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SelectQuote(SLQT) - 2025 Q4 - Annual Report

PART I Business SelectQuote operates as a technology-enabled, direct-to-consumer (DTC) distribution platform for insurance policies and healthcare services, strategically shifting focus to its higher-growth Healthcare Services platform. - The company is strategically prioritizing its healthcare services platform, including offerings like SelectRx and SelectPatient Management (SPM), while reducing focus on the Auto & Home insurance distribution business12 - SelectQuote's business model is centered on being an insurance distributor, earning commissions from carrier partners for policies sold, without bearing underwriting risk1319 - The company utilizes a proprietary technology platform that integrates AI and machine learning to analyze consumer leads, optimize marketing spend, and route leads to the most suitable agents, aiming to maximize the lifetime value of commissions (LTV)1334 - The business operates through three main insurance distribution segments: Senior (Medicare Advantage, Medicare Supplement), Life (Term Life, Final Expense), and Auto & Home, in addition to the growing Healthcare Services segment25 - The Senior segment's operations are highly seasonal, with a significant portion of revenue generated during the second fiscal quarter due to the Medicare Annual Enrollment Period (AEP)97 Our Business Model and Products The company's business model combines a technology-driven platform with skilled agents to provide a transparent, direct-to-consumer (DTC) experience for insurance and healthcare services, earning commissions without underwriting risk. - The company's value proposition is built on combining proprietary technology with skilled, licensed agents to offer consumers transparency, choice, and personalized guidance in selecting complex insurance products1420 Product Segment Offerings | Segment | Key Offerings | FY2025 Policy/Premium Mix | | :--- | :--- | :--- | | Healthcare Services | Prescription medications (SelectRx), health assessments (Healthcare Select), chronic care management (SPM) | N/A | | Senior | Medicare Advantage (MA), Medicare Supplement (MS), DVH, critical illness | 90% of approved policies were MA and MS | | Life | Term life, final expense, critical illness, accidental death | 40% Term Life, 60% Final Expense (by new premium) | | Auto & Home | Homeowners, auto, dwelling fire | 83% Homeowners and Auto (by new premium) | Our Technology and Partners SelectQuote's competitive advantage is rooted in its proprietary technology platform, which uses over 40 years of data, AI, and machine learning for lead acquisition, intelligent routing, sales enablement, and customer lifecycle management. - The technology platform is built on over 40 years of data, encompassing approximately 32 million leads and over 1 billion data points, which fuels AI and machine learning models for lead acquisition, scoring, and routing3458 - Proprietary systems like SelectBid (lead scoring), GAL (lead routing), and ARC/AQE (quoting engines) are core to the platform's efficiency and are integrated into the overarching CRM, SelectCare52535455 - Key insurance carrier partners include UnitedHealthcare (UHC), Humana, Aetna, and WellCare in the Senior segment, serving as the company's primary customers by providing revenue through commissions4143 Market Opportunity and Growth Strategy SelectQuote identifies significant market opportunities driven by demographic trends and industry shifts, focusing its growth strategy on maximizing lifetime value, optimizing agents, deepening partnerships, and expanding Healthcare Services. - The company targets a large and growing market, including an estimated $640 billion+ US pharmaceutical market and a senior population where Medicare Advantage enrollment is projected to grow from 54% in 2024 to 64% by 20344547 - SelectRx, the company's pharmacy business, reached over 108,000 active members as of June 30, 2025, with capacity to serve over 150,00045 - The core growth strategy is to maximize policyholder lifetime value (LTV) through investments in agent experience, carrier negotiations, technology, and the Healthcare Select platform to improve policy persistency69 - A key strategy is to deepen consumer penetration and drive cross-selling, particularly leveraging the Senior customer base to grow the Healthcare Services segment72 Competition, Employees, and Regulation SelectQuote operates in a highly competitive and fragmented insurance distribution market, facing extensive federal and state regulations across its insurance, healthcare, and pharmacy operations. - The company's