SelectQuote, Inc.: Form 10-Q for the period ended Sep 30, 2024

You should read the following discussion and analysis of our financial condition and result of operations together with our condensed consolidated financial statements and footnotes included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry, business and future financial results. Please refer to a discussion of the Company’s forward-looking statements and associated risks in “Cautionary Note Regarding Forward-Looking Statements” in our Annual Report. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors” in our Annual Report and in Part II, Item 1A hereof.

Company Overview

SelectQuote, Inc. (together with its subsidiaries, “SelectQuote”, the “Company”, “we”, “us”) is a leading technology-enabled, direct-to-consumer (“DTC”) distribution and engagement platform for selling insurance policies and healthcare services. Our insurance distribution business, which has operated continuously for nearly 40 years, allows consumers to transparently and conveniently shop for senior health, life, and automobile and 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. In return, we 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 including digital marketing, radio, television, and third-party marketing partners. We monitor our acquisition costs to dynamically allocate our marketing spend to the most attractive channels, benefiting from nearly 40 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 a sales 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, further enhancing our ability to deploy subsequent marketing dollars efficiently and target more high-quality consumer leads. We have built our business model to maximize commissions collected over the life of an approved policy, a metric we refer to as “ lifetime value of commissions” or “LTV”, which is a key component to our overall profitability.

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, tailored analysis for each consumer that maximizes sales, enhances customer retention, and ultimately maximizes LTV’s. 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 (“persistency”), increasing LTV’s and, ultimately, optimizing our financial performance and shareholder value.

SelectQuote has a long history of successful DTC product distribution and consumer engagement, and we bring this same capability to healthcare services. We saw a large opportunity to leverage our existing customer base and distribution model to improve education and access to healthcare services for our senior consumers and to create value for our shareholders and insurance carrier partners. SelectQuote’s value lies in our ability to engage the consumer, capture critical self-reported information in real-time, and then take action on that information to offer each consumer personalized solutions. Our healthcare services business seeks to provide consumers with a wide breadth of products supporting their needs, such as SelectRx, our Patient-Centered Pharmacy HomeTM (“PCPH”) accredited pharmacy, which has already demonstrated SelectQuote’s ability to leverage our strong consumer engagement to drive immediate value using our existing operational infrastructure. Whether through acquisitions or new partnerships, we continue to look for more opportunities to leverage our strengths to expand our healthcare services business.

We evaluate our business using the following three reportable segments:

Senior was launched in 2010 and provides unbiased comparison shopping for Medicare Advantage (“MA”) and Medicare Supplement (“MS”) insurance plans as well as prescription drug and dental, vision, and hearing (“DVH”) plans, and critical illness products. We represent approximately 25 leading, nationally-recognized insurance carrier partners, including UHC, Humana, Aetna, and Wellcare. MA and MS plans accounted for 88% and 89% of our approved Senior policies for the three months ended September 30, 2024 and 2023, respectively, with other ancillary type policies accounting for the remainder.

Healthcare Services, launched in 2021, offers various health-related products and services through SelectRx, Population Health, and most recently, SelectPatient Management. SelectRx offers essential prescription medications, OTC medications, customized medication packaging, and medication therapy management, providing long-term pharmacy care that enables patients to optimize medication adherence to drive positive health outcomes, while enabling patients managing polypharmacy and multiple chronic conditions to remain at home. Through Population Health, we utilize our excellent consumer engagement capabilities to capture valuable self-reported information in real-time for our insurance carrier partners by completing Health Risk Assessments (“HRAs”). We then use that data to take a real-time, proactive, and personalized approach to offer various health-related products and services to the consumer, such as our pharmacy services from SelectRx. In 2024, we launched SelectPatient Management (“SPM”), via a $4.0 million acquisition of an existing chronic care management platform, which offers providers, payers, and Accountable Care Organizations scalable, technology-enhanced services for patients living with chronic conditions. Through consistent, trust-based patient engagement, SPM helps patients navigate the care continuum, focusing on non-clinical factors so physicians can focus on the more critical needs of their patients. We believe that offering these services enables healthcare to be more accessible, convenient, and personalized for our members.

