GoHealth, Inc. (GOCO) Q2 2025 Earnings Report, Transcript and Summary

Good day, and welcome to the GoHealth Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference call over to John Shave, Vice President of Investor Relations. Please go ahead.

Thank you, and good morning. Welcome to GoHealth's Second Quarter 2025 Results Call. Joining me today are Vijay Kotte, Chief Executive Officer; and Brendan Shanahan, 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 announcing a series of strategic capital and governance actions that significantly enhance GoHealth's financial flexibility and long-term positioning as well as our results for the second quarter 2025. We have posted the release on the GoHealth website under the Investor Relations tab. In the press release, we have listed certain 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 SEC 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 in our press release. You may also refer to the investor 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 call. I will now turn the call over to GoHealth's CEO, Vijay Kotte.

Thanks, John. Our press release issued earlier today provides the detailed components of our results of operations for Q2 2025. We believe the capital and governance milestones achieved in recent weeks, as detailed in the 8-K also filed this morning, are far more consequential to the trajectory of the business and will be the focus of our call today. As you may recall, at the end of June, we began by amending our existing credit agreements to extend the maturity of our revolving credit facility and providing a covenant holiday so we could focus our energy on a more fulsome and long-term solution for our capital structure. Since that amendment, we have been working diligently to co-design and negotiate with all relevant stakeholders the agreement we successfully closed yesterday for a superpriority senior secured term loan facility totaling $115 million. The new facility includes $80 million in new money, half funded at closing and half available on a delayed draw basis, plus the roll-up of $35 million in existing revolving loans. We believe that this capital and amendment alleviate the going concern status with our auditors, provides us with the financial runway to prepare for the upcoming annual enrollment period and allows us the capacity to pursue a range of strategic options, including acquisitions. The agreement also includes covenant relief through the third quarter of 2025, maturity extensions through 2029 and consent from our lenders to evaluate additional capital structure solutions. As part of the transaction, our lender group received equity consideration equal to 4,766,219 shares of Class A common stock, reinforcing strong alignment with GoHealth's long-term success. We also made meaningful changes to our governance structure to support this next phase. Contemporaneously with the execution of this new facility, 3 new directors were appointed to our Board, replacing 3 outgoing members. Together, these capital and governance actions represent a significant step forward for GoHealth. They provide not just the flexibility to operate and invest, but also a clear path to capitalize on broader industry dynamics. Combined with our recent progress in technology, product diversification and cost discipline, we believe we are well positioned to execute in the dynamic Medicare landscape. Critically, this facility allows us to actively pursue mergers and acquisitions in a fragmented market that we believe is ripe for consolidation. We are convinced that GoHealth is uniquely positioned to be a disciplined acquirer and integrator, leveraging our proprietary technology, automation and AI to drive scale, efficiency and stockholder value creation. This new facility gives us the capacity to move forward with confidence as we evaluate potential transactions. Finally, a brief update on our quarterly filing. Although our Form 8-K and quarterly results press release were filed today, we are in the final stages of completing intangible asset impairment testing with our auditors. The going concern evaluation has already been completed, and we expect that designation to be removed. Based on preliminary results, we do not -- sorry, we do expect to record an impairment related to intangible assets. This is the only remaining item required to finalize our Form 10-Q, which we anticipate completing shortly. We're encouraged by the support of our lenders, the clarity of our strategic direction and the financial flexibility now in place to pursue meaningful stockholder value creation opportunities. Everything we're doing from strengthening our capital position to evaluating and potentially pursuing strategic M&A is focused on creating long-term value for our consumers, our partners and our stockholders. With that, we welcome your questions.

[Operator Instructions] Our first question comes from the line of David Storms with Stonegate.

Just want to start with this new loan. Maybe you could help us compare and contrast the covenants, how stringent they are compared to the old.

Yes, David, I appreciate the question. The covenants, as we worked through our negotiations with the lenders, were really collaborative in the process, right? So these covenants, as we said, align with shareholder and stakeholder priorities and are going to be more flexible for us than we previously had. We are only going to have one covenant moving forward, and that is a minimum liquidity covenant. And that covenant allows us flexibility to have that grow and be nimble within the AEP period. So we see this as being more flexible for the company than the previous set of covenants that we had.

That's great. And I know you mentioned in your prepared remarks, this allows you to maybe pursue some M&A activities. I know it's probably still pretty early innings in this, but any sense of what a profile would look like for an ideal transaction?

