This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk20: Good morning and welcome to Go Health Second Quarter 2024 earnings conference call. My name is Marvin and I'll be your operator for today's call. Currently, all participants are listen only mode. Following the prepared marks, we'll conduct a question and answer session. As a reminder, this conference has been recorded. I'll now turn the call over to John Shea, Vice President of Investor Relations. John, you may begin.
spk17: Thank you and good morning. Welcome to Go Health Second Quarter 2024 earnings call. Joining me today are Vijay Kote, Chief Executive Officer, and Katie O'Halloran, Interim Chief Financial Officer. Today's conference call contains forward-looking statements based on our current expectations. Numerous known and unknown risks and uncertainties may cause actual results to differ materially from those anticipated or projected in these statements. Many of the factors that will determine future results are beyond the company's ability to control or predict. You should not place undue reliance on any forward-looking statements, and the company undertakes no obligation to update or revise any of these statements, whether due to new information, future events, or otherwise. Earlier today, we issued a press release containing our results for the second quarter of 2024. We have posted the release on the Go Health website under the Investor Relations tab. In conjunction with our forward-looking statements, we encourage you to consider the other risk factors described in our 2023 annual report on Form 10-K and our other filings 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, and the reconciliations are set forth in the press release. I will now turn the call over to Go Health CEO Vijay Kote.
spk11: Thank you, John, and good morning, everyone. I'd like to begin by sharing commentary on our quarterly performance along with updates on our general business activities and initiatives. In the second quarter of 2024, our internal captive team empowered nearly 525,000 consumers to navigate their Medicare options utilizing the Plan-Fit checkup via our proprietary and compass workflow. Along with supporting over 155,000 new enrollments in Q2, we also provide a peace of mind to over 125,000 consumers confirming their current plan is best for their needs. Our performance during Q2's special enrollment period, or SEP, exceeded our expectations for submissions, revenue, and adjusted EBITDA. While our total submissions were down 6%, submissions generated by our internal captive agents increased 14% year over year versus a 33% decline in submissions from our external Go partner solutions or GPS agents. We are particularly pleased with our internal captive results, especially considering the shopping and switching dynamics have remained unchanged since the last annual enrollment period, or AEP, and are not expected to change significantly until Q4 of this year when health plans release new benefits. Due to market dynamics, we anticipated year over year declines from Q1 through Q3. Our team has managed these expected factors by driving efficiencies and reducing costs. We believe these results show the benefit of our proprietary and compass workflow and plan fit checkup process. At Go Health, our mission is to provide support and clarity to Medicare consumers in a landscape often marked by confusion and uncertainty. There are over 65 million Medicare eligible individuals in the United States, and approximately half of them are enrolled in Medicare Advantage plans. One third of Medicare consumers live in counties with more than 50 plans available. The abundance of options can be overwhelming. This complexity often deters consumers from shopping for better options because they are unsure who to trust or where to begin. We believe Go Health is the premier resource to empower these individuals to make informed and personal decisions because of our proprietary and objective tools, as well as our well-trained tenured agent workforce. We are continuing our evolution from a traditional Medicare enrollment company to a Medicare engagement company, focusing on building high quality, long-term relationships with our consumers. We believe this shift emphasizes a more integrated and interactive approach to consumer care, cementing our unique and vital role in the Medicare landscape. On our last two quarterly calls, we highlighted several market factors that could influence our performance this year. Due to the dynamics of the industry, we expect clarity on the impact of these factors in Q4 once AEP starts. As typical, the market dynamics we observe in the fourth quarter of 2024 for AEP will continue for a full four quarters running through the third quarter of 2025. As a reminder, there are five key market factors. One, the final rate notice on commissions for the 2025 plan year. Two, the final 2025 marketing rule from the Centers for Medicare and Medicaid Services or CMS. Three, plan product and benefit differentiation between 2024 and 2025. Four, marketing efficiency within this election season. And finally, relative health plan competitiveness and its effect on plan mix. As we become more selective in the health plans we include in our marketplace, this factor impacts sales per submission or revenue per sale and agency versus non-agency revenue