

 

 

Net Income

           $ 72,579  

The following table presents information about the reportable segments for the year ended June 30, 2018:

 

(in thousands)    Senior     Life     Auto &
Home
    Corp &
Elims
    Consolidated  

Revenue

   $ 102,408     $ 98,218     $ 33,348     $ (286   $ 233,688  

Operating expenses

     (65,720     (75,249     (24,127     (18,657     (183,753

Other expenses

     —         —         —         (9     (9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

     36,688       22,969       9,221       (18,952     49,926  

Loss on disposal of property, equipment and software

             (700

Share-based compensation expense

             (67

Restructuring

             (2,808

Non-recurring expenses

             (436

Depreciation and amortization

             (3,468

Income tax expense

             (6,619

Interest expense

             (929
          

 

 

 

Net Income

           $ 34,899  

 

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The table below depicts the disaggregation of revenue by segment and product for the periods presented, and is consistent with how the Company evaluates its segments and financial performance:

 

(dollars in thousands)    Nine Months
Ended
March 31,
2020
    $     %     Nine Months
Ended
March 31,
2019
 

Senior:

        

Commission Revenue

        

Medicare Advantage

   $ 220,536     $ 106,178       93   $ 114,358  

Medicare Supplement

     27,284       6,443       31     20,841  

Prescription Drug Plan

     2,391       (484     (17 )%      2,875  

Dental, Vision and Health

     5,674       2,764       95     2,910  

Other commission revenue

     380       (2,030     (84 )%      2,410  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total commission revenue

     256,265       112,871       79     143,394  

Production bonus and other revenue

     17,543       2,478       16     15,065  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Senior revenue

     273,808       115,349       73     158,459  
  

 

 

   

 

 

   

 

 

   

 

 

 

Life:

        

Commission Revenue:

        

Term

     55,745       321       1     55,424  

Other commission revenue

     15,339       6,733       78     8,606  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total commission revenue

     71,084       7,054       11     64,030  

Production bonus and other revenue

     16,459       904       6     15,555  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Life revenue

     87,543       7,958       10     79,585  
  

 

 

   

 

 

   

 

 

   

 

 

 

Auto & Home:

        

Total commission revenue

     26,921       3,133       13     23,788  

Production bonus and other revenue

     2,140       693       48     1,447  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Auto & Home revenue

     29,061       3,826       15     25,235  
  

 

 

   

 

 

   

 

 

   

 

 

 

Eliminations:

        

Total commission revenue

     (344     (135     65     (209
  

 

 

   

 

 

   

 

 

   

 

 

 

Total commission revenue

     353,926       122,923       53     231,003  

Total production bonus and other revenue

     36,142       4,075       13     32,067  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

   $ 390,068     $ 126,998       48   $ 263,070  
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenue by Segment

For the nine month period ended March 31, 2020, revenue from our Senior segment increased $115.3 million, or 73%, due to a $112.9 million increase in commission revenue and a $2.5 million increase in production bonus and other revenue. The increase in commission revenue was predominantly driven by a 93% increase in MA approved policies. Production bonus and other revenue was driven by an increase in marketing development funds.

For the nine month period ended March 31, 2020, revenue from our Life segment increased $8.0 million, or 10%, due to a $7.1 million increase in commission revenue and a $0.9 million increase in production bonus and other revenue. The increase in commission revenue was driven by a 92% increase in ancillary premium sold, which was the result of our focus on selling more final expense and other ancillary insurance products. Commission revenue also increased as a result of writing 2% more core term life premium. Production bonus and other revenue was driven by the increase in core term life premium sold.

 

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For the nine month period ended March 31, 2020, revenue from our Auto & Home segment increased $3.8 million, or 15%, due to a $3.1 million increase in commission revenue and $0.7 million increase in production bonus and other revenue. The increase in commission revenue and production bonus and other revenue was driven by a 22% increase in premium sold.

Adjusted EBITDA by Segment

Adjusted EBITDA from our Senior segment was $112.4 million for the nine month period ended March 31, 2020, a $35.2 million, or 46%, increase compared to Adjusted EBITDA of $77.2 million for the nine month period ended March 31, 2019. The increase in Adjusted EBITDA was primarily due to a $115.4 million increase in revenue partially offset by an $80.2 million increase in operating costs and expenses primarily attributable to an increase in variable marketing expenses and personnel costs associated with higher headcount that was driven by a significant increase in policies submitted and an increase in the number of licensed agents.

