Q2 2023 GoHealth Inc Earnings Call

August 10, 2023

Okay.

Good day and thank you for standing by welcome to the go Health second quarter 2023 earnings Conference call.

This time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need a press star one on your telephone you will then hear an automated message advising you that your hand is raised.

Your question. Please press star one again.

Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, John Shave Vice President Investor Relations. Please go ahead.

Thank you and good morning, everyone. Thanks for joining <unk> second quarter 2023 earnings call. Joining me today are Vijay Kotte, Chief Executive Officer, Jason Charles Chief Financial Officer.

Today's conference call contains forward looking statements based on our current expectations.

Numerous risks and uncertainties may cause actual results to differ materially from those anticipated or projected in these statements.

Many of the factors that will determine future results are beyond the company's ability to control or predict.

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.

Earlier today, we issued a press release containing our results for the second quarter of 2023.

We have posted the release I'm Gonna go health website under the Investor Relations tab.

In the press release, we have listed a number of risk factors, which 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 the Investor Relations section of our website for reconciliations of non-GAAP measures to the most comparable GAAP measures discussed in this earnings call.

I'll now turn the call over to go health CEO Vijay Kotte.

Thank you John Good morning, and thank you all for joining US today I'm pleased to report another strong quarter.

With our external partners, we helped over 162000 Medicare consumers access their coverage review potential Medicare option and enrolled in our plan.

Our marketplace model is distinct from traditional brokers in several ways.

We remain unbiased and put the consumer at the center of all region.

We achieved $140 million in revenue nearly $1 million and adjusted EBITDA and almost $11 million in positive cash flow.

Continue to see improved profitability as we accomplished a significant milestone by reaching positive adjusted EBITDA in Q2 compared to a loss of just under $32 million in second quarter of 2022, which is particularly noteworthy given the historical dynamics of losses in the quarter due to carrying cost versus volume.

Complishments is a testament to the intentional reset and decisions, we made last year, which had a positive impact on our exit run rate. Additionally, our strategic deployment of automation and technology played a pivotal role in driving operational efficiencies, while turning the corner to prudent growth going forward on a year over year basis.

Our growth and exceptional results that exceeded expectations, providing us with the confidence to elevate our financial guidance for the remainder of the year.

With this impressive performance. We now expect 2023 total net revenue of between $800 million and $850 million, an increase from the previous lower bound of $750 million.

Furthermore, our projected adjusted EBITDA range is set to reach between $120 million and $140 million.

Passing the previously lower bound of $100 million.

Please recall that our guidance excludes non encompassing gill sir.

I want to highlight that with our strategic exit of non encompass detailed services. We believe we have transition to a phase of profitable growth accompanied by improving cash flow generation.

You can see this in our second quarter results as compared to last year and we expect this to continue for the rest of 2023 as also evidenced in our revised guidance.

We are driving efficiencies in the best way possible by doing more with the thing and this applies to our season agents streamlined onboarding process standardized encompass model and proprietary technology, all of which we expect to continue to improve and evolve.

As we said in Q4 2022 Medicare plan shopping will increase it has increased at both peers and partners have recently confirmed we believe beneficiary now switch plan as many as three to five times over the course of their eligibility as their needs change, though they should shop at least once a year.

We anticipated last year, the consumer shopping would continue and may impact churn the increasing consumer shopping was a driver of the change in estimate we did at the end of 2022, and we took that into account for our 2023 guidance.

The consumers are going to shop, we want them to shop with us regardless of whether we originally enrolled them in their plan.

More consumers will shop with us if we build a trusted relationships by delivering an unbiased high quality consumer shopping experience.

This approach Leverages, an agnostic consumer marketplace with multiple plan option and develop credibility with consumers.

We want to be the destination that provides consumers with a needs based checkup every year, where the result might mean the consumer stays in their current plan. If it is the best plan for their needs.

The best plan, we make it easy to enroll in the bedroom.

We remain committed to enhancing the personalization of the consumer experience, which has been a driving force behind our encompass transformation.

As we have stated in the past, we expect plant shopping to continue to increase and our long game is to invest in relationships and align incentives.

