Q4 2023 GoHealth Inc Earnings Call
Technology or proprietary plan fit tool helps go help licensed agents match consumers to the best plan for them based on their profile and priority.
During the fourth quarter 2023, we announced the launch of plants at checkout.
Planted checkup removes distress and enhances the experience for consumers shopping for a Medicare advantage plan.
As we previously shared there are three consumer outcomes for a planned pit checkout.
One we enroll a consumer and a new plan because it's the best thing for their needs.
We tell the consumer about a better plan and they choose not to switch.
Or three we reassure the consumer that they are in the best plan for their needs and no enrollment takes place.
Importantly go help agents, who complete a planned pit checkup are compensated regardless of whether the assessment results in an enrollment.
In the fourth quarter, we performed over 300000 planned pit checkups, we enrolled over 200000 of these consumers into a better plant option for their needs.
Over 100000 additional consumers were told they were on the best plant already and we did not enroll them in a new plan.
We provided this peace of mind to the consumer whether we already had a relationship with them and more importantly, when we did not have an existing relationship with them.
Building and reinforcing trust in each and every instance.
During 2020 Three's annual enrollment period, we faced the best test of the integrity of the planned FID checkup experience.
Our marketing initiatives worked as planned our agents showed up worked hard and took more opportunities per day than ever before.
However from a health plan product offering standpoint. This AEP was different than we have previously seen.
An analysis from milliman reveal that for the first time in recent years benefits for Medicare advantage plans stayed relatively flat year over year.
This led to a market environment with minimal product differentiation, providing few incentives consumers to switch plans.
The traditional enrollment centric broker model might've still switch consumers to new plants with similar benefits are even subpar benefit to get a commission, but we chose to honor the integrity of our plan for checkup process and the investment in trusted relationships with consumers and only recommended a change when there was a justified reason to do so.
With our high integrity process in 2023, we expanded our market leadership and continue to be a leading producer of Medicare advantage policies for our primary health plan partners.
We believe our encompass transformation is working.
As a reminder, we launched encompass workflow in 2022.
We are now operating at scale with all key partners with over 75% of our employed agent submissions in Q4 flowing through the encompass workflow we have observed a market increase in submission quality as seen by lower complaints and CGM right.
Our strategic shift has significantly impacted revenue composition over 50% of revenue is now generated from the non agency line, surpassing our traditional agency line or lifetime value revenue.
Leveraging the encompass workflow and adjustments to our LTV revenue recognition process has led to a stabilized back book asset value just under $900 million.
Net of our constraint reserves.
This stability is evidenced by the absence of a look back adjustments for the first time in several years.
While we observe positive retention trends in late 2023, we've opted not to adjust LTV positively at this.
Underlying that approach is our expectation that there will be benefit disruption for the 2025 benefit year potentially leading to more switch.
We are investing in long term trusted relationships and not just trying to maximize the short term return of an enrollment.
We believe this is not only the right thing to do but also the right thing for the business.
And the right thing for health plan.
It is in the best interest of the consumer and 100% in line with what CMS is looking for from brokers.
We are excited about the brand and proof points, we are establishing in the proprietary tools tactics and incentives we have built.
We recognize that health plans are facing regulatory changes for Medicare advantage that may impact benefit investments. There is no question that Medicare advantage continues to have a strong value proposition for Medicare eligible consumers we.
We expect to see more shopping and likely more switching as uncertainty on benefits stability appears probable and the upcoming AEP.
More than ever consumers will need to find a trusted advisor to help them navigate the volume of options and the impact or benefit changes and we believe go help is that trusted adviser.
Instead of providing specific 2024 guidance, we will share our general expectations for several key areas of our financial performance.
First we expect submission volume to grow in line with the overall Medicare market.
Second we expect our revenue to be flat year over year with incremental operating efficiencies, resulting in modest margin expansion.
Finally cash flow from operations is expected to be flat to slightly up as we continue our transition into the encompass model and shift to non agency revenue.
There are a handful of market factors that could influence our performance in the year.
First is the final rate notice on commissions impacting 2020 for AEP.
