Welcome to SelectQuote's 4th Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. It is now my pleasure Mr. Gunther, you may begin the conference.
Thank you, and good afternoon, everyone. Welcome to SelectQuote's fiscal 4th quarter earnings Before we begin our call, I would like to mention that on our website, we have provided a slide presentation to help guide our discussion this afternoon. After today's call, a replay will also be available on our website. Joining me from the company, I have our Chief Executive Officer, Tim Danker And Chief Financial Officer, Raf Sadoun. Following Tim and Raf's comments today, we will have a question and answer session.
In order to allow everyone the opportunity to participate, we do ask that you limit yourself to one question and one follow-up at time and then fall back into the queue for any additional questions. As referenced on Slide 2, during this call, we will be discussing some non GAAP financial measures. The most directly comparable GAAP financial measures and a reconciliation of the differences between the GAAP and non GAAP financial measures are available in our earnings release and investor presentation on our website. And finally, a reminder that certain statements made today may be forward looking statements. These statements are made based upon management's current expectations and beliefs concerning future events impacting the company and therefore involve a number of uncertainties and risks, including but not limited to those described in our earnings release, Annual report on Form 10 ks and other filings with the SEC.
Therefore, the actual results of operations or financial condition of the company could differ materially from those expressed or implied in our forward looking statements. And with that, I'd like to turn the call over to our Chief Executive Officer, Tim Danker. Tim?
Thanks, Matt, and thank you to everyone joining on the call. We hope you've all had a good summer. On today's call, we will review our record fiscal 2021 and provide our thoughts on the upcoming year, including the growth we see in our core business and the exciting potential we see in SelectRx. Additionally, we will share color and disclosure on the trends and returns we are seeing in our senior segment. So let's get started on Slide 3 with a review of our full year 2021.
Fleckwood generated full year 2021 consolidated revenues $938,000,000 up 76% year over year and adjusted EBITDA of $228,000,000 up 48% over last year. The strong growth is driven by our core senior business, which ended the fiscal year with revenues of $729,000,000 up 101% and adjusted EBITDA of $244,000,000 up 57%. Our consolidated net income totaled $131,000,000.79 per share, which is up $50,000,000 compared to last year. Raph will detail our guidance for full year 2022 in a minute, But we expect continued strength in our core senior business, including a strong year end run rate for our Select Rx business, which is just the start of the significant return potential we see in our broader population health strategy. Additionally, we will provide some detail on persistency impacts in our recent cohorts and some measures we are taking in 2022 to mitigate tail adjustment in future periods.
Overall, 2021 was a landmark year for SelectQuote, both in terms of aggregate revenue and EBITDA growth and because of the unique opportunity we've created through population health. Let's start our review with our full year consolidated results on slide 4. We grew revenues by 76% or $406,000,000 and have now achieved a compound annual growth rate of 67% over the last 2 years. Best of all, we still see ample runway for continued growth. Turning to EBITDA, we grew by $74,000,000 over the past year at a margin of 24%.
As we have outlined since our IPO, our focus is on EBITDA dollar growth over margins in the near term. As we'll discuss in a moment, our outlook reflects our continued growth, including our investments in population health, which we expect to scale and add EBITDA as we exit the fiscal year. If we turn to Slide 5, let me give a quick overview of a few of the primary KPIs for our strong year in 2021. As mentioned, we grew both revenue and EBITDA significantly on top of a strong year in 2020. In our senior business, we grew both submitted and approved Medicare Advantage by over 100% and maintain strong unit economics with a 3x revenue to CAC ratio.
We operated in 2021 with over 1100 average productive agents, which is up 75% over last year And is all the more impressive given our ability to navigate the pandemic and remote work environment. As we've noted in previous calls, our ability to execute remotely is Highly encouraging and opens new hiring options for our rapidly expanding platform. In fact, as we look ahead to 2022, We are pleased with our hiring progress to date, which should drive another strong year of growth. Lastly, our MAL TVs in the senior segment Ended the year at $12.60 which is down 2% compared to a year ago. As mentioned earlier, we're going to provide some additional context On recent persistency and lapse trends we're seeing with certain cohorts, but more importantly, we're also going to detail the strong returns we are generating in the same cohort.
On that point, let's turn to Slide 6. As many of you know, we conducted a study with investors and our analysts To determine what would be most helpful in analyzing our results, the message back was loud and clear that being able to see actual cash collection trends relative to our modeled LTV revenues is important to tracking our success. As a result, we have produced the views on this page to help give Context at the cohort level and we plan to update these for you on a periodic basis. In each of these charts, we are showing a series of lines that represents cash Collection curves over time and the expected IRRs. The blue line represents our original LTV at booking of the cohort.
The orange line represents the current trend, including the tail adjustment taken in 2021, and the gray line represents potential tail adjustments in 2022 that Ralph will detail in a minute. Ultimately, we hope this disclosure is helpful and provides insight and context to trends in the business and what they mean returns. Before I describe the trends, let me note that not every cohort is the same and the drivers of actual cash Collection include a wide range of factors such as persistency, carrier mix, plan options, commission structures And things like AEP, OEP and any SEPs. Each of these factors contribute to persistency throughout the life of a policy. So with that, let me give some detail around each of our last four cohorts as shown on this page.
If we start on the top left and move clockwise, You can see that our 2017 cohort is performing above our original model and our 2018 cohort is largely performing in line with our model. Both cohorts are currently projected to earn IRRs in excess of 20%, and best yet, both have already realized IRRs of around 30% and 10% respectively. At the bottom left of the page, let me describe our 2019 cohort, which we have discussed this year. The larger tail adjustment taken in 2021 was primarily driven by lower than expected persistency tied to the introduction of OEP. As you can see, our original IRR expectation for the 2019 cohort was 45%.
And as a result of our adjustments to date, the Now if we turn to 2020, we are seeing the same types of pressure impact this cohort, but to date we have had enough constraint to offset this pressure. That said, we have utilized a significant portion of our constraint due to lower than model persistency. As a result, our fiscal 'twenty two guidance contemplates the risk of potential cohort tail adjustments, which would impact the cohort as depicted by the gray line on this chart. Regarding 2020 cohort, lower persistency was driven primarily by the introduction of OEP. Again, for context, our adjusted trend for 2020, the tail adjustment next year would still generate an IRR of 24% compared to our original 28% expectation.
