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spk04: 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. At this time, all participants are in listening mode. Following the prepared remarks, we will conduct a question and answer session. At that time, if you wish to ask a question, please press star 11 on your telephone. 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.
spk05: Thank you, and good afternoon, everyone. Thanks for joining Go Health's fourth quarter and full year 2022 earnings call. Joining me today are Vijay Kote, Chief Executive Officer, and Jason Schultz, 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 Go Health 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 Security 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 Go Health 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.
spk00: 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 assess their current coverage and potential Medicare options and enroll 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 approach 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've been executing a transformation of Go Health 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 cashflow 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 break-even in the first half of 2023. This cash flow improvement was driven by not only the better-than-expected shift towards our Encompass solution, which delivered on revenue, margin, and cash, but also our improved operating efficiency. Jason will describe our encompass economics in more detail. We showed year-over-year improvement on key performance measures, including effectuation, conversion, cost-per-effectuated policy, and margin profile, due to our disciplined marketing approach, the high-quality performance of our tenured agents, and our proprietary PlanFit technology improvement. Based on these actions, we delivered more than 20% improvement in AEP operating efficiency year-over-year. The plan we laid out for you in advance of ADP delivered the strong operational results we anticipated. Now, I'd like to share some thoughts on the current state of our market, how it's changed, and how we expect it to evolve. Our diversification into the Encompass solution is an intentional strategic and financial move for us, as seen through the lens of the broader market landscape. This diversification is critical to our ability to win because our industry is evolving. In an increasingly complex Medicare market, beneficiaries have challenges figuring out what health plan option works best for them as their needs change over time. They are bombarded by marketing messages from numerous parties as soon as they become eligible for Medicare, and then again during every ADP thereafter. More beneficiaries are switching from original Medicare to Medicare Advantage every year, with nearly 5% net beneficiaries switching from original Medicare to Medicare Advantage annually. There are over 5,000 Medicare Advantage plan options available across the country, and the average beneficiary has access to over 43 Medicare Advantage plans, up from 20 in 2018. Plan benefits are improving year over year. Differences between plans are nuanced on traditional benefits and hard to compare on supplemental benefits. Switching costs are low given that clinicians and highly utilized prescription drugs are now covered by most plans. Historically, a beneficiary shopped two to three times and made one to two plan changes over their Medicare eligibility span. Those changes are happening more often. There's a nearly 50-50 split between beneficiaries who shop minimally and beneficiaries who shop annually. We believe beneficiaries now switch as many as three to five times over the course of their eligibility as their needs change. It's important to define how we look at shopping and switching in the context of Medicare. We believe shopping is a beneficiary reviewing their current plan's covered services or costs relative to their current needs to see whether they are in the optimal plan or if they might need to consider a new option. Switching means moving from one plan to another. While we do believe that on average, plan stability is important for a beneficiary's improvement of overall health, we also believe that any individual beneficiary's needs so dynamic, it's critical to reassess their needs at least annually to ensure they're in the best available plan. We believe more beneficiaries should be shopping to make sure they're in the most appropriate plan and they need a trusted resource to help them. We believe policy switching is unavoidable as shopping increases. As beneficiaries continue to shop more, LTVs based on the length of a policy have gone down, even if the number of policies written overall is increasing. We, however, are primed to turn shopping into a strategic advantage as we increase our focus on building beneficiary relationships for the long term. If beneficiaries are going to shop, we want them to shop with us, regardless of whether we originally enrolled them in their plan. More