SelectQuote, Inc.

Welcome to SelectQuote fourth quarter conference call. All lines will be placed on mute to prevent any background noise. After speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key. It is now my pleasure to introduce Matt Gunther, SelectQuote Investor Relations, Mr. Guthrie, you may begin the conference.

Thank you and good morning, everyone. Welcome to SelectQuote's fiscal fourth 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 Interim Chief Financial Officer Ryan Clement. Following Tim and Ryan's comments today, we will have a question and answer session. In order to allow everyone the opportunity to participate, we do ask that you limit yourself to one question and one follow-up at a time and then fall back into the queue for any additional questions. As referenced on slide two 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 in 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, 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?

Good morning, and thank you all for joining us. We're pleased to report a strong fourth quarter relative to our initial expectations, and we are encouraged by the early achievements SelectQuote has made since we outlined our strategic redesign back in fiscal second quarter. Between the operational improvements we're seeing in our core senior business and continued success of SelectRx, there is a lot to be optimistic about for SelectQuote. I'll provide color on each of these strategic initiatives in a minute, But first, let's turn to slide three to review the highlights from our fourth quarter and full year 2022. SelectQuote drove strong operating results relative to our internal forecast in both our core senior business and on a consolidated basis in the fourth quarter. Senior revenue was $98 million, and consolidated revenue totaled $139 million for the quarter. Our net loss for the quarter totaled $105 million, or negative 64 cents per share. Operationally, this was the second consecutive quarter of improving trends in our senior business. Trends that we believe are tied to our initiatives to optimize SelectLoad and drive better returns and more predictable cash flows. For instance, our agent close rates increased 31% compared to a year ago, and our marketing cost per approved policy decreased 35%. Lastly, our SelectRx business finished the quarter above our original expectation of 25,000 members. We feel these results validate the service we provide to consumers and speak to how well SelectRx fits with SelectQuote and the healthcare services continuum. We're pleased with the better close rates, which aided revenue growth. And more importantly, we are seeing green shoots that our customer retention trends are stabilizing and improving. And as mentioned, our results were also driven by continued success and our SelectRx business. Overall, this was the second consecutive quarter of good momentum as we look ahead to 2023. We believe SelectQuote is transforming into a more predictable and efficient company focused on consistent returns instead of pure growth. To that point, as part of our 2023 forecast review, in the fourth quarter we elected to recognize an additional $48.3 million adjustment for certain cohorts. to address potential renewal pressure that could have triggered adjustments in 2023 or 2024. To be clear, the adjustment is not a reflection of recent persistency trends, which we believe have stabilized. And while we're not pleased with another downward revision, we have a high degree of confidence this action has significantly de-risked the potential for further adjustments in the future. Ryan will provide additional color on that point later in our remarks. We believe SLECWD has established a foundation to drive better returns in cash flow with less volatility in our forward financials. With these actions, we have positioned the company and our investors for improving returns in the future. With that, let's turn to slide four and review the pillars of our new strategy and detail the foundation SLECWD has built for the upcoming year. First, as noted, our philosophy on growth has changed significantly. Our forecast for 2023 implies a 35% to 45% pullback in our Medicare Advantage policy production. The market opportunity for a very large and growing population of American seniors would clearly support continued growth, but as we've said, we're committed to policy sales that generate consistent unit economics and cash flow. With our increased emphasis on cash flow, We anticipate our cash EBITDA will be significantly improved and approaching breakeven for fiscal 23. Let's summarize a few of the initiatives in place to drive that goal. First, we've identified a number of opportunities and are targeting the marketing to drive better sales efficiency and policy performance. Similarly, we're confident that our refined approach to our agent population will also improve productivity and customer retention. Specifically, this season our agents will skew more heavily to core tenured staff over flex agents in order to achieve our goal to generate improved returns and cash flow through better agent productivity and marketing efficiency. Second, we have made strides to reduce our operating leverage, which we expect will reduce volatility in our results as well as improve returns. To date, we have identified over $250 million in year-over-year cost reductions including around $40 million in fixed expense. In addition, we believe earlier hiring and training of our agents ahead of next AEP will aid productivity, which in turn would reduce the marketing and operating costs for policy. We're pleased to announce that we've completed hiring our sales agents for AEP in July and are already several weeks into training and onboarding this new class. Similarly, we believe more targeted marketing will also provide cost benefits during the upcoming season. Turning now to LTV, as we've noted repeatedly over the past few quarters, we believe we've taken significant action to reflect the current reality of policyholder persistency in both our legacy cohorts as well as our newly written business. To summarize, modeled LTVs are now down about 30% from the peak, and we've nearly tripled our constraint to 15% over that same period. Additionally, as noted, the tail adjustment we made in the fourth quarter further de-risks future