Q2 2021 Gohealth Inc Earnings Call

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Good day and thank you for standing by welcome to the Girl Health's second quarter 2021 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 ask a question. During the session you will need to press star one on your telephone if you acquire them.

The assistance. Please press Star Zero I would now like to hand, the conference over to your speaker today, Jay Koval VP of Investor Relations. Please go ahead.

Yeah.

Thank you Joelle and good afternoon, everyone I want to thank each of you for joining <unk> second quarter 2021 earnings call joined.

Joining me today are Clint Jones, co founder and Chief Executive Officer.

And Travis Mathieson, Chief Financial Officer.

This afternoons 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 whether due to new information future events or otherwise.

After the market closed today, we issued a press release containing our results for the second quarter of fiscal 2021.

In addition to presentation materials that Clinton travelers, who will walk through momentarily both the release and the slides can be found on <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.

Other significant risk factors are described in our Form 10-K, and 10-Q reports filed with the Securities and Exchange Commission.

During this call we will be discussing certain non-GAAP financial measures.

These measures a reconciliation to the most directly comparable GAAP financial measures and the reason management believes they provide useful information to investors regarding the company's financial condition and results of operations are contained in the press release and Investor presentation.

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

Thanks, Jay and thanks for joining us to discuss our second quarter and year to date 2021 results.

I'll start with some highlights from the quarter as well as update you on our revised outlook for 2021.

Travis will then cover the financials in more detail before I wrap up with some longer term perspectives, then open up the call for Q&A.

Slide four highlights the strong topline results, we delivered during the second quarter.

Second quarter net revenue grew 55% a modest acceleration compared to the first quarter driving year to date growth of 50%.

These results are towards the high end of our expectations.

<unk> by the strong progress we have made increasing our agent capacity trading well above our 50% growth targets for the year.

Executing on our agent head count investment combined with powerful internal marketing positions us well to drive strong momentum over the balance of the year.

And into 2022.

Allowing us to tighten our 2021 revenue outlook to a range of $1.2 billion to $1.3 billion.

Our internal Medicare business continues to fuel our results with growth of 84% in the second quarter and 74% year to date.

As our leading choice platform is driving strong share gains in a growing Medicare market.

Year to date Medicare advantage carrier approves submissions increased 52% to 324000, and Ltvs grew 11% as our ongoing investments in <unk> and prior expansion of our carrier footprint continued to drive higher quality submissions.

Our encompass platform delivered 17 million of incremental LTV revenue by providing value added services beyond enrollment, enabling consumers to maximize the benefits of their plans and improve health outcomes.

Other solidifying the differentiated relationships, we have with our carriers and partners and positioning us as a leading digital health company.

Slide five walks through the solid progress we are making towards the planned investments in our agents training and technology against the backdrop of strong consumer demand from.

From seniors for our choice platform to compare and enroll in plans.

As you recall.

We experienced significant agent supply constraints during last years annual enrollment period, and these 2021 investments to drive high volumes over the coming years, while maintaining excellent quality for our carrier partners.

First we are on track to grow our agent count by over 50% this year.

<unk> grew 118% in the second quarter due to significant investments in our infrastructure and agent count.

Cost per region are running ahead of expectations, given the unusually tight labor markets, which.

Which are driving both higher attrition rates for new agents and higher cost to recruit and train them.

This is driven revise expectations for CCD to grow roughly 80% for the full year for an additional $50 million compared to our original plan.

Revenue upside from these new agents will be limited in the near term by the Linkedin training modules.

<unk> the sector wide focus on quality and compliance.

And while we experienced a higher level of unproductive agent hours during the second quarter that will continue into the third quarter, we expect the associated training and quality initiatives driving these unproductive hours will generate strong returns during this year's AEP and into 2022.

Second our technology investments are positioning us for efficiency gains. This includes enhanced lead scoring and routing to provide our specialized agents with a decision support technology needed to enroll consumers and the right plan from day, one with a high degree of conviction.

As well as investing in tools for our telecom agents to execute our encompass initiatives.