distribution. As we report our second quarter results, we have updates regarding these factors. On market factor one, as we previously discussed, CMS issued the final rate notice, which aligns with our expectations for the base commission schedule. The 2025 final rate notice introduced margin pressure for health plans, which we believe will likely lead to benefit disruption and market exits, particularly for non-special needs plans. Major health plans confirm significant upcoming benefit disruption in their Q1 earnings calls. Similarly, we expect on average 20% plus increases in premiums for beneficiaries currently on Medicare supplements. We believe these rate increases and disruption could lead to a significant increase in consumer shopping and switching during the upcoming AEP, presenting a positive opportunity for Go Health's business model. More recently, many health plans had the opportunity to resubmit their bids due to a series of successful lawsuits on star scores. While this may change AEP's competitive dynamics, we know that many health plans are targeting growth in specific markets and products. Notably, some are focusing on the special needs population, a segment that Go Health is uniquely equipped to attract and serve. These strategies and priorities will vary by health plan and geography, but we believe we are ideally positioned to help health plans achieve targeted and measured growth. On market factor two, in April, CMS published the final 2025 marketing rules, addressing independent agent and broker compensation and introducing new guidelines. However, the U.S. District Court in Texas stayed the effective date of the compensation provisions of the rule, and later, CMS acknowledged that because of the court's order, the status quo would be maintained through AEP. As we have already commented, we believe the final rule, as published, had minimal impact to our business model, but the court order and subsequent CMS guidance confirms that it is business as usual. The one part of the rule that we expect to be implemented as planned pertains to the restrictions in the new rules surrounding conduct commonly attributed to lead generators. Those restrictions should not affect Go Health because we held ourselves to the standards of the new rule years before the rule was even proposed, and accordingly, we think these restrictions are good for the industry at large to protect consumers from confusing and unintended sales calls. As we contemplate the remaining factors, we are cautiously optimistic about shopping and appropriate switching during AEP. As part of our strategic shift from enrollment to engagement, we believe in building trusted relationships with consumers and putting them in the right plan for their needs. As a reminder, we have always indicated that we plan to have a portfolio of agency and non-agency contracts varying by health plan and product, but mix would be dependent on the plans most suitable for the consumers we serve. Based on our early reads, though still to be refined based on actual benefit releases later this year, we see a mix shifting towards contracts with agency arrangements versus non-agency arrangements. The evolving market dynamics are expected to result in tailwinds for submissions, revenue, and adjusted EBITDA. However, we expect a -over-year decline in cash flow from operations due to the shift from non-agency revenue. We are committed to supporting the consumers throughout their Medicare journey and believe doing the right thing will ultimately increase engagement and retention. We look forward to providing an update during our November quarterly results call once AP dynamics start to play out. Additionally, there are two emerging market factors that I'd like to discuss. First, several midsize brokers have ceased operations due to evolving market dynamics and poor management of customer acquisition costs. We believe this will lead to less competition for leads and generally for the attention of Medicare consumers during AEP, a potential tailwind for GOHELP. In addition, the seasoned agents entering the market offer us the opportunity to pick up tenured new hires as we ramp for AEP. Second, GOHELP external GPS agents have seen fewer submissions -over-year through Q2. GOHELP partners with several smaller brokers as downlines who leverage our technology platform, health plan relationships, and support teams to operate effectively. These brokers are also experiencing market pressures resulting in lower production. To offset their lower production, we are in the midst of onboarding several new agencies who we expect to meaningfully contribute to GPS submissions to this AEP. Now let me move from market factors to some exciting developments regarding our strategic investments. In the fourth quarter of 2023, we announced the launch of PlanFit Checkup. This innovative service powered by our proprietary AI-driven PlanFit tool is designed to alleviate stress and enhances the experience for consumers shopping for a Medicare Advantage plan. As we have previously shared, PlanFit Checkup delivers three key consumer outcomes. One, enrolling a consumer in a new plan that better suits their needs. Two, informing the consumer about a superior plan even if they choose not to switch. And three, reassuring the consumer that their current plan remains the best option for their