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

Good morning, everyone. Welcome to the William Blair Growth Conference, if you're just joining. This is Adam Klauber. I follow the InsurTech insurance vertical. Thanks for joining. This session, we've got GoHealth and their management team, a rapidly grown and exciting company. If you haven't spent any time, they are really the leader in the rapid emerging Medicare broker space. The company, again, is growing at really nice levels, has a lot of platform development, which I think we'll highlight today and a company we think you should get to know. So with that, I'll turn it over to the CEO, Clint Jones. Clint, go ahead.

Thanks, Adam, for having us join you at the William Blair Growth Conference. We're excited to be here. With our 2021 revenue expected to be 5x what it was in 2018, we're rapidly growing and we see a huge opportunity to continue that. While we're a newly public company that went public last year, we've been around for almost 2 decades, building an online health insurance marketplace, really starting with the 165 ACA opportunities, then pivoting heavily into the Medicare market over the last 5 years, which we've continued to scale up our platform. And really, what we do is we help consumers shop, compare and navigate all their different Medicare options when they turn 65 and beyond. We believe we've got a very, very efficient platform that's built really good scale while maintaining top-tier margins of over 30%. If you think about kind of the different elements of our platform. We start with a wide-scale omni-channel marketing approach that delivers consumers from both an online and an offline marketing standpoint. So no matter how consumers are shopping or how they choose to shop, we can access them and help them better enroll and find the plan they're looking for. Once they contact us, we're able to score that consumer based on a lot of data points we collect and then match them and route them with one of the agents that we have the best would meet their needs. So you can think about we may have a female coming in from Dallas, Texas at 72 years of age, looking for certain benefits. And we've got experts in our sales center that can really hone and help that person find the right plan. Once they come to us, our agents do a very rigorous needs analysis, where we gather information on their drugs, their doctors they go to, issues they have and then, ultimately, help them narrow down and find the right plan that meets their needs. And we don't stop at the point of enrollment. About 1.5 years ago, we started heavily investing in our TeleCare team. We started realizing that consumers, once they enrolled, still had questions on how to use their benefits and maximize all the things within their plans. And now our TeleCare team takes over after the enrollment process and helps those consumers leverage the benefits. And we set appointments for them. We ensure they have rides to and from their providers. If they don't have access to healthy meals, we help them get those scheduled as well. We can take a look at all their drugs and understand if there -- is there a better opportunity to save money by leveraging some generic drugs as well. So a lot of things we're doing to really help them maximize their benefits and minimize their out-of-pocket expenses. If you think about our TAM, there's 11,000 people turning 65 every single day. That will remain until 2028. So a huge opportunity for us to continue to scale and grow. And we kind of look at this market as how the travel market was transformed in the early 2000s when prior to bookings in Expedia and Airbnb, you had a local travel agent and kind of every corner, Main Street America. Our market is going through a similar transformation now where more and more consumers are leveraging our online marketplace and our telesales capabilities to enroll out of the safety of their home and very conveniently. When you think about what COVID has done over the last year, it's really accelerated this growth trend where consumers can go online, shop out of the comfort of their home and compare multiple plans and ultimately enroll in the right plan for them. So as we think about kind of where we're positioned today and where we're heading, last Q4 was our AEP period. We had more demand than we can service. So we're in a heavily investment mode this year, bringing on more and more agents, scaling up our capabilities and our technology, to be able to meet that demand as we think about positioning ourselves for this Q4, which we're really, really excited about. We continue to see strong momentum and usage in our model over the first quarter of this year, with more and more seniors coming on and leveraging our platform to select -- the plan that's right for them. So as we think about kind of the momentum we saw in Q1 from a top line standpoint, and now we're seeing our investments starting to pay off here, we reaffirmed our full year outlook for both revenue and EBITDA on our earnings call a few weeks ago. So really excited about the position we're in. And we also saw, I mentioned the TeleCare team and some of the things they're doing. We've continued to see our LTV increase. We had a record quarter, up 17% in Q1, both based on benefits of persistency, effectuation as well as we roll out our Encompass Platform in Q4 on some pilot groups, and we're starting to see that pay off now in the first part of this year with about 9 million contribution in Q1 from our Encompass Platform, and which we'll get into a little bit more color. We have Dr. Paul Hain on with us today, helping us think through that process and those technologies and what the consumers need. When you think about our Encompass Platform, it's really set up to help consumers maximize their benefits and improve their health outcomes. And we think about the ecosystem kind of 3 parts here. One is the consumer, how do we help them better navigate their health care journey once they've enrolled and improve their health outcomes. The second partner there is our carriers. How do we help our carriers better understand their customers' needs earlier on in the enrollment period, so they can help them given -- get them in better preventive care models and other things to improve the consumers' health outcomes, but also the carriers' key financial quality metrics. And the third part of the Encompass Platform is connecting them with high-quality care delivery partners. For example, maybe a value-based care model is new in a consumer's market that they're -- they don't understand, but they -- we could educate them on and help them get enrolled, which ultimately can help them in their health care journey and maximize those benefits and the quality of their health outcome as well. So as we think about -- that is another enormous market opportunity. If you think, just our commissional market, opportunity is about $30 billion in commission, but the Encompass expands those services even further downstream. So as we think -- we continue to think about the investments there and additional ancillary revenue opportunities not only including those revenue opportunities, but we're seeing some continued LTV growth as just another reason to continue down that path, which we're really excited about. So as we sit here today, we're really excited about the opportunity and the growth characteristics we have in the business and just the overall market momentum to build a very large customer base for years to come. So with that, Adam, Travis, Paul and I will be happy to take any questions over the remaining time.

