Q3 2022 Gohealth Inc Earnings Call

November 10, 2022

The conference will begin shortly.

Raise your hand during Q&A, you can dial star one one.

[music].

Yeah.

Good day and thank you for standing by welcome to the go Health third quarter 2022 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question answer session.

I'll ask a question during the session you will need to press star one on your telephone.

Didn't hear an automated message advises you had was raised please be advised that today's conference call is recorded.

I would now like to turn the call over to Brian Farley.

Thank you and good afternoon, everyone. Thanks for joining <unk> third quarter 2022 earnings call. Joining me today are Vijay Kotte, Chief Executive Officer, and Jason Schultz, Our 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.

Any 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 third quarter of 2022, we have posted the release on the <unk> 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.

Scribed in our Form 10-K, and Form 10-Q reports filed with the Securities and Exchange Commission for additional information.

During this call we will be discussing certain non-GAAP financial measures. These measures are reconciled to the most directly comparable GAAP financial measure.

Reconciliations are set for.

The release, please refer to today's press release for the reconciliation of non-GAAP measures to the most comparable GAAP measures discussed during this earnings call and with that I'd like to turn the call over to Vijay.

Thank you all for joining us this afternoon to discuss our third quarter 2022 results.

As promised on our last quarterly call, we're going to spend some time addressing the key elements of our go forward strategy with a more fulsome look to comment after AEP.

We continue to put beneficiaries at the center of what we do transforming ourselves from a transactional E broker to a trusted consumer marketplace.

In the past quarter, our internal agents fielded over 630000 call completed nearly 56000 retention conversations and started Medicare valuations with over 251000 Medicare beneficiaries.

With our external partners, we completed over 130000 enrollments.

Before I get into our main topics for today's call I want to note that we have posted a presentation on our IR website that provides a more comprehensive overview of encompass and we've shared before.

We will be referencing these slides when we dive deeper into incumbents later in the call.

I'll kick things off with a high level overview of the third quarter numbers and let Jason go into more detail on financials in just a bit our.

Our cash flow from operations has improved meaningfully from a loss of $40 million in last year's third quarter to a positive $96 million this quarter.

The $136 million.

<unk> and cash flow is a direct result of ramping up our incumbent solution and getting back to basics with the strategic cost initiatives, we implemented during the quarter.

This has fundamentally changed the dynamics of cash flow for our business and we're confident these positive trends will continue as we lean further into our incumbent solution.

As anticipated revenue up $133 million is down year over year as we have focused our efforts on higher quality revenue with a more experienced albeit smaller sales force.

As a testament to our renewed focus on quality adjusted EBITDA was roughly flat compared to a year ago, despite generating $79 million less in revenue.

I'll now turn to our strategic initiatives.

Last quarter, we made a calculated decision to emphasize quality and invest in encompass.

Our shift to focusing on it more experienced high quality sales agents rather than volume of Asia.

Already proving beneficial.

Last year at this time, just under 13% of our agents had been and go held for at least $1 AEP.

This year just over 94% of agents have been here for at least $1 AEP and they are delivering the improved quality we were targeting.

While it is still early in AEP, our conversion rate is ahead of expectations.

With our seasoned agents and new model October conversion has improved 70% year over year. This increased efficiency and higher rate of conversion in term makes our marketing spend go even further by making the most of each and every lease.

We expect just under a 20% year over year improvement in operating efficiencies for all of AEP.

We are working hard to prove that with the right operating rigor and commitment to transparency, we can market in a highly compliant manner and deliver the experience Beneficiate health plans and regulators are seeking.

While conversion rate is an important operating efficiency indicator, we view the enrollment experience as the first step in establishing a trusted relationship with the beneficiary.

Next late in September we announced that we received a $50 million strategic investment from two of our significant partners.

This additional funding will empower us to deliver higher quality customer service enhance the differentiated value we bring to the market.

We look forward to strengthening our multi payer marketplace and further improving our ability to help millions of Medicare beneficiaries understand an ever growing range of coverage alternatives.

As we shift the business from being primarily transactional to being rooted in trusted relationships encompasses our critical components. We anticipate encompass will be a game changer for the customer for health plans and for the financial profile of our business.

