Welcome to the GoHealth Q2 2022 Earnings Conference Call. My name is Kevin, and I’ll be your operator for today’s call. At this time, all participants are in a listen-only mode. [Technical Difficulty] prepared remarks, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded.

I will now turn the call over to Brian Farley. Brian, you may begin..

Thank you, and good afternoon, everyone. Thanks for joining GoHealth’s second quarter 2022 earnings call. Joining me today are Vijay Kotte, Chief Executive Officer; and Jason Schulz, Chief Financial Officer. This afternoon’s conference call contains forward-looking statements based on our current expectations.

Numerous 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. After the market closed today, we issued a press release containing our results for the second quarter of 2022.

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 measures, and the reconciliations are set forth in the press release. Please refer to today’s press release for reconciliations of non-GAAP measures to the most comparable GAAP measures discussed during this earnings call.

And with that, I’d like to turn the call over to Vijay..

first, our revenue will be slightly lower; second, our adjusted EBITDA, while still meaningful and positive will be significantly lower; third, our ability to achieve cash flow breakeven on a run rate basis will be strengthened materially. We expect to provide more color on full year 2022, when we announced our third quarter earnings later this fall.

I’m excited for the changes to come for GoHealth as we reposition our unique services around differentiated digital tools and technology for not only volume leadership, but winning in customer engagement and experience. I look forward to sharing them more fulsome update as we close at 2022.

Thank you all for your continued interest in our story, and for joining us this afternoon. I’ll now turn the call over to Jason for look at his numbers.

Jason?.

Thanks, Vijay, and thank you to everyone for joining our call today. Before I get into the financial results, I want to share some perspectives as to why I joined GoHealth in some early reflections.

It quickly became clear to me that the company was built with a foundation that truly separates itself from the rest of the market, and I share Vijay’s optimism about the future. I personally see the opportunity to make meaningful contribution with the challenges of today and exciting prospects of tomorrow.

As we have deepened our understanding of the business, we determined it is important to take steps to improve how we communicate financial results. We’re still early in the assessment.

Our intention is to provide greater clarity around unit economics of the business, margin profiles of our products, key operational drivers and the associated cash flow impacts.

We are also taking a fresh look at our forecasting process to increase the predictability of our projections and linking these to our external communications around forward-looking guidance. For these reasons, and the other factors Vijay just covered, we are suspending guidance for 2022.

Most importantly, we continue to be focused on transforming the business and materially improving cash flow from operations. As such, I am pleased to share our cash flow from operations is $6 million for the first half of 2022, an improvement of $38 million compared to the same period last year.

With the transformative actions we are taking and the aggressive cost management discipline, we anticipate achieving the goal of breakeven cash flow from operations by mid-2023.

Moving on to our financial results for the quarter, we recorded $159 million of revenue and posted a $32 million adjusted EBITDA loss for the quarter, a decline of $38 million and $45 million, respectively. Consistent with Q1 of this year, we kept the same blended 7% constraint reserve methodology for new policies sold in the current quarter.

To partially explain the year-over-year change, it is important to normalize the impact of the $155 million LTV look-back adjustment we took in Q4 2021 that relates to the policies sold in Q2 of last year. This would have lowered revenue by $15 million and decreased our adjusted EBITDA by $10 million in Q2 of 2021.

To further drill into the quarter, I’m going to move into our segment reporting. Starting with our External Medicare segment, we posted revenue of $50 million, which is an $18 million improvement from Q2 2021, while profits declined to a loss of $6 million.

The improvement in revenue was largely driven by 114% growth in carrier approved submissions, which was a result of increasing the number of downline agency partnerships as compared to the same period last year.

The overall increase in revenue is largely offset by the impacts of our revenue sharing arrangements with our downline agency partnerships and the LTV adjustments previously discussed. Moving to our Internal Medicare segment, we recorded $104 million of revenue and a loss of $11 million.

This is a $57 million and a $42 million decline versus Q2 2021, respectively. Beyond the LTV adjustments we already discussed, there were some timing impacts of certain partner marketing and enrollment revenues that were higher in Q2 of last year compared to this quarter.

However, the most significant driver of our decline in revenue and profitability was a 24% decline in carrier approved submissions.

Much of the slowdown in our Internal Medicare segment was intentional, as we spent $15 million less in marketing, while conserving cash has also resulted in fewer opportunities for our agents and an overall decrease of our policies sold.

