Q2 2022 Gohealth Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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Okay.
Welcome to the go help Q2, 2022 earnings conference call Ms, Kevin and I'll be your operator for today's call.
All participants are in a listen only mode.
Compared remarks, we'll conduct a question and answer session.
Okay.
This conference is being recorded.
Right Brian .
Brian you may begin.
Thank you and good afternoon, everyone. Thanks for joining go health second quarter 2022 earnings call.
Joining me today are Vijay Kotte, Chief Executive Officer, and Jason Schultz, Chief Financial Officer.
This afternoons conference call contains forward looking statements are based on our current expectations.
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.
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 second 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 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 reconciliations are set forth in the press release. Please refer to today's press release for reconciliations of non-GAAP measures to the most comparable GAAP measures discussed during this earnings call.
And with that I'd like to turn the call over to Vijay.
Thank you Brian .
Thank you all for joining us this afternoon to discuss our second quarter 2022 results.
Let me start by saying how proud I am of the team supporting over 170000 Medicare beneficiaries this quarter.
Navigate a complex and often frustrating process of health plan enrollment.
Bill help new CFO Jason.
I'll review our earnings results in greater detail before he does I'd like to introduce myself and share a bit about my plans will go held as CEO .
I joined <unk> in June .
Developing a better understanding of the company and evaluating our position within the industry.
And the volume leader in the E broker space.
After joining I had been.
Pleasantly surprised by the work we are doing with curious post enrollment to drive customer experience through the encompass platform.
<unk> plays an essential role in Medicare by establishing an independent marketplace recruiting beneficiaries matching them with the best plan to meet their needs.
While considering the role I felt there was a significant opportunity for this company to extend its differential position.
Now that I'm in the seat I conviction on that point has been solidified.
Elisa platform here is second to none and IC series potential to drive growth and efficiency.
Our priority is to ensure.
Sure. They are beneficiaries of receiving the benefit expected satisfied with their choices.
Greater attention overtime.
Bill Health is uniquely able to deliver what I have worked at fault for much of my career in Medicare.
My time with health plans to providers and technology solution and start to develop the ability to support beneficiaries as it makes it very difficult and stressful decision around their health care.
Should they consider an alternative to traditional Medicare and if so which health plan options should they choose.
I focus my career on supporting beneficiaries to the complex Medicare decision process and doing it at scale with the goal to drive greater freedom of choice and improve the overall experience.
Bill Health effectively supports beneficiary decision, making at scale and has attained a differentiated position in the space.
However, we have reach a natural inflection point as competitive dynamics amongst our carrier partners changed and the needs of our beneficiaries evolve.
In my new role.
Reflecting on what has worked well and what happens in order to best position us for the future as we shift from being enrollment focused to being more engagement.
Adjusted go health has consistently proven to be the enrolment leader in the industry I am confident we will be able to utilize our unique platform inclusive of talent technology and data to deliver incremental value to all the beneficiaries and carriers the extended capabilities and efficiencies to win the engagement rates.
As we journey down this path. It is imperative that we are laser focused on driving cash flow and maintaining a high quality.
And thanks started we have spent a significant amount of time identifying the key drivers that continue to challenge the performance of the company.
To that end, we recently announced the restructuring of our organization to deliver the greatest efficiency with the lens towards value as opposed to revenue maximization.
On the quality front, we've refined the size of our sales force, reducing our head count by just under 800 agents, we will enter AEP with the highest quality and tenured agents ever.
In doing so we gain higher performance metrics around conversion and it's actuation that allow us to deploy our cash at a much more efficient level.
Minimizing our dependency on external resources.
With this focus on quality.
Able to deploy our teams on programs that deliver a higher confidence year, one cash profile for the business.
I'd like to provide a brief update on our new encompass connect and engage modules I'm happy to report that the initial positive interest we received as resulted in contracts with each of our major carrier partners.
We're ramping up these programs and expect to be fully deployed for AEP.
The encompass platform provides a better predictability transparency and unit economics, while also driving more cash into the business.
I feel it is important that I acknowledge all the efforts to go help team has put into making our achievements to date possible.
This is a dynamic market and then expectations evolve how we serve the industry needs to evolve in parallel.
<unk> from all of our current and past team members has been so critical to get US at this point, where we can leverage our strong foundation to reposition this company for success within the new standards desired in this market.
