Good morning, and welcome to the GoHealth Third Quarter 2023 Earnings Conference Call. My name is Michelle, and I'll be your operator for today's call. At this time all participants are in a listen-only mode. Following the prepared remarks, we will conduct a question-and-answer session. As a reminder, this conference is being recorded. I'll now turn the call over to John Shave, Vice President of Investor Relations. John, you may begin.

Thank you, and good morning, everyone. Welcome to GoHealth's third quarter 2023 quarterly results call. Joining me today are Vijay Kotte, Chief Executive Officer; and Jason Schulz, Chief Financial Officer. Today's conference call contains forward-looking statements based on our current expectations. Numerous known and unknown risks and uncertainties may cause actual results to differ materially from those anticipated or projected in these statements. Many of the factors that will determine future results are beyond the company's ability to control or predict. You should not place undue reliance on any forward-looking statements, and the company undertakes no obligation to update or revise any of these statements, whether due to new information, future events or otherwise. Earlier today, we issued a press release containing our results for the third quarter of 2023. We have posted the release on the GoHealth website under the Investor Relations tab. In the press release, we have listed a number of risk factors that you should consider in conjunction with our forward-looking statements. 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 the reconciliations are set forth in the press release. You may also refer to the Investor Relations presentation posted to the Investor Relations section of our website for reconciliations of non-GAAP measures to the most comparable GAAP measures discussed during this earnings call. I will now turn the call over to GoHealth's CEO, Vijay Kotte.

Thank you, John, and thank you all for joining us today. I'm pleased to report another strong quarter for GoHealth, revenue and adjusted EBITDA in line with guidance. Our quarterly results showcase a 12% year-over-year revenue growth, excluding Lookback Adjustments and Non-Encompass BPO Services, while our full-year guidance points at a substantial improvement in cash flow from operations and a rapid increase towards profitability as compared to last year. During the third quarter, together with our external agency partners, we helped over 161,000 Medicare consumers assess their current coverage, review potential Medicare options, and enroll in a plan. GoHealth's core value proposition to consumers is providing a trustworthy shopping experience that allows them to select the Medicare Advantage plan that meets their unique needs. Our marketplace model is distinct from traditional brokers in several ways. At GoHealth, we put the consumer at the center of all we do. This has resulted in a passionate belief that we must remain unbiased in the servicing of our consumers. We accomplish this with our Encompass platform, offering a personalized, no-pressure shopping experience where consumers can feel comfortable and confident throughout the entire process. The e-broker industry has long believed that growth is directly tied to the acquisition of more agents and thus more leads. However, this traditional approach often leads to diseconomies of scale, where the cost of adding more agents and leads drives up customer acquisition costs due to lower quality agents and lower quality leads. We believe technology can drive economies of scale and meaningfully elevate the consumer experience by matching them with the right plan for their needs. Encompass, our proprietary operating, technology, and data science platform, allows us to streamline shopping, simplifying the cumbersome and confusing experience of healthcare purchasing, while allowing our agents to focus on what's most…

Thanks, Vijay. I'm pleased to discuss our Q3 2023 financial results. Our Q3 performance met our expectations with revenue growth and improved profitability compared to Q3 of last year. As a reminder, we fully exited the Non-Encompass BPO Services business in Q2 of this year. Beginning this quarter, all revenue is related to our core business. Our third quarter revenue was $132 million, demonstrating growth compared to $118.3 million when excluding Lookback Adjustments and Non-Encompass BPO Services in the third quarter of last year. We are pleased with this growth, which was driven by over 161,000 submissions, representing a 31% increase year-over-year. Third quarter adjusted EBITDA improved nearly 20% year-over-year with negative $11.5 million as compared to negative $14.3 million in Q3 2022. In Q3, we generated $6.5 million in cash flow from operations with approximately $72 million received in October shortly after the quarter ended, as a few of our health plan partners were slower processing invoices, which were expected in Q3. Adjusting for this timing, our Q3 cash flow from operations would have been approximately $79 million for the quarter. We remain on track for our full year's expected cash flow from operations of $75 million to $115 million. As illustrated in our quarterly results presentation, our trailing 12-month cash flow from operations as of Q3 2023 is a negative $3.2 million. However, adjusted for the $72 million payment timing, our trailing 12 months would have been approximately $69 million. Consistent with our performance in the first half of the year, we continue to see strong momentum with our unit economics. Our unwavering commitment to driving high-quality enrollment and leveraging our proprietary tools and technology has yielded a remarkable operational efficiency. As discussed in prior quarters, beginning in Q1 of 2023, we have been booking a higher constraint…

