Welcome to SelectHote's first 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 by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. It is now my pleasure to introduce Matt Gunter, SelectHote Investor Relations. Mr. Gunter, you may begin the conference.

Thank you and good morning, everyone. Welcome to SelectQuotes' Fiscal First 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 the 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 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. And with that, I'd like to turn the call over to our Chief Executive Officer, Tim Danker.

Thank you, Matt, and thanks to our investors and analysts joining us this morning. Picking up from the momentum of a strong fiscal 2025, SelectQuote executed well over the first quarter and is well positioned for a successful fiscal 2026. Beginning with the headline results, we generated consolidated revenue of $329 million, which represents 13% growth over the same period a year ago, driven by strong growth in health care services. As you saw in our press release, the year-over-year senior revenue compare was unique this period given the changes to beneficiary eligibility requirements during the special election period. Specifically, our senior revenues were $59 million compared to $93 million a year ago. The con was driven by lower policy production, which was expected given the new SEP parameters we foreshadowed on last quarter's call. Additionally, as also forecasted last quarter, the segment recognized negative EBITDA of $21 million in the first quarter, driven by the combination of lower policy production as well as increased year-over-year investment and new agent hiring in advance of AEP. I'll speak more to our readiness for AEP in a moment, but the high-level takeaway is that our senior business performed as expected in what was a unique year-over-year compare for SEP. In our health care services business, our new Kansas facility is ramping as planned, delivering efficiency gains in line with expectations. However, first quarter health care services EBITDA was impacted by a change in drug reimbursement rates with a SelectRx PBM partner. This is a headwind for our 1Q and 2Q health care services EBITDA margin. Without providing detail on the contract, it is important to call out from the perspective of the PBM, the change in reimbursement rate relates to volume shipped over calendar year 2025, not just fiscal 1Q or 2Q. The change does not impact our prior period results, but instead disproportionately impacts the first half of this fiscal year by approximately $20 million. The majority of that impact will be recognized in our fiscal second quarter. As a result, we now expect second quarter adjusted EBITDA for healthcare services to be approximately break-even. We are actively negotiating a longer-term reimbursement agreement with this carrier that creates better visibility for both parties. We have communicated our need for stability in our financials. The timing of this impact following our initial 2026 outlook is a clear example of that need. We're confident we'll reach a mutually beneficial agreement as this PBM partner recognizes the compelling clinical value provided by SelectRx, which I'll speak to later in my remarks. Regardless of the ongoing negotiation with this PBM, rates per our current contract revert to more normalized levels on January 1, 2026, which underpins our updated Fiscal 26 view. While we no longer anticipate reaching our $50 million target for Fiscal 26, our confidence and visibility in the long-term economics of healthcare services are unchanged. Despite the 2Q impact, we plan to exit the fiscal year at an annualized EBITDA run rate in the $40 to $50 $50 million range and continue to see SelectRx and healthcare services as a meaningful driver of profit and cash flow for SelectQuote. Speaking now at the consolidated level, quarterly EBITDA of negative $32 million was below our guided $25 to $30 million loss range communicated on the last call due to the SelectRx margin dynamics I just spoke about. Senior EBITDA was within expectations for the quarter, and our views on the upcoming AEP season are unchanged. If we turn to slide four, I'll detail those views for AEP. Beginning at the top of the page, let me start with our view of the overall industry. As you recall from last year, shifts in plan benefits and structures from carriers drove an elevated amount of policyholder volatility. Looking ahead to this year's selling season, we see a similar backdrop where carriers continue to prioritize Medicare Advantage margins over aggregate policy growth. The importance of a well-fit policy has never been more important to both the carrier and the policyholder. SelectQuotes' data-enabled agent-led model is specifically built for that purpose, which we believe is a lasting competitive advantage and one that is especially acute in this environment. Coincidentally, we expect the ongoing strategic shift by carriers to drive another elevated year of policy terminations. As we noted last year, these industry trends drive an increased need for the solutions SelectWhip provides, both for the carrier and certainly for the policyholder. Additionally, we see certain pockets of growth within health plans this season, including HMOs, SNPs, and in specific underserved geographies, which our model is uniquely well-positioned to help. If we move to the bottom of the slide, let me give our outlook for how select a disposition