Life is one of the country’s largest and most established DTC insurance distributors for term life insurance, having sold over 2.4 million policies nationwide since our founding in 1985. Our platform provides unbiased comparison shopping for life insurance products such as term life, final expense, and other ancillary products like critical illness, accidental death, and juvenile insurance. We represent approximately 20 leading, nationally-recognized insurance carrier partners, with many of these relationships exceeding 20 years. Term life policies accounted for 38% and 48% of new premium within the Life segment for the three months ended September 30, 2024 and 2023, respectively, with final expense policies accounting for 62% and 52% for the three months ended September 30, 2024 and 2023, respectively.

Our other operations which do not meet the criteria to be a separate reportable segment are consolidated and reported as “All other” which represents a shopping platform for auto, home, and specialty insurance lines.

The three months ended September 30 referenced throughout the commentary below refers to the first quarter and fiscal year-to-date performance of our fiscal years ending on June 30, 2025 and 2024.

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 revenue, evaluate our business performance, and facilitate our operations. In Senior, 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 Senior. For Healthcare Services, our primary source of revenue is pharmacy revenue from SelectRx, so the total number of SelectRx members and the prescriptions shipped per day are the most appropriate measures used to evaluate the performance of Healthcare Services as these metrics drive top-line revenue. In Life, 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 the segment. Below are the most relevant business and operating metrics for each segment:

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.

The following table shows the number of submitted policies for the periods presented:

(1) Represents the submitted policies for medicare supplement, dental, vision and hearing, prescription drug plan and other.

Total submitted policies for all products decreased 1% for the three months ended September 30, 2024, compared to the three months ended September 30, 2023. This was driven by a 1% decrease in overall close rates and a 2% decrease in production per productive agent.

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:

(1) Represents the approved policies for medicare supplement, dental, vision and hearing, prescription drug plan and other.

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 for all products decreased by 5% for the three months ended September 30, 2024, compared to the three months ended September 30, 2023. Fluctuations in approved policies are normally in direct correlation to submitted policies; however, primarily related to carrier mix, we experienced a slight decrease in the submitted-to-approved conversion rates for the three months ended September 30, 2024, compared to the three months ended September 30, 2023.

Lifetime Value of Commissions per Approved Policy

The lifetime value of commissions (the “LTV”) 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 LTV 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, which does not include marketing development funds or production bonuses, constrained by a persistency-adjusted 10-year renewal period based on a combination of our historical experience and available insurance carrier historical experience to estimate renewal revenue only to the extent probable that a significant reversal in revenue would not be expected to occur. These factors may result in varying values from period to period. The LTV per approved policy represents commissions only from policies sold during the period; it does not include any updated estimates of prior period variable consideration based on actual policy renewals in the current period.

The following table shows the LTV per approved policy for the periods presented:

(1) Represents the weighted average LTV per approved policy.

The LTV per MA approved policy increased 7% for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily due to carrier mix.

Healthcare Services

The total number of SelectRx members represents the amount of active customers to which an order has been shipped and the prescriptions per day represents the total average prescriptions shipped per business day. These two metrics are the primary drivers of revenue for Healthcare Services.

SelectRx Members

The following table shows the total number of SelectRx members as of the date presented:

The total number of SelectRx members increased by 64% as of September 30, 2024, compared to September 30, 2023, due to our continued operating strategy to grow SelectRx.

Prescriptions Per Day

The following table shows the average prescriptions shipped per day for the periods presented:

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. 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 Life.

The following table shows term and final expense premiums for the periods presented:

Total term premiums decreased 16% for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, due to a 17% decrease in the number of policies sold, offset by less than a 1% increase in the average premium per policy sold. Final expense premiums increased 24% for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, due to a 1% increase in the average premium per policy sold and a 23% increase in the number of policies sold.