First half technology investments more than doubled last year's levels supporting conversion gains for new agents hired in 2021 versus those hired in 2020.

And third our encompass platform and go help brand investments are also on track we are focused on becoming the trusted adviser to help seniors navigate their health care journey and drive better health outcomes.

<unk> powers, our encompass platform and our marketing team has been hard at work diversified our lead generation efforts to optimize the returns from our spend as we build to go help brand among consumers.

Slide six summarizes our revised full year outlook, where we tightened our revenue expectations for 2021, given our leadership position and strong progress towards our full year strategic priorities.

These revenue gains will require more investment than originally planned due to the pandemic related tight labor markets.

As we look to ensure.

We can meet anticipated demand, while improving the member experience.

We expect long lasting gains as this agent base will create a foundation.

<unk> needed for future years of efficient growth.

Our new adjusted EBITDA range for fiscal 2021 is $300 million to $330 million driven by the higher than anticipated <unk> expenses. This resulted in EBITDA margin of 25% after incorporating these upfront investments in carrying cost as agents ramp into 2022.

With that quick intro, let me pass the call over to travelers to run through our results in more detail.

Yes.

Thanks, Clint slide eight looks at our second quarter and year to date top line results.

The robust trends in our Medicare business drove 53% Commission will growth in the quarter towards the high end of our expectations and 54% for the first half.

Year to date Medicare commissions were fueled by the combination of 52% growth in carrier approved Medicare advantage submissions and 11% LTV gains.

Total revenue grew 50% during the first half to $401 million, including enterprise revenue of $80 million.

Slide nine highlights the high rates of revenue growth, our Medicare internal team is delivering with 84% growth during the second quarter and 74% year to date.

Our sector is not only healthy, but also growing and one of the fastest rates, we have seen with roughly 10% volume gains expected. This year as carriers continue to reinvest in the value of their Medicare advantage offerings as well as mid single digit Commission growth in 2021 and 2022.

Medicare external which is powered by small and midsized agencies operating under our carrier agreements compliance and technology platform saw revenue gains of 24% year to date.

ISP are under 65 business declined 57%, given a reallocation towards the faster growing and higher margin Medicare business.

Driving strong submission growth with improving Ltvs is a testament to the quality of our marketplace as our tech enabled agents help consumers find the best fit policy for them.

Slide 10, eczema as the drivers of the LTV gains and overall quality that go health has been delivering for carrier partners over the last five quarters.

These LTV gains are the result of large investments, we made over a year ago, and our telecom team and encompass offerings, along with our expanded carrier footprint all of which improve an already great platform.

Carriers are increasingly focused on the quality of enrollments from the broker channel and we believe we are well positioned to deliver with our substantial agent investments top tier compliance and deep integration with our carriers.

LTV increases over the last year have been driven by the persistency gains that our telecom team is driving to our consumer engagement strategy as well as additional revenue from administering services for carrier partners under our encompass platform.

We delivered $17 million of encompass revenue contributing to our first half LTV gains and we believe that our accelerated investment in encompass infrastructure positions us for future gains as we expand our services and carrier reach.

Slide 11 highlights our focus on maximizing revenue per submission demonstrating the benefits of our unique carrier and partner relationships.

This slide highlights the 16% growth for the first half to $1128 and it includes commissions enterprise revenue as well as our encompass revenue.

As a reminder, we collect cash for enterprise and encompass services quicker than commission, which further improves and already rapid payback period.

We are moving thoughtfully to lengthen our lead at commercializing our encompass programs and we have a proven track record of over delivering for our growing network of partners.

We have been encouraged by the carrier and partner response, and believe encompass positions us well over the coming years as we help partners improve the effectiveness of programs beyond enrollment positively impacting our carrier long term profitability as we leverage our position in the value chain to deliver results.

We are progressing well on our 2021 investments positioning us for a strong AEP as well as continued success into 2022.

Slide 12 walks through the year to date EBITDA and revised outlook for 2021, driven primarily by the higher CEC any cost, resulting from broader labor market challenges.

As Clint mentioned, we are tracking ahead of plan to grow our agent count by over 50%.

