SelectQuote, Inc. - Quarter Report: 2023 September (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

001-39295

(Commission File Number)

SelectQuote, Inc.

(Exact name of registrant as specified in its charter)


Delaware		94-3339273
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

6800 West 115th Street	Suite 2511	66211
Overland Park	Kansas	(Zip Code)
(Address of principal executive offices)

(913) 599-9225

(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

SLQT

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐ No ☒

The registrant had outstanding 167,733,095 shares of common stock as of October 31, 2023.

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SELECTQUOTE, INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS


	PART I FINANCIAL INFORMATION	PAGE
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets as of September 30, 202 3 and June 30, 20 23	2
	Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended September 30, 20 23 and 20 2 2	3
	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended September 30, 20 23 and 20 2 2	4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 20 23 and 20 2 2	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	42
	PART II OTHER INFORMATION
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults Upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	44
	Signatures	45

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PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SELECTQUOTE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)



	September 30, 2023		June 30, 2023
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	48,486	$	83,156

Accounts receivable, net of allowances of $3.9 million and $2.7 million, respectively	115,872		154,565
Commissions receivable-current	160,370		111,148
Other current assets	16,361		14,355
Total current assets	341,089		363,224
COMMISSIONS RECEIVABLE—Net	709,277		729,350
PROPERTY AND EQUIPMENT—Net	24,840		27,452
SOFTWARE—Net	14,677		14,740
OPERATING LEASE RIGHT-OF-USE ASSETS	22,779		23,563
INTANGIBLE ASSETS—Net	9,442		10,200
GOODWILL	29,136		29,136
OTHER ASSETS	18,904		21,586
TOTAL ASSETS	$	1,170,144	$	1,219,251
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	31,964	$	27,577
Accrued expenses	18,284		16,993
Accrued compensation and benefits	37,953		49,966


Operating lease liabilities—current	4,980		5,175
Current portion of long-term debt	33,883		33,883
Contract liabilities	5,757		1,691
Other current liabilities	3,925		1,972
Total current liabilities	136,746		137,257
LONG-TERM DEBT, NET—less current portion	661,185		664,625

DEFERRED INCOME TAXES	26,041		39,581
OPERATING LEASE LIABILITIES	26,590		27,892
OTHER LIABILITIES	2,844		2,926
Total liabilities	853,406		872,281
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS’ EQUITY:
Common stock, $0.01 par value	1,677		1,669
Additional paid-in capital	570,087		567,266

Accumulated deficit	(266,695)		(235,644)
Accumulated other comprehensive income	11,669		13,679
Total shareholders’ equity	316,738		346,970
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,170,144	$	1,219,251

See accompanying notes to condensed consolidated financial statements.

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SELECTQUOTE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(In thousands)


	Three Months Ended September 30,
	2023		2022
REVENUE:
Commission	$	117,756	$	106,335

Pharmacy	94,788		41,093
Other	20,186		15,056
Total revenue	232,730		162,484
OPERATING COSTS AND EXPENSES:
Cost of revenue	72,511		65,164
Cost of goods sold—pharmacy revenue	84,008		42,354
Marketing and advertising	62,323		57,594
Selling, general, and administrative	28,666		30,706
Technical development	7,637		6,182

Total operating costs and expenses	255,145		202,000
LOSS FROM OPERATIONS	(22,415)		(39,516)
INTEREST EXPENSE, NET	(21,397)		(16,736)

OTHER INCOME (EXPENSE), NET	(38)		158
LOSS BEFORE INCOME TAX BENEFIT	(43,850)		(56,094)
INCOME TAX BENEFIT	(12,799)		(13,610)
NET LOSS	$	(31,051)	$	(42,484)

NET LOSS PER SHARE:
Basic	$	(0.19)	$	(0.26)
Diluted	$	(0.19)	$	(0.26)
WEIGHTED-AVERAGE COMMON STOCK OUTSTANDING USED IN PER SHARE AMOUNTS:
Basic	167,453		164,824
Diluted	167,453		164,824

OTHER COMPREHENSIVE INCOME (LOSS) NET OF TAX:
Gain (loss) on cash flow hedge	$	(2,010)	$	4,400
OTHER COMPREHENSIVE INCOME (LOSS)	(2,010)		4,400
COMPREHENSIVE LOSS	$	(33,061)	$	(38,084)

See accompanying notes to the condensed consolidated financial statements.

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SELECTQUOTE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Unaudited)

(In thousands)


Three Months Ended September 30, 2023
	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Shareholders' Equity
	Shares	Amount
BALANCES-June 30, 2023	166,867	$	1,669	$	567,266	$	(235,644)	$	13,679	$	346,970
Net loss						(31,051)				(31,051)
Gain on cash flow hedge, net of tax								841		841
Amount reclassified into earnings, net tax								(2,851)		(2,851)


Vesting of restricted stock unit awards and performance stock unit awards net of shares withheld to cover tax withholdings	864	8		(354)						(346)
Share-based compensation expense				3,175						3,175
BALANCES-September 30, 2023	167,731	$	1,677	$	570,087	$	(266,695)	$	11,669	$	316,738


Three Months Ended September 30, 2022
	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Shareholders' Equity
	Shares	Amount
BALANCES-June 30, 2022	164,452	$	1,644	$	554,845	$	(177,100)	$	11,716	$	391,105
Net loss	—	—		—		(42,484)		—		(42,484)
Gain on cash flow hedge, net of tax	—	—		—		—		5,124		5,124
Amount reclassified into earnings, net of tax	—	—		—		—		(724)		(724)
Exercise of employee stock options, net of shares withheld for cashless exercises and to cover tax withholdings	1,116	12		584		—		—		596
Issuance of common stock pursuant to employee stock purchase plan	780	8		476		—		—		484
Vesting of restricted stock unit awards net of shares withheld to cover tax withholdings	114	1		(34)		—		—		(33)
Share-based compensation expense	—	—		2,630		—		—		2,630
BALANCES-September 30, 2022	166,462	$	1,665	$	558,501	$	(219,584)	$	16,116	$	356,698

See accompanying notes to the condensed consolidated financial statements.

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SELECTQUOTE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Three Months Ended September 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(31,051)	$	(42,484)
Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities:
Depreciation and amortization	5,989		6,802

Loss on disposal of property, equipment, and software	9		325

Share-based compensation expense	3,175		2,630
Deferred income taxes	(13,049)		(13,931)
Amortization of debt issuance costs and debt discount	1,612		1,612
Write-off of debt issuance costs	—		710

Accrued interest payable in kind	3,622		1,307
Non-cash lease expense	784		1,103
Changes in operating assets and liabilities:
Accounts receivable, net	38,693		34,770
Commissions receivable	(29,148)		(36,012)
Other assets	(2,027)		1,271
Accounts payable and accrued expenses	5,257		(10,496)
Operating lease liabilities	(1,498)		(1,256)
Other liabilities	(6,039)		6,479
Net cash used in operating activities	(23,671)		(47,170)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(616)		(298)
Proceeds from sales of property and equipment	253		—
Purchases of software and capitalized software development costs	(1,782)		(2,087)


Net cash used in investing activities	(2,145)		(2,385)
CASH FLOWS FROM FINANCING ACTIVITIES:





Payments on Term Loans	(8,471)		(8,917)

Payments on other debt	(37)		(44)
Proceeds from common stock options exercised and employee stock purchase plan	—		1,079



Payments of tax withholdings related to net share settlement of equity awards	(346)		(32)
Payments of debt issuance costs	—		(10,110)




Payment of acquisition holdback	—		(2,335)
Net cash used in financing activities	(8,854)		(20,359)
NET DECREASE IN CASH AND CASH EQUIVALENTS	(34,670)		(69,914)
CASH AND CASH EQUIVALENTS—Beginning of period	83,156		140,997
CASH AND CASH EQUIVALENTS—End of period	$	48,486	$	71,083






SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net	$	(17,927)	$	(13,026)
Income taxes paid	(142)		(7)

See accompanying notes to condensed consolidated financial statements.

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SELECTQUOTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Description of Business—SelectQuote, Inc. (together with its subsidiaries, the “Company” or “SelectQuote”) is a leading technology-enabled, direct-to-consumer distribution platform for insurance products and healthcare services. We contract with insurance carriers to sell senior health, life, and auto and home insurance policies by telephone to individuals throughout the United States through the use of multi-channel marketing and advertising campaigns. SelectQuote’s Senior division (“Senior”) sells Medicare Advantage, Medicare Supplement, Medicare Part D, and other ancillary senior health insurance related products. SelectQuote’s Life division (“Life”) sells term life, final expense, and other ancillary products, and SelectQuote’s Auto & Home division (“Auto & Home”) primarily sells non-commercial auto and home, property and casualty insurance products. The Healthcare Services division (“Healthcare Services”) includes SelectRx and Population Health. SelectRx is a Patient-Centered Pharmacy Home™ (“PCPH”) accredited pharmacy, which 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 to remain at home. Population Health helps members understand the benefits available under their health plans, contracts with insurance carriers to complete HRA’s on members, partners with value-based care (“VBC”) providers for a variety of healthcare-related services, and introduces members to the pharmacy services offered through SelectRx

Basis of Presentation—The accompanying unaudited condensed consolidated financial statements include the accounts of SelectQuote, Inc. and its wholly owned subsidiaries: SelectQuote Insurance Services, SelectQuote Auto & Home Insurance Services, LLC, ChoiceMark Insurance Services, Inc., Tiburon Insurance Services, InsideResponse, LLC (“InsideResponse”), and SelectQuote Ventures, Inc. The unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and reflect all normal recurring adjustments that are necessary to present fairly the results for the interim periods presented. All intercompany accounts and transactions have been eliminated in consolidation. Certain information and disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in accordance with those rules and regulations and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended June 30, 2023, filed with the Securities and Exchange Commission on September 13, 2023 (the “Annual Report”), and include all adjustments necessary for the fair presentation of our financial position for the periods presented. Our results for the periods presented in our financial statements are not necessarily indicative of the results to be expected for any subsequent period, including for the year ending June 30, 2024, and therefore should not be relied upon as an indicator of future results. The accompanying unaudited condensed consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements for the year ended June 30, 2023.

Use of Estimates—The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets, and liabilities and disclosure of contingent assets and liabilities. The Company regularly assesses these estimates; however, actual amounts could differ from those estimates. The most significant items involving management’s estimates include estimates of revenue recognition, accounts receivable, net, commissions receivable, the provision for income taxes, share-based compensation, and valuation of intangible assets and goodwill. The impact of changes in estimates is recorded in the period in which they become known.

Seasonality—Medicare-eligible individuals are permitted to change their Medicare Advantage and Medicare Part D prescription drug coverage for the following year during the Medicare annual enrollment period (“AEP”) in October through December and are allowed to switch plans from an existing plan during the open

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enrollment period (“OEP”) in January through March each year. As a result, the Company’s Senior segment’s commission revenue is highest in the second quarter and to a lesser extent, the third quarter during OEP.

