SelectQuote Q4 2026 Earnings Call Transcript

Quartr
Provided by Quartr
August 25, 2026

Key Takeaways

  • Positive Sentiment: Fiscal 2026 exceeded expectations, with revenue up 6% to $1.62 billion and Adjusted EBITDA of $109 million, ahead of the $90 million–$100 million guidance range. Operating cash flow improved by $44 million year over year.
  • Positive Sentiment: Healthcare Services revenue rose 14% to $845 million, while SelectRx generated $25 million of Adjusted EBITDA and exited the year at an annualized run rate near $50 million. The Kansas facility is delivering approximately 30% greater shipment efficiency than legacy sites, supporting management’s expectation that segment margins will roughly double in fiscal 2027.
  • Negative Sentiment: Management expects fiscal 2027 revenue to decline to $1.35 billion–$1.45 billion, driven by a 10%–15% reduction in Medicare Advantage approved policies and a 10%–15% Healthcare Services revenue decline related primarily to Inflation Reduction Act effects. The company is deliberately prioritizing profitability and cash flow over near-term growth.
  • Positive Sentiment: SelectQuote identified more than $30 million of annualized expense improvements through AI, automation, process changes, and organizational restructuring. Management forecasts fiscal 2027 operating cash flow of more than $60 million and free cash flow of approximately $50 million, with potential for debt reduction and lower funding costs.
  • Neutral Sentiment: Medicare Advantage conditions are showing early signs of improvement, but carriers continue to target 3%–4% operating margins and may reduce benefits or terminate plans. SelectQuote plans to remain disciplined in fiscal 2027 while preserving the ability to respond if the market supports responsible growth in plan year 2028.
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Earnings Conference Call
SelectQuote Q4 2026
00:00 / 00:00

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Operator

Welcome to SelectQuote's fourth quarter 2026 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 by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. It is now my pleasure to introduce Matt Gunter, SelectQuote Investor Relations. Mr. Gunter, you may begin the conference.

Matt Gunter
Matt Gunter
Chief Communications Officer and Head of Investor Relations at SelectQuote

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 on our earnings release and investor presentation on our website. Finally, a reminder that certain statements made today may be forward-looking statements.

Matt Gunter
Matt Gunter
Chief Communications Officer and Head of Investor Relations at SelectQuote

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, 2026, and subsequent 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. With that, I'd like to turn the call over to our Chief Executive Officer, Tim Danker. Tim?

Tim Danker
Tim Danker
CEO at SelectQuote

Thank you, Matt, and thanks to everyone joining us this morning. Before we begin, I'd like to start with what we believe is the most important takeaway from today's call. SelectQuote's highest priority continues to be driving profitable cash flow, and our fiscal 2026 results demonstrate meaningful progress against that objective. As you'll hear throughout our remarks, we're managing the business with a focus on cash generation and leverage reduction, which we believe is the best way to create long-term shareholder value. We believe the platform we've built is capable of generating substantially more cash flow over time, and we are beginning to see that potential translate into tangible results. Looking towards the future, we expect the Medicare Advantage industry to remain fluid as our carrier partners continue to rightsize and get closer to their own operating margin targets.

Tim Danker
Tim Danker
CEO at SelectQuote

As a result, in fiscal 2027, we will be prudent with our MA growth investments, while our primary focus will be to grow and compound our cash flow. Meanwhile, we reached an inflection point in fiscal 2026 with the Healthcare Services division becoming SelectQuote's largest revenue contributor, and we anticipate increasing cash flow and earnings power from that business in fiscal 2027. Beyond fiscal 2027, we firmly believe SelectQuote is well positioned to grow both our senior and healthcare services revenues, which will further accelerate cash flow generation. Now moving to our recent performance. SelectQuote delivered a strong fourth quarter in what has been a highly successful fiscal year for our company. As you know, 2026 was another challenging year for Medicare Advantage as carriers shifted policy benefits and had widely varying origination volumes.

Tim Danker
Tim Danker
CEO at SelectQuote

In healthcare services, we successfully managed a shift in reimbursement rate from a SelectRx payer partner and changes in drug pricing from the Inflation Reduction Act. Through it all, we modestly grew revenue, maintained strong margins, and significantly increased operating cash flow. Looking ahead, our highest priority is to realize value for our shareholders, which as I mentioned, is best achieved through cash flow. To be blunt, we see a wide disconnect in the value of our shares relative to the real cash flow generation of our platform. I'll end today's prepared remarks with more detail on that point, but I'll reiterate that we see fiscal 2027 as a real inflection point for compounding cash flow growth and the value of our equity. Turning to slide three, I want to frame fiscal 2026 around the key areas where SelectQuote made the most meaningful progress.