We are facing economic headwinds, such as inflation and rising interest rates, as well as changing industry landscape. As such, we want to focus on the economic levers we have the most influence over, namely our customer acquisition costs and aligning to our highest margin and cash flow generating activities.

We believe the actions taken last week drive stability for the company, while ensuring we are deploying our cash thoughtfully and strategically. We plan to invest in the opportunities with the highest return and provide the best probability for near- and long-term success.

As I wrap up, I want to preemptively touch on a couple of items that might be on your mind. First, to avoid any concern about challenges related to our existing debt covenants. We work closely with our lenders to bring them up to speed on our operating plans and expectations.

They have agreed to revise debt covenants that better align our trajectory with our mutual goals for long-term sustainability and strength.

Second, related to our current stock price and Nasdaq’s minimum stock price listing requirements, if necessary, we anticipate holding a special shareholders meeting later in the fall to request shareholders to authorize a reverse stock split by our board. We’ll provide more information on this topic over the coming months.

Before I hand it back to the operator to queue up your questions, I want to reiterate how pleased I am to have join GoHealth. We’re in the early stages here, but we have a good handle of the business, and we know what we need to do next. I’m excited to be a part of this transformation and I look forward to updating you on our progress in the Q3 call.

Thank you for your time today. We’ll now open up the call for questions.

Operator?.

[Operator Instructions] Our first question comes from Elizabeth Anderson with Evercore. Your line is open..

Hi, guys, thanks so much for the question. I guess, my first question, I just would like to hear, I know you’ve obviously had a lot on your plate for the last sort of 6 weeks or so. Just sort of where we are in terms of AEP prep, I noticed you obviously said that you are expecting to go in with a more tenured salesforce.

Are there any sort of key capabilities that you’re missing? Or that you’re sort of adding to at this point or trainings or anything given some of the CTMs from last year? Any kind of sort of operational things that you’re doing differently as we sort of approach the AEP season? Thanks..

Thanks, Elizabeth. I appreciate you joining the call today, and thanks for the question. Just to be – to reiterate the question more around where are we with AEP prep and anything that we’re doing operation and otherwise to prepare for it; and in short, yes, there’s a lot going on.

As you know, this is a very busy time of year, we’ve just been out trying to learn about our major carriers’ plans regarding benefits, and how they’re seeing their positioning within the marketplace.

We’re then also factoring in those dynamics into how we’re training our agents, even though we have refined our count of agents, we have been working extensively since that last AEP to enhance their quality, their conversion rates effectuation all across the board.

And most importantly, as we’ve alluded to in our prepared comments, is our progress on the Encompass platform.

And right now we’re in the final stages of testing those tools to make sure that we have all of our key agents prepared and ready to deploy against those so that we can have more of that active and ready to go during the AEP, both the Connect modules as well as the Engage modules at that time.

But, I think, that’s – those are the major parts for us at this point. And we’re doing a good job of really focusing through those technical tools and training tools. And the last one is really around marketing.

Marketing is going to be unique in the way we’ve refined our approach to what we want to do in the AEP period, as Jason alluded to making sure that we’re focusing on those highest quality marketing avenues.

And as such working with those partners to ensure that we’re doing all of the quality verification on the front end as possible, so that we have the highest return on those investments.

So, I think, that’s what I would say to respond to your question, is that responsive to what you were looking for?.

Yeah. No, that makes sense.

And, I guess, my follow-up question is, in terms of just pulling the guidance at this point, I mean, what sort of changed in terms of how you’re thinking about the company that you sort of wanted to take us sort of to pull the prior guidance and take a fresh look at the year?.

Yeah, it’s obviously a good question probably on the minds of a lot of those listening right now. As we look at it, it’s no surprise to anybody that the AEP period is one of the most dynamic periods and most important to look at the full year performance of anybody in our space.

There are a lot of factors in play this year, and we’ve got the changes in the way the carriers are looking at their benefit structures, some of which we have, some of which we don’t understand yet, most of that won’t be fulsomely known until October of this year.

Second, we’ve got competitive dynamics that have changed amongst our peers as to their staffing, their marketing tactics, the downlines, how they’re all behaving is different. Organizations are looking at different strategic options. Marketing regulations changed this year, versus where we were in the past, and so we’re all reacting to those.

And then we also have the counter pieces of the inflationary environment, and how that may be changing the – those who are going to be shoppers this year, and those who won’t be shoppers this year, versus prior periods.

So all of that then compounded with the restructuring activities we did this past week, all led us to come to the conclusion that it made sense for a suspend guidance at this point.