We are providing a trustworthy shopping experience that allows consumers to select a Medicare plan that meets their unique needs.

But the gold Hill shopping experience built on the encompass operating model, we offer a personalized unbiased and no pressure shopping experience, where consumers can feel comfortable and confident throughout the entire process focused on shopping and not selling.

Most of the time shopping does not result in an enrollment, especially with these bind that consumers already on the best plan, but.

But we believe it should always result in a discussion on the best option for them.

We have recently implemented the plan fit checkout, where we are compensating our agents or their time spent with consumers even if they assess at the current plan remains the strongest fit for them in their service area and no switching is needed at that time.

We view the planned pit checkup as an investment and a long term relationship with the consumer and believe the shopping process enhances trial even of the interaction with the consumer doesn't result in a new enrollment today.

We develop the plan fit checkup throughout Q2, and recently launched it in Q3.

Preliminary results show improved agent and consumer sentiment with limited operational impact, indicating more robust consumer and agent experience.

Our agents are excited about the plant that checkup, and we believe it could help us to become the broker of choice for Asia.

This investment is contemplated in our guidance.

As we discussed last quarter, we continue to enhance our technology to drive overall efficiency in our model and improve the consumer experience.

Our plan fit tool is built on millions of consumer interaction and leverages that data to create a customized guided multistep shopping experience. The tool continues to evolve as we write more policies gather more data and AD model features.

Okay. I think continues to build momentum with the last AEP showing plans ranked number one by plant pit, where both the most selected for consumers and had 10% higher 90 day retention.

Our unified agent experience had streamline and enhance the process for agencies as consumers, resulting in a faster agent onboarding as well as improved compliance and efficiency.

Onboarding for new agents had been reduced by 33% in.

In Q2, we successfully launched a new guided expense to all agents delivering approximately 5% improvement in quality scores and path of competency for new agents.

We are excited about the possibilities that lie ahead, and look forward to redefining excellence and consumer experience.

Finally, I'm delighted to share the significant strides were making with the operationalization and implementation of customer 360.

<unk> performance data initiatives that drive the improvement now and serves as a foundation for Bill helps future.

In the near term customer 360 drives better call routing better organization of consumer data and improved ability to recall consumer data.

Our proprietary matching algorithms, we can clearly measures at just over 20% of our inbound calls are coming from previous shoppers may or may not have enrolled through us, but can now have a more streamline consistent experience only verifying information as opposed to starting from scratch.

In the future, we expect customer 360 will revolutionize the way, we interact with consumers and consider each consumer's historical relationship with Gogo.

This will drive meaningful improved efficiency for our agents and prepare us to succeed in the future where consumers are empowered to enroll in and manage their Medicare advantage on their own terms with a telefonica digitally or some combination of the two.

Our belief in the encompass miles value for health plans is backed by our ability to redefine and reset the foundation of our business through our new contracts. We've entered multiyear encompassed contracts with nearly all of our major health plan partners, making it clear that encompass and verified enrollment and plan onboarding processes that we have developed will position us to deliver a world class consumer experience.

Alongside these multi year contracts with our health plan partners. We believe our incentives are set up in a way it will allow us to best for consumers to shop for the best plan available as their needs change on a yearly basis and in that health plan partners to continue to invest in competitive product to win and retain consumers.

We've introduced and rolled out our guided shopping process at scale across our tier two agents, we have been able to expand the number of health plans, we offer to our consumers ensuring that the most competitive product in the region is available to them.

We are focused on active rates of the members we place in health plans, ensuring that we will deliver higher evacuation in 90 day active rate for our health plan partners. We also realize the consumer needs will not stay static overtime and we owe it to our consumers to help them assess their options and new plants become available in their area and decide whether to try something new or stay where they are.

Our.

Our redefined incumbent solution has driven higher quality enrollments, resulting in fewer cts hydro excavation rates and greater member retention.

As always AEP preparation is a key focus for US we are on track with our staffing and training plan, along with our operational and product focus work slated to be released prior to AEP, resulting in a more efficient agent experience.

