SelectQuote, Inc. Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Strategic Priorities: Since 2022, focus on profitability and repeatability in Senior Medicare business, achieving near record margins in the last 3 years despite market variations.
• Healthcare Services Growth: Healthcare Services, primarily driven by SelectRx, had $743 million in revenue for the year. Made progress on scale and profitability despite investments in a new distribution facility. Expected margin and cash flow contribution from SelectRx in fiscal 2026.
• Technology and AI: Emphasized use of technology and AI to automate tasks, optimize decision-making, and improve customer service. AI has powered over 300,000 unique health care services interactions, reduced enrollment time by 25%, and health needs assessment call time by 30%.
• Cash Flow Focus: Prioritizing cash flow and profitability, with Healthcare Services expected to contribute over $50 million in adjusted EBITDA in fiscal 2026. Aim to balance growth with sustainable cash flows.

Segment Performance

• Senior Segment: Full year revenue totaled $600 million, adjusted EBITDA $162 million. Fourth quarter approved MA policies were 85,000, down 20% year-over-year. Full year LTV was $884 per policy, with Q4 LTV at $837.
• Healthcare Services: Full year revenue was $743 million, with adjusted EBITDA of $25 million. Fourth quarter Healthcare Services drove $12 million of adjusted EBITDA, representing a margin of 5.5%. Year-end members grew 31% compared to fiscal 2024.
• Life Division: Full year revenues grew 10% to $173 million. The fourth quarter saw 14% growth, driven by final expense products. Adjusted EBITDA grew 32% for the year to $27 million, with a 15% margin.

Guidance

• Revenue: Expect revenue in the range of $1.65 billion to $1.75 billion for fiscal 2026, representing ~11% year-over-year growth at the midpoint. This includes relatively flat senior policy volumes and strong growth in Healthcare Services (~20% revenue growth).
• Adjusted EBITDA: Expected range of $120 million to $150 million, with Senior segment margins slightly down from prior years but remaining attractive. First quarter expected to have a consolidated adjusted EBITDA loss of ~$25 million to $30 million.
• Cash Flow: Anticipate operating cash flow positive in 2026, driven by Healthcare Services EBITDA exceeding $50 million and growing cash-generative platform.

Risks

• Uncertain Market Conditions: Fluctuations in Medicare Advantage market environments, which can impact Senior segment performance.
• Forward-Looking Statement Risks: Actual results may differ from forward-looking statements due to uncertainties in market dynamics, operational execution, and other factors detailed in SEC filings.

Question and Answer

• Q: Ben Hendrix on Healthcare Services margins and path to target margins A: Robert Clay Grant and Ryan Clement discussed margin progression driven by scaling, refining business, reducing variable costs, and leveraging automation. Expect continued margin enhancements as SelectRx scales.
• Q: George Sutton on SelectRx dynamics quarter-over-quarter A: Ryan Clement clarified that focus shifted to EBITDA growth and margin expansion, with membership growth expected to slow compared to prior rapid growth, but healthy revenue growth continuing.
• Q: Pat McCann on AI usage and agent process enhancements A: Tim Danker and William Thomas Grant detailed AI usage in recruitment, training, QA, retention, and plan scoring, with evidence of improved efficiency seen in margins and operational metrics