Q2 2024 SelectQuote Inc Earnings Call

Participants

Matt Gunter; Chief Communications Officer & IR; SelectQuote Inc

Timothy Danker; Chief Executive Officer, Director; SelectQuote Inc

Ryan Clement; CFO; SelectQuote Inc

Bob Grant; President; SelectQuote Inc

Ben Hendrix; Analyst; RBC Capital Markets

Pat McCann; Analyst; NOBLE Capital Markets

Presentation

Operator

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 now begin the conference.

Matt Gunter

Thank you and good morning, everyone, and welcome to SelectQuote 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 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 on 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 December 31st, 2023, and other 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?

Timothy Danker

Good morning, and thank you all for joining forklift produced another very strong quarter in 2Q, which marks our eighth consecutive quarter of performance ahead of expectations across both our core senior and health care services businesses.
Before getting into the quarter, I'd like to begin by reiterating our conviction in the value creation strategy we have executed against since 2022. For those that are new to the story. Selectquote seeks to generate stable and attractive EBITDA margins in a range of solid environments with an emphasis on returns to invested capital and growing cash flow. We've optimized our sales force of tenured agents to focus on the best leads to generate the highest possible unit economics for Medicare Advantage policy. Our rapidly growing health care service business led by select Rx has significantly scaled the returning cash flow generation of our holistic marketing spend. And as a result, our revenue to cash is now over four times more than double what it was two years ago. Additionally, we delivered a third consecutive quarter of positive profitability in our Healthcare Services division, which will accelerate the overall earnings, power and cash flow of SelectBuild. Our strategic goal of building a truly unique and diversified platform featuring information and service driven insurance distribution as well as value added healthcare services is increasingly becoming a reality with this quarter, we have now produced positive operating cash flow in two consecutive quarters on an LTM basis, which is noteworthy given the first half of the fiscal year is our highest seasonal use of cash with the ramp to AEP and OEP for Medicare Advantage. As a result of this progress, we now expect SelectQuote to approach breakeven free cash flow for fiscal 2024 and expect cash flow generation to expand as health care services continues to scale from our vantage 0.5 quarters, not just healthier than it was two years ago, but it's thriving with a strong foundation to realize the significant intrinsic value for shareholders that we see in our unique model.
With that confidence we are pleased to say that we have increased the midpoints for both our revenue and adjusted EBITDA outlooks for fiscal 2020 for which we will detail later in the call.
Now let me turn to Slide 3 to provide highlights of our 2Q results. Consolidated revenue grew by 27% year over year, driven by both policy and LTV growth in our Senior division and an increasing contribution from health care services, which more than doubled revenue year over year at $112 million for the quarter, our consolidated adjusted EBITDA also beat expectations, growing by 6% compared to a year ago. As you'll recall, our expectation for fiscal 24 was for EBITDA margins to moderate compared to a highly favorable Medicare Advantage season experienced by the industry in fiscal 2023. It is important to call out the significant mix shift we've experienced, given that EBITDA generation lags member growth and our Healthcare Services business will speak to the drivers of each segment in a moment, but we want to emphasize the embedded EBITDA scale that exists across all of SelectQuote and our senior segment, we continued to achieve strong efficiency of our tenured agent force in 2Q, even when comparing to a very favorable market backdrop in fiscal 2023. As a result, we generated strong EBITDA margins of 32%, despite expected marketing cost increases primarily due to the implementation of new CMS marketing roles, including the 48 hour rule.
Lastly, observe persistency remains stable and healthy. In total, we take great pride in the tailored and unbiased service. Our highly trained agents provide to seniors every day, many of whom live in areas with limited access, in many cases, suffer from multiple chronic conditions or below national averages for income.
Turning to our Healthcare Services segment and 2Q, we posted our third consecutive quarter of positive adjusted EBITDA, despite elevated investment in new member growth that occurs concurrent with AUK. select Rx has now nearly 63,000 members, which is well ahead of our original expectation for all of fiscal 24. In our view, the growth serves as an overwhelming endorsement of the value our service delivers to customers with a much higher base of members and the continued growth in the operating leverage of the business. We are meaningfully increasing our outlook for revenue within healthcare services for fiscal 24, while maintaining our expectations for adjusted EBITDA margins as we make investments to capture increased market share at highly attractive economics.
If we turn to slide 4, let me briefly elaborate on what we have observed in our senior segment in the second quarter and more broadly what we saw in 80 this year compared to last first, our refocused strategy has resulted in outsized efficiency gains for our tenured agent sales force. As you can see, our close rates and agent productivity has increased by 54% and 97% respectively, compared to 2022 more impressive though, is the resilience we've seen in these metrics compared to the fiscal 2023 season, which you'll recall was very strong industry-wide. We credit this performance to our strategy to overweight tenured agents as well as the introduction of our latest agent desktop tools, which further enhance efficiency plan set and the values of the policyholder and our carrier partners.