We continue to collaborate with our health plan partners and remain confident that we will successfully be able to navigate the CMS final rule changes inclusive of the 48 hour rule and are supported by CMS to position to strengthen consumer experience.

Efficiency, we are driving with our incumbent model is flowing through our financials with lower cash burn and lower cost delivering economies of scale and revenue reliability, while reinforcing our consistent and high quality consumer experience with.

With that I'd like to thank our team and partners for the loyalty and dedication during this transformative time.

And I'll now turn it over to Jason to detail the financials and our updated guidance.

Thanks, Vijay I am pleased to present, our Q2 2023 financial results. Our Q2 performance has exceeded expectations with margin expansion and improved operational efficiency, leading to a strong quarter.

Second quarter revenue after adjusting for the exit of our non encompass BPL services was $143 million.

Demonstrating growth compared to the $138 $7 million generated in the second quarter of last year.

Our year over year growth is modest we are pleased to be turning the corner for long term sustained top and bottom line financial growth.

Our strong Q2 revenue performance was driven by over 162000 submissions, representing a increase of 5% year over year.

Our second quarter, adjusted EBIT of $800000 margin of $33 million improvement compared to the same period last year.

The year over year increase is largely driven by the continued benefits from the encompass operating model, which has created significant efficiency gains.

These improvements are a testament to our continued commitment for sustained growth and profitability.

In Q2, we recorded $11 million for legal exposure related to our Securities litigation.

<unk> is not indicative of any procedural developments in the litigation and we remain confident in our defenses.

In the second quarter of 2023, we achieved $11 million of positive cash flow from operations.

Significant turnaround from the negative cash flow of $48 million in the prior year period.

As illustrated in our quarterly results presentation posted on our website, our trailing 12 month cash flow from operations as of Q2 2023 is $86 million. This accomplishment represents a $346 million improvement compared to the same trailing 12 month period last year.

While $107 million of this improvement can be attributed to the non agency revenue $254 million of the change was driven by a more efficient encompass operating model.

In Q2, we made a payment of $14 million on our term loan, which reduces our outstanding debt balance of $496 million compared to $667 million of total debt in Q2 of 2022.

This resulted in a reduction of $171 million of debt or 25% over the last 12 months.

Consistent with their performance highlighted in our last quarterly earnings call. We continue to see strong women in our unit economics.

Our unwavering commitment to driving high quality enrollment and leveraging our proprietary tools and technology has yielded remarkable operational efficiency.

As outlined in our quarterly results presentation. Our Q2 2023, adjusted gross margin per submission was $127, marking an impressive 443% increase in profitability as compared to the prior year period.

Compared to prior year, we increased our agency commission constraint, which led to a year over year decline in sales per submission. However, this was more than offset by the significant efficiency gains evident and the noteworthy 21% increment in cost per submission.

Our continued growth and strong year to date performance enable us to raise the floor and narrow our guidance for the fiscal year.

Letting the confidence we have in our trajectory.

As BJ mentioned, we now expect total revenue between $800 million and $850 million, an increase from the previous lower bound of $750 million.

Furthermore, our updated projected adjusted EBITDA range is $120 million and $140 million, surpassing the previous lower bound of $100 million.

Please recall that our guidance excludes non incumbents BPL services.

We are maintaining our current range for cash flow from operations of $75 million to $115 million.

As I mentioned in our prior call our typical seasonality for revenue and adjusted EBITDA peaks during Q4, driven by the annual enrollment period, followed by Q1 feature in the open enrollment period.

While Q2, and Q3 typically experienced more modest revenues and negative adjusted EBITDA due to the lower volumes in the special enrollment period.

While we do not guide on a quarterly basis, we do anticipate Q3 to experience sequential declines in revenue and adjusted EBITDA compared to Q2, but expect it to outperform Q3 of last year.

We believe our updated guidance illustrates our commitment to drive profitability growth and execute through the more efficient operating model.

Impressive strides we've made are a testament to the dedication of our exceptional team and the effectiveness of our strategic initiatives.