primary competitors in insurance distribution are eHealth, Inc. and GoHealth, Inc., while in the pharmacy market, it competes with both online and traditional brick-and-mortar pharmacies79 - As of June 30, 2025, the company employed 1,181 agents and 3,088 non-agent full-time equivalent employees, with an additional 431 external employees hired for the 2024 AEP81 - The business is heavily regulated, subject to state insurance laws, CMS regulations for Medicare marketing, federal and state anti-kickback laws, DEA and FDA rules for its pharmacy operations, and data privacy laws like HIPAA and GLBA85868890 Risk Factors The company faces significant risks, primarily related to its heavy reliance on a small number of insurance carrier partners, changes in the health insurance market, and regulatory compliance. - A substantial portion of revenue is derived from a limited number of insurance carriers; for fiscal year 2025, carriers owned by UHC, Aetna, and Humana accounted for 37%, 15%, and 11% of total revenue, respectively, making the loss of any of these relationships a significant business risk117 - The Senior segment is subject to a complex and frequently changing legal framework, particularly regulations from CMS governing the marketing and sale of Medicare plans, where non-compliance could lead to termination of carrier relationships or other penalties200201 - The business model is dependent on obtaining a large quantity of quality sales leads in a cost-effective manner and successfully converting those leads into policy sales, with failure in either area adversely affecting profitability135137 - The company is a defendant in a qui tam action partially intervened by the Department of Justice, alleging violations of the False Claims Act, where an unfavorable outcome could have a material adverse effect on the business217218553 - Operating results are impacted by estimates of the lifetime value of commissions, which rely on assumptions about policy persistency (lapse rates), and higher-than-expected lapse rates may require revenue reversal173174 - A cybersecurity breach could expose the company to data loss, litigation, regulatory fines, and reputational damage, given its collection and storage of sensitive consumer information186191 Cybersecurity SelectQuote has established a formal cybersecurity program focused on risk management, strategy, and governance, with Board oversight and no material incidents reported to date. - The company's cybersecurity strategy is a formal approach to enterprise risk management, focusing on identifying, protecting, detecting, responding to, and recovering from cybersecurity events227 - Governance includes day-to-day management by the Director of IT Security, who reports to the CIO, with oversight from the Board of Directors' Audit Committee, which receives periodic updates230232 - As of the date of the report, the company has not experienced any cybersecurity incidents that have been determined to be material234 Properties SelectQuote leases all its principal properties, which are in good operating condition, including its corporate headquarters in Overland Park, Kansas, and other significant locations supporting various business segments. Principal Leased Properties as of August 21, 2025 | Location | Primary Use | Occupied Square Footage | | :--- | :--- | :--- | | Overland Park, Kansas | Corporate headquarters, operations for all segments | 136,194 | | Centennial, Colorado | Subleased | 13,064 | | Monaca, Pennsylvania | Healthcare Services (SelectRx) operations | 22,000 | | Indianapolis, Indiana | Healthcare Services (SelectRx) operations | 32,630 | | Oakland, California | Life segment operations | 8,623 | | San Diego, California | Life segment operations | 5,874 | | Olathe, Kansas | Healthcare Services (SelectRx) operations | 27,000 | Legal Proceedings The company is involved in various legal proceedings, including a qui tam action alleging False Claims Act violations and securities class action lawsuits, which it is vigorously defending. - The company is a defendant in the DOJ Action, a qui tam lawsuit alleging violations of the Federal False Claims Act related to sales and marketing practices, with a motion to dismiss filed in August 2025553554 - A securities class action (In re SelectQuote, Inc. Securities Litigation) was dismissed by the district court in April 2025, but the plaintiffs filed a notice of appeal in May 2025550 - A related stockholder derivative action (Jadlow v. Danker, et al.) remains stayed pending the resolution of the motion to dismiss the Securities Class Action551552 PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities SelectQuote's common