Thank you, Jason. As we wrap up this quarterly results call, I want to underscore some key takeaways. We are harnessing technology to empower our agents and offer our consumers a pressure-free shopping experience through our personalized Plan Fit checkups. As we navigate the current annual enrollment period, our investments in technology, commitment to efficiency, and focus on long-term retention all set us on a promising path. Finally, I want to thank our dedicated team for their hard work during this transformative time, our shareholders for the continued trust and support, and our consumers for the opportunity to serve and provide peace of mind in their healthcare decisions. We look forward to the exciting journey ahead and opportunities it brings to enhance the lives of Medicare consumers while driving value and growth for GoHealth. Operator, we're now ready to open the floor for questions.

Thank you. [Operator Instructions] One moment while we compile the Q&A roster. Thank you. Our first question comes from Sandeep Soorya with Delaware Street Capital. Your line is open.

Hi, Vijay and Jason. Can you guys hear me okay? Can you guys hear me okay?

Yes, we can hear you.

Okay, great. My first question is just can you guys discuss your debt maturities and your strategy around managing debt over the next one to three years? And then I have a couple other follow-ups.

Sir, please stand by. Your call will resume momentarily.

Sorry about that. Our line got cut off there and we just came back. So if you wouldn't mind repeating the question, I'd appreciate it.

Sure. Can you guys hear me now?

Yes, we can. Thank you.

Okay, great, great. So I have a couple questions. The first is can you discuss your debt maturities and your strategy around managing debt over the next one to three years?

Yes. This is Jason. Happy to and thanks for the question. So yes, our term debt comes due in September of 2025 and our revolver in September of 2024. Our plan is in early 2024 to go ahead and refinance both of those and part of that improve our overall interest rate as well.

Okay, great. And then I tried to keep my questions in some reasonable order, but they're a little all over the place, so sorry. But okay, when I think about general revenue, we basically have two buckets and I appreciate your comments on the call. You have the agency or commission revenue where some percentage is collected upfront and some over time. And then you have the non-agency, call it non-commission revenue, which is collected closer to proximity of recognition. Is that the right way to think about that? Or am I missing something?

No, I think you're thinking about that correctly.

And the partner marketing and other services, does that – which bucket does that fall into?

That would more similarly resemble the non-agency from a cash collection standpoint.

Okay. Got it. And then within that context, how do I think about both of those buckets kind of growing over time? And I know the business has been transitioning to kind of Encompass and then some non-commission revenue as well. So I'm trying to think – and maybe the answer is like, longer term, maybe the business stabilizes in these revenue buckets for the next – over the next 12 to 18 months. But longer term, how should we think about growth of each of one of those revenue line items?

Yes, I think let's talk about kind of – sorry, Sandeep, it's Vijay. As you think about it, what I would say is you are going to see more of a shift on a percentage basis towards the non-agency. As you see non-agency shift over, you'll see those marketing dollars and that line strength as a percentage of the total distribution, because that's more linked to our agency line, though as Jason said, it has the same cash dynamics of non-agency but it's linked to agencies. So if you see agency go down as a percentage of total sales, right, or volume, you will see that shift take place. But as we said earlier this year, and we continue to operate with, we are going to have more and more of our total operating workflow moved through the Encompass platform and you'll have more of a shift towards that non-agency line over time.

Got it. Okay, thanks. And then, so just so I understand it, when I think about third quarter cash flow, there was 120 – over $120 million improvement on a trailing 12-month basis. Is that the right takeaway?

Yes, that's correct.

And then when you adjust for the health plan partner payments, the improvement was closer to $200 million. Is that the right way to think about it?

