GoHealth's (GOCO) CEO Clint Jones on Q4 2021 Results - Earnings Call Transcript

Mar. 15, 2022 9:29 PM ETGoHealth, Inc. (GOCO)1 Comment
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GoHealth, Inc. (NASDAQ:GOCO) Q4 2021 Earnings Conference Call March 15, 2022 5:00 PM ET

Company Participants

Brian Farley – Chief Legal Officer

Clint Jones – Co-Founder and Chief Executive Officer

Travis Matthiesen – Interim Chief Financial Officer

Shane Cruz – Chief Operating Officer

Conference Call Participants

Elizabeth Anderson – Evercore ISI

Jailendra Singh – Credit Suisse

Michael Cherny – Bank of America

Tobey Sommer – Truist Securities

Ben Hendrix – RBC Capital Markets


Thank you for standing by, and welcome to GoHealth's Fourth Quarter 2021 Earnings. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today's conference call is being recorded.

I would now like to turn the conference over to your host, Mr. Brian Farley, Chief Legal Officer. Sir, you may begin.

Brian Farley

Thank you, and good afternoon, everyone. I want to thank each of you for joining GoHealth's 2021 fourth quarter and year-end earnings call. Joining me today are Clint Jones, Co-Founder and Chief Executive Officer; and Travis Matthiesen, our Interim 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 any of these statements or any guidance provided, 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 year-end fiscal 2021. In addition, presentation materials that Clint and Travis will walk through momentarily, both the release and the slides, can be found on GoHealth's 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. Other significant risk factors are described in our Form 10-K and 10-Q reports filed with the Securities and Exchange Commission. We filed a Form 12b-25 earlier this month in order to obtain a 15-day extension on our 10-K filing due date. We intend to file our 10-K for fiscal year 2021 tomorrow, March 16, in line with the 12b-25 extension.

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 the reason management believes they provide useful information to investors regarding the company's financial conditions and results of operations. These are contained in the press release and investor presentation.

And with that, I'd like to turn the call over to Clint.

Clint Jones

Thank you, Brian, and thank you all for joining us to review our fourth quarter and full year 2021 results. As Brian mentioned, we have posted a slide deck to our Investor Relations website that we will walk through before opening to Q&A.

Before I jump into our results for the year, let me thank all of our GoHealth employees for their hard work and long hours spent educating and enrolling customers during AEP. Their dedication to our mission has been inspiring and something we look to build on in 2022.

2021 was a challenging year on multiple fronts for us, and we are disappointed with our operating results. Entering AEP, we achieved our hiring goals, observed strong consumer demand, and we're optimistic with our agent conversion rates, leveraging our technology platform. The primary driver of our miss to plan was the lower effectuation and retention characteristics as a result of consumers shopping much more often than we expected. This affected both new members that were sold a plan in Q4 as well as members from older cohorts that we expect to stay on their plans. These drop-offs ultimately resulting in a Lookback Adjustment we took on previous vintages as well as a constraint we have added to our Q4 2021 enrollments to mitigate future lookbacks, which dampened our reported results. Travis will unpack these more when we discuss our full year financials.

In addition to these LTV and churn challenges, which were observed by us and our peers, we also observed increased competition for MA advertising. We saw cost pressures and underperformance in certain marketing channels, which also negatively impacted retention.

We don't think that last year's environment is sustainable for many players, and we believe there will be a pullback in marketing spend and overall competition, which we've already begun to see. Finally, we were not immune to the challenging labor market, and we observed higher-than-expected agent attrition, which meant operating with less experienced agents. But because we intentionally prioritize growth and scale in 2021, we are in a strong position for 2022 with a larger and more experienced agent base than we've had in the past. This positioning means we can reduce investments in hiring in 2022, and focus on building the tenure of our agents through career development programs and be much more selective with any new agents we look to onboard.

As we look to 2022, we believe we are well positioned for success. We have the most efficient platform in the Medicare Advantage e-broker space. Through the challenges of last year, we have emerged as a leader in Medicare Advantage enrollments. Encompass continues to gain traction as evidenced by $72 million of revenue in 2021, above expectations, which also improves our cash flow profile.

Demand for e-broker enrollment continues to be very robust as consumers seek comparison shopping services. Our platform provides an easy way for consumers to quickly find the right plan that meets their needs.