Key Components of our Results of Operations

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

(in thousands)

Revenue

We earn revenue in the form of commission payments from our insurance carrier customers, for the initial year the insurance policy is in effect (“first year”) and, where applicable, for each subsequent year the policy renews (“renewal year”), in addition to production bonuses and marketing development funds received from some insurance carriers. Production bonuses are based on attaining various predetermined target sales levels or other agreed upon objectives, whereas marketing development funds may or may not contain such predetermined targets and are used to purchase leads. These, along with other services revenue from Healthcare Services (excluding SelectRx revenue discussed below) and our lead generation business, InsideResponse (of which the majority is eliminated as intersegment revenue), are presented in our consolidated statements of comprehensive loss as commissions and other services revenue. Pharmacy revenue on the consolidated statements of comprehensive loss includes revenue from the sale of prescription and OTC medication products from SelectRx.

Revenue is recognized at different milestones for Senior and Life and is based on the contractual enforceable rights, our historical experience, and established customer business practices. Other services revenues from our Healthcare Services segment (excluding SelectRx revenue discussed below) is recognized when the performance obligation has been met, which is at different times for our various services (e.g. the HRA has been performed, a transfer has been made to a health-related partner, or SPM has provided care management services to a member), the transaction price is known based on volume and contractual prices, and we have no further performance obligations. Lead generation revenue is recognized when the generated lead is accepted by our customers, which is the point of sale, and we have no performance obligation after the delivery. Revenues generated from SelectRx are recognized upon shipment. At the time of shipment, we have performed all of our performance obligations and control of the product has been transferred to the customer. There are no future revenue streams or variable consideration associated as the transaction price is fixed at time of shipment, and any subsequent new order is its own performance obligation.

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

(dollars in thousands)

**Three Months Ended September 30, 2024 and 2023–**Commissions and other services revenue increased $1.4 million, or 1%, for the three months ended September 30, 2024 primarily due to increases in Senior and Life of $3.0 million and $1.5 million, respectively. Senior’s increase was primarily due to a $0.9 million increase in commissions revenue driven by a 5% increase in LTV’s. Life’s increase was driven by a $4.2 million increase in final expense revenue offset by a $2.8 million decrease in term revenue. The increase in Commissions and other services revenue was partially offset by a $3.1 million decrease in Auto & Home. Pharmacy revenue increased $58.1 million, or 61%, primarily due to the 64% increase in members from the growth of the SelectRx business.

Operating Costs and Expenses

Cost of Commissions and Other Services Revenue

Cost of commissions and other services revenue represents the direct costs associated with fulfilling our obligations to our customers in Senior, Life, and Healthcare Services (excluding SelectRx discussed below); primarily compensation, benefits, and licensing for sales agents, customer success agents, fulfillment specialists, and others directly engaged in serving customers. It also includes 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.

The following table presents our cost of commissions and other services revenue for the periods presented and the percentage change from the prior year:

(dollars in thousands)

**Three Months Ended September 30, 2024 and 2023—**Cost of commissions and other service revenue decreased $6.8 million, or 9%, for the three months ended September 30, 2024, primarily due to a $5.5 million decrease in compensation costs, combined with a $0.9 million decrease in fulfillment costs for licensing fees in Senior. The $5.5 million decrease in compensation costs is primarily made up of a $6.9 million decrease in costs for our sales and customer care agents in Senior, offset by a $0.5 million increase in costs for sales and customer care agents in Life.

Cost of Goods Sold-Pharmacy Revenue

Cost of goods sold-pharmacy revenue represents the direct costs associated with fulfilling pharmacy patient orders for SelectRx. Such costs primarily consist of medication costs and compensation costs for licensed pharmacists, pharmacy technicians, and other employees directly associated with fulfilling orders such as packaging and shipping clerks. It also includes shipping, supplies, other order fulfillment costs including part of the one-time customer onboarding costs, and certain facilities overhead costs such as rent, maintenance, and depreciation related to the pharmacy production process.

