GoHealth Inc. Q1 2023 Earnings Call
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Okay.
Good morning, and welcome to the go health first quarter 'twenty two 'twenty three earnings conference call. My name is Michelle and I will be your operator for today's call.
At this time all participants are in a listen only mode.
Following the prepared remarks, we will conduct a question and answer session.
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As a reminder, this conference is being recorded.
I'll now turn the call over to John Shave.
President of Investor Relations.
John you may begin.
Thank you and good morning, everyone. Thanks for joining go Health's first quarter 2023 quarterly results call. Joining me today are Vijay Kotte, Chief Executive Officer, and Jason Shoals, Chief Financial Officer.
This morning's conference call contains forward looking statements 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.
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.
Before the market opened today, we issued a press release containing our results for the first quarter of 2023.
We have posted the release on the go health 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.
Encourage you to consider the other risk factors described in our Form 10-K and Form 10-Q reports filed with the security and Exchange Commission for additional information.
During this call we'll be discussing certain non-GAAP financial measures. These measures are reconciled to the most directly comparable GAAP financial measures and the 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.
For reference in the Investor Relations section of the go Health website, we have provided a supporting slide presentation exhibits that I encourage you to review.
And with that I'd like to turn the call over to B J.
Good morning, and thank you all for joining US today I'm pleased to report a strong quarter and start to the year, we achieved a $183 million in revenue $29 million and adjusted EBITDA and $20 million in positive cash flow together with our external partners. We helped over 214000 Medicare burner.
Fisheries assess their current coverage and potential Medicare options and enrolled in our plan.
Jason will provide more insight into the financial results in his section.
At a high level, our first quarter performance highlights our operational efficiencies and the progress we are making with encompass and supports our confidence in our full year 2023 guidance.
The E broker industry has long believed that growth is directly tied to the acquisition of more agents and thus more leads however.
However, this traditional approach often leads to get economies of scale, where the cost of adding more agents and lead strides up customer acquisition costs due to lower quality agents and lower quality leads.
We believe technology can drive economies of scale and meaningfully elevate the consumer experience and matching consumers with the right plan for that.
Encompass our proprietary operational technology and data science platform allows us to streamline the purchase process for consumers simplifying the cumbersome and confusing experience in health care purchasing while allowing our agents to focus on what's most important.
Showing empathy and care for our consumers.
By leveraging our machine learning platform, we're able to better serve these consumers and deliver better outcomes for our business.
I am incredibly proud of our team and their tireless efforts towards achieving our goals and I'm excited to share our progress with you.
As we have discussed previously the increasing propensity for consumers to shop, coupled with its seemingly ever increasing number of Medicare advantage choices for our consumers improve overwhelming this.
This makes it go health value proposition to both consumers and health plan, so timely and relevant.
<unk> core value proposition to consumers is providing a trustworthy shopping experience that allows consumers to select the Medicare advantage plan that meets their unique needs.
With the encompass platform, we offer a personalized unbiased and no pressure shopping experience, where consumers can feel comfortable and confident throughout the entire process.
Our marketplace model is distinct from traditional brokers in several ways.
Oh Hell, we put the consumer at the center of all we did this has resulted in a passionate beliefs that we must remain unbiased in the servicing of our consumers.
I'd like to take this opportunity to go a bit more in depth to discuss exactly how our people and technology create a differentiated experience and introduce some common language when speaking about our technology.
First I'll start with our associates.
Our tenured agents and staffing model support the consumer through the end to end shopping process and ensure compliance.
We have multiple teams of agents tier.
Tier one insurers Medicare eligibility and confirms shopping interests.
To support the needs assessment and planned shopping process and tier three complete enrollment ensuring that consumers are satisfied with their planned choices understands their benefits and know what will happen next.
Our quality assurance teams audit the entire process provide feedback to improve processes, along the way and ensure compliant behavior from our team.
Our agents are not incentivize to promote specific health plan and their compensation is not based on the insurance product that consumers ultimately select.
This approach ensures that each consumer receives an impartial evaluation and recommendation that is tailored to their specific needs and preferences.
Now moving to technology.
Our proprietary consumer matching technology drives value at the start of the consumer shopping process.
We've identified many consumer and market level dynamics that correlate to a particular agent being more effective than another and serving our consumers unique needs.
Using machine learning we identified these matches in real time and route to the best of the agents we.
