GoHealth, Inc. (GOCO) Earnings Call Transcript & Summary

All right. Good morning, and welcome to day 2 of the Barclays Healthcare Conference. I'm Jonathan Yong, and I will be hosting today's session with GoHealth. With us today, we have CEO, Clint Jones; CFO, Travis Matthiesen; and from Investor Relations, Jay Koval. Thanks for joining, guys.

Thanks for having us here.

So for those that may be a bit newer to the story, how about a quick description of the business and a summation of your 2020 results given you just reported this past Monday.

Yes. Sounds good. Thanks, Jonathan. So GoHealth is a 20-year-old, tech-enabled direct-to-consumer insurance marketplace. Really we focus on helping Medicare Advantage or Medicare-eligibles understand and enroll in Medicare plans. So we entered Medicare in 2016. So it's kind of a newer part of our journey. And we exited 2020 with 730,000 Medicare enrollments through our platform, which we're extremely happy and proud of. We exited the year $877 million in top line revenue and $271 million in EBITDA, and we see a major shift from what I'll call traditional distribution or consumers buying through more of a local agent type model into our direct-to-consumer model, leveraging our platform and our agent-assisted agents. You kind of think about where the travel agents or the travel market was in the early 2000s, where there was kind of, on every corner of Main Street America, a travel agent that could help you out in a very few short years that had shifted online to the Orbitz, Expedias, Travelocities, KAYAKs. We see that same evolution happening here today. There's about 11,000 people turning 65 every day. That trend will continue through 2028. More and more of those people are choosing Medicare Advantage over original Medicare. So what our platform really does is help educate, guide and help people enroll and the different plan options available to them. We came out of kind of an unprecedented year with COVID and the election. And with some of the trends we saw in AEP around our handle times and our time spent with consumers were a little higher than we had forecasted, that led to higher LTVs. The way our business and our revenue works is our lifetime value. So we're seeing increased LTVs, increased conviction around the plans we enroll consumers in, which we're really excited about and what that leads for future years as we think about continuing to invest in retention efforts and adding carriers to our platform that gives more choice and options for consumers. So as we think about rolling into 2021, really excited about the opportunity here and the growth. We didn't forecast the -- I think the seismic shift of consumers coming online and leveraging a platform like ours. So we had way more demand than we had agents to serve that. So we're ramping up as we sit here today in 2021 to be able to service that demand throughout the year. So really excited to be here. And we'll go from there.

All right. Great. So that's a good segue to my questions. So you obviously talked about conducting investments for 2021. How are you thinking about the timing and pace of these investments? What exactly are they? And how are you balancing this against growth and margins in the medium to long term?

Yes. Great question. So there's 3 key areas of investments we're placing in the business this year. One is grow our agent force by 50%, just more people to speak to consumers. This is still a very complicated product where consumers want to talk to somebody about their health care. They want to ensure that the doctor provider they go to is in the network. They want to ensure that prescription drugs they take is available in this plan and they can see discounts there. So we're going to continue scaling our agent force. We're going to continue investing in technology, primarily our decision support capabilities to make that customer journey more efficient and help the agents and consumers match their plans faster. And then, finally, investments in our brand and our Encompass strategy, which is kind of our post-sale consumer engagement platform that helps people navigate their health plan and utilize their benefits. If you think about timing, most of those investments are going to be more heavily weighted in Q1 and Q2. And as we think about ramping the agent force up, it takes us anywhere from 8 to 10 weeks to get an agent hired, licensed, trained and productive. And we like the majority of those agents to be on the platform and ready as we enter Q3 so they can get some good kind of practice, if you will, and positioning an additional training before we get into AEP. So that's kind of how we're thinking about where we're investing, when we're investing. There will be -- like I mentioned before, we see this as a -- still a very high-growth opportunity for us, and we want to invest behind that as we scale out. And we've become the largest enroller in the space, and we want to continue that leadership position. It strengthens our relationships with our carriers. It allows us to be more innovative as we think about a new product offerings within our Encompass platform. And we think having that scale is critical. So we'll see continued growth from a revenue standpoint this year. Like I mentioned, we will invest earlier. So EBITDA, we've guided kind of the 3 -- $365 millions midpoint there as we make those investments early in the year. The good thing about these investments, you're going to see a quick return as we enter Q4 for the AEP season. And then, ultimately, they will play out into 2022 as well. And Travis, anything to add to that?