Now let me provide our high-level observations of this season to AEP compared to last first at the industry level, competition from other distribution platforms continued to be much more rational than a few years ago for our model specifically, we shifted certain processes to incorporate the new CMS marketing roles and are very pleased to have mitigated a higher marketing cost per policy with stable agent efficiency.
Lastly, the bigger impact to SelectQuote Senior segment was a 7% increase in LTV to $934 per policy. Brian will expand on our LTV but to summarize, we continue to see stable policyholder persistency and the business we write.
We turn to slide 5. Let me speak to the efficiency from a cost and return perspective. We've shown these KPIs in the past, but wanted to highlight the power and operating leverage like what has created both from an agent productivity and scaling perspective. First, our overall operating cost per policy for the past year remains highly attractive and is now over 30% lower compared to two years ago. Similarly, we have seen a 38% decrease in our marketing expense per policy compared to two years ago will speak more about marketing costs for this AEP. But the important takeaway here is the interplay between an efficient tenured agent workforce and our focus on quality leads and drive unit profitability and cash flow.
Finally, we would marry that concept with how powerful SelectQuote is has a holistic health care information hub for more than just Medicare Advantage customers. As we've noted before, the customer acquisition spend, we invest to drive returns and cash flow has synergy across more than just senior shopping for Medicare Advantage policies. As you can see in the last set of bars, our revenue to cap has more than doubled from two years ago and is now at 4.2 times, which is remarkable from a return on invested capital perspective, especially considering that the timing of these cash flows are becoming increasingly front-loaded as select Rx continues to grow as a mix of our overall business.
To summarize, we're very pleased with the foundation we have built to drive stable unit economics and operating leverage in our senior segment. More importantly, we're reaping the benefits of our unique ability to scale the same variable costs to create significant revenue streams with and other large market needs and the healthcare ecosystem.
As we've said before, our infrastructure and approach gives SelectQuote the unique opportunity to be the connective tissue for a very large population of Americans, carriers and caregivers.
First of all, as we've done with select Rx We believe there are a range of ways to capture market share by leveraging our existing expense structure.
If we turn to slide 6, let's talk in more detail about select Rx and healthcare services. As I noted up top, our growth in the segment year to date has significantly surpassed expectations. As you will recall, our original full year 2024 outlook anticipated Flector Rx membership at the end of this year at just over 60,000 members. At the end of 2Q, we are nearing 63,000 members worth noting that the growth in members has been nearly all through our Medicare Advantage we've set. As we highlighted last quarter, we believe select Rx, compelling value proposition has the opportunity to be more broadly adopted through targeted marketing outside of our core Medicare Advantage platform. To be very clear, we do not plan to grow members just for the sake of growth, but rather see significant EBITDA opportunity, which is underpinned by what we are seeing and the attractive economics of our in-place membership. In fact, the increase that we are showing in our outlook for the business on the right side of this page now includes both from selectively targeting as well as through our existing Medicare Advantage bundle. This investment is the primary driver of the stable margin expectations we now forecast for the year, we now expect member growth in the range of 40% to 50% compared to our original expectation of 25%. We expect the larger base of maturing members to drive revenue growth of 80% to 100% year over year, which is nearly double our original expectation. We believe this rapid growth in members clearly demonstrates the significant value sector X provides to customers. We also remain excited about the embedded EBITDA we expect from these sticky revenue streams. As mentioned previously, Flector Rx EBITDA generation lags member growth as numbers flow through the onboarding process. So with such rapid growth, we will be onboarding a large population of new members in 2024, which impacts the pace of our adjusted EBITDA margin progression. Given our strategic decision to lean into member growth, Healthcare Services EBITDA margins are now forecasted to exit 4Q in the low single digit range but on a much higher base of revenue than previously expected, take a step back, we'll exit 2024 with a business that will have annualized and growing run rate revenues and the $550 million to $600 million range with positive EBITDA margins that will continue to improve as the business matures.
To be clear, we are guiding for 2025 or beyond. But we do believe Slack was market valuation fails to recognize the embedded value being scaled and health care services and the strong improved fundamentals exhibited over the past two years. And our distribution businesses, as we've said, since 2022 only major U.S. based on what we accomplish. But it's clear we have accomplished quite a bit across the organization, most notably in healthcare services.
With that, let me turn the call over to Ryan to detail our financial results and updated outlook for 2024. Ryan?