We are generating cash and have clear line of sight to achieving our target leverage ratio in Q4 of this year, that's not a significant milestone in our journey towards long term financial strength and stability setting the stage for continued success and unlocking new opportunities for growth.

I'll now turn it over to BJ for closing remarks.

Before I move to the question and answer session I want to first make a brief comment on our recent call phones and everything.

In May our board of directors confirm that had received an unsolicited acquisition proposals.

The details can be found in our SEC filings.

We also announced that our board has established a special committee of independent directors to carefully considered the proposal received.

As included in our earnings release, the Special Committee has concluded that the offer undervalues the company and is not in the best interest of <unk> stockholders, we do not have any further updates at this time.

We remain appreciative of the continued support and trust from our stockholders.

Our focus on delivering value and driving the success of our business, while maintaining high standards of corporate governance.

With that we'd like to open the call to questions operator.

Thank you as a reminder, if you have a question at this time. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for our first question.

Yes.

Our first question comes from the line of Ben Hendrix with RBC capital markets. Your line is open. Please go ahead.

Great. Thank you very much.

Congratulations on the quarter can you remind us.

Mix of encompass revenue assumed in full year guidance, and then how youre thinking about that evolving over time. Thank you.

Yes.

Thanks for the question.

So we are not going to again provide the mix assumption for encompass or for the full year guidance, but we do believe that it will have a meaningful improvement to our cash flow from operations.

For the rest of the year. Additionally, I think what's important is we talked about in the last quarter.

When we have our encompass model our operating model.

<unk> all of our business is going through their operations and so I think that's the more important point because that is going to go ahead and continue to drive the more efficient outcomes that we're talking about on the <unk>.

Cost per submission and so that's the primary thing I would.

Got you towards.

Yes, and I'll add to that Ben that is.

Just as a disclaimer right. We said early on this year with all the hard work. The team has done that we wanted to standardize on the encompass workflow and that was for our internal captive channels the external.

Outline agencies, who work with us.

And collaborate with us, but they're not on that same platform. So you would see the lion's share if not all of the volume running through the encompass platform and the internal captive agents.

And then externally that we're starting to test that model, it's going to be a small portion of that and so the majority of our external production will be running through the agency line.

With the lion's share of the internal volume going through the non agency <unk>.

So hopefully that's helpful to you, but I think it's confidence to say that nearly all of the internal volume is going to be running through the income was workforce.

Thanks for that color and then separately I was wondering if you can give us an update on how agent.

Agent retention is trending.

It seems like this plan fit checkup.

Good way to support agent retention, just any comments there.

Yes, no. Thanks.

Thanks, Ben on the question I would say that.

Our team had been Super excited about.

What we've been doing with the tools that we're providing for them to.

To make their jobs easier and make it more efficient more standardized workflow that comes through encompass.

We have we have really committed and said out loud as we've said on these calls that we were going to commit to doing the right thing and even paying our agents.

We're not enrolling a beneficiary, but giving them a high quality selling our shopping experience.

And that was really important to us so we augmented our compensation plans to do just that if they deliver a high quality shopping experience, whether you're assessing individuals' needs match them with plans present, those to them and even if they decided they were already in the right plan and they tell them that they will be compensated for that.

At that time that they spent and the high quality work they did.

On top of the efficiencies delivered by our unified agent experience in and even bringing in customer $360 those bring efficiencies into the process that allow them to speak to more beneficiary and more of our consumers and so that gives them an opportunity to to make more ultimately in that process. So with all of those tools and.

Our commitment to doing the right thing, which our agents want to do the right thing and when we say, we're not going to compensate them, even though many of them were already doing it but now that we're compensating them for doing that they realize they were aligned and our intentions to support consumers. The effect of that has been in our attrition is lower than we expected.

And we are able to recruit at a higher pace and we're recruiting when we need to add new agents with.

With agents, who are actually already license there are actually more experienced in this space and so in total it's been a very very exciting transition that the team's been able to work towards.

To achieve higher satisfaction amongst that group by delivering them tools and <unk>.

Very unique compensation model, that's an unparalleled in the industry.