So if we turn to Slide 7, let me talk about what these tail adjustments mean relative to our view of the business and our strategy going forward. Put bluntly, our strategy is largely unchanged. Markets are fluid and have been throughout SelectQuote's 36 year history As a company, we have built a model that embraces change and adapts rapidly. Changing markets are not a new challenge for us, We remain confident in our execution against the large and long tailed opportunity. In fact, we view 2021 as a landmark success for the company.
And as Rafael outlined, we see another strong year of growth ahead in fiscal 2022. So why are we so confident? The short answer is that despite a fluid market, returns we are generating are extremely attractive. To be crystal clear, We model our LTV revenues based upon information from our most recent cohorts and apply those trends to our upcoming season. It is a formulaic process, but the fact is we also face the fluid market and experience variability and persistency Early in cohorts from year to year based on the factors like the ones I discussed just a second ago.
As we see it, Our responsibility to shareholders is twofold as we grow in this dynamic market. First, it is our job to provide detail and context on trends driving our Which is our intention with the new disclosure on the previous page. Additionally, as you can see on the table here, we are showing a range of return outcomes based on different On the leftmost of the table, we're showing scenarios with cumulative outperformance or shortfalls in persistency compared to our original LTV assumption for our 2021 cohort. On the right side, we're showing the resulting impact on IRR and revenue. To use the bottom case on the table, we could experience a 10% miss in persistency in every year of renewal for the cohort compared to our original model and still generate an IRR in the high teens.
For reference, a 10% shortfall in persistency every year It's a very stressed scenario for this cohort, especially as it already assumes lower persistency and the fact that we generally see lower variability in the middle and later years the cohort. As I noted before, this context has been difficult to discern from our results in the past, and we are committed to sharing more detail about our cohort performance and returns going forward. So on to our second responsibility to shareholders, which is to invest your capital at attractive returns. As you saw on the previous page, SelectQuote IRRs are highly attractive and compare very favorably versus major investment classes. These high returns paired with a large and long tailed addressable market are what have us so excited about the opportunity, especially given the strategic advantages and differentiated approach we take to the business.
To that point, let me shift gears and talk about another engine of growth for SelectQuote and population health on Slide 8. As a reminder, we form population health because of the unique position within the healthcare landscape as we market and speak to an important and growing population of American seniors every day. SelectQuote has the opportunity to leverage our connectivity and marketing efforts With these customers to provide much needed services such as high touch medication management pharmacy program, and care coordination services with leading healthcare providers, including senior focused primary care, behavioral and home based care. Additionally, we are aligned in this effort with carriers and believe through data we are helping carriers make a significant impact on avoidable medical cost. There is a significant revenue and return opportunity for SelectQuote with attractive cash flow dynamics through population health.
And most importantly, our efforts in population health serve to improve the lives of customers and also benefit our healthcare insurance partners. Here on this slide, we want to provide an update on the strong early uptake and momentum we are seeing in population health initiatives and offerings to date. When we discuss population health membership with consumers, about 80% are choosing to opt in, representing around 1200 opt ins each day. On the same consumers, we are conducting health risk assessments for over 85%, which provide our carrier partners with valuable patient information to help them better coordinate care. Turning to the right side of the page, for the Select Rx business, we have seen a 3 times increase in the number of daily enrollments since we acquired the platform.
Our opt in rate for target customers is currently around 70%. Around 3 quarters of all the customers we engage with are currently taking 8 or more monthly prescriptions. This data illustrates A clear need and opportunity to impact health outcomes for seniors who need it most. The takeaway here is that there is real value in what we can offer our base Senior customers and the early results are encouraging. Longer term, it is clear to us that the secular shift in outcome based healthcare is happening And CELECO through population health will be an increasingly important partner for carriers and providers given our unique connectivity with the inpatient.
On that point, let's turn to Slide 9 where I'd like to share our vision of how Select Rx and population health more broadly can impact our unit economics and returns. On the left, you can see the makeup of the revenues we generate for each approved core policy today. Currently, the majority of our revenues are made up of commissions earned through our core Medicare Advantage and Medicare Supplement business. We also have some ancillary product commission revenues and revenues from production bonuses, advertising and revenues from health risk assessment. On the right, our medium term expectation is that rising adoption of our Select Rx and other population health initiatives Have the potential to increase our revenue per approved core policy to approximately $2,000 which is more than a $500 increase from today.
Best of all, the return on our investment for these services should be highly attractive and should improve our future cash flow profile. Additionally, we can drive higher revenue dollars on the same marketing spend, which should significantly increase the IRRs that we showed you earlier while helping consumers navigate their complex healthcare journeys. And it's important to remember that with our diversified lines of business And the significant customer demographic overlap between lines of business like senior and final expense, our focus on cross selling continues to increase. Going forward, we will provide additional visibility into these global customer economics as that's increasingly how we view and manage our business. Lastly, while not included in this illustration, Select Rx and Population Health makes SelectQuote a more important partner Strengthens our tie to both customers and carriers.
We believe these initiatives should make a meaningful impact on our customer retention for the simple reason That we are improving their experience and health outcomes. We can do this given our unique ability to match and maximize the utilization of their policies and plan benefits. Better service and experience drives better outcomes and better retention. It's a simple concept that it takes our level of data connectivity to execute. With that, let me turn the call over to Raf to review our 4Q results as well as detail our outlook for 2022, including our LTV assumptions as well as our expectations for SelectRx.
Raff?
Thanks, Tim. I'll start on Slide 10 with our consolidated results. Tim has already reviewed our full year results. With respect to the 4th quarter, We generated $188,000,000 of revenue and $21,000,000 of adjusted EBITDA. Revenue grew 33% and adjusted EBITDA declined 47 Revenue growth was driven by our growth in our senior business and final expense business, somewhat offset with lower revenue in our auto and home segment, driven by the strategic decision we made towards the end of last year to pull back on some of the growth in that segment.
Adjusted EBITDA was lower than last year, which To be clear, it was always expected and part of our guidance from the beginning of the year. This was driven by the following items. In our senior division, we did not have a special election period this Q4 like we did last year, which impacted agent productivity and the efficiency of marketing. We also kept more agents in our senior division and have been hiring agent classes for AAP earlier than we did last year. The investment in Population Health and Select Rx also drove lower margins relative to last year, which we outlined in our last earnings call.