Unfortunately, unusually tight labor markets have created multiple cost pressures, particularly for successful high growth company like ours that is rapidly expanding our workforce competition for workers is as tight as ever creating higher recruitment and retention costs not to mention the costs associated with the agent attrition.

Given the larger than expected new agent attrition as well as lower productivity from new agents as they ramp we have decided to hire additional agents during the third quarter and now expect CEC any expense to increase by over 80% for the full year or roughly $50 million more than in our prior outlook even.

These elevated levels, we can drive strong returns on these new agent investments as they prepare us well for the most important part of our year AEP, when we expect to benefit through higher answer rates conversion and favorable quality.

And of course these agents will help drive continued growth into 2022, as we start the year with a significantly higher count than we entered 2021.

Moving down the P&L marketing and advertising spend combined with cost of revenue grew in line with our expectations combined costs were up 55% year to date roughly in line with total revenue growth of 50% or.

Our marketing team continues to diversify our marketing mix to optimize the returns on investment.

Moving on to our revised 2021 outlook shown on slide 14, we tightened our 2021 revenue outlook to a range of $1.2 billion to $1.3 billion, given our strong top line momentum, while reducing EBITDA expectations to account for the higher <unk> costs.

While we believe the higher labor costs will prove to be temporary we have modeled in that they persist over the balance of 2021, driving our new adjusted EBITDA range of 300 to 330 million at a 25% margin.

We expect strong top line momentum to continue into the back half of the year and elevated third quarter CEC any costs will likely result in breakeven EBITDA for the quarter.

We then expect to deliver solid operating leverage into the fourth quarter on the heels of these investments our plan anticipates continued strong revenue gains powered by our agent growth and marketing capabilities as well as improvements in efficiency and capturing opportunities.

We won't need a big year over year increase in the number of qualified leads to hit our numbers, but rather we are working towards better capitalizing on delivered opportunities through higher answer rates and increased conversion, which will improve our efficiency.

Slide 15 highlights our strong capital position and fast payback period.

Trailing 12 month net cash collections totaled $239 million up 75% over the comparable period from a year ago.

Our capital structure and overall financial position is also excellent with $113 million of cash on hand.

This is in addition to our Upsized revolver of $200 million, all untapped and the refinancing of the majority of our term loans to drive annualized cash interest cost savings of over $7 million.

As we build out our membership base, we have great access to inexpensive debt financing to continue to grow our book of business over the coming years positioning us to generate strong cash flow, excluding the variable costs associated with driving high growth as well as the significant opportunity to monetize our consumer base through our encompass platform.

With that let me now turn the call back over to Clint. Thanks.

Thanks Travis.

Slide 17, revisits the strategy behind our encompass initiatives as we look for additional ways to monetize the rapidly growing customer base and drive long term growth.

First we are uniquely positioned to help go help members better navigate their health care journey and improve health outcomes.

Second we enable carriers to improve their key financial and quality metrics by better understanding their customers' needs.

And third we advocate for consumers and connect them with high quality care delivery partners that further support the goals of consumers and carriers.

We believe there is a significant market opportunity to expand go help downstream capabilities and are very excited about the infrastructure. We are building to strengthen our leadership position by creating a great experience for consumers and partners.

Doing this well will lead to continued LTV growth through persistency gains and additional revenue opportunities in very attractive markets as evidenced by our $17 million in encompass revenue during the first six months of the year.

Slide 18 highlights the last 20 years of evolution in <unk> strategy to drive sustained growth, including our encompass platform.

As we reflect back on our first year in the public markets. The global pandemic created an ever changing environment that we continue to navigate by remaining true to our mission of improving access to health care in America.

Our marketplace platform and agent assisted model enabled us to provide education choice and transparency to seniors and a fast growing Medicare market.

As we look ahead, our strategy to maximize returns for shareholders is straightforward.

We operate as a trusted advisor for seniors, helping them compare Medicare options enrolling the best plan from the comfort and safety of their homes versus traditional distribution model.

And the process, we help carrier partners at high quality members, creating enormous value for them, while rapidly scaling our customer base.

