Good afternoon, and welcome to the GoHealth Fourth Quarter and Full Year 2022 Earnings Conference Call. My name is Lisa, and I will be your operator for today's call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to John Shave, Vice President of Investor Relations. John, you may begin.

Thank you, and good afternoon, everyone. Thanks for joining GoHealth's Fourth Quarter and Full Year 2022 Earnings Call. Joining me today are Vijay Kotte, Chief Executive Officer; and Jason Schulz, Chief Financial Officer. This afternoon's conference call contains forward-looking statements based on our current expectations. Numerous risks and uncertainties may cause actual results to differ materially from those anticipated or projected in these statements. Many of the factors that will determine future results are beyond the company's ability to control or predict. You should not place undue reliance on any forward-looking statements, and the company undertakes no obligation to update or revise any of these statements, whether due to new information, future events or otherwise. After the market closed today, we issued a press release containing our results for the fourth quarter and full year of 2022. We have posted the release on the GoHealth website under the Investor Relations tab. In the press release, we have listed a number of risk factors that you should consider in conjunction with our forward-looking statements. We encourage you to consider the other risk factors described in our Form 10-K and Form 10-Q reports filed with the Securities and Exchange Commission for additional information. In addition, the results discussed here and contained in our press release were prepared by management and are unaudited as our independent registered public accounting firm has not completed its audit. During this call, we will be discussing certain non-GAAP financial measures. These measures are reconciled to the most directly comparable GAAP financial measure and the reconciliations are set forth in the press release. Please refer to today's press release for reconciliations of non-GAAP measures to the most comparable GAAP measures discussed during this earnings call. For reference, in the Investor Relations section of the GoHealth website, we have provided a supporting slide deck and exhibits that I encourage you to review. And with that, I'd like to turn the call over to Vijay.

Thank you, John. Good afternoon, and thank you for joining us for our fourth quarter and full year 2022 earnings call. I want to start off by saying how proud I am of our team. Our internal agents fielded over 1 million calls in the fourth quarter. Together with our external partners, we helped over 320,000 Medicare beneficiaries, assessed their current coverage and potential Medicare options, and enrolled in a plan. GoHealth has been and continues to be a leading health insurance marketplace and Medicare-focused digital health company. Our unique combination of cutting-edge technology, data science and deep industry expertise allows us to build trusted relationships with consumers and match them with the health policy and health plan that is right for them. On today's call, I'll provide a brief recap of our annual enrollment period, or AEP results and how we approached this season differently from the past. I'll also discuss why we are positioned for success in 2023, and beyond and our 2023 guidance. Jason will then review our operating and financial results for 2022. As many of you know, we have been executing a transformation of GoHealth since Jason and I joined the company mid-last year. In advance of the 2022 AEP, we made several strategic and operational changes and executed against three clearly defined goals during the second half of 2022. First, improve cash flow from operations; second, maximize efficiency in our model; and third, prioritize more experienced, high-quality sales agents over volume of agents. I'm pleased to share that we delivered on these key focus areas. For full year 2022, we achieved cash flow from operations of a positive $61 million ahead of our target to achieve cash flow breakeven in the first half of 2023. This cash flow improvement was driven by not only…

Thank you, Vijay, and thank you all for your continued interest in the GoHealth story. There are many moving parts this quarter, but the key takeaway is that the proactive steps we took in the second half of last year to create a much more efficient operating model and drive increased adoption of our Encompass solution resulted in a materially better business profile, which directly improved cash flow from operations and our unit economics. On today's call, I will be referencing a supporting slide deck, which is available on the GoHealth Investor Relations website. Today, I will be discussing five primary topics. First, I'll spend a couple of minutes walking you through the adjustments to Q4 and full year 2022 to normalize our results. This includes our lookback adjustments and discussing the decision to exit our non-Encompass BPO Services business. Second, I will explain in more detail our lookback adjustment each of fiscal quarter. Third, I want to discuss the improved economic and cash flow profile of our Encompass solution versus our traditional LTV model. Fourth, I'm going to illustrate the margin expansion we saw in Q4 2022 versus Q4 2021 of our internal Medicare business by leveraging the Encompass solution on the more efficient operating model we built in the second half of 2022. And in closing, I'll give an update on our cash flow performance and deposition. Let me now walk you through the adjustments I just referenced, which are illustrated on Slides 10 and 11 of the investor deck located on the GoHealth Investor Relations website. These adjustments are made with the intent of providing transparency into our operating performance in Q4 2022 and full year as well to provide you with the right jump-off point when discussing our 2023 outlook. Included in our Q4 2022 reported…

Thank you, Jason. Our fourth quarter results exceeded our expectations, but there's still significant work to be done. We're excited about the journey ahead. When Jason and I joined GoHealth in June 2022, we had some very specific goals. First, we needed to improve the cash flow characteristics of our model. Second, maximizing efficiencies was essential. Third, we needed to prioritize more experienced, high-quality sales agents over volume of agents. We achieved those goals and expect to continue to execute against the financial guidance provided. As the Medicare Advantage industry evolves, GoHealth will also evolve. We will continue to develop and deploy our proprietary technology and tools to increase choices for beneficiaries while continuously evolving contracts with our health plan partners to establish the Encompass Platform. Our strategic initiatives are underway, and we are positioned to win. Thank you for your interest and for your attention this afternoon. We will now open the call for your questions.