Our key focus on 2022 will be on cash flow and better operational leverage. We are taking big steps to drive profitability while operating in a constrained LTV environment. Our formula for success in 2022 starts with optimizing the marketing engine and being highly selective with the leads we generate and leveraging our guided selling platform to continue to improve agent performance and increase LTVs and finally, allowing our large book of commission receivables to catch up and boost cash flow.

One additional note before we move on. In our press release we shared on March 1, we noted that we are working with our lenders to secure a waiver on certain covenants. We have secured the waiver and have outlined a plan in 2022 that we believe will not require any additional capital to get to our goal of positive operating cash flow by the first half of next year. With the challenges we observed in 2021, we learned several lessons that will help us optimize the business and drive profitable growth.

I'll touch on a few key lessons here on Slide 5. One, increased consumer shopping put pressure on our LTVs, and we are addressing this in three ways. We are taking a Lookback Adjustment on prior vintages. We are applying an additional constraint on Q4 LTVs to mitigate future lookbacks. We are assuming lower LTVs in 2022. Travis will discuss these in future slides.

Two, we are aligning our marketing spend with our updated LTVs in 2022, and we are optimizing our channels to focus on the highest-quality leads that have proven to increase member retention.

Three, we have clear data from a challenging 2021 that shows the impact of our guided selling platform on key sales performance metrics like conversion, quality and retention. We are decreasing the number of new agent hires now that we have a large agent workforce and leveraging this workforce's experience on our guided selling platform while continuing to invest in their development and success.

Moving on to Slide 6. We continue to have strong conviction in the Medicare Advantage market and see strong tailwinds for years to come. There will be over 4 million seniors aging into Medicare in 2022 at a pace of 11,000 per day. Most of these seniors are technically savvy and are used to comparison shopping and buying online and over the phone. Medicare Advantage is growing at 7% to 8% per year for the next several years and provides an attractive alternative to original Medicare.

The abundance of plans in the market means that there is more value for consumers to come to comparison shopping services like ours, and the data shows that e-broker channels continue to gain an outsized share of new enrollments. As we have previously stated, our channel is important to providing education, choice and transparency for the consumer and the source of quality membership growth for our carrier partners.

On Slide 7, we show our highly differentiated model that leverages machine learning, omni-channel marketing and highly skilled and trained agents to help every consumer navigate a very complex process. We use data and technology at every step of the way to customize the customer journey.

This data and technology platform has continuously evolved over the last 20 years. Our marketing engine engages with customers in both online and off-line methods with customized messages and content. Our machine learning tools score and route customers in real time to our licensed agents, creating a journey centered around the customer and the best plan that fits their needs.

Our TeleCare agents perform services that drive quality and engagement under our Encompass Platform aligned in the interest of the customers and the carrier. While others in our space experienced sales conversion issues in 2021, our platform enabled us to increase sales conversion throughout the year despite a significantly less-tenured workforce. With more tenure in 2022 and additional enhancements to our guided selling platform, we believe we will have a significant advantage in the market to help consumers find the right plans.

Slide 8 shows the benefit of our investment in scale. While these investments we made in 2021 proved more expensive than planned, we achieved tremendous enrollment growth relative to our peers. Despite the challenges we described, we were able to enroll 1.2 million consumers in new plans in 2021, a record number and more than 2 times our nearest peer.

This volume growth is a product of our 2021 strategy to invest in our agents, technology and Encompass Platform. We believe we will continue to expand our leadership position in 2022 and plan to differentiate ourselves further by becoming the first of our public peers to reach positive operating cash flow.

Moving now to Slide 9. In terms of our financial results, we achieved full year revenues of nearly $1.1 billion, powered by a record 1.2 million submissions and had a full year EBITDA of $34 million. As I mentioned before, our lower-than-expected LTVs had severe impacts on both top and bottom lines. However, we were able to emerge from 2021 as the largest enrollment engine and the leading partner with our top carriers.

We continue to gain momentum with our Encompass Platform as evidenced by our $72 million in Encompass revenue for 2021. We believe we are at an inflection point where we can leverage our scale to focus on optimizing our business and producing healthy durable cash flows.

