SelectQuote Inc Aktie

Good morning, and welcome to SelectQuote's First Quarter 2027 Earnings Conference Call. [Operator Instructions]

It is now my pleasure to introduce Matt Gunter, SelectQuote Investor Relations. Mr. Gunter, you may begin the conference.

Thank you, and good morning, everyone. Welcome to SelectQuote's 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 2, 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 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, Form 10-K for the fiscal year 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.

And with that, I'd like to turn the call over to our Chief Executive Officer, Tim Danker. Tim?

Thank you, Matt, and thank you to everyone joining us this morning. I'll begin with an overview of SelectQuote's performance highlights for our first fiscal quarter of 2027. Then I'll discuss planning and expectations for this Medicare Advantage season, which is off to a strong start. Lastly, I'll provide details on SelectQuote's evergreen initiative to leverage technology and AI as part of our North Star goal to maximize profitability and cash flow for shareholders.

So let me start on Slide 3 with an overview of our first quarter. SelectQuote outperformed both our internal forecast and Street estimates for both EBITDA and operating cash flow. Specifically, our adjusted EBITDA loss of $17 million represents more than $15 million of year-over-year improvement. As a reminder, our first quarter is a seasonal low for our business as we invest and prepare for this year's AEP and OEP seasons.

On a trailing 12-month basis, our adjusted EBITDA totaled $124 million, representing a 30% increase from the prior trailing 12-month period. We are proud of this operational execution, especially in light of the revenue headwinds our industry faced in the past year. As previously discussed, the Inflation Reduction Act negatively 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 to growth as payer priorities shift back towards growth in the future.

With that perspective, SelectQuote's strong year-over-year performance in profitability and cash flow becomes that much more impressive and continues to validate our operating strategy and execution.

Before we turn to the season ahead, let me give some quick segment highlights. In Senior, SelectQuote's differentiated outreach capabilities are already driving strong early season results as policyholders navigate another year of planned changes. For fiscal 1Q, our Senior business recognized an adjusted EBITDA loss of $12 million, which is a $9 million improvement compared to a year ago.

Turning to Healthcare Services. We continue to succeed in scaling profitability with adjusted EBITDA improving 56% year-over-year to $11 million for fiscal 1Q. Similar to our consolidated results, the profit improvement is particularly notable given the 16% decline in revenue primarily caused by the Inflation Reduction Act. We believe a significant and increasingly important indicator of success is the profitability for SelectRx member, which increased 60% compared to a year ago.

On the heels of the strong execution, we're pleased to reiterate our consolidated target of at least $60 million of operating cash flow in fiscal 2027. While we expect another dynamic year for Medicare Advantage, our model is purpose-built to serve customers during times like these. While early, we've seen increased customer engagement during the first few weeks of AEP and remain focused on retention given continued elevated levels of plan disruption.

We've said before the business is positioned to deliver strong margins in a range of selling environments. Our confidence in the strategy is underpinned by both the power of our agents as well as increasing efficiency captured through technology and AI. And as I mentioned, we are well positioned to further expand profitability and cash flow in future seasons 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 AEP is marked by continued disruption as carriers further refine plan features and benefits. SelectQuote planned accordingly. We expect our agent-led model will again produce results that benefit policyholders, carrier partners and our investors.

In fact, early results in AEP 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 entered this AEP with a high mix of tenured agents who historically perform about 2x 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 SelectQuote'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 this 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 rightsized 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, SelectQuote 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 HMOs, special needs plans and underserved geographies.

Put plainly, SelectQuote's 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 SelectQuote 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. SelectQuote's 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 SelectQuote 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 1/3 of incoming calls are screened and routed using AI. Every agent call is transcribed and analyzed, giving agents real-time support during conversations to 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 voice 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 capacity.

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 margins in fiscal 2027.

To conclude my remarks, I'll reiterate how important SelectQuote's commitment to technology has been in the evolution of our company. Efficiency and service gains drive real value for customers and carrier partners in all market environments.

Constant improvement at SelectQuote will always be the foundation for that reason. For shareholders, we are proud of these same gains to have real profitability and cash flow through the challenging industry environment of the past 3 years. We plan to compound those gains and 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 6 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 improved profitability despite our prudent strategy in senior for the current season and the impact to 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 2 important highlights we'd like to emphasize for investors. 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 AEP and that SelectQuote 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 a 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 interests, and we are not raising capital. In fact, we have ample capital to operate SelectQuote and believe SelectQuote's stock remains significantly undervalued.

Flipping to Slide 7, let me start with details on our first quarter performance in Senior. As Tim indicated, while 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.

Put in simpler terms, the 2027 season is another good season to prioritize profitability over volume. As Tim noted, we are hearing positive growth indications from a few carriers, but conversely, we know many carriers are still in process on significant benefit restructuring and rightsizing.

As I just noted, our strategy in Senior for 2027 is aligned at the agent and technology level to optimize policyholder 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 4-year track record of strong execution and agent efficiency give us confidence in 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. Sop 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 totaled $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 8, I will 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 5 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, SelectQuote drove EBITDA per 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 driven 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 SelectRx 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 flow target this year, but even that achievement is understated compared to what it means for our shareholders.

As Tim noted last quarter, as SelectQuote becomes increasingly cash efficient, the 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 9, 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 in the quarter, with improved margins year-over-year despite operating with a smaller agent force. The business also benefited from strong transfer rates from Senior, providing a meaningful source of leads at no incremental acquisition cost and demonstrating the synergies across our business lines.

Term 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 EBITDA was up 31% year-over-year to $7 million, representing a 17% margin, an improvement of more than 500 basis points compared to last year.

Overall, Life results remain in line with our expectations. We are encouraged by the profitability in 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 improvement SelectQuote is experiencing in our operating cash flow efficiency. We are maintaining our guidance of $60 million plus of operating cash flow for fiscal 2027. From a calendar perspective, we would remind investors that fiscal 2Q is historically our peak investment quarter before cash flow ramps sharply in the second half.

As Tim and I have repeated often in this call, we are proud of our team's ability to accomplish this through such a 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 in 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, SelectQuote 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.

[Operator Instructions] Your first question comes from Ben Hendrix with RBC Capital Markets.

This is Michael Murray on for Ben. On AEP, it sounds like payers are behaving as you expected with plan terminations and benefit pullbacks. Are you still expecting MA-approved policies to decline 10% to 15% this year? Or if any of the assumptions underlying this changed?

Yes, Michael, this is Tim. Thanks for joining. I'll be happy to address that. As we indicated in our prepared remarks, I mean, we're off to a good start. It's early, but we're off to a good start for AEP. There's a couple different factors there that we're seeing overall in terms of, to your point, a high level of beneficiary engagement, a lot of folks in market given the plan disruption and plan terminations.

While we do have a smaller agent force that will kind of impact what we guided last quarter in terms of overall policy volumes, having a high-tenured agent force is leading to good levels of agent productivity, which is typically a good indicator of output. We also think a lot of investments that we've made in our technology platform are paying off, which is providing some underlying agent efficiency and capacity.

So I do think with respect to what we guided to, all right, we have a smaller agent plan than in prior years that I would say a highly efficient and a highly effective one for what we're seeing early on. And -- while we are the largest direct-to-consumer distributor in MA, we are also very nimble, and we are able to capitalize on opportunities as we see them, and we think there is an environment here where there may be some potential to do that may help kind of maybe potentially curb some of the initial guidance we provided on volumes being down year-over-year.

That's helpful. And then I wanted to see if you could unpack the LTV strength. It looks like it grew 16% year-over-year. Is this mix-driven carrier repricing or more durable structural shift in how you're selling policies?

Ryan?

Yes. I'll take that one. I mean LTVs tend to move with carrier mix. And so as you mentioned, that's part of it. I would also say, obviously, there's been a benefit from CMS commission rate increases. So I think, yes, there's a number of factors in play, but pleased with the LTVs we're posting.

Your next question comes from David Windley with Jefferies. Is David Windley with us from Jefferies? Your next question comes from Logan Lillehaug from Craig-Hallum Capital Group.

Logan on for George this morning. I wanted to start on the plan terminations. You talked about trying to get ahead of that early this year. Obviously, last year, we also had a pretty high level of plan terminations. So just curious if you could compare what you've seen this year so far to last year in terms of engagement with beneficiaries. And I also wondered if you could just address how carriers are approaching commissions on some of these plans where they might be trying to retain members.

That's a great question, Logan. I'll let Bob...

Good question.

Grant, our President, talk about that. Yes. Go ahead, Bob.

Yes. As far as plan terms, the environment is fairly similar to last year. A little bit some nuances where they are being very intentional about plans that they want to invest in versus not. I do think there is a lot more healthiness within the market on the plans that are there. And that kind of also, there has been a little bit of a change on D-SNPs with, as you guys know, the plan integration with some of the states did take some folks out of certain states, as far as D-SNPs.

The engagement, though, has been really high. We are really happy with where we are. Again, similar to years past, where we believe that we can recapture a really large percentage of those customers. They are very happy with our service. And as you guys know, we are really good at getting ahold of people.

I do think as far as the commissions go, this so far has been a much more stable environment. I think that will continue due to the fact that there is more healthiness. You see it on the, I will just point to the public earnings calls of the payers. They are healthier. Their MLRs are healthier, and they seem more excited about kind of investing in plans, 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, because it does feel like this disruption is getting towards the tail end, where again, the payers are very excited about the plans that they have sitting out there and the profitability 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 worth calling out is -- the only point I was going to add is, obviously, when we engage with someone where a policy is being terminated, we're able to help them with the new policy and then actually book a new one. So that is obviously incremental commission receivables that we would expect to receive, and it's obviously an opportunity for the business, both with our existing customers, but also other customers that may be shopping in the marketplace.

Understood. Maybe switching over to SelectRx. I mean, obviously, it's pretty striking how much more efficient the Olathe 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 timeline you can give us around kind of taking that PMS technology to your other pharmacy sites?

Yes. That's again, a really good question. And we are stacking a significant amount of volume already in Kansas in that Olathe facility. That will 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, we are already planning for how we retrofit the technologies in 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 that'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. It 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?

