Good morning. Welcome to GoHealth's Fourth Quarter and Full Year 2023 Earnings Call. My name is Michelle, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Following the prepared remarks, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded. I would like now to turn the conference over to John Shave, Vice President of Investor Relations. Please go ahead.

Thank you, and good morning. Welcome to GoHealth's fourth quarter and full year results call. Joining me today are Vijay Kotte, Chief Executive Officer; and Jason Schulz, Chief Financial Officer. Today's conference call contains forward-looking statements based on our current expectations. Numerous known and unknown 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 any 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. Earlier today, we issued a press release containing our results for the fourth quarter and full year 2023. 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. During this call, we will be discussing certain non-GAAP financial measures. These measures are reconciled to the most directly comparable GAAP financial measures and reconciliations are set forth in the press release. You may also refer to the investor presentation posted to the Investor Relations section of our website for reconciliations of non-GAAP measures to the most comparable GAAP measures discussed during this earnings call. I will now turn the call over to GoHealth's CEO, Vijay Kotte.

Thank you, John, and good morning, everyone. I'm pleased to share with you today our 2023 results, which reflects significant year-over-year improvement in revenue, adjusted EBITDA, and operating cash flow. The shift to the non-agency operating model continues to drive cash generation. Our consumer centric focus enables our evolution from enrollment to engagement with trust as the foundation. We provide guidance and insight to Medicare consumers in a landscape marked by confusion and uncertainty. Over 65 million people in the United States are eligible for Medicare and about half of them are on Medicare Advantage plan. One-third of Medicare beneficiaries live in accounting with more than 50 plans available to choose from. Navigating these options can be confusing and stressful. We are proud that our team helped over 2 million consumers assess their benefit options in 2023, leveraging our proprietary Encompass workflow, including our PlanFit tool and PlanFit Checkup. Backed by analytics from nearly 30 million consumer touch points and machine learning technology, our proprietary PlanFit tool helps GoHealth's licensed agents match consumers to the best plan for them based on their profile and priorities. During the fourth quarter 2023, we announced the launch of PlanFit Checkup. PlanFit Checkup removes the stress and enhances the experience for consumers shopping for a Medicare Advantage plan. As we previously shared, there are three consumer outcomes for a PlanFit Checkup. One, we enroll a consumer in a new plan because it's the best thing for their needs. Two, we tell the consumer about a better plan and they choose not to switch. Or three, we reassure the consumer that they are in the best plan for their needs and no enrollment takes place. Importantly, GoHealth agents who complete a PlanFit Checkup are compensated regardless of whether the assessment results in an enrollment. In…

Thank you, Vijay. As we review our performance for 2023, I'm pleased to share that GoHealth has demonstrated financial and operational strength. One of our primary goals in 2023 was to continue to improve our operating cash flow. We delivered on this objective with $109 million of cash flow from operations, a nearly 80% improvement from the $61 million in 2022. We ended the year with $90 million of cash on hand. In addition to our strong cash flow, we generated significant improvement in revenue and adjusted EBITDA. Our journey through the year has been marked by substantial improvements across key financial metrics, underlying the effectiveness of our strategic initiatives and the resilience of our business model. We reported revenues for 2023 of $735 million, an increase of $104 million as compared to $631 million in 2022, a 16% improvement. As a reminder, 2022 revenue included a $276 million Lookback Adjustment that reduced revenue as a result of an actuarial review of our back-book. As Vijay noted, we did not record a Lookback Adjustment for 2023, the first time since 2020. The work we have done with our Encompass model to derisk the business from our agency revenue has resulted in higher quality revenue and a strong balance sheet. Our adjusted EBITDA, excluding non-Encompass BPO, was $73 million for the year, a 78% improvement from $42 million before the Lookback Adjustment in 2022. This increase underscores our operational improvement and our focus on sustainable profitability. Another way to look at our results is on a cash adjusted EBITDA basis. In 2023, we generated $142 million of cash adjusted EBITDA, which is up from $98 million in 2022 and a negative $301 million in 2021. Cash adjusted EBITDA is simply taking our reported adjusted EBITDA plus the year-over-year change and our…

Our confidence in our business and operational model continues to remain resolute. We firmly believe that prioritizing consumer needs and aligning with CMS, regulators, and health plan standards is a sound long-term strategy for our shareholders. Our focused business transformation efforts bolster our positive outlook. We are well positioned to overcome unique market dynamics and seize opportunities to further enhance the shareholder value. With that, we'll now take your questions.

Thank you. [Operator Instruction] Our first question comes from Ben Hendrix with RBC Capital Markets. Your line is open.