Looking ahead to our key priorities in 2022 on Slide 10, we have a lot to work on, much of which is already underway. We will reduce our marketing spend in certain channels in 2022, allowing us to be more selective and disciplined with our LTV to CAC ratios and profitability. We are focusing on building our agents’ experience on our guided selling platform and investing in their career development.

We will be much more selective with new agent hires as well. We will continue to make investments in technology solutions that drive efficiency and effectuation yielding higher-quality enrollments. We are continuing to scale our Encompass Platform and retention activities for our major partners, which will improve cash flow characteristics.

Finally, after years of aggressive growth, we will be shifting our focus to operational efficiencies. We have set a goal of cash flow positivity in the first half of 2023. Some of these efforts and cost reductions have already taken place, and we will see much more favorable cash flow profile in 2022 and beyond with these strategic shifts.

Before I turn over the presentation to Travis to provide more color around Q4 and full year 2021 results, I want to again reiterate to our shareholders and stakeholders that we are disciplined in our 2021 results and believe we have a big opportunity to optimize our business in 2022 and operate against a new set of unit economics. We have established a strong leadership position in a healthy high-demand market and look forward to continuing to deliver on our mission of improving access to health care in America. Travis?

Travis Matthiesen

Thanks, Clint, and good afternoon, everyone. I also want to start by thanking our teams for their hard work over the past year. Turning to Slide 12, you’ll see the key financial highlights for both the year and the quarter. Starting with the fourth quarter, total revenue grew 1% to $450 million, fueled by Medicare Advantage commissionable approved submissions of 654,000, growth of 99%. This policy growth was offset by a fourth quarter lookback totaling $155 million relating to Medicare Advantage policies sold in prior periods.

Fourth quarter adjusted EBITDA totaled $2 million, down from $170 million in the prior year period. Again, this was mainly driven by the lookback taken in the current quarter relating to prior period policies. We will walk through that in greater detail later on in the call.

Moving to full year 2021 results. Revenue increased 21% year-over-year, growing to $1.062 billion. Excluding the lookback from prior periods, revenue grew 40% to $1.227 billion. Medicare Advantage submissions grew 60% for the full year, totaling roughly 1.2 million submissions in 2021. Finally, adjusted EBITDA for the full year was $34 million and $146 million prior to the lookback.

Slide 13 better illustrates the growth we’ve seen during the last few fourth quarters and AEP periods. As you can see on the far right side of the slide, when removing the lookback adjustment, the fourth quarter saw a 35% increase in revenue growth. This increase was driven by a 94% increase in Medicare Advantage submissions and offset by a 25% decrease in LTVs relative to last year’s reported MA LTVs, inclusive of a 15% constraint that was applied on top of previously modeled constraints.

A lot has been said about the market dynamics in our sector regarding lookbacks, policy churn and ultimately reported LTVs, so I wanted to spend some more time over the next few slides detailing what we are seeing in our space today and what we expect to see moving forward.

Starting with Slide 14, you’ll see details surrounding the lookback. Before we dive into the numbers, I wanted to first provide some context. We engaged a third-party actuarial firm to analyze our models and help us validate LTVs given the acceleration in churn we are seeing with our historic policy vintages.

Through that process, we concluded that we would be best served taking a lookback adjustment totaling $155 million in the fourth quarter, relating to Medicare Advantage policies sold as far back as 2018. To put that adjustment in perspective, the total revenue originally recognized for those vintages is roughly $1.5 billion.

Since inception, we have taken smaller look back adjustments relating to these vintages but the acceleration observed in the last six months drove the $155 million taken in Q4. So to put that $155 million in context, it represents a roughly 11% downward adjustment to the originally recognized $1.5 billion in revenue.

It’s also important to note that 42% of or $636 million of the recognized $1.5 billion in revenue has been collected thus far across all those vintages impacted. We are, of course, disappointed with the trends we have seen with our historic vintages, but we are making the necessary investments and changes to our marketing, sales and TeleCare teams and processes to improve policy retention moving forward.

Moving to Slide 15, the second biggest driver of fourth quarter results being lower than our projections is the additional 15% constraint we’ve applied to our Medicare Advantage policies sold in the quarter. As you can see from the bar chart shown on the slide, reported fourth quarter LTVs are 25% lower than prior year reported LTVs. When adjusting the Q4 2020 LTVs for the impact of the look back adjustment, Q4 2021 LTVs are in line with prior year. And after accounting for the impact of the look back adjustments on those prior vintages, a 15% decrease.