The following table presents our cost of goods sold-pharmacy revenue for the periods presented and the percentage change from the prior year:

(dollars in thousands)

**Three Months Ended September 30, 2024 and 2023–**Cost of goods sold-pharmacy revenue increased $45.5 million, or 54%, for the three months ended September 30, 2024, primarily due to a $38.2 million increase in medication costs as the number of SelectRx members increased 64% over the prior year as well as a $5.3 million increase in compensation costs due to a nearly 79% increase in the number of employees directly associated with fulfilling pharmacy orders.

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 the vast majority 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.

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

(dollars in thousands)

**Three Months Ended September 30, 2024 and 2023–**Marketing and advertising expenses increased $1.4 million, or 2%, for the three months ended September 30, 2024, primarily due to a $0.8 million increase in lead costs and a $0.3 million increase in other marketing costs to generate additional senior and life commissions revenue as noted above.

Selling, General, and Administrative

Selling, general, and administrative expenses include compensation and benefits costs for staff working in our executive, finance, accounting, recruiting, human resources, administrative, business intelligence, data science, and part of the SelectRx customer onboarding 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.

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

(dollars in thousands)

**Three Months Ended September 30, 2024 and 2023–**Selling, general, and administrative expenses increased $7.5 million, or 26%, for the three months ended September 30, 2024, primarily due to a $5.2 million increase in compensation costs and a $2.2 million increase in bad debt expense related to SelectRx. The increase in compensation costs was primarily related to a $3.5 million increase in Healthcare Services compensation attributable to the growth of SelectRx.

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.

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

(dollars in thousands)

**Three Months Ended September 30, 2024 and 2023–**Technical development expenses increased $1.4 million, or 19%, for the three months ended September 30, 2024, primarily due to a $1.6 million increase in compensation costs due to an increase in headcount for technology personnel, partially offset by a $0.2 million decrease in costs related to trainings and seminars costs.

Interest Expense, Net

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

(dollars in thousands)

**Three Months Ended September 30, 2024 and 2023–**Interest expense increased $1.6 million, or 8%, for the three months ended September 30, 2024, as a result of higher interest rates during the period.

Income Taxes

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

(dollars in thousands)

**Three Months Ended September 30, 2024 and 2023–**For the three months ended September 30, 2024 and 2023, we recognized income tax expense of $9.5 million and and income tax benefit of $(12.8) million, respectively, representing effective tax rates of (27.2)% and 29.2%, respectively. The differences from the federal statutory tax rate to the effective tax rates for the three months ended September 30, 2024, were primarily related to state income taxes and the recording of a valuation allowance for federal tax attributes that the Company does not expect to utilize prior to expiration, and vesting of restricted stock units. The differences from our federal statutory tax rate to the effective tax rate for the three months ended September 30, 2023, were primarily related to state income taxes.

Segment Information

As of July 1, 2024, the Company has realigned its reportable segments for fiscal year 2025. The Auto & Home business does not meet the quantitative thresholds to be required to continue to be separately disclosed as a reportable segment in accordance with ASC 280. As a result, the Auto & Home business will be included in an “All Other” category. Prior period information has been recast to conform to the current presentation.

The Company’s operating segments have been determined in accordance with ASC 280. We currently have three reportable segments: i) Senior, ii) Healthcare Services, and iii) Life. Senior primarily sells senior Medicare-related health insurance products. Healthcare Services includes SelectRx, Population Health, and most recently, SelectPatient Management. Healthcare Services provides products and services to our Medicare policyholders, which are focused on improving patient health outcomes. Life primarily sells term life and final expense products. The All Other category is reflective of the revenue generated from selling individual automobile and homeowners’ insurance. Additionally, the Company accounts for non-operating activity, share-based compensation expense, depreciation and amortization, goodwill, long-lived asset and intangible asset impairments, 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 have not aggregated any operating segments together to represent a reportable segment.