Second is the final 2025 marketing rule from CMS impacting 2020 for AEP.
Third is the degree to which there is health plan product and benefit differentiation between 2004, and 2025, which will indicate the amount of switching we should expect.
Fourth is marketing efficiency within this election season.
And finally, there is a relative health plan competitiveness and the effects on plan.
Any of these factors alone or combined could significantly affect our performance for the full year 2024.
We expect these key variables to become clear throughout the year with some of the most material remaining unknown until the early part of the fourth quarter right before and during AEP.
Our strategic and long term outlook remain resolute driven by our commitment to transforming the consumer health care journey.
I am extremely proud of our team as they navigated through an important and transformative year punctuated by a unique AEP.
Most of the occasion, and breakpoint fit and delivered peace of mind through our compelling consumer value proposition.
With that I will turn it over to Jason to detail our financial results.
Thank you BJ as we review our performance for 2023 I'm pleased to share that go help us demonstrate financial and operational strength.
One of our primary goals in 2023 was to continue to improve our operating cash flow. We delivered on this objective with $109 million of cash flow from operations and nearly 80% improvement from the $61 million in 2022, we ended the year with $90 million of cash on hand.
In addition to our strong cash flow, we generate significant improvement in revenue and adjusted EBITDA. Our journey through the year has been marked by substantial improvements across key financial metrics underlying the effectiveness of our strategic initiatives and the resilience of our business model.
We reported revenue for 2023 of $735 million, an increase of $104 million as compared to $631 million in 2022% to 16% improvement.
As a reminder, 2022 revenue included a $276 million look back adjustment that reduced revenue as a result of an actuarial review of our back book.
As BJ noted we did not record a look back adjustment for 2023, the first time since 2020.
The work, we have done with our encompass model to Derisk the business from our agency revenue has resulted in higher quality revenue and a strong balance sheet.
Our adjusted EBITDA, excluding non encompass PPO was $73 million for the year is 78% improvement from $42 million before the look back adjustment 2022.
This increase underscores our operational improvement and our focus on sustainable profitability.
Another way to look at our results on a cash adjusted EBITDA basis.
In 2023, we generated $142 million of cash adjusted EBITDA, which is up from $98 million in 2022, and a negative $301 million in 2021.
Cash adjusted EBITDA is simply taking our reported adjusted EBITDA plus a year over year change in our net contract asset.
The net contract asset has gone down.
Though of higher cash collections from our back book and the inverse was true net contract asset has increased year over year.
We believe the cash adjusted EBITDA is a helpful measure of our business as it neutralizes the impact of the LTV estimates related to future years.
As I mentioned 2023 stars achieving a robust cash flow from operations of $109 million.
Up from $61 million in 2022.
This $48 million increase is a testament to our disciplined cash management and our successful execution of our operational strategy.
In the first quarter of 2024, we successfully negotiated an amendment to our debt agreement.
Adjusting the leverage ratio requirements for the duration of the loan facility.
We will focus on refinancing our debt over the next few months as we aim to optimize our debt structure.
We believe this amendment provides additional flexibility to support this goal while continuing to invest in the business for future growth.
In addition, we have committed to a $50 million term loan pay down in early Q2, and then an additional $25 million pay down in early Q4 of this year.
Which you plan to fund from our strong balance sheet and liquidity.
More information will be available in our 10-K filing.
I will now turn the call back to VJ for closing remarks.
Our confidence in our business and operational model continues to remain resolute, we firmly believe that prioritizing consumer needs and aligning with CMS regulators and health plan standard is a sound long term strategy for our shareholders.
Our focused business transformation effort bolster our positive outlook, we are well positioned to overcome unique market dynamics and seize opportunities to further enhance shareholder value.
With that we'll now take your questions.
Thank you to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
As a reminder, each participant it's a lot of one question and one follow up question. Please standby, while we compile the Q&A roster.
Our first question comes from Dan Hendrix with RBC capital markets. Your line is open.
Hey, Thanks, guys.
Just a quick question on I appreciate the commentary about submission volume kind of in line with Medicare growth, but wanted to kind of just get your thoughts kind of commentary on the overall encompass platform.
