SelectQuote, Inc.

Welcome to SelectCode's fourth quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed with the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. It's now my pleasure to introduce Matt Ganter, SelectQuote Investor Relations. Mr. Genter, you may begin the conference.

Thank you, and good morning, everyone. Welcome to SelectQuote's fiscal fourth quarter earnings call. 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. 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, Ryan Clement. Following Tim and Ryan's comments today, we will have a question and answer session. As referenced on slide two, 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-K for the period ended June 30, 2025, 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 Denker. Tim?

Thank you, Matt, and thanks to everyone on the call. Today, I will start with a review of fiscal 2025, which will be brief given the drivers of another successful year. I've been consistent with the recent past. I'll then provide additional color on the unique environment we saw this past quarter. I'll then spend the bulk of my time on what we're planning for the years ahead. Additionally, I'll contextualize the near-term strategic goals for SelectQuote relative to the broad market opportunity we've spoken to in the past. So with that as the outline, let me begin on slide three with an overview of our performance highlights for fiscal 2025. We ended the year with consolidated revenue of $1.5 billion, which grew 16% compared to a year ago. As we've noted all year, the top line increase has been a function of the rapid growth of our healthcare services business and specifically SelectRx. Full-year healthcare services revenue grew by approximately 55% to nearly three-quarters of a billion dollars. This is an incredible result in just a four-year history for the business. Our senior Medicare Advantage business performed very well against the challenging market backdrop for the industry. With significant plan changes by carriers this season, As well as new SEP parameters for beneficiary eligibility, American seniors relied on SelectQuote and our agents to advise and help find the best plans to fit their individual needs. We're most proud of how our model and agents performed under pressure, where we drove another year of record agent productivity up 24% and ultimately drove above target EBITDA margins for the third straight year. On a consolidated basis, SelectQuote drove 126 million of adjusted EBITDA which represents an EBITDA margin of 8%. Margins were relatively in line with last year's results, despite adding $264 million in incremental revenue from our lower margin healthcare services business. In short, we're very proud of what the team accomplished this year and how we are set up for the future. If we turn to slide four, let me put those accomplishments in more detail. We have presented these metrics in the past, and I want to highlight them one more time to emphasize the consistency we have achieved in our senior Medicare business. As you remember, we reset our strategic priorities back in 2022, and since then, our focus on profitability and repeatability has been paramount. We're very pleased with the efficiency gains we've been able to yield in the senior business. We've become more efficient in the throughput of how policyholders are assisted via our year-round agent model and our ever-expanding use of technology. We've become centrally efficient in how our services are marketed and which leads we pursue in a given season or intra-season. It is also important to note that these decisions are rooted in the North Star of driving profitability and cash flow. As a result, Sutcliffe Senior has been able to drive near record margins in each of the last three years, despite wide variations in Medicare selling environments from one season to the next. And finally, SLECWT continues to leverage our information and connectivity advantage within healthcare, which you can see in our revenue to CAC ratios. We are increasingly able to help more beneficiaries, caregivers, and payers by offering a wider set of healthcare solutions. Best of all, the model is well aligned that when our stakeholders do well, SLECWT and our shareholders do well. The revenue to CAC ratio, which includes both our senior and healthcare services revenues, is how we track the reach of our model. Over the past three years, we've expanded our revenue to customer acquisition cost ratio from 1.7 times to 6.1 times. We're excited about the year ahead for healthcare services and believe we are in the early innings of how we can leverage our information advantage, technology, and distribution to connect more services between those receiving care and those that provide it. We're immensely proud of the ways our differentiated model and approach to healthcare serves such a wide breadth of Americans, but we're equally excited about the implications for our company's return and cash flow. Before I get to that, on slide five, let's review the highlights of our year in healthcare services, primarily driven by SelectRx. As I've noted, it was another strong year of growth with revenue of $743 million. Most importantly, we made meaningful progress on the scale and profitability of the business, despite concurrent investments and our new state of the art distribution facility in Olathe, Kansas. We ended the fiscal year with adjusted EBITDA of 25M, which is up significantly year over year, but still small from a margin perspective relative to what we believe is ultimately possible. The best representation of that operating leverage potential is the difference in growth between our revenues and membership in fiscal 2025. As noted, revenues grew nearly 55% over the last year, while our membership grew roughly 31%. As we mentioned last quarter, we believe this year has been a pivotal one in terms of scale of membership. To be clear, we believe there is significant growth capacity for new members on the platform, especially with the addition of our state-of-the-art Kansas distribution facility, which significantly increases our potential capacity. With that said, we expect to see increased margin and cash flow contribution in fiscal 2026 from SelectRx as scale from seasoned members continues to drive results. It is clear that a revenue base nearing three-quarters of a billion dollars is a significant asset and one that we are very focused on leveraging in 2026 and beyond. If we turn to slide six, let me quickly review our strategic vision for SelectQuote as a broader connector within the healthcare ecosystem. Today, we have clearly driven scale in both our senior Medicare Advantage and SelectRx businesses. More importantly, we have operated these businesses with a growing track record of profitability and have done so in a range of market environments for both Medicare Advantage and prescription drugs. As we've noted in the past, we believe SelectWealth's ultimate value is as a holistic solution provider across the $5 trillion US healthcare market. While there is a significant growth in value creation opportunity for shareholders in this endeavor, we also note that our integrated model can be a solution for what has historically been a very