These monumental shift in size and focus do come with some level of risk, but given our depth of experience and historical data. We are cautiously optimistic we will enter into 2023 with a leaner more efficient operating model that can not only be scale, but can also support innovation and growth.
With this restructuring and refocus in mind, we feel it most prudent at this time to suspend quantitative guidance for the remainder of 2022 and instead provide you with some qualitative comments.
As we sit here today, we believe the restructuring measures will impact our second half 2022 results in a few ways.
First our revenue will be slightly lower.
Second our adjusted EBITDA, while still meaningful and positive will be significantly lower.
Third our ability to achieve cash flow breakeven on a run rate basis will be strengthened materially.
We expect to provide more color on full year 2022, when we announce our third quarter earnings later this fall.
I am excited for the changes to come for <unk> as we reposition our unique services around differentiated digital tools and technology for not only volume leadership of winning in customer engagement and experience.
I look forward to sharing a more fulsome update as we close out 2022.
Thank you all for your continued interest in our story and for joining US This afternoon.
I'll now turn the call over to Jason for lip Bu.
Jason.
Thanks P J and thank you to everyone for joining our call today.
Before I get into the financial results I wanted to share some perspective as to why I joined go health.
Early reflections.
It quickly became clear to me that the company was built with the foundation that truly separates itself from the rest of the market share.
Sure Vijay the optimism about the future.
Personally I see the opportunity to make meaningful contribution with the challenges of today and the exciting prospects of tomorrow.
As we have deepened our understanding of the business. We determined it is important to take steps to improve how we communicate financial results were.
We're still early in the assessment our intention is to provide greater clarity around the unit economics of the business margin profiles of our products key operational drivers and the associated cash flow.
We are also taking a fresh look at our forecasting process to increase the predictability of our projections and linking needs to our external communications around forward looking guidance.
For these reasons and the other factors BJ just covered we are suspending guidance for 2022.
Most importantly, we continue to be focused on transforming the business and materially improving cash flow from operations.
As such I am pleased to share our cash flow from operations of $6 million for the first half of 2022, and an improvement of $38 million compared to the same period last year.
With the transformative actions, we are taking and the aggressive cost management discipline, we anticipate achieving the goal of breakeven cash flow from operations by mid 2023.
Moving onto our financial results for the quarter.
We recorded a $159 million of revenue and posted a $32 million adjusted EBITDA loss for the quarter a decline of $38 million.
And $45 million.
Respectively.
Consistent with Q1 of this year, we kept the same blended 7% constraint reserve methodology for new policies sold in the current quarter.
To partially explaining the year over year change it is important to normalize the impact of the $155 million LTV look back adjustment. We took in Q4 2021 that relates to the policy sold in Q2 of last year.
This would have lowered revenue by $15 million.
And decreased our adjusted EBITDA by $10 million in Q2 of 2021.
To further drilling through the quarter I'm going to move into our segment reporting.
Starting with our external Medicare segment, we posted revenue of $50 million, which is an $18 million improvement from Q2 2021.
While profits declined to a loss of $6 million.
The improvement in revenue was largely driven by 114% growth in carrier approved submission.
As a result of increasing the number of down line agency partnerships as compared to the same period last year.
The overall increase in revenue is largely offset by the impacts of our revenue sharing arrangements with our Dan One agency partnerships and the LTV adjustments previously discussed.
Moving to our interim Medicare segment, we recorded a $104 million of revenue and a loss of $11 million.
This is a $37 million and a $42 million decline versus Q2 2021, respectively.
Yeah on the LTV adjustments, we already discussed there were some timing impacts of certain partner marketing and enrollment revenues that were higher in Q2 of last year compared to this quarter.
However, the most significant driver of our decline in revenue and profitability was a 24% decline in carrier approved submission.
Much of the slowdown in our internal Medicare segment was intentional as we spent $15 million less in marketing.
While conserving cash has also resulted in fewer opportunities for our agents and an overall decrease of our policy sold.
We are facing economic headwinds, such as inflation and rising interest rates as well as the changing industry landscape.
As such we wanted to focus on the economic levers we have the most influence over namely our customer acquisition costs in our lending to our highest margin and cash flow generating activities.
We believe the actions taken last week drive stability for the company, while ensuring we are deploying our cash thoughtfully and strategically.