Tim Danker
Tim Danker
CEO at SelectQuote

First, in healthcare services, SelectRx continued to prove the earnings power of its scaled membership base, producing approximately $25 million of Adjusted EBITDA for the year while exiting at nearly $50 million annual run rate in the fourth quarter. This is an important milestone for a business we built essentially from scratch over the past several years, and we believe there is still meaningful room to grow profitably as we continue to drive operating leverage across the platform. Second, our senior business remained highly profitable despite another dynamic Medicare Advantage environment. The business generated Adjusted EBITDA margins of 26%, which we believe reflects the durability of our model, the strength of our carrier relationships, and the efficiency of our agent-led, technology-enabled distribution platform. And third, most importantly, we delivered more than $44 million of year-over-year improvement in operating cash flow.

Tim Danker
Tim Danker
CEO at SelectQuote

As I mentioned before, that cash flow progress is central to the story we're telling investors today. We have been very clear that our priority is not simply growth for growth's sake, but profitable growth that compounds into stronger cash generation, lower leverage, and ultimately greater equity value for shareholders. To emphasize the point, it is important to remember that there is significant cash flow scale, both in our billion-dollar-plus commissions receivable balance, which we grew in fiscal 2026, and our scaling healthcare services platform. As we increase operating efficiency and reduce costs, the equity accretion of compounding cash flow will become increasingly powerful. When we look back on fiscal 2026, we see a year where the model worked well and our teams executed yet again.

Tim Danker
Tim Danker
CEO at SelectQuote

We navigated industry complexity, delivered value for customers and partners, and took a meaningful step forward in translating the underlying earnings power of SelectQuote into visible cash flow. Now let me turn to slide four on how SelectQuote is driving value and cash flow through our ongoing effort to maximize operating efficiency. As part of our fiscal 2027 planning process, we identified more than $30 million of annualized run rate expense improvement across the business. Importantly, these benefits are the result of a combination of actions, including AI and technology-enabled efficiencies, process improvements, organizational right sizing, and prudent cost management. Today, I'd like to double-click on a few of the technology-enabled efficiencies we're capturing. As you know, SelectQuote was founded with a clear view that technology and information are critical for operating efficiency and the value we deliver to our customers.

Tim Danker
Tim Danker
CEO at SelectQuote

Our investments in technology and data increasingly help us improve both efficiency and customer outcomes. Across the business, we are deploying AI-enabled enrollment support tools that help us flex capacity with demand. This ensures we preserve valuable agent talk time and allow our highly trained live agents to do their most valuable work. We've also streamlined agent workflows through sales assist technology and will expand the use of AI-powered quality assurance tools to review and coach our agents. We're also automating revenue generation processes and leveraging internally developed technology to increase efficiency within both our senior and pharmacy businesses. These initiatives reduce manual work, improve scalability, and help generate meaningful cost savings while optimizing the high level of service our customers expect. Additionally, as discussed on our 3Q call, during fiscal 2026, we built, deployed, tested, and are now leveraging our new custom-built pharmacy management system.

Tim Danker
Tim Danker
CEO at SelectQuote

This system not only enables streamlined day-to-day pharmacy operations, but also provides the technical infrastructure we need to continue to process more scripts through our new state-of-the-art Olathe, Kansas facility. In this facility, we are already recognizing around 30% efficiency gains on shipments relative to our two legacy locations. This is yet another way we are meeting the market, given that U.S. healthcare system demands increasing efficiency, and you can see that with the improvement in our Kansas facility. The challenge for most operators in our industry has been trying to balance speed and efficiency with services that fit the individual customer and drive value. There are some that do one or the other, but in our view, only SelectQuote succeeds at both. These initiatives build on a long history of incremental operational improvements across the company.

Tim Danker
Tim Danker
CEO at SelectQuote

While the over $30 million of savings reflects actions already taken or underway, we believe our technology platform positions us to capture incremental savings over the next several years as automation, data analytics, and workflow optimization become increasingly embedded across our operations. We are seeing that technology is allowing us to further unlock the value of our core asset. The success you see in both our senior and healthcare services businesses begins and ends with real conversations between real people. We have a long track record of these conversations and earning the trust of America's seniors who give us unmatched insights into their needs. We firmly believe our scale and increasingly our technology are exceptionally valuable assets that will continue to broaden our competitive advantage and allow us to meet the needs of America's seniors as they navigate the complex healthcare environment.

Tim Danker
Tim Danker
CEO at SelectQuote

These factors are not only allowing us to serve them better, but also powerfully contribute ongoing leverage to our cash flows. With that, let me turn the call to our CFO, Ryan Clement, to review our financials. Ryan?

Ryan Clement
Ryan Clement
CFO at SelectQuote

Thanks, Tim. I will begin on slide five with our consolidated financial results for the fourth quarter and fiscal year 2026. As Tim mentioned, our results reflect strong execution across the business and continued progress against our goal of driving profitable cash flow. For the full year, revenue totaled $1.62 billion, up 6% year-over-year and within our guidance range. Adjusted EBITDA was $109 million, finishing well ahead of our guidance range of $90 million-$100 million. Most importantly, the business made substantial progress on operating cash flow, which we will touch on later. For the fourth quarter, revenue was $322 million compared to $345 million in the prior year. Adjusted EBITDA increased to $12 million, compared to $3 million last year.