We're continuing to test different populations for this matching in our first tests have shown a 30% increase in conversion rate when applying this routing.
Our plan fit tool has been built on millions of consumer interactions and leverages that data to create a customized guided multistem purchasing experience that results in a thorough and comprehensive understanding of our consumers Medicare insurance needs.
Each time, we talked to a consumer plan fit analyzes over 180 factors, including planned characteristics consumer input and historical data to sort through thousands of Medicare advantage plans and help us provide the best recommendations to consumers.
This allows us to help consumers make informed decisions about their health care and select the right plan for their unique needs.
The tool continues to evolve as we write more policies gathers more data and add more features.
Our proprietary unified agent experience creates a simpler more efficient process for agents to assist consumers enables faster onboarding and drives compliance.
These benefits tied directly to revenue cash flow and adjusted EBITDA outcomes.
Unified agent experience increases automation, and creating a simpler and more efficient process.
Our sales agents interact with many different applications for everything from determining Medicare eligibility to identifying medications.
By integrating these applications directly into our agent platform, we're able to shorten call time for both the agent and consumer.
Shorter handle times increased agent and consumer satisfaction and lead to increased throughput in our model.
Today, new agents receive rigorous training to complete a high quality compliant enrollment, but even with that it takes repetition for new agents to hone their craft.
Our standardized technology accelerates its learning curve and will enable faster onboarding for our new agents, improving overall conversion rates and throughput.
Standardization of shopping experience also enables us to drive compliance and adapt to regulatory changes as needed a critical capability given the current climate.
Finally, we created data profile on each individual including their health preferences financial situations and other relevant factors.
Our evolving customer 360 platform organized this information and we will enable our agents to provide more efficient personalized service to each consumer that takes their historical relationship with go health into account.
This laser focus on the consumer is a win win and strengthens the value proposition, we continue to bring to health plans.
We serve the largest health plans in the country.
While selectively adding new options in our marketplace to ensure we are offering consumers the highest quality options available.
We believe our unbiased marketplace model and superior consumer experience attract a broader set of consumers and health plans can reach and ultimately expand the number of consumers we can match to help with.
This expands the pie for health plans that participate in our marketplace and enables them to drive their own member growth. So long as they have competitive consumer focused benefits.
Additionally, health plans can rely on our standardized and effective sales process to ensure that the consumers enrolled in their plan are informed and satisfied with their plan selection, which minimizes churn improves retention and reduces complaints.
Finally, our encompass modeled specialized agent roles in uniform agent experience technology allows us to drive compliance, while also being nimble and responsive to the ever changing regulatory landscape.
Our belief in the encompass models value for health plans is backed by our ability to redefine and reset the foundation of our business through our new contracts. We have secured encompass context with nearly all of our health plan partners assuring them access to our high powered marketplace and guided shopping process that culminates with an in house dedicated health plan enrollment.
Team for each health plan to support final enrollment confirmation and initiate onboarding.
As you can see and come to that much more than just a new way to contract is also technology forward operating model designed with purpose.
Making the consumer's needs Paramount.
The efficiency of the model has already begun to flow through our financials with lower cash burn and lower costs.
Lower cost per submission driven by significant marketing improvements lower agent carrying costs during low season and expansion of technology tools offers variable capacity and assets to economies of scale.
With every shift of volume to the encompass model, we deliver greater revenue reliability supported by a greater percentage of cash collected within the first 12 months.
Our new model has transformed our cash flow profile at the business and we are now in a unique position in the industry are generating positive dependable cash flow.
This fundamental economic changing our business model recognizes the value of our differentiated approach to delivering elevated consumer experiences now allows us to build an enduring company.
As the incumbent model approaches its first full year of launch at scale, we expect that the model will evolve and continue to improve outcomes for consumers health plan and go help stakeholders.
Jason will speak about how encompass allows us to reach profitability with the new business, we generate on a go forward basis and decoupled the companys future from the macro headwinds seen throughout the industry from increasing shopping behavior.
I want to take a moment to thank our associates agents and partners.
We have been diligently working to improve operational efficiency, which will take time to show fully in results, but we are very encouraged by our progress, which Jason will now discuss.
Thanks P. J, we are pleased to announce our Q1 2023 performance after normalizing for the exit of our non encompass PPO services, we generated revenue of $176 million in it.