beneficiaries will shop with us as we build a trusted relationship by delivering an unbiased, high-quality consumer shopping experience, leveraging an agnostic consumer marketplace with multiple plan options and developing credibility with beneficiaries. We want to be the destination that provides beneficiaries with a needs-based plan assessment every year, where the results of such an assessment might mean the beneficiary stays in their current plan if it's the best plan for their needs. If it is not the best plan, we make it easy to enroll in the better one. Furthermore, we help support the onboarding process to ensure they are able to activate the benefits that motivated the change. We are reinforcing the focus on a thorough and unbiased customer experience this year by compensating our agents not only on new enrollments and plan changes, but also on high quality personalized assessments that may not result in a sale. Our new standard operating model and customer experience, inclusive of Encompass, is built on the concept that neither plans nor beneficiary needs are static. Available benefits change every year, as do the health and financial needs of each beneficiary. We use our proprietary technology uniform best practices, and highly skilled agent workforce to assess each beneficiary's unique individual priorities and match them with the right plan. Our agents are compensated to ensure that beneficiaries in the most appropriate plan for their needs, regardless of whether we enrolled them in the traditional LTV policy previously or not. A key piece of the model is that there are no cookie cutter ratings and comparisons. Two beneficiaries living next door to each other with the same basic demographics on paper may prioritize different benefit options and thus end up with different plan matches. More importantly, even the same beneficiary calling in two consecutive years may have changes in their health and preferences and thus have a different recommended plan option. We have demonstrated that our model brings customers back year over year. Our data shows that nearly 25% of our calls in each AEP are from beneficiaries we have served and or enrolled in the previous year. To enhance the experience we provide, we look forward to broadening the plan options we compare for beneficiaries as opposed to limiting plan options like others in the industry. We enable a more direct and transparent competitive marketplace where health plans compete on an even playing field and where winning is tied to the best benefits, quality, and experience for beneficiaries. Encompass is a new standard customer experience at GoHealth with our internal captive agents, and we intend to begin transitioning some of our external channel downline partners to the Encompass solution as well. A uniform and consistent experience for the beneficiary, regardless of where they live, what their needs are, what plan they choose, and which agent they speak to, is a critical piece of building a long-lasting, trusted relationship. This will be a key area of focus for us in 2023. We have made a strategic decision to focus on the Medicare shopping experience. To ensure success, remove distractions to our team, and streamline our operations, we have decided to exit our non-encompassed BPO enterprise services business or dedicated health plan and agency arrangement. This move allows us to redirect our most precious assets, our experience in high-quality agents, towards our most highly valued services. Jason will address the financial implications of this change in more detail. Looking ahead to 2023 and beyond, we are positioned to win We believe we will win because of our deep understanding of the new market reality and our strategic initiatives underway. People will continue to shop, and while others in the industry are reducing the plan options they offer, focusing on who pays more as opposed to who offers the best benefit and quality options, we are positioning GoHealth to be the chosen, trusted partner that consumers shop with. We're doing so by expanding our Encompass solution, adding more diverse, high-quality choices for beneficiaries in our marketplace. continuing to invest in our agents, and by developing our proprietary technology to complete assessments and build for the future. We're diversifying our operating model and marketing approach to expand our universe of beneficiaries, while at the same time, diversifying our business model and our financials away from the current LTB model, where LTB is measured on a policy basis. Finally, I'm pleased to share that we are reinstating guidance. Our 2023 guidance builds on our efficient exit run rate from 2022 and incorporates our strategic initiatives. We expect 2023 revenue to be between $750 million and $850 million. We anticipate adjusted EBITDA in the range of $100 million and $140 million. And we expect cash flow from operations of a positive $75 million to a positive $115 million. I'll now turn the call over to Jason to provide more details on the financials. Jason?
