SLQT Q1 FY2027 earnings call transcript, November 4, 2026

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...

impacted top-line results for our healthcare services segment. Additionally, as we noted last quarter, we took a conservative hiring approach for senior this season, given the dynamic MA environment. As a result, consolidated revenue for fiscal 1Q totaled $280 million, or 15% lower than a year ago. More broadly, we believe our payer partners are making significant progress towards their profitability targets, and as the nation's leading direct-to-consumer distributor, we are well positioned to return

when the opportunities to accelerate top-line growth become more attractive. If you turn to slide 4, I'll discuss our expectations and strategy for this Medicare Advantage season. Similar to recent years, this AAP is marked by continued disruption as carriers further refine plan features and benefits. We expect our agent-led model will again produce results that benefit policyholders, carrier partners, and our investors. In fact, early results in AAP are encouraging as proactive engagement with customers has been well received. This engagement helps improve our visibility into dynamics like recapture rate and benefit demand patterns for new policyholders. Specifically, we enter this AAP with a high mix of tenured agents who historically perform about two times the average productivity of a new agent. Additionally, these agents have already had conversations with over 50% of our beneficiaries experiencing plan terminations this season. This proactive focus on policyholder retention has been foundational to SLQT's operational success. In recent years, as I noted before, we have a lot of confidence in the strategy and have a goal to exceed last year's recapture results. As you know, we took a cautious approach to hiring the season given the continued market disruption and our focus on cash flow. However, we believe we are nearing an inflection point for the Medicare Advantage industry. Carriers have largely right-sized their business, and more importantly, have better aligned benefits to fit their economic objectives. In fact, some carrier partners have publicly commented that they are expecting targeted growth where profitability and long-term viability have been demonstrated.

We're encouraged by these signs and continue to hear indications that industry conditions are improving, with carriers noting that they are tracking ahead of target profitability for Medicare Advantage plans. Strategically, SLQT remains focused. on profitability and cash flow in fiscal 2027. That said, our agent and technology-enabled model remains nimble and can drive incremental growth when attractive opportunities emerge. Our new agent class, while intentionally smaller for this environment, was trained over the summer, and is well ramped heading into the season. Similarly, we've added agent tools designed to support both policyholder retention and new policy growth, especially in areas including HR. special needs plans and underserved geographies. Put plainly, I quote, senior business remains focused on expanding profitability, but we are also primed for growth when our carrier partners accelerate their own policy growth efforts. Before Ryan reviews our financials, let me provide an update on how SelectWood is leveraging technology and AI to drive value for shareholders on slide 5. As you recall from last quarter, we identified and removed over $30 million in permanent run rate costs from our business as part of our fiscal 27 operating plan. commitment to technology as a core pillar of our model drives the majority of these cost savings. Here we wanted to highlight several tangible measurable examples across both our senior and healthcare services businesses.

What differentiates select quote is that we are applying AI and technology across the entire value chain from customer acquisition and enrollment to coaching quality assurance and pharmacy fulfillment. In senior, AI is helping us become more efficient while simultaneously improving the beneficiary experience. Today, more than one third of incoming calls are screened and routed. Every agent call is transcribed and analyzed, giving agents real-time support during conversations that help improve the customer experience. Managers are then provided post-call scorecards they can use to further improve. coaching and training. These measures save a significant amount of time, human resources, and similarly can flip a bad experience for a customer into a good one. These capabilities are especially valuable for newer agents, helping them ramp faster and perform more consistently during the most important periods of the selling season. We're also seeing meaningful benefits to agent productivity. driven by our voice AI tools. In Q1, one of our tools screened over 200,000 unique calls, saving over 600,000 minutes of valuable agent talk time. Given these results, we've expanded the strategy. across the enterprise and most notably into our Medicare distribution process during the annual enrollment period, increasing productivity and allowing our licensed agents to focus more time and attention on the more complex portion of the calls.