This is driven by a few main factors. First, the combination of observed macro shopping trends, plan mix and new agent performance during Q4 were all drags on LTVs. As Clint mentioned, while we hit our agent hiring targets for the fourth quarter, we have the highest percentage of new agents on the phone this past AEP as compared to prior AEPs. The combination of all the aforementioned items ultimately drove lower-than-anticipated effectuation rates, which were offset by higher carrier commissions and expanded Encompass revenue.

Second, given the acceleration and churn we have seen in prior vintages, we also elected to apply an additional 15% constraint on calculated LTVs here in the fourth quarter. Again, it’s important to note that this is applied on top of prior constraints embedded in our model.

Slide 16 provides some color on the components of our revenue growth in the quarter. Commission growth continues to increase as illustrated by the $24 million increase in commission revenue post-look back and $179 million increased pre-look back, a 36% increase.

Medicare-Internal continues to power our growth, a 5% increase in the fourth quarter, inclusive of the look back adjustment. Our External Medicare channel continues to be important to our business. As a reminder, our external programs are yet another way for us to drive quality membership growth as small and midsized agencies right policies under a revenue share arrangement where they are paid only when we are paid.

These agents are not outsourced BPO programs, rather they utilize our technology, compliance and carrier contracts to write quality business for carriers. And finally, we have our ISP business with revenue of 48% as we continue to reallocate towards the faster-growing and higher-margin Medicare business. The top line drag from IFP lessons going forward as IFP’s share of total company revenue continues to diminish.

Let’s now move to Slide 17. Fourth quarter adjusted EBITDA of $2 million post-look back was well below our expectations, and we are taking the measures necessary here in 2022 to improve upon these levels. Continued strong consumer response to our marketing combined with demand from our carrier partners, is still indicative of a healthy fast-growing market. And we believe the strength of our marketing capabilities, agent investments an integrated business model developed over the last 20 years, will continue to expand our leadership in this space. But we need to slow down to improve our execution and adjust to the recent trends in consumer behavior. We have the plans and motion to deliver on that in 2022, and I’ll come back to that in a minute.

But first, let me quickly summarize our full year 2021 results shown on Slide 18. Full year revenue of $1.062 billion was an increase of 21% on top of the prior year’s 63% growth. EBITDA of $34 million declined 88% relative to prior year’s results.

While we are not pleased with these results, they nonetheless stand in stark contrast to those reported by some of our competitors and validate our superior tech-enabled agent strategy. The investments we’ve made in scale coupled with the expansion of our Encompass platform will help drive revenue per submission higher in future periods.

Moving on to cash flow shown on Slide 19. We exited 2021 with $84 million of cash on hand and access to $45 million of untapped revolver. We collected a record level of cash during the year, which we reinvested into building a larger book of future commission streams manifesting in roughly $300 million of commission collections thus far here in Q1. So while we have grown our submission count dramatically over the last few years, in 2022, we are moving towards a more deliberate growth strategy funded by our current cash balance, access to the revolver and cash generated from previously sold policies.

Slide 20 showcases our growing commissions receivables balance. Put simply, it’s the largest absolute and percentage growth in the industry. During fiscal 2021, we grew our commissions receivables balance by 56% to $1.3 billion, inclusive of the look back previously discussed. And we collected $428 million in cash, a year-over-year increase of 75%. Year-over-year cash collected from commissions is another metric to illustrate our continued growth in size and the important part we play in the Medicare Advantage ecosystem.

Starting with Slide 21. I’ll spend the next few minutes diving into a bit more detail on 2022 guidance before turning the call over to Clint to walk through our strategic initiatives. So with that, let me now move on to the 2022 outlook shown on Slide 22.

We expect to deliver full year revenue of $900 million to $1.1 billion, representing a range of growth between negative 15% and positive 4%. This will be driven by continuing our focus on Medicare Advantage enrollments and the expansion of our Encompass platform. From an adjusted EBITDA perspective, we plan to deliver $110 million to $150 million, representing growth between 224% and 343%. As a reminder, that growth is outsized given the look back we took in Q4.