Thank you.

Thank you and Im showing no further questions at this time I'd like to hand, the conference back over to Vijay Kotte for any further remarks.

Thanks again for joining us today, we are really excited about our progress.

It is safe to say that we are.

We have been on a transformation it has been an interesting.

Transition over that timeframe over the last year, plus we deployed our encompass strategy and it worked.

We have shifted.

And.

Really stay focus to the fact that we build a strong foundation upon which now to grow as we were able to grow this quarter.

With half of the agents that we used to have but still have year over year growth in this channel.

Built off of the hard work of our team and so we hope you leave knowing we remain focused on delivering long term value for our shareholders, while providing high quality experiences to our consumers and health plan. Thank you for your continued support and we look forward to updating you on our progress during our next quarterly results call and webcast. Thank you.

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

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Good day and thank you for standing by welcome to the <unk> second quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone.

Then here an automated message advising you that your hand is raised to withdraw your question. Please press star one again.

Please be advised today's conference is being recorded I would now like to hand, the conference over to your speaker today, John Shave Vice President of Investor Relations. Please go ahead.

Thank you and good morning, everyone. Thanks for joining go health second quarter 2023 earnings call. Joining me today are Vijay Kotte, Chief Executive Officer, Jason <unk>, Chief Financial Officer.

Today's conference call contains forward looking statements based on our current expectations.

Numerous risks and uncertainties may cause actual results to differ materially from those anticipated or projected in these statements.

Many of the factors that will determine future results are beyond the company's ability to control or predict.

Earlier today, we issued a press release containing our results for the second quarter of 2023.

We have posted the release undergo health website under the Investor Relations tab.

In the press release, we have listed a number of risk factors, which 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 a reconciliation are set forth in the press release.

Please refer to the Investor Relations section of our website for reconciliations of non-GAAP measures to the most comparable GAAP measures discussed this earnings call.

I'll now turn the call over to go help CEO Vijay Kotte.

Thank you John Good morning, and thank you all for joining US today I am pleased to report another strong quarter.

With our external partners, we helped over 162000 Medicare consumers access their coverage review potential Medicare options and enrolled in our plan.

Our marketplace model is distinct from traditional brokers in several ways.

<unk> health, we remain unbiased and put the consumer at the center of all we do.

We achieved $140 million in revenue nearly $1 million and adjusted EBITDA and almost $11 million in positive cash flow.

This accomplishment is a testament to the intentional reset and decisions, we made last year, which had a positive impact on our exit run rate. Additionally, our strategic deployment of automation and technology played a pivotal role in driving operational efficiencies, while turning the corner to prudent growth going forward on a year over year basis.

Our growth and exceptional results have exceeded expectations, providing us with the confidence to elevate our financial guidance for the remainder of the year.

This impressive performance. We now expect 2023 total net revenue of between $800 million and $850 million, an increase from the previous lower bound of $750 million.

Furthermore, our projected adjusted EBITDA range is set to reach between $120 million and $140 million.

Surpassing the previously lower bound of $100 million.

Please recall that our guidance excludes non encompass CEO sir.

I want to highlight that with our strategic exit of non encompass BPL services. We believe we have transition to a phase of profitable growth accompanied by improving cash flow generation.

You can see this in our second quarter result, as compared to last year, and we expect that to continue for the rest of 2023 as also evidenced in our revised guidance.

We are driving efficiencies in the best way possible by doing more with the se and this applies to our season agents streamlined onboarding process standardized encompass model and proprietary technology, all of which we expect to continue to improve and enhance.

The consumers are going to shop, we want them to shop with us regardless of whether we originally enrolled them in their plan.

More consumers will shop with us if we build a trusted relationship by delivering an unbiased high quality consumer shopping experience.

This approach Leverages, an agnostic consumer marketplace with multiple plan option and develop credibility with consumers.

We want to be the destination that provides consumers with a needs based checkup every year, where the results might mean, the consumer stays in their current plan. If it is the best plan for their needs.

The best plan will make it easy to enroll in the bedrock.