results. Although early, we're quite pleased with how the 2022 cohort is performing relative to LTV expectations. More importantly, we believe the risk of additional cohort tail adjustments has been significantly reduced moving forward. This is important as we build our profitability and candidly reestablish credibility with investors in the coming years. Finally, we continue to be very encouraged by our continued success in healthcare services highlighted by SelectRx. We ended fiscal 2022 with over 25,000 members and are now forecasting a business with revenues exceeding $275 million for fiscal year 2023. This is an impressive ramp for a business acquired with just over $25 million of revenue, a little more than a year ago. There'll be more to share about healthcare services in the quarters and years ahead, but we're very pleased with the validation of our strategy to leverage SelectQuo's unique position in the healthcare ecosystem. And as a reminder, our leverage here stems from the synergy of existing customer acquisition spend and our senior distribution business. We'll share more here over time, but that unique competitive advantage has the potential to yield significant returns for SelectQuote. Best of all, we believe our healthcare services offering seamlessly align with our long-term, trusted two-way relationships with patients, health plans, providers, and most importantly, our shareholders. As we move to slide five, let me highlight three key operating trends in our recent results. First, we've seen encouraging early data from our efforts to improve policyholder persistency. As summarized in the pillars of our strategy, we've made early strides beginning in OEP to refine our marketing with focused targeting and channel optimization. The primary goals here are better persistency trends as well as improved sales and cost efficiency. For instance, as I mentioned, our customer acquisition costs declined 35% year-over-year and our sales conversion improved 31% year-over-year in 4Q, marking the second consecutive quarter of improvement for both metrics. And most importantly, while still early days, the year-over-year comparison of our approved policy persistency bottomed in the third quarter and has since shown consistent improvement. To be clear, we are not declaring victory. and continue to closely monitor these trends to discern the impact of our initiatives. That said, we're encouraged by the retention trends and will pursue incremental improvements as we move into the upcoming AEP season. We've also prepared our agent population much earlier for AEP. As I noted, our AEP recruiting class is now fully hired and in the midst of training and onboarding. We're also doing a good job retaining our highly productive tenured agents, evidenced by an improved year-over-year retention rate. As you recall from our comments in previous quarters, we've historically seen higher levels of productivity and policy retention for tenured core agents compared to newly hired or flex agents. We have conservative expectations, but we believe the combination of a more tenured agent sales force and more targeted marketing on smaller cohort of policies positions us well, demonstrate better policyholder retention and overall returns. Lastly, as we've noted, A lower cost base and continued work to optimize profitability and cash flow should benefit 2023 and the years ahead, while simultaneously reducing volatility in our operating results. I also want to highlight the significant ramp we've seen in our SelectRx membership, as you can see here on slide six. SelectRx offers specialized in-home services to medically complex patients managing multiple chronic conditions. This convenient and coordinated prescription drug delivery has been more than well received. As we exit fiscal 2022 with over 25,000 members, we're highly encouraged about the potential of this business. For context, over 70% of our 25,000 plus SelectRx members were introduced to the business through an MA policy acquired through SelectQuote. Additionally, about 15% of those members originated from another business line's lead generation and referral activity. The bulk of the remaining new SelectRx members came largely from prospects who originally responded to our Medicare plan marketing but did not ultimately buy a Medicare policy from us. In summary, the vast majority of our new SelectRx members came to us without incurring incremental marketing expense directly associated with the promotion of SelectRx. This underscores the power of SelectLoad's ecosystem and why we are uniquely positioned to significantly grow this business with relatively low incremental marketing expense. In future quarters, we plan to share additional detail and disclosure on SelectRx and our healthcare services business. For now, we're excited about both the standalone opportunities and even more excited about the synergy and advantages we see in how healthcare services fits with SelectQuotes positioning as a connector within healthcare more broadly. Lastly, before Ryan speaks to our results, I'd like to reiterate our goals and strategy for fiscal 2023 on slide seven. First, as a baseline, our business model was originally conceived to be an aggregator of significant market share in what remains a substantial and growing market of American seniors. We attacked this market with a scaling population of agents to consume a rising breadth of sales leads. This concept was strategically sound and a stable competitive environment but eroded as competition increased rapidly from other distribution platforms. Fast forward to today, Selectwood has worked incredibly hard over the past six to nine months to pivot our model to ensure attractive policy level returns and visibility in those returns. We're also focused on cash flow and lowering volatility in our financials. In parallel, we've continued to advance the success of SelectRx and believe there is significant potential for our competitive positioning as a combined distribution and healthcare services platform to drive profitable growth and cash flow for shareholders in the years ahead. Again, it is our responsibility to earn that credibility with you all through execution and results, but standing where we are today, we feel confident in our foundation and strategy to achieve that goal. With that, let me turn the call to Ryan.