Yes. No, that's a great question. We're really pleased with the progress we're making on the operating cash flow front. Obviously, this year, $60 million plus, which is a significant improvement year-over-year. And then when you 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.

Our next question comes from David Windley with Jefferies.

Let's try this again. Can you hear me?

Yes, we can, Dave. Glad you're here.

Okay. Fantastic. Sorry if these have been asked while I've been talking to the operators. The question I had for you, Tim, was if you could double-click in on AEP and give us any perspective on how recapture on plan exits, that part of your focus has gone, if you have early metrics on that retention. And I know new sales volume seems to be not one of your primary priorities for this AEP. But if there's any perspective on that, I'd take it.

Yes, Dave, and happy to kind of readdress some of these questions. We will talk about 2 parts of AEP, one being the front-end production part. And as we shared, I think it's early, but we are off to a very good start. Because of the plan disruption and the plan terminations you mentioned, right, it's creating an environment where there is a high level of beneficiary engagement on our marketing. So we are seeing a lot of connectivity there. We have got a very high-tenured agent mix, which typically will translate into good agent productivity and output. We have also made a lot of investments in our technology platform that are freeing up agent capacity. There is a lot of efficiency year-over-year in the model, and we think that can translate to opportunities with respect to volumes. Again, still very early, but that is why we like what we are seeing.

With respect to the back book, Bob commented on, we have learned a lot. We built a lot of muscle over the past 2 years with respect to the disruptive plan environment. We are seeing very high levels of consumer engagement. We are 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 is investments from our marketing team, our data science team, where we can have better purview into those customers that are affected the most or having changes to their health plan. We do expect, I think we are leading in terms of recapture rate of 30% last year. We are going to try to better that, which has a very positive cash flow impact.

So it's early, but we like what we are seeing. On the plan design front, while not asked, I'd say, we are seeing the national players continue to push into SNP plans, D-SNPs especially, HMO plans. And 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 our busier period for SRx, AEP and OEP.

Got it. So I caught your 30% and 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, say, engagement or applications relative to SNP plans versus 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. So -- but don't have exact numbers to share yet.

But I would say it's a continuation of trends we're seeing, Dave. Yes, go ahead, Dave.

Okay. Sorry. On the marketing spend, the -- so we've gotten most of the -- maybe all of the third quarter reports, calendar third quarter reports from the carriers. Margins are actually progressing for them, I think, broadly better than they expected. And so perhaps contrary to what the thoughts might have been earlier, they might be in a position to want to push marketing a little harder. So I wondered if that could still happen, like how far into AEP could they still make budget changes around marketing spend?

Bill, do you want to address kind of the broader kind of marketing environment, what you're seeing from carriers, how that may affect us?

Yes, absolutely. I think, though, I mean, as it relates to the carriers, they'd probably be -- you're talking about broader marketing in general. But as it relates to the carriers, Bob probably should take that.

Yes. And then I'll come back to Bill on the broader market and how well it is 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 specifically target, which we have said in the past costs us a little bit more money. We never would be biased towards any carrier or 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?

Yes, absolutely. So if they did come do that, we feel good about our marketing. We've always talked about kind of our wide funnel and ability to flex up. And we still feel like we're working from a position of strength. So we feel like 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.

Your next question comes from George Proost with NOBLE Capital Markets.

Filling in for Michael Kupinski this morning. My first question is with -- in regards to the IRA pressure on the SRx. So it's been facing pressure for several quarters now. Could you tell us which quarter do you expect will be a first clean year-over-year comparison without the IRA impact? And once you're past it, what's the underlying organic growth rate for it?

Yes. Why don't I start and then I'll let...

Great question.

Yes. Why don't Ryan you go ahead and address the IRA, and I'll talk more broadly.

Yes. 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 lead to higher, or -- sorry, lower top line revenue as, drugs are priced lower. That said, we actually receive reimbursements. And so the EBITDA impact is far less significant. With respect to clean 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 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. And we're really encouraged by the margin progression we're seeing and the ability to drive growth in EBITDA and cash flow from our Healthcare Services business. Tim?

Yes. 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. You're seeing that play out over the last few quarters.

To be clear that there's plenty of demand for SelectRx. And I think we're seeing, and there were 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 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.

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 SelectQuote 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 for attending. You may now disconnect.

Welcome to SelectQuote's fourth quarter 2026 earnings conference call. [Operator Instructions] It is now my pleasure to introduce Matt Gunter, SelectQuote Investor Relations. Mr. Gunter, you may begin the conference.

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 2, during this call, we will be discussing 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 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, 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. And with that, I'd like to turn the call over to our Chief Executive Officer, Tim Danker. Tim?

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 right-size and get closer to their own operating margin targets. As a result, in fiscal '27, 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 '27. Beyond fiscal '27, 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. 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 3, I want to frame fiscal 2026 around the key areas where SelectQuote made the most meaningful progress. 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's still meaningful room to grow profitably as we continue to drive operating leverage across the platform.

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 $40 million of year-over-year improvement in operating cash flow. 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.

I want to synthesize the point. It is important to remember that there is significant cash flow scale both in our $1 billion 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 be increasingly powerful. So when we look back on fiscal '26, we see a year where the model worked well and our teams executed yet again. 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 4 and how SelectQuote is driving value and cash flow through our ongoing effort to maximize operating efficiency. 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 rightsizing, 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. Our investments in technology and data increasingly help us improve both efficiency and customer outcomes. 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 we'll 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. 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 the 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. 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 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. 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.

Thanks, Tim. I will begin on slide 5 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. In 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 to $100 million. Most importantly, the business made substantial progress on operating cash flow, which we will touch on later.

In 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. 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 6. 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. 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, delivered strong cash flows.

Turning to slide 7, 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 26% adjusted EBITDA margin for the full year. 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 8, the healthcare services segment continues to generate scaled revenue and is making meaningful progress on profitability. 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 remained flat year over year in fiscal 2026, total revenue in healthcare services totaled $845 million, up 14% compared to full year 2025. This growth was achieved despite the impact from the Inflation Reduction Act, which went into effect on January 1st of 2026 and hit the 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. 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. Also, as a reminder, while the Inflation Reduction Act drives a material reduction in revenue, it does not materially reduce the impact to 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 that EBITDA performance reflects continued execution across the member base and the early contribution from efficiency initiatives across the pharmacy platform. We're 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 profitability and cash flow over time.

Turning to life on slide 9, 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 to $1.45 billion in 2027, 14% below 2026 levels at the midpoint. This reduction is driven by factors in both senior and healthcare services. 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% to 15% year over year. In healthcare services, we expect revenue to be down 10% to 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 to $115 million for 2027. 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 driven off 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.

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?

Thanks, Ryan. We wanted to close with additional context on our most important strategic priority, cash flow. As I mentioned in my opening, we're pleased with the durability of returns we've 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're excited about the inflection occurring and expect our scale to drive significant profit contribution in 2027 and beyond. While we're pleased with the business performance, I'll reiterate that we're 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. 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 '26 and for the business to generate free cash flow of around $50 million in the year ahead. What isn't 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. For illustration, every 100-basis-point 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. 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 '27 presents an even greater opportunity to demonstrate our value to shareholders. With that, let me turn the call back to the operator for your questions.

[Operator Instructions] Your first question comes from the line of Ben Hendrix from RBC Capital Markets.

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

Yes, Ben, good morning. This is Tim. Thank you for joining. I'll 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. So 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. And given the small, kind of prudent pullback that we're 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. To your point, we're 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're doing there, I'd appreciate it.

Right now, you know, we have historically been and are still very focused on cross-sell, and with the mild pullback in Medicare, it's why, you know, not as much growth that we would expect in the top line or membership there. However, we are very, very focused in efficiency, replacing a lot of our technology, you know, using AI to help assist and make things much faster and smoother and drop cost, you know, per shipment out the door so that we can increase market share 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'll really, really hone in on that, use this kind of mild pullback in Medicare as an opportunity to really focus on the cash flow and efficiency of that business. And then, yes, as we get even more efficient, it allows us to afford some CAC on our actual 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. So as we increase that margin, it allows us, again, to really lean into that and find those sources and test and vet. So we're a little bit focused on both, but I would say this year, it's hyper-focused on increasing that margin and cash flow efficiency.

Appreciate that, and just a little 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's, you know, fully integrated?

Yes, we are, I'll let Ryan actually speak to the margins at the end. As far as integration, still a relatively small percentage of our overall volume because we're very focused on kind of our new technologies and different things within that facility. And 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'll then take those learnings and retrofit our other sites to make them more efficient and better. So all those dollars too, as we decrease that cost per shipment out the door, increase those margins. It all falls to the bottom line. It's a really exciting thing as we've seen the reality play out of Kansas City. As Tim said, it's about 30% more efficient than our other sites, so we know that there's a path there, now it's just being, you know, very tactical in how we go and get that. But we are very close. And again, this AEP, you'll see a massive growth within the Kansas City facility. Ryan?

Yes, and with respect to the margins, obviously we're at an inflection point. We had a really great quarter. We saw this step increase in terms of margin progression. And 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.

Your next question comes from the line of George Sutton from Craig-Hallum.

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

Hey, George, appreciate you joining this morning and the question. Yes, I think more broadly, we are seeing a healing in the MA market. There's been year-over-year improvement, but there's still work to do. The payers are signaling to get to their 3% to 4% operating margin. So there's more work that needs to happen. And we expect to see a lot of discipline in the market. That's been our conversations with carriers. Their MLRs are still elevated relative to historical norms, maybe better than forecast, but higher than historical. And a byproduct of that will be a continuation of some level of market disruption via plan terminations and benefit pullbacks.

And our conversations, it feels like, carrier dependent, you know, towards hopefully the later innings of this recovery and a reemergence to what we would call responsible or targeted growth on planning year 2028. Certainly things around special needs plans continue to be a focus for the payers and one that we over-index to in our carrier line too. So our current plan of action is, 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're nimble. And I think we've proven that over the past four years, it's been honestly, you know, tough sledding, and we've produced mid-20s EBITDA margins for four years. We'll be in position to do that again. We'll be in position to react to the market if there's interesting opportunities, but overall the message is a resounding enterprise-wide focus on cash flow, how that can accrete equity value to shareholders.