We remain committed to enhancing the personalization of the consumer experience, which has been a driving force behind our encompass transformation.

As we have stated in the past, we expect plan shopping to continue to increase and our long game is to invest in relationships and align incentives.

We are providing a trustworthy shopping experience that allows consumers to select a Medicare plan that meets their unique needs.

But to go help shopping experience built on the encompass operating model, we offer a personal lines unbiased and no pressures shopping experience, where consumers can feel comfortable and confident throughout the entire process focused on shopping and not selling.

Most of the time shopping does not result in an enrollment, especially with these bind the consumer is already on the best plant, but we believe it should always result in a discussion on the best option for them.

We have recently implemented the plan fit checkout, where we are compensating our agents for their time spent with consumers even if they assess that the current plan remains the strongest fit for them in their service area and no switching it needed at that time.

We view the planned pit checkup as an investment and a long term relationship with the consumer and believe the shopping process enhances trial, even if the interaction with the consumer doesn't result in a new enrollment today.

We develop the plan fit checkup throughout Q2, and recently launched it in Q3 <unk>.

Preliminary results show improved agent and consumer sentiment with limited operational impact, indicating more robust consumer and agent experience.

Our agents are excited about the plant that checkup, and we believe it could help us become the broker of choice for Asia.

This investment is contemplated in our guidance annually.

As we discussed last quarter, we continue to enhance our technology to drive overall efficiency in our model.

Will it improve the consumer experience.

Our plan fit tool is built on millions of consumer interactions and leverages that data to create a customized guided multistep shopping experience. The tool continues to evolve as we write more policies gather more data and AD model features.

Okay. I think continues to build momentum with the last AEP showing plans ranked number one by plan fit where both the most selected for consumers and had 10% higher 90 day retention.

Our unified agent experience had streamline and enhance the process for agencies as consumers, resulting in a faster agent onboarding as well as improved compliance and efficiency.

Onboarding for new agents had been reduced by 33% in.

In Q2, we successfully launched a new guided experience to all agents delivering approximately 5% improvement in quality scores and path of competency for new agents.

We are excited about the possibilities that lie ahead, and look forward to redefining excellence and consumer experience.

Finally, I'm delighted to share the significant strides were making with the operationalization and implementation of customer 360.

Transformative data initiatives that drive the improvement now and serves as the foundation for <unk> future.

In the near term customer 360 drives better call routing better organization of consumer data and improved ability to recall consumer data.

Based on our proprietary matching algorithms, we can clearly measures at just over 20% of our inbound calls are coming from previous shoppers may or may not have enrolled through us, but can now have a more streamline consistent experience only verifying information as opposed to starting from scratch.

In the future, we expect customer 360 will revolutionize the way, we interact with consumers and consider each consumer's historical relationship with <unk> health.

Our belief in the incumbent models value for health plans is backed by our ability to redefine and reset the foundation of our business through our new contracts, we've entered multiyear encompass contracts with nearly all of our major health plan partners, making it clear that encompass and the verified enrollment and plan onboarding processes that we have developed will position us to deliver a world class consumer experience.

Alongside these multi year contracts with our health plan partners. We believe our incentives are set up in a way that will allow us to best for consumers to shop for the best plan available as their needs change on a yearly basis and in that health plan partners to continue to invest in competitive products to win and retain consumers.

As we have introduced and rolled out our guided shopping process at scale across our tier two agents, we have been able to expand the number of health plans, we offer to our consumers ensuring that the most competitive product in the region is available to them. We're focused on active rates of the members we place in health plan and <unk>.

Knowing that we will deliver higher evacuation in 90 day active rate for our health plan partners. We also realize the consumer needs will not stay static overtime and we owe it to our consumers to help them assess their options and new plants become available in their area and decide whether to try something new or stay where they are.

Our redefined incumbent solution has driven higher quality enrollment, resulting in fewer ttm's higher taxation rates and greater member retention.

The efficiency, we are driving with our incumbent model is flowing through our financials with lower cash burn and lower cost delivering economies of scale and revenue reliability, while reinforcing our consistent and high quality consumer experience with.