Finally, we expect cash flow from operations of negative $50 million to negative $10 million for the current year and given the seasonal nature of our business being cash flow positive from operations on a trailing 12-month basis in the first half of 2023.

Moving to Slide 23, you can see revenue guidance. As mentioned earlier, we continue to focus on our Medicare channel, and we’ll have a particular emphasis on the quality of our enrollments. This includes a decrease of 9% commissionable revenue growth at the midpoint, while we slowed down our enrollments. We also expect roughly flat enterprise revenue as we continue to expand our programs across more carriers, but offset by lower submission growth in the current year.

We expect short-term year-over-year decreases in our LTVs in quarters one through three, given the additional constraint we are applying. Once we arrive in Q4 where LTVs would be more comparable, we expect LTVs to be flat year-over-year. Upside would result from our efforts to drive higher persistency and increased penetration of Encompass members.

Regarding enterprise revenue, we have built in prudent assumptions on enterprise revenue despite the encouraging conversations we are having with carriers about expanding our partnerships, be it marketing services, technology or Encompass programs. We expect enterprise revenue to be roughly flat this year or roughly 20% of revenue compared to enterprise at 17% of total revenue this past year. Finally, we expect modest growth from our external Medicare business as carriers increasingly push agencies to work with us on our platform and continued declines in our IFP business.

Moving on to Slide 24. We expect 2022 adjusted EBITDA to come in between $110 million to $150 million, representing growth of 282% and margins of 13% at the midpoint. As Clint mentioned earlier, we have learned from both the operational missteps made in 2021 and the changing market dynamics and are reacting accordingly through slowing down growth and focusing on the incremental margin of the next sale made. The combination of our reduction in agent hiring, more focused marketing and reductions made in our corporate cost structure will be key drivers in the improved profitability in 2022.

To help you better model the impact and timing of these initiatives in 2022, we expect lower absolute EBITDA and revenue during the first nine months of the year as we pivot to a more optimized agent force combined with lower reported LTVs. The execution of these efforts will allow us to capitalize on the most important quarter, the fourth quarter, building momentum into 2023.

As we move into the annual enrollment period in the fourth quarter, we anticipate continued margin gains powered by our optimization efforts driving improvements in both marketing efficiencies and agent performance. We won’t need an increase in qualified leads to hit our numbers focusing on higher quality enrollments and upsized Encompass programs to both drive down CPAs and increase revenue per submission.

Finally, we are prioritizing improving cash flow from operations. You can see on Slide 25, how we plan on executing on our cash flow strategy. First, based on our historic rapid growth, we will walk into 2022 with meaningfully higher commission collections as compared to prior years, driven by the strength of the policies sold in 2021 and prior periods. Second, we continued to expand our Encompass programs across multiple carriers, which will drive more cash into the business in the current year. Third, we will be much more selective in our marketing channels, focusing on higher-quality members. That will be combined with slowing down the hiring of new agents and leveraging our more tenured agents in the current year as we move to a more optimized model.

As mentioned earlier, we have laid out a plan that achieves two main objectives: first, executing on the goal of maintaining our market position by driving high-quality volume for our carrier partners; and second, maintaining this position while simultaneously being the fastest to cash flow breakeven with the goal on a trailing 12-month basis of being cash flow positive from operations by the first half of 2023.

Finally, Slide 26 illustrates the power of our previously sold policies and the cash we expect to generate in 2022. These previously written policies and cash flows combined with policies sold in 2022, and we expect to have a more favorable year one cash profile due to our Encompass traction will generate more cash per policy sold in 2022 than any prior period. That, in combination with the cost strategies we have discussed gives us confidence in our ability to meaningfully improve our cash position and positions us well for future growth.

So in summary, we’ve maintained our position as a leader in our space and have identified the investment areas that positions us well for 2022 and sets the stage for us to deliver compounding growth over the coming years.

With that, let me now turn the call back over to Clint for some closing remarks. Clint?

Clint Jones

Thanks, Travis. As I mentioned earlier, Slide 27 shows our five key priorities in 2022, focus on improved cash flow, quality LTVs and efficiency. In the next few slides, I’m going to unpack in a little more detail on each of these overarching priorities.