Ryan Clement

Thanks, Tim. I'll start with a quick overview of our consolidated financials for the quarter on slide 7, SelectQuote outperformed internal expectations, again with a strong AUP and senior, coupled with continued outsized growth in select selector. Consolidated revenue of $405 million grew 27% year over year, and adjusted EBITDA totaled $67 million compared to $64 million a year ago. As Tim noted, our adjusted EBITDA margin declined compared to a very strong year in fiscal 2023, but the largest driver in the margin difference was a higher mix of healthcare services revenue. Healthcare Services profitability will ramp as we lap the initial investments in new member on-boarding and those members mature in the quarters ahead. As you will see with our updated outlook, we have a lot to be excited about as profitability scales. The selector adds, as you know, select direct is cash accretive and enhances SelectQuote overall return on invested capital and ultimately will drive higher free cash flow and incremental shareholder value.
If we flip to Slide 8 and 9, let's turn to the senior segment results, which were excellent when compared to the very strong fiscal 2023 AP. season. Senior revenue of $248 million grew 11% year over year and was principally driven by a policy growth. LTV also improved to $934, which was 7% higher than a year ago.
As you can see on slide 9, our total policy sales beat expectations during the second quarter. This was driven by our continued strategy to match targeted quality leads with tenured agents. As noted in past quarters, our core focus is on Medicare advantage versus other Medicare plan types, which are represented in orange here.
Looking at just approved MA policies in blue, we grew by more than 7%, which from our observations was broadly in line with industry growth. We are very pleased with the operating results from our Senior division as our strategy continues to deliver stable growth and attractive returns in a range of Medicare selling environments, including the changes associated with the new CMS marketing. As Tim noted, the new rule modestly impacted marketing costs per approved policy and dampened the outsized strength we had in senior EBITDA margins in 2023. In 2Q 24, our EBITDA of $79 million produced an attractive margin of 32%, which as anticipated, moderated from the 37% produced a year ago. Tim highlighted the efficiency gains we have realized with a higher mix, continued agents compared to years past, which drove stability and senior profitability.
Also worth noting, we continue to see stabilization and policyholder persistency. As you'll recall, our LTV includes a three-year look-back provision and has also incorporated a 15% constraint since 2022, which lowered our booked LTVs. We feel really good about the durability of the LTVs. We have been recognizing Since adopting that 15% constraint and implementing our strategic redesign. I point this out as the vast majority of our receivables included higher constraints. Additionally, we believe our strategy to focus on the highest quality lead sources and carrier partnerships has built significant resilience into our LTVs. There are multiple factors that drive our LTV, including headroom. We have made significant progress towards our goal of reducing volatility in our results with more focused growth and lead targeting. We believe the stability we are seeing in persistency indicators creates a solid foundation for more stable and improving LTV in the long term.
Turning to slide 10, let me give additional context on the standout growth we have driven in our Healthcare Services segment. Year-to-date, as Tim noted, we surpassed our original full year outlook for member growth during the second quarter, which was driven by continued demand from consumers for convenience and tailored pharmacy service. To be clear, the AEP period is the seasonal peak for select Rx member growth given the connectivity we have through our Medicare Advantage sales channel. This is highlighted by the 19% sequential growth in members compared to last quarter for frame of reference that 19% growth with nearly 10,000 members or more than two times the total membership of the original pharmacy businesses we bought in 2021. This is an impressive statistic and is representative of how powerful the synergy is in our overall model. This step function in growth for the quarter explains why we have increased our number and revenue outlook for 2024. But I also call out that the growth and concurrent onboarding muted blended EBITDA margin for Q2, which we expect to continue in the back half of the year. However, this is a great problem to have given those margins will scale as new members mature. So while our full year outlook for healthcare services margins remains in the low single digits. We will be achieving profitability on a base of revenues that is significantly higher than what we anticipated when the fiscal year began.