Yes, David, we've talked about this in the past as to opportunities for consolidation in the industry, especially after we completed the ETQ acquisition last year. We always want to focus on those that we can be -- we believe that there's a lot of integrated value. So if there's a diversification of product, talent, there's contract assets, there's size and significance that can be enabled via our platform of tools, that's the type of targets we're looking for, those that align with our values and have all of those components in some way, shape or form that can advance our capabilities on a faster pace than we can do on our own.

Our next question comes from the line of Rob McGuire with Granite Research.

Maybe could you just talk -- do you think that the -- and when you think about these transformative acquisitions, is this a major priority for the 3 new Board members and lenders for the company? Or are you simply just -- I'll just leave it at that. Is this a new priority for them? Or -- and I get that you've been looking at transactions up to this point in time and have done transactions up to this point in time, but is this something they'd like you to pursue more aggressively?

No, great question, Rob. Yes, we've always been looking for those great opportunities. And based upon our capital structure, it was very difficult to be able to seriously look at paying for those types of transactions. We got very -- we had a great opportunity with e- TeleQuote. We were very excited about that, and it enabled us to do that transaction in that environment. Now as you'll see as part of the 8-K and the filings, there's -- these new Board members are also going to be joining a Transformation Committee. And that Transformation Committee is going to look at a lot of different opportunities that the company can pursue, including things like the securitizations, other financing things, overall financial capital structure options and very specifically focused on identifying and vetting opportunities for acquisitions. So it is a more focused priority with capacity to be able to pursue those transactions. As you'll see as part of our PR and the 8-K, there's a basket of up to $250 million that our lenders have already blessed for us to be able to pursue new transactions, which is not something we've had in the past. So I think these are reasons why something is different now with both the focus of these new Board members and the Transformation Committee that we've established as well as this debt basket capacity to pursue said transactions.

I appreciate that. I think we'll probably get some more questions on this topic, but just to shift real quick. Can you just talk a little bit about your CAC in the quarter, where you think you can get that down to perhaps by year-end? And as well as just the revenue per submission, down a little on a year-over-year basis. Maybe you can just discuss that a little.

Yes, Rob, I think the best way to describe the quarter is consistent with what we spoke about on the Q1 call, which is we read the market. In May, we pulled back significantly from the Medicare Advantage space and writing new business there, primarily because of the uncertainty around health plans, what they were doing, their actions tied to their profitability, et cetera. So we read the market and we reacted to that. So Q2 is not a great indication of the capabilities and the unlock in our cost structure that we can deliver. And that will be more representative as we grow, as we deliver more volume, and we expect performance in the forward-looking quarters. As you think about coming and preparing for AEP with a very measured thought process and preparing for a traditional marketing environment where we are going to be monitoring to see what the health plans are doing, but as health plans indicate more traditional behaviors will be a better indication of things like revenue per sale or sales per submission as we reported or direct cost of submission. But in total, we still believe that there's more efficiency there, and we are delivering more of those capabilities to enable that efficiency.

Our next question comes from the line of Pat McCann with NOBLE Capital.

First off, I just had a question regarding the shares you issued to the lenders. It looks like you had to take a little bit of dilution in order to get this done, I suppose. And I'm wondering -- I guess I'm wondering, is there anything that I might be -- first of all, was that something you were expecting to have to do in order to get this done initially? And was -- how does that kind of line up with your expectations? How pleased or disappointed are you in terms of the level of shares that you had to issue there? Is there anything I'm missing in terms of those having maybe being options or anything like that? If you could just maybe give a little quick debrief on the share count dilution there.

Yes. No, Pat, very good question. I appreciate you asking it. It is one that I expect people to ask. The short answer is there's nothing -- I'll start with the end and then work back towards the beginning of your question. These were Class A common shares in that 4.7 million total count. And it's hard to pick a part of the overall deal structure to critique or to comment on. In total, when you combine all the pieces of the new money, the extensions of maturities, the flexibility with covenants, then the debt basket to go after new transactions, the removal of the going concern, there are a lot of good things in total. So we're very excited about the flexibility this offers us in total, the transaction, the alignment of incentives it offers between -- amongst all of our stakeholders. And then more importantly, the ability to play some real offense in an industry that we think is continuing to be fragmented that needs to tap into and leverage the scale that -- scale capacity of proprietary technology that can really unlock efficiency within the industry. That's what we're most excited about the overall deal. So it's hard to, again, pull out one piece in any of the overall deal structure. But when you put it all together, we're pretty excited about what it opens up for us in flexibility and optionality and, again, to play offense as opposed to just defense.

Okay. And then also, I don't -- maybe I missed it, and you guys -- if you did, and I apologize if I did, but the -- I guess, the interest rate situation with the new liquidity that you gained, if you could maybe comment on that.