Our operating segments are determined based on how our chief executive officer, who also serves as our CODM manages our business, regularly accesses information, and evaluates performance for operating decision-making purposes, including allocation of resources. Adjusted EBITDA is our segment profit measure and a key measure used by our CODM and Board of Directors to understand and evaluate the operating performance of our business and on which internal budgets and forecasts are based and approved. We define Adjusted EBITDA as net loss plus: (i) interest expense, net; (ii) expense (benefit) for income taxes; (iii) depreciation and amortization; (iv) share-based compensation; (v) goodwill, long-lived asset, and intangible assets impairments; (vi) transaction costs; (vii) loss on disposal of property, equipment and software, net; and (viii) other non-recurring expenses and income.

The following tables present information about the reportable segments for the periods presented. We do not report total assets by segment as our CODM does not use this information to evaluate operating segment performance. Accordingly, we do not regularly provide such information by segment to our CODM.

Our segment disclosure includes intersegment revenues, which consist of affiliate marketing fees for services provided by our Senior segment to our Healthcare Services and Life segments as well as services provided by Life to other segments. These intersegment transactions are recorded by each segment at amounts that we believe approximate fair value as if the transactions were between third parties and, therefore, impact segment performance. However, the revenue and corresponding expense are eliminated in consolidation. The elimination of such intersegment transactions is included within the “Eliminations of intersegment revenues” and “Corporate & elimination of intersegment profits’ captions in the tables below.

Three Months Ended September 30, 2024:

(in thousands)

(in thousands)

(1) These expenses primarily consist of financing transaction costs ($0.3 million) and non-restructuring severance expenses ($0.5 million).

Three Months Ended September 30, 2023

(in thousands)

(in thousands)

(1) These expenses primarily consist of financing transaction costs ($0.2 million) and non-restructuring severance expenses ($1.8 million).

The following table depicts the disaggregation of revenue by segment and product for the periods presented:

(dollars in thousands)

Revenue by Segment

**Three Months Ended September 30, 2024 and 2023–**Revenue from our Senior segment was $92.9 million for the three months ended September 30, 2024, a $3.0 million, or 3%, increase compared to revenue of $89.9 million for the three months ended September 30, 2023. The increase was due to a $0.9 million, or 1%, increase in commissions revenue and a $2.1 million increase in other services revenue.

Revenue from Healthcare Services was $155.7 million for the three months ended September 30, 2024, a $58.4 million, or 60%, increase compared to revenue of $97.4 million for the three months ended September 30, 2023, primarily due to a $58.1 million increase in SelectRx pharmacy revenue.

Revenue from our Life segment was $39.3 million for the three months ended September 30, 2024, a $1.5 million, or 4%, increase compared to revenue of $37.8 million for the three months ended September 30, 2023, primarily due to an $1.5 million increase in commissions revenue.

Adjusted EBITDA by Segment

**Three Months Ended September 30, 2024 and 2023–**Adjusted EBITDA from our Senior segment was $7.7 million for the three months ended September 30, 2024, a $9.1 million, or 678%, increase compared to Adjusted EBITDA of $(1.3) million for the three months ended September 30, 2023. The increase was due to a $3.0 million increase in revenue, a $6.1 million decrease in operating costs and expenses, primarily due to a $6.3 million decrease in compensation costs due to a decrease in the number of agents, partially offset by increases in lead costs.

Adjusted EBITDA from Healthcare Services was $4.9 million for the three months ended September 30, 2024, a $2.6 million increase compared to Adjusted EBITDA of $2.3 million for the three months ended September 30, 2023. The increase was due to a $58.4 million increase in revenue, offset by a $55.8 million increase in operating costs and expenses primarily as a result of a $38.2 million increase in medication costs and a $7.6 million increase in compensation costs to support of the growth of SelectRx.

Adjusted EBITDA from our Life segment was $6.0 million for the three months ended September 30, 2024, a $0.7 million, or 14%, increase compared to Adjusted EBITDA of $5.2 million for the three months ended September 30, 2023. The increase in Adjusted EBITDA was due to a $1.5 million increase in revenue, offset by a $0.8 million increase in operating costs. The increase in operating costs was primarily due to a $0.9 million increase in compensation costs, partially offset by a $0.1 million decrease in fulfillment costs.