Ryan Clement
Ryan Clement
CFO at SelectQuote

That fourth quarter improvement reflects the operating discipline we have emphasized throughout the year, including actions to improve efficiency, manage costs, and focus resources behind the areas of the business with the clearest path to durable cash generation. The key message is that SelectQuote exited fiscal 2026 with a more efficient operating model and a clear path to expanding cash flow again in fiscal 2027. We remain focused on profitable growth, not simply top-line growth, and we are managing the business with that framework in mind. Before I detail our segments, let me first call out SelectQuote's improvement in operating cash flow on slide six. As Tim noted, we realized a $44 million year-over-year improvement, which was driven by progress within each of our divisions. In senior, we delivered strong operating results despite a challenging market backdrop.

Ryan Clement
Ryan Clement
CFO at SelectQuote

Similarly, in fiscal 2026, we generated more operating cash flow per SelectRx member than we ever have, driven by both operating scale from our Olathe, Kansas, distribution facility, but also from a maturing member base. Lastly, our life insurance business, while smaller, continues to deliver strong cash flows. Turning to slide seven, our senior business remained highly profitable despite another dynamic Medicare Advantage environment. Senior revenue declined 4% compared to last year, totaling $576 million. In addition to another volatile season for Medicare Advantage, part of the reduction in revenue was tied to a change in a key carrier partner's strategic marketing investment. Despite this headwind, we were still able to drive very strong margins. In fact, the senior segment generated a 26% Adjusted EBITDA margin for the full year.

Ryan Clement
Ryan Clement
CFO at SelectQuote

As Tim noted, we have now recorded four consecutive years with senior margins in the mid-20% range, which demonstrates the durability of the business and the strength of our agent-led, technology-enabled distribution platform. The Medicare Advantage market continues to evolve, and we expect carrier strategies and benefit designs to remain important variables. As we've said in the past, growth in our senior business is a choice, and the engine we've built is ready when the markets support a return to responsible growth. While we've started to see green shoots of a turnaround within the MA market, our expectation is that this upcoming AEP will remain dynamic. Moving to slide eight, the healthcare services segment continues to generate scaled revenue and is making meaningful progress on profitability.

Ryan Clement
Ryan Clement
CFO at SelectQuote

As previously forecasted, membership moderated in the fourth quarter to 109,000 as we continue to focus on members that receive the largest benefit from our services while producing the best unit economics. Looking ahead, we expect members to moderate again in the first quarter leading up to the AEP selling season, but to finish 2027 around 2026 levels. To be clear, demand remains very strong, but we continue to focus on driving further improvements in segment profitability. Additionally, it is important to remember that healthcare services membership growth is synergistic with Medicare Advantage policyholder onboarding. As Tim noted, improvements in that market should serve as a tailwind for SelectRx membership growth in future seasons. While members remain flat year-over-year in fiscal 2026, total revenue in healthcare services totaled $845 million, up 14% compared to full year 2025.

Ryan Clement
Ryan Clement
CFO at SelectQuote

This growth was achieved despite the impact from the Inflation Reduction Act, which went into effect on January 1st of 2026, and hit third quarter and fourth quarter of this year. I'll touch on the implications for 2027 during my guidance commentary. Moving to the bottom of the slide, the healthcare services business is scaling into a more profitable operating model, driven increasingly by further utilization of our Kansas distribution facility and our prescription management systems. For the full year, the business delivered $25 million of Adjusted EBITDA, effectively all of which converts to cash. You'll recall that our first quarter and second quarter results were affected by the reimbursement renegotiation with one of our PBM partners, which we have called out here in the chart.

Ryan Clement
Ryan Clement
CFO at SelectQuote

As a reminder, while the Inflation Reduction Act drives a material reduction in revenue, it does not materially impact EBITDA given the geography of reimbursements to SelectRx on the P&L. The most important takeaway for this slide is that healthcare services exited fiscal 2026 at an annual EBITDA run rate of nearly $50 million. Although we expect EBITDA to moderate in the first quarter as we make investments in preparation for the AEP and OEP enrollment season, we feel this EBITDA performance reflects continued execution across the member base and the early contribution from efficiency initiatives across the pharmacy platform. We are particularly focused on continued efficiency gains in our Kansas SelectRx facility. As we increase utilization and continue to advance our pharmacy management system, we believe healthcare services can contribute even more meaningfully to the profitability and cash flow over time.