Ryan? Thanks, Tim. Let me begin with a quick review of our results. And then I can give some context on our senior KPIs as well as the cohort tail adjustment we recognize this quarter. I'll then follow up with a review of the key assumptions in our consolidated guide for fiscal 2023. First, for the fourth quarter, as Tim noted, consolidated revenue for 4Q of 22 was $139 million and consolidated adjusted EBITDA was negative $61 million or negative $13 million when excluding the $48 million cohort tail adjustment recognized in the quarter. Revenue was primarily driven by growth in our senior business and somewhat offset by a reduction in our life business driven by lower term life premium, which was the result of fewer agents and continued COVID pressure on conversion of sold policies to enforced policies. Our auto and home revenue was flat year over year. Overall, we are pleased with the operating results and believe they are in line with our transition and show good progress in our strategic goals to drive better returns and cash flow. If we turn to slide eight, I'll give some context on the key KPIs in our senior distribution business. Total approved policies from the senior division increased to 144,000, up 23% over the same period last year. As we noted last quarter, we saw ramping productivity from new and flex agents as the season progressed. As a result, comparable close rates increased 31% and marketing costs for approved policy declined 35% year over year. We would largely attribute these improvements to higher average agent tenure, as well as the initial impact of our strategic redesign initiative and the special election period. On the middle chart, you can see the 22% year-over-year decline in our Medicare Advantage LTV, which, as we've noted, has been driven by lower policyholder persistency. As Tim detailed, we have seen good initial trends in persistency year-over-year. while encouraging our base operating assumption both for our strategic redesign as well as our 2023 guide that this level of lower LTV will be the new reality of the industry. In an effort to reduce potential future volatility, we'll maintain our 15% constraint in fiscal year 23, even as we bake lower go-forward persistency assumptions into our LTV calculations. Overall, we believe our strategy is very well positioned to drive improving unit economics in our senior business even with lower LTVs. To that point, we would note that our cost per policy in the quarter declined by 24% year over year, which we believe is a direct result of the strategic cost initiative we continue to pursue. Again, to emphasize Tim's point, we're having success driving positive operating leverage in our core senior business, even as we transition our strategies. Now, if we flip to slide nine, let us provide some additional context on the $48.3 million cohort tail adjustment we recognized this past quarter and the impact we have seen in our receivables to date. Naturally, the key question we have received is about how much risk remains within our cohorts from lower persistency. Following this quarter's cohort tail adjustment, we feel that the vast majority of the exposure has now run through our income statement. We developed this page to provide detail to help you all see why we are confident that we have significantly de-risked the portfolio from additional adjustments in future periods. First, as you know, we have already recognized significant adjustments to our assumed LTV for those cohorts, which you can see in the chart. As persistency rates have declined over time with increased competition in the market, LTVs have trended below our initial models. As you can see here, with our adjustments to date, we have now lowered effective LTVs by about 20% in the cohorts written from 2018 through 2021. While we cannot ensure that LTVs will