Under this new workflow, our skilled agents will continue to handle the robust needs analysis portion of the call, helping beneficiaries select the optimal plan for their specific needs. From there, our AI enrollment agent takes over to guide the beneficiary through the formal enrollment. These tools do not replace our licensed agents. Instead, AI-supported enrollment handles the administrative lifting so our agents can spend time where it matters most, guiding seniors through increasingly complex Medicare choices. This capability is particularly critical during our peak season, allowing us to efficiently scale when beneficiary demand historically exceeds agent. The same philosophy is driving results in healthcare services, where our automated enrollment capabilities are completing enrollments roughly 20% faster while also producing higher enrollment rates. The result is a better experience. For members, more productive agents, and a more scalable operating model. The link between technology, AI, and our purpose-built facility in Olathe, Kansas, has been an essential part of the ramp we're driving in segment profitability. As we've noted, the facility itself is running about 30% higher efficiency compared to legacy distribution sites. The improvement in efficiency for those who have visited the site is relatively obvious in the technology hardware we've invested in. We are increasingly excited about the potential of our new pharmacy management system. We view the PMS as a missing link for healthcare services segment and an asset.

that will drive growth and efficiency in the years ahead. So what is the PMS system? The PMS serves as a technology backbone of SelectRx, connecting member onboarding, prescription verification, enrollment, fulfillment, and shipping into a single integrated workflow. Today, fewer than 20% of our prescriptions are shipped from our hyper-efficient Kansas facility. With our new PMS in place, we expect to enroll and fill many more members through Kansas and end the year at a higher percentage of total scripts shipped through this facility. This is an important dynamic that underpins our confidence in doubling healthcare services market. in fiscal 2027. To conclude my remarks, I'll reiterate how important Slickwood's commitment to technology has been in the evolution of our company. Efficiency and service gains drive real value for customers. Carrier partners and all market environments. Constant improvement at Slickwood will always be the foundation for that reason. For shareholders, we are proud of these same gains through a real profitability and cash flow through the challenging industry environment of the past three years. We plan to compound those gains that are highly confident in our model and the value we can create in an improving and growing Medicare Advantage industry in the years ahead. With that, let me turn the call to our CFO, Ryan Clement, to review our financials. Ryan?

Thank you, Tim. Let's begin on slide six with our consolidated results. for the first fiscal quarter of 2027, which is a seasonal investment quarter for our business across both Medicare Advantage and healthcare services. To echo Tim, the key takeaway is that we meaningfully improve profitability despite our prudent strategy and senior for the current season and the impact of healthcare services revenue from the Inflation Reduction Act. Specifically, our Q1 revenue totaled $280 million compared to $329 million in fiscal 2026. To disaggregate the delta, our deliberate decision to operate with a smaller agent force in senior drove approximately 15% of the year-over-year decline. The remainder was predominantly attributable to the healthcare services segment, principally driven by the Inflation Reduction Act. As a reminder, while the Inflation Reduction Act had a meaningful impact on our healthcare services revenue, the impact on EBITDA and profitability was far less significant given our lower drug prices were largely offset by manufacturer reimbursements. Despite the smaller revenue base, adjusted EBITDA improved $15 million year-over-year to a loss of $17 million for the quarter. There are two important highlights we'd like to emphasize for investment. First, the improvement in profitability is the result of intentional strategies to drive efficiency within both senior and healthcare services.

As Tim noted, the efficiency gains we've made through technology-enabled process optimizations are meaningful and durable. Second, while we've driven these efficiency gains in a down cycle for Medicare Advantage, which impacts both of our businesses, I'd like to reiterate Tim's point that we are pleased with the customer engagement we are seeing early in AUP and that select code is poised for growth when carrier and consumer demand supports it. While we have planned for a mixed year in MA, that statement still applies for the upcoming season. As you have seen in past years, there's upside capacity in our model on the senior side of our business. Similarly, the scale and automation advantages we are building in healthcare services through the pharmacy management system are markedly better than they were in the past few years. The key point is that while fiscal 2027 is poised to be another dynamic recovery year for Medicare Advantage. SelectQuote has made significant strides both operationally and with our balance sheet to drive increased profitability and cash flow. We expect further improvement in the seasons and quarters ahead. Lastly, before I turn to our segment results, while not operationally or economically impactful, SelectQuote will seek approval at our November 10th annual shareholder meeting for reverse stock split later in the month. The decision aligns with our commitment to remain listed on the New York Stock Exchange. To be clear, the action has no material impact on economic interest and we are not raising capital.