That's right. So, on a reported basis, you got exactly right. And then what we had was $72 million that came in, in October that was expected in September. And so yes, you're thinking about it exactly right. You would make that additive to the $120 million.

Got it. And first of all, congratulations, that's not an easy swing in improving cash flow over a 12-month period. That's very impressive especially given your revenue base. So, congratulations for that. I don't want that to go unnoticed. When you guys think about guidance, though, property cash flow, $75 million to $115 million, how do we think about the sustainability of that cash over the next few years? And then can you also tie that – the second part of the question is how do we think about CapEx over the next few years as well?

Yes. I think what we are seeing is that barring any really interesting investments that you would see in the – within any given year you're going to see some consistently stabilization and growth of that operating cash flow. We are pretty confident about that as we think about our growth rate if you even kind of just look at the overall market growth of kind of 5% to 8%. That's if everything just grew in line, and we only grew in line with the marketplace. As we had in our prepared comments, I described the fact that we've done a lot of work in our segmentation to identify there are a whole bunch of populations out there whose needs aren't being met, of how to shop and shop effectively [indiscernible] unbiased resource. And so we are investing in building tools to address that marketplace and bring additional opportunities for growth on top of what the market is doing in total. And so as you think about that and you think about my previous comments about more shift towards non-agency versus agency, you can see that we expect this to be stable and growing as time goes on. .

And then CapEx?

Oh, sorry. On the CapEx side, as we alluded to in our prepared comments, and we have spoken about it over the course of the last year, we are making more and more investments in technology as time goes on. As it relates to segmentation work, we have found there's a lot about our technology and tools that we want to enhance to reach those different populations in a unique way. So, I wouldn't be surprised if you saw some step function adjustments in how we think about CapEx over time, but they'll always be very pointed at driving near-term growth. .

Got it. So should I think about it as a percentage of revenue? Or should I think about the current – at the end of this year, the CapEx level should grow in line with market growth or revenue growth?

Yes. I think you look at what we spent this year and then put some incremental growth on that versus tying it directly to a revenue number.

Okay, great, thanks. I will get back in queue. Sorry about that. Thank you.

Great. Thank you.

Thank you. Our next question comes from Jim Sidoti with Sidoti & Company. Your line is open.

Hi, good morning. And thanks for taking the questions. First, I am sorry if I missed it, but did you break out the revenue spread agency versus non-agency?

Yes. It's in our reported numbers. We can give you those. But yes, we do break it out. There's a specific line item for non-agency and agency. And for the quarter, Jason, you want to give the number?

Yes. So, for the quarter, we had a total revenue of $131 million, and the agency was $97 million. 0.8 of that total.

Right. And just a big picture view, it seems like you've done a lot since you've been there to right-size the business, improve software to kind of make these improvements. Are there any near-term initiatives that you need to complete to continue to make progress? And is it – now is it a matter of just increasing volume?

Yes. I think it's a great question, Jim. And I appreciate you asking it. There is a lot of opportunity, as I said, about addressing new populations. So, if we wanted to just address the same population that we've been very good and efficient at addressing thus far, there is not a lot of enhancement necessary to do that. And if you think about our preparedness for this AEP, everything we wanted to deliver, we did deliver for that purpose and are rolling forward with it. As I look forward at other opportunities, we will, as we alluded to Sandeep's question earlier, make strategic investments in our technology and another element to be able to address future growth in differential growth opportunities for the company. So, I'm hopeful that's responsive to your question. But yes, I think there are going to be enhancements but not for the current core population we target. But as we expand that serviceable market, we will absolutely be making more enhancements and investments.

Right. And I know it’s pretty recent, some of the new regulations on Medicare plans, but just initial thoughts, do you think that's good, bad, kind of neutral to prospects of GoHealth.