stay here, we have good visibility into the seasoning of our back book and believe risk of future adjustments from those cohorts is low. Specifically, we have now collected around 70% of the cash flows for these policies compared to the adjusted LTVs, which we highlight here to emphasize how little tail risk we believe exists in our legacy book. And as a reminder for seasoning, beyond the first year, the variability on persistency drops significantly compared to switching that occurs in the first year. Now, if we consider the 2022 cohort as well as our plans for 2023 and beyond, it's important for our investors and analysts to recognize that our assumed LPVs for these policies is about 30% lower than what we modeled for the cohorts of the past few years. The $875 assumed LTV for 2023 is a function of our three-year look back, baking in lower recent persistency, plus the continued utilization of the 15% constraint, which we first applied in 2Q of fiscal year 2022. While it is important for context that LTV has come down in our assumptions by a wide margin and our accounting assumptions are significantly more conservative, the most powerful impact, in our view, will be our focus on writing policies with the best return dynamics, and cash flow, instead of solely focusing on volume. Now, if we turn to slide 10, let me outline our key assumptions and outlook for fiscal year 2023. First, we expect consolidated revenue in a range of $850 to $950 million for the year, based on the following assumptions. For senior policy volumes, we expect a 35% to 45% year-over-year decline, which is in line with our strategy to prioritize policy-level returns and cash flow over growth. As indicated, we are focusing more attention on cash flow going forward, and with this pullback, we anticipate that we will actually generate more cash flow from policy commissions and incentives than we will spend to sell new policies this year. In short, we believe the cash flow profile of our business will dramatically improve in 2023. Next, as I touched on in the previous slide, our 2023 revenue guide assumes lifetime values of 875 which we believe reflects the current competitive state of the industry and also incorporates a more conservative 15% constraint. Lastly, we forecast over $275 million in revenue from our rapidly growing healthcare services business, which is predominantly SelectRx. As we've noted, we plan to provide additional disclosure on this division in the future as the business continues to scale. In regards to profitability, As we have noted, we expect 2023 to be a year of transition as we continue to implement our strategic changes. We are projecting a fiscal 2023 net loss in a range of 113 million to 89 million and expect adjusted EBITDA to be in a range of negative 20 million to positive 10 million. For our core senior business, we believe we are well positioned to drive improving policy level economics beyond 2023. It is important to remember that tied to this strategy is our ongoing effort to optimize cost. Last quarter, we said we'd identified around 200 million of run rate cost savings. Today, that number exceeds 250 million. On the flip side, our healthcare services business continues to be a compelling growth avenue for SelectQuote. And as a result, we continue to invest in that growth given the attractive cash flows and returns we see in the business. As I mentioned, We will provide additional disclosure on the business in the future, but for your modeling, we expect EBITDA will break even in the second quarter of the year. Finally, I'm pleased to announce that we have reached an agreement on an amendment to our current credit covenant with our lenders that we believe will provide us adequate liquidity to operate the business in the coming quarters. With that, let's get to your questions. Operator?