In fact, we have ample capital to operate SelectQuote and believe SelectQuote stock remains significantly undervalued. Slipping to slide 7, let me start with details on our first quarter performance in senior. As Tim indicated, we are very pleased with the early results we are seeing in AEP. Our stated strategy for this Medicare Advantage season is to approach AEP and OEP with a smaller agent force and a proactive focus on policyholders impacted by plan terminations and significant benefit changes. Good and simpler terms, the 2027 season is another good season to prioritize profitability over value. As Tim noted, we are hearing positive growth indications from a few carriers but Firstly, we know many carriers are still in process on significant benefit restructuring and right sizing. As I just noted, our strategy and senior for 2027 is aligned at the agent and technology level to optimize policy holder retention, both for plans impacted by benefit changes, or for plans that have been terminated by carriers. We have high confidence in our ability to replicate or improve upon our successful retention efforts from a year ago. Additionally, the agent footprint for 2027 is also well-armed to capture quality growth where available this season. Our four-year track record of strong execution and agent efficiency give us confidence. and the upside potential that exists in our model. So with that backdrop, our Q1 results in senior are representative of our strategy. Senior revenue of $51 million for the quarter declined $8 million compared to a year ago. The decline

primarily reflected our deliberate decision to operate with a smaller agent force. To be more specific though, our tenured agent force is effectively flat compared to a year ago. So while we deliberately hired fewer new agents, our most productive agents are poised to capture upside volume efficiently, as I just noted. As you know, the majority of our senior business occurs over the second and third fiscal quarters. That said, the improvement in operating efficiency is evident even in our seasonally slowest quarter. As is typical of the seasonality in our business, first quarter senior adjusted EBITDA loss totals $12 million, which is a $9 million improvement from a year ago. Again, on a smaller base of revenues, looking over the trailing 12 months, our senior EBITDA has increased 18% to $157 million. To summarize, we are pleased with the results in our senior division in first quarter and are pleased with early indicators thus far in AEP. We have confidence in our strategy for the current season. And we are positioned to return to growth as industry conditions improve. Moving to slide eight, I'll review our strong performance in healthcare services. In this segment, our top line result is skewed given the previously mentioned impact of the Inflation Reduction Act on certain drug pricing in our SelectRx business. As noted before, the impact to EBITDA is much less material given the counteracting impact on

reimbursement from manufacturers. Healthcare services revenue for fiscal Q1 totaled $186 million compared to $221 million a year ago. In contrast, our Q1 adjusted EBITDA this year increased 56% to $11 million. Compared to $7 million a year ago. As part of our company-wide priority to maximize cash flow and profit growth, the SelectRx membership base continued to mature with less focus on acquiring new members. Over more than five years operating SelectRx, we have continued to optimize where our service best matches the needs of our members. With a greater mix of seasoned SelectRx members utilizing the services. SelectRx drove EBIT upper member to $108 this quarter, which is over a 60% increase compared to a year ago. While a more mature membership base contributed to higher margins, we are also seeing increasingly meaningful operating efficiency. By the pharmacy management system that Tim detailed earlier. Overall, we are very pleased with the performance in healthcare services and believe the segment is well positioned for growth in the seasons ahead. As a reminder, AEP and OEP are our peak onboarding windows for the healthcare services business. We are excited to efficiently onboard new solutions. Electrox members over the current Medicare Advantage season. Before I turn to our life business, I would just note that the trend of improving profitability in a period where we have purposely limited growth underscores why we are so excited about the future. In fact, the cash efficiency of our healthcare services business is a significant driver in our 60 million plus operating cash.