Turning to the slides if you turn to slide three we believe <unk> is well positioned to redefine the Medicare journey by doing the right thing for the consumer and better aligning expectations with experiments.

We can deliver trusted relationships with beneficiary, because one we have excellent marketing and consumer insights based on over $100 million marketing interactions with beneficiary over the past decade.

Two we have proven high quality Medicare agents.

Three we have a history of over 10 million Medicare evaluations, allowing us to truly understand beneficiary needs.

For our proprietary technology platform, including our planned fit tool enables our experienced agents to effectively qualify and match individuals with the best plan available matching their individual needs and preferences.

And five we have a trust based agile operating model with our health plan partners.

Moving to slide four to remind you of the challenge at hand, the industry has problems for consumers health plans and brokers and no one is truly putting the consumer at the center.

Many consumer space and abrasive disjointed Medicare landscape there.

They are bombarded with confusing information.

There are many plants with similar options that are hard to navigate and there can be an overall lack of trust in the process.

Once beneficiaries enrolled in plans they are confused about how to get the most out of it fast.

In this environment health plan space churn high complaint and lower customer satisfaction with plans all of which lead to lower star rating.

From a broker standpoint, the industry has been historically more enrollment focused than engagement focus.

<unk> total number of enrollments as measured on a policy basis as opposed to number of trusted relationships with beneficiary.

In this environment brokers.

Brokers are sometimes penalized for moving a beneficiary to a new plan based on the beneficiaries needs even when it's the right thing to do given the bearing enriched benefits among health plans year over year.

The economics of the states don't always fully support doing the right thing for the beneficiary.

Net if you turn to slide five you will see that as we discussed in our October 18th press release are extended and encompass solution support enrollment and engagement across the Medicare beneficiary journey, helping to solve a critical need in the marketplace right.

<unk> positive outcomes with scale and increased member satisfaction.

We're already seeing the benefits with a 20% demonstrated improvement in retention and a 10% reduction in complaints to Medicare This year.

Please refer to our press release for more details.

Now on to slide six to discuss the financial profile of the shift from the LTV model to encompass connect.

Encompass connect enables us to put the consumer at the center of what we do and benefits our financial model as well.

The economics of this model are predictable and favorable from a margin and cost perspective.

Adoption of encompass connect reduces our exposure to the volatility of the LTV model, which is subject to several factors, including but not limited to the quality of health plan benefit changes and beneficiary behavior marketing dynamics at the time of year and many other factors outside of our control, we still like the opportunity within the traditional LCD.

Model, given our ability to build and support long term relationships, but believe it is prudent to significantly diversify from the models to drive more predictable unit economics.

Encompass connect offers a more service based model that directly compensated for the specific work and milestones, we deliver and achieve in the short run as opposed to the uncertainty and dependencies of the traditional LTV model.

One of the major advantages of the shift is that a majority of our encompass connect work is pre funded based on an agreed upon forecast the volume we in our health plan partners anticipate go help producing in the subsequent quarter.

That means we receive some cash even before we engage in certain encompass connect activity with the recognition of revenue and cash reconciliation against that a great forecast happening upon the completion of the respective periods.

Put simply we will recognize revenue in the quarter, we performed the work and if we over deliver against the agreed upon forecast will bill for the different if we under deliver against the agreed upon forecast reconcile in future quarters.

As a result, you will see the significant change in cash dynamics of the respective models moving from a negative $350 year, one cash flow to positive $260 a year, one cash flow on a unit basis or a 600 dollar improvement in year, one cash on a unit basis for simplicity, we kept the cost consistent across.

Both models. So there are different requirements for each with their own opportunities for additional operational efficiency.

From these transformational shifts in the way, we use our talented team and proprietary technology to partner with health plans and deliver value to beneficiaries, we expect our cash and margin dynamics to be more stable and less subject to material adjustment as our sales force is deployed to focus on this more predictable high value model.

The results we reported are consistent with our view from last quarter, but as we mentioned we are not providing full year 2022 guidance.

While acknowledged that it takes time to change the trajectory of our company. We believe that <unk> can achieve its full potential in the next two to three years.

In addition, following last month's shareholder approval, we currently intend to effectuate, a reverse stock split on or around November 17th at a one for 15 ratio.

We believe completing the reverse stock split at this time, we will benefit all stakeholders.