Significant Accounting Policies—There have been no material changes to the Company’s significant accounting policies as described in our Annual Report.

Recent Accounting Pronouncements Adopted—The Company did not adopt any new accounting pronouncements during the three months ended September 30, 2023.

2.ACQUISITIONS

In accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”), the Company allocates the fair value of purchase consideration to the tangible assets, liabilities, and intangible assets acquired based on fair values. Any excess purchase price over those fair values is recorded as goodwill. The fair value assigned to intangible assets acquired is supported by valuations using estimates and assumptions provided by management. Based on the valuation inputs, the Company has recorded assets acquired and liabilities assumed according to the following fair value hierarchy:


Level 1			Unadjusted quoted prices in active markets for identical assets or liabilities
Level 2			Unadjusted quoted prices in active markets for similar assets or liabilities; or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are observable for the asset or liability.
Level 3			Significant unobservable inputs for the asset or liability

Express Med Pharmaceuticals—On April 30, 2021, the Company acquired 100% of the outstanding shares of Express Med Pharmaceuticals, Inc., which is included in SelectRx, a closed-door, long term care pharmacy provider, for an aggregate purchase price of up to $24.0 million, as set forth in the Stock Purchase Agreement dated April 30, 2021 (the “Stock Purchase Agreement”). The aggregate purchase price of up to $24.0 million is comprised of $17.5 million in cash paid at the closing of the transaction, an additional $2.5 million of holdback for indemnification claims, if any, and an earnout of up to $4.0 million, if any. The earnout of up to $4.0 million is comprised of two separate provisions. During the year ended June 30, 2023, the Company paid the first and second earnout provisions of $3.0 million and $1.0 million, respectively, as well as the remaining holdback, net of adjustments, of $2.4 million. At the date of acquisition, the fair value of net tangible assets acquired, excluding property and equipment, approximated their carrying value. The property and equipment was valued primarily using the cost and sales comparison approach to value. For the proprietary software acquired, the replacement cost method under the cost approach was used, estimating the cost to rebuild the software. The non-compete agreement was valued using the income approach, and the customer relationships were valued using the multiple period excess earnings method. As such, all aforementioned intangible assets were valued using Level 3 inputs. Goodwill resulting from the transaction constitutes the excess of the consideration paid over the fair values of the assets acquired and liabilities assumed and primarily represents the additional value of the synergies of combining the SelectRx business with the Company's technology and existing customer base. This acquired goodwill is allocated to the Healthcare Services reporting unit, which is also a reportable segment, and $16.3 million is deductible for tax purposes after adding back acquisition costs and settling the remaining holdback. The Company is amortizing the intangible assets acquired on a straight-line basis over their estimated remaining lives, ranging from one to five years.

Simple Meds—On August 31, 2021, SelectRx acquired 100% of the outstanding equity interests of Simple Meds, a full-service pharmaceutical distributor, for an aggregate purchase price of $7.0 million, as set forth in the Membership Interest Purchase Agreement dated August 31, 2021. The aggregate purchase price of $7.0 million was paid in cash at the closing of the transaction. At the date of acquisition, the fair value of net tangible assets acquired approximated their carrying value. The customer relationships were valued using the multiple period excess earnings method, and as such, were valued using Level 3 inputs. Goodwill resulting from the transaction constitutes the excess of the consideration paid over the fair values of the assets acquired and liabilities assumed and primarily represents the additional value of the synergies of combining the Simple Meds business with the Company's

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technology and existing customer base. This acquired goodwill is allocated to the Healthcare Services reporting unit, which is also a reportable segment, and $5.6 million is deductible for tax purposes after adding back acquisition costs.

3.PROPERTY AND EQUIPMENT—NET

Property and equipment—net consisted of the following:


(in thousands)	September 30, 2023		June 30, 2023
Computer hardware	$	20,354	$	20,970
Machinery and equipment(1)	15,129		14,825
Leasehold improvements	19,033		20,422
Furniture and fixtures	4,591		4,591
Work in progress	830		338
Total	59,937		61,146
Less accumulated depreciation	(35,097)		(33,694)
Property and equipment—net	$	24,840	$	27,452

(1) Includes financing lease right-of-use assets.

Work in progress as of September 30, 2023 primarily represents computer equipment held for sale and leasehold improvements not yet put into service and not yet being depreciated. Work in progress as of June 30, 2023, primarily represents leasehold improvements and computer equipment not yet put into service and not yet being depreciated. Depreciation expense for the three months ended September 30, 2023 and 2022, was $3.2 million and $3.5 million, respectively.

4.SOFTWARE—NET

Software—net consisted of the following:


(in thousands)	September 30, 2023		June 30, 2023
Software	$	36,345	$	35,945
Work in progress	94		143
Total	36,439		36,088
Less accumulated amortization	(21,762)		(21,348)
Software—net	$	14,677	$	14,740

Work in progress as of September 30, 2023 and June 30, 2023, represents costs incurred for software not yet put into service and not yet being amortized. For each of the three months ended September 30, 2023 and 2022, the Company capitalized internal-use software and website development costs of $2.0 million and recorded amortization expense of $2.1 million and $1.8 million, respectively.

5.INTANGIBLE ASSETS AND GOODWILL

Intangible assets—The carrying amounts, accumulated amortization, and net carrying value of our definite-lived intangible assets are presented in the table below (dollars in thousands):

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	September 30, 2023				June 30, 2023
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Impairment Charges (1)		Accumulated Amortization		Net Carrying Amount
Customer relationships	$	17,492	$	(9,196)	$	8,296	$	17,492	$	—	$	(8,617)	$	8,875
Trade name	2,680		(1,832)		848		2,680		—		(1,697)		983
Proprietary software	1,042		(797)		245		1,042		—		(758)		284
Non-compete agreements	100		(47)		53		1,292		(533)		(701)		58
Vendor relationships	—		—		—		20,400		(15,111)		(5,289)		—
Total intangible assets	$	21,314	$	(11,872)	$	9,442	$	42,906	$	(15,644)	$	(17,062)	$	10,200

(1) During the year ended June 30, 2023, the Company recorded impairment charges for its long-lived intangible assets recognized as part of the acquisition of a lead distribution company. Refer to the consolidated financial statements in our Annual Report on Form 10-K for additional details.

The Company's intangible assets include those long-lived intangible assets which were recognized at their estimated acquisition date fair values. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. There were no impairment triggers identified with respect to the Company’s long-lived assets during the three months ended September 30, 2023 and 2022.

For the three months ended September 30, 2023 and 2022, amortization expense related to intangible assets totaled $0.8 million and $1.5 million, respectively, recorded in selling, general, and administrative expense in the condensed consolidated statements of comprehensive loss. The weighted-average remaining useful life of intangible assets was 3.3 and 3.6 years as of September 30, 2023 and June 30, 2023, respectively.

As of September 30, 2023, expected amortization expense in future fiscal periods were as follows (in thousands):


	Trade Name		Proprietary Software		Non-Compete Agreements		Customer relationships		Total
Remainder fiscal 2024	$	401	$	117	$	15	$	1,740	$	2,273
2025	447		128		20		2,316		2,911
2026	—		—		18		2,313		2,331
2027	—		—		—		1,927		1,927


Total	$	848	$	245	$	53	$	8,296	$	9,442

Goodwill—The Company recorded as goodwill the excess of the purchase price over the estimated fair values of identifiable assets and liabilities acquired as part of the acquisitions discussed in Note 2 to the condensed consolidated financial statements. Goodwill is assigned to reporting units that are expected to benefit from the synergies of the business combination as of the acquisition date and becomes identified with that reporting unit in its entirety. As such, the reporting unit as a whole supports the recovery of its goodwill. As of September 30, 2023, the Company’s goodwill balance of $29.1 million was related to the acquisitions of Express Meds and Simple Meds and is all assigned to the Healthcare Services reporting unit and reportable segment.

The Company performs its annual goodwill impairment testing as of April 1, or more frequently if it believes that indicators of impairment exist. During the three months ended September 30, 2023 and 2022, there were no indicators of impairment.

6.LEASES

The majority of the Company’s leases are operating leases related to office space for which the Company recognizes lease expense on a straight-line basis over the respective lease term. The Company leases office facilities

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in the United States in San Diego, California; Centennial, Colorado; Overland Park, Kansas; Oakland, California; Indianapolis, Indiana; and Monaca, Pennsylvania (note that SelectRx leases the Monaca facility from an Executive Vice President of SelectRx. The Company expects to incur $3.6 million in total rental payments over the initial ten-year term plus an additional five-year extension option that it is reasonably certain to exercise). The Company's operating leases have remaining lease terms from one year up to thirteen years.

During the three months ended September 30, 2022, operating leases commenced in San Diego, California and Indianapolis, Indiana, resulting in new right-of-use assets obtained in exchange for new lease liabilities of $1.6 million. In addition, the Company exercised an early termination option for a portion of its office facilities in Overland Park, Kansas, with a new termination date of July 31, 2023, resulting in an early termination penalty of $0.9 million, of which $0.6 million was paid during the year ended June 30, 2023, and $0.3 million was paid during the three months ended September 30, 2023. The early termination penalty was recorded as part of the remeasurement of the operating lease liability and resulted in accelerated amortization of the right-of-use asset over the shortened remaining term of the lease.

Lease Costs—The components of lease costs were as follows for the periods presented:


	Three Months Ended September 30,
(in thousands)	2023		2022
Finance lease costs(1)	$	43	$	44
Operating lease costs(2)	1,584		2,092
Short-term lease costs	61		31
Variable lease costs(3)	135		214
Sublease income	(574)		(418)
Total net lease costs	$	1,249	$	1,963

(1) Primarily consists of amortization of finance lease right-of-use assets and an immaterial amount of interest on finance lease liabilities recorded in operating costs and expenses and interest expense, net in the condensed consolidated statements of comprehensive income.

(2) Recorded in operating costs and expenses in the condensed consolidated statements of comprehensive income.

(3) Variable lease costs are not included in the measurement of the lease liability or right-of-use asset as they are not based on an index or rate and primarily represents common area maintenance charges and real estate taxes recorded in operating costs and expenses in the condensed consolidated statements of comprehensive income.

Maturities of Lease Liabilities—As of September 30, 2023, remaining maturities of lease liabilities for each of the next five fiscal years and thereafter are as follows:


(in thousands)	Operating leases		Finance leases		Total
Remainder fiscal 2024	$	5,901	$	98	$	5,999
2025	7,947		38		7,985
2026	7,412		38		7,450
2027	6,105		32		6,137
2028	5,562		—		5,562
Thereafter	9,046		—		9,046
Total undiscounted lease payments	41,973		206		42,179
Less: interest	10,403		17		10,420
Present value of lease liabilities	$	31,570	$	189	$	31,759

The Company executed noncancelable subleases for portions of its office facilities in Overland Park, Kansas and Centennial, Colorado, which commenced during the fiscal years ended June 30, 2023 and 2022, and run

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through the remaining terms of the primary leases. Sublease income is recorded on a straight-line basis as a reduction of lease expense in the condensed consolidated statements of comprehensive income. The Company may consider entering into additional sublease arrangements in the future.