In our Life division, Our Term Life business increased margin slightly, but for final expense, we significantly ramped up new agent hiring during Order and that combined with some product changes from our carriers impacted conversion rates and margins for the quarter. For our corporate segment, the increased public company costs and investments in population health, specifically on the technology development side, drove higher costs relative to last year. As a reminder, a lot of this spend is to make sure we're in a position to take advantage of incremental volume we see in AEP to sell these services. If we take a step back and think about the quarter relative to our expectation, The quarter did come in a little lower than we originally expected. We did have higher MA production driven by higher than anticipated agent productivity and we also saw strong demand in inside response.
Our NA cohort tail adjustment, which we discussed last quarter, was in line with our original expectations. These items were offset by some year end true ups to our provision. We will get into this in more detail on the next few pages, but we have seen higher new and renewal intra year lapse rates in our senior business. We anticipated that after OEP, we would see lower lapse rates, especially relative to last year, as we didn't have an SEC election period this year. However, that did not happen and elevated lapse rates continued during the quarter.
As a result, we did have to Increased the provision for these items and did make a year end true up during the quarter. Turning to final expense, while we grew significantly year over year, Production did come in lower than our expectations driven by the factors I've already discussed above. And lastly, our corporate costs came in slightly more favorable than internal expectations. Turning to Slide 11 and our senior division. As Tim noted, we had a strong 4th quarter.
We grew our total approved policies 43% and our MA approved policies 54%. And it's worth noting that this growth was compared to last year's Q4 growth, which included an SCP. Again, emphasizing Tim's point that the growth remains significant and long term. With respect to MA LTVs, we always anticipated MA LTVs for the quarter We're going to be down 1% or 2%. However, the year end true up to our provision for intra year lapse rates impacted the 4th quarter MA LTV, which ended up being down 11%.
However, the right way to look at this was really on a full year basis as the true up reflected full year activity. On a full year basis, MA LTVs were down 2%. Without the provision true up, full year MA LTVs would have been flat, which is what we've been guiding to most of the year. As discussed in the past, this was a result of lower persistency offset by higher rates. On Slide 12, through our investor perception study, we heard that investors want more information and education about how persistency works and its impact to cash flows.
This slide provides some additional context about how cash flows progress in our cohorts. The chart here depicts our modeled cash flow and IRR progression for the most recent 2021 cohort. The blue bar represents all the costs associated with the senior division in fiscal year 'twenty one. All of that is incurred in year 1. The orange bars represent the lifetime revenue we booked for the fiscal 'twenty one cohort and the timing of when that revenue should be received a cash perspective.
The black dotted line represents the cumulative lifetime revenue collected at different points in time. The green line represents the cumulative cash flow at different points in time. And finally, the dashed gray line represents the IRR at different points in time. A few things we'd like to call out. The cash flows to SelectQuote are very front end weighted.
We collect 45% of our total lifetime revenue in the 1st year. And by the 3rd renewal, we have collected roughly 75% of the lifetime revenue. This is important because collecting that cash early has a big impact on the IRR. It leaves fewer and fewer dollars at risk to persistency in the out years and there is less and less variability in the out year persistency rates. We break even on the investment to write the policies within 2 to 3 years And that's the total cost of the investment.
Within the 1st year or so, we've already recouped almost all of the variable marketing expense to write the policy. So that has a 1 year payback period. By renewal year 3, we have collected around 75% of the lifetime cash. We would already expect to be at an IRR in the low teens and it should only grow from there. Based on the initial modeling, Total IRR for the 2021 cohort is expected to be around 26%.
Lastly, even if we do experience some variability and persistency, The predictability of renewals tends to increase as cohorts age and there are fewer and fewer renewal dollars at risk. Moving on to Slide 13, we wanted to update a chart that we've shown to you in the past, which is the progression of how our historical cohorts For those of you who are new to the slide, let me ground you in what you're looking at. We've shown the cost and The orange bar represents total senior division costs. The gray part of the revenue bar is the cash we collected in the 1st year. The blue bar is all the renewal cash we've already collected.
The yellow bar is the remaining cash We expect to collect this year based on the policies that have already renewed. And lastly, the green bar is the future cash we expect to collect on future renewals. We've added 2 lines to this chart. The black line, which shows where the top of the blue line was last year when we showed of this chart. The difference between the black line and where the top of the blue line is now is the cash we've collected for each cohort in the last 12 months.
The other line we added is the green line, which shows where the top of the green bar was last year when we showed this chart. The difference between the green line and where the top of the green bar is now is the impact of cohort tail adjustments and provision true ups we took this year. If we focus on the 'nineteen cohort, which we've spoken about multiple times over the last year, while that cohort has underperformed relative to our original expectations And we have taken some cohort tail adjustment. That cohort has already recouped all of the costs of writing those policies. It sits at an IRR to date of around 13% and any incremental dollars we still expect to receive should only add to that IRR.
As Tim alluded to earlier, that cohort is still on track to produce an IRR in the high 30% range. We plan to provide this chart annually so you can track the progress of each cohort and how they are progressing. Turning to guidance for fiscal 'twenty 2. We currently expect revenue to be in the range of $1,250,000,000 $1,400,000,000 which would represent revenue growth of 33% 49% year over year. We expect adjusted EBITDA to be in the range of $255,000,000 $285,000,000 which should represent adjusted EBITDA growth of 12% 25% year over year.
We will go into this in more detail on the next few pages, But included in our guidance next year, we have a $65,000,000 placeholder for the potential risk of a cohort tail adjustment next Q4. If you exclude the impact of this potential cohort tail adjustment, the implied revenue range would be 1.3 $15,000,000,000 to $1,465,000,000 and the EBITDA range would be $320,000,000 to 350,000,000 representing growth of 40% to 56% and 40% to 54% respectively. One thing to note is that we have made the decision to move to policy level persistency. Historically, if we had a customer that was switching their policy But staying with the same carrier, we were tying the cash from the new policy to the original policy that was lapsing. So that type of activity did not impact persistency.