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 that went in effect in early '26, 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're managing that relative to the growth of that segment?

Yes, sorry. On the IRA and the impact of that, it's obviously trying to push down costs to the overall consumer. You know, there's 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, doesn't put a lot of pressure on the pharmacies from an overall margin perspective. So the IRA though has introduced some things where because the payers' cost for drugs has gone up so much because they're eating a lot of that, they have changed some of the plan designs. I mean, that's been part of some of the impact of this kind of disruption to where they're introducing coinsurance for drugs and things like that. Those things that we hadn't really seen before. So the IRA has ultimately though, you know, 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 coinsurance and those things. That'll continue to be the case. And again, Ryan will talk about it. It does put pressure on our revenue, not our margins though, which is why you see margin progression but revenue pressure. Ryan?

Yes, so with respect to the way it works, I mean, the overarching cost to the consumer comes down. We actually do receive elsewhere in the cost of goods line item, a rebate back from manufacturers. So 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. And so that's created some pressure. And certainly as we look to 2027, where you've got kind of the wraparound impact and having a full year plus 2027, of the top line, but again, it's less significant in terms of EBITDA margin where we expect, you know, margins to actually double year over year. And so, you know, we're not going to be able to get that to the top line, and really, really pleased with the business's results and the cash generation both in 2027, but also what we see beyond 2027.

So I thought the points on leverage reduction and the impact to your cash flows being pretty meaningful. Ryan, I'm 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?

Yes, I mean, I think this is a key area for the business and how do we reduce our overall cost of capital. So I'd say there are a range of paths, but I think the one that's probably most prominent, obviously, is the significant progression in operating cash flow is our key area of focus. 2027, we've talked about $60 plus million. We're 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 PIK, but also see a path to delevering and a lower cost of capital via future refinancing.

George, 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.

Your next question comes from the line of [ Steven Cush ] from Jefferies.

Hi, this is Steven on for Dave. So 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?

No, the primary drivers of the improved cash flow is continued progression in healthcare services. 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 technology efforts are also ranking nicely, which is a meaningful contributor to pretty significant anticipated cost savings around $30 million. A lot of that's tied to kind of a combination of reducing labor intensity through AI, but also streamlining some of our back office functions. We have, 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.

Okay. And then on healthcare services, I just wanted to clarify, you expect membership by the end of fiscal year '27 to be roughly flat with the end of fiscal year '26. And so is that despite, you know, sort of lower approved policies coming out of senior?

That is correct. Yes, 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, you know, there'll be a little bit of a pullback going into 1Q as we come off of, you know, the SEP period before ramping up into AEP and OEP. Again, part of this is predicated upon the slight pullback in 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.

Got it. And then maybe if I could sneak in one more. I'm seeing your conversion rates remained really strong. It was actually above 100% this quarter. Can you help us understand how that's possible and 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 fiscal '27 to stay high like we've seen in the back half of fiscal '26?

If you're talking to sales agent conversion, is that what you're speaking to or Ryan? Yes. I'll speak to rates on the actual policies themselves. So as far as sales agent close rates, just as a reminder, because SEP has materially changed, we've 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, right, 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. So we would anticipate AEP and OEP to have high conversion rates relative to the environment. And we should see those push, you know, 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're pulling back on policies a little bit. So we do feel really good about where we are there and especially the force of agents that we have. Ryan, you want to talk about approval rates?

Yes, and so in terms of approval, and I think the dynamic that you were speaking to was approved policies exceeded submitted policies, which, you know, what actually allows that to happen is not all policies get approved in the first month that they're submitted. And so, you know, you have the busy season and then you've got a slowing down at the SEP, but there's still approvals that trickle in from the prior periods. And so that's 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're pleased with the overall performance.

Your next question comes from the line of Michael Kupinski from NOBLE Capital Markets, Inc.

You guys have a very strong cash flow story. I can't imagine that the market couldn't 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 kind of help me understand how much of the fiscal '27 cash generation is coming from the existing commissions receivable book? And more broadly, can you give us a framework for the cash expect to generate over the next three to five years?

Yes. So, in terms of operating cash flow, as you mentioned, strong progress in 2026. Expect to build upon that in 2027 with operating cash flow exceeding $60 million. In terms of the commission receivables, obviously, we're going to be looking at the commission. Obviously, we've sold policies for years and have a billion dollars in receivables, like you mentioned, and those cash flows trickle in. When you think about where we ended fiscal '26 and where we end 2027, we actually expect that commission receivables balance to be relatively flat, selling policies and replacing that balance as we are drawing down on or collecting on the prior policy sales. And in terms of future periods, while we're not specifically guiding to 2028, we are absolutely managing the business to grow operating cash flow over the long term. We have a multi-year plan and we've been, we again have visibility and line of sight to stronger operating cash flow in the future that we believe will ultimately lead to a refinancing and lower cost of capital. We are intensely focused on cash generation.

Yes, 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. So while we can't provide, you know, today we're not here to talk about a three-year outlook. That might be something we talk about in the future. You know, all of our business lines are cash flow generative. Healthcare services, you can see the inflection point in the fourth quarter and our $50 million run rate, the doubling of margins, that business is going to continue to grow and kick off cash flow. 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, you know, be improved in this year. So 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, you know, lead to deleveraging, a better cost of capital, and a lot of accretion of value to shareholders.

Got you. And then, obviously, your outlook for a very strong free cash flow, has that changed your thinking around another receivable securitization?

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

Got you. And then 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, and then is there a leverage or capital structure target you would consider returning capital to common shareholders?

Yes, we are obviously excited about the cash generation of the business and where we're headed. In terms of capital allocation and what we're doing with it, delevering and high ROI investments would be kind of top of list. And when I say high ROI investments, I'm talking one that would first either enhance the cash generation, but ultimately delevering 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, but again, it could also be other forms of delevering. So we haven't earmarked the dollars, if you will, but certainly are focused on cash generation and ultimately delevering.

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.

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'll talk to you soon. This concludes today's conference. Thank you for participating. You may now disconnect.

Welcome to SelectQuote's third quarter earnings conference call. [Operator Instructions]

It is now my pleasure to introduce Matt Gunter, SelectQuote Investor Relations. Mr. Gunter, you may begin the conference.

Thank you, and good morning, everyone. Welcome to SelectQuote's fiscal third 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 also have a question-and-answer session.

As referenced on Slide 2, 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 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. Tim?

Thank you, Matt, and appreciate everyone joining us this morning. We're pleased to report another quarter of strong financial results across each of our segments. We reaffirm our outlook for fiscal 2026 and continue to execute our goal to drive profitability and cash flow. We're especially proud of the results given the headwinds our industry has faced over the past year plus. This is a testament to our people and strategy.

SelectQuote continued to advance our goal to expand cash flow, and the company is very well positioned to accelerate that effort in fiscal 2027. To summarize, SelectQuote generated $431 million in revenue, driven by solid results across each of our segments. Adjusted EBITDA totaled $45 million, growth of 18% year-over-year. In Senior, we grew revenue by 8% year-over-year to $183 million. Growth was driven by healthier OEP, strong agent productivity and customer retention, as well as a positive change to our commissions receivables that Ryan will detail.

As we have mentioned before, we firmly believe the SelectQuote's strategy and our agents make the difference. This now marks 4 consecutive years of strong operating performance in Senior, despite widely varying Medicare Advantage backdrops each year. To say it lightly, we're very proud of the results and our differentiated model.

Senior adjusted EBITDA totaled $59 million, which includes the positive $14 million adjustment I just mentioned. It is important to note that the adjustment reaffirms the value of the commissions receivable on our balance sheet and the approximate $1 billion in assets we expect to receive in the quarters and years ahead. When we offer bespoke advice to American seniors and do so year-in and year-out, they get the best care, and we and our carrier partners benefit through strong retention. That said, excluding and normalizing the adjustment for comparison purposes, SelectQuote's model once again drove strong Senior margins of 26% and a Medicare Advantage backdrop that was mixed this season.

Turning to Healthcare Services, revenue grew 5% compared to a year ago, totaling $199 million. Our revenue and profitability in SelectRx was impacted by both carrier-specific actions on reimbursement, which we detailed earlier this year, and the implementation of the Inflation Reduction Act. Ryan will provide detail on that impact shortly. Those headwinds notwithstanding, our adjusted EBITDA improved sequentially to $5 million, and we maintain our view that Healthcare Services will be a significant driver of profitable cash flow growth in fiscal 2027 and beyond.

Overall, including our Life Insurance segment, we expect to exit fiscal 2026 on very strong footing in spite of what was a challenging environment. Looking ahead to 2027, we are encouraged by increasing visibility within the Medicare Advantage ecosystem. We're excited about SelectQuote's ability to compound cash flow growth in the near future and see significant value for shareholders as a result, especially at what we believe is a wildly dislocated valuation for our company. To that end, let me be clear that we will take all necessary action to maintain our listing on the New York Stock Exchange. We remain confident our stock will continue to be traded on the NYSE for years to come.

Lastly, I'd like to take a minute to highlight a new and important initiative called SelectQuote Local. As you know, we have longed and proud of our company's ability to help underserved Americans. SelectQuote Local is a natural extension of our model and allows local community healthcare and life insurance participants to leverage our information and market advantages to help more people in need. The business offers our leading marketing, technology, products and customer service platform through a franchise model with local sales and service. Put another way, we're offering local providers the information engine of SelectQuote on a fee-based arrangement, and we can do so with minimal capital investment.

Similar to the expansion of our revenue to CAC metric with the growth of Healthcare Services, we see SelectQuote Local as another extension of how our model can help more Americans with the same scale dollar of investment. SelectQuote Local won't be a meaningful revenue driver in the near term, but strategically, it broadens our reach and addressable market.