Absolutely. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We will pause it briefly as questions are registered. The first question comes from the line of Elizabeth Anderson with Evercore. Elizabeth, you may proceed.

Hi, guys. Good morning. Thanks for the question. question was just regarding you talked about the fact that you have all the agents hired for the 2023 AEP season. Can you talk about sort of what you're doing differently this year with that? I think you mentioned that obviously, it's a more tenured group. But you know, with some of the changes that we've had about some of the, you know, requirements of what they have to do, etc. I just want to understand how you guys see that playing out at this point.

Yeah, Elizabeth, good morning. This is Tim. Thanks for joining and thanks for the question. I'll make a few opening comments and then maybe turn it over to Bill. You know, I think just more broadly with respect to AEP readiness, we feel very, you know, well positioned this year, you know, from an agent perspective and Bill can speak to this. We've secured our flex agents very early this year and we're pleased with their progress and training. From a core agent perspective, we looked to the past two quarters, the improvements in close rates, our attrition levels for our core agents are actually better year over year. And Bill can maybe touch on other things regarding marketing. Certainly, we'd note the improvements in cost of acquisition, not only in fourth quarter, but in third quarter. So we feel overall very well positioned. Bill?

Yeah, so specifically around the class, you know, what we did to address, you know, prevent the problems from what occurred last year, I guess. You know, we learned a lot from certainly what happened last year and how the market, I would say, post-COVID and, you know, how they reacted with kind of the hiring environment, so to speak. I think if you remember last year, we had a lot of folks that would say yes and then wouldn't go through the licensing process. So we had to move a lot of our ratios around. We started significantly earlier and then we were recruiting less folks. So all of those things combined, I think, led to a much earlier class being hired as well as we think and believe higher quality and all of our kind of leading indicators would suggest that thus far.

Got it. And then as a follow-up, What gives you comfort? I know that you talked about some of the cohort analysis on slide nine. What gives you comfort that 875 really is the right number for fiscal 23 in terms of MALTV?

Yep. Thanks, Elizabeth. You know, I think, you know, on that slide, as you move from left to right, we had 875 in 2023. And to the right, you saw that in prior periods, it was you know, the LTVs were much higher. We've obviously brought those down significantly. I think it's, you know, it's important to note that, you know, the vast majority of the switching and the highest persistency pressures does occur in the first year to second year. And so, when we look at those older cohorts, you know, we are beyond that point, so we have better visibility into the cash stream that we would expect to generate from those policies going forward. As we move You know, I guess one other point there is we have collected 70% of the lifetime value that we'd expect to calculate or generate from those policies. As we move into more recent cohorts, in 2022, obviously, you know, it does incorporate lower persistency as a result of the past couple years and the pressures we've experienced. But we've also layered in that incremental constraint of 15%, which is nearly triple what we had in prior periods. and worked out to about $100 per policy. That cohort, the fiscal year 2022 cohort, is performing very well. When we look to 2023, obviously, another year of higher persistency falls off. And so the calculation is a little bit lower. We have decided to maintain that 15 percent constraint just to keep it conservative. And so, you know, overall, we do believe that the vast majority of the back books you know, is secure and that there's, you know, the risk is largely behind and we feel good about the economics that we're writing the new policy that.

Got it. Thank you very much.

Thank you. The next question comes from the line of Jonathan Young with Credit Suisse. You may proceed, Jonathan.

Hey, thanks for taking the question. I know we're not in the AEP yet, but within the context of your guidance, can you give us color on how you're thinking about MA enrollment and the number of policies or, you know, direction of growth rates? I know it'll be down here over the air, but can you give us any color there?

Yeah, so we are assuming, you know, in the AEP period, a pullback in overall policy production. That is part of our strategic redesign. We do have all the agents hired, and we feel good as we're entering in the AEP season, but there is a pullback.

Okay, but there's no color on the slide.

Yeah, I might add to that, Jonathan. I think as we looked at 23, and we've highlighted this on the prepared remarks, Certainly a year of transition of fiscal 22 was a very difficult year for the company yet. We certainly see greener pastures ahead. As we looked at it, I mean, the market opportunity is certainly large enough to bear more production, but we wanted to base the pullback on growth where we thought we could drive the best returns on invested capital. As we committed to, we needed to reduce operating leverage and some of the operational risk factors. that were problematic last year and ultimately put a stronger focus on cash flow. And so we were very deliberate with the plan this year. How could we drive our best marketing sources with our best, most productive agents? And that's really what we've outlined in this 30% to 45% policy pullback year over year. And we think that that certainly will dramatically improve the cash flow profile of our business. And again, we're marching towards cash EBITDA break even this year.

Okay, great. And then you increased the cost savings from $200 to $250 now, fixed components staying the same. But I guess relative to our models and consensus, I guess, your EBITDA guidance is actually slightly worse than consensus about in line with ours. Maybe it was a little bit of mismodeling, but I guess with that increased $50 million, I thought there would have been a little bit more pull through in the EBITDA line. So can you give us any color there on what may have changed? Maybe it's timing or anything of that nature? Thanks.