stock trades on the NYSE under 'SLQT', with no anticipated cash dividends due to reinvestment plans and debt covenants, and no share repurchases in FY2025. - The company's common stock trades on the NYSE under the symbol 'SLQT'240 - SelectQuote does not expect to pay any cash dividends on its common stock in the foreseeable future due to reinvestment plans and restrictions under its credit facilities242 - No shares of common stock were repurchased by the company during the fiscal year ended June 30, 2025243 - The stock performance graph shows that an initial $100 investment in SLQT at its IPO in May 2020 would be worth $8.81 as of June 30, 2025, compared to $179.97 for the NYSE Composite Index247 Management's Discussion and Analysis of Financial Condition and Results of Operations In fiscal year 2025, SelectQuote's total revenue grew 16% to $1.53 billion, driven by a 57% increase in Pharmacy revenue, resulting in a net income of $47.6 million and a significantly improved capital structure. Consolidated Financial Performance (FY2025 vs. FY2024) | Metric | FY 2025 | FY 2024 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $1,526.6M | $1,321.8M | +$204.8M | +16% | | Pharmacy Revenue | $728.8M | $464.9M | +$263.9M | +57% | | Commissions & Other Services | $797.8M | $856.9M | -$59.1M | -7% | | Income from Operations | $68.5M | $64.6M | +$3.9M | +6% | | Net Income (Loss) | $47.6M | ($34.1M) | +$81.7M | N/A | - The company's strategic shift to healthcare is evident, with Pharmacy revenue now constituting 48% of total revenue in FY2025, up from 35% in FY2024286 - The company significantly improved its liquidity and capital structure in FY2025 through a $350.0 million Senior Non-Convertible Preferred Stock transaction and a $100.0 million securitization transaction, using proceeds to repay $388.2 million of term loans349351352 - Net cash used in operating activities was $11.7 million in FY2025, a decrease from $15.2 million provided by operating activities in FY2024, primarily due to changes in working capital, including a $69.5 million increase in commissions receivable356360 Key Business and Operating Metrics by Segment The company's performance is tracked through segment-specific metrics, showing a 4% decrease in Senior approved policies, a 31% increase in SelectRx members, and a 12% growth in total Life segment premiums in FY2025. Senior Segment Metrics (FY2025 vs. FY2024) | Metric | FY 2025 | FY 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Total Approved Policies | 663,169 | 687,664 | -4% | | LTV per MA Approved Policy | $884 | $910 | -3% | Healthcare Services Metrics (as of June 30) | Metric | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Total SelectRx Members | 108,018 | 82,385 | +31% | | Prescriptions Per Day (Avg) | 27,867 | 18,935 | +47% | Life Segment Premiums (in thousands) | Metric | FY 2025 | FY 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Term Premiums | $71,448 | $70,450 | +1% | | Final Expense Premiums | $105,099 | $86,600 | +21% | | Total | $176,547 | $157,050 | +12% | Results of Operations Analysis Fiscal 2025 revenue increased 16% to $1.53 billion, driven by a 57% surge in pharmacy revenue, leading to a net income of $47.6 million, significantly aided by a positive change in warrant fair value. - Pharmacy revenue increased by $263.9 million (57%) in FY2025, driven by a 31% increase in SelectRx members290 - Commissions and other services revenue decreased by $59.1 million (7%) in FY2025, primarily due to a decline in Senior commissions revenue from fewer approved policies290 - Marketing and advertising expenses decreased by $39.4 million (11%) in FY2025, attributed to improved close rates and a decrease in submitted policies for the Senior segment301 - Interest expense decreased by $14.2 million (15%) in FY2025 due to a lower cost of capital following the securitization and preferred stock transactions used to repay higher-cost debt308 - The company recorded a $59.5 million gain from the change in fair value of warrant liabilities, which was a major contributor to the positive net income in FY2025286 Segment Information Analysis In fiscal 2025, the Healthcare Services segment was the primary growth driver, with revenue increasing 55% and Adjusted EBITDA rising to $25.4 million, while the Auto & Home business was reclassified to 'All Other'. Segment Revenue and Adjusted EBITDA (FY2025 vs. FY2024, in millions) | Segment | FY2025 Revenue | FY2024 Revenue | FY2025 Adj. EBITDA | FY2024 Adj. EBITDA | | :--- | :--- | :--- | :--- | :--- | | Senior | $600.4 | $655.8 | $161.7 | $166.7 | | Healthcare Services | $742.7 | $478.5 | $25.4 | $7.8 | | Life | $173.0 | $157.9 | $26.7 | $20.2 | - The Healthcare Services segment's Adjusted EBITDA increased by $17.6 million, driven by strong revenue growth that outpaced the increase in cost of goods sold and operating expenses342 - The Senior segment's Adjusted EBITDA decreased by $5.1 million, as the $55.5 million revenue decline was mostly offset by lower marketing and commission costs341 - Effective July 1, 2024, the Auto & Home business was reclassified into an 'All Other' category and is no longer a separate reportable segment313 Liquidity and Capital Resources The company significantly restructured its capital in fiscal 2025, completing a $350.0 million preferred stock transaction and a $100.0 million securitization, reducing total debt from $683.3 million to $385.1 million. - Completed a $350.0 million Senior Non-Convertible Preferred Stock transaction on February 10, 2025, receiving net proceeds of $337.9 million349 - Completed a $100.0 million securitization transaction on October 15, 2024, by issuing notes backed by a pool of renewal commissions351 Debt Summary (in millions) | Debt Component | June 30, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Senior Secured Credit Facility & Notes | $385.1 | $683.3 | | Cash, cash equivalents, and restricted cash | $37.1 | $42.7 | Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for fiscal years 2025, 2024, and 2023, along with Deloitte & Touche LLP's unqualified opinion and a critical audit matter regarding Medicare Advantage renewal commissions. - The independent auditor, Deloitte & Touche LLP, issued an unqualified opinion on the consolidated financial statements and the company's internal control over financial reporting as of June 30, 2025394395 - A Critical Audit Matter was identified related to the estimation of Medicare Advantage renewal commissions due to significant management judgment involved in assumptions for persistency, renewal provisions, and constraints used to determine the lifetime value (LTV) of policies399401 Key Consolidated Balance Sheet Items (in thousands) | Account | June 30, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Cash, cash equivalents, and restricted cash | $35,733 | $42,690 | | Total Commissions Receivable (Current & Non-current) | $950,828 | $881,317 | | Goodwill | $29,438 | $29,438 | | Total Liabilities | $673,838 | $877,107 | | Total Shareholders' Equity | $351,144 | $316,801 | Key Consolidated Income Statement Items (in thousands) | Account | FY 2025 | FY 2024 | FY 2023 | | :--- | :--- | :--- | :--- | | Total Revenue | $1,526,594 | $1,321,776 | $1,002,848 | | Income from Operations | $68,499 | $64,550 | $11,583 | | Net Income (Loss) | $47,580 | $(34,125) | $(58,544) | | Diluted EPS | $0.01 | $(0.20) | $(0.35) | Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of June 30, 2025, with an unqualified opinion from Deloitte & Touche LLP. - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2025630 - Based on the COSO framework, management concluded that the company's internal control over financial reporting was effective as of June 30, 2025632 - The independent registered public accounting firm, Deloitte & Touche LLP, provided an unqualified opinion on the effectiveness of the company's internal control over financial reporting637 - There were no changes in internal control over financial reporting during the quarter ended June 30, 2025, that materially affected, or are reasonably likely to materially affect, internal controls634 PART III Directors, Executive Compensation, Security Ownership, and Related Party Transactions Information for Items 10 through 14, covering directors, executive compensation, security ownership, and related party transactions, is incorporated by reference from the forthcoming 2025 Proxy Statement. - Information regarding Directors, Executive Officers, Corporate Governance (Item 10), Executive Compensation (Item 11), Security Ownership (Item 12), Certain Relationships and Related Transactions (Item 13), and Principal Accountant Fees (Item 14) is incorporated by reference from the forthcoming 2025 Proxy Statement7647653655657659 PART IV Exhibit and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K, including corporate governance documents and material contracts. - The consolidated financial statements are filed under Item 8 of this report661 - All financial statement schedules have been omitted because they are not applicable or the information is included within the consolidated financial statements662 - Exhibits filed with the report include the company's certificate of incorporation, bylaws, various credit agreements and their amendments, employment agreements, and stock incentive plans666668