the target this year. But even that achievement is understated compared to what it means for our shareholders. As Tim noted last quarter, a select quote becomes increasingly cash efficient value to our equity holder compounds. We can increasingly use cash to reduce high cost debt, which drives even greater cash conversion from EBITDA. On slide nine, let me outline our quarter for life insurance. The segment generated 43 million of revenue down 4 million compared to a year ago. Final expense delivered strong efficiency and profitability. A quarter with improved margins year over year, despite operating with a smaller agent force to business also benefited from strongly transfer rates from senior providing a meaningful source of leads, no incremental acquisition costs and demonstrating the center. across our business lines. Current life has also performed well, generating modest revenue growth year over year with margins remaining relatively stable. The favorable mix and improved efficiency across the business drove meaningful margin expansion. Adjusted EBIT owes up 31% year over year to 7 million. presenting a 17% margin and improvement of more than 500 basis points compared to last year. Overall, life results remain in line with our expectations. We're encouraged by the profitability and final expense and expect demand to remain healthy while continuing to manage term life with a focus on attractive returns.

Before we turn to your questions, let me conclude by highlighting a slide we showed last quarter. On slide 10, you can see the sharp improvements SelectQuote is experiencing in our operating cash flow efficiency. We are maintaining our guidance of 60 million plus of operations. This is an important part of our team's ability to accomplish this through such a great opportunity to invest in our operating cash flow for fiscal 2027. From a calendar perspective, we'd remind investors that fiscal 2Q is historically our peak investment quarter before cash flow ramp sharply in the second half. Tim and I have repeated often in this fall, we are proud of our team's ability to accomplish this through such a great opportunity. to challenging and dynamic environment within both senior and healthcare services. We are increasingly confident in our ability to not only maintain these results, but to accelerate and leverage our operating efficiency in the future. In senior, we have maintained EBITDA margins through well-informed season-to-season operating strategies. We have strengthened the durability and potential of that operating leverage through continued adoption and advancement of our technology. In healthcare services, we drove over 60% growth and adjusted EBITDA per member year-over-year as we better match our services with customers that benefit most from them. We've also invested in systems and facilities with greater growth capacity.

upside margin and cash conversion potential as the business grows. Overall, in a sideways market, Selectwood has made significant progress in our earnings power and cash flow generation. We are excited about the season ahead and look forward to updating investors. With that, let me turn the call over to the

operator. We will now begin the question and answer session. If you'd like to ask a question, please press star one to raise your hand. To withdraw your question, press star one. Again, we ask that you pick up your handset when asking a question to allow for optimum sound quality. If you're muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster.

Your first question comes from Ben Hendricks with RBC Capital Markets.

And. While we're, you know, you know, largest direct to consumer distributor at OMA, we're also very nimble and we're able to capitalize on opportunities as we see them. And we think there's an environment here where there may be. Some potential to do that, that may help, you know, kind of maybe potentially curb some of the initial guidance we provided on volumes being down here every year.

That's helpful. And then I wanted to see if you could unpack the. LTV strength looks like it grew 16% year over year. Is this mixed driven carrier repricing or more durable structural shift in how you're selling policies? Thank you. Brian. I'll take that one. I mean, LTVs tend to move with Keramix. And so, as you mentioned, that's as part of it. I would also say, obviously, there's been a benefit from CMS commission rate increases. So I think, yeah, there's a number of factors in play, but, you know, pleased with the LTVs we're posting.

All right. Thanks, Chris. Appreciate it, Michael. Your next question comes from David Windley with Jeffries. Your line is open. Please go ahead.

Your next question comes from Logan Lillehogg from Craig Howland Capital Group. Your line is open. Please go ahead.