Finally, I want to reiterate how excited I am about the progress we have made on our strategic initiatives as evidenced by the early success, we're seeing in AEP.

I look forward to giving you a more fulsome update in the new year I'll now turn the call over to Jason for a more detailed look at the numbers Jason.

Yeah.

Thanks P J and thank you all for joining us today I'm going to start off with discussing the encompass platform and the positive impact it will have to the financial performance of our business.

Then I'll review, the third quarter results and I'll wrap up with a couple of highlights from our balance sheet.

As BJ mentioned encompass leverages, our proprietary technology that supports the enrollment and engagement across the Medicare beneficiary journey.

We believe that this offering is unmatched in the market and they service their carrier partners regard very highly.

Well from a transaction oriented business to a trusted partner rule, our financial makeup will evolve as well.

We expect encompass to have a dramatic impact to our cash flow to diversify against our traditional LPG business and to improve our overall margin profile.

As BJ mentioned, the improved cash flow profile, which encompasses a very significant impact. This is already evident in our Q3 results with cash flow from operations, improving by $136 million year over year.

Which $114 million driven by the encompass connect deferred revenue.

Connect diversifies, our exposure to the more since the LTV commissions business.

This is due to several factors.

First the revenue is much more predictable as a service requirements and the pricing are clearly laid out in our carrier agreement.

Second cash flow has significantly improved as we collect cash in a much more timely basis than their traditional LTV model.

Lastly by the nature of the service requirement of the encompass connect agreements.

<unk> is less likely to be subject to material adjustments.

From a margin profile perspective, we are improving our revenue economics as a result.

<unk> broader scope of services.

We believe that this will drive margin improvement overtime as more of our revenues versus the encompass model.

We currently anticipate that approximately 30% of our business will quickly connect this AEP.

Going forward, we expect that percentage to increase as we intend to deploy some of our sales force to drive the business because it's more predictable model.

Now turning to our third quarter results.

In the quarter, we generated $133 million in revenue compared to $212 million a year ago.

This is in line with our internal expectations.

Consistent with the first two quarters of the year, we made the 7% when the constraint reserve methodology for the new policy sold in the quarter.

Our commission revenue of $87 million was down 50% from prior year, which is a direct result of our strategic decision earlier this quarter to reduce the number of agents to focus on quality tenure and improved customer acquisition costs.

Our enterprise revenue was $46 million for the quarter, an increase of 25% year over year.

This is driven by our encompass business generating $9 million in revenue in the quarter as it began to gain traction in the market.

We had an adjusted EBITDA loss of $14 3 million, which is flat as compared to third quarter of last year.

This is despite the $79 million decline in revenue.

The decrease in revenue was primarily driven by lower commissions as a result of reduced agent head count.

As previously discussed the decline in revenue was expected as we made aggressive.

No changes to increase the efficiency of our operations and our marketing channels.

We are pleased to see the early actions, we made beginning to bear fruit and we expect continued momentum as we move into Q4.

In the quarter, we generated $96 million in cash flow from operations.

Normalizing cash flow for the encompass deferred revenue.

We had a cash flow from operations loss of $19 million.

Which compares favorably to a $40 million loss a year ago.

The $21 million year over year improvement of cash flow from operations is a good indication that the actions taken earlier in the quarter are having the desired effect and improving the core business.

I will now wrap up with a couple of important updates on our balance sheet.

We ended the quarter with $250 million in cash.

Up meaningfully from a year end at $84 million.

The increase was driven by encompass cash collections and the $50 million, we announced earlier in the quarter.

We ended the quarter with $666 million of total debt.

However, subsequent to quarter end, we paid down $110 million of debt from our revolver.

We plan to continue to strategically use our revolver from time to time moving forward.

Overall, while these are still early days Im pleased with the results that we're seeing I believe our incumbent solution has positioned us well for success in the AP and into 2023.

In closing based on our third quarter results and early indications for the fourth quarter have increased conviction in our ability to achieve cash flow breakeven on a trailing 12 month basis in early 2023.

With that let's open the call to questions operator.

Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone.

One moment, while we compile the Q&A roster.

The first question that I have is coming from Michael Cherny of Bank of America. Your line is open.

Good afternoon, and thank you for taking the question.