Ryan Clement
Ryan Clement
CFO at SelectQuote

Turning to life on slide nine, the business delivered $186 million of revenue, up 8% year-over-year. The business generated Adjusted EBITDA of $27 million for the year, which we remind everyone is highly cash efficient. We are pleased with these results but remain measured in our outlook. While our final expense business continues to perform nicely, the term life insurance market remains competitive, and customer acquisition costs are worth monitoring. As a result, we continue to focus on disciplined execution and profitable growth rather than assuming the strong trends we've seen recently will continue uninterrupted. Lastly, let me conclude with our financial outlook for fiscal 2027. Starting with revenue, we are guiding to consolidated revenue of $1.35 billion-$1.45 billion in 2027, 14% below 2026 levels at the midpoint. This reduction is driven by factors in both senior and healthcare services.

Ryan Clement
Ryan Clement
CFO at SelectQuote

In senior, as we noted, we expect 2027 to be a transition year for Medicare Advantage carriers. As a result, we are being prudent with our investment with a greater focus on senior profitability and cash flow over growth. We expect this will result in MA-approved policies declining 10%-15% year-over-year. In healthcare services, we expect revenue to be down 10%-15%, primarily due to the Inflation Reduction Act. The IRA will create year-over-year revenue headwinds throughout fiscal 2027, including particularly noisy comparisons in the first half of the year. To reiterate Tim's comment about the platform, SelectQuote is well-positioned to grow both businesses in the future but will purposely remain disciplined in 2027 to drive profit and cash flow. Turning to Adjusted EBITDA, we are guiding to a range of $90 million-$115 million for 2027.

Ryan Clement
Ryan Clement
CFO at SelectQuote

While down year-over-year on a dollar basis, the midpoint reflects consolidated margin expansion of about 60 basis points. We expect senior margins will be strong, coming down from 2026 levels, but remain above our 20% target. This will be more than offset by our expectations that healthcare services margins will approximately double in 2027. We expect the efficiency gains to be driven by continuing to scale our pharmacy management system in Kansas as an increasingly higher percentage of our scripts are routed through this facility in 2027.

Ryan Clement
Ryan Clement
CFO at SelectQuote

Finally, we are introducing an operating cash flow guide for the upcoming year. Despite the top-line pullback we discussed, we expect SelectQuote to approximately double operating cash flow in fiscal 2027 to $60 million plus. We also believe the business will generate free cash flow of around $50 million, which is aligned with our strategic priority to demonstrate meaningful and compounding value for shareholders. With that, let me turn the call over to Tim to drill down on that strategy before we take your questions. Tim?

Tim Danker
Tim Danker
CEO at SelectQuote

Thanks, Ryan. We wanted to close with additional context on our most important strategic priority, cash flow. As I mentioned in my opening, we are pleased with the durability of returns we have built into our business. This is evidenced by our performance over the past four years. In senior, we have high conviction that our model can execute in a range of Medicare Advantage environments. In healthcare services, we are excited about the inflection occurring and expect our scale to drive significant profit contribution in 2027 and beyond.

Tim Danker
Tim Danker
CEO at SelectQuote

While we are pleased with the business performance, I will reiterate that we are not satisfied with our valuation and want to be clear about our plan to drive shareholder returns. We know our credit partners see the value of our platform and our current $1 billion plus commissions receivable balance. That said, we know equity investors want to see expanding cash flow creation and lower leverage.

Tim Danker
Tim Danker
CEO at SelectQuote

As we show here, we believe fiscal 2027 will be another strong year following the $44 million improvement made in fiscal 2026. As Ryan mentioned, we expect operating cash flow in 2027 to approximately double compared to fiscal 2026 and for the business to generate free cash flow of around $50 million in the year ahead. What is not shown here is how a growing base of operating and free cash flow can compound. As you know, we continue to work to optimize our balance sheet and believe we are well-positioned to reduce our funding costs more meaningfully in the future. Today, our debt and preferred equity total around $800 million at a cost of approximately 12%. We pay annual cash interest of approximately $45 million in addition to our preferred equity dividend.

Tim Danker
Tim Danker
CEO at SelectQuote

For illustration, every 100 basis points decrease in that overall funding cost would equate to nearly $8 million of savings that accretes to equity holders. Similarly, we expect to reduce aggregate leverage in the future, both through debt repayment and expanding EBITDA. The bottom line is we see significant value in SelectQuote and believe there is a real and observable roadmap to grow our equity and generate attractive returns for shareholders. The North Star of our strategy is to grow our equity base through expanding cash flow.

Tim Danker
Tim Danker
CEO at SelectQuote

We will achieve this through operating efficiency, responsible growth, lower leverage, and reduced funding costs. Best of all, is the more cash flow we create, the more cash efficient SelectQuote becomes. 2026 was a great year of inflection for our strategy, and we believe fiscal 2027 presents an even greater opportunity to demonstrate our value to shareholders.

Tim Danker
Tim Danker
CEO at SelectQuote

With that, let me turn the call back to the operator for your questions.

Operator

We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, please press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Ben Hendrix from RBC Capital Markets. Your line is open. Please go ahead.