Liquidity and Capital Resources

Our liquidity needs primarily include working capital and debt service requirements. Additionally, we are required under the Senior Secured Credit Facility to maintain compliance with certain debt covenants, as discussed further in Note 6 to the condensed consolidated financial statements. Based on our financial projections, we believe we will remain in compliance with the debt covenants through the 12 months following the date of issuance of our condensed consolidated financial statements.

On October 15, 2024, the Company completed a $100.0 million securitization transaction to provide advanced financing against the expected collections for policies previously sold. The Company will use the proceeds from the securitization to pay down a portion of its outstanding term loans. The new securitized debt offers a lower cost of capital than the Company’s term loans. In connection with the securitization transaction, and subsequent to September 30, 2024, the Company entered into an Eleventh Amendment (the “Eleventh Amendment”) to its Credit Agreement to (1) extend the scheduled maturity date of the existing term loans, (2) modify financial covenant ratios required to be maintained by the Company for various reporting dates to allow the Company to stay in compliance with the required covenants, and (3) allow the Company to enter into the securitization transaction.

As of September 30, 2024 and June 30, 2024, the Company had total debt obligations of $680.4 million and $683.3 million, respectively, under the Senior Secured Credit Facility. Management expects that our existing cash, cash equivalents, funds available under the revolving credit facility, and cash provided from operations, will be sufficient to finance normal working capital needs, investments in properties, facilities and equipment, and debt service.

We do not expect to generate sufficient cash flows from operations to enable us to make the milestone payments contemplated in the Eleventh Amendment. If we are unable to secure additional financing from outside sources or otherwise amend the Senior Secured Credit Facility, we will need to obtain additional capital through other means, including future securitization transactions, selling one or more material assets, or substantially reducing the scope of certain of our operations. If we are unable to satisfy our repayment obligations under the Senior Secured Credit Facility or maintain compliance with the covenants therein, we may be in default, which would significantly affect our liquidity.

As of September 30, 2024 and June 30, 2024, our cash and cash equivalents totaled $10.4 million and $42.7 million, respectively. Additionally, the following table presents a summary of our cash flows for the periods presented below:

(in thousands)

Operating Activities

Net cash used in operating activities primarily consists of net income, adjusted for certain non-cash items including depreciation; amortization of intangible assets and internally developed software; deferred income taxes; share-based compensation expense; amortization of debt issuance costs and discount; accrued interest; non-cash lease expenses; and the effect of changes in working capital and other activities.

Collection of commissions receivable depends upon the timing of our receipt of commission payments and associated commission statements from our insurance carrier partners. If we were to experience a delay in receiving a commission payment from an insurance carrier partner within a quarter, our operating cash flows for that quarter could be adversely impacted.

A significant portion of our marketing and advertising expenses is driven by the number of leads required to generate the insurance applications we submit to our insurance carrier partners. Our marketing and advertising costs are expensed and generally paid as incurred and since commission revenue is recognized upon approval of a policy but commission payments are paid to us over time, there are working capital requirements to fund the upfront cost of acquiring new policies. During AEP, we experience an increase in the number of submitted Senior insurance applications and marketing and advertising expenses compared to periods outside of AEP. The timing of AEP affects the positive or negative impacts of our cash flows during each quarter.