to perform this Medicare Advantage season. Looking back, the 2025 AAP season exceeded expectations. Our high-touch data-driven model proved its value in a dynamic market where policyholder questions and confusions were elevated. In that environment, our agile agent-led approach delivered outsized growth per agent and near record margins in the senior segment. For the 2026 AEP and OEP seasons, we're optimistic that performance will be strong. We entered the season with excellent retention of tenured agents who were about twice as productive as new hires and had another successful preseason of hiring and training. This positions the platform well for continued growth and improved operating leverage. Moving to our focus on retention, we know carrier plan changes can drive confusion, and we have made a strategic priority to proactively work with policyholders to ensure they understand their plans. This is a differentiated approach that is highly appreciated by policyholders. In the upcoming year, we expect tangible benefits to our results from both keeping policyholders in plans that remain a good fit or helping them find a new plan that best fits their ongoing needs. In fact, we believe there's an opportunity to improve policyholder recapture rates from the 2025 season. We believe our agile sales function and focus on retention position SelectQuote to once again deliver in what is, to be sure, another dynamic and disruptive AEP season. On slide five, let's add some context on SelectRx and the way our customers and carrier partners benefit. As we've talked about since the inception of the business, there are substantial problems and inefficiencies in how prescription drugs are paid for, distributed, and ultimately taken by Americans. SelectLote, as an efficient healthcare information hub, has significant insight and ability to eliminate inefficiency and improve the experience for all participants in the prescription drug value chain. At the highest level, SelectRx improves lives for Americans, introduces efficiency and cost savings into the system, and leads to better health outcomes. Here we provide a few examples, beginning on the left with improved MA retention. Given medication as a core piece of most treatment regimens, the fit of prescription drugs within a medical coverage plan has a synergistic benefit. We have seen this evidence with SelectRx members who tend to have lower rapid disenrollment rates and higher retention on the Medicare Advantage plans they select. Next is improved medication adherence in the middle column. Our approach recognizes a fundamental reality of patient care. Medications change. Unlike the traditional 90-day bottle-filled approach prevalent elsewhere, we utilize adherence-friendly 30-day packaging with a high-touch service model. This monthly cycle is critical because on average, roughly 10% of our SelectRx members experience a material change to their prescription regimen each month, whether it's adding a new medication, discontinuing an old one, or adjusting a dosage. When a patient's therapy changes, a 90-day supply creates a dangerous gap and an unnecessary drug waste. Our 30-day approach more quickly ensures that patients are taking the correct, current medications, which is vital. This reduces the risk of patients taking incorrect doses or discontinued medications and lowers the risk of adverse drug reactions. It is well known that taking medication in accordance with the doctor's orders is critical. As we know, especially with American seniors, drug adherence is a tricky and persistent problem, which can lead to worse health outcomes, particularly among the polychronic population we serve, nearly 70% of whom have limited pharmacy access. Nationwide, studies suggest that poor medication adherence contributes to around 25% of all hospitalizations, which translates to hundreds of billions of dollars in healthcare costs in the United States each year. Around 40% of our healthcare select members have reported either forgetting to take their medications or failing to pick up prescriptions from a pharmacy. We designed SelectRx with this specific problem in mind and have seen clear success in adherence rates. We attribute the success to the convenience and clarity that SelectRx custom drug delivery provides patients. When we enroll patients in SelectRx, we see a meaningful improvement in their active medication adherence over the next two years. With our new concierge-like program we call Adherence for All, we are further accelerating and enhancing medication adherence improvement, with beneficiaries in the programs improving by roughly 10% within the first year. Finally, the right-hand column is the most rewarding statistic, improvement in health outcomes, which benefits everyone within the ecosystem. By improving adherence, SelectRx members see a reduction in hospital days of around 20%. This directly translates to a better quality of life for the patient, but additionally provides a meaningful cost reduction for the overtaxed healthcare system and similarly for healthcare insurance payers. We provide this color not just because we're proud of the business, but it is important for investors to understand that these numbers matter to our insurance carrier partners. They, like us, see SelectRx and our healthcare services platform as a core value driver for long-term American healthcare improvement. With that, let me turn the call over to our CFO to detail our results. Ryan.