needs resulting in no enrollment change. Importantly, GOHELP agents are compensated for completing a PlanFit Checkup regardless of whether the assessment leads to a new enrollment. This ensures that our agents remain focused on providing the best advice and service to our consumers. Based on our launch results, we are well on our way to operationalizing reimbursement for a subset of these PlanFit Checkups in what we call a PlanFit Save with a select few strategic health plan partners. A PlanFit Save is a PlanFit Checkup where our agents reassure the consumer that their current plan remains the best option for their needs resulting in no enrollment change and we help the consumer understand and navigate the benefits of their current plan that are most valuable to them. In this process, we earn compensation for doing the right thing for consumers as well as protecting the existing membership of our health plan partners. This year, we are focusing on streamlining processes and improving call handle times. As part of this effort, we launched Encompass Express, an enhanced consumer-centric model built on the foundation of our original Encompass workflow. Encompass Express includes streamlined scripting and handoffs utilizing tech-driven standardization and automation to deliver efficiency and enhance the consumer experience while maintaining quality. Notably, we have reduced consumer on-phone time by approximately 25% from 90 minutes to 67 minutes. We anticipate these changes will positively impact our financial results more substantively this fall during AAP. We are dedicated to advancing our technology to elevate the consumer experience, boost agent efficiency, and enhance overall quality. Our strategic investments focus on several key areas. First, we are running programs integrating AI and automation into our operation. This initiative aims to streamline processes including agent onboarding, enhance agent efficiency, and deliver more precise data-driven insights to improve the overall consumer experience. One great example of this is how we have deployed AI to support Agent RAM. History has shown us that training and onboarding a new sales agent is a cash drain, given their low initial productivity and long ramp time. We've used conversational AI role play simulations in our agent training program, reducing onboarding time for new agents by 40%. In addition, new agents are now providing double the productivity in the first three months compared to new agents last year. You'll see this efficiency reflected in our AAP results this year. Next, our Customer 360 capabilities empower us to drive essential business insights. For example, we can now track a single consumer across multiple shopping seasons and monitor her progression across all touch points. When a return consumer calls us, we're able to recognize that consumer and auto-populate where we left off the last time we spoke to them, be it five minutes, five months, or five years ago. This memory of the consumer both reinforces the trust built with them that motivated their proactive outreach to us, as well as provides valuable information to the agent to support added effectiveness and efficiency during the call. Keep in mind, on average, 30% of the calls we get each AAP are from consumers we have served before. Additionally, we can analyze the behaviors of repeat consumers versus first-time consumers at Go Health, delivering customized messaging and services to best serve their needs. We continue to be the industry leader in implementing technology and automation, and we believe we are extending that lead. These initiatives are integral to our long-term transformation from a company focused on Medicare enrollment to one that prioritizes continuous engagement with Medicare consumers. This shift aims to build lasting relationships and improve the overall consumer journey in the Medicare landscape. As we prepare for this year's AAP, which begins in 67 days, we are intensifying our targeted marketing efforts to better identify and reach consumers in need of new options. I am proud of our team's innovation and adaptability, which have led to just over 11% improvement in consumer acquisition costs or direct cost per submission, while upholding the integrity of our encompassed workflow and delivering exceptional service. Market dynamics have remained consistent since the last AAP, which are expected to yield lower volume at higher cost until those dynamics change in Q4. Due to the resiliency of the team, we have been able to offset some of these headwinds via operating efficiencies. You can expect us to continue delivering a superior direct cost per submission compared to the industry. We believe a focus on direct cost per submission enables us to effectively manage expenses and investment in a highly regulated industry where benefits change annually, contracting dynamics change annually, and consumer behavior can vary. We remain confident in our performance expectations for 2024 and beyond and continue to be driven by our commitment to transforming the consumer healthcare journey through continuous innovation and strategic foresight. I want to thank our team for their dedication to our values and our stakeholders for their ongoing support and commitment to delivering long-term value. With that, I will turn it to Katie to detail our financial results.
