Executive Summary / Key Takeaways

• SelectQuote has successfully executed a strategic redesign prioritizing profitability and cash flow, demonstrating consistent strong margins in its core Senior Medicare Advantage segment despite market volatility.
• The Healthcare Services segment, particularly SelectRx, has achieved critical scale with over 100,000 members and is transitioning focus towards driving efficiency and consistent profitability after rapid growth.
• Significant progress has been made on capital structure optimization through a $100 million securitization and a $350 million preferred equity investment, substantially reducing debt, lowering interest costs, and extending maturities to unlock future growth flexibility.
• Proprietary technology, including AI tools and a sophisticated workflow system, enhances agent productivity, marketing efficiency, and customer experience, serving as a key competitive differentiator.
• While near-term growth in Senior is tempered by past capital constraints and commission structure shifts, and Healthcare Services faces temporary ramp costs, management is confident in delivering profitability targets and leveraging the improved balance sheet for future opportunities.

Setting the Scene: A Platform for Healthcare Connectivity

SelectQuote, Inc. (NYSE: SLQT) has evolved over nearly 40 years from a direct-to-consumer term life insurance distributor into a diversified platform connecting consumers with essential insurance policies and healthcare services. Operating primarily through its Senior (Medicare), Healthcare Services (SelectRx, Population Health, SelectPatient Management), and Life segments, the company positions itself as a technology-enabled enabler within the complex U.S. healthcare ecosystem. This strategic evolution reflects a deep understanding of the aging American population's growing needs and the market inefficiencies in delivering tailored solutions.

The industry landscape, particularly in Medicare Advantage, is dynamic, influenced by regulatory changes, carrier strategies, and evolving consumer preferences. Demand for MA remains a significant tailwind, supported by the consistent growth of the Medicare-eligible population. However, shifts in carrier plan benefits and commission structures introduce volatility, requiring distributors to adapt rapidly. SelectQuote's overarching strategy, refined since early 2022, centers on prioritizing unit profitability and cash efficiency over sheer volume growth, leveraging a highly tenured agent force and sophisticated technology to navigate these complexities.

Central to SelectQuote's competitive positioning is its proprietary technology platform. This system analyzes and identifies high-quality consumer leads, dynamically allocating marketing spend based on acquisition costs and expected lifetime value. An advanced workflow processing system scores leads in real time, matching them with the best-suited agent, enhancing efficiency and conversion. The platform also supports agent productivity through data tools and technology designed to improve customer fit and experience. This technological infrastructure underpins the company's ability to deliver a "True Choice" model, providing unbiased comparison shopping that benefits both consumers and carrier partners.

This technological edge translates into tangible, quantifiable benefits. Management has noted that tenured agents, supported by this technology, demonstrate productivity about twice that of non-tenured agents. In recent periods, the company has achieved impressive improvements in close rates and agent productivity, contributing to enhanced marketing efficiency, as evidenced by a trailing 12-month revenue to Customer Acquisition Cost (CAC) ratio reaching 5.8x in Q3 FY2025, up from 4.2x a year prior. The expansion of AI tools to screen and prioritize calls and simplify backend processes further aims to drive efficiency and identify new value-added use cases. While direct quantitative comparisons on technology speed with all competitors are not publicly detailed, SelectQuote's operational metrics suggest its platform effectively supports its strategic focus on profitable unit economics.

In the competitive landscape, SelectQuote faces rivals like eHealth (EHTH), GoHealth (GOCO), and Oscar Health (OSCR), who also operate in the direct-to-consumer insurance space. While some competitors may emphasize digital-first enrollment or AI-powered tools (TICKER:GOCO, TICKER:OSCR), SelectQuote differentiates itself through its agent-led, high-touch model, curated carrier partnerships, and expanding healthcare services platform. This combination aims to provide a more personalized and comprehensive solution, particularly valuable in complex markets like Medicare Advantage. SelectQuote's focus on diversified segments and value-added services like SelectRx also sets it apart, leveraging its existing customer base to create multiple revenue streams.

Performance Reflecting Strategic Execution

SelectQuote's recent financial performance reflects the impact of its strategic pivot and operational execution, albeit influenced by external factors. For the third quarter of fiscal year 2025, consolidated revenue grew 8% year-over-year to $408.2 million, primarily propelled by the rapid expansion of the Healthcare Services segment. Consolidated adjusted EBITDA for the quarter was $38 million, resulting in a 9% margin. The mix shift towards Healthcare Services, which currently operates at lower margins than the Senior segment, influenced the overall consolidated profitability rate.

The Senior segment, the historical core, delivered $169.4 million in revenue in Q3 FY2025, a 17% decrease year-over-year, and $45.7 million in adjusted EBITDA, down 26%. This decline was attributed to a smaller agent force (down 26% year-over-year in Q3) resulting from prior capital constraints, which dampened policy volumes (approved policies down 8%). Despite lower volume, the segment maintained healthy 27% adjusted EBITDA margins in Q3 and achieved 30% year-to-date margins, demonstrating the effectiveness of the strategic redesign and the tenured agent model in driving efficiency and profitability even in a challenging MA season marked by carrier plan changes and terminations. LTV per MA approved policy decreased 8% in Q3 FY2025 to $915, primarily due to shifts in carrier commission structures away from upfront payments and some persistency deterioration linked to recent plan terminations, though persistence for non-terminated policies remained stable.