Thanks, Tim. Being on slide six, the business executed well in the fiscal first quarter, advancing our strategic priorities across senior healthcare services and life, even as we navigated the near-term reimbursement challenge within Selector X. Consolidated revenue grew 13% to $329 million, driven primarily by our Selector X and life insurance business, which helped offset the unique comparison in senior related to SEP. The fundamentals of our senior business are unchanged. We wrote 32% fewer policies in this year's fiscal first quarter compared to last year. Similarly, first quarter EBITDA is not directly comparable to the prior year due to the new SEP environment and our normal upfront investments to prepare for the upcoming AEP and OEP seasons. If we shift to slide seven, our senior financial results again show the impact from SEP. The results were in line with our expectations and again are a function of lower policy production because of new eligibility rules and the normal course of investment we make before the AEP and OEP season. I will reiterate that this level of value was as expected. The impact can be seen primarily in our segment revenue, which declined 37% to $59 million due to the 32% fewer policies. Our senior EBITDA loss of $21 million was in line with our expectations given the production and investment dynamics I just spoke about. LTVs have remained relatively stable despite increased policyholder volatility in the past year, coming in at an average of 883 for the last 12 months. We are now operating at a revenue decline acquisition cost of 6.4x, which continues to exhibit the synergy of our marketing spend against very attractive and durable cash flow streams for select quotes. If we flip to slide 8, I'll review the dynamics underlying our healthcare services results. Members held steady compared to last quarter, in line with expectations given the first fiscal quarter is typically a slower one for onboarding selectors members. We feel well positioned to capitalize on the AUP and OEP enrollment seasons. That being said, we continue to focus on driving profit and cash flow over aggregate member growth. As Tim highlighted, the primary factor impacting first quarter results was a change in the reimbursement structure with one of our selector XCVM partners. As a result, fiscal 2026 will ramp more gradually than we initially anticipated. We expect the rate pressure to crest in our fiscal second quarter before we revert to a more normalized rate structure with this PBM starting January 1st of 2026, which is our fiscal third quarter. Despite this near-term pressure, our medium and long-term outlook for expanding operating leverage and improving margins in healthcare services remains intact. To reiterate Tim's point, this partner understands the clinical value our SelectRx solution brings to patients, and as such, we are in constructive discussions to solidify a longer-term rate structure. We believe this new arrangement will provide enhanced visibility and predictability for our growing SelectRx business. Healthcare Services continues to be a highly attractive driver of profit and cash flow for SelectRx. The value we deliver to customers through SelectRx, combined with strong attachment rates in our senior Medicare Advantage business, remains central to our strategy. This approach supports increasing cash flows which benefits shareholders through improved cost of capital and more self-funded growth. Let's shift to slide 9 to detail our life insurance business. The quarter was a strong one for growth as revenues expanded nearly 20% driven by balanced growth in term life and final expense policies. The lack of pull through your EBITDA is shown at the right was also driven indirectly by the changes to this year's SEP. As part of our preparations for the season, we shifted agents to our life business given our expectation for less MA volume during SEP period. The results for our life business was a near-term increase in expenses related to production in the quarter. We expect this trend to reverse as the season progresses and agents are reallocated and new agents specifically become more tenured in life. As a whole, the life business continues to provide another steady stream of profit and efficient cash flow, similar to our healthcare services business. In closing, we are pleased with the results from each of our divisions and select quotes overall position for the year ahead. The senior business is well-prepared for AEP, supported by strong agent retention, and a successful pre-season. Healthcare services continues on its strong growth trajectory, and our life division is driving consistent, reliable cash flow. At this time, we are not changing our fiscal 2026 financial outlook of $1.65 to $1.75 billion in revenue and $120 to $150 million in adjusted EBITDA. While the healthcare services adjustment is a headwind, we plan to update our outlook following our fiscal second quarter as we will have additional detail on the AUT period for our senior business. That said, we remain confident today that we will be operating cash flow positive during fiscal year 2026. With that, I'll turn the call over to the operator for Q&A.