Sublease Income—As of September 30, 2023, the future minimum fixed sublease receipts under non-cancelable operating lease agreements are as follows:


(in thousands)	Total
Remainder fiscal 2024	$	1,770
2025	2,548
2026	2,587
2027	2,180
2028	1,931
Thereafter	2,092
Total sublease income	$	13,108

7.DEBT

Debt consisted of the following:


(in thousands)	September 30, 2023		June 30, 2023
Term Loans (effective interest rate 13.3%)	$	702,660	$	707,509

Unamortized debt issuance costs and debt discount	(7,592)		(9,001)

Total debt	695,068		698,508
Less current portion of long-term debt:	(33,883)		(33,883)
Long-term debt	$	661,185	$	664,625

Senior Secured Credit Facility— On November 5, 2019, the Company entered into a $425.0 million credit agreement with UMB Bank N.A. (“UMB”) as a lender and revolving agent and Morgan Stanley Capital Administrators, Inc. as a lender and the administrative agent for a syndicate of lenders party to the agreement (replaced by Wilmington Trust as administrative agent effective February 24, 2022). On February 24, 2021, November 2, 2021, December 23, 2021, August 26, 2022, May 5, 2023, and September 11, 2023, the Company entered into amendments to the credit agreement (individually, the “First Amendment”, “Second Amendment”, “Third Amendment”, “Fourth Amendment”, “Fifth Amendment”, and “Sixth Amendment”, together with the original credit agreement and any subsequent amendments, the “Senior Secured Credit Facility”) with certain of its existing lenders and new lenders. The First Amendment provided for an additional $231.0 million in term loans (together with the initial $425.0 million, the “Term Loans”) and added a $145.0 million senior secured delayed draw term loan facility (the "DDTL Facility"). The Company recognized a $3.3 million loss on debt extinguishment in the condensed consolidated statement of comprehensive income (loss) for the year ended June 30, 2021, as part of the First Amendment. The Second Amendment provided for additional commitments of $25.0 million, in addition to the initial $75.0 million, for the secured revolving loan facility (the “Revolving Credit Facility”) and an additional $200.0 million under the DDTL Facility. The Third Amendment provided for additional commitments of $35.0 million under the Revolving Credit Facility. The Fourth Amendment (1) amended the Company’s existing financial covenant to better align with its business plan and added an additional minimum liquidity covenant, (2) terminated certain DDTL commitments and reduced the Revolving Credit Facility from $135.0 million to $100.0 million, (3) introduced a minimum asset coverage ratio for any borrowing on the Revolving Credit Facility that would result in a total revolving exposure of more than $50.0 million, and (4) provided certain lenders with the right to appoint a representative to observe meetings of the Company’s board of directors and certain of its committees. In addition, the Fourth Amendment provided for the Company to pay a revolving credit termination fee

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of $0.5 million for the ratable account of each revolving lender upon the termination of all revolving loan commitments. Note that pursuant to the Fourth Amendment, upon termination of the outstanding DDTL commitments, when referring to Term Loans, it will now include the outstanding balance of the previously defined Term Loans and also the outstanding balance of the DDTL, and “DDTL” will no longer be referenced. The Fifth Amendment decreased the minimum asset coverage ratio required to be maintained by the Company as of March 31, 2024, and the Sixth Amendment decreased the minimum asset coverage ratio required to be maintained by the Company as of June 30, 2024. After giving effect to the amendments, in aggregate, the Senior Secured Credit Facility provides for (1) an aggregate principal amount of up to $100.0 million under the Revolving Credit Facility, of which all was available to borrow as of September 30, 2023 and (2) Term Loans outstanding in an aggregate principal amount of $702.7 million as of September 30, 2023.

The Term Loans bear interest on the outstanding principal amount thereof at a rate per annum equal to either (a) SOFR (subject to a floor of 0.75%) plus 6.00% in cash plus 2.00% payable in kind or (b) a base rate plus 5.00% in cash plus 2.00% payable in kind, at the Company’s option. As of October 1, 2023, the cash and paid in kind interest rate with respect to the Term Loans increased 0.50% and 1.00%, respectively. The Revolving Credit Facility accrues interest on amounts drawn at a rate per annum equal to either (a) SOFR (subject to a floor of 1.0%) plus 5.0% or (b) a base rate plus 4.0%, at the Company’s option.

The Senior Secured Credit Facility has a maturity date of November 5, 2024, and the Term Loans are mandatorily repayable in equal quarterly installments in an aggregate annual amount equal to 2.5% of the outstanding principal amount of the Term Loans as of the Fourth Amendment effective date, which increased to 4.75% on July 1, 2023, with the remaining balance payable on the maturity date. As of September 30, 2023, the Company has made principal payments of $214.0 million on the Term Loans.

The Senior Secured Credit Facility contains customary affirmative and negative covenants and events of default and financial covenants requiring the Company and certain of its subsidiaries to maintain a minimum asset coverage ratio and minimum liquidity requirements. As of September 30, 2023, the Company was in compliance with all of the required covenants. The obligations of the Company are guaranteed by the Company’s subsidiaries and secured by a security interest in all assets of the Company, subject to certain exceptions.

The Company has incurred a total of $40.1 million in debt issuance costs and debt discounts related to the Senior Secured Credit Facility, of which $33.0 million was capitalized. The costs associated with the Revolving Credit Facility are being amortized on a straight-line basis over the remaining life of the Senior Secured Credit Facility and the costs associated with the Term Loans are being amortized using the effective interest method over the same term. Total amortization of debt issuance costs was $1.6 million for each of the three months ended September 30, 2023 and 2022, which was included in interest expense, net in the Company’s condensed consolidated statements of comprehensive loss.

The Company uses derivative financial instruments to hedge against its exposure to fluctuations in interest rates associated with the Term Loans. On September 30, 2022, as a result of the Fourth Amendment, the Company terminated its existing interest rate swap indexed to 1-month LIBOR and executed a new interest rate swap indexed 1-month SOFR. In accordance with ASC 848, Reference Rate Reform, the Company did not de-designate the interest rate swap when it was amended from LIBOR to SOFR as the Company is permitted to maintain the designation as part of the transitional relief. As of September 30, 2023, the Company’s interest rate swap is a receive-variable, pay-fixed interest rate swap on the notional amount of $325.0 million of the Company’s total outstanding Term Loans balance with a fixed rate of 6.00% plus 0.931% (the “Amended Interest Rate Swap”), which terminates on November 5, 2024. As of September 30, 2023, the Amended Interest Rate Swap had a fair value of $15.4 million and was recorded in other assets in the condensed consolidated balance sheet. The Company classifies its Amended Interest Rate Swap as a Level 2 on the fair value hierarchy as the majority of the inputs used to value it primarily includes other than quoted prices that are observable and it uses standard calculations and models that use readily observable market data as their basis. The Company estimates that $14.1 million will be reclassified into interest expense during the next twelve months.

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On November 1, 2023, the Company entered into a Seventh Amendment to the Senior Secured Credit Facility (the “Seventh Amendment”) by and among the Company, certain of its existing lenders, and Wilmington Trust, National Association, as administrative agent. The Seventh Amendment amends the Senior Secured Credit Facility to decrease the minimum asset coverage ratio and minimum liquidity covenant required to be maintained by the Company as of September 30, 2024, and December 31, 2023, respectively.

8.COMMITMENTS AND CONTINGENCIES

Lease Obligations—Refer to Note 6 to the condensed consolidated financial statements for commitments related to our operating leases.

Legal Contingencies and Obligations—From time to time, the Company is subject to legal proceedings and governmental inquiries in the ordinary course of business. Such matters may include insurance regulatory claims; commercial, tax, employment, or intellectual property disputes; matters relating to competition and sales practices; claims for damages arising out of the use of the Company’s services. The Company may also become subject to lawsuits related to past or future acquisitions, divestitures, or other transactions, including matters related to representations and warranties, indemnities, and assumed or retained liabilities. The Company is not currently aware of any legal proceedings or claims that it believes will have, individually or in the aggregate, a material adverse effect on its business, financial condition, operating results, or cash flows; however, in the event of unexpected developments, it is possible that the ultimate resolution of certain ongoing matters, if unfavorable, could be materially adverse to our business, prospects, financial condition, liquidity, results of operation, cash flows, or capital levels.

Securities Class Actions and Stockholder Derivative Suit

On August 17, 2021, a putative securities class action lawsuit captioned Hartel v. SelectQuote, Inc., et al., Case No. 1:21-cv-06903 (“the Hartel Action”) was filed against the Company and two of its executive officers in the U.S. District Court for the Southern District of New York. The complaint asserts securities fraud claims on behalf of a putative class of plaintiffs who purchased or otherwise acquired shares of the Company’s common stock between February 8, 2021 and May 11, 2021 (the "Hartel Relevant Period"). Specifically, the complaint alleges the defendants violated Sections 10(b) and 20(a) and Rule 10b-5 of the Exchange Act by making materially false and misleading statements and failing to disclose material adverse facts about the Company’s business, operations, and prospects, allegedly causing the Company’s common stock to trade at artificially inflated prices during the Hartel Relevant Period. The plaintiffs seek unspecified damages and reimbursement of attorneys’ fees and certain other costs.

On October 7, 2021, a putative securities class action lawsuit captioned West Palm Beach Police Pension Fund v. SelectQuote, Inc., et al., Case No. 1:21-cv-08279 (“the WPBPPF Action”), was filed in the U.S. District Court for the Southern District of New York against the Company, two of its executive officers, and six current or former members of the Company’s Board of Directors, along with the underwriters of the Company’s initial public offering of common stock (the "Offering"). The complaint asserts claims for securities law violations on behalf of a putative class of plaintiffs who purchased shares of the Company’s common stock (i) in or traceable to the Offering or (ii) between May 20, 2020 and August 25, 2021 (the "WPB Relevant Period"). Specifically, the complaint alleges the defendants violated Sections 10(b) and 20(a) and Rule 10b-5 of the Exchange Act by making materially false and misleading statements and failing to disclose material adverse facts about the Company’s financial well-being and prospects, allegedly causing the Company’s common stock to trade at artificially inflated prices during the WPB Relevant Period. The complaint also alleges the defendants violated Sections 11, 12(a)(2), and 15 of the Securities Act by making misstatements and omissions of material facts in connection with the Offering, allegedly causing a decline in the value of the Company’s common stock. The plaintiffs seek unspecified damages, rescission, and reimbursement of attorneys’ fees and certain other costs. On October 15, 2021, a motion to consolidate the Hartel Action and the WPBPPF Action (together, the “Securities Class Actions”) was filed. Certain plaintiffs and their counsel have moved to be appointed lead plaintiff. Those motions are pending before the court.