[Operator Instructions] The first question that we have today is coming from Michael Cherny of Bank of America.

Thanks for obviously a lot of details on a lot of moving pieces. First and foremost -- and this is maybe just an overly rudimentary modeling question, but this will always be a business that has heavy ties to the fourth quarter. As we go through this year, will we see any change in seasonality in terms of how the reporting comes over the course of the year on a revenue EBITDA cash flow basis? I assume there's some, but maybe obviously not with 4Q still being the lion's share of what you're doing.

Michael, thanks for the question. I appreciate you joining. This is Vijay. Let me just repeat the question. It sounds like the key to your question is the seasonality trend that we've seen related to revenue, EBITDA, cash going to be fairly consistent? Or is it changing from what you've seen previously. And what I would say is the seasonality of the business itself, as you said, is going to always be predominantly focused in Q4 from a volume standpoint. When you think about the cash profile of the business, as we've described some of the dynamics of our Encompass flows where kind of from a cash flow basis, you would have seen Q3 as historically being more of a trough for us. That's actually going to shift. And so Q3 will be more positive, Q4 will be a little bit more neutral compared to what you've historically seen. Q1 will come down a little bit and Q2 will still be kind of run of the mill, what you would expect from a cash flow basis. But given that revenue and our general expense lines are going to flow with volume, you'll see those flow with normal seasonality.

Got it. And when I'm just looking at the balance sheet, it seems like the biggest source of cash you're able to generate this year was on changes on the commissions receivable asset that you had in the reduction there. Given the tie that has to look back, how do you think about the way that you'll be analyzing the previous policy sold, especially given they came under the different structure relative to your desire and your ability to manage cash flow and achieve these targets that you've laid out here today, which obviously are quite strong versus where you were previously?

So let me repeat the question back to you because I might have gotten it wrong here a little bit. But it sounded like you're asking, obviously, there's a lot of cash flow that has continued to come from that back book that we have. And given the adjustment that we just made, how confident do we feel about that cash flow going forward related to all the other significant initiatives that we have in place. Obviously, with the diversification of Encompass, we're going to have a higher -- first, Michael, did I have that question correct? Did I understand it all?

Basically, yes. Where is the cash flow coming from under the Encompass? And what's your best line of sight to this build into achieving your targets?

Yes. Thanks for the clarification. So as we think about the Encompass platform, we definitely have a lot of confidence in that cash flow profile, as we indicated, versus the traditional model. One should look at the in-period element of how we generate cash and our guidance that we provided there, what you'll see with the lion's share of our captive internal business going through the Encompass model and only a minority of our external channel flowing through that. You see that we're generating a range of $75 million to $115 million of cash flow this year. And it's included in that in some forms, you're seeing that back-book cash flow flowing as well. But given the unit economics and the profile of Encompass, we're seeing that in that year one cash process of all that business written within the calendar year, that is being realized within the year. So we believe we have high confidence in the cash flow profile and this projection given the current assets and finding current asset value and the policies that are already effective this year from January through the remainder of this year. So as we think more long term, obviously, we can extend the question, but when you think about the current year, we feel fairly confident about the profile of the back book that is a current asset for payment in cash this year.

[Operator Instructions] Our next question is coming from Jonathan Yong of Credit Suisse.

I apologize if there's any background noise here. Just given some of the changes in the Star Ratings and the preliminary MA rate notice and some of the volatilities with some of the bigger carriers, how are you kind of thinking about that interplay as we go into the 2023 AEP and what that may mean for your current book of assets if there's a higher churn, et cetera?

Thank you, Jonathan. Thanks for the question. It's a great question. And I think it actually feeds well into the strategic comments that I provided earlier. We are definitely seeing that different health plans are behaving very differently in how they are reacting to reimbursement models, competitive landscape, et cetera. Different benefits in the non-SNP and the SNP products that are out there. The net-net of that is it is causing a lot of shopping amongst the population that we've historically attracted. That is really what we believe is actually in the best interest of beneficiaries to do that shop, to assess their personalized needs as they change dynamically every year against the different benefit plan options that are available. And so as we think about the Encompass platform, it is more built around that idea. Now do we think that there's exposure on the LTVs of the back-book? Well, part of what we've looked at in our overall modeling is contemplating what those tenures should look like knowing that this volatility is going to be there amongst health plan competitive positioning, and that shifting will likely take place. So we factored our best estimates of that type of behavior, not just in the 2023 expectations of competitive landscape, but understanding that over multiple years, you will still see that oscillation, either it be from benefit design strategy that carriers have or more specifically because of things that are implicated through the Stars program or other changes in reimbursement from CMS. So in short, what I would say, Jonathan, is we've done our best to try to anticipate the fact that there could be some mix shifting both in prospective selling as well as in the behavior of our back book in the numbers that we presented here today.