Great. I think that's a great intro. It gives people a flavor for what's going on right now. So let's talk maybe about some of the growth drivers. Again, you've had really good growth, not just last year but over the last couple of years. So the obvious question in investors mind is can growth sustain at a high level? I was thinking about high level as north of 30%, 35% at least. So -- well, let's start with expansion of health clients. Just to give people an idea, I mean, roughly how many health plans, which is really options, would you say you had in 2019? And how many do you have sitting here in 2021? And along with that, how -- have you seen penetration of some of the newer health plans in the last 6, 12 months?

Yes, it's a great question. So I'll remind everybody that we enrolled our first Medicare consumer for a 1/1/2016 effective date. So we're still fairly new in the market. And for the first 2 or 3 years, as we build on our Medicare platform, we deliberately chose to work with just several key players to really understand the market dynamics, how the plans work, what consumers are looking for. And over the last couple of years, we've scaled it out and build more and more capabilities where we've got a lot of choice in all the counties around the U.S. So if you think about today, we're probably -- we've positioned a 15-plus plans where the average consumer has 5 to 6 good options in each of their markets. Some have more. And with our model, we can determine, as consumers come in, what are the key benefits they're looking for. And do we have all the carriers that fit that supply, if you will, in the market, and we'll consistently add more and more carriers as we move forward. So from a penetration standpoint, we think later in this year, our carrier mix will look more kind of like the market norm as you think about the large -- you've got the nationals, the Uniteds, the Aetnas, the Humanas taking up a big, big section. And there's also going to be regional players that have a good foothold as well. So we'll more or less mimic that sort of view.

Just from a frame of reference, which, I guess, 1 or 2 carriers are you growing with a lot today that you weren't doing a lot of business with maybe a year or 2 ago?

Yes, from the larger side, United and Aetna are newer partners for us. So we'll obviously see some expansion there, just simply because of the number of states they're in. Also from a decent population during SEP time frames, there's a big opportunity there to continue to serve that community. So those partners will scale up. And there's some regional players as well that we're bringing on board, Kaiser and companies like that as well. If you think about certain pockets of the U.S. that we were not really targeting from a marketing standpoint, we now have the ability to kind of press the pedal there and go after those markets as well.

Okay. Great. Another big growth lever, obviously, is expansion of your agency platform. Adjusting, again, historically, how big was agency platform in '19 versus the end of '20? And if you can, what are some expectations for the end of '21?

