GoHealth, Inc. Q4 FY2023 earnings call

• 2023 results reflected significant year-over-year improvement in revenue, adjusted EBITDA, and operating cash flow. - Shift to the non-agency operating model continues to drive cash generation. - Leveraged PlanFit tool and PlanFit Checkup to help over 2 million consumers assess benefit options in 2023, with over 300,000 PlanFit Checkups performed in Q4 2023. - Encompass workflow operating at scale with over 75% of employed agent submissions in Q4 flowing through it, leading to lower complaints and CTM rates. - Revenue composition shifted with non-agency line surpassing 50% of total revenue. - Back-book asset stabilized at just under $900 million net of constraint reserves with no Lookback Adjustment in 2023.

In 2023, GoHealth reported revenues of $735 million, a 16% increase from $631 million in 2022. Adjusted EBITDA excluding non-Encompass BPO was $73 million for the year, a 78% improvement from $42 million in 2022. Cash flow from operations was $109 million in 2023, up from $61 million in 2022. Over 50% of revenue is now generated from the non-agency line, surpassing the traditional agency line or lifetime value revenue.

• Expect submission volume to grow in line with the overall Medicare market. - Anticipate revenue to be flat year-over-year with incremental operating efficiency resulting in modest margin expansion. - Cash flow from operations is expected to be flat to slightly up. - Key market factors influencing performance include final rate notices on commissions, CMS marketing rules, health plan benefit differentiation, marketing efficiency, and health plan competitiveness.

• Final rate notices on commissions impacting 2024 AEP. - Final 2025 marketing rule from CMS impacting 2024 AEP. - Degree of health plan product and benefit differentiation between 2024 and 2025. - Marketing efficiency within the election season. - Relative health plan competitiveness and effect on planned mix.

Q: 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 anything fundamentally changing about your ability to capture the growth opportunity in Medicare going forward? Anything in your Encompass strategy that's changed that we should be aware of? And kind of, how do you see that kind of on a competitive footing with your peers who may be still kind of pursuing the ASC 606 strategy, over the longer term? And basically, how should we think about the competitive differential between the two platforms, kind of given what we've seen this past AEP?

A: Yes, thanks for the question, Ben. Just that I've got the question right, effectively just thinking about are there any material changes to the way we are operating or thinking about our Encompass model and pre-funding specifically relative to the 606 versus 605 more like LTV versus the more Encompass 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 to running that business model that we are contemplating and appropriately investing in 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 AEP season and in future. And when you think about the market landscape in general. When you look two years ago versus this last AEP versus what we're anticipating in the future, consumers should likely shop more, which is what we've 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 benefits, or, in contrary, when they have a lot of change in their benefit structure. And what we saw in this last AEP, it was one of the unique AEPs 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 like the Encompass workflow we have, you're going to deliver a result where you're just providing peace of mind as opposed to new enrollment. So just in short, we are staying committed and we believe there's a lot of future viability and excitement about the differentiation of the Encompass workflow. The quality is better and we're delivering a better experience that plays the long run with that relationship with the consumer. And as it relates to the market dynamics, we would expect that, as we said, in what we didn't do on LTVs, we saw some positivity on LTVs, or retention in the latter part of 2023, but in anticipation of some of the disruptions we expect going forward for the portion of the business that we still haven't on the 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.

Q: Hey, guys. Thanks for taking my question. I was wondering, given that the number of Medicare Advantage plan options has been growing pretty rapidly, I'm wondering if -- number one, if you're seeing that trend continue? When you look at the carriers, are there more and more 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 the largest number of plans possible even as those policy options are rapidly evolving?

A: Yes. Thanks, Pat, for the question. Just to restate. One is, how do we think about the plan options increasing, 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 re-state your question?...

Q: Hi, good morning and thanks for taking the questions. Vijay, 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?

A: Thanks Jim for the question. What we did when we first came here, if you go back in time, and I won't relive all of history, but first we were trying to stabilize the business, right? To really just stabilize things and understand where our strengths were, weakness were, to invest in the strengths and try to mitigate and control for those weaknesses and whatever market factors were 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 healthcare, specifically within what was considered the e-broker industry was a lack of trust and consistency. And that was within all the parties involved. That was from regulators, that's from health plans, but from the consumers, et cetera. And so, we've really invested in the Encompass workflow and the Encompass 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 within the industry ourselves. And what we've done with the PlanFit space, what we've done with PlanFit Checkup. And again, to the extent that we're now in conversations with health plans to be able to be compensated for doing the right thing in those PlanFit space, is showing that we're really delivering an opportunity to provide peace of mind to the consumer, which we believe plays for that longitudinal relationship that we're building versus where the industry has been and where most companies have been, which is trying to just drive enrollments in the short-term period without thinking about supporting a consumer over a 15 year to 20 year life span or enroll and eligibility...

Q: Hi, can you guys hear me okay?

A: Yes. Hi, Sandeep. How are you?

Q: Hi, good. Thanks for taking the question. I have a couple 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?

A: Great question, Sandeep. 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, it's 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 those rules. So I think it's a little too early as 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 and the information around that, and that there aren't inappropriate incentives to sway that unbiased 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're controlling for. I think they're really trying to find more and more ways to drive that, to support that experience. So we believe there's a lot of great regulations already out there today before the proposed rule that could lean into just really focusing on enforcing what's there with all the bad actors that are out there that are causing more of the noise than the problem. But that said, again, to your primary question, it's more 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 you're describing is less about operational workflows. I think we've proven that year-over-year, as there are changes like 48-hour other things, we're pretty nimble in being able to accommodate those types of changes when CMS has those. 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 to compensation. But as we think about our Encompass workflow specifically, that was built up on really doing a fair market value of delivered services for the activities that we are 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. So we're very excited about how that prepares us for what is to come, but again, we got to see the details of what comes out.