inefficient system. The information we harness, the connectivity we create as an intermediary, and the healthcare ecosystem tangibly valuable in a wide number of ways. Americans get better and more tailored care based on individual needs. Payer expenses are reduced because patients have better treatment adherence, which leads to better health outcomes. And ultimately, the broader healthcare system benefits because Americans are directed to payers and caregivers that create the best and most efficient patient results. This is particularly important given the traditionally underserved communities we serve, which view more rural, lower income, and with more chronic conditions than the general population. This alignment across patients, payers, caregivers, taxpayers, and shareholders is why we believe we are just getting started in what is ultimately a very value-enhancing opportunity in healthcare. Today, our challenge is not how to grow, as evidenced by the rapid adoption of our SelectRx platform, but instead, it's how we balance growth while simultaneously generating a growing stream of sustainable cash flows. This is a good problem to have. We believe our current revenue to CAC ratio of 6.1x is a compelling proof point in our ability to address the much broader healthcare market and arrears including healthcare select and select patient management. That brings me to slide seven where I'd like to provide additional detail on our evergreen work to drive operational and cash efficiency. First of all, emphasize that SelectVote has been using technology and computing power to automate tasks and optimize decision-making since our founding 40 years ago. That has not changed, and it never will. We are highlighting it here given we see AI as critical to our goal to become a comprehensive healthcare services platform, and we believe SelectVote has a significant head start versus the competition. In our view, the reasons automation and technology are so important are threefold. First, technology is foundational to SelectQuote, and we know that our customers and partners get a higher level of service quality and reliability because of it. Second, our technology is dynamic and has the flexibility to solve for different market environments. The evidence is in the stability of our financial results relative to the different Medicare Advantage markets we have operated through the past three years. Third, and most pertinent in today's SelectQuote, Technology represents a fixed investment that could be scaled efficiently. Put another way, our technology has been part of SelectLoad since the beginning. It's not something that we are initiating with the advent of AI. In fact, AI will only amplify our tech-enabled model. The power of that leverage is evident in the efficiency metrics I shared for Senior, as well as the metrics at the bottom of this page. SelectLoad has routed over 7.5 million calls through intelligent automation, and AI has powered more than 300,000 unique healthcare services interactions. Technology is critical in organizing and optimizing those customer touchpoints, and to do so at our high level of customer service is a significant feat. But we are not just a volume processor. Enrollment time has improved by 25% over the past year. Our technology also makes a difference in the lives of our customers, most importantly through better healthcare service fit and process efficiency. Our technology has also reduced its time in our health needs assessment calls with customers by 30%. Most importantly, our technology is critical to our ongoing strategy to drive scaled revenues across the ecosystem, which results in compounding and sustainable cash flows. Which brings me to slide eight. Historically, we've talked a lot about the growth and profitability of our senior and healthcare services segments separately, but we created this view to highlight an emerging attribute of our diversified platform that we believe is underappreciated. As you know, the cash flows for our senior business are different than our health care services business. The diversity of that mix is a valuable input for how we manage the business and ultimately drive value for shareholders. Specifically, health care services revenues and EBITDA are effectively immediate from a cash perspective, whereas our Medicare Advantage revenues accrue over the life of a policy as it renews year after year. As our healthcare services business has continued to scale, it provides us better optionality in how we think about capital allocation from one season to the next. We believe, and we've heard from shareholders, that a sustainable and growing base of cash flow is important. In fiscal 2026, we believe our differentiated ability to accelerate cash flow generation through business mix is the right strategy to drive shareholder value. For context, We know that Medicare Advantage currently is and will remain in flux for fiscal 2026. This has been well documented in the results of carrier partners and others in the industry over the past few earning cycles. As I discussed earlier, we've demonstrated our ability to deliver attractive returns in our senior business over the past three years through three very different Medicare selling seasons. That said, the scale of our healthcare services platform now gives us strategic optionality that we didn't have before. In the year ahead, as we continue to balance cash flow production with growth, we plan for a flatter year in Medicare Advantage submissions through our senior distribution business. To be clear, we believe growth in MA is a choice and we've built a nimble engine that is primed for growth at short notice. We remain highly confident in our view that 20% plus EBITDA margins are achievable for the segment driven by our technology and agent-led model. On the last point I'll make, and Ryan will elaborate on, is that while our fiscal 26 forecast shows a dampening effect on EBITDA margins because of the higher mix of SelectRx, it is important for analysts and investors to recognize the opposite will be true with regard to cash flow generation. In fact, we expect SelectVote to be operating cash flow generative in fiscal 2026, and much of that will be driven by our view that healthcare services EBITDA will grow and will exceed $50 million. As we've noted in our strategic redesign, our focus is to prioritize cash flow and profitability. We're excited about the overall business's embedded cash flow potential, given our commission's receivable balance of approximately $1 billion and our growing healthcare services business, which is approaching $1 billion in annual recurring revenue with an improving margin profile. We believe the decision to drive incremental cash flow will pay significant dividends and how we can compound and deploy that cash flow for more profitable growth and shareholder value in the future. The range of ways that that can unlock the value is broad, from future growth in MA and new healthcare service offerings to continuing to lower our cost of capital. I'll turn the call over to Ryan to detail our financials, but I'll conclude by saying, Blackwood has never been better positioned to harvest the gains of our strategy than we are today. Ryan? Thanks, Tim.