SelectQuote, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights:

• SelectQuote had strong results across all 3 segments in fiscal 2025 Q3, with consolidated revenue of $408 million, up 8% Y/Y.
• SelectRx business saw strong member onboarding, with nearly 106,000 members, a 41% increase Y/Y, and trailing 12-month revenues of nearly $675 million.
• Senior segment had 27% margins in Q3 despite operating with a smaller agent population, with strong agent efficiency and close rates.
• Healthcare Services delivered strong profitability despite rapid growth, with 106,000 members and $190 million in Q3 revenue.
• Life Insurance business had 13% revenue growth and profits more than doubled Y/Y.
• Trailing 12-month revenue to CAC was 5.8x in Q3, up from 4.2x Y/Y.
• Discussed the Medicare Advantage environment, including higher rate notices for 2026 plan year and impact on carrier reimbursement.
• New Kansas facility for SelectRx opened, with near-term headwind to profitability but long-term efficiency gains expected.
• Addressed DOJ complaint, stating cooperation and rejection of allegations, emphasizing compliance and customer focus.

Segment Performance:

• Senior: Q3 revenue was $169 million, with 27% margins. Adjusted EBITDA was $46 million, declining 26% but still at an attractive 27% margin. Revenue contribution from Senior in Q3 was $169 million out of $408 million total revenue, ~41.4%.
• Healthcare Services: Q3 revenue was $190 million, up 53% year-over-year. Ended the quarter with 106,000 members, a 41% increase from the prior year. Trailing full year revenue base was $674 million. Adjusted EBITDA was $6 million. Revenue contribution from Healthcare Services in Q3 was $190 million out of $408 million total revenue, ~46.6%.
• Life Insurance: Q3 revenue was $46 million, up 13% year-over-year. Adjusted EBITDA was $6 million, up 103% year-over-year. Revenue contribution from Life Insurance in Q3 was $46 million out of $408 million total revenue, ~11.3%.

Guidance:

• Maintain full year ranges for revenue and adjusted EBITDA but expect to finish the year in the lower half of ranges.
• Special election period changes could impact policy volumes and close rates.
• Kansas distribution facility ramp will cause near-term headwind to Healthcare Services EBITDA, with fiscal Q4 EBITDA potentially modestly lower.
• Adjusted net income expectations to range from negative $1 million to $28 million due to warrant fair market value changes.
• Produced $71 million in operating cash flow in Q3, ended with $86 million cash balance, and over $1 billion in commissions receivable.

Risks:

• DOJ complaint regarding Medicare Advantage system, involving uncertainties and potential legal challenges.
• Industry and regulatory uncertainties affecting Medicare Advantage operations.
• Impact of commission structure shifts on MA LTV and profitability.
• Seasonality and changes in beneficiary eligibility affecting policy volumes and close rates.

Question and Answer: Q: Walk through the separation of growth/decline in Medicare Advantage and growth of SelectRx, and adjustments to feeder of customer opportunities into SelectRx.

A: Tim Danker and Bob Grant discussed Medicare Advantage strong close rates and efficiency despite smaller agent force, with tenured agents leveraging data/tools. SelectRx growth benefits from attached customers from MA, with focus on aligning SelectRx service attributes with most beneficial customers.

Q: Thoughts on MA LTV moving forward and ongoing headwinds from commission structure shift.

A: Bob Grant stated MA LTV declined due to shift from upfront to ratable commissions, expecting Q4 LTV to be down Y/Y, with more details on longer-term outlook in future calls.

Q: SelectRx growth, margin targets, and benefits of Kansas facility.

A: Tim Danker and Ryan Clement mentioned SelectRx has critical mass with over 100,000 members, focus on efficiency and margin improvement. Kansas facility opening has near-term profitability drag but long-term operating efficiency, throughput, and customer experience benefits expected.

Q: View on upcoming AEP market dynamics given final rate notice.

A: Tim Danker and Bob Grant noted final rate notice was positive, helping carrier reimbursement, showing CMS support for private Medicare, with carriers still working towards target profitability but overall positive market backdrop.