And obviously, as we indicated in our pre-recorded – our prepared comments that we will consider the color of those and give you more thoughts around it as we get into the fall..

Okay. And one last quick one. For those of us who haven’t time to read the entire debt – new debt covenants and things in the 8-K that you just released a couple of minutes ago.

Would you mind providing us a sort of summary in terms of the salient points there?.

I think there’s really just 2 of the salient points related to what we’ve negotiated with the debt holders.

Jason, do you want to touch on that?.

Yeah. Thanks, Vijay, and thanks for the call. Yeah, so number one, we went ahead and updated our covenants associated with our leverage ratio. And then, also, we have an update to our rate, which is an increase of 100 basis points..

Okay. Got it. Thanks so much..

Thank you, Elizabeth..

[Operator Instructions] Our next question comes from Michael Cherny with Bank of America. Your line is open..

Good afternoon, and thanks for taking the question. Maybe if I can dive a little bit into the restructuring program, obviously, it’s a big chunk of your workforce, not something that any company ever wants to do.

But as you think about how you went through that process? How do you think about the team that’s on the field essentially going into what you notice, obviously, a very dynamic AEP program and making sure that they have the right levels of motivation, right levels of sentiment to make to drive as strong AEP performance possible?.

Thanks, Mike, for the question. As we think about the AEP period, and obviously going through the restructuring process, really staring at what mattered most as we go into this evolutionary period and transformational period for us as an organization. We know that the market is demanding and we need to deliver higher quality across the board.

So as we went through our selection criteria, we focused on that. We focused on the agents who had been able to become those top-tier upper echelon quality performers, and really refine our workforce to reflect that those who were there and those who had the potential to get there, augmenting them with training and additional tools to do so.

As we think about going into the AEP period, as I said before, we have some of the highest tenured and highest quality agents we’ve ever had going into AEP.

And what that allows us to do even with a smaller volume, it allows us to be more selective in the marketing sources and tactics we utilize, so that we can have the highest quality choices along those lines.

So we do feel that it allows us to actually have a very productive quality demonstration of our capabilities to our carriers and serve beneficiaries in a better way..

Understood. And maybe just thinking ahead as well to AEP, obviously, last year, a number of the carrier that you work with, I know, I’ve made public comments about their desire to push and pull in terms of their own internal agent for salesforce versus external.

How are you thinking about the continued process that you’re going forth with in order to make sure that you’re proving yourself as the best value-added partner, especially considering the potential investment they’re making internally for additional resources?.

No, it’s a great question. And as we look at all the discussion, I would say that I’ve been very pleased to have interacted with all of our major carrier partners. We’ve had extensive conversations, what matters most to them, what problems they’re trying to solve, and how we can partner with them to do just that.

It is actually the germination of how we’ve gotten to getting the completed contracts in our Connect and our Engage platforms, their modules under the Encompass overall portfolio of products. It’s really aligning our capabilities with what they seek most and balancing that push and pull tug that you’ve been describing.

So it’s definitely been not being done in a vacuum. These new products we’re describing, we’re doing them alongside of our carriers. And we feel that they’re absolutely helping both advanced our position as to how we want to evolve as well as supporting where they’re trying to go as in their respective goals..

Got it. Thanks so much..

Thank you, Mike..

[Operator Instructions] Our next question comes from Tobey Sommer with Truist. Your line is open..

Hi.

What do your workforce cuts mean to your agents? Could you give us a sense for where you were and where you will be on a go forward basis from an agent perspective and a salesforce perspective?.

First, Tobey, thanks for joining and appreciate the question.

As hasn’t been prior precedent, we haven’t really put out numbers as to the number of agents that we’ve got, and those that we have between so many different functions between our Internal Medicare, our downline partners in the in the External Medicare channel, not to mention all of the enterprise solutions and other areas within the organization, so not in a position to provide you those metrics at this time.

But, again, as we did allude to just over 800 – or just under 800 agents were impacted by the restructuring..

Okay. I guess – I know you’ve pulled guidance, but as part of this sort of adjustment to the workforce and agent force, you’ve got to have some sort of plan to keep them busy enough and fueled with enough marketing to yield the kind of living that’ll give you associated turnover and employee attrition that the business can live with.

How do you thread that needle?.

No, it’s a great question. As we thought about where we were going and how we identified some of the key staffing levels for us.