Moving to policy level persistency aligns with how our Carriers think about it and is less reliant on getting timely and accurate information from carriers, which is proving more and more difficult. As our recapture rate has been increasing, the number of same carrier switcher policies has increased dramatically and we believe this change should result in more accurate estimate of persistency going forward. This change should simplify things substantially. For every policy we sell, we will book 1st year and renewal revenue on every policy. And if that policy falls off, Then it's a last policy.
Going forward, this switch should be net revenue neutral as MA LTV per policy should come down around 6%, but we should recognize 6% more policies. For historical policies already sold, this change has a net zero impact and does not change the underlying economics of the business in any way. However, it may trigger slightly higher and earlier cohort tail adjustments as future policies sold will not get tied back to replace lapsed policies. But overall, we should be recognizing more policies which Should offset this. With respect to the calendarization of our guidance, if you think about the midpoint of our range for revenue, The cadence of revenue should be around 10% in the 1st quarter, around 40% in the 2nd quarter, around 30% in the 3rd quarter and in the mid to high teens for the Q4.
From an EBITDA perspective, we will likely have losses in our first quarter of Between 50,000,000 and 55,000,000 and the 4th quarter of around 10,000,000 to 15,000,000. The 2nd quarter EBITDA margins should be in the high 30s and the 3rd quarter margin should be in the low 30s. If we move to Slide 15, We can walk through some of the drivers of the fiscal 'twenty two guidance. If you assume the midpoint of the range that would imply $270,000,000 of EBITDA for next year. For the core senior business, excluding Select Rx and the potential risk of cohort tail adjustment, We're projecting a $126,000,000 increase in EBITDA.
We will detail the major drivers on the next page. Turning to Select Rx, while these figures will be embedded in our senior numbers, we did want to provide some more detail on our assumptions for the year as we scale that business. We currently anticipate generating approximately $50,000,000 of Select Rx and an EBITDA loss of around $5,000,000 We will ramp new members significantly during the course of the year and I will review a separate slide on that in a few minutes. The next item is the cohort tail adjustment risk for the Q4 of next year of $55,000,000 We received data from carriers later this year than we have in the past. That is a bit of an anomaly and as a result From the January renewal event has declined over time as we've gotten updated data.
In addition, we have experienced higher 1st year and renewal lapse rates this year. While this didn't really impact the 2020 cohort this year as the constraint mostly offset the pressure on persistency, As we look towards next year, there is a potential that the constraint may be used and that would trigger a cohort tail adjustment. In addition, We onboarded a new carrier last year, we've had some onboarding and data integrity issues with. This carrier does have lower persistency than other carriers, They have also been very constructive in working with us to build the relationship. They value the volume that we are able to deliver for them and we are working proactively together to try to offset some of the teething problems we've had with them.
They're also very aligned with the value we provides the population health in Select Rx and we expect them to remain a key partner. Having said that, there's a risk that some of the policies we sold last Here may generate a cohort tail adjustment as early as next year. Lastly on this topic, while there may be another cohort tail adjustment The 'nineteen cohort next year, it should be smaller than this year and there are less and less dollars remaining in the tail and the persistency in the out years is less volatile. We have shown that even with potential cohort tail adjustments that IRRs from each of these cohorts should still be very attractive. Moving on to our Life division, we expect to grow EBITDA of $17,000,000 This will be all be driven by our growth of final expense.
We expect our Terminals business to be flat year over year. We also expect our Auto and Home business to be flat. Lastly, our corporate expenses are expected to grow $31,000,000 year over year and in line with our revenue growth. This is driven by higher cost to scale the business including recruiting costs and incremental technology development costs as we invest in population health and Select Rx. Turning to Slide 16, if we look at our senior division specifically, we're projecting approximately 60% revenue growth, 24% EBITDA growth and margins of 26%.
If you strip out the potential risk of the cohort tail adjustment, that would imply approximately 9% revenue growth, 50% EBITDA growth and margins of 30%. The big assumptions embedded in this guidance are a 72% increase in MA submitted policies driven by an 84% increase in average productive agents for the year, offset by a 9% decrease in agent productivity. The decline in agent productivity is driven by a higher mix of Flex versus core agents relative to last year. Additionally, it is worth noting that the last 2 years we have significantly increased agent productivity in years that we grew our senior business by over 100% each year. Turning to MA LTVs, actual persistency in 2019 2020 has trended below initial model.
While the returns remain highly attractive, as Tim noted, we are taking proactive steps to mitigate tail adjustment to our model and future cohorts. Specifically, beginning with fiscal 'twenty two, we will increase our constraint from 5% to 6% and increase our assumptions for 1st year and renewal provisions. Additionally, the persistency assumptions in our LTV model will remain based on Actual weighted average trailing 36 month data and the continuation of lower persistency is captured next year. Put another way, the assumptions in our LTV have become progressively more conservative. We expect MA LTVs to be down 8% for the year.
6% of this impact is due to the switch to policy persistency, which to be clear has no impact to revenue as the lower LTV should be completely offset by a 6% increase in policies recognized. The remaining 2% of this impact It is due to a combination of lower policy persistency, higher 1st year and renewal provision assumptions and our higher constraint assumptions somewhat offset by CMS commission increases and higher commission rates from specific carriers that we have updated contract terms with. We anticipate our rev to CAC multiple to remain around 3x for the year and we expect that to grow over time as we leverage the platform to sell additional products and services. Overall, as Tim noted, this is an extremely attractive business with returns that we will continue to pursue given our strategic advantages and ability to scale into the long term opportunity. To be sure, our model assumptions are moving with the market, but it's a market that we remain excited about.
Lastly, on Slide 17, we are very pleased with the early traction demand we're seeing for Select Rx. As we ramp Select Rx next year, we wanted to provide some more visibility into how we think about that. As noted earlier, we're expecting total fiscal 'twenty two revenue of $50,000,000 and an adjusted EBITDA loss of around $5,000,000 However, we will be ramping the business during the course of the year. While we expect to lose a modest amount of EBITDA in the 1st three quarters, We anticipate breaking even in the Q4 and ending the year with approximately 25,000 members. If you look at the run rate financial impact of those 25 members that would represent $170,000,000 of annual revenue $25,000,000 of EBITDA.