Adjusted EBITDA of $27 million driven.
Driven by 214000 submissions.
Our Q1 2023 results are in line with our expectations and keep us on track toward our full year guidance.
These results represent a $62 million decrease in revenue and an increase in adjusted EBITDA of $22 million versus Q1 2022. After normalizing for the exit of our non encompass PPO services and a $2 million look back recorded in Q1 2022.
As a reminder, the revenue decline was a deliberate strategy to scale down our agent workforce focus on quality achieve operational efficiencies and improve our unit economics and profitability.
We continue to see good momentum with our cash flow from operations for this quarter, we achieved a positive $20 million, which results in a year over year improvement of $303 million on a trailing 12 month basis.
We believe trailing 12 months is the most appropriate way to view our performance as it normalizes for seasonality throughout the calendar year.
As detailed in our quarterly results presentation posted on our website, we are focused on driving high quality enrollment and operational efficiencies, while reducing our carrying cost.
<unk> approach has allowed us to streamline our operations and position ourselves for long term success.
We are confident that this decision will continue to have a positive impact on our overall profitability.
For Q1 2023, we have changed our segment reporting to reflect our continued focus on driving high quality Medicare business and our exit from non encompass GPO surfaces.
Going forward, we will be operating under a single reporting segment, which aligns with how we manage and operate the business and incentivize our associates.
As part of our reporting changes we are also adjusting how we just aggregate revenue to better align with our operations.
And our 10-Q filing you will see a line item for our agency revenue, which is defined by go help being the agent of record and represents what we had previously referred to as our traditional model.
This included a combination of commissions and partner marketing revenue.
We also now have non agency revenue, which is defined by the revenue, which we received for specific services that support enrollment activities and which go health is not the agent of record previously we have labeled this as encompass revenue.
As BJ described the encompass model is more than just a contract or source of revenue.
It is now our preferred operating platform that puts the consumer in the center of all of our activities, including how we market support enrollment activities provide administrative services utilize proprietary technology and ultimately deliver the highest quality solutions to those we serve.
We acknowledge that this change may require our support for you to clearly understand how did they reconcile to prior year, we will provide a clear comparison in our upcoming reports and presentations to ensure that our stakeholders have a comprehensive understanding of our performance and progress.
As I previously mentioned, our Q1 2023, adjusted EBITDA, excluding non encompass PPO services to $27 million.
We have significantly increased our adjusted EBIT margin profile from 2% in Q1, 2022% to 16% in Q1 2023. This excludes non encompass BPL services and a $2 million lift package estimate recorded in Q1 2022.
This improvement reflects our more efficient operating model, we established during the annual enrollment periods last quarter, which we continue to refine and enhance.
As illustrated in our quarterly results presentation. Our Q1 2023 gross margin is $202 per submission, representing a 60% year over year increase in profitability.
This quarter, we have increased our agency commission constrained which is the primary.
However, the year over year sales per submission decline. However, this was more than offset by the efficiencies gained as reflected in the cost per submission improvement of 23%.
Q1, 2023 cash flow from operations is $20 million we.
We continue to see the Panama and improving cash flow trends, reflecting our ongoing focus on increasing our non agency revenue and operating efficiency.
As illustrated in our quarterly results presentation, our trailing 12 month cash flow from operations.
As of Q1, 2023 is $27 million, an improvement of $303 million or the same time period measured in Q1 2022.
While $78 million of this improvement can be attributed to non agency revenue $290 million of the change is driven by more efficient encompass operating model.
We recognize that revenue EBITDA and cash flow have always been subject to seasonality. However, because of our progress with the encompass platform as well as the impacts of our non agency revenue.
The seasonality of our business has changed from the past.
The non agency revenue has shifted our cash collections lowering the amount of cash collected in Q1, and smoothing collections and the remaining periods with Q3 expected to be the highest collection quarter.
We will continue to see our peak revenue and adjusted EBIT in Q4 due to the high volumes and the annual enrollment period.
Followed by Q1, and the open enrollment period and much lower revenues and modest negative adjusted EBITDA in Q2, and Q3 due to the much lower volumes in the special enrollment period.
That said the encompass operating model has significantly lowered our cost per submission, which will result in a meaningful improvement in this year as the special enrollment period compared to 2022.
Our strong performance in Q1 allows us to reiterate our guidance for the year, we anticipate our revenue to be between $750 million and $850 million with adjusted EBITDA in the range of $100 million and $140 million.