Now let's flip to Slide 4, and let's take a look at the KPIs from our very strong quarter. We've shown these before, primarily for our Senior business, but we've also included additional detail on SelectRx. Starting with Senior on the left, we drove another strong quarter measured by agent productivity and OEP. Agent service and productivity are an evergreen goal of ours, but I'd remind you that this is all the more impressive considering the very strong compares in the previous 2 years. Specifically, we drove a 1% improvement in policies per agent over this timeframe despite historically wide swings in the environment from one season to the next.

Moving down the page, we saw even better results on marketing efficiency, spending 14% less per approved policy compared to 2 years ago. Ryan will speak to elevated approval rates this season, but even excluding that unique impact, we saw a strong return on marketing spend beyond just policy booking. Senior engagement was high across the full range of our channels. We're underscoring our Senior division efficiency performance here, because we oftentimes find investors and analysts overlook the progress we've made on cash conversion in this segment.

Moving to the right side of the page, we highlight the significant progress we've made with onboarding of SelectRx members. As you can see, we have driven a 64% increase in prescriptions shipped compared to 2 years ago relative to a commensurate 55% increase in SelectRx members. Progressive maturity and onboarding of our membership, combined with the improved operating efficiency of our Olathe, Kansas distribution facility has driven significant leverage on a relatively fixed cost base.

As a result, SelectQuote generated a global revenue to CAC multiple of 6.7x. Only SelectQuote offers this unique combination of capabilities to help patients in multiple ways. This increases the value we bring to consumers and drives additional profitability with each senior we engage with. For products and services that are inherently recurring, especially when done at our level of care, the cash flow streams from our customers drive very compelling returns on invested capital. As we've noted, there is a wide disconnect between the value we see in our platform and cash flow streams and the valuation of common equity.

Take one simple example. Our Medicare Advantage commissions receivable balance at the end of fiscal third quarter totaled nearly $1 billion, which compares to our market cap of under $200 million today. We have fielded questions about the LTV assumptions in our commissions accounting going all the way back to our IPO, but I'd simply note that SelectQuote has just operated in 2 of the most disruptive Medicare Advantage environments on record. Over those 2 years, we had a recapture rate of over 33%, and we're able to recognize a favorable adjustment to our receivables. The point being, we have visibility and conviction in our balance sheet asset and multiple capital markets transactions would suggest others analyzing the business closely share that conviction.

Before I hand the call over to Ryan, we're very proud of the great progress we've made over the past 4 years, both operationally and on our capital structure. We continue to prioritize cash flow generation and will deliver significant year-over-year improvement in operating cash flow in fiscal '26. We expect to build upon that meaningful cash flow improvement in fiscal '27 and beyond with a stated goal to delever our balance sheet in the years to come. I'll end my comments by underscoring our commitment to remedying the disconnect in our equity value and see a very compelling opportunity in SelectQuote for investors in the future.

With that, let me turn the call over to Ryan to review our third quarter. Ryan?

Thanks, Tim.

I'll pick it up on Slide 5 with a summary of our consolidated financial results. As Tim noted, SelectQuote had a strong quarter with revenue growth of 6% year-over-year, totaling $431 million. The growth was driven by both our Senior and Healthcare Services businesses, reflecting a strong OEP and continued demand for SelectRx.

Adjusted EBITDA of $45 million was aided by the positive change in estimate to our commissions receivable that Tim noted. Excluding the favorable adjustment, our consolidated EBITDA margin for fiscal 3Q would have been 7%, which is a strong result for an OEP quarter. Overall, given the volatile backdrop, we are proud of the progress we continue to make on profitability and cash flow generation. The fiscal third quarter was strong operationally, and we are very well positioned to end fiscal 2026 on a positive note and carry momentum into 2027.

Let me begin the segment overview on Slide 6 with a summary of our Senior business. As Tim noted, Senior revenue grew 8% compared to last year, totaling $183 million on 4% growth in approved MA policies and the positive change in estimate. Let's detail those 2 drivers, starting with approved policies. While growth in approved policies was strong, it's important to note that approval rates this OEP were materially higher than in previous years. While we are encouraged by these strong carrier approval rates, we will continue to monitor as it's possible some of this increase may reflect approval timing and volume that was pulled forward from 4Q, contributing to the outsized strength this quarter.

Shifting to the positive adjustment, the majority of the $14 million increase in receivables was due to a change in our estimate of expected renewals driven by additional anticipated renewals from our policyholders as we continue to gain visibility to retention through this most recent renewal event. Having now operated through 15 Medicare seasons, we are proud to say we still have customers from our earliest cohorts. As a reminder, our LTV accounting assumes 10 renewal years and also assumes a 15% constraint. We think this is yet another indicator that our commissions receivables balance represents a large and perhaps not appropriately understood source of future cash flow to the business.

Moving to adjusted EBITDA, Senior generated $59 million, including a favorable $14 million adjustment to our commissions receivable. Excluding that adjustment, the Senior segment produced an EBITDA margin of 26%. We have now maintained profitability of at least 25% during the AEP and OEP seasons for each of the last 4 consecutive years. Over that timeframe, the SelectQuote Senior business has averaged EBITDA margins of over 25% on a full year basis.

Moving to Slide 7, our Healthcare Services business performed in line with our expectations against the pressures Tim mentioned. As we forecasted, membership growth in the quarter was strong at 11%, but moderated compared to the recent past. To be clear, demand remains very strong, but we continue to focus on driving further improvement in segment profitability. Our nearly 117,000 members drove revenue of $199 million for the fiscal third quarter.

Let me take a moment to speak through the dynamic that changed booked revenue sequentially. The Inflation Reduction Act went into effect on January 1 of this year and set maximum fair prices for 10 higher-priced drugs. Essentially, all of the sequential drop in revenue was driven by that specific price change in the quarter. It's important to note that while the IRA drove a notable change to our top line, the actual impact to EBITDA was in the low single-digit millions and was fully accounted for in our original forecast. To that point, moving down the page, we drove adjusted EBITDA of $5 million despite the headwinds mentioned.

As we noted last quarter, we see significant profit and cash flow in our base of SelectRx members. We are driving profit improvement through the seasoning and higher utilization of our membership base. Additionally, we continue to grow more and more optimistic about the cost efficiency of our Olathe distribution facility, which came online in April of 2025. At this time, less than 20% of our prescriptions shipped from that facility, but we are already recognizing 30% plus efficiency gains on those shipments relative to our 2 legacy locations.

We have been investing in the development of a proprietary pharmacy management system to support all of our locations, and we are in the testing phase at this point. Upon successful completion of our testing, the new pharmacy management system will allow us to fulfill many more SelectRx members through the Olathe facility in the quarters to come. We currently use less than half of the facility space and run only 1 shift in that facility. So there's ample room to scale into this highly efficient operation.

Flipping to Life Insurance on Slide 8, the business remains steady with cross currents between our 2 main products, Final Expense and Term Life. Final Expense continues to be a tailwind for the business with commissions up more than 8% year-over-year at highly attractive margins. We continue to see strong demand for this product and believe it will be a consistent growth driver well into the future. Strength in Final Expense was partially offset by Term Life, which remains a competitive market as consumers are shifting where and how they consume media. Overall, Life revenue grew 4% to $48 million and generated adjusted EBITDA of $6 million. While small, it's worth noting that the Life business generates sufficient cash flow similar to our Healthcare Services segment. In summary, our Life division remains a steady contributor of profitability and cash flow.

Finally, on Slide 9, we are reaffirming our revenue range of $1.61 billion to $1.71 billion and adjusted EBITDA range of $90 million to $100 million. Despite realizing a positive adjustment this quarter, we believe it is prudent to maintain our guidance ranges at this time. As mentioned earlier, 3Q results were aided by approval rates in Senior that were materially higher than previous years. While we are encouraged by this approval rate increase, we want to continue to monitor whether some of this goodness may be timing related, impacting our fourth quarter approved policy levels.

To echo Tim's comment, the SelectQuote model is generating visible and strengthening cash profitability, and we are highly focused on closing the disconnect between our equity market value and the real value of those cash flows.

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

[Operator Instructions] Your first question comes from the line of Drew Sterrett from RBC Capital.

This is Drew Sterrett on for Ben Hendrix. You previously noted that PBM headwinds have continued for SelectRx. I mean for this quarter, it appears reimbursement came in a little ahead of our expectations. Do you have any additional commentary around this? And how should we think about the PMB (sic) [ PBM ] reimbursement environment going forward?

Yes, Drew, thanks for joining. This is Tim. I'll take the first part of the call and maybe have Ryan also speak to the IRA impact. But as far as the PBM reimbursement environment, it remains very stable. As we talked about earlier this year, we faced a challenge with the change in our reimbursement rate. We have successfully resolved that issue and have seen reimbursement rates normalize in the third quarter results. So, would categorize the environment from a reimbursement rate is stable, and we're happy to have secured a multi-year agreement with our largest PBM partner. Ryan, maybe you can elaborate a little bit more on the IRA dynamic Inflation Reduction Act that impacted revenue for the quarter.

Yes, happy to. As Tim noted and I mentioned on the call, the revenue sequentially declined and the biggest driver there or the driver is the Inflation Reduction Act, which when you look at it optically, revenue obviously dropping, but the bottom line impact, very different from what we see in the top line, top line is outsized. And the reason for that is we're receiving refunds from the drug manufacturers, and that's actually flowing through in the cost of goods line item. So for the quarter, we actually received $13 million in refunds. But again, there's a little bit of a geography change that's happening. And certainly, optically, it looks like there's a sequential decline, but that's really driven by the IRA impacts, which were fully accounted for in our guidance.

Your next question comes from the line of George Sutton from Craig-Hallum.

That's a new way to say, Craig-Hallum. So nice results. I wondered, Tim, if you could talk about, you mentioned in your prepared comments, you're positioned to accelerate the cash flow dynamics in 2027. Can you just give us a little picture of that?