Yes. It's in the 8-K, but ultimately -- and Brendan, you correct me if I'm wrong. It's, I think, 550 plus SOFR is the rate there that we have for the new money. And then you'll also know, for completeness there, there is a multiple on invested capital commitment depending on when the payback of that priming or the superpriority funding is paid back, and it is tiered over time for those paybacks, with the first inflection point being if we pay that back prior to the end of this calendar year.

Got it. And then if I could finally just maybe turn more towards the operations of the business. Could you have -- do you have any comments regarding how final expense has gone so far now that we're through the second quarter? And then maybe also if there have been any changes so far in terms of your outlook as we look ahead to AEP?

Yes. As we told you, there would be more substantive, meaning final expense, GoHealth Protect and that suite of products, which has been highlighted by our final expense or guaranteed acceptance product. We have been continuing to deploy that as we pulled our resources away from Medicare Advantage, as we said in Q1. We've refocused them at scale into the final expense product, training them, preparing them, getting them appointed to do that with significance that is now coming through in the financial statements. You'll see it under other revenue, and you'll see it as a line item there. Just north of approximately $8 million in the quarter was recognized there. We're seeing expectations meet our performance. Our performance is meeting those expectations. Our team is really excited about the product we're offering. It really aligns well with the population that we serve, and it is a great way to reconnect and reengage with our consumer base. So we're excited about that. We continue to expect to do that for the foreseeable future and have it as a portfolio product that we offer, and we're able to scale up with our capacity and shift it amongst GoHealth Protect and our traditional Medicare Advantage shopping and matching process. As we think about the AEP period, it's still very early to assess what's going to happen. We're being very measured in the way we think about our overall capacity to serve that population. Of course, this new facility that we put in place is going to help provide us the capital and the ability to invest as we see the market open up. But we've got very different messages from health plans. They're taking a little bit longer than usual to give us guidance as to what they expect or what they want. But most of the things that we've always seen still hold true. That is that health plans have very specific areas where they like to grow, other areas that are more problem areas for them. And they like to find partners who can help be very precise in the way that we can support their growth efforts. And that's always been a differentiator for GoHealth. We have a very sophisticated technology and supply-demand matching mechanism that allows us to be very targeted in geographies and to cut the market and prioritize markets accordingly while still not putting our thumb on the scale, letting consumers within those markets have access to the best products, but being able to match the health plans' goals along with the consumers' needs is a valuable asset for us. And so we'll still monitor that information to see what the health plans are doing. We do expect it to be disruptive. We've already heard certain health plans making significant changes to their benefits that would disrupt significant ownership amongst the overall Medicare Advantage pool. And so we'll monitor that. There are other players who said they want to maintain stability. But across the board, we know that all the carriers have areas they want to grow and have areas they want to be stable. And we're looking forward to partnering with them, but it's still too early to tell exactly where and with whom and how much. So more to come as we get that information over the coming weeks and months.

Our next question comes from the line of Jim Sidoti with Sidoti & Co.

So I can imagine that the last couple of months has been taking up -- shoring up the balance sheet. Now that that's over, what is top priority for management? Is it looking at new deals, getting ready for the AEP? What's going to be the main focus over the next 6 months?

Jim, I appreciate the question. Let me just start there. You hit all the items. We have just put forward a Transformation Committee. We've got that capacity. We're going to be pursuing. We believe there are opportunities, and there are a number of strategic things we should be considering within the marketplace, and we want to make that a focus while we are continuing to develop our GoHealth Protect and enhance that product offering for consumers and begin the more diligent preparation and reading of the marketplace in advance of AEP. So those are the 3 priorities. To do that, you need to have a solid team, and you want to make sure that you've got everybody focused on all the right things, and ensuring that we are maintaining our team and the energy around it and investing with very thoughtful efforts in partnership with our Board is where we're focused. We're going to onboard these new Board members as part of this governance structure. We're going to get the Transformation Committee going, and we're going to be focused on AEP.

And with regards to GoHealth Protect, is performance in line with where you thought it would be at this point? And are there other products similar to that, maybe not life insurance, but other products you can add to diversify what you guys offer?