***Three Months Ended September 30, 2024—***Net cash used in operating activities was $16.6 million, consisting of net loss of $44.5 million, adjustments for non-cash items of $26.3 million, and cash used in operating assets and liabilities of $1.6 million. Adjustments for non-cash items primarily consisted of $5.6 million of depreciation and amortization, $3.8 million of share-based compensation expense, $5.3 million of accrued interest payable in kind on the Term Loans, $1.1 million of amortization of debt issuance costs and debt discount, $0.9 million of non-cash lease expense, and $9.5 million in deferred income taxes. The cash increase resulting from changes in net operating assets and liabilities primarily consisted of an increase of $50.5 million in accounts receivable, related to an increase in revenue, an increase of $12.8 million in accounts payable and accrued expenses, offset by a decrease of $38.5 million in commissions receivable, due to a 5% decrease in approved policies for the three months, a decrease of $18.5 million in other liabilities, primarily related to an $5.1 million decrease in our contract liability, and a $12.9 million decrease in accrued compensation and benefits, a decrease of $1.1 million in operating lease liabilities and a decrease of $3.5 million in other assets, primarily related to hedge activities.

***Three Months Ended September 30, 2023—***Net cash used in operating activities was $23.7 million, consisting of net loss of $31.1 million, adjustments for non-cash items of $2.1 million, and cash used in operating assets and liabilities of $5.2 million. Adjustments for non-cash items primarily consisted of $13.0 million in deferred income taxes, offset by $6.0 million of depreciation and amortization, $3.2 million of share-based compensation expense, $3.6 million of accrued interest payable in kind, $1.6 million of amortization of debt issuance costs and debt discount, and $0.8 million of non-cash lease expense. The cash increase resulting from changes in net operating assets and liabilities primarily consisted of a decrease of $38.7 million in accounts receivable, net and an increase of $5.3 million in accounts payable and accrued expenses, offset by an increase of $29.1 million in commissions receivable and a $6.0 million decrease in other liabilities.

Investing Activities

Our investing activities primarily consist of purchases of property, equipment, and software and capitalized salaries related to the development of internal-use software.

***Three Months Ended September 30, 2024—***Net cash used in investing activities of $2.6 million was due to $2.1 million in purchases of software and capitalized internal-use software development costs and $0.4 million of purchases of property and equipment, primarily made up of machinery and equipment and leasehold improvements.

***Three Months Ended September 30, 2023—***Net cash used in investing activities of $2.1 million was due to $1.8 million in purchases of software and capitalized internal-use software development costs and $0.6 million of purchases of property and equipment, primarily computer equipment.

Financing Activities

Our financing activities primarily consist of payments on term loans and proceeds and payments related to stock-based compensation.

***Three Months Ended September 30, 2024—***Net cash used in financing activities of $13.1 million was primarily due to $8.5 million of principal payments on the Term Loans and $3.9 million of tax payments for stock-based compensation.

***Three Months Ended September 30, 2023—***Net cash used in financing activities of $8.9 million was primarily due to $8.5 million of principal payments on the Term Loans.

Contractual Obligations

Other than the discussions in Note 7 and Note 9 to the condensed consolidated financial statements, as of September 30, 2024, there have been no material changes to our contractual obligations as previously described in our Annual Report.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements during the period covered by this report.

Recent Accounting Pronouncements

For a discussion of new accounting pronouncements recently adopted and not yet adopted, see the notes to our condensed consolidated financial statements.

We are primarily exposed to the market risk associated with unfavorable movements in interest rates. The risk inherent in our market risk-sensitive instruments and positions is the potential loss or increased expense arising from adverse changes in those factors. There have been no material changes to our market risk policies or our market risk-sensitive instruments and positions as described in our Annual Report.

Evaluation of Our Disclosure Controls and Procedures

As of September 30, 2024, an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) was carried out by our management, with the participation of our chief executive officer (principal executive officer) and our chief financial officer (principal financial and accounting officer). Based upon our management's evaluation, our chief executive officer and our chief financial officer have concluded that as of the end of the period covered by this report, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only a reasonable level of assurance of achieving their desired control objectives, and our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the first quarter of fiscal 2025 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

There have been no material changes to the risk factors set forth in our Annual Report. Before investing in our securities, we recommend that investors carefully consider the risks described in our Annual Report, including those under the heading “Risk Factors.” Realization of any of these risks and any additional risks and uncertainties not currently known to us or that we have deemed to be immaterial could have a material adverse effect on our business, financial condition, or results of operations.