Yes. I would just add, Clint, as you think about kind of the comps year-over-year and think about the early investment that you just mentioned, Clint, think about that as a 15% to 20% decrease in absolute EBITDA in the first 9 months of the year as we ramp up for the annual enrollment period, again, with more of that investment being pulled up into Q1 and Q2. One thing that we dealt with last year was we ramped up our agents a little bit later as we transitioned to work from home and dealt with some of the licensing and COVID issues from just getting agents onboarded. We're pulling those investments up earlier in the year. And as Clint mentioned, we know that those investments don't take multiple years. They pay off. They pay off immediately during AEP because we found that earlier an agent is on our platform, the more productive they are during the annual enrollment period. So that's where our focus is.

Great. And kind of keeping along this topic, you had a target of achieving breakeven cash, and we're talking about the EBITDA margins. So breakeven cash in 2022 was the original story. Given some of the investments and increased hiring you're doing, how do you think about this target? And will you have to tap the capital markets kind of given the increased investments this year?

Yes. I'll talk a bit more of the strategy level and then Travis can speak to some finance and the numbers. But we think there's still a major opportunity for growth here. And in our business, we could slow down growth and become cash flow positive fairly quickly. We don't think that's the right long-term and prudent thing to do. We think that capturing the market share, growing the consumer base, investing in our capabilities to maintain kind of leadership position here is the right thing to do. So we're going to continue, as we see opportunities here, to grow in scale. That's the area we're investing in.

Yes. I would just say, as you think about the capital markets, we will not need to tap into the capital markets with the plan we have here for 2021. If you think about our business, the unique thing is the very seasonal nature of our cash flows and dynamics with a lot of our expenses around our agents and marketing ramping up throughout the year into AEP. And then immediately following AEP, we get all the renewal commission and the first year commission on the new policies we write. So there's definitely a seasonal part of the business that we leverage. We have a seasonal revolver that gives us the capacity to deliver on our 2021 objectives that we will leverage, if necessary. And then as we think about long term, I'd just reiterate what Clint said. We think COVID has shifted this market more towards a digital/telephonic broker. And we think there's a massive opportunity based off the demand we saw this past Q4. We're going to continue to invest behind that demand in 2021 and be thoughtful about the investments in '22 and beyond.

Okay. Great. So let's shift to kind of what you saw during AEP. So you obviously talked about a very strong marketplace and that there was more volume than perhaps having enough agents and plus you're doing this hiring. But was there a bit of overmarketing from your perspective? Were there benefits derived from some of your competitors pulling their marketing dollars out of certain channels? Any color you can provide there?

Yes. So we don't think there was necessarily a benefit from other competitors doing different things in the market. We think the market is very large and robust. And all of our channels saw increased activities, whether that was traditional. You think about TV, direct mail, print, kind of had higher pull-through rates and then even the digital side that we saw better trends there as well. I think a couple of factors there. I'd mentioned the longer handle times or time spent more with customers was one factor of just the overall throughput we could have. We're also, going into AEP, knew that there was going to be a kind of an unusual election. So we had planned on pre-buying a lot of media to make sure we had it in place. What we didn't predict was the election wasn't over on election day, right? You think about late-breaking news and things that happen throughout AEP and beyond into later in December. So we had a lot of ads that didn't clear, or when they did clear, they were on top of each other, and we had kind of, I'll call it, choppiness in the kind of ad delivery, if you think about from a supply-and-demand matching standpoint, which caused a lot more calls to go unanswered of qualified consumers that needed our services. And again, it comes down to the agent count and our ability to service those calls, so which is why as we think about scaling into 2021 and being in a better position to be able to service those customers, that's a critical thing for us.

Okay. You mentioned longer call times. What was driving the longer call times this time around compared to prior years when you kind of look back?

Yes. I think a couple of things there. We intentionally enhanced our needs analysis tool. We added more carriers last year. So there was much -- a lot more choice in our platform, and we spent more time with consumers navigating through those different options. I think health care was on top of everybody's mind with COVID and the pandemic, and we have a lot of questions around ensuring these plans covered certain COVID things. So I think there was just a combination of several things that add the call time. And again, we're okay spending more time with consumers. I mean we think that creates a more likely from a conviction standpoint with consumers to stay on the plans, remain with GoHealth. And like I mentioned, we saw that in a 5% increase in our LTVs in Q4. So the other thing I'll mention is we monitor our entire funnel. So we know exactly where in our consumer process the increased time was spent. So as we think about ways to invest in technology and optimize those areas as we sit here today in Q1 and Q2, our technology team is running a lot of tests and investing a lot behind that to see if we can increase that journey and make it a little more efficient as well.

Sure. So that actually ties into my next question, talking about the ability to reduce the call times. You're obviously adding plenty of more agents. But how do you actually improve the productivity of an agent shorten that call time? Because I imagine if someone wants to talk, it's kind of hard to stop them, especially if they're asking a lot of questions. How would you go about that?