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On March 25, 2022, a stockholder derivative action captioned Jadlow v. Danker, et al., Case No. 1:22-cv-00391 (“the Jadlow Action”) was filed in the U.S. District Court for the District of Delaware by an alleged stockholder of the Company, purportedly on the Company’s behalf. The lawsuit was brought against certain of the Company’s current and former directors and officers, and against the Company, as nominal defendant. The complaint alleges that certain of the defendants violated Section 14(a) of the Exchange Act by making materially false and misleading statements and failing to disclose material adverse facts about the Company’s business, operations, and prospects. The complaint also asserts claims against all defendants for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets based on the same general underlying conduct and seeks contribution under Sections 10(b) and 21D of the Exchange Act and Section 11(f) of the Securities Act from the individual defendants named in the Securities Class Actions. The complaint seeks unspecified damages for the Company, restitution, reformation and improvement of its corporate governance and internal procedures regarding compliance with laws, and reimbursement of costs and attorneys’ fees. On July 25, 2022, the Jadlow action was transferred to the U.S. District Court for the Southern District of New York, where it was assigned Case No. 1:22-cv-06290 and referred to Judge Alvin K. Hellerstein as possibly related to the Hartel Action. On August 4, 2022, Judge Hellerstein accepted the Jadlow action as related to the Hartel Action and, on August 10, 2022, granted the parties’ joint stipulation to stay the Jadlow action pending the resolution of an anticipated motion to dismiss the Securities Class Actions.

The Company currently believes that these matters will not have a material adverse effect on any of its results of operations, financial condition or liquidity; however, depending on how the matters progress, they could be costly to defend and could divert the attention of management and other resources from operations. The Company has not concluded that a loss related to these matters is probable and, therefore, has not accrued a liability related to these matters.

9.SHAREHOLDERS' EQUITY

Common Stock—As of September 30, 2023, the Company has reserved the following authorized, but unissued, shares of common stock:


Employee Stock Purchase Plan						159
Stock awards outstanding under 2020 Plan						19,473,034
Stock awards available for grant under 2020 Plan						3,271,623
Options outstanding under 2003 Plan						539,804

Total						23,284,620

Share-Based Compensation Plans

The Company has awards outstanding from two share-based compensation plans: the 2003 Stock Incentive Plan (the “2003 Stock Plan”) and the 2020 Omnibus Incentive Plan (the “2020 Stock Plan” and, collectively with the 2003 Stock Plan, the “Stock Plans”). However, no further awards will be made under the 2003 Stock Plan. The Company's Board of Directors adopted, and shareholders approved, the 2020 Stock Plan in connection with the Company’s IPO, which provides for the grant of incentive stock options (“ISO's”), nonstatutory stock options (“NSO's”), stock appreciation rights, restricted stock awards, restricted stock unit awards (“RSU's”), performance-based restricted stock units (“PSU's”), price-vested restricted stock units (“PVU’s”), and other forms of equity compensation (collectively, “stock awards”). All stock awards (other than ISOs, which may be granted only to current employees of the Company) may be granted to employees, non-employee directors, and consultants of the Company and its subsidiaries and affiliates.

The number of shares of common stock available for issuance as of September 30, 2023, pursuant to future awards under the Company's 2020 Stock Plan is 3,271,623. The number of shares of the Company's common stock reserved under the 2020 Stock Plan is subject to an annual increase on the first day of each fiscal year, beginning on July 1, 2021, equal to 3% of the total outstanding shares of common stock as of the last day of the immediately

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preceding fiscal year. The maximum number of shares of common stock that may be issued upon the exercise of ISO's will be 4,000,000. The shares of common stock covered by any award that is forfeited, terminated, expired, or lapsed without being exercised or settled for cash will again become available for issuance under the 2020 Stock Plan. With respect to any award, if the exercise price and/or tax withholding obligations are satisfied by delivering shares to the Company (by actual delivery or attestation), or if the exercise price and/or tax withholding obligations are satisfied by withholding shares otherwise issuable pursuant to the award, the share reserve shall nonetheless be reduced by the gross number of shares subject to the award.

The Company accounts for its share-based compensation awards in accordance with ASC 718, Compensation—Stock Compensation (“ASC 718”) which requires all share-based compensation to be recognized in the income statement based on fair value and applies to all awards granted, modified, canceled, or repurchased after the effective date.

Total share-based compensation for stock awards included in selling, general, and administrative expense in the condensed consolidated statements of comprehensive income was as follows for the periods presented:


	Three Months Ended September 30,
(in thousands)	2023		2022
Share-based compensation related to:
Equity classified stock options	$	722	$	852
Equity classified RSU's	1,741		1,402
Equity classified PSU's	33		(57)
Equity classified PVU's	679		358
Total	$	3,175	$	2,555

Stock Options—The stock options outstanding under the 2003 Stock Plan vest as to one-third after the vesting commencement date and as to 1/24 of the remaining shares subject to the stock option monthly thereafter, subject to the award recipient’s continued employment through the applicable vesting date. Upon a termination of employment for any reason other than for “Cause” (as defined in the 2003 Stock Plan), any unvested and outstanding stock options would generally be forfeited for no consideration, and any vested and outstanding stock options would remain exercisable for 90 days following the date of termination (and, in the case of a termination of employment due to death or disability, for 12 months following the date of termination). Stock options expire 10 years from the date of grant. The terms for ISO's and NSO's awarded in the 2020 Stock Plan are the same as in the 2003 Stock Plan with the exception that the options generally shall vest and become exercisable in four equal installments on each of the first four anniversaries of the grant date, subject to the award recipient’s continued employment through the applicable vesting date. Stock options are granted with an exercise price that is no less than 100% of the fair market value of the underlying shares on the date of the grant.

The fair value of each option (for purposes of calculation of share-based compensation expense) is estimated using the Black-Scholes-Merton option pricing model that uses assumptions determined as of the date of the grant. Use of this option pricing model requires the input of subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (“expected term”), the estimated volatility of the Company's common stock price over the expected term (“volatility”), the number of options that will ultimately not complete their vesting requirements (“assumed forfeitures”), the risk-free interest rate that reflects the interest rate at grant date on zero-coupon United States governmental bonds that have a remaining life similar to the expected term (“risk-free interest rate”), and the dividend yield assumption which is based on the Company's dividend payment history and management's expectations of future dividend payments (“dividend yield”). Changes in the subjective assumptions can materially affect the estimate of the fair value of share-based compensation and, consequently, the related amount recognized in the condensed consolidated statements of comprehensive loss.

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During the three months ended September 30, 2023 and 2022, there were no stock options granted. The following table summarizes stock option activity under the Stock Plans for the three months ended September 30, 2023:


	Number of Options	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value (in Thousands)
Outstanding—June 30, 2023	3,847,339	$	11.56
Options granted	—	—
Options exercised	—	—
Options forfeited/expired/cancelled	(14,747)	10.10
Outstanding—September 30, 2023	3,832,592	$	11.57	7.19	$	10
Vested and exercisable—September 30, 2023	2,245,756	$	12.74	6.61	$	10

As of September 30, 2023, there was $4.2 million in unrecognized compensation cost related to unvested stock options granted, which is expected to be recognized over a weighted-average period of 1.72 years.

During the three months ended September 30, 2023, there were no stock options exercised. The Company received cash of $0.6 million in connection with stock options exercised during the three months ended September 30, 2022.

Restricted Stock—The Company grants RSU's to eligible employees, non-employee directors, and contractors. These awards generally vest over a period of one to four years. Fair value of the RSU's is determined based on the market price of the Company’s common stock at the grant date and share-based compensation expense is recognized over the requisite service period.

The following table summarizes restricted stock unit activity under the 2020 Stock Plan for the three months ended September 30, 2023:


	Number of Restricted Stock Units	Weighted-Average Grant Date Fair Value
Unvested as of June 30, 2023	4,911,613	$	2.57
Granted	5,881,439	1.51
Vested	(1,031,892)	3.63
Forfeited	(26,071)	2.24
Unvested as of September 30, 2023	9,735,089	$	1.82

As of September 30, 2023, there was $15.5 million of unrecognized compensation cost related to unvested restricted stock units granted, which is expected to be recognized over a weighted-average period of 2.31 years.

Performance Stock—The following table summarizes performance stock unit activity under the 2020 Stock Plan for the three months ended September 30, 2023:

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	Number of Performance Stock Units	Weighted-Average Grant Date Fair Value
Unvested as of June 30, 2023	13,365	$	17.96
Granted	—	—
Vested	(14,477)	17.95
Forfeited		—
Performance adjustment(1)	1,112	—
Unvested as of September 30, 2023	—	$	—

(1) Represents adjustments to previously granted PSU’s to reflect changes in estimates of future financial performance against targets.

If certain performance metrics are met, PSU’s vest at the end of a three-year performance period. The fiscal year 2021 tranche vested on September 13, 2023, at 13% of the target and 14,477 shares were issued. The number of shares that could be earned for the fiscal year 2022 tranche is estimated to be at 0% of the target as of September 30, 2023. As such, as of September 30, 2023, there was no unrecognized compensation cost related to unvested performance stock units granted.

Price-Vested Units—The Company grants PVU's to eligible employees for which vesting is subject to the fulfillment of both a service period and the achievement of stock price hurdles during the relevant performance period. The awards are divided into four separate tranches, each with a different price hurdle which is measured as the average trading price over 60 calendar days on a rolling daily basis, over a performance period of five years. An employee is eligible to vest in one-third of the awards in each tranche after each year of service, but subject to the achievement of the stock-price hurdle attached to each tranche. As a result, share-based compensation will be recognized on a straight-line basis across twelve tranches over each tranche’s requisite service period, which is the greater of the derived service period and the explicit service period.

The following table summarizes the number of shares, stock price hurdles, service periods, and performance periods for each tranche, for the PVU’s awarded during the three months ended September 30, 2023:


	Number of Shares per Tranche	Grant Date Fair Value (per Share)		Stock Price Hurdle (per Share)		Performance Period	Requisite Service Period
Tranche 1	558,569	$	1.85	$	2.50	August 1, 2023 - August 1, 2028	1 year - 3 years
Tranche 2	558,540	$	1.69	$	5.00	August 1, 2023 - August 1, 2028	1.41 years - 3 years
Tranche 3	558,579	$	1.55	$	7.50	August 1, 2023 - August 1, 2028	1.96 years - 3 years
Tranche 4	558,550	$	1.45	$	10.00	August 1, 2023 - August 1, 2028	2.27 years - 3 years

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	Number of Shares per Tranche	Grant Date Fair Value (per Share)		Stock Price Hurdle (per Share)		Performance Period	Requisite Service Period
Tranche 1	1,055,674	$	1.52	$	4.00	August 1, 2022 - August 1, 2027	1.39 years - 3 years
Tranche 2	1,055,648	$	1.25	$	7.50	August 1, 2022 - August 1, 2027	2.33 years - 3 years
Tranche 3	1,055,674	$	1.11	$	10.00	August 1, 2022 - August 1, 2027	2.66 years - 3 years
Tranche 4	1,055,648	$	1.01	$	12.50	August 1, 2022 - August 1, 2027	2.90 years - 3 years

The fair value of each PVU (for purposes of calculation of share-based compensation expense) is estimated using a Monte Carlo simulation valuation model that uses assumptions determined as of the date of the grant. Use of this model requires the input of subjective assumptions and changes in the subjective assumptions can materially affect the estimate of the fair value of share-based compensation recognized in the consolidated statements of comprehensive loss. These assumptions include estimating the volatility of the Company's common stock price over the expected term, the risk-free interest rate that reflects the interest rate at grant date on zero-coupon United States governmental bonds that have a remaining life similar to the expected term risk-free interest rate, the cost of equity, and the dividend yield assumption which is based on the Company's dividend payment history and management's expectations of future dividend payments.