Yeah, so with respect to – go ahead, Rod. Yes, I think there's two pieces in play. So one, you know, when we calculated and shared $200 million, we're actually slightly above that in total. But secondarily, there is some timing. You know, when we look at the AEP and kind of what we're hearing early reads, as well as recent business performance from a cost per client acquisition, you know, we do believe that the overall cost is going to come in favorably. So that's really what's driving the total aggregate savings of 250. We are still expecting the fixed cost savings of 40 million at that $40 million range.

Okay, thanks.

Thank you. Again, ladies and gentlemen, if you would like to ask a question, please press star, followed by 1 on your telephone keypad. The next question comes from the line of Meijer. Mayer, Schultz, Wicke, Buett, and Woods, you may proceed.

Great. Thanks. Good morning. Thank you for taking my question. Can we get a little more detail on the credit government? Is there a change in the interest rate or the dollars that you expect to spend on interest in fiscal year 23?

Yes. So, we're obviously very pleased to have the amendments in hand and to have had are willing to work with us. As customary with amendments, there is obviously an economic component to that. And with that, in the coming year, there is a step increase in the overall interest rate. A portion of that is payment in kind, and roughly one-third of it is actual cash interest.

Okay. With regard to the tenured agents, is there, in other words, looking at the same cohort, that's the wrong word, sorry, the same group of tenured agents relative to last year or the year before, is there any change to their compensation?

No, Meyer, good question. There's not any change to their compensation on a per policy basis. We do expect with a more tenured force and just kind of our planning for AEP that's Their overall compensation will be a bit higher because the productivity will be a bit better. We didn't necessarily model it that way, but we are confident we can drive good results there, but no overall change.

Okay, perfect. Thanks so much.

Thank you. The next question comes from the line of Daniel Grosslight with Citi. Daniel, your line is now open.

Thanks for taking the question. I'd like to focus a little bit on the synergies that you mentioned between your, it's called the core Medicare Advantage Comparison Solution and SelectRx. I think it said around 70% of SelectRx members are actually introduced to SelectRx through that core MA solution, and then there's some more on top of that that didn't actually select the MA policy through you guys, but ended up on SelectRx anyways. I'm curious how the slowdown in MA membership acquisition is going to impact the growth of SelectRx, given a bulk of those SelectRx members are acquired through your core MA comparison solution.

Yeah, Daniel, good morning, and thanks for the high-quality question. We're very pleased with the synergistic relationship we're seeing here. extremely strong consumer demand. We eclipsed the goal that we set up for the year of 25,000 members. And I think we're seeing, as we highlighted on our prepared remarks, this is business that we're generating for RX that's fantastic for the consumer and is absolutely leveraging the existing MA spend. We're seeing that across both customers that purchase an MA policy with us as well as those that ultimately don't purchase a policy. But I might ask that Bob speak more to that and how we're looking at that going into 23.

Yeah, thank you for the question. Just as a reminder, we did not start really growing that business until late in the year, so we don't think that that will come with any really pull-down or anything like that. The 70% that we referenced is 70% of the members in SelectRx are ones from our core business, not necessarily 70% total attachment rate if you look at the two numbers. Therefore, we still have a lot of room for upside with that. So very, very excited about the progress there. And what it does for a customer really helps their overall medication experience. We see really, really strong adherence rates within that. And then also, you know, when eligible, we see really strong MTM rates as well. So we are very excited about our progress there and the revenue and value that's driving.

Got it. Okay. So we'll have room to grow SelectRx in that kind of existing MA membership base. And then I guess, you know, a big picture question for you guys, if you – Listen to the earnings reports of all your public competitors and even talk to some of your private competitors too. Everyone on the eBroker side is cutting marketing and agent hiring costs pretty dramatically. And then if you look at what the carriers are saying and what CMS is projecting for MA overall, it continues to grow rapidly. So obviously a shift in where members are going to be getting their policies from. So two questions there. Are you assuming more beneficiaries going forward are just going to go direct to the carriers or access through traditional agents? And secondly, how do you think the slowdown broadly in marketing and agent hiring for the sector is going to impact persistency, LTVs and CACs going forward?