We use proprietary technology and data throughout every step of the process to optimize the experience efficiency and profitability of the member.

This drive efficiencies through our fully integrated technology platform.

<unk> data to optimize LTV to CAC and cash payback periods.

And we're moving far beyond the $30 billion and immiscible market opportunity through our encompass platform.

2021 investments in our agents technology and brand should position us for sustained top and bottom line growth over the coming years with fast cash payback periods.

These investments are consistent with our long term approach for shareholder value creation that has driven sustained high rates of growth. Since we launched the company in 2001 by successfully navigating an ever changing environment and solving problems for customers and partners.

We've executed well over the last two decades.

Never been more excited about the future as we operate in a fast growing industry with great underlying economics.

Our first half momentum positions us well to deliver over 40% revenue growth at the midpoint, including LTV increases powered by the investments we are making.

And our 2021 key initiatives will improve an already great business model that creates the foundation for a multiyear period of strong growth and returns for shareholders.

Joelle, we'd now like to open up the call to questions.

Thank you as a reminder to ask a question you will need to press star one on your total firm. So let's try your question press the pound key please standby will be compile the Q&A roster.

Our first question comes from Michael Cherny with Bank of America. Your line is open.

Good afternoon, thanks for taking the question.

I just want to make sure I heard right.

Quickly on EBITDA and EBITDA progression, you said <unk> supposed to be close to breakeven on adjusted EBITDA is that correct.

That is correct.

Okay.

Perfect.

Just thinking a little bit more about EBITDA and the EBITDA dynamics when you think through the <unk>.

Strength, you've had in terms of the commission performance year to date.

Versus the hiring components.

At what point does the tradeoff changed a little bit on that front and at what point does it make more sense to leverage the resources you have versus the growth you have maybe give up a little bit of growth I'm, just trying to give a little bit of balance on the fact that the kpis that appear to be the most important came in particularly strong.

The guidance and the spend level versus what you initially anticipated coming under pressure. So how do you think about that decision on the increased spend and the returns you are looking to generate to make sure that that spend is being proven to be effective.

Yes, Mike. This is this is great question.

So.

We see a continued large market opportunity here that's not just in 2021. So I think we want to make that clear the investments, we're making and we've set out to make earlier in this year. We're not just about 2021, but as we think about the future of the business. So the growth we've seen thus far has been strong.

We're going to continue we're making these investments and bringing those agents up to speed.

So we are prepared not only for this AEP to maximize the opportunity there, but as we think about 2022 and beyond the investments have really good pay off periods.

And I guess, along those lines just one more follow up on that thread you talked about <unk> being the biggest component of spend increases is there any other way you can parse out the rest in terms of bridging the delta between the previous EBITDA guidance to the new EBITDA guidance and what else changed what else was dropdown from revenue that.

She might be upside just give us a sense of the sites to see any what's moving around.

Perhaps you want take that.

Yes.

So Mike as we mentioned <unk> is the biggest driver and just to kind of unpack that a little bit think about structural investments, making up roughly 20% of that $50 million as we've invested in training and onboarding in the infrastructure of our increased agents. The remaining 80% are really directly linked to both.

The agent attrition and agent ramp expenses, we've incurred this year, specifically the cost of new ramp and so we are continuing to make investments in those agents to ensure that we will have the agent capacity to handle consumer demand in AEP. This year, because as you recall, we were agent constrained in Q4.

20, and based off of the market dynamics Clint alluded to we're ensuring that we have that agent force to handle the demand projected this upcoming AEP.

Great. Thanks.

Thank you. Our next question comes from Elizabeth Anderson with Evercore. Your line is open.

Hi, guys. Thanks for the question.

I wanted to go back to the year over year LTV increase.

Obviously that seems to be dominated in the quarter by encompass I was wondering if you could talk about some of the factors that cause date, Europe very yesterday slowing growth just in terms of.

Core business ex encompass.

Yes.

This is Scott I'll start you are absolutely right.

We saw strong.

Encompass momentum this year.

And investing in.