spk01: Thank you, Vijay, and good morning. Our 2024 second quarter performance continues to demonstrate the overall stability and resilience in our business model. Second quarter net revenues were $106 million down from $143 million in the second quarter of 2023, primarily due to a decrease in total submissions compared to the prior year. While our total submissions were down, submissions generated by our internal captive agents increased 14% year over year versus a 33% decline in submissions from our external GPS agents. A combination of enhanced training and technology for our agents, along with more effective marketing efforts, helped drive the submission improvement by our internal captive team. I'd like to touch on the Change Healthcare and CrowdStrike technology incidents and how they've impacted Go Health. We use Change Healthcare to assess Medicaid eligibility for consumers during our enrollment process. The Change Healthcare cyber attack and their subsequent outage affected our ability to enroll some consumers. This incident negatively impacted second quarter revenue by over $7 million and earnings in the quarter by over $6 million. Our teams worked diligently to work around this issue, and the primary result was an increase in submissions under our traditional agency contracts versus our non-agency contracts. We expect to have this issue fully resolved before AAP. The more recent CrowdStrike outage had a minimal impact on Go Health, and we do not expect it to impact our third quarter results. Adjusted EBITDA was negative $12 million for the quarter, a decrease of $13 million from the same period of the prior year. The reduction in revenue and impact from Change Healthcare I noted were partially offset by improvements in our cost structure, represented by a 12% reduction in direct cost per submission. These cost savings were primarily attributable to our targeted marketing efforts, and we continue to gain more efficiency through our investments in our proprietary technology and our operating models. Cashflow use and operations was negative $24 million year to date versus cashflow generated from operations of $31 million in the first half of the prior year. The decrease of $55 million year over year was primarily driven by $14 million of fewer agency and non-agency receipts, an $11 million payment made in March to settle the securities class action litigation, and $11.2 million of interest paid in 2024 that related to the last two months of 2023. As a result of the nearly $60 million paid to our term loan lenders during the quarter, we drew $15 million from our revolving credit facility to fund operations during SEP. As is typical this time of year, we made investments to increase marketing efforts, enhance consumer engagement, and maintain the level of service quality that our Medicare consumers expect. As part of our ongoing efforts to strengthen our financial position and support our growth initiatives, we are actively working to refinance our term loan and revolving credit facility. We have been pleased by the receptiveness and interest thus far. Our goal is to find the right structure and partner to ensure we can execute our long-term strategy. We are assessing numerous options to address the upcoming maturities and look forward to updating you in the coming months. As Jay mentioned, several factors will influence our full year performance, many of which will become clearer during AEP. The evolving market dynamics are expected to result in tailwinds for submissions, revenue, and adjusted EBITDA. However, we expect a -over-year decline in cash flow from operations due to the shift from non-agency revenue. Looking forward, we remain confident in our performance expectations for 2024. I will now turn the call back over to Jay for closing remarks.
spk11: Thank you, Katie. We believe our strategic initiatives, particularly in Compass Express, compensation for -Fit-Saves, and investments in cutting-edge technology such as AI and automation, have not only boosted our operational efficiency, but also enhanced the service quality provided to Medicare consumers and our health plan partners. As I mentioned previously, we operate in a dynamically changing market landscape. However, we believe our nimbleness and resilience as an organization position us well to seize the many opportunities that will arise during this annual enrollment period and beyond. We expect Go Health to continue as a national leader in enrolling consumers in appropriate Medicare Advantage plans for their needs. We are now ready to take your questions.
spk20: Thank you. At this time, we'll conduct a -and-answer session. To ask a question, you'll need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile
spk03: the Q&A roster. Our first question comes from the line of Ben Hendricks of RBC
spk20: Capital Markets. Your line is now open.
spk06: Hey, good morning, guys. Thank you very much. Quick question on going back to the market dynamics. I was wondering if you could provide some more color on your thoughts on what is driving some of the competitor exits and if there are parallels there to the lower submission volume among your external GPS agents. Is that all regulatory or are there other factors? Then maybe a little more detail on how you're positioned to address some of the challenges there and an opportunity that might present ahead of AAP. Thank you.
spk11: Thank you, Ben, for the question. When you're speaking of market dynamics, I'm assuming you're talking about other brokerages and agencies and other entities who are in that shopping experience who have exited that space. That's correct, right, Ben?
spk12: Yes, that's right.
spk11: Thank you. As it relates to that, again, I can't go too far into the details. I don't know all of the reasoning behind it, but what I'll highlight for you is that I think those of us who have been around this industry for a long time understand that it is constantly changing. You've got to have an appetite for understanding what the business is going to be, be able to predict things will continue to change and be prepared for those. That includes investing in efficiency and not always just trying to maximize growth in the current period, but you need to make investments for the future. You have to have conviction in that model. You have to have the ability to deploy the cash to make those investments, and you need to be prepared to work and be nimble within any given enrollment season to do just that. From our observations, there have been other parties who have been challenged by those changing dynamics. Maybe they weren't as focused on just the Medicare population and understanding how that works. They may be part of portfolios within larger organizations where there wasn't patience for what is a very nuanced business that you need to be focused on. Some of the information is around those CACS, cost per acquisition going up for those entities where we've seen nice efficiencies, improvements year over year, because we've thought through those dynamics. Really, I think it's a question about how you deploy your cash, invest, and how you can meet your expectations on a multi-year basis as opposed to trying to maximize what you saw last year, the next year, because the dynamics are always changing. I know that's not a fulsome answer because I just don't know all the details for everybody else, and I don't want to try to presume too much. But as it relates to some of our own downlines, yes, they've had some of those same challenges. Access to their own capital structure, how they market, where they get... how they can support their own agents throughout the course of the year. All of those things are relevant factors as to how they can produce more or less in any given timeframe. Hopefully, that's helpful. Does that work for you,
spk02: Ben? Yes, absolutely.