Ben Hendrix
Ben Hendrix
Analyst at RBC Capital Markets

Great. Thank you very much. Just a couple questions on the health services segment. Can you talk about any kind of opportunities you might have to grow membership outside of congruency with the senior business? Are there opportunities, I know you guys are very focused on cross-selling those two segments, but is there an opportunity to look outside of the senior and AEP trends, given the softer dynamics in MA over the next year?

Tim Danker
Tim Danker
CEO at SelectQuote

Yeah, Ben, good morning. This is Tim. Thank you for joining. I will make a few comments and ask Bob Grant to talk to some of your specifics. But again, really pleased with the inflection point in the fourth quarter for our healthcare services business. You can see how this business is certainly picking up steam. As you indicated, there is a very synergistic relationship between our senior platform and our healthcare services division. Given the small, prudent pullback that we are making in the senior division, given the market dynamics, that will have some pull-through impact to healthcare. Our current focus is really around driving operational efficiencies and some additional technology that we think will help us prove out the doubling of margins in healthcare that we mentioned.

Tim Danker
Tim Danker
CEO at SelectQuote

To your point, we are still a small piece of the market and have opportunities outside just the pure play relationship with seniors. Bob, if you want to comment on what we are doing there, I would appreciate it.

Bob Grant
Bob Grant
President at SelectQuote

Yeah, absolutely. Ben, to your point, right now, we have historically been and are still very focused on cross-selling with the mild pullback in Medicare. That is why not as much growth that we would expect on the top line or membership there. However, we are very focused on efficiency, replacing a lot of our technology, using AI to help assist and make things much faster and smoother and drop cost per shipment out the door so we can increase margins, especially on kind of new membership and kind of get there a lot quicker. You see that really reflected in the guide and what we saw in the fourth quarter, where we have nearly a $50 million run rate. I would say with that, this year we will really hone in on that.

Bob Grant
Bob Grant
President at SelectQuote

Use this kind of mild pullback in Medicare as an opportunity to really focus on the cashflow and efficiency of that business. Then, yes, as we get even more efficient, it allows us to afford some CAC on the Rx side of the house, and really allows us to start testing and learning on kind of third parties and things like that, because there is a massive market opportunity beyond just what we do as a cross-sell within Medicare. But it does come at a little bit of a cost, right? As we increase that margin, it allows us, again, to really lean into that, and find those sources, and test, and vet. We are a little bit focused on both, but I would say this year it is hyper-focused on increasing that margin and cashflow efficiency.

Ben Hendrix
Ben Hendrix
Analyst at RBC Capital Markets

Appreciate that. Just one more on kind of the integration of operations through the Kansas City facility. Can you remind us where that stands in terms of penetration in your total volume, where that could go, and then ultimately what you would expect target margins for the segment to be once that is fully integrated?

Bob Grant
Bob Grant
President at SelectQuote

Yeah. I will let Ryan actually speak to the margins at the end. As far as integration, it is still a relatively small percentage of our overall volume because we are very focused on kind of our new technologies and different things within that facility. Then as of this AEP, we would expect a huge percentage of our enrollments and overall members to move to Kansas City, which, as Tim said, is far more efficient and has higher margins than our other sites. We will then take those learnings and retrofit our other sites to make them more efficient and them better. All those dollars too, as we decrease that cost per shipment out the door, increase those margins. It all falls to the bottom line, right? It is a really exciting thing as we have seen the reality play out of Kansas City.

Bob Grant
Bob Grant
President at SelectQuote

As Tim said, it's about 30% more efficient than our other sites. We know that there's a path there. Now it's just being very tactical on how we go and get that. But we are very close. Again, this AEP, you'll see a massive growth within the Kansas City facility. Ryan?

Ryan Clement
Ryan Clement
CFO at SelectQuote

Yeah. With respect to the margins, obviously we're at an inflection point. We had a really great quarter. We saw the step increase in terms of margin progression. We talked about this coming year expecting margins to double on a year-over-year basis. Over the long term, we are still expecting low double-digit EBITDA margins. That's our long-term target for this segment. Obviously, efficiency gains both in Kansas City and other things that are on the horizon are all part of that story.

Ben Hendrix
Ben Hendrix
Analyst at RBC Capital Markets

Great. Thanks, guys.

Operator

Your next question.

Tim Danker
Tim Danker
CEO at SelectQuote

Thank you, Ben.

Operator

Comes from the line of George Sutton from Craig-Hallum. George, your line is now open.

George Sutton
George Sutton
Analyst at Craig-Hallum

Thank you. Hey, guys. My first question is around the MA market. You used a few adjectives like fluid, dynamic, and volatile. You also mentioned green shoots that you are starting to see. I wondered if you can give us an updated thought on carrier messaging that you are getting. You are obviously investing less this season. Just kind of curious, are we maintaining upside potential as the market turns? Any thoughts there would be helpful.