To echo Tim's point, the number of select direct is producing at a scale base of members and profitability get very compelling very quickly. Even more exciting is the positive impact. Selectquote will experience and cash efficiency, which we believe is durable given the value we provide our members for their critical prescription drug needs month in and month out to provide additional context on how members mature and margins for the business progressed through creative use.
You see on slide 11, beginning at left, we highlight the number of prescriptions shipped per day, which includes 17,000 this past quarter. The growth of 76% year over year is largely a function of new member additions, but we believe it also highlights the scale we are creating over the fixed costs of distribution within the business.
Moving to the chart at right, we display the average prescription per member. Typically it takes a new member several months to reach what we call a full box, including all of their various medications. You can see this maturation dynamic in the year-over-year growth rate of 12% despite the nearly 10,000 new members onboarded this quarter, who are ramping to full boxes. Use of this electric unit economics are compelling enough on their own. But to Tim's point, when combined with the pace of new member growth against a very large addressable market and the cash efficiency we realized in the model, we see significant unrecognized equity value in select areas.
Next, I'll touch on our Life & Auto and Home divisions, which also produced a strong quarter with combined revenue growth of 14% and EBITDA growth of 14%. As we mentioned last quarter, the P&C insurance market has been able to recognize increased premiums given replacement cost inflation for homes and cars was the primary driver of improved results in that division. Our term life business increased revenues more than 10% year over year, primarily due to improved conversion of policy sales to in-force premium as we continue to expand our accelerated underwriting product SWIFT term selective.
Let me now turn to Slide 12 to review our revised financial guidance for fiscal 2024 on the strength of both health care services and SENIOR, we are increasing our revenue and adjusted EBITDA ranges, which now represent growth of 26% and 31% year over year at the respective midpoints. As you can see, the overall model is driving operating leverage, given EBITDA growth is projected to outpace revenue growth for full year revenue expectation is now $1.23 billion to $1.3 billion, primarily driven by growth in health care services This compares to our previous range of $1.05 billion to 1.2 billion. The bottom end of our adjusted EBITDA ranges increases from $80 million to $90 million driven by strong EBITDA results and senior. We are maintaining the top end of the range at $105 million as healthcare services margins continue to sail.
Finally, on the balance sheet. Our term loan is granted SelectQuote, the short-term extension on the current credit agreement, which you will see in our forthcoming 10 Q on restructuring after evaluating various refinancing options we are confident that securitization presents the best opportunity for a more permanent capital structure. We remain in active negotiations are still working to resolve certain viewpoints, so we made tangible progress and are optimistic we're approaching a deal. It is worth noting that SelectQuote underlying business is set to produce roughly $100 million of unlevered operating cash flow in fiscal 2024 restructuring. The balance sheet will significantly improve our earnings profile and operating flexibility and would drive meaningful additional value to shareholders.
With that, let me turn the call back over to the operator to take your questions.