The Company used the following weighted-average assumptions for the PVU’s granted during the period presented below:


	Three Months Ended September 30,	Three Months Ended September 30,
	2023	2022
Share price as of grant date	$1.38	$1.80
Volatility	94.3%	79.3%
Risk-free interest rate	4.1%	2.6%
Cost of Equity	9.2%	10.6%
Dividend yield	—%	—%

The following table summarizes price-vested stock unit activity under the 2020 Stock Plan for the three months ended September 30, 2023:


	Number of Price-Vested Units	Weighted-Average Grant Date Fair Value
Unvested as of June 30, 2023	4,044,180	$	1.22
Granted	2,234,238	1.64
Vested	—	—
Forfeited	—	—
Unvested as of September 30, 2023	6,278,418	$	1.37

As of September 30, 2023, there was $6.0 million of unrecognized compensation cost related to unvested PVU’s granted, which is expected to be recognized over a weighted-average period of 1.84 years.

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ESPP—The purpose of the Company’s employee stock purchase plan (“ESPP”) is to provide the Company's eligible employees with an opportunity to purchase shares on the exercise date at a price equal to 85% of the fair market value of the Company’s common stock as of either the exercise date or the first day of the relevant offering period, whichever is lesser. The ESPP was suspended effective April 1, 2023, and as of September 30, 2023, there are 159 shares reserved for future issuance under the plan. During the three months ended September 30, 2022, the Company issued 779,946 shares to its employees and received cash of $0.5 million in connection with ESPP purchases and recorded share-based compensation expense of $0.2 million.

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10.REVENUES FROM CONTRACTS WITH CUSTOMERS

Disaggregation of Revenue from Contracts with Customers—The disaggregation of revenue by segment and product is depicted for the periods presented below, and is consistent with how the Company evaluates its financial performance:


	Three Months Ended September 30,
(in thousands)	2023		2022
Senior:
Commission revenue:
Medicare advantage	$	74,372	$	66,357
Medicare supplement	313		116
Prescription drug plan	71		91
Dental, vision, and health	1,049		335
Other commission revenue	359		655
Total commission revenue	76,164		67,554

Total other revenue	13,754		9,959
Total Senior revenue	89,918		77,513
Healthcare Services:
Total pharmacy revenue	94,788		41,093
Total other revenue	2,580		1,974
Total Healthcare Services revenue	97,368		43,067
Life:
Commission revenue:
Term	19,114		15,376
Final expense	14,120		17,420
Total commission revenue	33,234		32,796

Total other revenue	4,569		4,039
Total Life revenue	37,803		36,835
Auto & Home:
Total commission revenue	8,815		6,681

Total other revenue	212		401
Total Auto & Home revenue	9,027		7,082
Eliminations:
Total commission revenue	(457)		(696)

Total other revenue	(929)		(1,317)
Total Elimination revenue	(1,386)		(2,013)
Total commission revenue	117,756		106,335

Total pharmacy revenue	94,788		41,093
Total other revenue	20,186		15,056
Total revenue	$	232,730	$	162,484

Contract Balances—The Company has contract assets related to commissions receivable from its insurance carrier partners, with the movement over time as the policy is renewed between long-term and short-term

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commissions receivable and accounts receivable, net being the main activity, along with commission revenue adjustments from changes in estimates.

A roll forward of commissions receivable (current and long-term) is shown below for the period presented:


(in thousands)
Balance as of June 30, 2023	$	840,498
Commission revenue from revenue recognized	43,307
Net commission revenue adjustment from change in estimate	366
Amounts recognized as accounts receivable, net	(14,524)
Balance as of September 30, 2023	$	869,647

For the three months ended September 30, 2023, the $0.4 million net commission revenue adjustment from change in estimate includes adjustments related to revenue recognized in prior fiscal years, based on the Company’s reassessment of each of its cohorts’ transaction prices. It includes a negative adjustment of $0.6 million for Senior, a positive adjustment of $0.8 million for Auto & Home, and a positive adjustment of $0.2 million for Life.

The Company’s contract liabilities on the condensed consolidated balance sheets represent unamortized upfront payments received as of September 30, 2023, for commission revenue for which the performance obligations have not yet been met and are anticipated to be recognized over the next twelve months.

A roll forward of contract liabilities (current and long-term) is shown below for the period presented:


(in thousands)
Balance as of June 30, 2023	$	1,691
Commission revenue recognized	(4,920)
Other revenue recognized	(308)
Amounts recognized as contract liabilities	9,294
Balance as of September 30, 2023	$	5,757

11.INCOME TAXES

For the three months ended September 30, 2023 and 2022, the Company recognized income tax benefit of $12.8 million and $13.6 million, respectively, representing effective tax rates of 29.2% and 24.3%, respectively. The differences from the federal statutory tax rate to the effective tax rates for both the three months ended September 30, 2023 and 2022, were primarily related to state income taxes.

As of September 30, 2023 the Company has a valuation allowance of $3.3 million for deferred tax assets related to certain state specific net operating losses and credits, as it is more likely than not that those assets will not be realized. As the Company is currently in a three-year cumulative loss position, it cannot consider the projections of future income as part of the valuation allowance analysis and have considered the other sources of future taxable income described under ASC 740 when evaluating the need for a valuation allowance. After evaluating these sources of taxable income, and considering the jurisdiction and character of the deferred tax assets, the Company continues to recognize its deferred tax assets as of September 30, 2023, as it believes it is more likely than not that the net deferred tax assets will be realized, outside of the deferred tax asset related to certain state credits noted above where a valuation allowance has been established.

12.NET LOSS PER SHARE

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The Company calculates net loss per share as defined by ASC 260, Earnings per Share (“ASC 260”). Basic net loss per share (“Basic EPS”) is computed by dividing net loss attributable to common shareholders by the weighted-average common stock outstanding during the respective period. Diluted net loss per share (“Diluted EPS”) is computed by dividing net loss attributable to common and common equivalent shareholders by the total of the weighted-average common stock outstanding and common equivalent shares outstanding during the respective period. For the purpose of calculating the Company’s Diluted EPS, common equivalent shares outstanding include common shares issuable upon the exercise of outstanding employee stock options, unvested RSU's, PSU’s assuming the performance conditions are satisfied as of the end of the reporting period, PVU’s assuming market conditions are satisfied as of the end of the reporting period, and common shares issuable upon the conclusion of each ESPP offering period. The number of common equivalent shares outstanding has been determined in accordance with the treasury stock method for employee stock options, RSU's, PSU’s, PVU’s, and common stock issuable pursuant to the ESPP to the extent they are dilutive. Under the treasury stock method, the exercise price paid by the option holder and future share-based compensation expense that the Company has not yet recognized are assumed to be used to repurchase shares.

The following table sets forth the computation of net loss per share for the periods presented:


	Three Months Ended September 30,
(in thousands, except per share amounts)	2023		2022
Basic:
Numerator:
Net loss attributable to common shareholders	$	(31,051)	$	(42,484)



Denominator:
Weighted-average common stock outstanding	167,453		164,824
Net loss per share—basic:	$	(0.19)	$	(0.26)
Diluted:
Numerator:
Net loss attributable to common and common equivalent shareholders	$	(31,051)	$	(42,484)





Denominator:
Weighted-average common stock outstanding	167,453		164,824


Stock options outstanding to purchase shares of common stock including unvested RSU's and from the ESPP(1)	—		—

Total common and common equivalent shares outstanding	167,453		164,824
Net loss per share—diluted:	$	(0.19)	$	(0.26)

(1) Excluded from the computation of net loss per share-diluted for the three months ended September 30, 2023 and 2022, because the effect would have been anti-dilutive.

The weighted average potential shares of common stock that were excluded from the calculation of net loss per share-diluted because including them would have been anti-dilutive are as follows for the periods presented:


	Three Months Ended September 30,
(in thousands)	2023	2022



Stock options outstanding to purchase shares of common stock including unvested RSU's and from the ESPP	10,521	7,779

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The weighted average potential shares of common stock that were excluded from the calculation of net loss per share-diluted because the performance or market conditions associated with these awards were not met are as follows for the periods presented:


	Three Months Ended September 30,
(in thousands)	2023	2022




Shares subject to outstanding PVU’s	6,278	4,223
Shares subject to outstanding PSU's	—	6
Total	6,278	4,229

13.SEGMENT INFORMATION

The Company’s operating and reportable segments have been determined in accordance with ASC 280, Segment Reporting (“ASC 280”). The Company has four reportable segments: i) Senior, ii) Healthcare Services, iii) Life, and iv) Auto & Home. The Company includes non-operating activity, share-based compensation expense, certain intersegment eliminations, and the costs of providing corporate and other administrative services in its administrative division in Corporate & Eliminations. These services and activities are not directly identifiable with the Company’s reportable segments and are shown in the tables below to reconcile the reportable segments to the condensed consolidated financial statements. The Company has not aggregated any operating segments into a reportable segment.

The Company reports segment information based on how its chief operating decision maker ("CODM") regularly reviews its 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, cost of goods sold-pharmacy revenue, marketing and advertising, selling, general, and administrative, and technical development operating expenses that are directly attributable to a segment are reported within the applicable segment. Indirect costs of revenue, marketing and advertising, selling, general, and administrative, and technical development operating 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, cost of goods sold, marketing and advertising, technical development, and selling, general, and administrative operating costs and expenses, excluding depreciation and amortization expense; gain or loss on disposal of property, equipment, and software; share-based compensation expense; and non-recurring expenses such as severance payments and transaction costs. Our CODM does not separately evaluate assets by segment, with the exception of commissions receivable; therefore, assets by segment are not presented.