Tim Danker
Tim Danker
CEO at SelectQuote

Hey, George, I appreciate you joining this morning and the question. Yeah, I think more broadly, we are seeing a healing in the MA market. There has been year-over-year improvement, but there is still work to do. The payers are signaling to get to their 3%-4% operating margin. There is more work that needs to happen, and we expect to see a lot of discipline in the market. That has been our conversations with carriers. Their MLRs are still elevated relative to historical norms, maybe better than forecasts, but higher than historical. A byproduct of that will be a continuation of some level of market disruption via plan terminations and benefit pullbacks. In our conversations, it feels like carrier dependent, that they are getting towards hopefully the later innings of this recovery and a reemergence to what we would call responsible or targeted growth on plan year 2028.

Tim Danker
Tim Danker
CEO at SelectQuote

Certainly, things around special needs plans continue to be a focus for the payers and one that we over-index to and are very aligned to. Our current plan of action, as you heard from our comments, is to match the market, in terms of prudence around MA growth, and continue to focus on cash flow. That was our indication around slightly lower policy volumes. But we will continue to be opportunistic around as we see opportunities. We are nimble, and I think we have proven that over the past three years. It has been honestly tough sledding. We have produced mid-20s EBITDA margins for four years. We will be in position to do that again. We will be in position to react to the market if there is interesting opportunities.

Tim Danker
Tim Danker
CEO at SelectQuote

But overall, the message is a resounding enterprise-wide focus on cash flow, how that can create equity value to shareholders, and improvement of our equity value.

George Sutton
George Sutton
Analyst at Craig-Hallum

On the Rx side, a couple of dynamics I just wanted to ask about. First, on the pricing impacts of the IRA, just so we fully understand. I understand that went into effect in early 2026. But how impactful, if you can quantify that? Ryan mentioned serving the customers that need us the most. What I read into that is those who have the most prescriptions and therefore are more profitable, versus those who have limited needs. Can you just walk through how you are managing that relative to the growth of that segment?

Bob Grant
Bob Grant
President at SelectQuote

Yes, sorry. On the IRA and the impact of that, it is obviously trying to push down cost to the overall consumer. There are some really tough dynamics on that because it puts a lot of pressure on the payers, and then puts pressure on the pharmacies from a revenue perspective. But to Ryan's point, it does not put a lot of pressure on the pharmacies from an overall margin perspective. The IRA, though, has introduced some things where because the payer's cost for drugs has gone up so much because they are eating a lot of that, they have changed some of the plan designs. That has been part of some of the impact of this kind of disruption, too, where they are introducing co-insurance for drugs and things like that. Those things that we had not really seen before.

Bob Grant
Bob Grant
President at SelectQuote

The IRA has ultimately, though, put a lot of pressure, I'd say, in the front half of the year on the cost of drugs for consumers because of the co-insurance and those things. That will continue to be the case. Ryan will talk about it does put pressure on our revenue, not our margins, though, which is why you see margin progression, but revenue pressure. Ryan?

Ryan Clement
Ryan Clement
CFO at SelectQuote

Yeah. With respect to, I mean, the way it works, the overarching cost to the consumer comes down. But we actually do receive elsewhere in the cost of goods line item a rebate back from manufacturers. Again, the impact at the top line is more meaningful than it is on the bottom line. As you mentioned, went into effect calendar Q1. That has created some pressure. Certainly as we look to 2027, where you have kind of the wraparound impact of having the full year plus 2027 IRA drugs, we expect it to be a headwind to the top line. But again, it is less significant in terms of even a margin where we expect margins to actually double year-over-year. We are really, really pleased with the business's results and the cash generation, both in 2027, but also what we see beyond 2027.

George Sutton
George Sutton
Analyst at Craig-Hallum

I thought the points on leverage reduction and the impact to your cash flows being pretty meaningful. Ryan, I am just curious, what is a realistic assumption for leverage reduction? Is it just simply limited to the cash flows that you generate, or are there considerations around more aggressive use of the receivables balance or segment M&A? Anything like that?

Ryan Clement
Ryan Clement
CFO at SelectQuote

Yeah, I think, obviously, this is a key area for the business, and how do we reduce our overall cost of capital? I would say, there are a range of paths. But I think the one that is probably most prominent, obviously, is the significant progression in operating cash flow is our key area of focus. 2027, we have talked about $60+ million. We are not specifically guiding to 2028. But we see increasing levels of cash flow in our multi-year forecast, and we do expect to be a cash payer in terms of the PIC, but also see a path to delevering and a lower cost of capital via a future refinancing.

Tim Danker
Tim Danker
CEO at SelectQuote

George, I would just add.

George Sutton
George Sutton
Analyst at Craig-Hallum

Thank you, guys.

Tim Danker
Tim Danker
CEO at SelectQuote

I would just add all those options are on the table. We absolutely want to be really clear that, to Ryan's point, we see a clear path in terms of increasing cash flow generation, natural deleveraging, a better cost of capital, all of the above that can lead to enhances in equity value for shareholders.