Moving on to Slide 28. Our marketing focus is on driving higher-quality lead attributes as we slow down and are much more selective with how we allocate our marketing dollars. We can improve cash flow with lower overall marketing spend particularly reducing volume during the less-profitable SEP periods and on less-profitable channels. And we’ll focus on sources that drive quality LTVs. Our data and our analytics here with our scale will allow us to reduce the cost per retained member and increase our profitability.

On Slide 29, we have a few key initiatives for our agent base. After a large investment in recruiting and onboarding in 2021, we are now in a position to leverage our agents and drive performance improvements via our guided selling platform and additional coaching and trainings. Our initial rollout of our Plan Fit tool, the subset of agents showed a relative gain of 20% in agent conversion, improved active rates, all while decreasing agent ramp-up time. We have plans to continue to improve agent performance through our advanced technology, coaching programs and revamped career development pathways.

On Slide 30, we will focus our technology investments across our integrated platform from marketing, sales and consumer engagement. We are improving our marketing automation and dynamic lead scoring features to support efficiency and our company-wide focus on quality. Based on lead score and consumer demographics, our guided selling tools match the consumer to the agent providing the best plan options. We believe these tools will improve customer confidence and quality enrollments as well as agent satisfaction.

Post-enrollment, our technology will also power customized customer journeys to facilitate effectuation and retention through our Encompass platform. We are also improving our machine learning model to better identify members at risk of churn for more proactive outreach to improve retention.

Moving to Slide 31. As we mentioned before, we’re very excited about the growth of our Encompass platform and its continued momentum. We have observed 19% higher revenue per member for those on our Encompass platform primarily due to improved member engagement and retention. We will continue to expand the platform’s reach in 2022. This will help improve unit economics through increased LTVs and quality retention as well as the cash flow profile of our members.

A critical part of optimizing our business model is our focus on profitability and cost discipline, shown on Slide 32. We have identified $200 million in cost savings across our business by reducing spend on marketing and advertising, fewer new hires and lower CC&E spend as well as infrastructure rightsizing on the SG&A side. We have already taken cost actions that will improve our profitability and cash flow without jeopardizing our long-term success. We continue to see opportunities across our business to improve our unit economics as we slow down from aggressive growth to drive better operational leverage.

Although we are disciplined with our operating results for 2021, we are strategically positioned to continue our leadership position in 2022 and beyond. As the largest enroller in our sector, we have great momentum to improve quality and unit economics. Our underlying market is big and growing, and recent consumer shopping trends only make our choice platform more valuable to consumers and carriers. With our 2022 focus on optimization, we remain very positive on this market and our ability to execute in a uniquely challenging environment. Our greatest asset is our people, and I’m confident that we will all rise to the occasion and emerge as a stronger company with a bright future.

I want to thank all of our employees once again for their hard work and dedication they bring every day as we look to deliver on our mission to improve access to health care in America.

Operator, we will now take questions.

Question-and-Answer Session


Thank you. [Operator Instructions] Our first question comes from Elizabeth Anderson of Evercore ISI. Your line is open.

Elizabeth Anderson

Hi guys, thanks so much for the question. My first question was you mentioned about sort of agent retention and sort of leveraging off of the hiring you did this year. How do you think about retention of agents over the course of the fiscal 2022, just given the fact that you go from sort of a super busy AEP period to modestly busy OEP period, and then you kind of have this almost dead time where commissions might be lower, there’s a robust hiring environment, so how do we think about sort of how you’re able to do that over the course of the year?

Clint Jones

Yes, great question. Obviously, it’s something we’re heavily focused on this year and kind of gone through the experience we did last year with higher attrition. So continued focus on career pathing, agent development. There’s a lot of things that the agents can be doing during the SV periods outside of selling with kind of memory retention and other activities that they can earn commission on. So, we’ll be focusing heavily on that. It’s really around the career development and training and preparation for AEP.

Elizabeth Anderson

Got it. And then in terms of the 15% additional constraint that you put on the LTVs this quarter, how did you get comfort that, that was the correct amount?

Clint Jones

Yes. So as Travis mentioned, we brought in a third-party actuarial company just to help us validate that and think through that. We and many in this sector have been kind of hit by LTV pressures and dynamics in the space. And as we think through kind of applying a constraint on a move-forward basis, that’s what we got comfortable with. And as trends change or improve, we can – we’ll move from there. And Travis, anything?