Because of the ongoing cost to service the clients, we will not book lifetime revenue on this line of business. However, The lifetime revenue of the new members added in fiscal 'twenty two is expected to be approximately $370,000,000 On a standalone basis, we are big believers in the profit opportunity and the value creation associated with leveraging the leads we've already acquired on the distribution side of our business to build this unique high touch medication management pharmacy program. Additionally, our core senior business Should benefit from Select Rx and our other population health initiatives as we drive education and better feature utilization for our consumers. Ultimately, SelectQuote becomes an even more valuable partner for our customers and carriers, and we expect there should be a positive impact on retention and avoidable medical costs. Lastly, on Select Rx, it is worth noting that this business has a very attractive Cash flow profile and we expect it to be a significant source of cash as we ramp it over the next few years.
In fact, One of the requests we've had from investors over the last year is information about when we will become cash flow breakeven. We believe there is a path to become cash EBITDA positive in fiscal 'twenty four and have positive cash from operations in fiscal 'twenty five, depending on the respective growth of Select Rx and our core senior business. We plan to share additional multiyear views of this as we get more visibility into how we are scaling And with that, I'll turn the call back over to Tim for some final thoughts. Tim?
Thank you. And before we turn to questions, let me quickly summarize On Slide 18. First, our fiscal year 2021 exceeded our expectations we outlined at the beginning of the year And validates our view that our technology enabled agent led strategy is built to execute against the long term growth opportunity we see in front of us. 2nd, the returns from our senior business remain extremely attractive despite lower than expected persistency in our most recent cohorts. These types of returns drive significant value for our investors and we plan to aggressively pursue them.
3rd, We are committed to providing leading disclosure to our investors and analysts to help contextualize trends in our business as our cohort season. 4th, our population health initiatives including Select Rx represent an exciting extension of our business and should deliver attractive returns for for the company and shareholders. With that, let us turn to your questions.
Operator? Thank you, sir. We will now begin the question and answer session. Our first question is from Jeff Garru with Piper Sandler. Your line is open.
Yes, thanks for taking the questions. Maybe we'll dive into the guidance and some of the drivers there. First, yes, it's interesting that you guys have factored in this possible negative tail adjustment. So maybe some more comments on the likelihood that you'll Need to use that assumption and then just wanted to ask if the $65,000,000 if that represents a base case scenario Or if there's any situation, any scenario where the magnitude of that could end up higher.
Yes, maybe I'll take that. I think, well, clearly, we wanted to be proactive in highlighting, certainly information around cohort adjustments, right? I think there was some confusion last quarter and we wanted to make sure that it's crystal clear sort of what's embedded in our guidance and what The 65,000,000 is a placeholder for the potential risk of a cohort tail adjustment next Q4 because that's when we do The MA analysis, and it's based on what we're seeing right now. We have experienced lower persistency and higher lapse rates than we originally anticipated. And so that's kind of what's factored into that number.
And as we learn more about the lapse rates and persistency, we'll be proactive about communicating what Saying and if changes need to be made to that estimate updating those changes.
Got it. That's helpful. I'm sure there'll be more questions on persistency and tail adjustments, but I'll Use my follow-up for another topic and ask about hiring. Some peers have talked about hiring challenges. I know you guys have been proactive Early and more year round effort.
So just curious where you are relative to your goals, what you've been seeing in terms of Resources needed to attract individuals, retention of your current force And then just overall what you see in expected demand to fuel the outlook you have and The need you have on the hiring front.
Yes, Jeff, this is Tim. Great question. I'll turn it over to our COO, Bill Grant, to provide the outlook where we're at. Bill?
Yes, great question. While we still have some hiring to do, we are very confident and pleased with where we are Given some of the changes in the market, so we feel very good about that. The labor market is certainly different this year, but I our recruiting team and operational team did a great job working to make the job more and more attractive in terms of some of the ways that we tweak The compensation and when I say tweak, mixing kind of the variable component with the fixed component, we were Able to come out roughly cost neutral, but makes the job, we think, substantially more attractive with the current labor market. We also think certainly, We're uniquely positioned in terms of the percentage of the people we can offer full time jobs on the back end with our other business lines. So I think That sets us up very well.
As it pertains to kind of a turnover with Our groups, especially the groups that we kind of pride ourselves on with the level 1s and level 2s, we have not seen any material impact at all. Our attrition remains very strong and we think that just speaks to the attractiveness of our model and our job as it relates to those people's kind of happiness with the company and ability to make a really good wage. So overall, I think 2 parts, feel really good about where we are with AEP. Team certainly had to adapt, but We're really confident there. And then as it relates to kind of our core folks with attrition, feel really haven't felt it there.
Great. Thanks for taking the questions.
Your next question is from Frank Morgan with RBC Capital Markets. Your line is open.
Good afternoon. I appreciate all the details embedded in your guidance. Just wanted to pick up on one of the things you mentioned at the end around the 2024 and 2025, I think cash flow from operating Positive 25. When you think about the next couple of years, getting to this point And given the recent trends, what are your levers that you can pull in terms of, I guess, number 1, do you need access to external capital between now and then? And then what are the levers that you can pull between now and then to drive better cash flows would be my first question.
Yeah, I think we have plenty of cash available to achieve our goals outlined for the fiscal 'twenty two guidance. We do plan to draw down An additional $145,000,000 of term debt sometime during the year. We secured that as part of our term debt agreement last year. And again, in the back half of the year, we probably will draw down on that. With respect to future capital raises, I mean, we may need to raise capital depending on how fast we're able to scale Select Rx and the relative growth of senior.
And so as we have more information about How those businesses are scaling certainly on the Select Rx side, that will influence sort of how much and when. But Again, we'll be proactive about explaining that.
Got you. And I'll change gears on my follow-up. Just the timing of that $700 of incremental per member related to population health, probably a tough one to really For Jack, but what's your best guess? I mean, are we talking about over the course of the next year or 2? Or are we talking maybe 3 to 5 years out before you can We expect to see that kind of contribution.
Thanks.
Yes, Frank, great question. This is Tim. The goal of that particular View is really to help orient how you should think about the business over time and what we can do with our platform beyond just MAL TV. Certainly, We think historically that's been the right way to look at the business, but over time we want that to evolve. And that has a lot to do with the very Unique model that we have, the diversified platform, the ability around cross sell, we're seeing a lot of synergy between our senior and final expense.