No, I appreciate the question. And as we look at it, first and foremost, I think, what we are absolutely excited about, as I said earlier, is that we are fully aligned with all efforts and initiatives by any related parties, government or otherwise, to help support protecting the Medicare consumer and enabling them to make a good personalized unbiased decision. So, we are very supportive of that and their rules. We also do recognize that there's opportunity within the industry to eliminate bad actors and make sure that those behaviors are regulated. That said, not everybody in the industry is a bad actor, and a lot of parties like ourselves are focused on doing the right thing. And still today, over 70% of all Medicare Advantage enrollment is supported by independent brokers in some way, shape or form. And so, we absolutely want to make sure that we're supporting all that work, that we have regulations that are put in place to enable those who are doing the right thing to continue doing the right thing, because there is consistent enforcement of those things. And as we think about that, there is no doubt that when we look at the incentives across the industry, we want to align all incentives with that of the consumer and their well-being. And what we are excited about is the things we've already proactively done this year before any conversations about a number of these items that are addressed in the current proposed rules, we have already gotten ahead of, including compensating our agents. We are just doing the right thing and making sure that there is no – some on the scale, per se, about selecting different health plans. So, one thing is for sure, as we think about all of those key underlying factors, there is a lot of details still left to be said about the specific regulations. We don't know how that we interpret it. We know that there's interpretations and definitions will be clarified over time, as they always are year-over-year. And we're confident that the regulators and parties like ourselves will all come to the right conclusions about where we need to end up. I think it was very early in the interpretation and discussion of those regulations.

All right, thank you.

Thank you. Our next question comes from Greg Aurand with Noble Capital. Your line is open.

Good morning everybody. Thanks for taking my call. I appreciate it. A very nice quarter in advance of the flurry of activity expected in Q4. A question about pricing changes, in terms – we expect the consumer to pay more regardless of what they do because price is in Part D, I think it's going up to some extent. But fortunately, they have more choices appears coming – going forward as well, which helps you in terms of getting more shopping eyeballs. The question I have is how does increased pricing affect your commission rates? And then as a second part to my question, you referenced constraints, how much do the constraints put a break on your revenue recognition? And will that change over time?

Yes. Greg, let me hit your first question and then I'll let Jason address the constraint item. As it relates to pricing, given most of the population that seeks our services are targeting zero premium products in the Medicare Advantage space, it's less about the pricing of the product specifically. It's more about their own challenges with their own pocket books, right, the availability of capital, disposable capital and what they are willing and able to spend on co-pays and other things along the way. And it is important to have a mechanism for using the advanced proprietary technology to be able to enable a licensed agent to take that information, understand the specific unique needs of the consumer and then put them through the different trade-offs of what different benefits are available for what they are able to pay for their coverage and very specifically aligned to what they need and will likely need in the coming future for those benefits. So, I think that's a really important piece of the puzzle is just ensuring that we are cognizant of the fact that the free and available cash for the consumer is getting compressed or challenged at times. And it's important for us to be able to factor that into the analysis of what plan and products we make available to them. And as carriers introduce more and more plans every year, it is more important for them to do that checkup so that we can help them assess if there are some better ways to maybe even support their income and their needs as opposed to what they had previously selected. Is that responsive to your question on pricing and the sensitivity within the market that we serve?

Yes. Thank you. I appreciate that, indeed. Even if you're a zero premium though, there's probably going to be a bump up for some consumers. I don't think anybody is pay a little lot less. Does that have any change or impact on your commission that you generate per submission over time?

Sorry, I did miss that in my first response so I appreciate you bringing it back up. No, the net impact of changing the plan types, et cetera, that does not change the general reimbursement structure. The benefit design is independent of how we're compensated.

Okay, thank you very much. And then about the constraints issue? Thank you.

Yes. No, happy to. So this is Jason. There is a couple of components here, I think, that are worthwhile to talk about. Number one, we have actuarial models that go ahead and produce our LTV calculation. And related to that, there are various assumptions that are built into it. On top of that – and we're appropriately balanced in our estimation and build in the appropriate conservatism there. The second thing is we have constraints based on both our internal and our external channels. And those numbers – those are individual constraints that are different for each component. The short answer, I'll get to how to think about this, is if you look at our prepared presentation on our Investor Relations site, if you look at Q3, we have about a 15% RPS decline year-over-year. And as I mentioned in our prepared remarks, the large component of that decline is related to the changing constraint year-over-year. And so 15% would be an overstatement of the constraint, but it's within that range.