Has there been any anything fundamentally changing about your ability to capture the growth opportunity in Medicare going forward and eat anything in your encompassed strategy. That's changed that we should be aware of and kind of how do you. How do you see that kind of on a competitive.
Putting with with your peers, maybe still kind of pursuing the ASC 606 strategy.
Over the longer term.
Basically how should we think about the competitive differential.
But between the two platforms kind of given what we've seen that.
This past AEP. Thanks.
Yes, thanks for the question Ben.
I've got the question right effectively just thinking about are there any material changes to the way we are operating our thinking about our encompass model.
And pre funding specifically relative to the 600 665 more like LTV versus the more encompassed pre funded model. We just operationally we are still very confident that the encompass workflow that we put in place is the right thing for consumers and we are committed to that model.
We want to make sure that we are continuously putting the consumer at the center of everything we do and as part of that we think there are costs due to running that business model that we are contemplating and appropriately investing in.
The way that we get reimbursed by our health plans for that model as you think about the overall market landscape. As we indicated there is a lot of benefit instability that may be coming up in the upcoming <unk> in the future and when you think about the market landscape in general.
When you look two years ago versus last 80 versus what we anticipate in the future consumers should likely shop, more which is what we said all year, we want them to shop, we expected them to shop, they are shopping but when it comes to the appropriate time to make switches. It is either because they've got incrementally much better benefit or in contrary.
When they have a lot.
The change in our benefit structure and what we saw in this last AEP. It was one of the unique aep's, where there was some negative but really not a lot of changes and so less and less of a reason for people to make changes and when you have a high integrity process likely encompass workflow.
Youre going to deliver a result, where youre just providing peace of mind as opposed to new enrollment. So just in short we are staying committed and we believe theres a lot of.
Future viability and.
Fitment about the differentiation of the incumbents workflow quality is better and we're delivering a better experience that played the long run with that relationship with consumer and as it relates to the market dynamics, we would expect that as we said and what we didn't do on Ltvs is awesome positivity on ltvs or retention in the last latter part.
2023, but in anticipation of some of the disruption we expect going forward for this portion of the business that we still have on an LTV basis or 606 basis. As you referred to we were trying to maintain some conservatism on that as we continue to see the market dynamics play out.
Thank you very much.
One moment for the next question.
The next question comes from Pat Mccann with Noble capital markets. Your line is open.
Hey, guys. Thanks for taking my question I was I was wondering given that the number of Medicare advantage plan options has been growing pretty rapidly I'm wondering if number.
Number one if you're seeing that trend continue when you look at the carriers are there more and more our ops.
Options hitting the market and then.
I guess sort of a basic question would be could you talk a little bit about how encompass.
Gives customers access to.
Two the largest number of plans as possible even as those policy options are rapidly evolving.
Yeah. Thanks.
Thanks, Pat for the question just to restate one is how do we think about the plan options increasing.
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Following the trend that we've seen in previous years, and then follow up was how do we make sure that the consumers have access to being able to decipher between all of those plans is that the right way to restate. Your question, Yes, yes, yes.
So on the first one it's an interesting question and its really a health plan by health plan question as to who is going to be introducing or contracting and number of plans available.
As I said in the previous response Theres offensive and defensive reasons why a consumer may want to make a change right and authentically if their benefits in the market that they're in had significant improvement right then they might want to shop and potentially make a switch if there is disruption in the marketplace of health plan bleeding or degradation to benefit it also.
Triggers a moment, where they should shop and likely makes them change the message.
And so we're anticipating more of the latter as we kind of heard some of the things from the health plans not to say that some might still not it might still make some investments in benefit but you are seeing the general landscape of what's hitting that the challenges of the Medicare advantage health plans profitability.
There is likely going to be more tweaks and adjustments that require the nuance of our plant the technology and the the trusted and structure are the foundation upon which we operate encompass workflow.
So we don't know per se, if theres going to be a lot more I would say my gut is probably not a lot of growth in brand new plans, but what we do know as we've heard that plans are indicating they will likely be exiting certain geography, causing some of that disruption, but still more to come as we alluded to in the.
