SLQT - SelectQuote

[Broeb22]

https://seekingalpha.com/article/4393067-selectquote-slqt-investor-presentation-slideshow

 

Can someone look at slide 23 of the presentation for SelectQuote and explain to me how they claim they generate 38% EBITDA margins but still generate negative Cash from Ops?

 

What is the dynamic here where they still don't generate any cash? This is not some business that has been around since 2015. They've been around since like the 1980's so I don't really understand how they survive that long without generating cash at such high margins. Can anyone explain the business to like I'm 5?

[peridotcapital]

https://seekingalpha.com/article/4393067-selectquote-slqt-investor-presentation-slideshow

 

Can someone look at slide 23 of the presentation for SelectQuote and explain to me how they claim they generate 38% EBITDA margins but still generate negative Cash from Ops?

 

What is the dynamic here where they still don't generate any cash? This is not some business that has been around since 2015. They've been around since like the 1980's so I don't really understand how they survive that long without generating cash at such high margins. Can anyone explain the business to like I'm 5?

 

You have to spend the marketing money upfront to get the lead, then spend cash to close the lead, then only get paid cash commission from the insurer after all of that has occurred.

 

Since they have decided to ramp up growth, their costs are all upfront and then as the commission money rolls in, they are immediately reinvesting it into marketing to get more customers. So by growing faster and showing more revenue, they are needing to use more cash.

 

If they stopped growing, costs would plummet and all of the commission receivables would arrive and cash from operations would soar. It appears to just be the nature of purposely accelerating a business that requires huge upfront spend, and quickly reinvesting the revenue. The profit shows up on the balance sheet as commission receivables moreso than positive and growing cash from ops.