Question and Answer Session

Operator

(Operator Instructions) Ben Hendricks, RBC.

Ben Hendrix

Great. Thank you and congratulations on the strong quarter guys. Wanted to follow-up on your, you know, ILDV. outlook for the year and a growth in this kind of what's been a very dynamic earning season for MA, we see diversion expectations and growth with Sinochem in United expecting to come in much lower and CVS coming in much higher than the market.
And just wanted to get your thoughts on how creating on how you talked also about carrier mix impacting LTV. I wanted to see kind of what gives you confidence in maintaining that persistency as we see so much kind of shift in the growth profile of the companies this year.

Timothy Danker

Good morning and thanks again for joining us. And I'll make a few comments and then turn it over to Bob Grant, our president to talk about the carrier dynamics, and then Ryan can talk about your questions about LTV. But again, we were really pleased with what we saw this last ADP, we think broadly certainly the MCOs delivered overall the plan design for that kind of coupled with our continued focus on our highly productive agents, very high tenured agent force and a real focus on quality leads helped deliver the 33% margins.
I'll turn it over to Bob to provide kind of the outlook on the carriers or the phone?

Bob Grant

Yes, I'll Ben, thank you for the questions and great question, Tom, when you look at what happened in SAP is we actually kind of think that's what's going to continue to happen in the future. I think there was an anticipated pullback because of the pressure on in ours. You spoke to a minute kind of dynamic earnings season, but what we're really seeing from the carriers is very specific plan design targeting consumers that really need very robust plan. And we're really seeing a big investment in DCFs. And while there was a little bit of a pullback in traditional MA plans. There was a big investment in the plan benefits and understanding what's more complex customers need and want. And we really saw that play out.
And then ultimately, that change the carrier mix a bit to your point where CBS made some really, really strong investments in that space. And you saw that play out really, really well. So we anticipate that kind of to be the future as well. We think that the carriers will continue to release trying to understand how they can work better with them a little higher revenue customers that really need those risk benefits, which actually, if you go back to our comments before it really meets our model better than anybody else, it's right. We because of the savings we can advertise towards and who we are able to assess this far as reach rural areas and folks that don't leave their house as quite as much on the new kind of strategy from the carriers plays out really, really well for us because those are the customers that we serve. So we feel really good about the future of that as well.

Ryan Clement

And then with respect to the lifetime values, I'd say it's really consistent with our initial expectations or recall when we set our guidance beginning the year. We expect it to be up year over year. We are seeing stabilization more broadly and certainly policy mix with additive. But ultimately, we think a stabilization we're seen as a strong platform for continued growth and stability over the longer term, I you in or just it seems like what we have with CVS is strong growth.

Ben Hendrix

As you know, it seems like the market is becoming more and more price sensitive and where that price elasticity of the of the overall MA market seems to be kind of shifting and towards more sensitivity. Is this longer term? How do we think about this in terms of the persistency landscape? What's the longer term period?

Bob Grant

Yes. As far as what that does for persistency we feel really good about where we are and our targeting and our results were very consistent year over year, while we did see a little bit of increased shopping, meaning that the folks that had planned already with us. We saw a little bit of an increase in that, but we didn't see an increase in them switching, which I do think as folks advertise for different plan benefits, things like that, you'll see some shopping, but that doesn't ultimately mean that they'll make that decision and to switch.
So relative to our overall persistency and the strategy that we have, we feel really, really good about where we are and again, are seeing stabilization as template. And I think that has a lot to do with our model to then as you go through like the year round business that we have now with very few what we would call flex agents and pretty much all core agents to understand the products in and out and can really work and assist our consumers even better than we could before. I think that's also causing a lot of that stabilization, which we anticipate to play out into the future, right?