spk06: Maybe go into a little more detail on how you're approaching this kind of changes in the regulations for 2025, any specific strategies to mitigate negative impacts from regulations and what you're doing there.
spk11: Yeah, and actually, I think I forgot one portion of your question earlier, and it will relate to this as well. As we think about AEP and these competitive dynamics of a lot of the different broker's agencies that aren't going to be there anymore, that have either shut their doors or significantly decreased in size, we believe that's a positive for us because there's less mouth to feed, there's less lead demand, there's less confusing advertising. This is why it's related to the regulatory component of what you described. If you look at the 2025 rule, that's the main thing that's going to stick now, which is the ability to enforce what has been really a lot of bad actors within the lead generation space, to stop reselling consumer leads to multiple parties and leading to that confusion. The reason why those lead generators were able to get away with that, or at least to continue to do that as a business, was because there was so much demand for leads. When we think about the compounding effect of these other brokerages and agencies within the landscape shutting down or no longer operating in the space, that will also help so that we can have more efficiencies in our own lead generation and avoid confusion. I'm hopeful that will lead to better compliance with what CMS has put out in the regulations that we've been compliant with for years. As we think about the overall implications, as we said earlier, all reads are that it's more business as usual for a company like ourselves. The final rule and the marketing rules really had very little implication on us at all anyway. But this just reinforces that there's less confusion and uncertainty amongst health plans as well on their interpretation of the rules that could have been there. Now we're able to really focus on how we can serve as many consumers as possible if we go into AEP.
spk02: Thank you very much. If we could shift over to cap structure and
spk06: your refinancing negotiations, you mentioned you're assessing multiple structures. I wonder if you could give us some more detail on receptivity to those structures. Are you looking at any type of unique securitization of receivables within those negotiations and what are the big sticking points in that? In financing negotiations?
spk11: I think, Ben, let me just start with the fact that we've been working really hard as a company for multiple years to make sure that we're solid and operating well. That's coming through in the conversation we're having about looking at the capital structure of the company and looking at different refinancing options. We're looking at all the different options that are on the table and we've made good progress on all fronts. We're pretty excited about where we stand with it. I won't go too far into that, but I'll say that we wanted to make sure we exhausted all the different potential options for an organization like us and where we are relative to the industry. We're pretty excited about how that's progressing thus far.
spk03: Thank you. One
spk20: moment for our next question. Our next question comes from the line of Pat McCann of Noble Capital Markets. Your line is now open.
spk16: Hey, good morning and thanks for taking my questions. My first question is I wanted to talk a little bit about the agency versus non-agency, just particularly because of the whole lifetime value issue that comes up with agency business. I was wondering if you could maybe give a little more details as to how you consider customer retention when it comes to negotiating agency versus non-agency agreements with the health carriers.
spk11: Pat, good to hear from you. Thanks for the question. This is a really important component to our strategy and has been for a number of years now, which is this dynamic of agency versus non-agency contract structures. As we've said from the beginning, we never expect nor would want to have 100% one way or the other. It's a -by-year decision as to how we think about the market landscape, how we think about the track record of the health plans and their benefit structures by product and population type. Even given with any one carrier you may have or health plan, you might have one agency versus and one non-agency contract. Some health plans, we might do a more exhaustive pre- and post-enrollment relationship on an agency or non-agency basis. There are a lot of different structures that you might put in place. As we think about the market dynamics on a -over-year basis, if you think the pressures that are put in place, when you see market dynamics that health plans are trying to do land grabs and really grow fast and aggressively, you start to think about what does that do on an LTV basis of the tenure of the consumer. A consumer coming in with a very high benefit plan will have a higher probability of benefit coming down versus going up over time. When you reset benefits and you bring the benefits down to a more stable, systematic basis, you're going to have more upward opportunity or stability in those benefit plans. As we think about trajectories, track records of products, we think about in that vein, you may actually be better off staying on an agency contract versus a non-agency contract with certain carriers based upon those dynamics and where we feel those benefits stack up for consumers. As you think about where we were last year, there were some major players. For example, Aetna grabbed a lot of share last year. As you know, they were a big leader in the space. Based upon that structure, we had them on a non-agency contract. You can see that playthrough as being a very good astute view on where the market was, given that Aetna is making a big clawback on their benefits this year, as they've said publicly. We didn't have that tail risk on that business. We were able to continue to serve that population as appropriate. As we look into the coming year, we make decisions as to which plans will be in our marketplace and offer to our consumers based on what we think is going to be best for them and their rankings. I guess what I'm coming down to is if I believe this AEP, if we think about different carriers and what they're doing and thinking about bringing the benefits down to a more stable level to drive their margins, when you write business in that environment, different from even today, when you write in the new AEP with the new benefits that we expect to come out, you should have higher confidence in those cohorts retaining potentially better than historically have. That's how we're starting to think about it, but again, it's plan by plan and it's product by product and population by population, the way we've discussed those, with an emphasis on those health plans to allow us to really serve the consumer in a greater way post-enrollment, because that's where the real service comes on retention and long-term satisfaction.