There was a strong balance towards what could we actually do exactly what you’re describing? How do we get enough leads that are high enough quality? And to produce the quality on the back end with the right tenure to agents? And how do you balance that overall.

So as we went through that analysis, and looked at who was at what thresholds, we have definitely balanced then that we’ve looked at our staffing levels, and also the compensation models and the ways we put incentive structures in place for our agents, and we feel good that we can satisfy and keep them engaged and motivated to drive high quality with a balance on volume and productivity.

So that is definitely what we’ve done. And we feel there is an opportunity for us to continue to refine that over the course of the coming months as we learn more about what the market may put forward in all those dynamics I described a little while ago..

Okay. I appreciate the targeting of a cash flow breakeven in the not too distant future. But contracting the top-line to get there, probably doesn’t feel that great.

At this point, I know you haven’t been there a long time, but do you think the business can simultaneously generate cash and positive revenue and volume growth?.

I think it’s an interesting question. As I look at it right now, I think we’re definitely believe, we can position ourselves to drive more value. And the value equation is a function of both quantity and quality. And we want to fill that void. And I think that’s really the shift that’s happened. One would say that quality is always been on the forefront.

But quantity has been a strong motivator from a lot of different angles. And it times we need to refocus on the quality, and that’s exactly what we’re doing.

So when we think about the value going forward, it’s really driving some of these new product segments that we’ve described, and finding better ways to be partnering with our carriers to deliver those services. And we think that you can deliver cash through that, as well as drive growth year-over-year.

But time will tell us exactly what those specials will be. And as we test some of these going to this upcoming AEP, we’ll be able to provide you more color as we get further into the year..

Okay.

And your target of a cash flow breakeven around the run middle of next year, is that on a sustainable basis? Or is that episodic in sort of away from AEP, and after all the cash comes in, in the months to follow?.

Keep in mind, I think the way we’ve set up the target was on a trailing 12-month basis. So it’s not an episodic one quarter that has those cash characteristics you just described. And so the way to think about it, it’s on a run rate basis of the way the business should operate going forward..

Okay. Thank you..

[Operator Instructions] Our next question comes from Jonathan Yong with Credit Suisse. Your line is open..

Hey, thanks for taking my question. As you guys kind of stepped into the roles, you obviously did the restructuring work.

But I guess, are there any other areas where you think more work can be done? Are there any other areas where that kind of jumps out to you where you can further reduce costs, any variable costs, things of that nature?.

Thank you, Jon. I appreciate the question. Let me – you were fading out a little bit there. I want to repeat the question to make sure I got it, right? It sounded like you said that we had done a lot of work on the restructuring and coming with costs.

Or are there other major categories or areas to look at for cost mitigation?.

Correct. Yes..

So, I think, we’ve done a good review of the organization, focusing on the areas that seem to drive more on the quality side of the business, and ensuring that we’re getting the best return on those maximizing our opportunity for cash, et cetera.

So I’d say at this time, there’s no material areas of gap that we need to look at that are known areas to focus on the cost side of things, but that are glaring by any means..

Okay, great.

And then you obviously cut about 800 agents, as you think about kind of the go forward, is the current agent staffing level, the right level for you guys? And then, as you think about balancing the regular commission side versus the enterprise side, is there 1-year kind of favoring more than the other? Or is it still too early to kind of comment on that? Thanks..

The staffing levels that we have right now, we feel fairly comfortable are a good baseline for us to operate off of for the long run. We have opportunities to grow, and we have a definite pipeline within the different products that we offer to be able to continue to nurture and develop the talent.

If you look at the tenure of the agents that were coming into this AEP versus previous tenure, it’s nearly 3 times the amount of tenure that we’ve had in previous years. And that is something we want to maintain that we have a pipeline of experience to help onboard from the outside and develop through the different channels.

So at this point, we think this is the right staffing level to jump off of. And we have the right opportunity to develop talent to move towards our diversification of our product set and bring those skills into those other products.

To your specific question of the distribution between enterprise and also looking at the traditional model, at this point, I don’t have anything directional to provide you, other than you should expect to see some more diversification as we go forward, both on the type of products and the payment profiles of those businesses..

Okay. Great. Thanks..

Thanks, Jon..

And I’m not showing any further questions at this time. I’d like to turn the call back over to our management team..

Just wanted to close, thank you all again for your time today and interest in our organization. Obviously, a lot of work to come and we’re looking forward to providing you updates on our progress over the coming quarters, and we hope to talk to you all soon. Thanks..

Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect, and have a wonderful day..