Welcome to SelectQuote's Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. It is now my pleasure to introduce Matthew Gunter, SelectQuote investor relations. Mister 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, Timothy Robert Danker, and Chief Financial Officer, Ryan M. Clement. Following Tim and Ryan's comments today, we will also have a question and answer session. As referenced on slide two, during this call, we will be discussing some non-GAAP financial measures. The most directly comparable GAAP financial measures and a reconciliation of the differences between the GAAP and non-GAAP financial measures are available 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-Ks 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, Timothy Robert 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 three. 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, seniors received 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 health care services segment continues to grow rapidly, increasing revenue 26% year over year. Most importantly, SelectRx continues to make a significant impact on 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 values SelectRx provides beyond simple drug delivery. I'll speak more to that topic in a moment. Additionally, over the past month, we made two announcements to benefit our SelectRx business and capital flexibility. First, for SelectRx, we entered a multiyear agreement with one of our most important pharmacy benefit manager (PBM) partners. With this agreement, Cyclo's visibility into drug reimbursement pricing is significantly improved. This 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…

Thanks, Tim. I'll pick it up on Slide eight. 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 health care 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 nine. SelectQuote had a strong AUP 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, and we expect these agents to become increasingly productive with experience, the 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…

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 two discrete impacts to our guided range. Here we depict our EBITDA on a cash basis, which is not considered 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 impact on 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 to $35 million for fiscal 2026. The key driver of that improvement is the operating cash efficiency we continue to talk about in both our senior and health care services divisions. In senior, agent marketing productivity gains have driven significant cash efficiency gains, which drive operating cash flow and cash profitability. For health care services and SelectRx, the upfront nature of cash recognition relative to our Medicare Advantage business continues 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. 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.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of David Windley with Jefferies. Your line is open. Please go ahead.

Hi. Thanks. Good morning. Thanks for taking my questions. 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 2026 a one-time 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?

Yeah, Debbie. Good morning, and we appreciate you joining this morning. Yeah. 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 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 follow-up on the announcement today, I guess, on the marketing at the major carrier. I think I have a pretty strong suspicion of who that is. Wondered what you know, essentially, what risk there might be of other carriers following that pattern.

Yeah. 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 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.

Got it. Thank you.

Thank you, Dave.

Our next question comes from the line of Benjamin Hendrix with Capital Markets. Your line is open. Please go ahead.

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

Yeah. Thank you, Ben. Appreciate you joining us as well. Just real quick on the CMS advance rate notice. As we said in the prepared remarks, we agree with the carriers that the current advance rate notice doesn't reflect the realities of where beneficiary utilization is and the cost of care. And we think there will be a lot of continued dialogue between the MCOs and CMS on this particular matter, and we hope that 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 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% margin for senior, or if you look back over the past three-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 classify as 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. Thanks. Just as a follow-up on the PBM contract. Just in general, we're seeing more acceptance of these kind of cost-plus structures in the Cigna earlier this week announcing the FTC settlement. As part of 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? Thanks.

I'm ready.

Yeah. Can a few comments. Yeah. Go ahead, Bob.

Sorry. 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'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. 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 gonna move towards that. You're seeing that with the IRA drugs. 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.

Thank you very much.

Our next question comes from the line of George Frederick Sutton with Craig Hallum. Your line is open. Please go ahead.

Thank you. Tim, I wonder 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.

Hey. Good morning, George. I appreciate you being here as well. Yeah. 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 gonna 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 SNPs business and we're well aligned to grow where they want to grow. So it'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 make 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 a 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.

Yeah. 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 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, you know, we, kind of the last slide around the growing cash flow dynamic, the business, and that's something that we would point, you know, investors to despite the unfortunate events and the guide down on the six zero six 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'll be the lens in which we look around capital deployment.

Understand. Thank you.

Thank you, George.

Our next question comes from the line of Patrick Joseph McCann. Your line is open. Please go ahead.

Hey, good morning. Thanks for taking my questions. 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. You know, maybe if you could compare that to previous agreements you've entered. You know, any significant positive effect on your negotiating position given that scale?

Yeah. It definitely affects our negotiating ability. I mean, we are starting to get to a point where we do have some leverage. Right? Or just say a deeper partnership. Right? We have 100 and 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 we've showed in the past. Right? We've got data now proving that helps bend the 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 three plus chronic conditions, is on 10 or more meds, that's extremely important. So I think or we know now that has given 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 and 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.

Yeah. That facility has actually really, really high kind of you can have a lot of customers in there. So lots of room for expansion, but actually a lot today in the machinery that we 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, you know, I call it more of an archaic industry in the way that it's designed. And modernize that to fit our needs. 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 kind of 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. We think there's a ton of opportunity there.

Thank you. That's it for me.

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

I want to thank you all for joining us 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 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.