I think that'll continue due to the fact that there is more healthiness. You see it on the, I'll just point to the public earnings calls of the, of the payers, right? They're, they are healthier. Their MLRs are healthier and they seem more excited about kind of investing in plans and. And they believe their benefits are in the right place to be profitable on a multi-year basis. So we feel really, really good about that. And then also feel really good about what that means in the future. Cause it does feel like this, this disruption is, is getting towards the tail end. Um, where again, the payers are very excited about the plans that they have sitting out there in the profitability. Um, of those plans, especially the larger players, which as you guys know, is the vast majority of our business. Got it. Good to hear. And I think just one item we're calling out is.

The only point I was going to add is, uh, obviously when we engage with someone where a policy, uh, is being terminated, we're able to, um, help them with a new policy and then actually book a new one. So, uh, that is, uh, obviously. Uh, incremental commission receivables that we would expect to receive. Uh, and it's, it's obviously, uh, you know, an opportunity for the business both with our existing customers, but also other customers that may be shopping, uh, in the marketplace. Understood. Um, maybe switching over to selector X, I mean, obviously it's pretty striking how much more efficient the LA facility is. Just wondered if you could give us any frame on like how many scripts you could start moving over to that facility over the next few years. And then is there any time. line you can give us around kind of taking that PMS technology to your other pharmacy sites yeah that's again a really good question and we are stacking a significant amount of volume. already in Kansas in that Olathe facility that'll take some time though because we are not doing a ton of facility transfers that's more new members that are going there for now and then we will get into facility transfers as we go as we do that. you know we are already planning for how we retrofit the technologies and the other facilities in an efficient manner so I'd say we're a little farther out on the hey how do we retrofit and get all of the current members into there because there is a transfer process.

It's a little bit complicated but I do think you'll quicker see a big percentage of our scripts come out of Kansas due to how we're enrolling and how we're dealing with our members right now.

Okay and I'll just throw one last one in. Obviously you've got the 60 million in operating cash flow this year or the target I should say. Certainly looks like that should keep going higher in the out years. Just wondered if you could, how you're thinking about the preferred. dividend. I mean, is there a point at which you might consider paying that in cash and stopping kind of the liquidation preference increase? Yeah, that's a great question. You know, we're really pleased with the progress we're making on the operating. Cash flow front. Obviously, this year, 60 million plus, which is significant improvement year over year. And then when we look at our multi-year model, we see levels of cash flow rising. And so we're encouraged by that. While we're not specifically guiding to. fiscal 2028, like we do see on the horizon a path to cash paying the dividend, and that would be our plan. Thanks for taking questions.

Your next question comes from David Wendley with Jefferies. Your line is open. Please go ahead.

We are seeing very high levels of consumer engagement. We're probably seeing our ability to have outreach and talk with customers at a more accelerated rate than we have in years past. A lot of that's investments from a marketing team, our data science team. where we can have, you know, better purview into those customers that are affected the most or having changes to their health plan. So we do expect, you know, we're, I think we're leading in terms of recapture rate of 30% last year. We're going to try to better that, which is, has. a very positive cash flow impact. So, you know, it's early, but we like what we're seeing. We, you know, on the plan design front, while not ask, I'd say, you know, we're seeing the national players continue to push into SNP plans, D-SNPs especially, HMO plans. We think that. Those are all very well aligned to the strength of our platform and also really produce a lot of velocity and opportunity for SRX enrollments as we enter into, you know, our busier period for SRX AEP.

Got it. So I caught your 30% in trying to better that. I was hoping to hear some metrics. So thanks for that. On the D-SNP, I was actually going to follow up with that. And wondered if, I mean, can you give any numbers relative to, you know, say, engagement or applications relative to SNP plans versus? You know, traditional community-type applications, or is it too early for that? It's a little bit too early for that on how that works. I would say, though, typically we engage a SNP member at a similar level to non-SNP. That's something we've always been very proud that we... are good at getting a hold of people that are typically, I think, in the market, harder to get a hold of, but don't have exact numbers to share yet. But I would say it's a continuation of a trend we're seeing, Dave. Yeah, go ahead, Dave. Okay, sorry. On the, on the marketing spend, the, you know, so we've gotten most of the, maybe all of the third quarter reports, calendar third quarter reports from the carriers. Margins are actually progress. Pressing for them, I think, broadly better than they expected. And so perhaps contrary to what the thoughts might have been earlier, they, they might be in a position to want to push marketing a little harder. So wondered if, if that could still happen. Like how far into AEP could they still make budget changes around marketing sense?