That the market dynamics won't really be known until much later in the year as to what's really going to happen.
Now on the second question you asked about how do we make sure that consumers have access to all of those plans well we work with most of the major plans within the health plans in the country. Those health plan options. If they've got 50 or 100 300. They are all in our plan fit tool and so ultimately when our agents go through and do a needs assessment, they understand where the consumer lift to get there.
<unk> ability to understand if they are eligible for SNP plan, meaning dual special needs plans chronic special needs plans or just traditional.
Our Medicare advantage plan and then we filter through their needs compared to the current plan and then lay out those top three to five options that are available to them based upon their specific needs. So we're really filtering down regardless of if theres four plans available in that county for them that their album, four or 150 counts.
There are available to them that they are eligible for <unk>.
<unk> it down to handful and then explaining to them what the unique difference a tradeoff between them and so we believe that's how you or your one taking that stress and confusion out of the marketplace and enabling the consumer to make an informed decision for them without pushing them down a path, but enabling and empower them with it.
So hopefully that's responsive to your question.
Thanks that is and then if I if you don't mind, if I could ask just a follow up questions as something you you spoke about as far as the non.
The non agency revenue and how it has eclipsed 50% 60% in Q4 given that is there is there any color you could give as to your expectations for how that.
That number will shift as a percentage of sales as we look forward into 2024.
I think the way, we're obviously going to continue to invest as we had kind of giving you the directional qualitative commentary on what we expect to see in cash flow from operations, we expect to see that dynamic shift and potentially improve the gaslog from operations based upon more movement towards the non agency model that is a function of both.
Mix of how growth happens within the marketplace competitiveness, the benefits et cetera, but there's no doubt in the way that we approach the business.
We are at a strategy continue to try to shift more to that line. The question is the pace at which that might run we actually had a significant jump in this year alone.
We'd love to be able to see more of that continue to shift in that direction.
Thanks, and then I was going to.
Try to ask about the debt repayments, but but Jason kind of covered that.
Just previously so that's all I've got thank you so much guys.
Thanks.
One moment for the next question.
The next question comes from Jim Sidoti with Sidoti and company. Your line is open.
Hi, good morning, and thanks for taking my questions.
Jay.
You've made several changes since you arrived in terms of staffing levels and strategies.
I'm just curious.
Are you happy with the progress you've made to date and should we expect any big adjustments in 2024.
Thanks, Jim for the question.
Yes.
What we did when we first came here if you go back in time, and I won't I won't relive all history, but firstly, we were trying to stabilize the business.
So really just stabilized things and understand where our strengths where weakness where to invest in the strength and try to mitigate and control for those weaknesses.
And whatever market factors.
We're playing in that what we really doubled down on was that we're playing a long game strategy right part of the issues that we saw in the industry is the missing piece within health care, specifically within what we consider the E broker industry with a lack of trust and consistency now is within all the parties involved that was from regulators that from health plans, but from the consumers.
Et cetera, and so we've really invested in encompass we're quoting encompassed process to transform that component of who we are to be a leader in proving that we can not just drive appropriate enrollment, but driving trust and credibility with industry ourselves.
And what we've done with our plan, but they are what we've done with plant that checkup and again to.
To the extent that we're now in conversations with health plans to be able to be compensated for doing the right thing in the plant that state is showing that we're really delivering.
The opportunity to provide peace of mind to the consumer which we believe plays for that longitudinal relationships that we're building versus where the industry has been and where are most companies have been which is trying to just drive enrollment in the short term period without thinking about that.
Pointing in consumer over a 15% to 20 year life or enroll and eligibility.
So I guess my my response to that is yes, I'm very proud of where we are I think were absolutely I have laid the.
Foundation of resetting, where the industry that of actually being a value add of not just driving enrollments were driving feel empowerment to the consumers to make the decisions for themselves in a very confusing world and I think as you were seeing in the diversification away from the LCB volatilities that have been there.
Moving to the non agency line has also been something that we're very excited about what we can't always control before but were built the model and we'll continue to find it is how the health plans are performing in any given year how their financial.
Translate into their investments in debentures.