Maybe just I want to make sure I got this right on the deferred revenue dynamics, obviously, a big jump I appreciate you calling that out.

Is that a one time change that is now a permanent baseline to be expected on the balance sheet or is this something we should expect to grow is something that will just reverse next quarter. As you had the cups adjustment, especially given your commentary around cash flow breakeven.

Obviously, you're going to have <unk> use of cash, but just curious.

How we should think about that line.

Thanks, Michael.

Vijay.

Respond to your question. Obviously this is directly related to how we.

Have entered into the encompass arrangement and therefore, we have pre funding associated with it.

And as you see the volumes through the year you will see this pre funding dynamic continue.

So you will have the largest amount of.

Our revenue happening prior to Q4.

And then youll see that settle out as we get through to the lower production years quarter throughout the year.

So, we'll obviously give you more update but you should see it go up and down with the associated volume distribution of how the business operates.

Got it.

Certainly helpful. And then when you think about AEP as you think about your go forward strategy I get the components of.

Encompass.

Well, yes.

Seniors feel it.

What will be some of the different ways. If we go a little deeper that there'll be interacting with you as you focus on your own internal operations and pushing forward on this cash flow and profitability targets that you're going after.

It's a great question. It is a it's a different experience.

Let me start with.

The way we have entered into the program as a number of key drivers of success. One was you kind of had to have the right.

<unk> shipped with the health plans and the carrier to be able to get so we had that quality that we can deliver with really high.

Strong and experienced agents and you can see we did that to make sure we had the most experienced agents.

We've never had that you needed a compound that with the best technology tools to ensure that we're supporting a thorough process. We had a plant that tool in previous years. This.

This year, we went to 100% adoption of that plan fit tool that every time a beneficiary comes in there is a standard set of questions to ensure that they're getting the key parameters entered into the tool to get them matched with the right plan for them.

The multi plan selection process.

And then once that what's very different and the process is typically that would happen with our.

Captive agent. They would then submit an application and that will go directly to the carrier and the encompass model we have a model whether it's in in <unk>.

<unk> staff, where those beneficiaries would actually transition to a carrier designated agents.

With a seamless transition of that data that was already provided to do the final application submission reconfirmation of all the parameters.

It would identify this plant is being best for them.

They're more.

Satisfied with the experience that they feel as though they'd been Nash the right plan and therefore that translates into lower cancellation rates for them because they understand it better and now understand what is to come with that next.

Level of follow up.

On how to activate those benefit and use them through the engage component of incumbent so it is a very different experience versus.

Traditional.

As we move up to diversify away from the traditional model into more of the incumbents.

Understood. Thanks, I appreciate the time.

Thank you Michael.

Thank you for your question.

As a reminder, if you would like to ask a question. Please press star one on your telephone one moment, while we wait for more questions.

At this time there are no more questions in the queue and I would like to turn the call back over to Vijay Kotte. Please go ahead for closing remarks.

Thank you Lisa I really appreciate everybody's attention today participating in the call and your interest in our organization and we look forward to updating you as our progress continues and really refocus as an organization on the beneficiary of being at the center of everything we do but thanks again, and we look forward to speaking with you after.

This concludes today's conference call everyone may disconnect whether vascepa.

The conference will begin shortly to raise Johan during Q&A, you can dial star one.

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Good day and thank you for standing by welcome to the go health.

Third quarter 2022 earnings conference call at this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

To ask a question. During this session you will need to press star one on your telephone.

We'll then hear an automated message advisor your hands raised.

Please be advised that today's conference call.

I would now like to turn the call over to Brian Farley.

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 <unk>.

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.

As described in our Form 10-K, and Form 10-Q reports filed with the Securities and Exchange Commission for additional information.

During this call we will be discussing certain non-GAAP financial measures. These measures are reconciled to the most directly comparable GAAP financial measure and the reconciliations are set forth.

Please refer to today's press release for the reconciliation of non-GAAP measures to the most comparable GAAP measures discussed during this earnings call and with that I'd like to turn the call over to Vijay.

Thank you all for joining us this afternoon to discuss our third quarter 2022 results as.

As promised on our last quarterly call, we're going to spend some time addressing the key elements of our go forward strategy with a more fulsome look to comment after AEP.