Yes, I'd be happy to, George. And I appreciate you being on, George. As far as cash flow dynamic, we feel like we're making substantial progress year-over-year. I think it's a byproduct of the positive changes that we made in the capital structure and kind of cash interest obligations. Certainly, as you've seen the results for OEP, which I think we have highlighted is there's been a lot of change over the past 2 years around the environment. So we feel really good about the OEP results and the underlying efficiency that we're driving in our Senior distribution business, both from an agent productivity as well as from a marketing efficiency standpoint.

And clearly, we had a bounce back quarter in terms of SelectRx. And that's a big part of the story moving forward, really those 3 factors that would emphasize SelectRx is a significant opportunity for us to continue to improve the cash flow generation. So we highlighted the Olathe, Kansas or Metro, Kansas City facility and some of the things that we're doing there that are driving 30% plus efficiency relative to our legacy pharmacies, and we expect that to continue to compound as we exit fourth quarter this year into next year.

Great. You also mentioned increased visibility in the Medicare Advantage ecosystem. I wondered, you've got some fairly public comments from a large carrier about their plans, which don't necessarily align with the brokers. I'm curious where you're seeing this increased visibility? Can you give us a sense of the discussions that you're having with the carriers?

Yes, I'd be happy to. Great question, George. I think we are certainly seeing some positive developments relative to maybe a few quarters ago in the broader MA market recovery, if you will. But I think we would still caution at the pace of recovery. The things that we're seeing, I know that you and other analysts are covering from the payers that have reported is we're seeing some of the medical cost trends easing a bit, still expected -- forecasted to be up in high single-digit year-over-year, maybe coming in slightly favorable to that.

But a reimbursement trend that's not fully sufficient to cover those costs. So that's a bit of a mixed story there, if you will. Some of the changes to the stars rating changes, we think is a positive tailwind if the payers can manage the enhanced focus on the clinical factors. And then you're seeing the payers' margin improvement recovery happening. I think when you put all that into the blender, if you will, we think there will be a continued discipline in the market for plan year 2027. We believe that there's some potential reemergence to targeted growth for plan year 2028. So we're anticipating that there could be some elevated disruption again this next year as carriers try to get to those target margin goals.

But we have performed very well over the past 2 years. We certainly take the position that SelectQuote has been in this business for 15 years. Many members of this exec team have been in Medicare for 20 years. And we know these cycles don't last forever. We continue to have an optimistic outlook, I would say, cautious optimism.

Lastly for me, if I could. Both you and Ryan were pretty adamant about wanting to remedy the disconnect of your equity. And I'm just curious how broad you're thinking there. Obviously, execution is one factor, but I'm curious outside of that, how broadly you're thinking in terms of things like segment sale or monetizing receivables or other M&A. Just curious on that side?

Yes. Fair question, George. I mean we definitely plan to remedy it, and we made the public comments about ensuring that this company will be listed on the New York Stock Exchange. But beyond that, which we will certainly accomplish, we continue to evaluate a series of options. And I think we've been on record as a company that continues to evaluate various capital markets transactions, securitization, obviously, we've accomplished one. We think the positive development of how we've worked through the past 2 years on the renewal side and this positive change in estimate gives us more conviction, even increased conviction around our back book receivables, that's certainly an option.

And there's other M&A, we certainly believe that -- and we've said this before, there's -- the market is at the point where consolidation might make sense. We think there'll be a small handful of sophisticated and capability-rich players, and SelectQuote will certainly be one of those. We think the strength, the diversification, the durability of our business creates an option set for us that's quite wide.

Your next question comes from the line of Steven Couche from Jefferies.

I'm on for Dave. Maybe we can start on SelectRx. Do you still expect to exit the year at the $40 million to $50 million EBITDA run rate that you had previously messaged?

Hello, Steven, I appreciate you joining, and I'm happy to answer that. I think we are highly confident that in the very near term, this business will be at a $40 million to $50 million EBITDA run rate business. We continue to gain operational efficiencies like we've commented on in our Kansas City facility, and we expect that to continue to compound as we exit 4Q and enter fiscal '27.

Okay. Great. And then I actually wanted to ask about Kansas City and how you think about taking volumes out of the other 2 facilities, I believe they're in Indy and Pittsburgh and moving them into Kansas City. And I mean, does it create some sort of stranded costs or decremental margins in the other 2 facilities when you move into Kansas City?

Yes. I can take that one. As far as getting volume in, we are -- we've been very open that we've been working on kind of a new pharmacy management systems and things like that. And in order to really take more volume in, we are really close, but we're working on getting that done. We've sent our first patients through that process, it's gone very, very well. So pretty soon, we will be kind of moving more patients over. It doesn't -- actually, that should help the margins in the other facilities, because it should take a little bit of a burden off of some of the later night shifts and things that we have to do. So again, that cost savings that Ryan was talking about is very real. So we feel like that will just enhance margins even more as we run more volume through there.

Okay. And then maybe 1 or 2 on Senior. So the $14 million positive change of estimate, did I hear you correctly when it sounded like those -- that better performance was on recent policies. I don't know if it was this most recent AEP or maybe the one before that. And I guess the underlying question is how much of that $14 million should we think about folding into the underlying EBITDA run rate?

Yes. So I think with respect to -- obviously, the guide, we've kind of set that out, there is $90 million to $100 million, we weren't adjusting it. With respect to the positive tail adjustment, that's really -- we've been through another renewal event. We're sitting looking at our book of business, looking at persistency, making adjustments based off our expectations. And so through this enhanced visibility, it became clear that we would expect to collect more than what we currently have on the balance sheet, which led to the change in estimate. So I think it's less about any specific cohort and more broadly as we assess the book of business, it became clear that it made sense to go ahead and make this adjustment. But again, at this time, we're not modifying the guidance. I want to see how Q4 develops. And obviously, we've talked about the approval rates. And so just seeing how that develops, but we're very pleased with the overall business results as well as the way the book is holding up.

Okay. Great. And maybe I can sneak in one more here. So when we think about the LTV calculation, obviously, this last AEP was extremely disruptive, probably max disruption. And so when we think about moving forward the LTV calculation, do we just need the industry-wide enrollment disruption to be less and that would theoretically benefit the LTV calculation? Or are there other variables at play where just if the environment just stabilizes, that wouldn't necessarily result in the LTV also stabilizing or improving?

Yes. So I would say there are many factors that impact the LTV, it's customer retention, carrier mix, payment structures. Obviously, we have been through 2 disruptive seasons, and that does put some pressure on persistency. We're incredibly pleased with the 34% recapture rate. We've done phenomenally well navigating the season. And I think it's worth calling out that when we do help someone with a new policy that may have a plan term, we're actually putting that policy on the books at a very low cost. All that being said, I think clearly, strong performance and the ability to navigate through a range of Medicare seasons. Your question around stability, if we do see increased stability within the system, that would be a tailwind to lifetime values. And so again, I think that's what we're hoping for in the future, but clearly been able to navigate 4 very different Medicare seasons.

Your next question comes from the line of Michael Kupinski from NOBLE Capital Markets.

Congratulations on your quarter. Tough to kind of go a little bit later in asking questions. Most of my questions have been answered. I was just wondering in terms of the marketing spend by national carriers, have you seen any changes there? And then also just in trends on your Senior, I know that you've kind of touched around this. Just wondering if you can just kind of give us your thoughts in terms of the back half of the year and how that's trending, particularly? And I know you touched on all of this in terms of submission volumes, approval rates and average revenue. But just wondering if you can kind of give us your thoughts in terms of how things are trending as we kind of look into the next quarter?

Yes, Michael, thanks for joining. Just to clarify, your first question is regarding kind of a carrier marketing investment. I just want to clarify before I respond.

Yes, the carrier marketing spend.

Yes. Thank you, Michael. So the short answer to that, Michael, is no additional updates beyond what we shared on our second quarter call regarding strategic marketing investment other than to say what we had projected is what we're experiencing. So we're certainly in line there. Carriers will go through their annual planning cycles with us this summer, and we'll expect to have a clearer picture when we provide our fiscal '27 guide. But I think if you look at how we navigated this OEP, we obviously had to absorb some of the aforementioned $20 million impact, a material amount of that came through in our fiscal 3Q, and we were able to still drive, we believe, outsized results. So we think this is all certainly manageable.

I think the second part of your question was additional detail on how the back half of the year is going. And I would say that, again, we just went through our second biggest quarter in OEP, we think, with flying colors, and we're really proud of the results and the efficiency and how that also builds towards oFur commissions receivable as well as 4 straight years of 25% plus full year EBITDA margins, we're quite proud of that.

We now enter into the SEP period, and we are seeing -- honestly, SEP period looks a lot like last year. No substantial changes for us year-over-year. We do believe that our year-round model and the viability of our economics, inclusive of the quieter SEP periods is very unique amongst other direct-to-consumer players in our category. We're really able to make the quieter periods work economically and also enhanced by this unique asset we have called SelectRx and how our enterprise economics work even when the heartbeat might be a little slower during SEP. So everything is kind of in line, while early, and expect to finish the year strong.

At this time, there are no further questions. I will now hand the conference over to CEO, Tim Danker, for closing remarks.

Yes. Thank you all again for your time, and we appreciate your support of SelectQuote. As Ryan and I have 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. We appreciate your time. Have a great day.

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

Welcome to SelectQuote's Second Quarter Earnings Conference Call. [Operator Instructions].

It is now my pleasure to introduce Matt Gunter, SelectQuote Investor Relations. Mr. Gunter, you may begin the conference.

Thank you, and good morning, everyone. Welcome to SelectQuote's Fiscal Second 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 also have a question-and-answer session.

As referenced on Slide 2, 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 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. Tim?

Thanks, Matt. Good morning, and thank you for joining us. It was a strong quarter for SelectQuote in a number of ways, which I'll summarize on Slide 3. As you saw from our press release, our team's execution this Medicare Advantage season drove a successful AEP. Despite another shifting backdrop for policy features, SelectQuote continues to prove its value to customers as the leading choice marketplace. As always, Senior receive bespoke information and assistance from live agents to select the policy that best fits their needs.