spk16: Got it. That makes sense. It sounds like the strategy has a lot to do with, of course, your expectations for the upcoming enrollment period, which leads me to my next question, which was just around the financial projections and with the idea that you would have revenue that is relatively flat with some modest margin expansion, I was wondering to what extent does that bake in some of the possible upswings from the upcoming period, given the market dynamics, or to what extent does it conservatively not include considerations for a strong enrollment period upcoming?
spk11: Let me just take you to a couple of things we said in our prepared remarks. One is that when we gave you those qualitative statements for the full year, what was contemplated at that time was the fact that market dynamics we saw last year, lots of shopping with no reason for appropriate switching, would continue till new benefits were released. That would mean that Q1 through Q3 should have been lower than last year because of the market dynamics that were continuing going forward. If you do the math on that with us saying generally flat year over year, you would have seen an upward expectation on the back part of the new benefit plan market dynamics in Q4. Based upon our early reads right now, we're seeing that there are some tailwinds, we believe, based on what we've observed so far. We don't know to the extent that that will be there, but we do believe there are tailwinds on revenue, adjusted EBITDA, and total submission counts, especially given the advancements we've also been making and the early results we feel pretty good about on efficiencies on that direct cost per submission, VR technology, et cetera. The only switch, as we've said, is that we're starting to see that potential decline on agency versus non-agency mix that could impact the cash flow from operations estimate versus last year. That's really the way we think about it right now, is that we do see that on those qualitative top line, bottom line items, we see some positive tailwinds from the market dynamics we're observing right now and expecting to come to safety.
spk20: Thank you, Wong-Wen, for our next question. Our next question comes from Line Up Jim Siddoti of Siddoti & Co. Your line is now open.
spk19: Hi, thanks for taking the questions. If you do have that shift towards agency revenue, do you still expect to be cash flow positive this year, and how do you do that?
spk11: I think it's too early for us to get too far into exactly the extent to which shifts will happen. These are the right ways that we think about setting up our contracts. Again, we design the contracts with our assessment of the product qualities, and we think our extent to which we can serve the consumers the best. Then, whatever those contracts are, year over year, we have a distribution of agency versus non-agency. Depending on which product matches best will determine the extent to which that shift may happen between agency and non-agency. It's too early to tell. I don't want to get you there. All I know is that it's likely not going to be the same distribution of non-agency as we saw last year. Therefore, that would lead to a lower than what we experienced last year in cash flow from operations. Again, they're all for the right reasons. It's the right plan for the consumer, and the way we appropriately decided which contract and or product that we'd prefer to be on agency versus non-agency to deliver the greatest value for us as well, meaning on a revenue and adjusted EBITDA basis, risk adjusted from the way we think about it. I know you're looking for more of a specific answer, but I just think it's a little too early for us to get too far into that till we know more about the details of the benefit distribution in a more precise way, which won't be evident until closer to October. All
spk18: right, Ermin. How
spk19: are you doing with the use of AI to improve efficiency? Are there any... How's that going so far, and do you expect that to continue to improve throughout the year?