In terms of cash flow from operations, we expect a positive $75 million to $150 million.
In conclusion during Q1 2023, we achieved significant improvements in adjusted EBITDA gross margin and cash flow from operations.
This strong performance reflects our continued commitment to driving non agency revenue and executing on our more efficient encompass model.
With that we would like to open the call to questions operator.
As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced.
To withdraw your question. Please press star one again.
Please standby, while we compile the Q&A roster.
Our first question comes from Mike Cherny with Bank of America. Your line is now open.
Good morning, and thanks for taking the question.
Question about the transition to encompass from the carrier side and maybe this is something that we will learn more about during AEP, but in terms of the way that you've changed your go to market strategy. What has been the carrier reaction and what changes in terms of the interplay that they have with you have you had to make your Fannie and they caused any either.
<unk> for I guess better communication either way.
Good morning, Mike Thanks for the question.
Let me start with.
Yes.
In working collaboratively with the carriers and the health plans for some time on this transition.
Encompass the primary focus being having a better quality experience and better.
Funnel metrics as you think about that there are dynamics around driving better actuation, meaning submission actually turning into an effective policy and then ultimately moving to a 90 day and then moving to be able to retain policy over time.
That dynamic as we left the ETE and all of those test statistics and kind of running through what we did last Q4 resulted in Ms.
Material improvement on those metrics.
It's very strong support from our health plan partners.
To expand the scope of how we're delivering that consistent experience with them.
They absolutely appreciate that.
In our approach to looking at protecting the consumer.
And the standardized approach and Auditable experience I mean, the simple fact that we record every element of it and we use technology to ensure that the standard flow through tier one to tier two and then specifically our tier three which has been really focusing on that subject matter expertise.
Agent, who learned everything about a given health plan and then the final element of taking the application for the beneficiary and being able to explain that what specifically happened next of that health plan has been very exciting right. We've worked with them on a scripting we're making sure that online experience and then we follow up beyond that so the short story is there had been a law.
Lot of very strong support for the model itself I would say that as you look at the competitive marketplace elements of it.
We love to have an advantage right, but they do appreciate the fact that when they come into our marketplace.
Have a great quality and have a great opportunity.
A great set of benefits for the beneficiary and align that altogether.
Including things like rapid dis enrollment rates in general churn rates back to that I'll, let that they can they can win on in any given year.
The interesting part of the dynamic at any given health plans, if they want to be in or they don't want to be in that marketplace. It doesn't affect the number of shoppers who come to us we have our.
Our shoppers are really driven by our marketing and they come to us and they say they want to understand what are the best options for that if a plant should not be in our marketplace. For example, because they don't think they will have a competitive product, but that doesn't really affect our volume.
Client participation or not participating in a marketplace is it really affects their volume and their.
Then it affects some of our mix.
And I will tell you that as we've gone through that our carriers are very interested in getting active beneficiaries will be part of that shopping experience and continue to.
Grow with us.
Is that answering your question, Mike or too much.
Somebody working not enough assessments.
No no no it does not fully understanding that.
Lina encompass we're going to see what happens as we get especially into AEP still being such a big component of the year just because your market works. So I appreciate that look and I appreciate the transparency youre, giving us on that.
Just one more technical question I appreciate.
Wait you breaking out the.
Revenue and EBITDA contribution on the PPO any impacts on cash flow or would it be subsequent similar to what you'd see from an EBIT contribution as you wind that business down.
Yes, Mike This is Jason I appreciate the question.
It's de Minimis in terms of the bto contribution on cash flow. So I would think of it.
Florida.
David.
That's about it.
Got it thanks, so much.
As a reminder to ask a question. Please press star one one on your telephone.
For your name to be announced.
Please standby for our next question.
The next question comes from Jonathan Young with Credit Suisse. Your line is now open.
Hi, Thanks for taking the question I just wanted to get your thoughts on the finalized CMS marketing rules.
Given that there is some concern on the 48 hour SLA will just how are you thinking about the impact on your business and similarly, what have your carrier partners brought up in relation to that role.
Thanks for the question Jonathan.
I think there is a lot bid.
I think first and foremost I think it's fair to say that given all the comments we provided earlier.
Yes.
Prepared comments and how we think strategically the consumer and protecting the consumer is.