Great. That's a great answer. Thanks you. I appreciate it. And just a quick follow-up with that just so I understand this correctly. Will this constraint number change if it's based on actuarial considerations? I would assume it would, but tell me if I'm wrong.

We have evaluated at every quarter, we would only change the things if we see something materially differ in the actual performance. And the quarters that are most relevant are coming out of AEP and then also OEP, so Q4 and Q1.

Yes. I think it's important to highlight in that process that as we assess those LTVs and the constraint, part of it is what you're seeing in the actual data retrospectively and also the application of management discretion of understand we're anticipating to come. And those are not going to be seen in the numbers yet. And part of the constraint is trying to see that, right, before the data is telling you. So for instance, all our references to increase shopping behaviors, et cetera, are more – that applies to math more to the constraint of prospective expectations as opposed to what you're seeing in the actual data itself.

Terrific, thank you for the explanation. I really appreciate it.

Thank, Greg.

Our next question is a follow-up from Sandeep Soorya with Delaware Street Capital. Your line is open.

Hi, thanks for allowing me to ask another follow-up question. So can you talk about your comments about the PlanFit Checkups? You said you did – I think you said you did 5,000, I lost track of that. And the breakdown of the potential responses, can you just go over that? And then my question was, what is the – what do you guys find is the outcome – the proportion of the different outcomes? Is it usually a third, of a third, of a third between the three? Or do you find that the majority of time, what are the outcomes is what happens?

No. I love that you brought it up because we are really proud of what the PlanFit Checkup is doing for consumers. The way – just to highlight it, the PlanFit Checkup is a systematic, technology-driven, standard, uniform experience for the consumer. So, we have live agents that will ask key questions of the consumer that will be fed into the PlanFit tool that is demographically where they live, what are their eligibility status is, which we're verifying and integrate into the tool. Then we apply their – the physicians or clinicians they utilize, the drugs that – or prescription medications that they are using and need and then their prioritization of other key benefits, vision, hearing, OTC or otherwise. And then through that processing, we will attest that against their current plans as well, and we will present to the consumer, whether the plan they are on according to our proprietary algorithms is a better rated plan versus those that are otherwise available or they're eligible for in the marketplace. And again, our scoring also takes into account the quality score, star scores and some of our own proprietary information on retention year-over-year. And then as you alluded to, there are three likely outcomes that you see. One is we find out that they're on the best plan, right? And there's nothing to be done and we recommend that to them. And I'll talk to you about what our agency compensated on secondarily. But they are on the best plan already. There is nothing to be done. We tell them that. They leave with peace of mind and we do nothing. We just tell them call us again next time when you're ready to do PlanFit Checkup again when plan benefits change or our circumstances change. The second scenario…

Can I follow-up on that in terms of agent payment? So does that mean they get like a base salary? And then how do we think about bonus productivity? Is that – like walk me through, when you say that they're paid regardless and they can maintain their independence, walk me through how to think about that from a kind of a base pay and a bonus that's driven by productivity basis?

Yes. No, that's a very good question. We haven't given all the specific particulars of our compensation. So, I will kind of give you directionally. Our agents are generally paid in hourly basis. And then they are giving different quality and variable quality and production components to their compensation. And so based upon the volume of good plans at checkups, they do, they will be compensated each time they do a good PlanFit Checkup. And so that is – you should think about there is a material portion of their compensation, which is hourly. And then there is a decent component of their compensation that is variable tied to quality metrics. But when you think about the good PlanFit Checkup, that's not in the hourly wage that is incrementally compensated on a variable basis when they complete each one of those.

Great. Thank you. I appreciate it.

Thanks, Sandeep.

Thank you. There are no further questions at this time. I would like to turn the call over to Vijay Kotte for closing remarks.

Thank you, Michelle. As we progress in our transformation, our team is optimistic about the future, and our commitment to excellence continues to be the cornerstone of our endeavors. We look forward to connecting with you at upcoming conferences and speaking opportunities. And until then, thank you for your continued support.

Thank you for your participation. This does conclude the program. You may now disconnect. Everyone, have a great day.