Okay.
It was kind of leads into my next question have the health plan partners.
How what is their attitude towards this shift towards in corpus are being accepted this or are they on board and do you think other players in the industry will make similar changes.
I'll answer the last part first I, it's hard for me to assess what other players are going to do I think everybody's got different strategies as to how do they address their short term needs versus thinking about the long term as to who they want to be et cetera, but as it relates to the health plans to health plans have leaned to the end of this as we indicated in the prepared remarks, we have.
Ed.
Nearly 75% of all of our enrollments run through the encompass workforce.
That is a multi tiered approach it is the high touch.
Really shopping experience.
That is truly unparalleled in the industry at this point and the health plans have found that that is higher quality and resulting in better result.
So they are definitely lean into wanting us to continue that program.
Supporting us through that process are they wanted us to find ways to expand that program. As you know we have down line agents, who work underneath our umbrella use our technology as well expand that as well so that we can improve the quality of those down line similar to what we've done with our internal agent. So we have definitely a strong support on it pretty much drew.
Even off of the fact that we're delivering better quality, while still maintaining a pretty high volumes at the same time.
And it's clear that the shift has improved your ability to predict cash flows.
Receivables.
It's a collection of receivables, but do you think it's also improved your ability to predict future revenue.
I think it's from the stability of the revenue that we are booking and recognizing in a period. It is absolutely, giving us better predictability of that.
So when you think about cash and you think about the revenue you book in a period. So we can manage our cash flow in a much better way when you add the encompass world.
With our shift to non agency and you also have an ability when you book that revenue as you saw on the glass.
Yeah.
Period, even with that encompass workflow, we still have 606 revenue running through the encompass workflow.
That that quality and predictability in the ability of what we write under that is even higher so we have a higher confidence in what we book on a 606 basis because it will never go to zero as we've always said and then you add in even higher confidence of what you booked in revenue for that that runs through the non agency bonds.
And then just back to my initial question.
If you have this better.
Better visibility.
On revenue.
Should we expect any major changes on investments in operating expenses in 2024.
We're going to continue to invest there will be incremental investments in technology that you should expect.
For us to continue to get standardization systematic improvements in the experience for the consumer more engagement points. We described moving from just enrollment to more of that engagement activation and full support of the consumer through the process.
You'll see some more investment in that as we go into the year and in most of that we're finding internal opportunities to reallocate our dollars to make those investments within the company for the future.
Great Alright, thank you.
One moment for our next question.
The next question comes from Sandy Xu wrong with Delaware Street Capital. Your line is open.
Hi can you guys hear me, Okay, Yes, Hudson <unk>, how are you hi.
Alright, good thanks for taking the question I have a couple of questions. The first is how should we think about the proposed regulations and.
How do we think about regulations in general on the encompass business relative to the agency business.
Great questions and I think as we've all learned.
It is really important to wait for two things when it comes to proposed regulations as we know this is an annual event.
And there is a proposed rule and then there is a final rule and even after a final rule comes out.
Ed.
Generally not specific enough to get clear guidance from it you end up going to each individual health plan in our business to understand their interpretation of.
Of those rules. So I think it's a little too early to understanding what it would be what it could be et cetera. What I would say is we are generally in alignment with the concept of protecting the consumers we want to make sure that there is more access to all the different health plans in the information around that.
And then there arent inappropriate incentives to sway that debt.
By a shopping experience.
So we've always been supportive of that and I think we've proven in the last period that we're absolutely investing in that experience.
And as we look at what the proposed rule is and what they are controlling for I think they're really trying to find more and more ways to drive that right to support that experience.
So we believe Theres a lot of great regulations to already out there today before the proposed rule that could lean into.
Just really focusing on enforcing what there with all the bad actors that are out there that are causing more of the noise in the problem.
But that said again to your primary question.
It's more a left to let's see what comes out let's see what.
The interpretations of that are going to be and I'm, assuming most of what youre describing is less about operational workflows I think we've proven that year over year as there are changes like 48 hour or other things, we're pretty nimble and being able to accommodate those types of changes with BMS.