Yes, it's a good question. So if you think about this overall growth, I mean, there's a couple of things we look at from that platform standpoint. One was just the volume of enrollments we have coming in. So you talked about being able to sustain 30%-plus growth year-over-year. So one way to do that is obviously the number of consumers you enroll, which were rapidly expanding our agent footprint and base to scale up and be able to handle the demand we saw last year, and we continue to see this year. So there's one part of the equation. The other part of the equation, which we're really excited about and encourages our Encompass Platform and some of the ancillary benefits that stream to the table, we talked about a 70% -- 17% increase in LTV in Q1. Now as we continue to expand that, we're seeing additional services we can offer those consumers from the Encompass standpoint. So that will be another growth driver as we think about the trajectory moving forward.

Right. And again, I do want to talk about Encompass, we'll probably get to that next. Can you talk a bit about agency -- agent productivity? What's the productivity of -- just roughly, a new agent versus one who's been there at least 1 year plus? And are you seeing more seasoning of force essentially?

Yes. So there's a couple of different elements. And as you know, this time a little over a year ago, when COVID hit, we deployed everybody out of a kind of a sales center environment into a work from home, which obviously has its own challenges. So we've been able to kind of redeploy our training, on-boarding, coaching, development practice to serve that work-from-home type model. We've enhanced our training, which used to be about 4 or 5 weeks. Now it's closer to 8 weeks. So we're spending more time with the agents upfront to get them better prepared to sell. Now you're right, obviously, as any job you do, the more you do it, the better you get, right? So there is a tenured element to that business when it comes to the agent productivity. We're seeing agents, kind of its low double-digit increase in productivity now coming out of our development pod compared to where we were last year. So we're seeing that investment in additional training development starting to pay off. And as the months go by and weeks go by that they were able to be on the phone servicing customers, they basically grew. I think about graduating from a different status internally and be labeled at freshman university and varsity. So once you come out of our training program, you're a freshman agent. You continue to get additional enhanced training and benefit and coaching along the way to hit certain key metrics and milestones. Now some of those are time based and some are performance based. And then you kind of graduate up there. So it's a continuous education process and in-learning process. And we'll start somebody off, maybe in a small subset of states or with a small subset of lead types, so they can learn their craft and get really good at servicing those types of consumers. And once they approve that, they can start expanding and growing from there.

Great. And again, if you don't mind saying, how many agents in the year at the end of '20? And what would you expect for the end of '21 roughly, or even the percent of growth?

Yes, Travis. I don't think we give those numbers, correct?

Yes. We did mention that we are planning on growing our agent footprint by over 50%. When you think about growing our agent footprint, we're talking about both our licensed agents and the TeleCare agents that Clint alluded to.

Okay. That's helpful. And then an issue with the business has always been it's clearly very seasonal. So how are you, I guess, working to improve that, keeping the agents occupied and productive in nonpeak times?

Yes. Good question. So obviously, you've got -- you're right, the AEP time frame is kind of the busy season and you roll into OEP, and there's still a big uptick in enrollments. So part of the benefit of the Encompass Platform, a lot of the services we're performing are services that performed kind of in Q1, Q2 and Q3. So that -- we see an opportunity there to scale that up, and you'll be able to take agents that are selling in Q4 and enroll them into a new role in Q1, it's kind of post sale. And it's almost like a cross-sell, which actually is not really selling anything where the consumer has to give you any money or credit card. These are additional services performed on behalf of our carriers or our provider partners. And you think about -- almost acting as a concierge for the consumer, where we're able to generate additional revenue streams there, which, as I think about over the next several years, smoothening out our revenue, where we have additional services and capabilities for those agents to perform, primarily in Q2 and Q3.

Right. Right. So that would be like a big bonus, particularly, again, as you grow your agency force, the ability to just increase the efficiency and productivity throughout the year, which, again, is it's been an issue for just the nature of the business. So yes, if you could dive a bit into Encompass and maybe give some -- maybe some very basic levels. So if customers are using Encompass, what are the 2 or 3 things that are attracting them to Encompass? And what is the revenue model of Encompass? Are they paying for fees? Are the carriers paying? How is that working?