George Sutton
George Sutton
Analyst at Craig-Hallum

Perfect. Thank you, guys.

Operator

Your next question comes from the line of Steven Couche from Jefferies. Your line is now open. Please go ahead.

Steven Couche
Steven Couche
Analyst at Jefferies

Hi, this is Steven on for Dave. Thanks for taking a couple questions. The cash flow, I wanted to start there. The EBITDA down a little under $10 million year-over-year, but operating cash flow improving $30 million. Is that $40 million delta primarily a function of the slower growth in senior, or are there other factors in play?

Ryan Clement
Ryan Clement
CFO at SelectQuote

The primary drivers of the improved cash flow is continued progression in healthcare services, as we expect those margins to expand. We've highlighted the significant progress we're seeing from our Kansas pharmacy, and we expect that to continue to build upon that as we roll out the pharmacy management system that we built out. Additionally, the AI and technology efforts are also ramping nicely, which is a meaningful contributor to pretty significant anticipated cost savings around $30 million. A lot of that's tied to kind of combination of reducing labor intensity through AI, but also streamlining some of our back office functions. As you mentioned, we have been prudent with our investments, but the vast majority of that step increase is actually driven by the healthcare services segment.

Steven Couche
Steven Couche
Analyst at Jefferies

Okay. On healthcare services, I just wanted to clarify, you expect membership by the end of FY 2027 to be roughly flat with the end of FY 2026. If so, is that despite sort of lower approved policies coming out of senior?

Ryan Clement
Ryan Clement
CFO at SelectQuote

That is correct.

Tim Danker
Tim Danker
CEO at SelectQuote

Yeah, that's correct. That's correct, Steven. We do expect to be roughly flat at the end of the year. We'll go through our normal. There'll be a little bit of a pullback going into 1Q as we come off of the SEP period before ramping into AEP and OEP. Again, part of this is predicated upon the slight pullback in.

Tim Danker
Tim Danker
CEO at SelectQuote

Our senior business. But again, the real focus is what Bob was highlighting around operational efficiencies, the introduction of new technology, the hyper-focus around margin accretion, nailing down the operations, improving the cash flow, and then pushing more into the scaling of the business.

Steven Couche
Steven Couche
Analyst at Jefferies

Got it. Then maybe if I could sneak in one more. On senior conversion rates remained really strong. It was actually above 100% this quarter. Can you help us understand how that's possible? Then any impact that had on the quarter financially, and then do you expect, I know you've done some work around conversion rates and trying to improve those, do you expect the conversion rates in FY 2027 to stay high like we've seen in the back half of FY 2026?

Bob Grant
Bob Grant
President at SelectQuote

If you're talking.

Steven Couche
Steven Couche
Analyst at Jefferies

Yeah.

Bob Grant
Bob Grant
President at SelectQuote

Sales agent conversion, is that what you're speaking to, or Ryan's talking?

Steven Couche
Steven Couche
Analyst at Jefferies

Yes. Right. Yes.

Bob Grant
Bob Grant
President at SelectQuote

I'll speak rates on the actual policies themselves. As far as sales agent close rates, just as a reminder because SEP has materially changed, we pulled back a little bit, which was reflected in the number of policies in that quarter, year-over-year, due to there not being as many opportunities for a consumer to buy. When we do that, our best people end up taking those leads, and we see higher conversion rates, which took down the estimated pressure we had on Q4 conversion rates. I would say for the next year, as a percentage of our overall policies, core agents, which I think everybody here, that means you've been through one AEP with us, have significantly higher conversion rates. We would anticipate AEP and OEP to have high conversion rates relative to the environment.

Bob Grant
Bob Grant
President at SelectQuote

We should see those push and be similar to last year, maybe a little bit greater due to a greater percentage of our overall agent base being core agents, even though we are pulling back on policies a little bit. We do feel really good about where we are there, and especially the force of agents that we have. Ryan, do you want to talk about approval rates?

Ryan Clement
Ryan Clement
CFO at SelectQuote

Yeah. In terms of approval, I think the dynamic that you were speaking to was approved policies exceeded submitted policies, which what actually allows that to happen is not all policies get approved in the first month that they are submitted. You have the busy OEP season, then you have a slowing down into SEP, but there are still approvals that trickle in from the OEP season, and that is really what drove that. But as Bob mentioned, the approval rates have been strong. The conversion rates within our agent workforce has also been strong, and we are pleased with the overall performance.

Steven Couche
Steven Couche
Analyst at Jefferies

Great. Thank you.

Operator

Your next question comes from the line of Michael Kupinski from Noble Capital Markets Inc. Your line is open. Please go ahead.

Michael Kupinski
Analyst at Noble Capital Markets Inc

Thank you, and thank you for taking the questions. You guys have a very strong cash flow story. I cannot imagine that the market could not recognize that at some point here. You have $1 billion of commissions receivable and more than $60 million of operating cash flow expected this year. Can you help me understand how much of the fiscal 2027 cash generation is coming from the existing commissions receivable book? And more broadly, can you give us a framework for the cash you expect to generate over the next three to five years?