And as I think you're alluding to, obviously, population health and Select Rx. So we think over time, we're going to be we're Highly confident that we can build upon, what are today existing very attractive returns, a layer on additional revenue from PopHealth and Select Rx, we think that's very powerful. To answer your specific question, it does indeed depend upon the ramp of Select Rx, We think that could be achieved inside the next 2 years.
Your next question is from Elizabeth Anderson with Evercore ISI. Your line is open.
Hey, guys. Thanks so much for the question. The IRR data was super helpful. So thank you for that. My question is, I guess, maybe more philosophical.
How do you think about like what the optimal growth rate is for the core senior business And thus how to sort of think about the expenses that you would incur in hitting a given growth rate. I just wanted to see how maybe think about it maybe for 'twenty two or if you also wanted to just talk about it more broadly, that would be helpful. Thank you.
Yes, maybe I'll start just kind of more broadly and then ask Raph to talk about it financially. But Overall, we've given a lot of thought around the guide and around the growth rate for next year, and we feel That the business fundamentals are still very strong. The same market opportunity that we decided to get into over a decade ago continues to be there. Certainly, the market is evolving a bit and we try to reflect more conservative assumptions into our financials. But ultimately, returns on invested capital remain highly attractive and we're going to continue to pursue that.
We think that population health is another lever for us as we enter into the broader healthcare services landscape, A huge market opportunity, again, leveraging the existing distribution spend that we have, and we think that it was still yet to be proven. It's very logical from our perspective that it might indeed also assist in persistency. So really it's the relative growth rates of those two things. Raf, do you want to comment Specifically on how we're thinking about senior growth rate over the medium term.
Yes, I mean, I think we've obviously grown the business pretty significantly over the last couple of years, 100%. Last year, we're looking at sort of 67%, seventy This year, I would anticipate that growth will go down over the next several years. I think ultimately, we're trying to maximize sort of absolute Revenue and absolute EBITDA dollars while maintaining attractive IRR returns. And I think we're able to there's levers to be able to do that. I do think, as Tim mentioned, that one of the biggest drivers is going to be Select Rx and just how fast We're able to scale that business.
But I think relative to the senior business, I would expect growth to come down from where it has been beyond sort of fiscal 'twenty 2.
Got it. That's really helpful. And then maybe in terms of the opportunity within SelectHealth and Population Health, can you talk about like the percentage of the carriers that you're currently working with or sort of your penetration That you're currently working with or sort of your penetration with products with those carriers and sort of how you see that Shifting maybe in 'twenty two and then beyond that?
Sure. Bob, would you like to address that?
Yeah. I'll touch on more of the penetration rate within the people that we deal with, because carriers and obviously we work with some of our very large carriers on it, but I'm not disclosing who those are. As far as market penetration rates within the value added products that we're seeing, we're seeing extremely strong penetration rates On eligibility, we shared from the beginning, I'll use Select Rx as an example, that when it's eligible, which we are very Careful on our eligibility. We want to serve who it's really designed for, which is folks that are on 6 or more drugs. And we had a limited footprint as far as states when we started and we're that quickly, we had 70 ish percent take rates on that product as we have expanded.
So we feel really strong about that. The actual demand for the product itself has been greater than what we anticipated. So we feel good about kind of what we can do from there. This is more now down to the operational and logistics side of things, so that we can responsibly scale that.
Got it. Thank you.
Your next question is from Jalendra Singh with Credit Suisse. Your line is open.
Yes, good afternoon. This is Carlos filling in for Jalendra. And I appreciate all the data points on Select Rx. The question I had is Select Rx initially is coming in at relatively Or margin and the other population health related investments. So just trying to get a sense of how you guys are thinking about long term steady state EBITDA margin outlook for the company.
And also is there a change in view given some of the developments post your IPO from last year?
Yes. So I think with respect to Select Rx specifically, it has huge revenue potential and huge EBITDA potential, Even if it's slightly lower margins, I think once we scale, margins will settle out in sort of the mid to high teens. And The nice thing about that business is just how fast we're able to scale it is that we're able to leverage the existing infrastructure and marketing We're already spending on the distribution side to really grow that business. And so it's not like you have to wait 3 or 4 years to sort of get to Profitability or to get to sort of some kind of a stable margin profile. I think by the end of this year, we will have Scale that such that it is it should be breakeven or profitable in the Q4.
And then margins should sort of be in the mid to high teens. And to the extent that, again, it grows from there, there are opportunities to leverage drug pricing to potentially increase margins even further just based on how fast we scale. So very, very attractive economic A huge sort of absolute revenue and EBITDA opportunity.
Yes, just to add to that, I'd say to Bob's point earlier, I think consumer demand for this medication adherence play has been better than what we Again, we have MA customer set that's right at our fingertips. In addition, connectivity with the end consumer that eliminates kind of a chase process that plagues a lot of pharma models. So I think it's obviously an opportunity for significantly higher Gross dollars and lifetime earnings in this type of model.
Okay, great. Just on a different topic then. I know you guys were discussing the agent and the labor market, But I was kind of curious if that makes SelectQuote more keen to invest in its e commerce platform to reduce the To reduce the dependence on agents in general, just curious on that.
Yes. I think that our model continues to be that the consumers that want to or that engage with us We'd like to talk to an agent, and we see that through basically comparing our conversions The folks that are on a that go down a digital path versus an agent path, Regardless of how you kind of slice it, you use dollars to drive traffic to a site. And our model is, look, we want to make the best use of those marketing dollars. And to date, we've seen dramatically better results by connecting those folks with an agent as opposed to an end to end digital path. At any point where we start to see in our testing that folks are Converting at a higher level on a pure digital path, we're in a position to do that.
But right now, It's not as good from a revenue
to CAC
standpoint. You're just not going to see it because the cost per acquisition We'll go up fairly dramatically by not having the human involved.
Okay. Thank you.
Your next question is from Lauren Schenck with Morgan Stanley. Your line is open.
Hi, this is Nathan Feather on for Lauren. Thanks for the additional disclosure, super helpful. Can you just provide A little more color on what you can get us about this environment that's driving the lower persistency than what you originally anticipated. And in terms of what you're doing to try to potentially improve that, what do you think the risk is given that LTVs are backward looking, we continue to see a tail risk over the next, Call it 2 to 3 years, more over the midterm. And then in terms of the opt in rates on population health and Select Rx, really strong kind of an early results.