Throughout this year and into last year, as well and we're seeing the payoffs there I'll, let <unk> talk about the core core trends that we've seen in Q2, but you think about year to date up 11% overall.

We're proud of.

We will continue focusing on that Travis you add anything good.

Sure I would just.

Echo what Colin said first and foremost encompass continues to power growth there, which we're excited to see I think as we've mentioned on other calls there is some moving parts that goes into Ltvs, specifically carrier mix and consumer mix and we've continued to diversify our carrier mix.

Year over year, and as you think about some of the enrollments and just some of the things that occurred in Q2 of last year with the biggest kind of.

The Big movement with Covid Q2 of last year creates kind of a unique comp when you think about the consumers we enrolled in the 11% that Clint mentioned as much more kind of indicative of the overall trends and expectations. We're seeing here on a year to date basis.

Okay. That's helpful and maybe if you guys could comment on the marketing and advertising spend what are you sort of the trend that you are generally seeing there.

Terms sort of channel and then pricing more broadly.

Yes.

Good question, so we've been.

Positive what we've seen thus far this year, our marketing team has done a fantastic job kind of diversifying the efforts in the different channels. We are playing in and testing and we continue to see strong strong demand and I think as we think about the remainder of this year and COVID-19 doesn't seem to be going away.

A lot of conversations about the Delta variant, which we think will continue to drive accelerated consumers to our platform as they think about enrolling kind of shopping comparing enrolling and plans out of the <unk>.

Safety of their homes.

So we're really excited about that as we get into AEP and our clear focus right now is on the agent force right.

So we're in a situation where you have a strong agent force to support that.

<unk> demand of consumers coming in.

Got it okay. Thank you very much.

Thank you. Our next question comes from Tobey Sommer with <unk> Securities. Your line is open.

Hey, good evening, everyone. This is Jasper bibb on for Tobey I was just hoping you could comment on what the higher agent costs and faster growth in EM I mean for cash burn this year and does that change your thinking around not needing to do a capital raise.

At least this year.

Sure So you're exactly right the investments that we're making in <unk> will increase.

And drive lower cash flows here and.

In the current year.

I think as you think about kind of long term rates the investment that we're making in agents will create a larger membership base for us and larger revenue that will begin to collect those commissions on as early as Q1 of next year. When we get the kind of that first year advances as well as collecting on the renewals of our of our.

<unk>.

Of our previous vintages, and so from where we sit we still feel very confident both in our cash position and capital structure that our contract value asset in our continued growth gives us the ability for really really favorable debt financing as evidenced by the refinancing that we did earlier this quarter and so again, we will continue to be thoughtful.

About growth rates and the impact on cash flow, but again as Clint mentioned, we see a great opportunity with a lot of consumers moving towards our marketplace that we're excited to execute and capitalize on this upcoming AEP.

Thanks, and then just the enterprise revenue guide was unchanged I think the initial $200 million target. You had was mostly worked out of the backlog starting the year.

Those leaving that unchanged just mean you aren't seeing the same interest in projects you had in <unk> last year or can you update us there.

Youre exactly right enterprise revenue remains unchanged the bulk of that is seasonal similar to when we see commissions relating around AEP and again, our focus with the agent ramp has been really delivering on our carrier choice platform, where we're able to offer choice to our consumers and that's where the bulk of our investments have been made.

Okay I appreciate the color thanks, guys.

Thank you. Our next question comes from the line Schenker with Morgan Stanley. Your line is open.

Hi, This is Nathan feather on for Lauren. Thanks for taking my question can you just talk about what your EBIT guide assumes for labor tightness to the rest of the year and when do you anticipate those additional costs from agent churn and training to come back down to more historic levels.

Yes, I'll take that at a high level of drivers you can chime in so we have modeled out kind of the current attrition and trends we're seeing now remain throughout this year.

And they don't improve.

So thats kind of how we're thinking about guidance there we've learned a lot.

Over the last several months as we've seen these trends start to pick up on ways, we can kind of target them and find ways to improve them, we have not modeled out any improvements in the our assumptions for the remainder of the year.

