GoHealth, Inc. Q1 FY2024 earnings call

• Q1's open enrollment period exceeded expectations in submissions, revenue, and adjusted EBITDA, with the internal captive channel growing submission volume by 20% year-over-year.
• Enhanced targeted marketing during the annual enrollment period to identify consumers in need of new plan options.
• Discussed CMS final rate notice and marketing rules, with the Encompass workflow and PlanFit CheckUp tool improving the shopping experience for Medicare consumers.
• Launched Encompass Express for efficiency, and continues to invest in technology to enhance consumer experience, agent efficiency, and digital shopping.
• In advanced discussions with health plans for the PlanFit Safe Compensation Initiative to align incentives with consumer needs.

In Q1 2024, GoHealth reported net revenues of $186 million, compared to $183 million in the prior year. The captive channel saw submission volume grow by 20% year-over-year. Adjusted EBITDA, excluding Non-Encompass BPO Services, was $27 million for the quarter, a slight decrease from the prior year. Adjusted gross margin per submission increased by 7% year-over-year due to an 8% improvement in sales per submission, partially offset by a higher cost per submission. Q1 2024 cash from operations was $12.5 million, but excluding a $10.5 million payment to settle a shareholder lawsuit, it would have been $23 million. The trailing 12-month cash flow from operations as of March 31, 2024, was $101 million, an improvement of $74 million versus the prior year period. Cash adjusted EBITDA was $70 million in Q1 2024 compared to $78 million in the prior year period.

• Expect submission volume to grow in line with the overall Medicare market.
• Revenue is expected 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.
• Focus on refinancing debt, having made a $50 million term loan payment in early April and expecting an additional $25 million pay down in early Q4 2024.

• CMS marketing rules and potential impact on contract structure.
• Market dynamics affecting health plans and consumer shopping behavior.
• Uncertainty in finalizing health plan product and benefit differentiation for 2025.

Q: Congratulations on the quarter. Just wanted to get some thoughts on the regulatory environment. It seems like there was some language from CMS in the rules, targeting commissions within captive carrier arrangements with brokers. And I wanted to just get more details on kind of how you're seeing the detail -- or the provisions of the rule thus far and kind of what gives you confidence in that alignment with Encompass.

A: Really appreciate you joining this morning. As we think about the final rule, and I think there have been a lot of different interpretations out there, but the general underlying concept here is that CMS is very focused on inappropriate incentives to independent agents and brokers, whereby an independent agent or broker may be influenced to write one health plan or a policy type over another one based solely on their reimbursement. And uniquely for us, as GoHealth operates, our agents, as you know, are generally hourly wage or salary wage and they have a very minimal variable compensation. And even that variable compensation that they do receive is health plan agnostic.

Q: Really quickly, my first question will just be to piggyback on the last question. You've talked about how in the most recent AEP that we've come out of, there was low plan switching and it wasn't a big period for plan switching. When we look ahead to the next AEP and the -- and have an expectation for increased switching, is -- would you characterize that as more relative to this past AEP? Or if you were to go back several years, would you say just objectively, the upcoming AEP, you would expect it to be a significant plan switching period. Does that question I guess make sense?

A: No, it does, Pat, and it's a very kind of -- it's an interesting way to think about it and ask the question. So I appreciate the way you've asked it. Let me kind of replay it for you. I think the question you're asking is, okay, we get that this past AEP in Q4 '23 versus what we are expecting to see in Q4 of '24, that there will likely be higher switching. But how do we think of that on a relative basis compared to yester year when there was a lot of benefit investment and there was justified switching. Are we going to be more in line with those years? Are we expecting it to be more? Is that an accurate replay?

Q: I'm looking at the revenue breakdown and non-agency revenue looks like it's about 45%, 46% of revenue, up from about 24% last year. Can we assume from this that there's a much lower risk of having any revenue reversals going forward?

A: Yeah, I would say that on the business that we've written under that model, again, you should always think about it for the book that you just wrote, where you would have any kind of look back potential exposures. And as you move away from agency to non-agency, and then it's also a little bit more nuanced. It's also how much you've left in agency that is related to high quality stable plans versus others. So, there's a little bit of a mixed question there as well. But in short, the simple answer is yes, when you write more non-agency, you have less intrinsic market risk for those things about tenure or churn rates, etc., that would impact back book values.