We plan to invest in the opportunities with the highest return and provide the best probability for near and long term success.
As I wrap up.
I want to preemptively touch on a couple of items that might be on your mind.
First to avoid any concern about challenges related to our existing debt covenants.
We worked closely with our lenders to bring them up to speed on our operating plans and expectations we have.
Have a great to revised debt covenants that better align our trajectory with our mutual goals for long term sustainability and strength.
Second.
Related to our current stock price and nasdaq's minimum stock price listing requirement if necessary, we anticipate holding a special shareholders meeting later in the fall to request shareholders to authorize a reverse stock split by our board.
We will provide more information on this topic over the coming months.
Before I hand, it back to the operator to queue up for your questions I want to reiterate how pleased I am to have joined <unk> health. We're in the early stages here, but we have a good handle the business and we know what we need to do next.
That could be a part of this transformation and I look forward to updating you on our progress in the Q3 call.
Thank you for your time today, we'll now open up the call for questions operator.
Ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your Touchtone phone, we'll pause for a moment while compiler.
What day roster.
Our first question comes from Elizabeth Anderson with Evercore. Your line is open.
Hi, guys. Thanks, I'll answer the question.
My first question.
I would now like to hear I know, you've obviously had a lot on your plate for the last sort of six weeks or so just sort of where we are in terms of AEP prep I noticed you. Obviously said that you are expecting to go in with a more tenured sales force.
Are there any sort of key capabilities that youre missing or that youre sort of adding to at this point.
Our training was there anything given some of the TTM is from last year or any kind of sort of the operational things that you're doing differently. When you sort of approach the AEP season. Thanks.
Thanks, Elizabeth I appreciate you joining the call today and thanks for the question.
Just to be to reiterate the question more around where are we with AEP prep and anything that we're doing operationally and otherwise to prepare for it.
And in short, yes, there is a lot going on as you know this is a very busy time of year.
Just been out trying to learn about our major carriers' plans.
Regarding benefits and how they are seeing their positioning within the marketplace.
And then also factoring in those dynamics into how we are training our agent even though we have refined our count of agents. We have been working extensively since at last AEP to enhance their quality.
Their conversion rates its actuation all across the board and most importantly, as we've alluded through alluded to in our prepared comments is our progress on the encompass platform and right now we are in the final stages of testing those tools.
To make sure that we have all of our key agents prepared and ready to deploy against those.
We can have more of that active and ready to go during the AEP season in both the connect modules as well as the.
<unk> engaged modules at that time, but.
But I think that's.
Those are the major parts for us at this point.
And we are doing.
Doing a good job of really focusing through those technical tools and training tools and the last one is really around marketing.
<unk> is going to be unique in the way we've refined our approach to what we want to do in the AEP period, as Jason alluded to making sure that we're focusing on the highest quality marketing avenues and as such working with those partners to ensure that we are doing all of the quality verification on the front end as possible. So that we have the high.
Return on those.
<unk>.
So I think thats.
What I would say to respond to your question is that responsive to what you were looking for.
No that makes sense.
My follow up question is <unk>.
Just pulling the guidance at this point.
Sort of changed in terms of how you're thinking about the company that you sort of wanted to to take us through that.
To pull the prior guidance and take a fresh look at the year.
Yes.
It's obviously.
A good question probably on the minds of a lot of those listing right now.
As we look at it it's no surprise to anybody that the AEP period is one of the most dynamic periods and most important to look at the full year performance.
In our space.
There are a lot of factors in play this year.
At the changes in the way the carriers are looking at their benefit structures, some of which we have some of which we don't understand yet most of that won't be ultimately known until October of this year second we've got competitive dynamics that have changed.
Amongst our peers at their staffing their marketing tactics, the down lines, how theyre all behaving as different.
Organizations are looking at different strategic options.
Marketing regulations change this year versus where we were in the past and so were all reacting to those.
And then we also have the counter pieces at the inflationary environment and how that may be changing the.
For those who are going to be shoppers this year, and those who won't be shoppers this year versus prior periods. So all of that then compounded with the restructuring activities. We did this past week.
All lead us to.
Come to the conclusion that it made sense versus suspend guidance at this point and obviously as we indicated in our pre recorded our prepared comments.
That we will consider the color of those and give you more thoughts around it as we get into the call.
Okay, and one last quick one for those of US who haven't had time to read the entire debt.