With that I'd like to thank our team and partners for their loyalty and dedication during this transformative time.

I will now turn it over to Jason to detail the financials and our updated guidance.

P. J I'm pleased to present, our Q2 2023 financial results. Our Q2 performance has exceeded expectations with margin expansion and improved operational efficiency, leading to a strong quarter.

Second quarter revenue after adjusting for the exit of our non encompass BPL services was $143 million demonstrating growth compared to the $138 $7 million generated in the second quarter of last year.

While our year over year growth is modest we are pleased to be turning the corner for long term sustained top and bottom line financial growth.

Our strong Q2 revenue performance was driven by over 152000 submissions, representing a increase of 5% year over year.

Our second quarter, adjusted EBIT of $800000 marks a $33 million improvement compared to the same period last year.

Year over year increase is largely driven by the continued benefits from the encompass operating model, which has created significant efficiency gains.

These improvements are a testament to our continued commitment for sustained growth and profitability.

In Q2, we recorded $11 million support legal exposure related to our Securities litigation.

This accrual is not indicative of any procedural developments in the litigation and we remain confident in our defenses.

In the second quarter of 2023, we achieved $11 million of positive cash flow from operations, a significant turnaround from the negative cash flow of $48 million in the prior year period.

As illustrated in our quarterly results presentation posted on our website, our trailing 12 month cash flow from operations as of Q2 2023 is $86 million. This.

This accomplishment represents a $346 million improvement compared to the same trailing 12 month period last year.

While a $107 million of this improvement can be attributed to the non agency revenue $254 million of the change was driven by a more efficient company operating model.

In Q2, we made a payment of $14 million on our term loan, which reduces our outstanding debt balance of $496 million compared to $667 million of total debt in Q2 of 2022.

This resulted in a reduction of $171 million of debt or 25% over the last 12 months.

Consistent with their performance highlighted in our last quarterly earnings call. We continue to see strong momentum in our unit economics.

Our unwavering commitment to driving high quality enrollment and leveraging our proprietary tools and technology has yielded remarkable operational efficiency.

Compared to prior year, we increased our agency commission constraint, which led to a year over year decline in sales per submission. However, this was more than offset by the significant efficiency gains evident and a noteworthy 21% improvement in cost per submission.

Our continued growth and strong year to date performance enable us to raise the floor and narrow our guidance for the fiscal year.

Afflicting the confidence we have in our trajectory.

As BJ mentioned, we now expect total revenue between $800 million and $850 million, an increase from the previous lower bound of $750 million.

Furthermore, our updated projected adjusted EBITDA range is $120 million and $140 million.

We're passing the previous lower bound of $100 million.

Please recall that our guidance excludes non incumbents BPL services.

We are maintaining our current range for cash flow from operations of $75 million to $115 million.

As I mentioned in our prior call our typical seasonality for revenue and adjusted EBITDA peaks during Q4, driven by the annual enrollment period, followed by Q1 feature in the open enrollment period.

While Q2, and Q3 typically experienced more modest revenues and negative adjusted EBITDA due to the lower volumes in the special enrollment period.

While we do not guide on a quarterly basis, we do anticipate Q3 to experience sequential declines in revenue and adjusted EBITDA compared to Q2, but expect it to outperform Q3 of last year.

We believe our updated guidance illustrates our commitment to drive profitability growth and execute through the more efficient encompass operating model the.

The impressive strides you've made are a testament to the dedication of our exceptional team and the effectiveness of our strategic initiatives.

We are generating cash and have clear line of sight to achieving our target leverage ratio in Q4 of this year.

A significant milestone in our journey towards long term financial strength and stability.

The stage for continued success and unlocking new opportunities for growth.

I'll now turn it over to TJ for closing remarks.

Before I move to the question and answer session I wanted to first make a brief comment on our recent phones and everything.

In May our board of directors confirm that had received an unsolicited acquisition proposals. The details can be found in our SEC filings.

We also announced that our board has established a special committee of independent directors to carefully considered the proposal received.