spk11: No, I love the question. It's one of the things that has been at the core of what we've been doing for the last couple of years, we talked about Plan Fit, and we really haven't described it in a way that I think the market really has had a chance to understand how unique it really is. When you take the 30 million interactions that we've had and the live interactions we're having every day with consumers and feathering that into how to make the best recommendations for plans, we know, for instance, that when a Plan Fit checkup is done and our proprietary Plan Fit tool uses its logic and AI thinking to really estimate and rank the appropriate, most suitable plans for the consumers, that when we write one of the top plans, it has the highest retention, highest satisfaction for the consumers. So when we start to think again around the agency versus non-agency model, regardless of what type of contract it is, we know that our tools have been designed now to be able to enable the agent to recommend a plan that has the highest probability of the highest tenure and retention value for that consumer because it drives the most customer satisfaction. That's one big place that we've been doing it and continue to develop to do it. We highlighted on the prepared remarks around what we've been doing on our training, which is going to come through in significant efficiencies, this AEP. As we think about the onboarding speed, 40% improvements in that, getting to double the productivity that we saw last year in early phases of the gestation of these agents with us. It's a really important component of how you can give live advance for agents to learn on the fly. So they can do it on their schedule and we can do it on our appropriate timeline in different scenarios. So they're most prepared to serve this population. Given the amount of focus that Health Plans have been putting specifically on wanting to grow within special needs populations, that's where you need the most training to be great. It's what our agents do better than anyone else. It is their ability to anticipate the needs of special needs populations, the unique question about how to access care and be able to resolve and build that trust on the phone. That is what is truly differentiating. And our AI tools have enabled us to do that with training. It's enabling us to do that with high value recommendations, so it drives highest retention. And we're continuing to use that information to figure out how to best anticipate the needs of the consumers and market to them directly and support that effort.
spk20: Thank you. One moment for our next question. Our next question comes from the line of Sandeep Soria of Delaware Street Capital. Your line is now open.
spk04: Hi, this is Sandeep. Can you guys hear me okay? Yes. Good morning, Sandeep.
spk05: Hi. Good morning. Thanks for taking the question. First question was, why did non-agency revenue decline year over year given kind of the shifts and the repositioning of the business? And I have a couple other questions, but I'm going to ask them one at a time.
spk11: Yeah, I think the question on non-agency is one that's really determined on market. Market dynamics. Like we said, there's one big piece, which is market dynamics of which products are most appropriate this year and what are the contracts we have in place. The other piece that Katie highlighted was the dynamic around the change healthcare outage because there are a number of components of things that we need to do in the way we enroll a consumer to be eligible for non-agency compensation with the different health plans. And due to some of the eligibility challenges we had due to the change healthcare outage, it led us to needing to write some of those enrollments or those applications under an agency basis. So there was some shift for that alone, but generally speaking, it really is just a distribution of what consumers came in and which products best match for them. And we don't put our thumb on the scale to push it one way or the other. Really, the consumer's needs and who comes in determines what that split will be. And we are comfortable with those splits because we think those are the best value for us as well if those were to match for the consumer's
spk05: needs. Got it. So the $7 million impact that was highlighted earlier, that could have been more on the non-agency side, but because of the change outage, there was a complete shift to the commission part, commission revenue. Is that the right takeaway? I don't think it's all of it, but I'd say a good portion of it.
spk11: That's a fair assessment.
spk05: Okay, got it. Great. Thanks. And then on the GPS agents, why did they go down? Why did that performance go down? And are those agents shifting to another or an FMO? Are they leaving the industry? Can you give us a little more color on what happened there?
spk11: Yeah, I mean, it's twofold. So one, in any given year, you also always have... Well, let me take a step back and talk about the strategic value of what the Go Partner Solutions, or GPS, is for us. It's a great way for us to get access to high quality variable capacity with no fixed cost expense for those periods of high volume in AEP, OEP, etc., and even through the SEC period as well. So we think it's a unique differentiator for us to do that. We provide them tools, we provide them access to our relationships, insights, training, etc. to do that. And we've had many... We have different agencies of different size that participate in our downline business. And some of them went out of business. Like we said before, they were trying to grow really fast, and they didn't have the cash to really support it, and they didn't have the continued access to capital to make the investments that they needed. And so some of them just went away. Some of them have decided to reprioritize where they want to grow, and what they're going to offer, and what is different. The extent of the volume they're going to devote to this type of product, therefore you can see some differences there. Some will leave on their own and want to go do their own thing, and that's great for them. It could be the right thing for them to do, depending on what size they're at, and that makes a lot of logical sense. But at the same time, we are also onboarding. And we've onboarded, let's call it, up to 10, maybe even more, we might pull into the process by the time we're all done in this AEP, and those will be significant contributors to our volume in that channel. But it's a normal cycle. You'll have ones that come in and go out, but I'll say over the last couple of years, we've seen more that shut down and shut their doors due to all the market dynamics that we've been seeing out there. Some we're seeing a more explicit, the largest scale of some of the players that are shutting it down, and ours are more mid to smaller scale that are participating in our TPS external agent group. Got it.