Elizabeth Anderson

So is it basically taking that 4Q number and like flat lining it forward in terms of the churn you saw?

Clint Jones

Yes, exactly. I mean, if you think about what we saw in Q4 and assuming nothing improves in 2022 and kind of flat lining that out.

Elizabeth Anderson

Okay. Got it. Okay. Thank you.


Thank you. Our next question comes from Jailendra Singh of Credit Suisse. Your line is open.

Jailendra Singh

Thank you, and good afternoon everyone. Just following up on the second question of Elizabeth. So have you seen any data points you can share post the AEP or in the 2.5 months into the OEP, which gives you comfort around that constraint and just in general, anything from OEP experience so far?

Travis Matthiesen

Yes. I’ll take that one, Jailendra, This is Travis. So one of the big drivers of us ultimately arriving at that constraint was allowing ourselves and our models to observe effectuation rates and renewal rates that we’ve seen here, both in January and early February. And so we’ve taken into account when arriving at the constraint that we’re taking, both the early indicators of both effectuation rates of the policies sold in Q4 as well as renewal rates of historic vintages.

Jailendra Singh

Okay. Because I mean, the growth in Q4 was very strong from an enrollment point of view. And clearly, you had some inexperienced agents during the quarter. So, I’m curious like if you have enough comfort there in terms of retention and the quality of policies sold. I mean that’s what I’m trying to understand.

Travis Matthiesen


Clint Jones

Yes. Just to add to that, if you look at some of the early metrics for kind of 2/1 and 3/1 early indicators, look within our plan. We don’t see any large outliers that would give us additional concern.

Travis Matthiesen

But I think, to your point, Jailendra, that is one of the drivers of the additional constraints we’re taking, given both the agent mix, the carrier mix and the consumer mix that we saw this past Q4.

Jailendra Singh

Okay. And then my follow-up, I’m missing on the strong enrollment growth in the quarter. Some of your peers called out shortfall in the enrollment in 4Q. I understand the underlying demographics still remains pretty strong in MA. But given the market share e-brokers have gained over the past two, three years, do you see a risk that we might be approaching a point where majority of enrollment changes or shift might just be market share shift among e-brokers? Or are you still expecting market share gains from mom-and-pop independent brokers?

Clint Jones

Yes. No, we expect – we saw obviously strong, strong consumer demand during good improved conversion rate. We mentioned we’ve got a guided selling platform that even new agents can get ramped up on quicker. So, we expect that trend to continue. I mean you think about the folks that are turning 65 more likely to shop online over the phone, they’re comfortable buying online. So we kind of expect that trend to continue.

Jailendra Singh

Okay. Thanks guys.


Thank you. Our next question comes from Michael Cherny of Bank of America. Your line is open.

Michael Cherny

Good afternoon and thanks for all the color. And I’m probably going to be on a similar theme, but maybe take a little bit of a different angle. I appreciate Clint Travis, the work you did in walking through some of the changes you’re making on the spend side and the focus points on agent activity levels and retention rates. Even if with the early data you’ve seen, however, in January and February, how are you going to track yourself? And where are the opportunities that give yourself the confidence to build into the end of the year, in particular now to hit this new cash flow target that you’re outlining. I think the focus on cash flow is certainly an admirable one. I just – is there a concern or a worry that the balance of rainy and on spending can actually have unintended consequences in other areas of the business?

Clint Jones

Yes, that’s a good question. You think about a lot of the inputs of the business are highly variable, right? The number of leads that we generate, aka, the marketing spend that we have, the number of agents that we hire – those are the big variables in the business. And as we slow those down, especially on the marketing side to optimize, focus on LTV to CAC ratio with all the learning’s we had last year on the different channels we went into from a marketing standpoint, what drove higher effectuation rates, what drove better retention focusing on that and then having the agent force that's more tenured going into Q4.

And we've got cohort data on our agent base, based on tenure and productivity. So that gives us a high degree of confidence of how to execute towards that. If you think about the plan of getting to cash flow positive next year.

Shane Cruz

And Michael, this is Shane Cruz. The one thing that I would add is as Clint mentioned, just to reiterate, as we slow down, there's a tremendous amount of variability in what those LTVs look like by the type of consumer demographic whether it be their geographic location, whether it’s D-SNP eligible or not and then on our agent performance. So by us slowing down dramatically, it enabled us to really focus on generating a good margin on every policy that we sell, so we can drive up that LTV to CAC, as Clint was mentioning.