And Travis anything you want to add to that.

Yes, I would just say say simply as you think about it the bulk and the main driver of the of the EBITDA range guidance is again driven around <unk> and really said simply rated it's costing us more to ramp to 50% agent increase that we called out at the beginning of the year and those costs were incurred.

<unk> here in Q2 around recruiting and Onboarding. These agents and then here in Q3 was there as we're bringing them through our development pod and preparation for AEP and so I guess kind of the simplest way to say it is it's taking us a little bit longer and costing us more to execute on the agent ramp that that we called out at the beginning of the year.

Okay, Great that's helpful. Thanks.

Thank you and the final question comes from Joseph <unk> with Credit Suisse. Your line is open.

Okay. Thank you I wanted to go back to comments around enhanced training and tight labor market, maybe flesh out a little bit more what exactly you mean by enhanced training isn't driven by the quality of age and installer personnel Youre hiding debate thats required more extensive training or is it that you are seeing higher attrition, which are driving investments in training on your part.

And if so how confident you are in the quality of these new agents and the productivity and conversion rates from these new agents during the AEP.

Yeah, Great question, So youre absolutely right, we have enhanced our training program for newer agents that ultimately has led to a much more strict but also a graduation rate, but we're refining the folks who do graduate and get through their performance level out of the gate is much stronger than we've seen in years past.

Obviously, we're in it's a different dynamic you think about rewind this business.

Year, and a half or so ago everybody was in person. So you were training and personally in classrooms and it was different training experience. So at replicating that virtually is something we've been focused on to ensure that not only we teach them, although based on Medicare how to sell but from a quality standpoint. They are doing the right thing and we can track that.

We have a high degree of confidence of those folks, leaving that training program and then getting on the phone and dealing with consumers.

It's just taken us kind of more agents to get through there and a longer timeframe, which hence the higher investments.

So just following up on that I mean, one of your competitors recently called out insurance companies increasingly focused on evaluating broke with performance and quality of enrollments and all so it's not like you have changed the biggest training program, but it increases your training.

So as our objectives, which is driving the guidance might be trying to send that to you are seeing that feedback from Europe.

Insurance partners as well.

So there is an industry wide focus on quality.

Everybody is experiencing talking about right now we do have a quality component to our training program.

That we monitor and look at and obviously, we have a robust QA platform as well, but the overall enhanced training here is really around the sales training the Medicare knowledge everything we need to do to get agents ready to sell.

Quality being a component of that.

Okay and then one final question on the LTV.

Question, which was asked earlier.

Last quarter, you called out 6% growth in LTV whatsoever.

Income plus revenue can you give us how much was what you had already had plenty of LTV. Excluding income both this quarter and when we look at the Comscore LTV in the second half it gets tougher how do you think about year over your LTV trends in the second half.

Yes, so we saw similar encompass growth in terms of LTV improvement in Q2.

Roughly think about 5% of LTV improvement driven by encompass again as you think about overall LTV and trends, we're continuing to see strong trends in our Ltvs I think again as mentioned earlier Q2 over Q2 created a little bit of a unique comp when you think about consumer mixing carrier mix being different in Q2 of last year as compared.

This year, but again seen seeing good trends in our Ltvs and logistic reiterate that 11% year to date improvement is kind of indicative of kind of what we expect to see kind of through the back half of the year with encompass as being the biggest driver of our LTV improvements.

Okay. Thanks, guys.

Thank you. This concludes the question and answer session I would now like to turn the call back over to Ken Jones for closing remarks.

Thank you I wanted to take this time to thank all of our go health employees, we're coming up on a year anniversary here for our IPO very exciting time here at <unk> I want to congratulate all the employees for all the hard work theyre putting into in preparation for this AEP, we've got an amazing winning team.

It is really excited about what the future holds here.

So thank you to the team and thank you to everyone who has attended this call all the investors and analysts we look forward to give you continued updates in November on our next call. Thank you.

This concludes today's conference call. Thank you for participating you may now disconnect.

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And then just go ahead.

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Okay.

Yes.

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