Hey, thanks guys. Just a quick question on -- I appreciate the commentary about submission volume kind of in line with Medicare growth, but wanted to kind of just get your thoughts, kind of commentary on the overall Encompass platform. Has there been anything fundamentally changing about your ability to capture the growth opportunity in Medicare going forward? Anything in your Encompass strategy that's changed that we should be aware of? And kind of, how do you see that kind of on a competitive footing with your peers who may be still kind of pursuing the ASC 606 strategy, over the longer term? And basically, how should we think about the competitive differential between the two platforms, kind of given what we've seen this past AEP? Thanks.

Yes, thanks for the question, Ben. Just that I've got the question right, effectively just thinking about are there any material changes to the way we are operating or thinking about our Encompass model and pre-funding specifically relative to the 606 versus 605 more like LTV versus the more Encompass pre-funded model. We -- just operationally, we are still very confident that the Encompass workflow that we put in place is the right thing for consumers and we are committed to that model. We want to make sure that we are continuously putting the consumer at the center of everything we do. And as part of that we think there are costs to running that business model that we are contemplating and appropriately investing in in the way that we get reimbursed by our health plans for that model. As you think about the overall market landscape, as we indicated, there is a lot of benefit instability that may be coming up in the upcoming AEP season and in future. And when you think about the market landscape in general. When you look two years ago versus this last AEP versus what we're anticipating in the future, consumers should likely shop more, which is what we've said all year. We want them to shop, we expected them to shop, they are shopping. But when it comes to the appropriate time to make switches, it is either because they've got incrementally much better benefits, or, in contrary, when they have a lot of change in their benefit structure. And what we saw in this last AEP, it was one of the unique AEPs where there was some negative, but really not a lot of changes, and so less and less of a reason for people to make changes. And when you have a high-integrity process like the Encompass workflow we have, you're going to deliver a result where you're just providing peace of mind as opposed to new enrollment. So just in short, we are staying committed and we believe there's a lot of future viability and excitement about the differentiation of the Encompass workflow. The quality is better and we're delivering a better experience that plays the long run with that relationship with the consumer. And as it relates to the market dynamics, we would expect that, as we said, in what we didn't do on LTVs, we saw some positivity on LTVs, or retention in the latter part of 2023, but in anticipation of some of the disruptions we expect going forward for the portion of the business that we still haven't on the LTV basis or 606 basis as you referred to. We were trying to maintain some conservatism on that as we continue to see the market dynamics play out.

Thank you very much.

One moment for the next question. The next question comes from Pat McCann with Noble Capital Market. Your line is open.

Hey, guys. Thanks for taking my question. I was wondering, given that the number of Medicare Advantage plan options has been growing pretty rapidly, I'm wondering if -- number one, if you're seeing that trend continue? When you look at the carriers, are there more and more options hitting the market? And then, I guess, sort of a basic question would be, could you talk a little bit about how Encompass gives customers access to the largest number of plans possible even as those policy options are rapidly evolving?

Yes. Thanks, Pat, for the question. Just to restate. One is, how do we think about the plan options increasing, following the trend that we've seen in previous years? And then follow-up was how do we make sure that the consumers have access to being able to decipher between all of those plans. Is that the right way to re-state your question?

Yes.

So on the first one, it's an interesting question and it's really a health plan by health plan question as to who's going to be introducing or contracting the number of plans available. As I said in the previous response, there's offensive and defensive reasons why a consumer may want to make a change, right? And offensively, if their benefits in the market that they're in have significant improvement, right, then they might want to shop and potentially make a switch. If there's disruption in the marketplace of health plans leaving or degradation to benefits, it also triggers a moment where they should shop and likely make some change to the benefit choice. And so, we're anticipating more of the latter as we kind of heard some of the things from the health plans. Not to say that some might still not -- might still make some investments in benefits, but you're seeing the general landscape of what's hitting the challenges of the Medicare Advantage health plans profitability, such that there's likely going to be more tweaks and adjustments that require the nuance of our PlanFit technology and the trusted structure or the foundation upon which we operate the Encompass workflow. So we don't know per se if there's going to be a lot more. I would say my gut is probably not a lot of growth in brand new plans, but what we do know is, we've heard that plans are indicating they will likely be exiting certain geographies, causing some of that disruption, but still more to come, as we alluded to. And that the market dynamics won't really be known until much later in the year as to what's really going to happen on that. Now in the second question you asked about how do we make…

Thanks, that is. And then if you don't mind, if I could ask just a follow-up question to something you spoke about as far as the non-agency revenue and how it has eclipsed 50%, 60% in Q4. Given that, is there any color you could give as to your expectations for how that number will shift as a percentage of sales as we look forward into 2024?