The following table presents information about the reportable segments for the three months ended September 30, 2023:

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(in thousands)	Senior		Healthcare Services		Life		Auto & Home		Corp & Elims			Consolidated
Revenue	$	89,918	$	97,368	$	37,803	$	9,027	$	(1,386)	(1)	$	232,730
Operating expenses	(91,253)		(95,046)		(32,563)		(5,708)		(19,498)		(2)	(244,068)
Other income (expense), net	—		—		—		—		(38)			(38)
Adjusted EBITDA	$	(1,335)	$	2,322	$	5,240	$	3,319	$	(20,922)		(11,376)
Share-based compensation expense												(3,175)
Transaction costs(3)												(1,904)


Depreciation and amortization												(5,989)
Loss on disposal of property, equipment, and software												(9)
Interest expense, net												(21,397)

Income tax benefit												12,799
Net loss												$	(31,051)

(1) Revenue in the Corp & Elims division represents intercompany revenue eliminated between segments, including for lead generation referrals from InsideResponse (within Senior) and referrals between the other segments.

(2) Operating expenses in the Corp & Elims division primarily include $13.9 million in salaries and benefits for certain general, administrative, and IT related departments and $4.1 million in professional services fees.

(3) These expenses consist of financing transaction costs and non-restructuring severance expenses.

The following table presents information about the reportable segments for the three months ended September 30, 2022:


(in thousands)	Senior		Healthcare Services		Life		Auto & Home		Corp & Elims			Consolidated
Revenue	$	77,513	$	43,067	$	36,835	$	7,082	$	(2,013)	(1)	$	162,484
Operating expenses	(81,366)		(54,854)		(31,811)		(4,640)		(17,446)		(2)	(190,117)
Other income (expense), net	—		—		201		(1)		(42)			158
Adjusted EBITDA	$	(3,853)	$	(11,787)	$	5,225	$	2,441	$	(19,501)		(27,475)
Share-based compensation expense												(2,630)
Transaction costs (3)												(2,126)


Depreciation and amortization												(6,802)
Loss on disposal of property, equipment, and software												(325)
Interest expense, net												(16,736)

Income tax benefit												13,610
Net loss												$	(42,484)

(2) Operating expenses in the Corp & Elims division primarily include $12.1 million in salaries and benefits for certain general, administrative, and IT related departments and $4.6 million in professional services fees.

(3) These expenses primarily consist of costs related to the Fourth Amendment to the Senior Secured Credit Facility.

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Revenues from each of the reportable segments are earned from transactions in the United States and follow the same accounting policies used for the Company’s condensed consolidated financial statements. All of the Company’s long-lived assets are located in the United States. For the three months ended September 30, 2023, two customers, both from the Senior Segment, accounted for 32% (UHC) and 17% (Humana) of total revenue. For the three months ended September 30, 2022, two customers, both from the Senior Segment, accounted for 26% (UHC) and 15% (Wellcare) of total revenue.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

We are a leading technology-enabled, direct-to-consumer (“DTC”) distribution platform for insurance products and healthcare services. Our insurance distribution business, which has operated continuously for over 35 years, provides consumers with a transparent and convenient venue to shop for complex senior health, life, and automobile & 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 search engines, 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 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 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 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.

Our unique platform has enabled us to expand our distribution business in recent years to include additional products beyond insurance policies. In interacting with thousands of consumers over the years, we identified a large opportunity to leverage our existing database and distribution model to improve access to healthcare services for our consumers. In addition to improving consumers’ health outcomes, this service creates deeper relationships with our insurance carrier partners by increasing policy persistency and, in turn, reducing their overall costs. Additionally, we offer pharmacy services through SelectRx, our accredited Patient-Centered Pharmacy Home pharmacy, which offers essential prescription medications, OTC medications, customized medication packaging, medication therapy management, providing long-term pharmacy care that enables patients to optimize medication adherence to drive positive health outcomes while enabling patients to remain at home.

We evaluate our business using the following four segments:

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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 UnitedHealthcare, (“UHC”), Humana, and Wellcare. MA and MS plans accounted for 89% and 85% of our approved Senior policies for the three months ended September 30, 2023 and 2022, respectively, with other ancillary type policies accounting for the remainder.

Healthcare Services, launched in 2021, includes SelectRx and Population Health. Through SelectRx, we provide simple solutions for prescription drug management and support with a personalized approach to streamline the process of managing multiple medications for seniors with chronic conditions. SelectRx has developed a pill pack solution that is customized to the unique needs of each patient, focusing on individual multi-dosages by day and time. SelectRx uses a high-touch, technology-driven approach to provide superior customer service and achieve improved medication adherence. Population Health helps members understand the benefits available under their health plans, contracts with insurance carriers to complete HRA’s on members, partners with VBC providers for a variety of healthcare-related services, and introduces them to the pharmacy services we offer through SelectRx. We believe that offering these services through SelectRx and Population Health to our existing consumers helps drive customer satisfaction and increase policy persistency, which, in turn, reduces costs for our insurance carrier partners.

Life is one of the country’s largest and most established DTC insurance distributors for term life insurance, having sold over 2.2 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 15 years. Term life policies accounted for 48% and 40% of new premium within Life for the three months ended September 30, 2023 and 2022, respectively, with final expense policies accounting for 52% and 60% for the three months ended September 30, 2023 and 2022, respectively.

Auto & Home was launched in 2011 as an unbiased comparison shopping platform for auto, home, and specialty insurance lines. Our platform provides unbiased comparison shopping for insurance products such as homeowners, auto, dwelling fire, and other ancillary insurance products underwritten by approximately 25 leading, nationally-recognized insurance carrier partners. Homeowners and 12-month auto products accounted for 77% and 75% of new premium within Auto & Home for the three months ended September 30, 2023 and 2022, respectively, with six-month auto, dwelling fire, and other products accounting for a majority of the remainder.

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, 2024 and 2023.

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 is the most appropriate measure used to evaluate the performance of Healthcare Services. In Life and Auto & Home, 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:

Senior

Submitted Policies

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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:


	Three Months Ended September 30,
	2023	2022
Medicare Advantage	104,532	90,028
Medicare Supplement	481	665
Dental, Vision, and Hearing	12,496	16,334
Prescription Drug Plan	311	364
Other	1,632	2,026
Total	119,452	109,417

Total submitted policies for all products increased 9% for the three months ended September 30, 2023, compared to the three months ended September 30, 2022. This was driven by increases in overall close rates (25%), the number of average productive agents (4%), and productivity per agent (10%).

Approved Policies

Approved policies represents the number of submitted policies that were approved by our insurance carrier partners for the identified product during the indicated period. Not all approved policies will go in force.

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


	Three Months Ended September 30,
	2023	2022
Medicare Advantage	97,681	83,173
Medicare Supplement	360	500
Dental, Vision and Hearing	10,529	12,275
Prescription Drug Plan	254	390
Other	1,052	1,662
Total	109,876	98,000

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 increased 12% for the three months ended September 30, 2023, compared to the three months ended September 30, 2022. Fluctuations in approved policies are normally in direct correlation to submitted policies; however, due to enhanced agent training and development and a higher mix of tenured agents, we experienced a 3% improvement in the submitted-to-approved conversion rates for the three months ended September 30, 2023, compared to the three months ended September 30, 2022.

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

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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 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:


	Three Months Ended September 30,
	2023		2022
Medicare Advantage	$	761	$	780
Medicare Supplement	1,041		1,132
Dental, Vision and Hearing	147		68
Prescription Drug Plan	278		233
Other	11		74

The LTV per MA approved policy decreased 2% for the three months ended September 30, 2023, compared to the three months ended September 30, 2022, 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, as this is the primary key driver of revenue for Healthcare Services.

The following table shows the total number of SelectRx members for the periods presented:


	Three Months Ended September 30,
	2023	2022
Total SelectRx Members	52,750	32,596

The total number of SelectRx members increased 62% for the three months ended September 30, 2023, compared to the three months ended September 30, 2022, due to our operating strategy to grow SelectRx.

Combined Senior and Healthcare Services - Consumer Per Unit Economics

The opportunity to leverage our existing database and distribution model to improve access to healthcare services for our consumers has created a need for us to review our key metrics related to our per unit economics. As we think about the revenue and expenses for Healthcare Services, we note that they are derived from the marketing acquisition costs associated with the sale of an MA or MS policy, some of which costs are allocated directly to Healthcare Services, and therefore determined that our per unit economics measure should include components from both Senior and Healthcare Services. See details of revenue and expense items included in the calculation below.

Combined Senior and Healthcare Services consumer per unit economics represents total MA and MS commissions; other product commissions; other revenues, including revenues from Healthcare Services; and operating expenses associated with Senior and Healthcare Services, each shown per number of approved MA and MS 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.

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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 MA and MS commission per MA/MS policy represents the LTV for policies sold in the period. Other commission per MA/MS policy represents the LTV for other products sold in the period, including DVH prescription drug plan, and other products, which management views as additional commission revenue on our agents’ core function of MA/MS policy sales. Pharmacy revenue per MA/MS policy represents revenue from SelectRx, and other revenue per MA/MS policy represents revenue from Population Health, production bonuses, marketing development funds, lead generation revenue, and adjustments from the Company’s reassessment of its cohorts’ transaction prices. Total operating expenses per MA/MS policy represents all of the operating expenses within Senior and Healthcare Services. The revenue to customer acquisition cost (“CAC”) multiple represents total revenue as a multiple of total marketing acquisition costs, which represents the direct costs of acquiring leads. These costs are included in marketing and advertising expense within the total operating expenses per MA/MS policy.

The following table shows combined Senior and Healthcare Services consumer per unit economics for the periods presented. Based on the seasonality of Senior 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.


	Twelve Months Ended September 30,
(dollars per approved policy):	2023			2022
Medicare Advantage and Medicare Supplement approved policies	594,554			665,358
Medicare Advantage and Medicare Supplement commission per MA/MS policy	$	872		$	902
Other commission per MA/MS policy	13			22
Pharmacy revenue per MA/MS policy	493			144
Other revenue per MA/MS policy	151			(148)
Total revenue per MA/MS policy	1,529			920
Total operating expenses per MA/MS policy	(1,278)			(1,185)
Adjusted EBITDA per MA/MS policy (1)	$	251		$	(265)
Adjusted EBITDA Margin per MA/MS policy (1)	16		%	(29)		%
Revenue/CAC multiple	4.3X			1.8X

(1) These financial measures are not calculated in accordance with GAAP. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” 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.

Total revenue per MA/MS policy increased 66% for the twelve months ended September 30, 2023, compared to the twelve months ended September 30, 2022, primarily due to the increase in pharmacy revenue. Total operating expenses per MA/MS policy increased 8% for the twelve months ended September 30, 2023, compared to the twelve months ended September 30, 2022, driven by an increase in cost of goods sold-pharmacy revenue for SelectRx due to the growth of the business, offset by a decrease in our marketing and advertising costs.

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.

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


	Three Months Ended September 30,
(in thousands):	2023		2022
Term Premiums	$	18,190	$	15,098
Final Expense Premiums	19,699		22,364
Total	$	37,889	$	37,462

Total term premiums increased 20% for the three months ended September 30, 2023, compared to the three months ended September 30, 2022, due to a 6% increase in the average premium per policy sold and a 13% increase in the number of policies sold. Final expense premiums decreased 12% for the three months ended September 30, 2023, compared to the three months ended September 30, 2022. The number of policies sold declined 15% driven by a lower average productive agent headcount, which was somewhat offset by a 3% increase in the average premium per policy sold.