Yes. So you think we're kind of like taking around a 4-minute difference, right? So it's not a huge number. And there were some additional scripts we had in there that we think we can reduce as well. So for instance, the needs analysis process, we think there's ways to make that more efficient from a technology standpoint, better match plans with those consumers' needs. We think there's a more efficient way as we collect information around doctors or prescription drugs. We think there's some technology we can use to enhance that as well. So we're not -- our goal is not to cut it down 100% of where we were because we think there were some positives that came out of that around customer conviction. And you think about creating the long-term strategic play here. The higher LTVs we have, the more conviction with customers, that's a good thing, right? So we're going to find ways to make that process as efficient as possible. There's also additional enhancements in our training program with agents that we can -- we're putting people through as well. We think we can improve that process as well. So a combination of things, but I don't want to get the call times as the big headline here. I think the time spent with consumers is a good thing. And our ability to make sure we have enough agents to service that -- those consumers is key. And we also relate that to the increasing LTVs.

Great. And so kind of turning to the agent count increase. When you think about that 50% increase that you're going to trend towards in '21, kind of given the strength of this past AEP, is that the right number? Do you need to do more? Can you do more? Does it make sense to do more kind of start a there?

Yes. It's a good question. We can't -- I'll start with this. The top of our funnel from a hiring standpoint around the number of applicants applying for jobs with us is very, very abundant. We've expanded our footprint from a sales -- remote sales standpoint in multiple markets this year as well. So we've got kind of a wider net to cast. So we would have the ability to kind of scale that up and ramp it if we thought that was prudent, and we had indicators that it would make sense. So we're sitting here today, we may do that, right? We've got a target right now we're going after, and we think that's the right number to go after. But as we see trends continue in 2021 around demand from consumers in this channel, we'll continue to make decisions along the way.

Okay. Great. And kind of associated with that, I mean, how do you think about balancing the growth that you see ahead of you and ensuring that the quality is there, quality versus the quantity of growth?

Sure. I think the LTVs and cash flow is -- are really 2 great metrics to measure quality, right? So LTVs, number one, just you think about the early effectuation trends, the persistency trends, the 90-day retention trends, the quality of that business is like indicators. And then as we look at kind of past cohorts and current cohorts, you obviously have a cash flow forecast coming off of those metrics. And we reported last year that we're over 100% of that cash flow from prior vintages. So that's another testament of the quality of the business. So those are the 2 factors we look at. There's a -- we don't want to press the pedal too hard where we sacrifice those metrics. Those metrics have been improving for us over the last 3 quarters. When I think about LTV growth over Q2, Q3 and Q4, it's a clear focus of ours. We think not only volume but quality is going to win with scale in this market. As we think about creating a really, really strong customer journey as well as really tight customer relationships, as we move forward and introduce new products within our Encompass platform, those are going to be critical for us to continue to scale and create additional value not only for the consumer but for the carrier as well.

Yes. I would just add, as you think about the quality Clint alluded to that obviously it playing out in the consumer LTVs and the economics of the policy, I think the other key differentiator, especially as we think against some of the peers, when we talk about accelerating our growth, it's continuing to do exactly what we've always done. It's focusing on our internal agents, focusing on onboarding our agents and bringing them on to our proprietary technology, not outsourcing agents and then, second, them being driven consumers that our internal marketing is driving. So we can match the right consumer with the right agent and give that agent the technology to put them in the right plan and not have third-party agents or by third-party leads continuing to do what we've always done, just continue to accelerate it with more agents. So I think that's the other piece, too, in terms of balancing and thinking about quality. Keeping all of that in our ecosystem is important to ensure that quality.

Yes. And I think just to -- on top of that, with the agents, in particular, because that's really the front line of who's talking to the consumers within our platform. The way they're compensated and incentivized is critical, right? So quality is a key measure that we look at from bonuses or commission standpoint to ensure they're putting the consumers in the right plan. We're looking at individual characteristics around each agents and their persistency levels and their LTVs per member. So all of that ties in. It's not just based on the conversion rate up front. This is a very sophisticated kind of look back on each of the agents and how they're performing, too. So that's a way we can kind of have our hands directly on the pulse of quality from the forefront.

Great. So you and your peers have all talked about hiring significantly more agents over the coming year. Kind of how are you thinking about the inflation aspect? Is there a possibility of poaching from either side? Just saying the dynamics there.