We continue to put beneficiaries at the center of what we do transforming ourselves from a transactional E broker to a trusted consumer marketplace.

In the past quarter, our internal agents fielded over 630000 call completed nearly 56000 retention conversation and started Medicare valuations with over 251000 Medicare beneficiaries.

Together with our external partners, we completed over 130000 enrollment.

We will be referencing these slides when we dive deeper into incumbents later in the call.

I'll kick things off with a high level overview of the third quarter numbers and let Jason go into more detail on financials in just a bit.

Our cash flow from operations has improved meaningfully from a loss of $40 million in last year's third quarter to a positive $96 million this quarter.

The $136 million.

In cash flow is a direct result of ramping up our incumbent solution and getting back to basics with the strategic cost initiatives, we implemented during the quarter.

This is fundamentally change the dynamics of cash flow for our business and we are confident these positive trends will continue as we lean further into our incumbent solution.

As anticipated revenue of $133 million is down year over year as we have focused our efforts on higher quality revenue with a more experienced albeit smaller sales force.

As a testament to our renewed focus on quality adjusted EBITDA was roughly flat compared to a year ago, despite generating $79 million less in revenue.

I'll now turn to our strategic initiatives.

Last quarter, we made a calculated decision to emphasize quality and invest in encompass.

Our shift to focusing on more experienced high quality sales agents rather than volume of agents is already proving beneficial.

Last year at this time, just under 13% of our agents had been in <unk> for at least $1 AEP. This year just over 94% of agents have been here for at least $1 AEP and theyre delivering the improved quality we were targeting.

While it is still early in AEP, our conversion rate is ahead of expectations.

With our seasoned agents and new model October conversion has improved 70% year over year. This increased efficiency and higher rate of conversion in turn makes our marketing spend go even further by making the most of each and every lease.

We expect just under a 20% year over year improvement in operating efficiency for all of AE.

While conversion rate is an important operating efficiency indicator, we view the enrollment experience as the first step in establishing a trusted relationship with the beneficiary.

Next late in September we announced that we received a $50 million strategic investment from two of our significant partners.

This additional funding will empower us to deliver higher quality customer service enhance the differentiated value we bring to the market.

We look forward to strengthening our multi payer marketplace and further improving our ability to help millions of Medicare beneficiaries understand an ever growing range of coverage alternatives.

Two we have proven high quality Medicare agents.

Three we have a history of over $10 million, Medicare valuations, allowing us to truly understand beneficiary needs.

And five we have a trust based agile operating model with our health plan partners.

Moving to slide four to remind you of the challenge at hand, the industry has problems for consumers health plans and brokers and no one is truly putting the consumer at the center.

Many consumer space and embraces disjointed Medicare landscape there.

They are bombarded with confusing information.

There are many plants with similar options that are hard to navigate and there can be an overall lack of trust in the process.

Once beneficiaries enrolled in plans they are confused about how to get the most out of this asset.

In this environment health plan space churn high complaint and lower customer satisfaction with plans all of which lead to lower star ratings.

From a broker standpoint, the industry has been historically more enrollment focused than engagement focus.

<unk> total number of enrollments as measured on a policy basis as opposed to number of trusted relationships with beneficiary.

In this environment brokers.

Brokers are sometimes penalized for moving a beneficiary to a new plan based on the beneficiaries need even when it's the right thing to do given the varying enrich benefits among health plans year over year.

The economics of the states are always fully support doing the right thing for the beneficiary.

Net if you turn to slide five you will see that as we discussed in our October 18th press release, our expanded end to end encompass solution support enrollment and engagement across the Medicare beneficiary journey, helping to solve a critical need in the marketplace right.

Drive positive outcomes with scale and increased member satisfaction.

We're already seeing the benefit with a 20% demonstrated improvement in retention and a 10% reduction in complaints to Medicare This year.

Please refer to our press release for more details.

Now on to slide six to discuss the financial profile of the shift from the LTV model to encompass connect.

Encompass connect enables us to put the consumer at the center of what we do and benefits our financial model as well.

The economics of this model are predictable and favorable from a margin and cost perspective.

We still like the opportunity within the traditional LTV model, given our ability to build and support long term relationships, but believe it is prudent to significantly diversify from the model to drive more predictable unit economics.