I think the way -- we're obviously going to continue to is that, we've kind of given you the directional qualitative commentary on what we expect to see in cash flow from operations. We expect to see that dynamic shift and potentially improve the cash flow from operations based upon more movement towards the non-agency model. That is a function of both mix of how growth happens within the marketplace, competitiveness of benefits, et cetera. But there's no doubt in the way that we approach the business, we are having a strategy to continue to try to shift more to that line. The question is, the pace at which that might run. We actually had a significant jump in this year alone, and we'd love to be able to see more of that continue to shift in that direction.

Thanks. And then, I was going to try to ask about the debt repayments, but Jason kind of covered that here just previously. So that's all I've got. Thank you so much, guys.

Thanks, Pat.

One moment for the next question. The next question comes from Jim Sidoti with Sidoti & Company. Your line is open.

Hi, good morning and thanks for taking the questions. Vijay, you've made several changes since you arrived in terms of staffing levels and strategies. I'm just curious, are you happy with the progress you've made to date and should we expect any big adjustments in 2024?

Thanks Jim for the question. What we did when we first came here, if you go back in time, and I won't relive all of history, but first we were trying to stabilize the business, right? To really just stabilize things and understand where our strengths were, weakness were, to invest in the strengths and try to mitigate and control for those weaknesses and whatever market factors were playing in that. What we really doubled down on was that, we're playing a long game strategy, right? Part of the issues that we saw in the industry is the missing piece within healthcare, specifically within what was considered the e-broker industry was a lack of trust and consistency. And that was within all the parties involved. That was from regulators, that's from health plans, but from the consumers, et cetera. And so, we've really invested in the Encompass workflow and the Encompass process to transform that component of who we are to be a leader in proving that we can not just drive appropriate enrollment, but driving trust and credibility within the industry ourselves. And what we've done with the PlanFit space, what we've done with PlanFit Checkup. And again, to the extent that we're now in conversations with health plans to be able to be compensated for doing the right thing in those PlanFit space, is showing that we're really delivering an opportunity to provide peace of mind to the consumer, which we believe plays for that longitudinal relationship that we're building versus where the industry has been and where most companies have been, which is trying to just drive enrollments in the short-term period without thinking about supporting a consumer over a 15 year to 20 year life span or enroll and eligibility [Technical Difficulty]. So I guess my response to that is, yes I'm very proud of where we are. I think we're absolutely have laid the foundation of resetting where the industry is at of actually being a value add of not just driving enrollments, but driving feel empowerment to the consumers to make the decisions for themselves in a very confusing world. And I think as you are seeing in the diversification away from the LTV volatilities that have been there of moving to the nonagency line has also been something that we're very excited about. What we can't always control for, but we've built the model and we continue to find is how the health plans are performing in any given year, and how their financial translate into their investments and the benefits in any given year.

And this kind of leading to my next question, have the health plan partners -- how -- what is their attitude towards this shift towards Encompass? Have they accepted this? Are they on board? And do you think other players in the industry will make similar changes?

I'll answer the last part first. It's hard for me to assess what other players are going to do. I think everybody's got different strategies as to how do they address their short-term needs versus thinking about the long-term as to who they want to be, et cetera. But as it relates to the health plan, the health plans have leaned into this. As we indicated in the prepared remarks, we had nearly 75 plus percent of all of our enrollments run through the Encompass workforce. That is the multi-tiered approach, it is the high touch, really shopping experience that is truly unparalleled in the industry at this point. And the health plans have found that that is higher quality and resulting in better results. So they have definitely leaned into wanting us to continue that program and supporting us through that process. They wanted us to find ways to expand that program. As you know, we have downline agents who work underneath our umbrella, use our technology as well, expand that as well so that we can improve the quality of those downlines similar to what we've done with our internal agents. So we have definite strong support on it, pretty much driven off of the fact that we're delivering better quality, while still maintaining pretty high volumes at the same time.

And it's clear that the shift has improved your ability to predict cash flows and receivables or from collection of receivables, but do you think it's also improved your ability to predict future revenues?

I think it's from the stability of the revenue that we are booking and recognizing in a period, it is absolutely giving us better predictability of that. So when you think about cash and you think about the revenue you book in a period, so we can manage our cash flow in a much better way when you have the Encompass world with our shift to non-agency. And you also have an ability, when you book that revenue, as you saw in this last period, even with that Encompass workflow, we still have 606 revenue running through the Encompass workflow, such that that quality and predictability and stability of what we write under that is even higher. So we have a higher confidence in what we book on a 606 basis, because it will never go to zero as we've always said. And then you have an even higher confidence of what you book in revenue for that that runs through the non-agency line.

And then just back to my initial question. If you have this better visibility on revenue, should we expect any major changes on investments and operating expenses in 2024?