Do you think you'll be able to see similar opt in rates as you continue to expand the growth of those segments? Thank you.
Great question, Nathan. I'll make a few comments and turn it over to Bob Grant. As to some of the reasons, we certainly see that more Customers are switching more frequently and we think that's certainly a function of the additional opportunities that consumers have to switch plans through additional windows such as OEPs and SEPs. And direct to consumer platforms like ours certainly benefit from additional policy volumes. Obviously, we see that in our financials, but it does indeed create additional opportunities for consumers to switch.
And we see that also validated The volume of recapture business that we have that is certainly good for the company. We don't necessarily view it as a competitive element And the market or between the e brokers, just more opportunities for consumers to switch. We have also Good thing for consumers is the amount of additional investment by the managed care organizations into MA plans, which And we want to make sure that that dialogue continues with SelectQuote. So Bob, additional detail you want to provide as well as some of the operational things we're working on?
Yes, I think Tim touched on it well as far as the evolution of the marketplace and that we are seeing a larger and larger demand for utilization of planned benefits. And before, I think consumers were a bit Patients with getting to those plan benefits and through OEP, SEP, kind of evolution of the way that the plans can offer ancillary Services and then ultimately COVID, I think has magnified the underutilization of plan benefits and understanding those plans, which is actually the original reason We launched PopHealth was to try to help consumers utilize plan benefits more effectively. We still believe that that is the core function Of that business to try to help with plan utilization leading to higher plan satisfaction. And we are continuing to Try to understand our consumer base better and better to get that utilization up and then ultimately drive satisfaction, which Should drive higher retention, but I just think it's that quick evolution of the marketplace and people getting more comfortable with switching that's caused those The persistency events to increase. And then again, the introduction of OEP has been a big deal.
It's great for consumer choice And it's really good for our overall business, but it did put a lot of pressure on former cohorts as we've seen more competitiveness within that Period of time. To your second question, then I'll kick it over to Raf on the utilization of services like population health and things within there as we evolve that ecosystem. We do think that based on the consumer demand, people do really want to understand their plan benefits better. I mean, A very, very high percentage of our consumers are opting into population health. As you can see, we are helping educate them On how to utilize their plan benefits and what's available to them, we will continue to evolve that business to where we keep adding Offerings to that help people with planned utilization, especially with use of data on what's driving the best outcomes, which is again why we made the investment in Select Rx and that medication management process is data would say based on data released on business Similar to that, that's publicly available that that saves a significant amount of money within medical loss ratios, avoidable medical expenses.
If you can get to folks that are on 6 or more drugs that are struggling with their medication management on a day to day basis. Raff?
Yes. And I think going back to your question about future the potential for future co worker tail adjustments, I think taking a step back, When we set the original LTV for a cohort, it's based on actual experience persistency. So it's really not subjective. I mean, it's based on experience persistency. We do put a constraint on top of that as part of the calculation.
Since the 20 The team sort of cohort that with the introduction of OEP and the SEP election periods, we have been baking in lower and lower persistency as part of the calculation. And in addition, next year, we're also increasing the constraint and we're also increasing the provision for both sort of 1st year and renewal year lapses. So the assumptions are sort of getting progressively more conservative. We're proactively highlighting the potential for A cohort tail adjustment at the end of this year based on what we're seeing right now, but markets are fluid and there could continue to be cohort tail adjustments beyond this year, both Tail adjustments for respective cohorts should decline over time as there's less and less renewal dollars At risk to collect and you start entering the curve of the annual persistency that has less variability. Even with some of the variability that we've seen Over the last couple of years in 1st and second term persistency, we've seen sort of half the variability once you get beyond renewal year 3.
And so I think that's an important thing to keep in mind. We're trying to give the investment community as much detail and perspective as possible. We obviously don't like the volatility, but we're highlighting that the cash returns are very good. We've consistently sort of covered the cost to write the policies 2 to 3 years. And Billy, all of the cohorts are on track to have attractive returns in the future.
Okay, great. Thank you.
Your next question is from Steven Valiquette with Barclays, your line is open.
Great. Thanks. Good afternoon, everybody. So a couple of questions here. First, You mentioned that you on boarded a new carrier last year.
You had some onboarding issues, data integrity issues with that carrier. Just to give some context around that, Able to give just an approximation for what percent of the total policies or revenues are related to that new carrier? Then I have a follow-up.
Yes. So we've basically been working with that carrier for the last 18 months or so. It ramped during the course of last year. It currently represents in sort of the high teens mix of our business and I know expect it to sort of stay
Slide 13, the slide deck in particular. I don't want to get everybody lost in all the colors, but the I guess what sticks out to me on this slide is just that the orange bars, Which are obviously the total senior costs are much larger than the gray and blue bars from the prior year or 2. That's obviously why the cash flow stays negative. So I guess this question kind of came up earlier, but as we think about you pivoting towards positive operating cash flow in 25, is it more just the tighter management of the orange bars relative to the size of the gray and blue? Or do you improve The cash flow, is that from the gray and blue bars?
I'm just a little bit of both and somebody touched on this. I'm just curious if one side is more critical than the other as you move towards that positive cash flow.
Yes, I think it's probably a combination of both. I mean, I think, again, the it's really splitting the specific cohorts, right. So as we have been growing, the overall sort of size of the orange bar is growing because we're having a lot policies and costs associated with it. But the revenue attached to it is also sort of growing kind of in proportion to that. I think We're also collecting more of the cash upfront, right.
This is about 45% that will increase a little bit next year and certainly As we scale SelectRx, I think that will have an impact on the amount of cash that we're collecting upfront, which helps as well. One thing that I don't think is very well understood is that there is a working capital dynamic in the business that as you're growing, it does require working of capital. But there's kind of a delayed impact of that. So what I mean is, if you think about last year where we grew 100%, Obviously, there's the initial working capital of that 1st year revenue, but the true impact of working capital associated with growing that fast Actually happens sort of a year later or really 18 months later because it's when those policies are renewing for the first time. If you think about a policy that was sold In October of 2020, it's really going to and when effective in January, It's really going to renew for the first time January of 'twenty two and then we're going to get paid on a monthly basis.