[Operator Instructions] Our next question will be from Ben Hendrik of RBC.

Quick question on contracting. Can you remind us on how the Encompass contracting is progressing? You mentioned 50% of revenue kind of coming from that channel. And just give us an update on how receptivity has been among carriers to kind of -- just to the fee-based model and how you see the mix progressing over the intermediate term?

Thanks for the question, Ben. As it relates to our contract and progress on the Encompass model, as we indicated late last year, we had all of our major carriers rolling through the Encompass model in Q4 AEP. What we've found in comparing those results, those who really adopted that full model, the quality experience we've been describing here, previous calls, we talked about Tier 1, the qualification, Tier 2 being the shopping experience, and Tier 3 really being that a verification of the sale and then the onboarding process beginning, the quality results of that were very high compared to the traditional. We saw an uptick in the effectuation, which is, those policies written that actually became effective as of January 1. So we saw all that lift. And so there's definitely been a lot of support from our carriers to expand the program to include other products to exclude -- and help us test with our external channels as well. So we're very optimistic about how that's going. Every year, some of our contracts are year-to-year. Others have longer tenures on them. They are multiyear. So there's always a continuous process as we think about this. But as we continue to have those conversations, there's [non-abstinence], there's a support for the model and continued interest in expanding it as we move forward.

[Operator Instructions] The next question is coming from Sam Hirsch of William Blair.

This is Adam Klauber from William Blair. Can you hear me?

Yes.

Yes. I'll jump in for Sam. On the look-back, you mentioned that -- you obviously have more data than they've had in the past. So -- but I think two questions on it. One, do you think your assumptions were relatively more conservative than they were using the past, number one? And then number two, in the future, as you're shifting the model significantly both in structure, but also on a cash basis, do you think the look back to either positive or negative, just by nature, will be smaller than they've been in the past?

Thanks for the question, Adam. Let me first talk about the model and your question you asked if it was more conservative. I'd say that we have more data. And as you get more data and more experience that we were able to analyze in the fourth quarter, we were able to update the model. So I think it's less about conservatism. We're always trying our best to be that. It's really about revising our estimates based on actual experience that we can have more stratify at the different carrier levels, the product levels, and then being able to extrapolate that behavior into the trending that we have in our triangles. And so as we looked at that, we felt as though we were doing that with the best information we have as accurately as we could. And then on top of that, knowing that there's a -- as we look at the prediction going forward, adding a constraint on that so that we could, one try to estimate the trends that we might see into the future and anticipate some of the things that we spoke earlier with Jonathan about it, is a natural fluidity that's starting to be seen in the marketplace where people are just shopping more and therefore switching more often than they historically had. So I think it's more that the dynamics of the market are changing, and we're reflecting that as we are serving it into our estimates. Now as you think to the future, yes, naturally, what you're saying is true is that as we have more shift towards Encompass, we'll have less of new volume moving into that back book. And what you tend to find on average is the volatility in those values tend to happen as there's more changes in the first couple of years of those cohorts. And so as you have those fewer populations and enrollment populations or enrollment groups coming in to the pool, that first few years of volatility is getting diffused out into the new model. So I can't absolutely say that the -- if we're successful in growing the pool of having a lot more enrollment on a percentage basis, it still could be building because we don't expect 100% ever to go to Encompass, there will always be some on the legacy. But directionally, I think your comment is accurate that we would have less of that volatility as we move more towards Encompass in the current and future years.

Okay. Okay. Thank you. And then just thoughts on future use of cash flow. You obviously paid down a good chunk of debt. What are you thinking about for uses of cash flow this year?

Great question. We have a lot of different things that we've been looking at that are contemplated in our plan, including some capital expenditures and investments into our platform and technology to ensure that we are delivering this marketplace model that we've described to you in our earlier comments. We also have a very thoughtful debt strategy as we think about how we might optimize and really think about the different pressures around interest rates and the headwinds that are naturally going to be there to be able to look at our overall balance sheet and see how we can best deploy the capital. But most importantly, just making sure that we are making the investments into our platform to drive our initiatives that we've assumed in our guidance around standardizing both the consumer and the agent experience. But you should not be surprised for us to continue to make some nice steps forward on that debt strategy.

[Operator Instructions]

I think -- there we have -- sorry. I think, Michael, I know you said you want to get back in queue. I just wanted to make sure we didn't miss that. I'm not seeing you in the queue. Well, I think that's it from the questions. I appreciate everybody's time today. We are very excited about the future of what we're developing here. Our team is fully engaged in driving a uniform high-quality experience for beneficiaries as they continue to we put in a very complicated nuanced world and how we can help them optimize the options that are available to them. So we look forward to updating you on our progress down that path and look forward to hearing from you all again in the future. Thanks again.

This concludes today's conference call. Thank you all for joining. You may disconnect. Everyone, have a great evening.