Ryan Clement

Yes, I think what I would add there is obviously on the back book, just in general, while it's early, we definitely feel like it's trending slightly better than years past. So we've we're very pleased.
And then with respect to newer policy business, again, we continue to remain positive. We are seeing improvements in business quality and leading indicators.
Great, guys.

Ben Hendrix

That's all I have right now.Thank you very much. Great quarter.

Timothy Danker

Thank you, Ben.

Operator

Pat McCann, NOBLE Capital Markets.

Pat McCann

Hey, thanks for taking my questions and congrats on the quarter. But my first question has to do with the pharmacy business.
On your could you comment on the on the prospects for continued synergies between that business and the senior segment? And I guess what I'm thinking is, you know, if we look at the the nearly 63,000 members of select direct, can we look at that as sort of a level of adoption by the Medicare Advantage customer base that you have? And if so, how do you view the unrealized opportunity that's still out there on front coming from your of your customer generation on the on the SENIOR segment.

Timothy Danker

Yes. Yes, I think you hit on most of that. Bob, I was just real quick. I want to thank you for joining us again for hand it off to Bob. We're really thrilled with the growth think Bob will walk through it. A lot of this has been off the backs of our Medicare Advantage platform. There is indeed a lot of synergy there. We also see potential beyond that.
And with that, I'll go ahead and hand it off to Bob.

Bob Grant

No, I appreciate that. And it's a really good question and something I do think that gets missed by the market. A lot of this is just our first proof point into that synergy between and the two businesses and how much we can help clients that really need help beyond just Medicare Advantage. Right.
And the 65,000 members, you know, it's an adoption from folks that buy from us. I think we've also talked about before quite a bit. It's also an adoption from folks that need help that are on the most affordable and kind of best plan today meaning that a lot of our folks come that didn't actually buy a policy from SelectQuote red. They shop. We found out that they're on the most the plan with the best benefits and then ultimately put them in and help them on their pharmacy side, which is one of the top complaints on the tricky miss of navigating the Medicare system. There's a lot of other adjacent services, whether that's within the pharmacy space or other things that we feel really strong about.
And we've talked about before that we will start to get into and start to help our consumers with other complaints and other issues that they have. We deal with a really complex group, as evidenced by the 63,000 members we have within a very complex carve pharmacy space. And we think that's just the tip of the iceberg as far as what we can do to help those consumers, especially the ones that really have no access to great care. And the rural folks that just don't have quality care near them, value-based care really isn't an option for them. And in the current kind of system. And we feel really strongly that we can help them whether that's introduced to best in class services or whether we can actually be that best in class service like Solectron's.

Timothy Danker

But if I can one more thing, I wanted to just to stay on short. Oh, yes, just real quick. I mean, again, kudos to Bob, and he's really architect and driven the strategy, other synergies we're seeing to state the obvious right? We mentioned are 4.2 red, the tax time, right? We're leveraging this existing marketing spend on our MA platform to create new meaningful revenue streams, which is obviously highly synergistic. And then from a persistency standpoint, we've been tracking this right?
I mean, we've always thought, hey, how can we extend more value beyond the Medicare Advantage policy. That's very important, but there's more that we can do here in select Rx, and we've been tracking our persistency on what we call like-for-like customers. And we are seeing, you know, underlying lift in terms of retention on those MA customers who enroll in a select Rx program. So again, it's not just about the kind of the growth metrics we're sharing. We actually think that it helps the underlying platform given the increased value we're providing consumers.

Pat McCann

Right. And then can I if I could just stay on that topic for a second here. You mentioned that on the high single digit EBITDA margins in the oh four select Rx or I kind of do to your I guess that could be higher, but there due to the two, you're leaning into the growth there.
So to me that kind of spurred a question of what what are the expenses the expense levers or growth investment levers that you can pull or backup back off on that are specific to the pharmacy business that are resulting in those in those margins?