Better yet, our commitment to technology continues to arm our agents with an efficient and powerful service platform, which drove another strong quarter for agent productivity, aiding volume production and profitability. Strong operational execution and marketing efficiency drove near-record Senior EBITDA margins of 39% on modest growth year-over-year. Congrats to the team for yet again driving an AEP quarter with strong operating leverage and another dynamic market backdrop.

Beyond Senior, our Healthcare Services segment continues to grow rapidly, increasing revenue 26% year-over-year. Most importantly, SelectRx continues to make a significant impact in the health and quality of life for America's growing senior population. The impact is real and is being increasingly noticed. This is great validation of the clinical value SelectRx provides beyond simple drug delivery. I'll speak more to that topic in a moment. Additionally, over the past month, we made 2 announcements, which benefit our SelectRx business and capital flexibility.

First, for SelectRx, we entered a multiyear agreement with one of our most important pharmacy benefit manager, our PBM partners. With this agreement, SelectQuote's visibility into drug reimbursement pricing has significantly improved, which is critically beneficial to our strategic priority to expand profitability. Second, our new $415 million credit facility announced in mid-January greatly improves the company's capital flexibility, which is an important milestone in our ability to drive consistent profitable growth. Overall, we are very pleased with our results to date and have greater conviction in our ability to compound profitability and cash flow given this past month's announcement.

Lastly, despite another strong quarter, a recent action by a national carrier partner requires that we lower our fiscal '26 guidance. Specifically, this carrier significantly cut their strategic marketing budget across all distribution channel partners, including SelectQuote. As we've discussed, insurance companies continue to optimize profitability for Medicare Advantage. In conversations with the carrier, the decision was designed to slow growth following above-trend growth on MA. In total, we expect the fiscal '26 impact from this carrier action to be around $20 million.

Combined with the PBM reimbursement impact we discussed last quarter, which we know now will also create an impact of around $20 million, we need to reduce our guidance ranges for both consolidated revenue and adjusted EBITDA to reflect the $40 million aggregate impact. While frustrating, it's important to note that the change by this one carrier does not impact our long-term outlook about the growth, profitability and cash flow potential for our business. We stand by our previously announced fiscal '26 targets of 20% plus EBITDA margins for our Senior division and an annualized adjusted EBITDA exit rate of $40 million to $50 million for our Healthcare Services division.

Additionally, we think it's important to note the substantial improvement SelectQuote has made on cash flow generation despite the PBM and the action of this one carrier. We expect fiscal '26 to produce operating cash flow of $25 million to $35 million, which is up more than $40 million at the midpoint compared to last year. The improvement has been driven by increased cash flow from our Healthcare Services business and continued progress to optimize our capital structure. Overall, while the noise in our EBITDA driven by partner actions was not anticipated, we're very pleased with the execution and trajectory of our profitability and cash flow. Put another way, SelectQuote is delivering on the goals of our strategy, and we're confident in our ability to drive value for shareholders.

With that, let's move to Slide 4 to review our performance in AEP. Similar to the past Medicare Advantage season, we prepared early for a season of disruption given shifting policy and volume strategies across the industry. As we noted last quarter, our strategy entering AEP was to focus on tenured agent retention and proactive connection with our policyholders on their needs relative to changes in the overall policy landscape. This focus resulted in another successful season. Policy volume growth was 4%, modestly ahead of our expectations. SelectQuote's agents and technology performed well again, measured by productivity and profitability.

Senior grew EBITDA by 2% and drove near record margins of 39%, which marks the fourth consecutive AEP season of Senior EBITDA margins above 30% despite highly varied years for Medicare Advantage policy features. We're proud of the track record and believe the SelectQuote's strategy to prioritize profitable growth and cash flow has been more than battle tested at this point. Our team delivered strong agent productivity and highly efficient marketing cost per policy once again.

First, our agent population was comprised of a slightly lower, albeit still strong mix of tenured agents than the previous year. Our agent retention remained steady at north of 90%, but our tenured agent mix was lower due to additional agent hiring this past summer. Even with this higher mix of new agents, our productivity per agent remained 12% higher than 2 years ago, which is a testament to the effectiveness of our information and technology investments, which have always been a pillar of our model. In regards to marketing, you'll recall last season's marketing spend per approved policy was highly efficient. We've continued to refine our customer targeting and have placed intentional focus on owned and operated marketing channels, which provide a strong mix of attractive prospects.

Specifically, our marketing cost per approved policy and this AEP was $326, which is in line with last year and 20% lower than 2Q fiscal '24. To summarize, the unique strengths of our model drove significant value to our policyholders and carrier partners and another dynamic environment for Medicare Advantage. This resulted in impressive profitability and cash flow for our Senior segment.

On Slide 5, I'd like to provide additional real-world color on how SelectQuote helps America Seniors when the market is dynamic and disruptive. At the highest level, SelectQuote's optimized technology and data empowers our live agents to deliver excellent service to our customers. For the second consecutive year, insurance carriers have significantly shifted policy structures and coverage features. Additionally, this was the second straight year where a significant number of plans were terminated by carriers. In each of the past 2 seasons, approximately 7% of the total plans in force have been canceled by the carriers, which compares to a historical average below 1%. Beyond the elevated plan termination levels, the majority of our remaining beneficiaries saw a negative impact to at least one of their planned benefits on their legacy plans. This industry-wide dynamic created a market backdrop of elevated consumer shopping and engagement.

As you will recall, our strategy heading into this AEP was to replicate the success of policyholder recapture and retention compared to a year ago. Our operational focus to achieve this goal was to leverage our information and technology to work proactively with policyholders. Ahead of the season, we identified a subset of policies with higher change potential and anticipated coverage gaps based on each specific individual. In effect, we pulled forward as much of the work and disruption as possible. The end result is that SelectQuote is a more valuable broker partner for both the policyholder and the carrier, especially in dynamic seasons like the past few years.

When our customers call us looking for answers, our agents aren't starting from square one. Similarly, our carrier partners benefit from policies with better fit and persistency. We measure the success of this strategy with our recapture rate, which was 33% this year. We're very proud of our recapture performance last year, but this year, we delivered an even better result. This not only benefits market share, but each recapture means we preserve the cash flow from and the relationship with those beneficiaries. To summarize, in another dynamic environment for Medicare Advantage, we are proud of the service we provided to our beneficiaries, which resulted in strong customer recapture rates and retention. The unique strengths of our model drove significant value to our policyholder customers and carrier partners and aligned with optimal profitability and cash flow for our Senior segment.

Before we shift to Healthcare Services, let me take a moment to address last week's 2027 advanced rate notice from CMS. Several carrier partners have already voiced disappointment with the advanced rate notice, and we agree the preliminary rates don't reflect rising utilization and care costs. It's important to remember that these advanced rates are not final. Coming on the heels of 2 highly disruptive seasons for Medicare beneficiaries, we believe CMS will receive feedback from the industry highlighting the potential negative implications to beneficiaries in advance of the final rate notice in April. Regardless of the market backdrop, we will continue to prioritize outstanding service to our beneficiaries. SelectQuote's bespoke service model and information advantage remain highly valuable and will likely become even more important as carriers focus on optimizing returns and policyholders work to interpret plan changes.

On Slide 6, I'd like to provide important context about the value of our SelectRx prescription drug delivery and adherence service. America's medication system is increasingly inefficient, confusing and costly, issues that directly impact seniors' health. Recent Wall Street Journal articles highlighted 2 core problems. First, many seniors manage complex drug regimens prescribed by multiple physicians, which increases the risk of inappropriate medications and harmful interactions. Second, the widespread practice by many mail order pharmacies of repeatedly early filling 90-day prescriptions contributes to billions and waste of drugs when prescriptions change while also creating complexity that undermines medication adherence.

SelectRx was purpose-built to address the systemic challenges head on. Our 30-day time and date stamp medication strips reduce confusion, support adherence and substantially cut waste when members' prescriptions change, which occurs for roughly 10% of our population each month. Just as importantly, our pharmacists review and consolidate each member's full medication profile. In 2025, they identified nearly 50,000 potential dosage or adverse interaction concerns. When such concerns arise, our pharmacists contact prescribing physicians and an attempt to remediate these concerns for impacted members. These conversations with prescribing physicians have resulted in changes to tens of thousands of prescriptions, helping to safeguard the patients we serve.

This integrated approach is delivering real measurable outcomes, including an observed 20% reduction in beneficiary hospital days driven by better active medication adherence. These issues facing America seniors are exactly why we built SelectRx and why we continue working to improve the system that has long needed meaningful change. Before I turn the call to Ryan, I'd like to briefly touch on our January credit facility announcement and what it means for SelectQuote strategically.

First, for those that have followed us, the optimization of our balance sheet has and continues to be a core priority of our strategy to drive shareholder value. In short, we believe our model should command a lower cost of capital. It is our intention to achieve that through continued operational improvement, growing cash flow and the natural deleveraging that will follow. We've made progress on this goal with previous refinancings, but to date, have been limited by the near-term debt maturities, which hindered our operational flexibility, especially in our Senior Medicare Advantage business.

As you can see on the charts on Slide 7, the new credit facility significantly extends our debt maturities to 2031. To be clear, our strategic focus does not change, and SelectQuote will continue to prioritize profitability and cash flow over growth. This enhanced operational flexibility simply allows us to capitalize on growth opportunities when market conditions support them.

With that, let me turn the call to our CFO to detail our results. Ryan?

Thanks, Tim. I'll pick it up on Slide 8 with a summary of our consolidated financial results. As Tim noted, SelectQuote had a very strong quarter with revenue growth of 12% year-over-year, totaling $537 million. The growth was driven by both our Senior and Healthcare Services businesses, reflecting a strong AEP and continued demand for our SelectRx service. Our EBITDA results were temporarily depressed due to the PBM reimbursement headwind we highlighted last quarter. In January, we announced a new longer-term PBM agreement that provides increased visibility to these rates, which is important for our focus on predictable and profit-driven growth.

The PBM headwind in Healthcare Services was offset by Senior margins near record levels at 39%, driven by very strong efficiency in this AEP's marketing spend per approved policy. In total, the quarter was excellent. As Tim mentioned, the operating momentum within both sides of the business is evident, and SelectQuote's new balance sheet flexibility positions us well to navigate changing market conditions and capitalize on emerging opportunities.