New debt covenants and things in the 8-K that you just released a couple of minutes ago would you mind, providing us sort of summary in terms of the failure points there.
I think there's really just two of the salient points related to that what we have.
<unk> negotiated with the Debtholders, Jason do you want to touch on that yeah. Thanks, Vijay and thanks for the call. Yes. So number one when we went ahead and updated our covenants associated with our leverage ratio and then also we have a update to our higher rate, which is an increase of 100 basis.
Thanks.
Okay got it thanks, so much.
Thank you Lisa.
One moment for our next question.
Yes.
Our next question comes from Michael Cherny with Bank of America. Your line is open.
Okay.
Afternoon, and thanks for taking the question, maybe if I can dive a little bit into the restructuring program.
It's a big chunk of your workforce, not something or any company ever wants to do but as you think about how you went through that process. How do you think about the team that's on the field essentially going into what you've noted is obviously, a very dynamic AEP program and making sure that they have the right levels of motivation rate levels of centimeter it makes to drivers.
Strong AEP performance possible.
Yeah.
Thanks, Mike for the question.
As we think about the AEP period, and obviously going through the restructuring process really staring at what mattered. Most as we go into this evolutionary period and transformational period for us as an organization.
We know that the market is demanding and we need to deliver higher quality across the board.
So we went through our selection criteria, we focused on that we focus on the agents you had been able to become those top tier upper echelon qual.
Quality performers.
And really refined our workforce to reflect that those who were there and those who had the potential to get their augmenting them with training and additional tools to do so.
As we think about going into the AEP period as I said before we have some of the highest tenured and highest quality agents, we've ever had going into AEP.
And what that allows us to do even with a smaller volume allows us to be more selective in the marketing.
Sources and tactics, we utilized so that we can have the highest.
Quality choices, along those lines. So we do feel that.
It allows us to actually have a very productive quality demonstration of our capabilities to our carriers and serve beneficiaries in a better way.
Understood and maybe just thinking ahead as well as the AEP, obviously last year number of the carriers that you work with I know have made public comments about their desire to push and pull in terms of their own internal agent for salesforce versus external how are you thinking about the continued process that youre going forward.
In order to make sure that you are proving yourselves as the best value added partner, especially considering the potential investment, they're making internally for additional resources.
It's a great question and as we look at all the discussion and I would say that I've been very pleased that interact with all of our major carrier partners.
<unk> had extensive conversations what matters most to them what problems, they're trying to solve and how we can partner with them to do just that is actually the germination of how we've gotten to getting the completed contracts in our connect and our engage platform their module.
Under the encompass overall portfolio of products.
Is really aligning our capabilities with what they seek most and.
And balancing that push and pull tug that you've been describing so it's definitely been not being done in a vacuum. These new products were describing we're doing them alongside of our carriers and we feel that there are absolutely, helping both advance our position as to how we want to evolve as well as supporting where they're trying to go with in their respective goals.
Got it thanks, so much.
Thank you Mike.
One moment for our next question.
Our next question comes from Tobey Sommer with <unk>. Your line is open.
Hi.
What do your your.
Workforce cuts mean to your.
Agents could you give us a sense for where you were and where you will be on a go forward basis from an agent perspective.
Salesforce perspective.
First Ravi thanks for joining and I appreciate the question.
It hasnt been prior precedent, we haven't really.
Put out numbers thats due to number of agents that we've got.
And those that we have between so many different functions between our internal Medicare are down line partners.
And the external Medicare channel not to mention all of the enterprise solutions in other areas within the organization.
So not in a position to provide you those metrics at this time.
But again as we did allude to it just over 800 or just under 800 agents were impacted by the restructuring.
Okay I guess.
I know you pulled guidance, but.
Part of this.
Sort of adjustments to the workforce and agent force you have got to have some sort of plan to keep them busy enough and fueled with enough marketing.
Two.
Yield the kind of living that will give you associated turnover in employee attrition.
The business can live with how do you thread that needle.
No. It's a great question as we thought about where we're going and how we identify.
Key staffing levels for us.
There was a lot of strong balance towards what could we actually do exactly what you're describing how do we get enough leads that are high enough quality and to produce the quality and the backend with the right.
What the right tenure to agents.
And how do you balance that overall, so as we went through that analysis and looked at who was at what thresholds, we have definitely balanced and that we've.