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 Auto & Home.

The following table shows premiums for the periods presented:


	Three Months Ended September 30,
(in thousands):	2023		2022
Premiums	$	13,877	$	11,549

Total premiums increased 20% for the three months ended September 30, 2023, compared to the three months ended September 30, 2022, due to a 10% increase in the average premium per policy sold and a 9% increase in the number of policies sold.

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 Quarterly Report on Form 10-Q 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 (loss) before interest expense, income tax expense (benefit), depreciation and amortization, and certain add-backs for non-cash or non-recurring expenses, including restructuring, share-based compensation expenses, and any impairment charges. The most directly comparable GAAP measure is net income (loss). We monitor and have presented in this Quarterly Report on Form 10-Q 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

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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 (loss), which is the most directly comparable financial measure calculated and presented in accordance with GAAP. These limitations include the fact that Adjusted EBITDA excludes interest expense, depreciation and amortization expense, share-based compensation expense, income tax expense (benefit), and other non-recurring expenses that are one-time in nature. 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 loss, the most directly comparable financial measure calculated and presented in accordance with GAAP, for the periods presented:

Three Months Ended September 30, 2023:


(in thousands)	Senior		Healthcare Services		Life		Auto & Home		Corp & Elims		Consolidated
Net loss											$	(31,051)
Share-based compensation expense											3,175
Transaction costs (1)											1,904


Depreciation and amortization											5,989
Loss on disposal of property, equipment, and software											9
Interest expense, net											21,397

Income tax benefit											(12,799)
Adjusted EBITDA	$	(1,335)	$	2,322	$	5,240	$	3,319	$	(20,922)	$	(11,376)

(1) These expenses consist of financing transaction costs and non-restructuring severance expenses.

Three Months Ended September 30, 2022:


(in thousands)	Senior		Healthcare Services		Life		Auto & Home		Corp & Elims		Consolidated
Net loss											$	(42,484)
Share-based compensation expense											2,630
Transaction costs (1)											2,126


Depreciation and amortization											6,802
Loss on disposal of property, equipment, and software											325
Interest expense, net											16,736

Income tax benefit											(13,610)
Adjusted EBITDA	$	(3,853)	$	(11,787)	$	5,225	$	2,441	$	(19,501)	$	(27,475)

(1) These expenses primarily consist of costs related to the Fourth Amendment to the Senior Secured Credit Facility.

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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:


	Three Months Ended September 30,
(in thousands)	2023				2022
Revenue
Commission	$	117,756	51	%	$	106,335	65	%

Pharmacy	94,788		41	%	41,093		25	%
Other	20,186		8	%	15,056		10	%
Total revenue	232,730		100	%	162,484		100	%
Operating costs and expenses
Cost of revenue	72,511		31	%	65,164		40	%
Cost of goods sold—pharmacy revenue	84,008		36	%	42,354		26	%
Marketing and advertising	62,323		28	%	57,594		35	%
Selling, general, and administrative	28,666		12	%	30,706		19	%
Technical development	7,637		3	%	6,182		4	%

Total operating costs and expenses	255,145		110	%	202,000		124	%
Loss from operations	(22,415)		(10)	%	(39,516)		(24)	%
Interest expense, net	(21,397)		(9)	%	(16,736)		(10)	%

Other income (expense), net	(38)		—	%	158		—	%
Loss before income tax benefit	(43,850)		(19)	%	(56,094)		(34)	%
Income tax benefit	(12,799)		(6)	%	(13,610)		(7)	%
Net loss	$	(31,051)	(13)	%	$	(42,484)	(27)	%

Revenue

We earn revenue in the form of commission payments from our insurance carrier customers, for the initial year the policy is in effect (“first year”) and, where applicable, for each subsequent year the policy renews (“renewal year”), as presented in our consolidated statements of comprehensive income (loss) as commission revenue. After an insurance 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. 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.

We also receive certain volume-based bonuses from some carriers on first year policies sold based on attaining various predetermined target sales levels or other agreed upon objectives. These bonuses are referred to as “production bonuses” or “marketing development funds” and are included in other revenue in the condensed consolidated statements of comprehensive loss. Pharmacy revenue includes revenue from the sale of prescription and OTC medications from SelectRx. Other revenue includes production bonuses and marketing development funds, revenue from Population Health (excluding SelectRx pharmacy revenue), and external lead generation revenue from InsideResponse.

Revenue is recognized at different milestones for Senior, Life, and Auto & Home and is based on the contractual enforceable rights, our historical experience, and established customer business practices. 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

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shipment. At the time of shipment, we have performed substantially all of our performance obligations and control has been transferred to the customer. There are no future revenue streams associated as patients have the option to cancel their service at any time with no further payments due. Revenue from Population Health is recognized when the HRA has been performed or the agreed-upon task has been completed for a VBC partner, the transaction price is known based on volume and contractual prices, and we have no further performance obligation.

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


	Three Months Ended September 30,				Percent Change
(dollars in thousands)	2023		2022		2023 vs. 2022
Commission	$	117,756	$	106,335	11%

Pharmacy	94,788		41,093		131%
Other	20,186		15,056		34%
Total revenue	$	232,730	$	162,484	43%

Three Months Ended September 30, 2023 and 2022–Commission revenue increased $11.4 million, or 11%, for the three months ended September 30, 2023, and included increases in Senior, Life, and Auto & Home commission revenue of $8.6 million, $0.4 million, and $2.1 million respectively. For Senior, this was driven by a 12% increase in approved policies and a 3% increase in LTV’s. Life’s revenue increase was primarily driven by a $3.7 million increase in term revenue, partially offset by a $3.3 million decrease in final expense revenue. The $53.7 million increase in pharmacy revenue was due to the increase in members due to the expansion of the SelectRx business. The $5.1 million increase in other revenue was driven by a $5.1 million increase in production bonus revenue.

Operating Costs and Expenses

Cost of Revenue

Cost of revenue represents the direct costs associated with fulfilling our obligations to our customers in the Senior, Life, Auto & Home, and Population Health divisions, 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 revenue for the periods presented and the percentage change from the prior year:


	Three Months Ended September 30,				Percent Change
(dollars in thousands)	2023		2022		2023 vs. 2022
Cost of revenue	$	72,511	$	65,164	11%

Three Months Ended September 30, 2023 and 2022–Cost of revenue increased $7.3 million, or 11%, for the three months ended September 30, 2023, primarily due to a $7.2 million increase in compensation costs mostly from our Senior segment.

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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 and related benefit 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:


	Three Months Ended September 30,				Percent Change
(dollars in thousands)	2023		2022		2023 vs. 2022
Cost of goods sold—pharmacy revenue	$	84,008	$	42,354	98%

Three Months Ended September 30, 2023 and 2022–Cost of goods sold-pharmacy revenue increased $41.7 million, or 98%, for the three months ended September 30, 2023, primarily due to a $40.5 million increase in medication costs as the number of SelectRx members increased 62% over the prior year.

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 change from the prior year:


	Three Months Ended September 30,				Percent Change
(dollars in thousands)	2023		2022		2023 vs. 2022
Marketing and advertising	$	62,323	$	57,594	8%

Three Months Ended September 30, 2023 and 2022–Marketing and advertising expenses increased $4.7 million, or 8%, for the three months ended September 30, 2023, primarily due to a $4.3 million increase in lead costs.

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.

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


	Three Months Ended September 30,				Percent Change
(dollars in thousands)	2023		2022		2023 vs. 2022
Selling, general, and administrative	$	28,666	$	30,706	(7)%

Three Months Ended September 30, 2023 and 2022–Selling, general, and administrative expenses decreased $2.0 million, or 7%, for the three months ended September 30, 2023, primarily due to decreases in compensation costs ($0.8 million), litigation settlement costs ($0.8 million), and facilities expense ($0.5 million).

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 change from the prior year:


	Three Months Ended September 30,				Percent Change
(dollars in thousands)	2023		2022		2023 vs. 2022
Technical development	$	7,637	$	6,182	24%

Three Months Ended September 30, 2023 and 2022–Technical development expenses increased $1.5 million, or 24%, for the three months ended September 30, 2023, primarily due to a $1.3 million increase in compensation costs.

Interest Expense, Net

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


	Three Months Ended September 30,				Percent Change
(dollars in thousands)	2023		2022		2023 vs. 2022
Interest expense, net	$	21,397	$	16,736	28%

Three Months Ended September 30, 2023 and 2022–Interest expense increased $4.7 million, or 28%, as a result of higher interest rates during the period. The increase was partially offset by interest income received from the interest rate swap and our money market account.

Income Taxes

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

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	Three Months Ended September 30,						Percent Change
(dollars in thousands)	2023			2022			2023 vs. 2022
Income tax benefit	$	(12,799)		$	(13,610)		(6)%
Effective tax rate	29.2		%	24.3		%

Three Months Ended September 30, 2023 and 2022–For the three months ended September 30, 2023 and 2022, we recognized income tax benefits of $12.8 million and $13.6 million, respectively, representing effective tax rates of 29.2% and 24.3%, respectively. The differences from the federal statutory tax rate to the effective tax rates for both the three months ended September 30, 2023 and 2022, were primarily related to state income taxes.

Segment Information

The Company’s operating and reportable segments have been determined in accordance with ASC 280, Segment Reporting (“ASC 280”) and include four reportable segments: i) Senior, ii) Healthcare Services, iii) Life, and iv) Auto & Home. The Company includes non-operating activity, share-based compensation expense, certain intersegment eliminations, and the costs of providing corporate and other administrative services in its administrative division in Corporate & Eliminations. These services and activities are not directly identifiable with the Company’s reportable segments and are shown in the tables below to reconcile the reportable segments to the condensed consolidated financial statements. The Company has not aggregated any operating segments into a reportable segment.

The following tables present information about the reportable segments for the periods presented:

Three Months Ended September 30, 2023:

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(in thousands)	Senior		Healthcare Services		Life		Auto & Home		Corp & Elims			Consolidated
Revenue	$	89,918	$	97,368	$	37,803	$	9,027	$	(1,386)	(1)	$	232,730
Operating expenses	(91,253)		(95,046)		(32,563)		(5,708)		(19,498)		(2)	(244,068)
Other income (expense), net	—		—		—		—		(38)			(38)
Adjusted EBITDA	$	(1,335)	$	2,322	$	5,240	$	3,319	$	(20,922)		(11,376)
Share-based compensation expense												(3,175)
Transaction costs(3)												(1,904)


Depreciation and amortization												(5,989)
Loss on disposal of property, equipment, and software												(9)
Interest expense, net												(21,397)

Income tax benefit												12,799
Net loss												$	(31,051)

(1) Revenue in the Corp & Elims division represents intercompany revenue eliminated between segments primarily for lead generation referrals from InsideResponse (within Senior) to the other segments.