Yes, the intent in the beginning when we kind of laid this strategy out was to never charge the consumers anything. If you think about our average population, a lot of them sit around the federal poverty level line, right? So just not a lot of disposable income. And as we enroll more and more consumers, we realized that our job was not done upon enrollment. We kept getting a lot of consumers calling in with a lot of questions. So we sought often -- we also understood the carriers were having kind of a challenge, once they got a bunch of the new enrollments. They didn't really know who those consumers were, what their health conditions were and it took them a long time to figure that out. So we designed a platform, it's kind of a concierge platform for consumers. We don't charge them anything. We help them better understand their benefits. It all starts with what we call our member care assessment. So we really understand who that consumer is and how we can better serve them. On the other side with carriers, we're able to deliver the carriers information about consumers they did not have before, so they can better risk score them from a quality standpoint, we can help improve star ratings. If they have, let's say, a condition, let's say, diabetes or hypertension, we can help them get into a preventative care model sooner, which ultimately does impact the care delivery and MLRs for our carrier partners. There's an opportunity to connect to consumers with a better provider in their area that has maybe focused on better health outcomes, we can do that as well. So from a revenue standpoint, we're getting -- generating fees from the carriers for a lot of these activities as well as our care delivery partners. And like I mentioned, for the members, they don't pay any additional services and really the pitch to the members, it's a free concierge tool that they can leverage, that comes with their benefits. So basic things like helping them schedule appointments, helping them ensure they get to those appointments, assessing from an SDOH standpoint, meal delivery, non-emerging Medicare medical role and transportation services and things of that nature. And we can then be an advocate for the consumer to ensure they're getting the care and everything they need. And obviously, with COVID, we've also understood that there's a lot of social kind of isolation, where they're not getting the socialization they had in the past. So to be able to connect consumers with local care deliveries models in their area, to connect them with people from kind of in-home socialization capability, is beneficial as well. What this is ultimately leading to, there's a nice -- there's revenue opportunities to expand our TAM. But we're also seeing kind of what I'll call the ancillary benefit of better persistency from a more engaged member, right? So you think about -- I'll say we're going to expand our LTVs over time because now that consumer is not just enrolling through -- with a health plan through us, they have all these other benefits that we're able to deliver to them. So therefore, we're seeing the early benefits of that persistency gain because of the platform as well.

Great. Great. So for example, which, again, clearly, if you can extend the LTV, improve the retention across your block, that would be a big, very significant big mover for the company? But can you give an example, what are some situations where the carrier is going to pay you more fees and more revenue for some of the activities you're providing?

Yes. So it depends on the carrier. We've got a suite of, I'll say, about 20 different services right now that we offer through Encompass. So the carrier can ultimately decide between -- based on their particular needs, what they want to go with. And those fees range anywhere from, call it, $25 per action to $750 per action. Some of the PMPM models associated with them, others are onetime fees. So it really depends on kind of what the carriers' needs are. And as you know, each carrier is set up a little bit differently, and they're trying to focus on different things. So that's kind of how we've approached the market. And we started -- just as we entered the Medicare market, we started with kind of 2 key relationships to build this capability out to really understand what's not only beneficial for us, for the consumer, but also the carrier, right? This has got to be a win-win for the carrier where they can see additional benefits on, like I said, improving their capabilities of risk scoring a consumer and improving star ratings. There's got to be a benefit there that we can prove the carriers, so it is a true win. So our vision is, as this rolls out, we're able to develop key studies around these kind of benefits to be able to expand. Like I mentioned, we have about 20 services we're performing now. We have another 20 or so that we're kind of in the background working on. So we see a lot of opportunity here. And if you think about us being able to also -- we mentioned -- I mentioned diabetics. Let's say that we have 250,000 diabetics on the platform and we're able to deliver different types of care and kind of a journey for those diabetics. So that's an interesting model. We're working on -- think about supply delivery, diabetic supply delivery, just one example on where we think we can take the platform over time, not only helping the consumers out or helping the carriers out. If you think about each, kind of, health profile or characteristics of membership base that we can drill down into and help those folks in that health care journey.

Right. Right. Now that makes a lot of sense that your -- one of the issues with health care -- not one, but one of the biggest issues is engagement. And it seems like that's one area that you're helping out a lot, and that's important to, obviously, first and foremost, the patients, but particularly the carriers for them, if you can help engage their customers. So when we think about growth drivers, again, this is new relatively. But as we think 2, 3 years out, could Encompass be a growth driver of revenue? Or is that, at the end of the day, do you think it's mainly a retention tool?