Looked at our.
Staffing levels and also the compensation model in the ways, we put incentive structures in place for our agents and we feel good that we can satisfy and keep them engaged and motivated to drive high quality with a balance on volume and productivity.
That is definitely what we've done and we feel there is.
The opportunity for us to continue to refine that over the course of the coming months as we learn more about what the market made put forward and all of those dynamics I described a little while ago.
Okay.
I appreciate the targeting cash flow breakeven.
In the not too distant future, but.
But contracting the top line to get there.
Probably doesn't feel that great at this point I know you haven't been there a long time, but do you think the business can.
Simultaneously generate cash.
And <unk>.
Positive revenue and volume growth.
I think it's it's an interesting question as I look at it right now I think we are definitely believe we can position ourselves to drive more value.
And the value equation is a function of both quantity and quality.
And we want to fill that void and I think that's really the shift that's happened one would say that quality is already always been on the forefront.
But quantity has been a strong motivated from a lot of different angles.
At times, we need to refocus on the quality and that's exactly what we're doing so when we think about the value going forward, it's really driving some of the new product segments that we've described.
And finding better ways to be.
Partnering with our carriers to deliver those services.
And we think that you can deliver cash through that as well as drive growth year over year, but time will tell us exactly what those thresholds will be and as we test somebody is going to this upcoming AEP will be able to provide you more color as we get further into the year.
Okay in your target of cash flow breakeven.
Ron the middle of next year is that on a sustainable basis or is that episodic in sort of.
Away from AEP and after all the cash comes in.
Once that follow.
Keep in mind I think the way we've set up the <unk>.
The target is on a trailing 12 month basis, so it's not an episodic one quarter.
This cash characteristic CJS desk, just described and so the way to think about it as it is on a run rate basis.
The way the business should operate going forward.
Okay. Thank you.
One moment for our next question.
Our next question comes from Jonathan Young with Credit Suisse. Your line is open.
Hi, Thanks for taking my question.
So.
As you guys kind of stepped into the rules you obviously did the restructuring work, but I guess are there any other areas, where you think more work can be done within areas areas, where that kind of jumps out to you where you can further reduce cost any variable costs things of that nature.
Thank you Jonathan I appreciate the question.
Let me at Europe .
You're fading out a little bit there I want to repeat the question to make sure I got it right. It sounded like you said that we had done a lot of work on the restructuring and coming up with costs are there other major categories or areas to look at for cost mitigation.
Correct, yes.
So I think we've done.
A good review of the organization focusing on the areas that seem to drive more on the quality side of the business and ensuring that we're getting the best return on those maximizing our opportunity for cash.
Cetera, So I'd say at this time Theres no material areas of gap that we need to look at that are known areas to focus on on the cost side of things.
The debtor glaring by any means.
Okay, Great and then you obviously cut.
About 800 agents as you think about kind of the go forward.
Is the current agent staffing level the right level for you guys and then.
As you think about balancing the regular <unk>.
Emission side versus the enterprise side is there a one you're kind of favoring more than the other or is it still too early to kind of comment on that thanks.
Hi.
The staffing levels that we have right now we feel fairly comfortable or a good baseline for us to operate off of for the long run we have opportunities to grow and we have a definite pipeline within the different products that we offer to be able to continue to nurture and develop the talent.
If you look at the tenure of the agents that were coming into this AEP versus previous tenures is nearly three times.
The amount of tenure that we've had in previous years and that is.
Something we want to maintain that we have a pipeline of experience to help bring onboard from the outside and developed through the different channels.
So at this point, we think this is the right staffing level to jump off of and we had the right opportunity to develop talent to move towards our diversification of our product set and bring those skills into those other products to your specific question of the distribution between enterprise and also looking at.
<unk>.
The traditional model at this point I don't have anything directional to provide you other than you should expect to see some more diversification as we go forward both on the type of products and the payment profiles of those businesses.
Okay, great. Thanks.
Thanks, Jonathan.
And I'm not showing any further questions at this time I'd like to turn the call back over to our management team.
Just wanted to close thank you all again for your.
Time today and interest in our organization, obviously, a lot of work to come and we're looking forward to providing you updates on our progress over the coming quarters, and we hope to talk to you all soon.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
The conference will begin shortly to raise Johan during Q&A you can dial one one.
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Okay.
Okay.
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