Bill, you want to address kind of the broad. kind of marketing environment, what you're seeing from carriers, how that may affect us? Yeah, absolutely. I think though, I mean, as it relates to the carriers, that'd probably be, you know, you can talk about broader marketing in general, but as it relates to the carriers, Bob probably should take that.

But yeah, and then I'll come back to Bill on the broader market and how well it's going. Carrier-wise, they can make decisions up until mid, you know, November and even late November as far as if they want to push and have us kind of specific. Target, which we've said in the past cost us a little bit more money. We never would be biased towards any carrier and anything. All we can really impact is that actual targeting of specific areas where specific carriers are winning, which drives our cost up a little bit, but they all kind of can target. That way. Bill, do you want to speak to kind of how we do that if they did come late and then ultimately what the environment looks like? Yeah, absolutely. So if they did come do that, I mean, we feel good about our marketing. We've always talked about kind of our wide funnel and ability to flex. And, you know, we still feel like we're working from a position of strength. So we feel like, you know, our opportunities would be pretty ample if we were in a position where the carriers wanted to be more aggressive with how they approached AEP. Got it. Thank you. Your next question comes from George Proust with Noble Capital Markets. Your line is open. Please go ahead.

Yeah, why don't you go ahead and address the IRA and I'll talk more broadly. Yeah. It's a great question. The IRA program is actually a multi-year program. So there were some drugs that were introduced in 2026. There were some drugs that were introduced in 2027 and it does it does lead to higher or lower top line revenue as you know, drugs are priced lower. That said, we actually receive reimbursements. And so, you know, the EBITDA impact is far less significant with respect to clean and so forth. compare, though, because it is a multi-year program, it's going to take a little while for things to work through. There's actually a group of, you know, IRA drugs for 2028. I think the really important thing here is that while it does create some pressure at the top line, it really doesn't materially impact the bottom line. We're really encouraged by the margin progression we're seeing and the ability to drive growth and cash flow from our healthcare services business. Tim? Yeah, I might just double down on that. And great question, George. I mean, our focus is to continue to expand healthcare margins and cash flow, really almost independent of what's going on in the broader Medicare environment. And I think this fiscal year is a good example, right? We've, as we stated last quarter. A slight pullback in terms of our investment in MA, just given the market environment and prudence. But we still expect our healthcare services segment to grow margins, aggregate EBITDA, cash flow, given our operational improvements and the recurring nature.

Of our subscription SelectRx model. And you're seeing that play out over the last few quarters. To be clear, there's plenty of demand for SelectRx. And, you know, I think we're seeing the good questions on the call today, right? You know, brighter. Days ahead to Medicare Advantage and kind of reemergence into responsible growth. And when that happens, right, we'll incrementally lean in on our MA platform. That'll naturally be an accelerant to our SRx platform. And that also doesn't stop us as we can continue to get more. More operationally efficient to pursue leads outside of just those that we get from our MA platform. So plenty of growth, plenty of demand. The current focus is on margin cash flow. And we think we've had kind of good back-to-back quarters. that demonstrate the strength of that particular asset. Perfect. Thank you. We've reached the end of the Q&A session. I'll now hand the call back to Tim Danker, chief executive.

Officer for closing remarks. I want to thank you all again for the time. We appreciate your support. As Ryan and I and the team have noted, the Suclope model continues to drive consistent and reliable value to our customers and insurance carrier partners. We know that the underlying cash flows for our services are real and significant. And we look forward to convincing more and more investors of that value and our equity in the months and years ahead. We appreciate it. Have a great day. Thanks again. This concludes today's call. Thank you. Thank you for attending. You may now disconnect.