We're going to continue to invest. There will be incremental investments in technology that you should expect for us to continue to get standardization, systematic improvements in the experience for the consumer, more engagement points as we described, moving from just enrollment to more of that engagement, activation, and full support of the consumer through the process. So you'll see some more investment in that as we go into the year. And in most of that, we're finding internal opportunities to reallocate our dollars to make those investments within the company for the future.

Great. Thank you.

One moment for our next question. The next question comes from Sandeep Soorya with Delaware Street Capital. Your line is open.

Hi, can you guys hear me okay?

Yes. Hi, Sandeep. How are you?

Hi, good. Thanks for taking the question. I have a couple questions. The first is, how should we think about the proposed regulations? And how do we think about regulations in general on the Encompass business relative to the agency business?

Great question, Sandeep. I think as we've all learned, it is really important to wait for two things when it comes to proposed regulations. As we know, this is an annual event. And there is a proposed rule, and then there is a final rule. And even after a final rule comes out, it's generally not specific enough to get clear guidance from it. You end up going to each individual health plan in our business to understand their interpretation of those rules. So I think it's a little too early as to understanding what it would be, what it could be, et cetera. What I would say is, we are generally in alignment with the concept of protecting the consumers. We want to make sure that there is more access to all the different health plans and the information around that, and that there aren't inappropriate incentives to sway that unbiased shopping experience. So, we've always been supportive of that, and I think we've proven in the last period that we're absolutely investing in that experience. And as we look at what the proposed rule is and what they're controlling for. I think they're really trying to find more and more ways to drive that, to support that experience. So we believe there's a lot of great regulations already out there today before the proposed rule that could lean into just really focusing on enforcing what's there with all the bad actors that are out there that are causing more of the noise than the problem. But that said, again, to your primary question, it's more left to let's see what comes out. Let's see what the interpretations of that are going to be. And I'm assuming most of what you're describing is less about operational workflows. I think we've proven that year-over-year, as there are changes like 48-hour other things, we're pretty nimble in being able to accommodate those types of changes when CMS has those. The real question is, the uncertainty around just like in the commission rates year-over-year, this same dynamic of now in the proposed rule if there could be impact to compensation. But as we think about our Encompass workflow specifically, that was built up on really doing a fair market value of delivered services for the activities that we are performing on behalf of the health plan. And when you think about that, that is a model that has full documentation and background behind it. So we're very excited about how that prepares us for what is to come, but again, we got to see the details of what comes out.

Okay, great, Thank you. And then how do we think about -- I've got a couple longer-term questions and I think I like maybe two to four years, three to five years, but how do we think about revenue growth, EBITDA margins and EBITDA growth? And then even looking at cash flow, you had a strong cash flow this year. How should we think about cash flow dynamics over the next few years as well?

Yeah. I mean, look, I think as we've talked about and we've even given in our qualitative comments here today, we believe growing in general with the overall market, there's plenty of market share out there, right? As you think about the Medicare consumer groups growing, when you think about overall growth, that disruption factor that I described, on any -- if you think about over a long term with Medicare, those of us who have been in it for a long time, it goes through cycles, right? And so, when you have a lot of excitement and everybody wants to grow, there's a big cycle and that's, obviously, a point at which a business like ours in that industry is going to see growth. When you see that the dynamics are changing, right, in the market landscape, there are those inflection points where people are assessing and then determining what they're going to do with their financial needs and health plans. And so that was what we really saw in the last AEP. They were kind of testing the water, specifically on the non-special needs plan side. You saw that very little investment in aggregate in new products in that year. And then when you move into the other part of the cycle is when they pull back on benefits. That's actually, even though they're not as focused on growth, the shifting between Medicare Advantage plans for a company like us is also an exciting marketplace for it. So when there's a lot of new plans and interesting growing, it's good for our type of business. When there's a lot of disruption and they're switching the benefits up and even if they're not interested in growing, but they're contracting a bit, but there's a lot of switching around, that's…

Okay, great. That's it for me. Thank you.

I show no further questions at this time. I would now like to turn the call back to Vijay for closing remarks.

Thank you. And again, thank you all for joining today. Lots of really good questions. We are excited about where the business is to play for these long-term relationships. We've made a significant investment in those consumers who need our services the most. Trust and peace of mind in a complex and confusing world is critical. And that is going to be an important thing not just today, but especially as we go into this next AEP and as we look into the future. So we're excited about the value we can deliver to the consumers, to shareholders, and all the health plans and regulators involved, because we do believe that is the key to the future and we're very, very thankful to our team as we continue to invest in delivering that consistent experience. So thanks, and we look forward to speaking to you all again soon.

This concludes today's conference call. Thank you for your participation. You may now disconnect.