Ryan Clement
Ryan Clement
CFO at SelectQuote

Yeah. In terms of operating cash, as you mentioned, strong progress in 2026. We expect to build upon that in 2027 with operating cash flow exceeding $60 million. In terms of the commission receivables, obviously we have sold policies for years and have $1 billion in receivables like you mentioned, and those cash flows trickle in. When you think about where we ended fiscal 2026 and where we end 2027, we actually expect that commission receivables balance to be relatively flat. We are writing policies and replacing that balance as we are drawing down on or collecting on the prior policy sales. In terms of future periods, while we are not specifically guiding to 2028, we are absolutely managing the business to grow operating cash flow over the long term.

Ryan Clement
Ryan Clement
CFO at SelectQuote

We have a multi-year plan, and we again have visibility and line of sight to stronger operating cash flow in the future that we believe will ultimately lead to refinancing and lower cost of capital. We are intensely focused on cash generation.

Tim Danker
Tim Danker
CEO at SelectQuote

Michael, I might just add to that.

Michael Kupinski
Analyst at Noble Capital Markets Inc

I'm sorry. Go ahead.

Tim Danker
Tim Danker
CEO at SelectQuote

Michael, I might just add to Ryan's comment that hopefully we've made it really clear that we have a lot of conviction around the improvement in cash flow. You saw the $44 million year-over-year improvement. We're talking about a doubling this year. We're talking about the doubling of margins in healthcare services. While we can't provide today, we're not here to talk about a three-year outlook. That might be something we talk about in the future. All of our business lines are operating cash flow generative. Healthcare services, you can see the inflection point in the fourth quarter in our $50 million run rate, the doubling of margins. That business is going to continue to grow and kick off cash flow.

Tim Danker
Tim Danker
CEO at SelectQuote

Our life insurance business, we didn't spend a lot of time talking about it, but it's a very nice contributor to cash flow, and a senior business that has a lot of utility, around a billion-dollar back book, and what we're choosing to do around being prudent this year. More to come on that front, but would make a point that we have a high degree of conviction and a growing cash flow base, which will help the company lead to de-leveraging a better cost of capital, and a lot of accretion of value to shareholders.

Michael Kupinski
Analyst at Noble Capital Markets Inc

Got you. Obviously your outlook for very strong free cash flow. Has that changed your thinking around another receivable securitization?

Ryan Clement
Ryan Clement
CFO at SelectQuote

I do not know that it has changed our position. Obviously, we put a tremendous amount of effort into putting the infrastructure in place in support of the securitization, and it is still in place, it is performing. It is a path that is available to us given our current capital structure. There is not an immediate need to make a change. It is something that, again, we have out there as an option. Obviously, one other piece though is the Medicare market dynamics, which in the last two years have been somewhat disruptive. At this point, I would say the probability in the short term is relatively low.

Michael Kupinski
Analyst at Noble Capital Markets Inc

Got you. With the free cash flow, just a little bit about capital allocation. I was just wondering about how you are allocating between debt reduction, addressing the preferred securities, and reinvesting the business. Is there a leverage or capital structure target that you would consider returning capital to common shareholders?

Ryan Clement
Ryan Clement
CFO at SelectQuote

Yes. We are obviously excited about the cash generation of the business and where we are headed. In terms of capital allocation and what we are doing with it, de-levering and high ROI investments would be kind of top of list. When I say high ROI investments, I am talking ones that would further enhance the cash generation. Ultimately, de-levering is the key area of focus for the business, and that could come in the form of cash pay on the PIK. We do intend to cash pay in the future. Again, it could also be other forms of de-levering. We have not earmarked the dollars, if you will, but certainly are focused on cash generation and ultimately de-levering.

Michael Kupinski
Analyst at Noble Capital Markets Inc

Fair enough. Thank you for taking my questions.

Operator

We have reached the end of the Q&A session. I will now turn the call back to Tim Danker, Chief Executive Officer, for closing remarks.

Tim Danker
Tim Danker
CEO at SelectQuote

I want to thank you all again for your time. We really do appreciate your support. As Ryan and I both noted, the SelectQuote model continues to drive consistent and reliable value to our customers and insurance carrier partners. We know the underlying cash flows for our services are real and significant, and we look forward to convincing more and more investors of that value in our equity in the months and years ahead. Thank you and have a great day. We will talk to you soon.

Operator

This concludes today's call. Thank you for attending. You may now disconnect.

Executives
    • Matt Gunter
      Matt Gunter
      Chief Communications Officer and Head of Investor Relations
    • Tim Danker
      Tim Danker
      CEO
    • Ryan Clement
      Ryan Clement
      CFO
    • Bob Grant
      Bob Grant
      President
Analysts
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