Yes. Look, Q2, as we said, was the first at-scale launch of the product. We've done it in smaller scale in Q1. We started scaling it up as we aggressively pulled back on Medicare Advantage because we thought that to be prudent given the uncertainty that came with health plans. And I think that was generally the right read of the marketplace. We shifted the members -- the agents to be working, learning, training and moving over into the GoHealth Protect product set. They have licenses. We have a number of more agents than we had even before who have our dual license in health and life, and they're able to switch between those products. We like that flexibility it offers us from product diversification to read the market and go forward. So I would say, to answer your question specifically, it met and aligned with what we expected it to do in Q2, and it will obviously continue to grow and develop in Q3. And then we'll reallocate and determine how much of our resource will be focused on that product versus Medicare Advantage depending on the receptivity and the needs of the health plans as that is juxtaposed to the demand function of the consumers within the geographies we focus on. So long way to say that we're really going to continue to have the GoHealth Protect product suite develop. We don't need to add a bunch of product right now. It's good to do one thing well. We like to really focus and be the best at those things that we do and not just throw everything in the kitchen sink out there and really not know how to be great at it. So we're continuing to optimize GoHealth Protect with our technology and tools. We still have not unlocked all of that efficiency that we think we can deliver, similar to what we've done with Medicare Advantage, where over time, we've had more integrated product technology enabling more efficiency for the agents. We're still at the very early stages of that level of efficiency with GoHealth Protect. That's where our focus area will be as we continue to invest in that product suite.

All right. And then just a modeling question. What should we model for share count for Q3 and then Q4 now that this transaction is completed?

We'll follow up with you on the one-on-ones to give you all those reconciliations, but it is a good question, and we'll help you with the modeling on that.

Our next question comes from the line of Ilya Zubkov with Freedom Broker.

So I have a revenue-related question. So nonagency revenue was notably lower in Q2 compared to the same period last year. Could you just elaborate on the key factors that contributed to the decline?

Yes, Ilya, great to hear your voice. Appreciate the question. Nonagency, as we've talked about, is really a function of carrier contracts or health plan contracts and the competitiveness of those products within the consumers' needs. So specifically in Q2, first and foremost, you should -- we should highlight again that we pulled back significantly Medicare Advantage starting in May. So really only had our typical expected capacity serving the population in April, switched in May and then obviously continued that refocus into GoHealth Protect through June. But as you think about the agency-nonagency mix, the health plans that were winning in this SEP period were more agency as we saw actually in Q1 in the open enrollment period as well as in annual enrollment period. The winning plans who had the best products available for consumers were on an agency basis. So that's where that shift happened. And that is really the driver of the change on a year-over-year basis. It's health plan mix.

All right. And one more question. I apologize if I missed it. But I'm just curious, do the current changes in the regulatory environment in the health plan market have any material impact on your confidence in the strength of the upcoming AEP at the year-end, I mean, in terms of the planned switching activity?

No, it's an excellent question. We obviously have some inclinations and beliefs as to what we are going to see. We listen -- we watch and we listen. We try to watch and listen to what the health plans do. So the regulatory environment will impact the health plans. That's likely already been priced into their bids to the best of their abilities. They have beliefs as to how competitive they're going to be and where they're going to be competitive. They then -- around the August and September time frame, you get more of that detail. And then you assess where you're going to be able to deploy your resources against that to efficiently deliver revenues and returns. And so we're in that phase right now. It is very -- I know it's unsatisfactory to hear, but it's still too early to assess all of that. We've heard what many of the health plans said in their Q2 earnings calls as to what their plans are for the remainder of the year and what stability they're seeing in their profitability. And generally, most are indicating that things are stabilizing for them on the Medicare Advantage front. But others are saying they still need to disrupt and change their benefits to reprice and adjust the margin profile of the business. So long story short, it feels like it's going to be another disruptive market. I don't know how to put it into context on previous disruptions, but it will be disruptive. There will be a number of consumers needing services of shopping similar to what GoHealth provides in an unbiased way. And the real question is going to be where are health plans willing to invest so that we can deliver our full high-quality, unbiased shopping experience to consumers.

[Operator Instructions] There are no more questions. I will now turn the conference back over to Vijay for closing remarks.

Thank you again for joining the call today. We believe this is a new chapter for GoHealth. It gives us an opportunity, as I said before, to really stare at the market and do what we think is necessary to react to the market dynamics. And that is to really leverage the investments we've made in technology and capability and know-how to build a very efficient, if not the leading, platform for supporting shopping within the business and then identifying other ways to consolidate this fragmented industry to solve many of the issues that are out there to drive compliance, to drive efficiency and to deliver a consistent experience for more consumers when they need it most. We're excited about what this opens up. We're excited about the future, and we are looking forward to seeing and hearing from all of you as we continue down that path. Thanks for being part of the story. And most importantly, thanks to my team for driving so hard to deliver these results to make this all. So thank you all, and we look forward to chatting with you soon.

This concludes today's conference call. You may now disconnect.