spk02: Thank you, BJ, and thank you all for your continued interest in the Go Health 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 maturely 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 minutes walking you through the adjustments to Q4 and full year 2022 to normalize our results. This includes our look-back adjustments and discussing the decision to exit our non-encompassed BPO services business. Second, I will explain in more detail our look-back adjustment each of this quarter. Third, I want to discuss the improved economic and cash flow profile of our encompassed solution versus our traditional LPD 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 encompassed solution on the more efficient operating model we built on the second half of 2022. And in closing, I'll give an update on our cash flow performance and debt position. 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 financial statements is a look-back adjustment related to business sold in 2021 and prior, with a $266 million reduction to revenue and a $187 million reduction to adjusted EBITDA, which can be seen on slide 10. Excluding the impact of the LTV look-back adjustment made this quarter, our net revenue would have been $336 million and our adjusted EBITDA would have been $92 million. Including smaller negative look-back adjustments in Q1 through Q3 of 2022, the total full-year look-back adjustment for 2022 is $276 million reduction of revenue and a $193 million reduction to adjusted EBITDA. This is illustrated on slide 11. On a full-year basis, excluding the Q1 through Q4 look-back adjustments, our net revenue would have been $907 million and our adjusted EBITDA would have been $63 million. As Vijay mentioned, we have made the strategic decision to exit our non-encompassed BPO services business. In Q4 2022, non-encompassed BPO services represented $34 million of revenue and $7 million of gross margin, which is illustrated on slide 10. Slide 11 provides the full year 2022 non-encompassed BPO services revenue of $111 million and $20 million of gross margin. Excluding the impact of the LTV look-back adjustment made this quarter and normalizing for the exit of our non-encompassed BPO services, our Q4 2022 revenue would have been $302 million and our adjusted EBITDA would have been $85 million, which is depicted in the last columns on the respective graphs on slide 10. On a full year 2022 basis, excluding the Q1 through Q4 look-back adjustments and normalizing for the exit of our non-encompassed BPO services, our revenue would have been $797 million, and our adjusted EBITDA would have been $42 million, which is illustrated on slide 11. We think providing you with full transparency to these adjustments to our full year 2022 results is important, as this is what you should compare our 2023 guidance to. One additional item of note. Historically, we were using carrier-approved submissions, which reflects policy sold from our traditional LPV model. As we continue to transition to the Encompass Solutions model, carrier-approved submissions is not an accurate definition of the services we provide under the Encompass Solutions model. Given that both the traditional LTV model and the new Encompass Solutions model will both exist, we believe it's more informative to define the combined activity as submissions, which you'll see in our financials going forward. Next, I'd like to provide you with some additional detail related to our look-back adjustment. To preempt some natural questions, I want to address why we were making a look-back adjustment this quarter when others in the industry are making opposite claims regarding LPVs and future potential adjustments. Simply put, we were making this adjustment for policies sold in 2021 and prior years because, one, we believe the market dynamics around the beneficiaries we serve have changed, especially around the annual beneficiary shopping patterns. And, two, given the meaningful volume of policies sold over the last several years, we now have observed more data than ever before allowing us to conduct a better informed and detailed actuarial analysis. Importantly, note that the $266 million look-back adjustment also includes a constraint we placed on our back book commission receivable. Ultimately, we believe the actions we are taking reduce our future exposure to LTD risk. The size of the adjustment and the constraint on the back book account for the current market dynamics and anticipate continued future pressure on LTD. It is important to remember our encompassed solution model diversifies a material amount of our go-forward revenue away from the traditional LTV model, further reducing our future risk. And finally, we are broadening our reach to pursue new demographics of the beneficiary population that may show less switching behavior by testing both benefit and experience-oriented marketing messages. Given the importance of the diversification into the encompassed solutions model, I WANT TO DO A QUICK REFRESHER ON THE ECONOMIC PROFILE AND HOW IT COMPARES FAVORABLY TO OUR TRADITIONAL LTV MODEL. AS REFERENCED, PLEASE VIEW SLIDE 12 OF OUR EARNINGS