Had those are the real question is the uncertainty around just like in the commission rates year over year.
This same dynamic of now in the proposed rule, if there could be impact the compensation, but as we think about our encompass workflows specifically that was built up on really doing a fair market value of delivered services for the activities that we're performing on behalf of the health plan.
And when you think about that.
That is a model that has full documentation and background behind it.
Very excited about how that prepares us for what is to come but again, we got to see the details of what comes out.
Okay, great. Thank you and then how do we think about it I've got a couple longer term questions and I think I like maybe two to four years three to five years, but how do we think about our revenue growth EBITDA margins and EBITDA growth and then even looking at our cash flow.
Strong cash flow this year, how should we think about cash.
Cash flow dynamics over there a few years as well.
Yeah, I mean look I think.
As we've talked about and we even given in our qualitative comments here today.
We believe growing in general with the overall market, there's plenty of market share out there.
Right as you think about the Medicare consumer groups growing when.
When you think about overall growth that disruption factor that I described on any if you think about over a long term with Medicare those of us who've been in it for a long time it goes through cycles.
And so when you you had a lot of excitement and everybody wants to grow Theres a big cycle.
And that's obviously, obviously a point at which.
A business like ours in that industry is going to see growth.
When you see that the dynamics are changing right in the market landscape there those inflection points, where people are assessing and determining what theyre going to do with their financial health plan and so that was what we really saw in the last AEP. They were kind of testing the waters specifically on the non special needs plans that you saw that that very little investment in aggregate.
In new products in that year, and then when you move into <unk>.
The other part of the cycle is when they pull back on benefit that's actually even though they're not as focused on growth the shifting between Medicare advantage plans for a company like US is also a an exciting marketplace. So when there is a lot of new plants and interesting growing it's a good for our type of business. When there is a lot of disruption in their switching the benefits up and even if they're not.
Interest and growing but theyre contracting a bit but there's a lot of switching around that's also a good market dynamic for us and that's the market. We're expecting to go into so any call. It five year period, you're going to see that type of a cycle generally happen in Medicare. It happens a lot and has over time. So as we think about how we think about revenue margin.
<unk> and gas flow the revenue line I'm kind of giving you a little bit of the indications of what you could see a process what market remember growth in aggregate means that there is an opportunity to grow and then the volatility and the benefits will determine how much more or less you will go into play within that and then as you look at margin expansion. We know that's what's in our control.
Our efficient can you be any continued can you continue to demonstrate efficiency.
And growth with the investment dollar that we have and we're going to continue to invest in that right and we're pretty pretty solid right now, but again when you think about the core operations, it's really going to be the effectiveness of your marketing over a long time. So what I would say is there we expect to continue to deliver some efficiency there over time, but it's not going to be by leasing.
Down for what we've got today with the current enrollment business, but as we think about our expanding into being more of an engagement company there could be some opportunities there with the efficiency of the minutes and the time, we're spending with consumers on the phone.
And then finally in cash flow I think what we've proven is that we're diligent on making sure that that the member experience and cash are key as we deliver how we're going to grow and invest in the company. So we want to make sure that our cash flow is solid and predictable and not to spend money to chase revenue at any cost.
So we're balanced in that approach and we want to continuously show.
Non interest in Gaslog from operations, and total cash and free cash et cetera, and the way, we think about operating a business that we're consistently delivering results. So as we think about overall growth growing our cash flow alongside with our earnings is as is the way we would think about.
You know that over the long run.
Okay, Great. That's it for me thank you.
I show no further questions at this time I would now like to turn the call back to VJ for closing remarks.
Thank you and again, thank you all for joining today lots of really good questions. We're excited about where the business is to play for these long term relationships. We've made a significant investment in those consumers who need our services. The most trust and peace of mind in a complex and confusing world is critical.
And that is going to be an important thing not just today, but especially as we go into this next phase and as we look into the future. So we're excited about the value we can deliver to the consumer to shareholders and all of the health plans and regulators involved because we do believe that is the key to the future and we're very very thankful to our team as we continue to invest and deliver.
Hey, Matt.
So thanks, and we look forward to speaking to you all again soon.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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