Thank you. We will now begin our question and answer session. Your first question comes from Ben Hendricks of RBC Capital Markets. Your line is now open.

Hi, it's Michael Murray on for Ben. On SelectRx, you seem to believe the reimbursement headwinds can be contained in 2025. What gives you comfort that rates will improve next year, and is there a potential that you see a similar reimbursement headwind at the end of next year?

Mike, good morning. Thank you for the question. I appreciate your attendance there. Just to provide a little bit more context on what we mentioned in our prepared remarks, We did have one PBM that made some adjustments to the drug reimbursement rates. Despite this change, the PBM remains profitable. We have a very strong relationship with them. We're in the midst of updating our agreement. As we shared with the market today, you know, they see what we see, an immense amount of clinical value that our SRX solution provides patients, and as such, we're in constructive discussions with them to solidify a longer-term agreement and rate structure. So we are absorbing a short-term impact in Q1, Q2, but the long-term economics remain very attractive. They don't change our perspective on growth or margin profile. As we work towards this new agreement, we will provide enhanced visibility and predictability into the growing business.

Okay, I appreciate that. Just shifting gears a little bit. I appreciate the commentary that SelectRx is improving MA member retention. Could this have a potential positive impact on LTV? And how much data would you need to see before building that into the LTV calculation? Thanks.

Yeah, I mean, we do. Yeah. So we do see a improvement in the overall persistency when someone is a member of SelectRx and has a Medicare Advantage plan. So we do see that we don't actually build that into the lifetime values themselves. So we're not booking that increase, but it's absolutely something we're observing.

Yeah. And really good to follow that up. Just as a reminder, it's not a huge attachment rate, right? It's a very specific cohort of customers, so not a massive overall impact, but a positive.

All right.

Question comes from Pat McKenna from Noble Capital Markets. Your line is now open.

Hey, thanks for taking my questions. First, I was wondering, with regards to what you mentioned about helping policyholders understand their plans better to focus more on retention, Could you talk a little bit more about what that looks like in practice?

Yeah, I'd be happy to, Pat, good morning. I'd be happy to start, and maybe I'll ask Bill Grant, our chief operating officer, to expand on it. But obviously, you know, last season was a very disruptive AEP, OEP season. We are really proud of our team's efforts and the service we provided beneficiaries. I mean, just for perspective, this year nationwide, about 2 million MA beneficiaries are going to be impacted by plan terms or plan exits and another, you know, several million that are having pullbacks in benefits. So, helping beneficiaries, protecting our back book of business is a priority. We've taken several actions, several learnings from last year, and I feel like we've got a jump start on it. But, Bill, maybe you can provide some additional detail on our approach.

Yeah, happy to. So I think that our approach evolves every year. We learn a lot in terms of how we use AI, our center, all the data we have in terms of how we approach our book. And then we marry that with how the plans are changing, right, because it's an ever-evolving environment. But we believe that we have a really good strategy to continue to offer our value proposition to consumers as we move along and that we're targeting or talking to the right folks that need our help. And, you know, you can really see that play out in kind of our year over year number in terms of the number of folks that we're recapturing, you know, what it looks like in terms of how that strategy plays out. But we're really using every tool in our arsenal, but I think that the biggest thing that we have going for us by far, you know, is our long data history, along with marrying that with our different AI strategies that allow us to be as cost effective as we can on who we treat, when we treat them, all of those things.

Excellent. Thank you. My next question was regarding the recent research you published on the social determinants of health, and I was wondering how that is informing your strategy in terms of potential new offerings in the healthcare services segment, how you are leveraging that data going forward.

Yeah, I'll actually start it and then I'm going to have together on what we do to solve those problems. I'd say first and foremost, right, we just want to understand our customer base better That's really informed the products that we've picked from the healthcare side of the house. You know, that's how we found SelectRx was folks need for a better solution than they were currently on to save them time and money and then ultimately help them adhere better. I think, though, there's also products within the actual SDOH space that we're looking at that would help folks afford their daily needs better and to really look at the actual membership side of the house. So, Bill, do you want to speak to the membership side and ultimately kind of what we're trying to do to solve SDOH issues on top of just traditional health care issues? Because we kind of break those things apart.

Yeah, sure. So, you know, as you know, you know, we have over 2.5 million health care select members. Health care select membership involves a fairly robust health risk assessment where we determine through that health risk assessment uh social determinants of health um and um what services may be applicable and help you know with our overall charter with that group right which is improving their uh overall um health lives so you know all those things so we have a variety of products within that uh now it's ever expanding again we use a combination of kind of um ai next best action our um uh you know consumer day or MarTech tools, right, to be able to talk to those customers. We've now helped over, you know, 50,000 taking our services through FindHelp or SDOH. You know, we have a number of products there, and we're expanding quickly. But we feel really good about our value proposition of our membership, and that just helps our overall engagement with Healthcare Select.

Thanks, gentlemen. I appreciate it. I'll hop back in the queue.

The question comes from George Sudden from Greg Holland Capital Group. Your line is now open.

This is Logan. I'm for George. Thanks for taking the question. I wanted to start with just kind of a high-level one on AEP. He touched on it a little bit, kind of talking about the similarities to last year, but I was hoping you could characterize a little bit more kind of anything you're seeing in the market different relative to last year.