And so that piece is a pretty significant piece from a working capital perspective that just as you slow the growth That obviously helps, but it's a little bit delayed in terms of turning the corner with respect to free cash flow from operations.
Okay, got it. Okay, thanks.
Your next question is from Anna Krasinski
Hey, this is Anna on for Dana Growthlight. Going back to the hiring you've done this year ahead of AEP, you mentioned that compensation adjustments made to attract more agents in this
I'm
happy to take And Raph, you may want to comment on potential future. But today, what I mean just to provide a little more color on that is, I there was a lot of sensitivity around kind of minimum wage an hour. I think in the past, right, we've been able to attract folks We're kind of talking about a total target compensation that was highly attractive. What we did to adjust really Simply kind of switch those around a bit. I think people were really in tune just because of all the things that were Going on in the world and news.
So we are able to do that and keep it cost neutral. I would anticipate The bulk of those changes would have been done this year, but we'll continue to monitor and kind of see how the market reacting to what we're doing. But overall, I think the most important thing and I think you see that through our attrition is that our Target comp for people that come on board is highly, highly attractive. Otherwise, you would see higher attrition in our level 1s and 2s, which is people that we're keeping at a very high level. Raf, do you have anything to add to that?
Yes, I think to the point about sort of margin compression, I don't think we're seeing or expecting to see compression relative to the compensation structure. I think next year we did highlight that we're going to have a slightly higher mix of flex versus core agents. And so from the agent productivity perspective, we're expecting agent productivity to be down sort of around 10% or so year over year. And that obviously just weighs a little bit on margins because the Flex agents are not as productive as core agents. Interestingly, I think as you look beyond 'twenty two and Assuming the growth rate will come down, the mix of core versus flex will also change again.
And We probably won't need as many sort of flex agents relative to maybe what we're seeing this year, which could change that dynamic. So I think it's just a function of that mix of core versus flex in any given year. But I don't think The comp changes that we've made in and of themselves are having an impact on margins.
Our last question is from Meyer Shields with Keith, Pruitt and Woods, your line is open.
Great. Thanks. I apologize. I struggle a little with colors. So I'm looking at Slide 13, And if interpreting it correctly, it looks like the gap between the green line and the green bar for the 2019 cohort is bigger, there's a bigger drop than the gap between the line and bar for 2020.
Am I interpreting that correctly? And I was hoping you could explain, if I am, what's driving that difference in the estimate changes?
Yeah.
You are interpreting it correctly. So maybe you've gotten your ruler out. Basically, it highlights what we've been talking about for the last several months quarters, which is the 19 cohorts, we've seen more pressure there. It's the cohort that's made up the vast majority of sort of the cohort tail adjustment that we took in our Q4 fiscal 2021 here. There's a small adjustment relative The fiscal 'twenty two, but it's off obviously a much smaller percent.
And the reason for that is that the constraint that we have with respect to fiscal 'twenty cohorts has been offsetting some of the lower persistency. So that's kind of why you see that. I think one of the things that we're highlighting for next year is that There could be a potential cohort adjustment for the 20 cohort next year because it's starting to use its constraint. Some of the cohorts within that are starting to use its constraints. And so, that's basically the dynamic there.
Okay. No, that's helpful. Second question is the timing of I understand that the magnitude of the is different and bigger than you'd expected. Is the timing of that any different in terms of, I guess, when they emerge over the course of the calendar year?
Yes, that's actually a great question. I think there's a couple of things that are different or that have been different This year, I think it's worth highlighting and things actually have changed relative to our expectations earlier on in the year. So let me just highlight months of the year. But that can be really noisy and we really don't rely on that data just because things do fluctuate within the 1st couple of months of the calendar year. We were expecting lapse rates to basically Rob, certainly relative to where they were last year, because we had an SEC election period last Q4 that we didn't have this year.
That didn't actually happen. And so there was sort of a continuation of the increased lapse rates throughout the quarter. And that obviously put pressure on the quarter and resulted in the year end true up that we made. In addition to that, relative to the January renewal event and sort of the persistency of policies back to January, Normally, that is settled by, I would say, the end of April sorry, the end of March, beginning of April. This year, what we found was that we continue to get data later and later Well into sort of the Q4 for several of our carriers, not all of our carriers, but some of our carriers.
And that actually Did change what our view of persistency was from the January renewal event. It dragged it down. And so that is an anomaly. We've not really received data as late as we did this year. And so that's one of the reasons why It didn't really have a big impact in the Q4 just because, again, with respect to 2020 cohort, it had enough constraint to offset some of that pressure.
But as we're looking forward to next year, That is something that we wanted to highlight. Having said that, I mean, maybe Bob, you want to get into Some of the operational things that we're doing to try and sort of limit that kind of dynamic going forward.
Yes, absolutely. So, one, we are working extremely closely with our carriers to understand the consumer behavior using Our data analytics identifying kind of risk in different cohorts and understanding how to deal with those risks and treat those appropriately, which Could be different calling strategies through our CCA that we've always done or increased Usage of population health where we can increase plan utilization and increase plan satisfaction. Also just again partner with carriers to help them understand too What are the greatest risk cohorts and how can we deal with that together? So it's a real it is a partnership between us and the carriers, and we feel good about actually where we are In that data analytics process and what we are going to deal with that cohort, we also see positive trends within recent cohorts As far as fall off and early lapse activity, that is usually an indication of what's going to happen on retention. That's not always, but usually.
So we feel good about some of the efforts that we've made. So now we've also worked with our carriers on getting more timely, more accurate information so that we can react to that information quickly and more effectively.
That concludes the question and answer session for the call. I will now turn the conference back to Mr. Tim Ganker.
Thank you, and thanks to everyone for your time again. I'll conclude very quickly with just a few key takeaways from our perspective. First, our strategy in the core senior business remains unchanged. We continue to be very excited about the long term return opportunity in the business. 2nd, we're committed to market leading disclosure and reducing volatility and results as discussed today.
3rd, our unique technology and agent led model allows SelectQuote to become an increasingly important partner and connector between patients, Healthcare Providers and Insurance Carriers. Finally, Population Health and Select Rx are the natural next step to leverage our strategic asset while bringing meaningful solutions to consumers. We look forward to talking to you about the progress we've made as the year progresses.