Great question, Daniel. I'll maybe address your second question first and then have Bill and Bob comment on the first one. I would say with respect to the competitive environment, I mean, we are seeing, you know, a pullback in spend and competition, and we do think that that is, you know, we could certainly benefit from that. It could lead to more rational behavior long term. But, you know, with that said, I mean, we're not, this isn't a strategy based upon hope. You know, we are controlling the controllables, and we certainly think that we can drive better returns in the business, and we haven't talked a lot about it. on the Q&A here, but the persistency results that we're seeing from a series of actions that we've taken really starting late in third quarter across marketing segmentation to agent retraining, to modifications to sales comp, to changes in our tech stack, we're starting to see those persistency pressures stabilize and actually are witnessing a little bit of year-over-year improvement. We think that that's all, you know, encouraging early signs. Maybe turn it over to Bill or Bob on your first question.

Yeah, I mean, I can certainly comment from the marketing side. We certainly see it kind of right now with a tailwind all the way around, both from just the volume that is available as well as the quality. You know, we've been able to do two things. One, we've been able to decrease cost fairly significantly while getting a better quality customer. You know, as it relates to where the business will go, I think that, you know, kind of see how that plays out. And certainly, you know, the combination of carriers, you know, obviously with COVID kind of winding down, you know, some of the FMOs channels in terms of the face-to-face agents. It's coming back a bit. And then certainly, you know, the e-channels. I also think that there will be a bit of just, you know, less marketing that's driving those calls sometimes. So, you know, last year, if you look at it, you have, you know, the airways were kind of being really jammed over and over and over again with ads, more and more ads. I think you'll see less of that this year. So hopefully you'll see with that, as Tim mentioned, maybe better persistency or folks jumping plan to plan, thinking that there's something better out there for them.

Got it, thank you. As far as the carriers go, I was going to say, I think Bill spoke to it well, but they're well diversified, can't necessarily speak to their overall growth strategy, but FMO channel has definitely come back a bit. and they're diversified within our channel. So, yes, you've seen the public companies pull back, really focused on growth and those things, but don't really want to speak to exactly how they're planning their growth.

Yeah, yeah. Thank you.

Thank you. The final question comes from the line of Ben Hendricks with RBC Capital Markets. Ben, your line is now open.

Thank you very much. I just wanted a quick follow-up on the credit agreement covenants. Having elected to recognize that additional $48 million of tail adjustment here in the quarter, can you talk about the cushion that you have under the new minimum asset coverage ratio and kind of give us an idea of your tolerance for additional potential tail adjustments should persistency decline further? Thanks.

Yes, I think there's a couple parts in there. One, with respect to persistency in the $48.3 million, I think it's worth pointing out that this is not as a result of new persistency pressures. And in fact, we're actually feeling good about some of the positive trends that we're seeing from a persistency perspective. That said, as we were preparing the guide for fiscal year 2023 and doing the quarterly analysis that we do each quarter, it did become clear that Some cohorts that had not fully exhausted their constraint would be doing so in the coming, you know, quarters ahead, and so it made sense to go ahead and take that at this time. That has been all factored into the covenants and the compliance ratios on a go-forward basis. We've spent a lot of time with the lenders walking them through our plan for fiscal year 2023, and our covenants are set in line with those you know, the compliance counts that are embedded within our guide. We do have some buffer, and we've been intentional about making sure that we have a plan that we can execute against.

Yeah, I would just emphasize that last point, Ben. I mean, we, this amendment provides the covenant adjustments and the liquidity we need to operate the business for fiscal 23, and we feel good about that position and our preparation going into AEP.

Thanks, guys.

Thank you. There are no questions waiting at this time, so I would now like to pass the conference over to Tim Banker for closing remarks.

Thanks again for joining us this morning. As we've noted before, we take our responsibility to produce improved and more stable financial results very seriously. We're committed to earning that credibility with investors through our results. As we stand here today, we're clearly shifting our strategy for fiscal 23, but we're increasingly confident of the success in that strategy based upon the early results that we've seen from our initiatives. So we look forward to sharing more about our progress on that end. We look forward to talking with you soon. Thanks again.

That concludes the conference call. Thank you for your participation. You all may now disconnect your lines.