(3) These expenses consist of financing transaction costs and non-restructuring severance expenses.

Three Months Ended September 30, 2022:


(in thousands)	Senior		Healthcare Services		Life		Auto & Home		Corp & Elims			Consolidated
Revenue	$	77,513	$	43,067	$	36,835	$	7,082	$	(2,013)	(1)	$	162,484
Operating expenses	(81,366)		(54,854)		(31,811)		(4,640)		(17,446)		(2)	(190,117)
Other income (expense), net	—		—		201		(1)		(42)			158
Adjusted EBITDA	$	(3,853)	$	(11,787)	$	5,225	$	2,441	$	(19,501)		(27,475)
Share-based compensation expense												(2,630)
Transaction costs (3)												(2,126)


Depreciation and amortization												(6,802)
Loss on disposal of property, equipment, and software												(325)
Interest expense, net												(16,736)

Income tax benefit												13,610
Net loss												$	(42,484)

(1) Revenue in the Corp & Elims division represents intercompany revenue eliminated between segments primarily for lead generation referrals from InsideResponse (within Senior) to the other segments.

(3) These expenses primarily consist of costs related to the Fourth Amendment to the Senior Secured Credit Facility.

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


	Three Months Ended September 30,
(dollars in thousands)	2023		2022		$		%
Senior:
Commission revenue:
Medicare advantage	$	74,372	$	66,357	$	8,015	12	%
Medicare supplement	313		116		197		170	%
Prescription drug plan	71		91		(20)		(22)	%
Dental, vision, and health	1,049		335		714		213	%
Other commission revenue	359		655		(296)		(45)	%
Total commission revenue	76,164		67,554		8,610		13	%

Total other revenue	13,754		9,959		3,795		38	%
Total Senior revenue	89,918		77,513		12,405		16	%
Healthcare Services:
Total pharmacy revenue	94,788		41,093		53,695		131	%
Total other revenue	2,580		1,974		606		31	%
Total Healthcare Services revenue	97,368		43,067		54,301		126	%
Life:
Commission revenue:
Term	19,114		15,376		3,738		24	%
Final expense	14,120		17,420		(3,300)		(19)	%
Total commission revenue	33,234		32,796		438		1	%

Total other revenue	4,569		4,039		530		13	%
Total Life revenue	37,803		36,835		968		3	%
Auto & Home:
Total commission revenue	8,815		6,681		2,134		32	%

Total other revenue	212		401		(189)		(47)	%
Total Auto & Home revenue	9,027		7,082		1,945		27	%
Eliminations:
Total commission revenue	(457)		(696)		239		(34)	%

Total other revenue	(929)		(1,317)		388		(29)	%
Total Elimination revenue	(1,386)		(2,013)		627		(31)	%
Total commission revenue	117,756		106,335		11,421		11	%

Total pharmacy revenue	94,788		41,093		53,695		131	%
Total other revenue	20,186		15,056		5,130		34	%
Total revenue	$	232,730	$	162,484	$	70,246	43	%

Revenue by Segment

Three Months Ended September 30, 2023 and 2022–Revenue from Senior was $89.9 million for the three months ended September 30, 2023, a $12.4 million, or 16%, increase compared to revenue of $77.5 million for the three months ended September 30, 2022. The increase was due to a $8.6 million, or 13%, increase in commission revenue and a $4.8 million increase in production bonus revenue.

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Revenue from Healthcare Services was $97.4 million for the three months ended September 30, 2023, a $54.3 million, or 126%, increase compared to revenue of $43.1 million for the three months ended September 30, 2022, primarily due to a $53.7 million increase in SelectRx pharmacy revenue.

Revenue from Life was $37.8 million for the three months ended September 30, 2023, a $1.0 million, or 3%, increase compared to revenue of $36.8 million for the three months ended September 30, 2022, due to $0.5 million increase in production bonus revenue and a $0.4 million increase in commission revenue.

Revenue from Auto & Home was $9.0 million for the three months ended September 30, 2023, a $1.9 million, or 27%, increase compared to revenue of $7.1 million for the three months ended September 30, 2022, primarily due to a $2.1 million increase in commission revenue

Adjusted EBITDA by Segment

Three Months Ended September 30, 2023 and 2022–Adjusted EBITDA from Senior was $(1.3) million for the three months ended September 30, 2023, a $2.5 million increase compared to Adjusted EBITDA of $(3.9) million for the three months ended September 30, 2022. The increase in Adjusted EBITDA was due to a $12.4 million increase in revenue as discussed above, offset by a $9.9 million increase in operating costs and expenses primarily due to a $5.8 million increase in compensation costs and a $4.0 million increase in marketing and advertising costs.

Adjusted EBITDA from Healthcare Services was $2.3 million for the three months ended September 30, 2023, a $14.1 million increase compared to Adjusted EBITDA of $(11.8) million for the three months ended September 30, 2022. The increase in Adjusted EBITDA was due to a $54.3 million increase in revenue as discussed above, offset a $40.2 million increase in operating costs and expenses primarily as a result of a $40.5 million increase in medication costs and a $2.1 million increase in compensation costs in support of the growth of SelectRx.

Adjusted EBITDA from Life was $5.2 million for the three months ended September 30, 2023 and remained flat compared to the three months ended September 30, 2022. Revenue increased $1.0 million as discussed above, which was offset by a $0.8 million increase in operating costs and expenses primarily due to a $0.9 million increase in compensation costs.

Adjusted EBITDA from Auto & Home was $3.3 million for the three months ended September 30, 2023, a $0.9 million, or 36%, increase compared to Adjusted EBITDA of $2.4 million for the three months ended September 30, 2022. The increase in Adjusted EBITDA was due to a $1.9 million increase in revenue as discussed above, offset by a $1.1 million increase in operating costs and expenses due to a $0.8 million increase in compensation costs and a $0.2 million increase in marketing and advertising costs.

Liquidity and Capital Resources

Our liquidity needs primarily include working capital and debt service requirements. We believe that the cash available under the Senior Secured Credit Facility will be sufficient to meet our projected operating and debt service requirements for at least the next 12 months. Additionally, we are required under the Senior Secured Credit Facility to maintain compliance with certain debt covenants, as discussed further in Note 7 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. Our future compliance with these covenants is dependent on our ability to restructure our existing debt or secure additional financing from other sources, thus we are actively exploring various financing options, including, but not limited to securitization. Failure to comply with these covenants or make payments under the Senior Secured Credit Facility could result in an event of default. The Senior Secured Credit Facility has a maturity date of November 5, 2024.

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As of September 30, 2023 and June 30, 2023, our cash and cash equivalents totaled $48.5 million and $83.2 million, respectively. Additionally, the following table presents a summary of our cash flows for the periods presented below:


	Three Months Ended September 30,
(in thousands)	2023		2022
Net cash used in operating activities	$	(23,671)	$	(47,170)
Net cash used in investing activities	(2,145)		(2,385)
Net cash used in financing activities	(8,854)		(20,359)

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; impairment charges; 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, 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.

Three Months Ended September 30, 2022—Net cash used in operating activities was $47.2 million, consisting of net loss of $42.5 million, adjustments for non-cash items of $0.6 million, and cash used in operating assets and liabilities of $5.2 million. Adjustments for non-cash items primarily consisted of $13.9 million in deferred income taxes, offset by $6.8 million of depreciation and amortization, $2.6 million of share-based compensation expense, $1.3 million of accrued interest payable, $1.6 million of amortization of debt issuance costs and debt discount, and $1.1 million of non-cash lease expense. The cash decrease resulting from changes in net operating assets and liabilities primarily consisted of increases of $36.0 million in commissions receivable and decreases of $10.5 million in accounts payable and accrued expenses, partially offset by decreases of $34.8 million in accounts receivable, net, and a $6.5 million increase in other liabilities.

Investing Activities

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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, 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.

Three Months Ended September 30, 2022—Net cash used in investing activities of $2.4 million was due to $0.3 million of purchases of property and equipment, primarily to support the build out of SelectRx infrastructure, and $2.1 million in purchases of software and capitalized internal-use software development costs

Financing Activities

Our financing activities primarily consist of payments of debt and related issuance costs and proceeds and payments related to share-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.

Three Months Ended September 30, 2022—Net cash used in financing activities of $20.4 million was primarily due to $10.1 million of debt issuance costs related to the Fourth Amendment to the Senior Secured Credit Facility, $8.9 million of principal payments on the Term Loans, and $2.3 million of holdback remitted as part of the Express Med acquisition, partially offset by $1.1 million in proceeds from common stock options exercised and the employee stock purchase plan.

Senior Secured Credit Facility

We entered into the Senior Secured Credit Facility to provide access to cash, in a variety of methods, when necessary to fund the operations of the business. There were no amounts outstanding under the Revolving Credit Facility as of September 30, 2023. As of September 30, 2023, there was $702.7 million outstanding under the Term Loans. Refer to Note 7 to the condensed consolidated financial statements for further details.

Our risk management strategy includes entering into interest rate swap agreements to protect against unfavorable interest rate changes relating to forecasted debt transactions. The Company's Amended Interest Rate Swap is designated as a cash flow hedge of the interest payments on $325.0 million in principal of the Term Loans. Refer to Note 7 to the condensed consolidated financial statements for further details.

Contractual Obligations

Other than the discussions in Note 8 and Note 10 to the condensed consolidated financial statements, as of September 30, 2023, 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

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

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.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Our Disclosure Controls and Procedures

As of September 30, 2023, 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 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

A discussion of legal proceedings to which the Company is a party is included in Part I, Item 1 hereof under “Note 8, Commitments and Contingencies – Legal Contingencies and Obligations,” which is incorporated herein by reference.

ITEM 1A. RISK FACTORS

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.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

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ITEM 6. EXHIBITS

The following documents listed below are incorporated by reference or are filed or furnished, as applicable, with this Quarterly Report on Form 10-Q.


Exhibit Number						Exhibit Description
10.1						Seventh Amendment to Credit Agreement, dated as of November 1, 2023, by and among SelectQuote, Inc., the lenders and other parties thereto, and Wilmington Trust, National Association, as administrative agent
31.1						Certification of Chief Executive Officer of SelectQuote, Inc. Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2						Certification of Chief Financial Officer of SelectQuote, Inc. Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1†						Certification of Chief Executive Officer of SelectQuote, Inc. Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2†						Certification of Chief Financial Officer of SelectQuote, Inc. Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS						XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH						Inline XBRL Taxonomy Extension Schema Document
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB						Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document
104						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

† The certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q, are not deemed filed with the SEC and are not to be incorporated by reference into any filing of SelectQuote, Inc. under the Securities Act or the Exchange Act, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			SELECTQUOTE, INC.
November 3, 2023			By: /s/ Tim Danker
			Name: Tim Danker
			Title: Chief Executive Officer

			By: /s/ Ryan Clement
			Name: Ryan Clement
			Title: Chief Financial Officer