Hey, good morning, Logan. I'll start and ask Bob Grant, our president, to elaborate as well. Early in the AEP season, we're pleased with performance thus far. As we've shared before, it is certainly a dynamic AEP season, given some of the profit actions taken by the carriers to get their margins in line. We're seeing that play out. We are seeing a very high level of consumer engagement as MA beneficiaries are out evaluating options. We would share that we think both our new agents as well as our tenured agents are performing very well within expectations. And as Bill shared, we've been spending a lot of time also working on our back book of customers to ensure that they understand all of their options. But thus far, you know, the AAP environment is what we expected. It's still very early, but we feel very, you know, very prepared in the early days. You know, a lot more innings to play out. Bob, you want to talk about some of the things you're seeing kind of more broadly in the market?

Yeah, I think we're just seeing another year of kind of pullback from certain carriers to Tim's point and push forward from others, which does cause some switch. And I think the difference this year, though, is that every carrier pulled back to a certain degree, as you guys have kind of heard them talk about, to really focus on profitability, which does create a lot of calls and education, which we feel really, really good about kind of helping people understand how to use their plan, a lot of the health care services benefits and things that we're doing. So I'd say it's just a little bit of a unique environment relative to other years, but probably more similar to last year than any year we had seen prior. And we do like some of the simplification of benefits. I think HMOs typically are a really good plan for a customer, easier to understand, easier to cost contain. And then ultimately, sometimes while ancillary benefits can be good, they can be a little bit confusing. So pulling back on those, too, simplifies offerings, and I think really helps the payers. So we feel really, really good about where AEP is going and where the plans are, especially from a multi-year view. I do think payers are really, really focused on making sure that's profitable into the long run.

Got it. That's helpful. And then maybe switching over to SelectRx, obviously you guys have shown the ability to grow that business. more recently talked about kind of focusing on the profitability. Can you just talk about how you plan to manage the growth or manage the funnel kind of through the busier quarters here? We probably have more opportunities to grow, but it sounds like you're kind of looking for the right members. If you could just talk about that, that'd be helpful.

Maybe you can talk about the our member growth and I'll highlight one other item. Go ahead, Bob.

Yeah, sure. So as far as member growth, I think we've been very measured on that. As we talked about before, we're very focused on profitability and members that need the service the most mixed with PBMs and payers that appreciate the service the most. I know that sounds funny, but just like in value-based care or any other thing, we have a closer partnership with some payers than we do others. And we are very focused on how we expand the clinical aspect of that business. We announced earlier our adherence for all program. We have quite a few participants that are very curious in that program because it speeds up. Tim alluded to how fast we improve adherence. That speeds it up by multiple months and is a very powerful program from a SARS perspective and other things. So we are very focused on that. I do think the market is still massive for us, right? It is a very big need. And I think the more and more we have quality conversations with payers and PBMs, the better and better kind of results we get, even with the short-term headwind that we've seen, you know, ultimately, as Tim alluded to, that's still a great relationship. And we've had a lot lot of really good discussions about how we can get to a really stable yet powerful contract that really focuses on the clinical aspect of that. Go ahead, Tim.

Yeah, I think it's great points, Bob, and I would say, again, none of this changes our underlying conviction and the massive opportunity ahead of us. We think this is a very powerful model, certainly for the patients who shared a lot around the clinical value. It's important to that patient. It's important to the payer. Obviously, we're working through a very short-term reimbursement issue. We have our arms around it. We don't anticipate anything of this magnitude happening again. We're confident in our ability to continue to work with all of our PBM partners, given the massive value that we see here. And we're confident in our ability. We feel like we have a very strong line of sight into the business and a strong level of conviction around the go forward of this business.

Got it. Well, thanks for taking the questions, and I'll have it back in the queue.

That concludes our Q&A session. I will now turn the conference back over to Tim Danker, CEO, for closing remarks.

Thank you. We want to thank everybody for joining us today. We're really proud of the start to fiscal 26, the strong execution. Despite navigating a dynamic SEP environment this past quarter, the entire organization is very well positioned for another successful AEP and OEP season. And we plan to leverage our competitive advantages as a healthcare ecosystem across the entirety of our business. It's early days, but we're very encouraged by AEP results thus far. and we look forward to sharing more about the season and our strategy on our next earnings call. I want to thank you again. Have a great day.