We remain appreciative of the continued support and trust from our stockholders, we are focused on delivering value and driving the success of our business, while maintaining high standards of corporate governance.

With that wed like to open the call to questions operator.

Yes.

Our first question comes from the line of Ben Hendrix with RBC capital markets. Your line is open. Please go ahead.

Great. Thank you very much Craig.

Congratulations on the quarter can you remind us.

The mix of encompass revenue assumed in full year guidance, and then how youre thinking about that evolving over time. Thank you.

Yes.

Ben Thanks for the question.

So we are not going to again provide the mix assumption for encompass or for the full year guidance, but we do believe that it will have a meaningful improvement into our cash flow from operations for.

For the rest of the year. Additionally, I think what's important as we talked about in the last quarter.

When we have our encompass model our operating model.

Materially all of our business is going through their operations and so I think that's the more important point because that is going to go ahead and continue to drive the more efficient outcomes that we're talking about on the <unk>.

Cost per submission and so that's the primary thing I would.

Got you towards yes.

Yes, and I'll add to that Ben that is.

Just as a disclaimer right. We said early on this year.

All the hard work the team has done that we wanted to standardize on the encompass workflow and that was for our internal captive channel as you know the external down line agencies, who work with us and.

And collaborate with us, but they are not on that same platform. So you would see the the lion share if not all of the volume running through the encompass platform and the internal captive agents.

Then externally that we're starting to test that model, it's going to be a small portion of that and so the majority of our external production will be running through the agency line.

With the lion's share of the internal volume going through the non agency <unk>.

So hopefully that's helpful to you, but I think it's confidence to say that nearly all of the internal volume is going to be running through the encompass workflow.

Thanks for that color and then separately I was wondering if you can give us an update on how agent.

Agent retention is trending.

It seems like this plan fit checkup would be a good way to support agent retention just any comments there.

Yes, no. Thanks.

Thanks, Ben on the question I would say that our team has been super excited about.

What we've been doing with the tools that we're providing for them to.

To make their jobs easier and make it more efficient and more standardized workflow that comes through encompass.

We have we have really committed and said out loud as we've said on these calls that we were going to commit to doing the right thing and even paying our agents.

We're not enrolling a beneficiary, but giving them a high quality selling our shopping experience.

And that was really important to us so we augmented our compensation plans to do just that if they deliver a high quality shopping experience, where the assess the individuals' needs match them with plans present, those to them and even if they decide that they are already and the right plan and they tell them that they will be compensated for that.

At that time that they spent and the high quality work they did.

That on top of the efficiencies delivered by our unified agent experience in and even bringing in customer $360. Those bring efficiencies into the process that allow them to speak to more beneficiaries and more of our consumers and so that gives them an opportunity to to make more ultimately in that process.

With all of those tools and our commitment to doing the right thing, which our agents want to do the right thing and when we say, we're now going to compensate them, even though many of them were already doing it but now that we're compensating them for doing that they realize they were aligned in our intentions to support consumers. The effect of that has been in our attrition is lower than we expected.

And we are able to recruit at a higher pace and we're recruiting when we need to add new agents with.

With agents, who are actually already license there are actually more experienced in this space and so in total it's been a very very exciting transition that the team's been able to work towards.

To achieve higher satisfaction amongst that group by delivering them tools and.

Very unique compensation model Thats on <unk>.

Unparalleled in the industry.

Thank you.

Thank you and I'm showing no further questions at this time and I'd like to hand, the conference back over to Vijay Kotte for any further remarks.

Thanks again for joining us today, we are really excited about our progress.

It is safe to say that we are.

We have been on a transformation it has been an interesting.

Transition over that timeframe over the last year plus.

We deployed our encompass strategy and it worked.

We have shifted.

And.

Really stay focus to the fact that we build a strong foundation upon which now to grow as we were able to grow this quarter.

With half of the agents that we used to have but still have year over year growth in this channel built.

Built off of the hard work of our team and so 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. Thank you for your continued support and we look forward to updating you on our progress during our next quarterly results call and webcast. Thank you.

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

Q2 2023 GoHealth Inc Earnings Call

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