Ryan Clement

Yes, I think it's sort of. Yes, some of you have clarity on that point. So obviously, on the quarter, low single digits, really, really pleased with the strong performance. The growth in all of that, right. We are onboarding customers. It does take our customer base several months to reach what we call full boxes, which is where boxes are going out that have kind of all of their drugs. And that's really whenever you reach maximum margin.
With respect to the broader margin profile where gross margins are in the mid 20 range there, the cost of getting drugs out the door. If you look at the variable margins on a per-customer basis see is in the mid to upper 10s. So there is a lot of margin once you've got customers too full-scale in four boxes and you're stripping those out month-in and month-out.
However, in this period where we're onboarding such a large number of new customers that are at maturity. There's certainly costs associated with ramping. And so we're building a lot of embedded value that you may not be seeing in the current quarter's financial results. But will be recognized in future quarters. Certainly if the business wanted to pull back and slow, the growth margin rates would improve. But again, this is a cash accretive business that generates revenue month-in, month-out, not as highly synergistic with our existing senior distribution business. And right now, you know, AEP and OEP are those peak seasons. So it's investment worth making, and we're really pleased with the growth.

Pat McCann

Yes, as far as, okay, you have got a very strong record and you sort of me if you can.

Bob Grant

As far as to the future of that our biggest investments will be in automation and improving our facilities and things like that. While we're not guiding to '25 to Ryan's point, we are hyper focused on how we can better automate and better improve our system architecture and given how fast we've grown ultimately to get that cost to get it strips out the door down. So we think it can be simultaneous lower, still growing, and we can really focus on the efficiency of that engine beyond just for bottom and things like that to really improve our overall variable margin, I would say. So we're really bullish on that as well. And so we're really, really excited and what we can do with that business over time.

Pat McCann

Thank you. Most helpful there. And then my final question, I just wanted to touch on the balance sheet really quickly on you mentioned moving towards free cash flow generation. And I just wanted to kind of check in on how you view your debt levels as you are your progress towards free cash flow generation and possibly paying some of that down in the next fiscal year and so forth? Just wanted to get your take on that.

Ryan Clement

Absolutely. It's absolutely a priority. We recognize that we've got meaningful debt balance. There is material. We share that we've got a short term extension, but we are actively working on the broader long-term solution and we're making meaningful progress. We highlighted two quarters ago in our 10 K that we were exploring options. It's not limited to, but we'll including securitization as time has last, we've been exploring that further. It's clear that securitization is an attractive financing structure for SelectQuote for the industry. More broadly, we are in active negotiations and still working to resolve certain deal points, but we have made tangible progress.
We're optimistic we're approaching a workable deal and that structure once implemented does allow us to delever over the long term. So we're really pleased with the progress and the path forward. Obviously, with respect to more recent results, we did highlight that this past quarter on a trailing 12 month basis and prior quarter for that matter, we have been operating cash flow positive. We do expect to be operating cash flow positive on for full fiscal year 2024. We do have adequate liquidity to execute on our plans for calendar year 2024 and beyond. But we are very focused on the broader capital structure and setting ourselves up for it. Yes, long run success and operating flexibility, and we're making good progress on that front.

Pat McCann

Great. Thank you so much. That's all I have.

Operator

This concludes the Q&A portion of today's call. I will now I hand back over to Tim Danker for closing remarks.

Timothy Danker

Yes. Thank you all. I'll conclude by thanking all of you for joining us. We appreciate it, as I said earlier in my remarks, but I'll say it again, SelectQuote is driving how we believe the value of our current businesses and our ability to leverage our unique information and connectivity advantages and healthcare provide us with a range of ways to drive repeatable profit and cash flow growth. As we've shown in our distribution business. And as we're increasingly scaling in health care services, we see a lot of unrecognized shareholder value that we're going to continue to work diligently to capture. So thank you again, we look forward to speaking with you next quarter. Have a good day.

Operator

That concludes today's SelectQuote Fiscal Second Quarter 2024 earnings conference call. You may now disconnect your lines.