Moving to Slide 9. SelectQuote had a strong AEP despite another volatile market environment driven by carrier plan changes and terminations. Senior revenue of $262 million grew 2% on increased approved policy volumes. This AEP, we were able to increase our agent population, which modestly aided volume. We expect these agents to become increasingly productive with experience this season and into the years ahead. The business was able to more than offset the productivity ramp of these new agents with strong marketing efficiency and other services revenue, which drove near-record EBITDA margins of 39% in the quarter. This resulted in Senior adjusted EBITDA of $102 million, which is in line with last year's strong season. To echo Tim's sentiment, we are very pleased with the consistent execution in our Senior business over the past 4 distinct seasons.

Flipping to Slide 10, we recognized strong demand for SelectRx in our Healthcare Services segment. Members grew 17% year-over-year to 113,000. Revenue grew even faster, expanding 26% year-over-year to $231 million as recently onboarded members continue to mature and take delivery of their full prescription regimen. As we have noted, we expect growth to be more modest on a sequential basis in the near term as we continue to prioritize cash flow and profitability, much as we have in the senior business. That said, the PBM announcement earlier this year goes a long way toward providing that visibility, and we have conviction in Healthcare Services exiting fiscal 2026 at an annualized run rate of $40 million to $50 million of adjusted EBITDA.

Most importantly, the demand for our SelectRx and the substantial value it provides to patients, caregivers and carriers remains unchanged. We are focused on driving profitability and cash flow volume. And with improved PBM visibility and a more flexible balance sheet, we are well positioned to expand health care services where incremental margins are best. We will further optimize customer targeting to focus enrollments on the patients who benefit most from the SelectRx offering and also deliver the best economics to the business. As a result, we expect membership to end fiscal 2026 flat to modestly down from the current 113,000 level while still generating 20% plus year-over-year revenue growth. The market opportunity is clear there. And with increased attention and demand, we believe SelectQuote is very well positioned to be the partner of choice across the value chain.

Turning to Slide 11. I will review our life insurance business. Revenue grew 9% to $44 million, driven by a strong quarter for final expense, where premiums increased 24% compared to a year ago. The business continues to execute at a high level and to deliver attractive margins and cash flow. Meanwhile, the Term Life business delivered flat premium levels in line with last year. Adjusted EBITDA for the Life segment totaled $6 million, down modestly year-over-year in the second quarter. Results reflect modest marketing expense pressure and increased competition within the Term Life business. Overall, the Life division continues to deliver attractive returns and cash flows for our shareholders.

Speaking of the balance sheet, let me quickly detail our new credit facility on Slide 12. As announced in January, SelectQuote closed on a new $415 million credit facility, which benefits us in a number of ways. First and foremost, increased balance sheet flexibility through the elimination of our 2026 and 2027 debt maturities will allow us to operate strategically. With a new maturity schedule that extends to 2031 and an increase in our peak season liquidity, SelectQuote has the optionality to invest in strategic trends like we are seeing with SelectRX and also capitalize on return opportunities within Senior in real time.

Lastly, we remain aligned with both equity and debt investors in our strategic priorities to reduce leverage and drive to a lower cost of capital in the future. The new facility provides a future path for SelectQuote to lower the term facility interest rate by up to 100 basis points. Overall, it is a significant positive for our business and the latest in a series of successes as we continue to improve our capital structure.

I'll end on Slide 13 with a review of our updated guidance, which Tim touched on earlier. I'll begin with the 2 distinct drivers of the change. First, the PBM reimbursement change, which we disclosed last quarter, drives an approximately $20 million headwind to fiscal 2026 EBITDA. Again, this impact will not recur beyond fiscal 2026. Second, as Tim detailed, the decision to curtail marketing budget by a national carrier partner is expected to drive an approximate $20 million headwind compared to our original expectations. As a result, we are revising our fiscal 2026 consolidated revenue range to $1.61 billion to $1.71 billion and our adjusted EBITDA range to $90 million to $100 million.

To be clear, we remain confident in our long-term outlook about the growth, profitability and cash flow potential for our business. We stand by our previously announced fiscal 2026 targets of 20% plus EBITDA margins for our Senior division and an annualized adjusted EBITDA exit rate of $40 million to $50 million for our Healthcare Services division. Lastly, as Tim alluded to, the change to our EBITDA forecast overshadows the meaningful year-over-year increase to operating cash flow, which we now forecast to total $25 million to $35 million for fiscal 2026. Aided by the increased operational flexibility from our significantly improved capital structure, we expect the business to continue to post meaningful cash flow gains in years to come.

In fact, let me pass it back to Tim to expand on that a bit.

Thanks, Ryan. Before we turn to your questions, let's review our cash flow generation on Slide 14. We wanted to put a visual behind our strategic priority to drive profitable cash flow as it can be less apparent in our reported EBITDA, especially this year given the 2 discrete impacts to our guided range. Here, we depict our EBITDA on a cash basis, which does not consider future policy renewal commissions, but does consider cash renewal payments received in the period. This is a clean way to view how profitable our business is on a cash basis in the current period.

As you can see in the bar chart at left, despite the impacts to our reported EBITDA, which considers future receivable accruals, we forecast significant growth in cash profitability. Specifically, we expect 2026 cash EBITDA to increase by approximately 20% compared to a year ago, which will help drive expected operating cash flow of $25 million to $35 million for fiscal '26. The key driver of that improvement is the operating cash efficiency we continue to talk about in both our Senior and Healthcare Services divisions. And Senior agent and marketing productivity gains have driven significant cash efficiency gains, which drive operating cash flow and cash profitability.

For Healthcare Services and SelectRx, the upfront nature of cash recognition relative to our Medicare Advantage business will continue to drive consolidated operating cash flow as the business becomes a greater percentage of our overall mix. Cash flow is the key to driving increased shareholder value as we move through the quarters and years ahead, and we believe it is important for our investors and analysts to see that we are executing well.

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

[Operator Instructions] Your first question comes from the line of David Windley with Jefferies.

I wanted to start, Tim, on the PBM deal that you were able to strike during the quarter. Can you give us a little more detail? I think you emphasized that, that makes this $20 million hit that you've had to take in fiscal '26, a onetime thing. Can I interpret that you've kind of reestablished the economics of the relationship back to where they were? Or just provide us with some more detail about how that relationship is now structured?

David, and we appreciate you joining this morning. Yes, we were pleased with the announcement that we made earlier in January regarding the new PBM arrangement with a large PBM. This is important for us. Really to be able to strike a multiyear term with the PBM, it provided the needed stability and predictability that we need. So we're very pleased with it. We're seeing that come absolutely in line with expectations, and we believe that helps really solidify our visibility moving forward.

Okay. And then a follow-up on the announcement today, I guess, on the marketing budget at the major carrier. I think I have a pretty strong suspicion of who that is. Wondered what -- essentially what risk there might be of other carriers following that pattern?

Yes. So with respect to what we talked about on the call with the carrier that we outlined, they made a decision in December to pull back in strategic marketing investment as a way to significantly truncate growth. That was not unique to SelectQuote. This was a decision that was made across all third-party distribution, e-brokers and FMOs alike. And we're confident, Dave, in our ability to navigate through this.

Certainly, the carriers are going through a very challenging cycle, but the beneficiary demand is there. We've built a resilient, diversified and agile business that can respond, and we feel like we have a lot of levers at our disposal to be able to manage this. With respect to other carrier partners, we don't anticipate anything of this level of materiality moving forward. Again, we're a very important part of the broad ecosystem. We drive high-quality volume, not just for new members, but how we perform from a retention standpoint, which is really critical in times like these when there's hyper focus on operating margins and retention.

Our next question comes from the line of Ben Hendrix with Capital Markets.

Just a follow up on that last question. It seems like with this MA advanced rate notice coming in a little more -- a little softer than expected, and we know that the -- there's a hyper focus on margin enhancement. I'm just wondering to the extent that there are carriers out there who are -- acknowledge your unique capabilities and acknowledging the fact that you promote better fit and persistency, if there's an opportunity to kind of stand out and specialize ahead of 2027 where you may get a little bit more share of marketing spend that does come on to the DTC platform for next year. Any thoughts on kind of how you might be positioned there?

Yes. Thank you, Ben. I appreciate you joining as well. Just real quick on the CMS advanced rate notice. As we said in the prepared remarks, we agree with the carriers that the current advanced rate notice doesn't reflect the realities of where beneficiary utilization is and the cost of care. And we think there'll be a lot of continued dialogue between the MCOs and CMS on this particular matter. And we hope through that conversation when we get to the final rate notice in April that we'll see some improvement.

To your underlying question around our unique capabilities, we certainly agree. The market right now is in a period of where health care has a lot of financial stress in the system. And that's a great opportunity for SelectQuote, primarily around the efficiency of our model. As you can see in the second quarter results and the 39% margins for Senior or if you look back over the past 3-plus years, we've really been able to deliver not only a very efficient model, but a very high-quality model.

And if you look at our retention results with respect to things we highlighted today, we think the book has performed very well in what we would kind of classify a turbulent market backdrop. You can see our recapture rate. I think that all bodes very well for our model because carriers will continue to look for quality and efficiency, and that provides more upside opportunities for us given our very tight relationship with all the major payers.

Great. Just as a follow-up on the PBM contract. Just in general, we're seeing more acceptance of these kind of cost-plus structures and the Cigna earlier this week announced in its FTC settlement as part of that, that it would go to a cost-plus PBM and pharmacy reimbursement model. I'm just wondering if your new contract has any kind of cost-plus components to it on individual drugs. And if that's something that you're seeing could be a stabilizing factor in the SelectRx business going forward.

Yes, go ahead, Bob. Go ahead, Bob.

Good question, Ben. I think as far as what you're seeing in momentum in the marketplace towards that, that's definitely right. I think that that's where the market wants to go and where CMS wants it to go. Ours is similar to that with a guarantee. And what I mean by that is there's less -- there is no risk of kind of MAC pricing updates and things that could be below market.