One of the major advantages of this shift is that the majority of our encompass connect work is pre funded based on an agreed upon forecast the volume we in our health plan partners anticipate go help producing in the subsequent quarter.

That means we received some cash even before we engage in certain encompass connect activity with the recognition of revenue and cash reconciliation against that a great forecast happening upon the completion of the respective periods.

Put simply we will recognize revenue in the quarter, we performed the work and if we over deliver against the agreed upon forecast we will bill for the different if we under deliver against the agreed upon forecast will reconcile in future quarters.

As a result, you will see the significant change in cash dynamics of the respective model moving from a negative $350 year, one cash flow to positive $260 year, one cash flow on a unit basis or a 600 dollar improvement in year, one cash on a unit basis.

So we kept the cost consistent across both model. So there are different requirements for each with their own opportunities for additional operational efficiency.

The results we reported are consistent with our view from last quarter, but as we mentioned, we're not providing full year 2022 guidance.

While I acknowledge that it takes time to change the trajectory of our company. We believe that <unk> can achieve its full potential in the next two to three years.

In addition, following last month's shareholder approval, we currently intend to effectuate, a reverse stock split on or around November 17th at a one for 15 ratio.

We believe completing the reverse stock split at this time, we will benefit all stakeholders.

Finally, I want to reiterate how excited I am about the progress we have made on our strategic initiatives.

By the early success, we are seeing in AEP I look forward to giving a more fulsome update in the new year I'll now turn the call over to Jason for a more detailed look at the numbers Jason.

<unk>.

Thanks P J and thank you all for joining us today I'm going to start off with discussing the encompass platform and the positive impact it will have to the financial performance of our business. Then I'll review the third quarter results and I'll wrap up with a couple of highlights from our balance sheet.

As BJ mentioned encompass leverages, our proprietary technology that supports the enrollment and engagement across the Medicare beneficiary journey.

We believe that this offering is unmatched in the market and they service their carrier partners regard very highly.

As we evolve from a transaction oriented business to a trusted partner role our financial makeup will evolve as well.

We expect encompass to have a dramatic impact to our cash flow to diversify against our traditional LPG business and to improve our overall margin profile.

As BJ mentioned, the improved cash flow profile, which encompasses the very significant impact. This is already evident in our Q3 results with cash flow from operations, improving by $136 million year over year of.

Of which $114 million driven by the encompass connect deferred revenue.

Compass connect Diversifies, our exposure to the more sensitive the LTV commissions business.

This is due to several factors.

First the revenue is much more predictable as a service requirements and the pricing clearly laid out in our carrier agreement.

Second cash flow has significantly improved as we collect cash in a much more timely basis than their traditional LTV model.

Lastly by the nature of the service requirements of the encompass connect agreements revenue is less likely to be subject to material adjustments.

From a margin profile perspective, we are improving our revenue economics as a result of it.

The broader scope of services.

We believe that this will drive margin improvement over time as more of our revenues versus the encompass model.

We currently anticipate that approximately 30% of our business will flow through the income disconnect. This AEP.

Going forward, we expect the percentage to increase as we intend to deploy some of our sales force to drive the business because it's more predictable model.

Now turning to our third quarter results.

In the quarter, we generated $133 million in revenue compared to 212 million a year ago.

This is in line with our internal expectations.

Consistent with the first two quarters of the year, we made the 7% when the constraint reserve methodology for the new pulp is sold in the quarter.

Our enterprise revenue was $46 million for the quarter, an increase of 25% year over year.

This is driven by our encompass business generating $9 million in revenue in the quarter.

As it began to gain traction in the market.

We had an adjusted EBITDA loss of $14 3 million.

Which is flat as compared to third quarter of last year.

Despite the $79 million.

Revenue.

The decrease in revenue was primarily driven by lower submission as a result of reduced agent head count.

As previously discussed the decline in revenue was expected as we made aggressive expense management changes to increase the efficiency of our operations and our marketing channels.

We are pleased to see the early actions, we made beginning to bear fruit and we expect continued momentum as we move into Q4.

In the quarter, we generated $96 million in cash flow from operations.

Normalizing cash flow for the encompass deferred revenue.

We had a cash flow from operations was a loss of $19 million.

Which compares favorably to a $40 million loss a year ago.