Yes. I mean, if you think about enrolling millions of people on the platform, you've got a really, really strong membership base with just the current LTVs we have today, right? We think there's retention elements there. But if we're able to -- let's just take an example, bring in anywhere from $100 to $200 more per member per year, times the amount of membership base we have, that's a pretty large membership driver. It's -- I think from a profit standpoint, highly profitable, right? Our largest costs are initially acquiring that number. So not only we have that member, us being able to expand the LTV drive greater persistency but also add additional services on top of the commission revenue, dramatically drives our revenue as well as our profit.

Okay. Great, great. Switching topics. From an investor standpoint, as they look at GoHealth and also look at the industry, the free cash build has been a little tough to get a hand on. So I don't know if you could give some thoughts on how does -- how should free cash build over time in this business over the next couple of years?

I'll take the first part of that, Travis, and if you want to jump in. So this is one of those kind of unique situations where we could dramatically slow down growth and be cash flow positive pretty quickly, right? We don't think that's the right thing to do in what I'll call kind of a growing greenfield market, if you will. We think there's an opportunity to kind of build a really, really strong brand, be the known player to enroll in Medicare plans and continue driving that growth. So -- and there's so many -- so much opportunity over the next several years to do that and position ourselves. So we've made the decision strategically, we're going to continue to press the pedal and go after that consumer base as we think about kind of growing the platform. And then, Travis, anything else you want to add just from an overall cash flow standpoint.

Yes. I think from an investor standpoint, there's a few metrics that you should just be mindful of. So Adam, you mentioned the growth rates that we've had over the last few years and how fast we've grown. Within those growth rates, we've reached and as illustrated here on the slide here, a roughly 1-year payback period. So for every policy that we're enrolling within 1 year, we're becoming -- or roughly 1 year becoming free cash flow positive on that policy. And then when you think about kind of the return on that, above and beyond that first year, as you think about over the last 12 months, we were negative free cash flow, a little over $100 million. But that also resulted in us growing our commissions receivable balance by over $300 million. So when you think about what Clint mentioned, there's a massive opportunity right now for us to keep growing. That's a 3x return on every dollar that we invested there in our membership. And as we've been able to grow that membership, not just the opportunity to earn the commission, but also create a base of membership that we can then start to leverage our Encompass initiatives on and continue to monetize them, we still think that there's a big opportunity. But we upsized our revolver in Q1 to ensure that we've got the capital in place with a strong balance sheet of over $800 million of commissions receivable to continue to finance that growth without any equity-linked financing. So we're excited about the unit economics we see right now and our ability to continue to fund that growth.

Great. Great. So essentially, you're building in sort of this cash flow tail that's really going to pick up over the next couple of years. That's good to hear. And then finally, we just have 2 or 3 minutes, but another question that we get, and I'm sure you get, is the Medicare brokerage business getting crowded? You've grown, you have some competitors growing. You have some companies transition their model to being more Medicare brokers. I mean, I guess, what's your view? Is it getting crowded?

Yes. So it's an attractive market for sure, especially with the TAM dynamics and the kind of senior agent population to serve that. A lot of the competitors that are in today, we've been competing with since we started, right? Now we've all grown, but I think we've grown with the market as well. So we don't really see -- everybody talked about Walmart and some other folks entering, but we don't really see that competition. I mean, we have a unique model servicing a unique subset of the market that we'll continue to scale and grow. And I'm sure, as any robust market, other folks will try to come in. But it's going to be harder and harder to compete, especially as we get our scale situated. We're able to drive LTV momentum, persistency momentum. We've got a lot of technology investments we've made to kind of set us apart as we think about kind of a competitive moat that we've set up.

Okay. Great. I think that's helpful. Well, we're coming up on the half hour, so I can end on time. So I'd like to thank GoHealth management team. Again, this is a company and a stock worth watching. I think it's taken a while for investors to begin to figure out some of the back and forth with just the business, overall, and that single health. But it's a different business as we do with a lot of emerging businesses. But I think if you continue to focus on GoHealth and, again, their growth has been great. Their free cash is going to start building over time. And we think it'll be really, really good stock. So it's worth taking a look. So again, thank you, Clint Travis and Paul for taking the time.

Thanks, Adam.

Thanks, Adam.