Michael Cherny

Got it. And I guess another question. You've deemphasized the IFP business for a while. You've been past – focusing more on MA, just given where the growth is. At some point in time, does it make sense to still be in IFP?

Clint Jones

Yes, it's a good question. I mean, we see so much opportunity right now in our Medicare business and the focus there. We obviously have a clear path this year to get to – we mentioned from a cash flow standpoint, and we see this market as growing and we experienced, such high demand in Q4 and strong enrollment volume. We know the markets there. The unit economics are changing – and we feel we're in a really good position to change with those unit economics as we slowed down and kind of focused on optimization there.

To your point on IFP, it's we've been in that business for a long time. It's just an area we're going to kind of not focus on this year as we think about just strategically positioning ourselves with our Medicare business and executing to the plans we have.

Michael Cherny

Got it. Thanks.


Thank you. [Operator Instructions] Our next question comes from Tobey Sommer of Truist Securities. Your line is open.

Tobey Sommer

Thanks. I was wondering if you could give us an update on sort of regulatory relations following the CMS letter, what you're hearing from them and your interactions as well as carriers because, the elevated churn has been kind of broad. And any color you can give us on those two aspects of your business would be helpful?

Clint Jones

Yes. Are you – are you referring to the CMS marketing regulation changes that kind of came out right before AEP?

Tobey Sommer

Yes, in interactions since then, which I'm sure you've had.

Clint Jones

Yes. So the – from a marketing regulation standpoint, we were not impacted prior to AEP. Obviously, it was a short notice. But we – a lot of those practices around filing the marketing materials and other things, we've been doing for a long time. So it wasn't a big surprise to us or a change in our process. I think CMS is continually looking at ways to improve marketing within the space, which we think is great. So we'll continue to kind of see how that goes. And as far as anything else, we've not had any additional comment.

Tobey Sommer

Okay. Another question on your labor force managing for a slower growth environment aiming towards cash. That all makes sense, what does this framework mean for the income of your agent network on – if we think of it as an individual basis, do they have sort of the same opportunity at the company to generate personal income with this growth outlook?

Clint Jones

Yes, it's a great question. So Q4 and Q1 from a selling standpoint absolutely the same, if not more. You think about them being able to take on more activity themselves, especially the higher producers in Q4. And Q2 and Q3, the different subsets or cohorts of agents that will be doing selling activities and also kind of membership retention activities that they'll get paid for. So we don't see a big income variability going into this year.

Shane Cruz

And the only thing – Toby, again, this is Shane – I would add to that is that we're really focusing on developing our agents is we're slowing down, not hiring as many new ones. We're developing our agents. So each agent can continue to perform better and make more variable income so they can make the same amount or more income than they made in the past. So it's a good opportunity for us to really do more with less by slowing down.

Tobey Sommer

Okay. Thank you.


Thank you. Our next question comes from Ben Hendrix of RBC Capital Markets. Your line is open.

Ben Hendrix

Thanks for taking the question. I just have a quick mechanical question, accounting related question here. You mentioned that you were working with third parties to assess the commission’s receivable in arriving at that $155 million look back. And my question is that $155 million strictly limited to attrition that you've already seen to date in those older cohorts? Or is there some degree of conservatism in that that could turn out better in terms of attrition? Just trying to see if there's any conservatism in there or if that's just strictly kind of what you've observed?

Travis Matthiesen

Sure. So I believe I understand the question, but let me make sure I'm answering it. So two things to that. So it relates to policies that we've sold dating as far back as 2018 and as a recent as Q3 of 2021, and that $155 million is mainly driven by shortfalls of commission collections we're expecting to receive into the future, rather than what we've not collected thus far to date. Again, we are re-projecting the entire value of those policies moving forward with the majority of that being projections into the future around the commission collections, not just what we've observed thus far. Is that – does that answer the question?

Ben Hendrix

Yes, it does. Thank you.


Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Clint Jones for any closing remarks.

Clint Jones

Thank you so much. And thank you everybody that’s attended. We look forward to continuously updating you throughout 2022 and have a great night.


Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may all disconnect. Have a great day.

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