I will now wrap up with a couple of important updates on our balance sheet.

We ended the quarter with $250 million in cash.

Up meaningfully from a year end at $84 million.

The increase was driven by encompass cash collection and the $50 million, we announced earlier in the quarter.

We ended the quarter with $666 million in total debt.

However, subsequent to quarter end, we paid down $110 million of debt from our revolver.

We plan to continue to strategically use our revolver from time to time moving forward.

Overall, while these are still early days Im pleased with the results that we're seeing I believe are in the company's evolution has positioned us well for success in the AAP and into 2023.

In closing based on our third quarter results and early indications for the fourth quarter.

Conviction in our ability to achieve cash flow breakeven on a trailing 12 month basis in early 2023.

With that let's open the call to questions operator.

Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone.

One moment, while we compile the Q&A roster.

The first question that I have is coming from Michael Cherny of Bank of America. Your line is open.

Good afternoon, and thank you for taking the question.

Maybe just I want to make sure I got this right on the deferred revenue dynamics, obviously, a big jump I appreciate you calling that out.

Is that a one time change that's now a permanent baseline to be expected on the balance sheet or is this something we should expect to grow is something that will just reverse next quarter. As you had the cups adjustment, especially given your commentary around cash flow breakeven.

Obviously, you're going to have a <unk>.

<unk> use of cash, but just curious.

How we should think about that line.

Thanks, Michael.

Vijay just to respond to your question. Obviously this is directly related to how we.

<unk> has entered into the encompass arrangement and therefore, we have pre funding associated with it.

And as you see the volumes through the year you will see this pre funding dynamic continue.

So you will have the largest amount of our revenue happening prior to Q4.

And youll see that settle out as we get through to the lower production years.

Throughout the year.

We will obviously give you more update but you should see it go up and down with the associated volume distribution of how the business operates.

Got it.

Certainly helpful and then.

When you think about AEP and you think about your go forward strategy I get the components of.

Encompass.

Well, yes, we'll seekers feel it I E.

There will be some of the different ways. If we go a little deeper that they'll be interacting with you as you focus on your own internal operations and pushing forward on this these cash flow and profitability targets that you're going after.

Yes, great question it is a.

It's a different experience so let me start with.

The way we have entered into the program has a number of key drivers of success. One was you kind of had to have the right.

Relationship with the health plans and the carrier to be able to get so we had that quality that we can deliver with really high.

Our strong and experienced agents and you can see we did that to make sure we had the most experienced agents.

That we've ever had that you needed a compound that with the best technology tools to ensure that we're supporting a thorough process, we had a plant that tool in previous years.

This year, we went to 100% adoption of that plant that tool to every time a beneficiary comes in there is a standard set of questions and ensure that they're getting the key parameter has entered into the tool to get them matched with the right plan for that.

It's a multi plan selection process.

And then once the what's very different and the process is typically that would happen with our captive.

Captive agent. They would then submit an application and that will go directly to the carrier and the encompass model we have a model whether it's in.

Interim staff, where those beneficiaries would actually transition to a carrier designated agents.

With a seamless transition of that data that was already provided to do the final application submission reconfirmation of all the parameters.

That would identify that plant has been best for them.

They're more.

Satisfied with the experience that a deal is that they've been Nash the right plan and therefore that translates into lower cancellation rates for them because they understand it better and now understand what is to come with that next.

A level of follow up on how to activate those benefit through the engaged component of incumbent so it is a very different experience versus traditional.

Traditional.

We move up to diversify away from the traditional model into more of the incumbents.

Understood. Thanks, I appreciate the time thank.

Thank you Michael.

Thank you for your question.

If you would like to ask a question. Please press star one on your telephone one moment, while we wait for more questions.

At this time there are no more questions in the queue and I would like to turn the call back over to Vijay Kotte. Please go ahead for closing remarks.

Thank you Lisa I really appreciate everybody's attention today participating in the call and your interest in our organization that we look forward to updating you as our progress continues and really refocus as an organization on the beneficiary of being at the center of everything we do but thanks again, and we look forward to hearing and speaking with you after.

This concludes today's conference call everyone may disconnect you all enjoy the Vasari Lee.

Q3 2022 Gohealth Inc Earnings Call

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