The Healthcare Services segment continued its impressive growth trajectory. Revenue surged 53% year-over-year in Q3 FY2025 to $189.6 million, contributing significantly to consolidated top-line growth. This was driven by the substantial increase in SelectRx members, which reached nearly 106,000 as of March 31, 2025, a 41% increase from a year prior. SelectRx's trailing 12-month revenue base is now approximately $675 million. The segment generated $6.4 million in adjusted EBITDA in Q3 FY2025, marking continued profitability despite ongoing investments in growth and infrastructure, including the new Olathe, Kansas facility. Management highlighted the significant operating leverage potential in this segment as it scales.

The Life segment also showed strong performance, with revenue increasing 13% year-over-year to $45.8 million in Q3 FY2025 and adjusted EBITDA more than doubling to $6.4 million, resulting in a 14% margin. This growth was fueled by increases in both term life and final expense premiums and strong agent retention and productivity. The rationalized Auto & Home business, now included in the "All Other" category, saw revenue decline significantly (down 42% in Q3 FY25) as the company strategically reduced investment in this area to focus on more cash-efficient opportunities.

Liquidity and capital resources have been a key focus. The company successfully completed a $350 million Senior Non-Convertible Preferred Stock transaction on February 28, 2025, receiving $337.9 million in net proceeds. This followed a $100 million securitization of MA receivables in October 2024. These transactions have significantly reduced total debt obligations to $391.5 million as of March 31, 2025 (from $683.3 million at June 30, 2024), lowered interest expense, and extended debt maturities. Net cash provided by operating activities for the nine months ended March 31, 2025, was $25.8 million, a notable improvement from cash used in the prior year period. Cash, cash equivalents, and restricted cash increased to $86.2 million as of March 31, 2025, from $42.7 million at June 30, 2024. The company's commissions receivable balance, exceeding $1 billion, remains a substantial asset supporting future cash flows.

Outlook, Risks, and Unlocking Future Value

Looking ahead, SelectQuote maintains its previously raised full-year fiscal 2025 guidance ranges for revenue and adjusted EBITDA but anticipates finishing in or towards the lower half of these ranges. Net income expectations for FY2025 are adjusted to a range of negative $1 million to $28 million, reflecting changes in warrant fair value. This near-term outlook is influenced by specific factors, including potential headwinds to Senior policy volumes and close rates in Q4 due to changes in Special Election Period eligibility parameters and a modest profitability drag in Healthcare Services as the new Olathe facility ramps up operations.

Strategically, the company is shifting its focus within Healthcare Services now that SelectRx has achieved critical mass. The priority is moving towards increasing efficiency and building a more consistent margin profile, which may result in slower membership growth in the near term compared to the rapid pace seen recently. Management believes this focus, combined with the scale benefits of the new facility, will drive margin enhancement and improved cash flow in future periods. For the Senior segment, management remains confident in delivering EBITDA margins of 20% plus, leveraging the tenured agent force and operational efficiencies.

Despite the positive momentum and strategic progress, several risks warrant investor attention. The company is currently facing a civil complaint filed by the U.S. Department of Justice on May 1, 2025, alleging violations of the False Claims Act related to historical Medicare Advantage marketing arrangements. While the company denies the allegations and intends to vigorously defend itself, the outcome and potential impact on financial statements are currently unpredictable. Ongoing securities class actions and a stockholder derivative suit also present potential financial and operational risks, although the company has seen favorable court rulings recently, subject to appeal. Regulatory changes in the insurance and healthcare industries, particularly concerning marketing practices and commission structures, could continue to impact operations and financial results. Fierce competition from other distributors and evolving technological landscapes also require continuous adaptation and investment.

The significant progress made on the capital structure through the securitization and preferred equity offering is a critical step towards mitigating past constraints that tempered growth. With a stronger balance sheet and improved liquidity, SelectQuote is better positioned to capitalize on the attractive market opportunities in both its core insurance distribution and expanding healthcare services segments. The ability to leverage its platform, data assets, and agent expertise to deliver value-added services is seen as a key driver for future growth, diversification of revenue streams, and reduced seasonality.

Conclusion

SelectQuote has demonstrated resilience and operational effectiveness through a strategic redesign that has yielded consistent, strong profitability in its Senior segment and rapid, profitable growth in Healthcare Services. The company's technology platform and tenured agent force provide a competitive edge in a complex market. Recent capital structure enhancements have significantly improved financial flexibility, addressing a key constraint that previously limited growth potential. While near-term challenges and legal risks exist, the core investment thesis centers on SelectQuote's ability to leverage its established platform and improved balance sheet to drive efficiency, expand its high-value healthcare services, and capitalize on the growing needs of the senior population. The focus on consistent margins and cash flow generation, supported by technological advantages, positions the company to potentially unlock further value for shareholders as it executes its strategic plan.