Adjusted EBITDA from our Life segment was $15.6 million for the nine month period ended March 31, 2020, a $1.2 million, or 7%, decrease compared to Adjusted EBITDA of $16.7 million for the nine month period ended March 31, 2019. The decrease in Adjusted EBITDA was primarily due to an $8.0 million increase in revenue partially offset by a $9.1 million increase in operating costs and expenses primarily attributable to an increase in variable marketing expenses and variable sales commission expenses to agents driven by an increase in the amount of premium sold for core and ancillary policies. Adjusted EBITDA was also negatively impacted by our temporarily shifting some of our Life agents into the Senior segment to maximize the opportunity of the AEP and OEP seasonal increase in demand for Senior products.

Adjusted EBITDA from our Auto & Home segment was $5.6 million for the nine month period ended March 31, 2020, a $0.1 million, or 1%, increase compared to Adjusted EBITDA of $5.5 million for the nine month period ended March 31, 2019. The increase in Adjusted EBITDA was primarily due to a $3.8 million increase in revenue offset by a $3.7 million increase in operating costs and expenses primarily attributable to an increase in variable marketing expenses and personnel costs associated with higher headcount that was driven by an increase in premium sold and an increase in the number of licensed agents. Adjusted EBITDA was also negatively impacted by our temporarily shifting some of our Auto & Home agents into the Senior segment to maximize the opportunity of the AEP and OEP seasonal increase in demand for Senior products.

 

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The table below depicts the disaggregation of revenue by segment and product for the periods presented, and is consistent with how the Company evaluates its segments and financial performance:

 

(dollars in thousands)    Fiscal Year
Ended
June 30, 2019
    $     %     Fiscal Year
Ended
June 30, 2018
 

Senior:

        

Commission Revenue

        

Medicare Advantage

   $ 138,526     $ 75,989       122   $ 62,537  

Medicare Supplement

     25,118       (1,071     (4 %)      26,189  

Prescription Drug Plan

     3,209       224       8     2,985  

Dental, Vision and Health

     4,470       1,538       52     2,932  

Other commission revenue

     2,526       181       8     2,345  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total commission revenue

     173,849       76,861       79     96,988  

Production bonus and other revenue

     18,408       12,988       240     5,420  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Senior revenue

     192,257       89,849       88     102,408  
  

 

 

   

 

 

   

 

 

   

 

 

 

Life:

        

Commission Revenue:

        

Term

     76,135       4,184       6     71,951  

Other commission revenue

     13,111       7,261       124     5,850  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total commission revenue

     89,246       11,445       15     77,801  

Production bonus and other revenue

     21,247       830       4     20,417  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Life revenue

     110,493       12,275       12     98,218  
  

 

 

   

 

 

   

 

 

   

 

 

 

Auto & Home:

        

Total commission revenue

     33,240       1,132       4     32,108  

Production bonus and other revenue

     1,814       574       46     1,240  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Auto & Home revenue

     35,054       1,706       5     33,348  
  

 

 

   

 

 

   

 

 

   

 

 

 

Eliminations:

        

Total commission revenue

     (335     (49     17     (286
  

 

 

   

 

 

   

 

 

   

 

 

 

Total commission revenue

     296,000       89,389       43     206,611  

Total production bonus and other revenue

     41,469       14,392       53     27,077  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

   $ 337,469     $ 103,781       44   $ 233,688  
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenue by Segment

For the year ended June 30, 2019, revenue from our Senior segment increased $89.8 million, or 88%, due to a $76.8 million increase in commission revenue and a $13.0 million increase in production bonus and other revenue. The increase in commission revenue was predominantly driven by a 114% increase in MA approved policies and a slight increase in lifetime value per Medicare approved policy. Production bonus and other revenue was driven by an increase in marketing development funds.

For the year ended June 30, 2019, revenue from our Life segment increased $12.3 million, or 12%, due to a $11.4 million increase in commission revenue and $0.8 million increase in production bonus and other revenue. The increase in commission revenue was driven by a 116% increase in ancillary premium sold which was the result of our focus on selling more guaranteed issue and fixed indemnity policies. Commission revenue also increased as a result of writing 5% more core term life premium. Production bonus and other revenue was driven by the increase in core term life premium sold.

For the year ended June 30, 2019, revenue from our Auto & Home segment increased $1.7 million, or 5%, due to a $1.1 million increase in commission revenue and $0.6 million increase in production bonus and other

 

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revenue. The increase in commission revenue was driven by a 12% increase in premium sold, offset by a shift in mix to insurance carrier partners whose contracts preclude us from recognizing variable consideration for estimated renewal commissions and therefore we only recognize the first year commission revenue when a policy is initially sold and then recognize renewal commission revenue when the policy renews in future years. Production bonus and other revenue was driven by the increase in premium sold.

Adjust