PRESENTATION. ON THIS SLIDE, WE HAVE ILLUSTRATED THE ANNUAL UNIT ECONOMIC AND CASH FLOW DIFFERENCES BETWEEN OUR TRADITIONAL LTV MODEL AND OUR ENCOMPASS SOLUTIONS MODEL. AS YOU CAN SEE, WE HAVE A HIGH VARIABILITY IN OUR TRADITIONAL LTV MODEL DIRECTLY RELATED TO REVENUE. This is driven by product and health plan mix, as well as the less predictable LTV revenue estimates due to switching. In comparison, our Encompass Solutions model is much more predictable as it's based upon services rendered during the sales process versus predicting the lifetime value of a policy. The other important difference between the two models is around year one cash flow. On the right side of slide 12, you can see that the cash flow profile in year one OF THE TRADITIONAL LPV POLICY SOLD IS NEGATIVE BY APPROXIMATELY $280 FOR EACH POLICY SOLD. IN COMPARISON, WE HAVE A MEANINGFULLY POSITIVE YEAR ONE CASH FLOW PROFILE OF $275 FOR EACH SALE COMPLETED UNDER THE INCOMPASS SOLUTIONS MODEL REPRESENTING A CHANGE OF $555 IN CASH PER POLICY ON A YEAR ONE BASIS. ULTIMATELY, UNDER EITHER MODEL, OUR GOAL IS TO DRIVE BETTER BENEFICIARY CHOICE, EXPERIENCE, AND SATISFACTION resulting in a high trust relationship. Regardless of the exact payment model we have with our health plan partners, we intend to have the same operational model in our marketplace for all health plan partners for this upcoming AEP. This will not only drive continued improved quality and experience for the beneficiaries we serve, but it will also help further drive a more efficient operating model. Q4 2022 results demonstrate the combined impact of the more efficient operating model leveraging the Encompass solution. On slide 13, we are comparing our internal Medicare unit economic performance for Q4 2021 versus Q4 2022, adjusting for the impaired impacts of the previously discussed LPV look-back adjustments and their respective impacts to both 2021 and 2022. As you can see, our Q4 2022 sales per submission is $971, an increase of 27% year over year. This increase was driven by our more tenured agents performing high-quality sales, which is realized through improved effectuation rates. In addition, we saw more predictable revenue through the Encompass Solutions platform, with nearly 50% of our sales in Q4 being completed through this platform. The more efficient model that was built in the second half of 2022 had a significant impact on our cost per acquisition, resulting in a 22% year-over-year improvement. This improvement was driven by favorable marketing costs and beneficiary conversion rates achieved through our more tenured agents. As a result, in Q4, our internal Medicare business achieved 49% gross margins, or $479 per submission, which is a significant improvement compared to Q4 2021, where we saw an 18% gross margin, or $136 per submission. The combination of having a more efficient operating model, increased penetration of our encompassed solution, and disciplined expense management has produced a meaningfully positive result on cash flow from operations. On slide 14, you can see that we achieved a positive $61 million of cash flow from operations for the full year 2022, which is a $360 million improvement compared to the full year 2021. This improvement was one of the primary objectives of management, and we are thrilled with the result that the collective team has delivered. By retaining our best agents to drive high-quality enrollment activities, exceeding our encompassed penetration goal, focusing on a highly efficient operating model, and tightly managing our expenses, we have materially strengthened our liquidity position from just a few short months ago. Because of our strong cash flow position and increased liquidity, in the fourth quarter, we paid down $155 million of debt plus principal payments. bringing our total debt down from $670 million in Q4 of 2021 to $510 million in Q4 2022. This is illustrated for you on slide 14. It's also important to note that we have an untapped $200 million revolver for same-day access to liquidity, if ever needed. Due to our strong operational results and much improved liquidity position, we are in full compliance of our debt covenants for Q4 2022. As you might recall, we have had to amend our covenants for each of the last four quarters. We are pleased with the relationship that we have built with our lender partners and don't anticipate a need for further covenant amendments in the future. This includes achieving a trillion and 12-month 3x leverage ratio for Q4 of 2023, as defined in our debit agreements. Based on the successes from our 2022 exit run rate performance, a more efficient operating model, enhanced commercial relationships, SOLID RESULTS FROM OUR ENCOMPASSED SOLUTION AND OUR PLAN 2023 STRATEGIC INITIATIVES WE EXPECT TO BE ABLE TO ACHIEVE OUR GUIDANCE RANGES THAT BJ MENTIONED EARLIER. WE MADE MEANINGFUL STRIDES IN 2022 AND SET THE FOUNDATION FOR PROFITABLE GROWTH, IMPROVED THE MARGIN AND CASHFUL PROFILE, AND ARE ON OUR WAY TO GREATER PREDICTABILITY OF OUR FINANCIAL RESULTS THROUGH OUR WELL-POSITIONED BUSINESS. I'LL NOW TURN THE CALL BACK TO BJ TO PROVIDE CLOSING COMMENTS. BJ?