And that high quality shopping experience is paramount.
And so we are fully aligned with what CMS is intending to do and what the regulations are intended to protect.
We do believe that weeding out bad actors and bad actions are really where we all need to focus that we can do the right thing.
As you think about year to year right with CMS every year. There is some sort of change of regulation around marketing and how you go to market and all of that is contemplating how we think about our.
Operating plan and our performance in any given year.
As part of that Youre always working with the different carriers to understand how they are interpreting things and how that flows through into our operation.
And one of the things that.
Is really interesting is that I think we're all again in the in the business, where we have a full auditing capability for every one of these calls from soup to nuts.
He came from because we do the majority of our own lead generation we.
Run that through and we have recorded.
Specialized individuals through our encompass platform.
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Verification of eligibility interest to shop, all the way through to the enrollment in the Onboarding process.
So we have a fairly unique platform that can be.
It is uniquely positioned to be able to be responsive to any of the changes in interpretation that might have over time and any other regulatory again, but again. This is eight and annual thing every year, there's something new that comes up and we assume there will be things like that.
We will come up so in short we don't believe there will be any material negative impact based upon some of the different discussions that are going on today, obviously more details to come but we actually believe it could be on the flip side of that we think that's going to be a strategic opportunity for us as we are standardizing our profit as we have more infrastructure technology built around.
<unk> standardized process were able to once again leverage the high quality fully regulated marketing tactics, we use to generate leads to manage that funnel process.
In a number of different environments and be responsive moves that could lead to us grabbing more share.
But at this point, we believe our model gives us a strategic advantage that we're pretty excited about regardless of where things ultimately fall out.
Great. Thanks.
Please standby for our next question.
Our next question comes from Dan Hendrix, with RBC capital markets. Your line is open.
Okay. Thank you very much we've heard some commentary from carriers this earning season, suggesting increased shopping behavior in the upcoming AEP as carriers adjust to the new MA risk models I wanted to get your thoughts on the implications for the traditional agency business and measures youre, taking to mitigate any potential increased churn there.
Thanks.
Thank you Ben it's a great question as we filled you in as we anticipated and even in the last call that we did.
We have described the fact that we are that being in kind of leaning into the idea that shop rating.
That has been reflected in all of ours.
Not only our guidance, but also all of the other estimates that are related testing.
We think it's wonderful as long as the consumer is winning.
And they're getting the best benefit options and they are being able to actually compare them effectively.
That is the concern is that with so much change potential within the different options and so many tweaks that happened around the edges and always understand how does that impact them.
How to make a relative comparison and by actually building our infrastructure. The way we have taking all of those benefit plans into account understanding the beneficiaries individual needs, we're able to navigate that shopping experience. So yes, we expect more shopping to happen as we said last quarter that is what our whole operating plan for the year.
Upon we have some presumptions on what that does to overall behavior around individual policies and we factor that into our thought process as well and.
And as we said last quarter. We reiterate now this is a part of our strategy we've leaned into it is that.
But what we believe should be happening.
And that is that they shop shopping doesn't mean, you switch shopping means you need to comparison shop shopping means you need to have an individualized Greg and so our agents are tier two shoppers out there high quality trained associates, who spend the time to understand the beneficiaries need to understand all of their.
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Benefit alternative and then make sure that even if it's not there is no change necessary. They are incentivized from the way we compensate them in our plants before AEP will be just that that our agents are being are able to be rewarded for providing high value shopping experience, even if the conclusion that the beneficiary at this phase of their careers.
And they need to have that peace of mind and so that's the way we're thinking about it from our operational standpoint, that's exactly what we're expecting more shopping.
If it happens it happens at accelerated pace based upon the MA rates and the risk adjustment that will only lean.
More of a positive for us as we think.
Shopping dynamic.
Thank you.
As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced.
I show no further questions at this time I would now.
Now I'd like to turn the call back to VJ for closing remarks.
Thank you.
You again for joining us today.
We're really proud of everything that we've been able to accomplish thus far this year. Our team has been phenomenal we have done the best in the industry, who are really focused on doing the right thing.
Right and we are absolutely committed to continuing to do that we hope you'll leave knowing we remain focused on delivering long term value for our shareholders, while providing high quality experiences to our consumers and health plan.
For your continued support and we look forward to updating you on our progress during the next quarterly results call and webcast.
Yes.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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