So yes, a cost plus effectively GER is where we are, and it is a GER. So we have that, not to the degree though of what kind of ESI is talking about. That's a standard cost plus with a higher dispensing fee. And I do think the market is going to move towards that. You're seeing that with the IRA drugs. And I do think you'll see that overall where the justification of service levels like ours, which is very high, is paid out through that dispensing fee. So we're moving more towards that. This one is very similar to that, just not structured exactly like that.

Our next question comes from the line of George Sutton with Craig-Hallum.

Tim, I wondered if you could go into more detail on what you mentioned are levers at your disposal relative to the MA options given this carrier move?

George, I appreciate you being here as well. Yes, I mean, we have a unique model. We have a 50-state direct-to-consumer business model, and we do have levers. First and foremost would be with respect to where we deploy marketing dollars geographically. That is something that our model can do versus other field type models in an easier fashion. Also, we're going to continue to focus our investment on certain customer segments where we think the carriers want to grow. We can use SNPs as an example, where many carriers are going, and we do a lot of SNP business, and we're well aligned to grow where they want to grow.

So that's another lever that we have. And at least we forget we have a diversified model beyond our MA distribution business, we have a cash accretive SelectRx pharmacy that can also factor into how we -- our capital deployment decisions.

So you mentioned that your new agreement -- your new loan agreement gives you additional operating flexibility. I wondered if you could give us -- and you mentioned you'd take advantage of it when the market supports it. You're obviously operating in kind of multiple markets now. So I'm just wondering how much change we might see in terms of, for example, an emphasis on health care services versus a deemphasis on Medicare Advantage? Or I'm not sure exactly what you meant by the flexibility. So I wondered if you could give us a better sense there.

Yes. I mean we have the utility given the diversification of our model to pursue where we think the returns are best. Certainly, we have a highly synergistic model between our Medicare distribution platform and health care services, right? We're garnering a lot of that SelectRx growth through the conversations that we have with seniors on our MA platform. So I think that provides us a lot of utility around capital deployment decisions. Again, we are -- hopefully, you're taking from our comments and our tone that we understand that there is some challenge and some noise out in the market right now, but we feel like we've built a very resilient, a very aligned, a very efficient model that gives us a lot of utility around how we deploy capital.

We've also shared today in kind of the last slide around the growing cash flow dynamic of the business. And that's something that we would point investors to despite the unfortunate events and the guide down on the [ 606 EBITDA ], we are continuing to grow our cash EBITDA. We are continuing to grow our operating leverage, and that will be the focus for the business, and that will be the lens in which we look around capital deployment.

Our next question comes from the line of Pat McCann.

I just wanted to ask you a little bit about the SelectRx situation. Given the scale that you've reached, I'm wondering how that affected your negotiating position in this most recent discussion. Maybe if you could compare that to previous agreements you've entered. Any significant positive effect on your negotiating position given that scale?

Yes. It definitely affects our negotiating ability. I mean we are starting to get to a point where we do have some leverage, right? We -- or just say a deeper partnership, right? We have 100-plus thousand extremely complex members that we successfully engage with, deal with and drive their adherence to a good place and more actually importantly in this group, their compliance towards the times that they take those meds and things like that. We've showed the past, right? We've got data now proving that helps bend the kind of cost curve of hospitalizations and other things. We're starting to partner even deeper to do more, whether that's enhanced MTM services, remote therapeutic monitoring where we can really make sure they are taking those at the times we think they are and other things that help drive not only data to our carrier partners, but ultimately action if somebody is not managing their health care the way that they should.

And with a population that has 3 plus chronic conditions is on 10 or more meds, that's extremely important. So I think -- or we know now that is giving us significantly more negotiating power, and we are being viewed as a valued partner, which is why we were able to get to where we were on the pharmacy negotiation with the PBM.

Great. And then my follow-up, just staying on SelectRx. Given where the Kansas facility is in its ramp, I was just wondering if you could talk a little bit about how much incremental volume could be absorbed with that facility before you need any meaningful new capital investment there?

Yes. That facility has actually a really, really high kind of -- you can have a lot of customers in there. So lots of room for expansion, but actually a lot of -- lot today in the machinery that we've bought. We bought much more efficient machinery. I think we've been open about the [ Indivion ] and what that does and how many customers we can drive through that. But more importantly, how we can do it with less staff and ultimately drive our cost down and our compliance and kind of everything else up.

We're also working on a lot of new technology initiatives to try to take, I call it, more of an archaic industry in the way that it's designed and modernize that to fit our needs because we have a different workflow, right, than most pharmacies. We're pretty far along in that now, and we're about to roll some really exciting things out that should even add more to efficiency. But more importantly, that allows us to use AI and other tools to drive efficiency in the future. And that's what we're trialing in that Kansas facility. That will allow us then to retrofit our other facilities to be similar. So we're very confident we can drive that down, all leading to a big growing cash flow line for us. We've got a lot of gross margin there. We just would like to get our gross to net margin or net to gross margin up even higher than we have it today, and we think there's a ton of opportunity there.

There are no further questions at this time. I will now turn the call back to Tim Danker, CEO, for closing remarks.

I want to thank you all for joining us again today. Although we've encountered some unexpected headwinds this fiscal year, we remain focused on narrowing the spread of outcomes and controlling the controllables. We continue to execute well operationally and with the diversification of our business model, no company in the sector is better positioned to navigate business cycles. We have the operating model, we have the competitive advantages, and we now have the balance sheet flexibility to significantly expand cash flows in the years to come. I want to thank you again. Everyone, have a good day.

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

Welcome to SelectQuote's First Quarter Earnings Conference Call. [Operator Instructions] It is now my pleasure to introduce Matt Gunter, SelectQuote Investor Relations. Mr. Gunter, you may begin the conference.

Thank you, and good morning, everyone. Welcome to SelectQuote's 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 2, 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. Tim?

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 Healthcare 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 decline 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 Healthcare Services business, our new Kansas facility is ramping as planned, delivering efficiency gains in line with expectations. However, first quarter Healthcare 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 Healthcare 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 breakeven. 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 million to $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 million 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 4, 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 planned 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. SelectQuote's 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 SelectQuote 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 SelectQuote is positioned to perform in this Medicare Advantage season. Looking back, the 2025 AEP 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 are 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 positions SelectQuote to once again deliver in what is to be sure another dynamic and disruptive AEP season.

On Slide 5, 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.

SelectQuote, 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 is 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 the 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 2 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. Beginning on Slide 6, 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 SelectRx.

Consolidated revenue grew 13% to $329 million, driven primarily by our SelectRx and Life Insurance business, which helped offset the unique comparison in Senior related to SEP. The fundamentals of our Senior business are unchanged, where 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 investment to prepare for the upcoming AEP and OEP seasons.

If we shift to Slide 7, 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 volume 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 to client acquisition cost of 6.4x, which continues to exhibit the synergy of our marketing spend against very attractive and durable cash flow streams for SelectQuote.

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 SelectRx members. We feel well positioned to capitalize on the AEP 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 SelectRx PBM 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 in January 1, 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 our 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 SelectQuote. 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 to our EBITDA, as 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 the 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 SelectQuote's overall position for the year ahead. The Senior business is well prepared for AEP, supported by strong agent retention and a successful preseason. 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 billion to $1.75 billion in revenue and the $120 million 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 AEP 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.

[Operator Instructions] Your first question comes from Ben Hendrix of RBC Capital Markets.

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

I appreciate your attendance here. 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, 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?

Yes. I mean we do -- yes, so we do see an 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.

Yes. And really quick 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.

Question comes from Pat McCann from NOBLE Capital Markets.

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?

Yes, I'd be happy to -- I'd be happy to start, and maybe I'll ask Bill Grant, our Chief Operating Officer, to expand on it. But obviously, 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 planned exits and another 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 feel like we've got a jump start on it. But Bill, maybe you can provide some additional detail on our approach.

Yes, 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 different -- all the data we have in terms of how we approach our book. And then we marry that, right, 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 can really see that play out in kind of our year-over-year -- in terms of the number of folks that we're recapturing, 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 the biggest thing that we have going for us by far 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. And my next question was regarding the recent research you published on the social determinants of health. And I was wondering if -- 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?

Yes, I'll actually start it, and then I'm going to have [Audio Gap] on what we do to solve those problems. I'd say first and foremost, right, we just want to understand our customer base better and better. That's really informed the products that we've picked from the healthcare side of the house. 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 healthcare issues? Because we kind of break those things apart.

Yes, sure. So as you know, we have over 2.5 million Healthcare Select members. Healthcare Select membership involves a fairly robust health risk assessment, where we determine through that health risk assessment social determinants of health and what services may be applicable and help with our overall charter with that group, right, which is improving their overall health lives, all those things. So we have a variety of products within that now. It's ever expanding.

Again, we use a combination of kind of AI, Next Best Action, our consumer data –- or MarTech tools, right, to be able to talk to those customers. We've now helped over 50,000, taking our services through FindHelp or SDOH. 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.

Question comes from George Sutton from Craig-Hallum Capital Group.

This is Logan on for George. I wanted to start with just kind of a high-level one on AEP. You 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.

Logan, I'll start and ask Bob Grant, our President, to elaborate as well. Early in the AEP season, but 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, the AEP environment is what we expected. It's still very early, but we feel very prepared in the early days, a lot more innings to play out. Bob, do you want to talk about some of the things you're seeing kind of more broadly in the market?

Yes. 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 switching. 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 Healthcare 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 2 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 multiyear 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. You 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 where you probably have more opportunities to grow? But it sounds like you're kind of looking for the right members. If you can just talk about that, that would be helpful.

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

Yes, sure. So as far as member growth, we've been very -- 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 SRx 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.

Ultimately, as Tim alluded to, that's still a great relationship. And we've had a 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.

Yes. I think it's a great point, 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. We 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 very strong line of sight into the business and a strong level of conviction around the go forward of this business.

This 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 the 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 health care 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.

This concludes today's conference call. You may now disconnect.