spk00: 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, the health flow also evolves. 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'll now open the call for your questions.
spk04: Thank you. If you would like to ask a question, please press star 11 on your telephone. One moment while we compile the Q&A roster. The first question that we have today is coming from Michael Cherney.
spk06: Bank of America your line is open afternoon and thanks for obviously a lot of details on a lot of moving pieces first and foremost and this is maybe just a 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.
spk00: Hi, Michael. Thanks for the question. I appreciate you joining us, Vijay. Let me just repeat the question. It sounds like the key to your question is, is the seasonality trend that we've seen related to revenue, EAP.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. 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.
spk06: 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 commission's 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 policies 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?
spk00: 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 the compass, we're going to have a higher – first, Michael, did I have that question correct? Did I understand it well?
spk06: Basically, yeah. Where's the cash flow coming from under the Encompass, and what's your best line of sight to disability to achieving your targets?
spk00: 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 a 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 to $115 million in cash flow this year. And 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.
spk06: Got it. I'm sure there's more digging to be done, but I'll step back in the queue. Thank you.
spk04: Thank you.
spk03: One moment while we prepare for the next question. Our next question is coming from Jonathan Wong of Credit Suisse.
spk08: Your line is open. Hi. Thanks for taking the question. And 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 volunteers 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?
spk00: Thanks. 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 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 LTBs 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 positionings. 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 mixed shifting, both in prospective selling as well as in the behavior of our back book in the numbers that we presented here today.
spk08: Great. Thank you.
spk03: Thank you. One moment while we prepare for the next question. Our next question will be from Ben Hendrix of RBC.
spk01: Your line is open. Thank you. Quick question on contracting. Can you remind us on how the Encompass contracting is progressing? You know, you mentioned 50% of revenue kind of coming from that channel. And just give us an update on, you know, how receptivity has been among carriers to kind of, to the fee-based model and how you see the mix progressing over the intermediate term. Thank you.
spk00: Thanks for the question, Ben. As it relates to our contract in 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 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 one the qualification tier two being the shopping experience and tier three really being that 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 effectuation, which is those policies written that actually became effective as of January 1st. So we saw all that lift. And so there has definitely been a lot of support from our carriers to expand the program, to include other products, to include, you know, and to 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 that are multi-year. So there's always a continuous process as we think about this. But as we continue to have those conversations, there's not obstinance. There's a support for the model and continued interest in expanding it as we move forward.
spk03: Thank you. Thank you.
spk04: If you would like to ask a question, please press star 11 on your telephone.
spk03: One moment for the next question. The next question is coming from Sam Hirsch of William Blair. Your line is open. Sam Hirsch of William Blair, your line is open. You know, I'll jump in.
spk07: This is Adam Clover from William Blair. Can you hear me? Yeah. Yeah, I'll jump in for Sam. On the look back, you mentioned that you obviously have more data than, you know, they've had in the past. But I think two questions on it. One, do you think your assumptions were relatively more conservative than they were using in the past, number one. And then number two, in the future, as you're shifting the model significantly, both in, you know, structure but also in a cash basis, you know, do you think the look back to either positive or negative just by nature will be smaller than they've been in the past?
spk00: Thanks for the question, Adam. Let me first talk about the model in your question. You asked if it was conservative you know 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 our it's really about revising our estimates based on actual experience that we can have more stratified 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 the data with the best information we had as accurately as we could. And then on top of that, knowing that there's, 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 um jonathan about it is a natural uh 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 observing 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 that volatility in those values tend to happen as there's more changes in the first couple 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 can't absolutely say that, you know, 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.
spk07: 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 use of the cash flow this year?
spk00: 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.
spk07: Great. Thank you very much.
spk00: Thank you.
spk04: Thank you. As a reminder, if you would like to ask a question, please press star 11 on your telephone. One moment, please.
spk00: I think Oh, there we have a, sorry. I think that Michael, I know you said you wanted to get back in queue. 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 be put into this 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.
spk04: This concludes today's conference call. Thank you all for joining. You may disconnect. Everyone, have a great evening.
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