Yes. That's a great question. So the majority of agents that we hire are not licensed and have not been insurance agents prior. I think that's one thing that's kind of a little bit misunderstood. Everybody thinks we only can go after licensed insurance agents. The reality of it is a very small amount of people that will come on our platform are already licensed. So we focus on finding really, really talented salespeople or customer, people that have been some sort of a customer service-type model or hospitality industry, that -- they ultimately turn into really, really great sales folks. Because if you think about it, a lot of these plans, we're not collecting a credit card. There's $0 premium, a lot of great benefit. So it's really about matching that consumer with a perfect plan for them and just walking them through their benefits. So we found a way to target those types of individuals that are looking for that type of a job and then getting them through a very robust training platform where they can learn along the way. They can become Medicare experts. They could become experts in the different plans, and they can really gauge and guide people into the right plan and become passionate about it, right? We're really -- we're solving a lot of problems. We're helping people get better benefits. We're helping people save money. And there's got to be a passion about that from the agent force.

Okay. Great. So when you think about the next AEP, obviously, you're doing investments, additional agent hiring. But what other learnings kind of came from this previous AEP? And what will you be applying to the next AEP?

Yes. So we don't think -- obviously, this is not a major election year. So we think it's going to be a little bit more smooth as we've seen in previous years from a supply-demand standpoint. I think that we didn't appreciate the sheer volume of folks that we're leveraging these types of platforms and kind of doing it over the phone or over the Internet in the senior population. I think one stat to look at is on our digital channels, 90% of our digital volume came in through some sort of mobile engagement, right? So that's a senior on an iPhone or a tablet. So that's kind of a shift in the technology capabilities that we had seen in the past that we're really excited about as well as enabling and developing solutions to really engage those members and get them through the process. But just the sheer volume of demand for our services was kind of eye opening, right? And actually, think about just the overall TAM opportunity we have, making sure we have enough agents in place to serve that -- serve those folks and get them enrolled in the right plan. We had a pretty strong carrier -- new carrier adoption last year that we're still actually going through from an integration standpoint. So all our new carriers will be fully integrated in our platform over the next several months. So that's really exciting to have, all that integrations and technology and all the new plans actually within our marketplace, where, last year, we didn't have all that capability. So we think we'll have some efficiency gains there as well. So we're really excited about what's to come here. And we're investing ahead of it to make sure we're in good position.

Great. So turning to OEP. You and one of your peers have mentioned OEP is off to a really strong start. While I tend to think that volume is obviously positive, during OEP, it's indicative of more switching. So kind of what are you seeing in the marketplace? And how are things developing from your perspective?

Yes. No. It's a great question. So we are seeing high demand from inbound activity with consumers asking questions about either the plan they're on or different plan options they have. So we're not seeing -- well, so 18 months ago, we invested heavily in what we call our telecare team, which is our retention platform. So those folks handle existing customers. So if somebody calls into one of our lines and they're existing customers, they're routed to that team. So we're not seeing a huge abundance of calls coming through that channel and asking, "Hey, is this the right plan for me." So these are -- appear to be a lot of new customers or customers just unhappy with the plan they're in. And maybe they were enrolled in something they didn't know or went through a different channel. They didn't compare all the different options. And with a platform like ours, we obviously have a lot of options they can go through and compare. So that's kind of the trend we're seeing. We're kind of 2/3 through OEP. So kind of excited there. We've been hiring heavily during January and February. So we're excited to see some of those trends. Those agents obviously aren't productive today. But as we get into Q2 and Q3, they'll start getting the phones as well. So it's good for the new agents to hear a lot of activity and do a lot of role-playing in kind of a higher volume time as well, so they can kind of really listen to calls and understand what's happening from a training standpoint, too.

Okay. Great. We're almost at closing time here. So I did want to leave you a second here just to comment. If we think about next year, we meet again, what would you want to have completed during 2021? And what do you want investors to take away on the progress that you're making throughout the year?

Sure. Yes. So I'll leave with this. Like this is a very fast and robust growing market, and we're in a great position to continue to be the leader and invest behind that. So if I think about scaling our agent force to grow with the consumer demand that we have, we'll give updates throughout the next few quarter calls and how the hiring plans are going in the training plans and continue to invest in the technology platform to make it the most efficient customer journey out there. And then think about kind of the Encompass offerings, we'll talk a little bit more on our next call, earnings call, around what we're seeing with our Encompass platform. We had some pilots we launched in 2020. They've moved into kind of full-time production programs at this point. A lot of key learnings. We think it's an opportunity to keep involving the business and provide additional value-added services to consumers and carriers, which we're really excited about. So we look forward to speaking again.

Okay. With that, that's the end of this session. I'd like to thank Clinton and Travis and enjoy the rest of the conference. Thank you.

Thank you.

Thank you.