spk05: Great, thanks. And then when I looked at trailing 12-month submissions, I noticed that obviously the company went through a period of massive growth years ago, and then it was negative growth as the business stabilized, like very negative, and now it's starting to flatten on a trailing 12-month basis, and I believe revenues are as well. How should we think about that? Is that the sign that, like just one of your thoughts when you look at the business on a trailing 12-month basis from a submissions perspective and then also from a revenue perspective?
spk11: No, it's a great question. I really appreciate it, Sandeep, because this is the, what I say is conviction to the business strategies that's really important, is that if, you know, I know everybody wants growth, but you've got to determine what the market allows to drive efficiency and prudence around cash deployment. You can drive your growth if you wanted to, if you want to burn a bunch of cash to go there, and the market will determine how efficient you can be. And so, if you think about the market dynamics we saw last AP on a TTM basis, you're getting a bunch of that, right? The market dynamics that we've already highlighted, in any given marketplace, you can have three scenarios, right, of market dynamics between health plans. You can have a scenario where health plans are all being really aggressive and wanting to grow, and that causes disruption, and that's an efficient market for us to deploy cash and drive submission volumes, etc. The next option is that there's not a lot of investment and benefits. It's kind of a push, and if you care about doing what's only appropriate for the consumer, it's going to be a less efficient market for you. Lots of window shopping, not a lot of appropriate switching. And then finally, you're going to have a market where there's a lot of negative disruption that brings a lot of shoppers in place, and that's a very efficient market. So, what you'd want to see from us is that when we see those dynamics that we've seen since last AP, and that we'll run through the third quarter of this year, that you want us to be prudent in the deployment of cash, because it is not an efficient way to deploy cash to drive growth. You want to be thoughtful about saving that dry powder and being effective when you see the market dynamics coming as we're anticipating in Q4 of this year. But what you have been seeing is over that time, we've been investing in driving efficiencies so that when you do deploy that cash, you're not getting the diseconomies of scale. I think we have a lot of tailwinds around that, given the fewer amounts to feed around lead volume because of industry compression of agents out there trying to sell the stuff in our markets as seniors or Medicare consumers, as well as our deployment of technology to drive efficiency on the operational side. Those two things are preparing us to have a pretty exciting, what we think, AEP with lots of dynamism that really are positive for the Go Health business
spk05: model. Great. Thanks for that, Coller. Last question for me is, how do you think about revenue from PlanFit check? And the secondary follow-up question to PlanFit in the quarter was, I saw that submissions were down about 6%, but PlanFit was, I think you said 125,000, I can't remember. So should I be thinking, oh, if I add submissions to PlanFit, that gives me an idea of the number of engagements that you guys did in the quarter? Walk me through how I should think about both the revenue opportunity for PlanFit and then how I should think about submissions in PlanFit as a metric so I can better understand the underlying business.
spk11: Yeah, Sue, as you think about, and I'm going to try to keep this as organized as possible, but the way you're thinking about it is right. So we have an X number of submissions, or let me take you to the top of funnel. We have a number of consumers that reach out to us who need support in the shopping industry. Of those, we're able to take them through a full PlanFit checkup, right? And that experience can result in those three outcomes that I described before. Either we enroll them a new product that's better for them, we tell them another product is better for them, but they choose they don't want to do anything, or you go all the way to the end and we tell them, hey, you're on the right product. And of that total process, you would take the total submissions plus the number ones that we just gave peace of mind, add them together, and that's the ones that would be generally available. Call it, I think, what, 230,000 or so. We talk about what we did in our internal agent pool this last quarter. And so you say of those, which ones, then you have a distribution of how many get enrolled, and then how many would be eligible potentially for PlanFit day, because you've got to get them through the whole process. Do a full checkup to get eligible for PlanFit day. And then it varies by health plan from there, but the way I think about our business plan, our business plan is to take the top of funnel all the way through. Anybody who's outreached us, how do we get as many of those interactions to add value to the consumer and then be able to generate revenue for us for doing that work? But staying true to, do right for the consumer, and find ways to make it work for everybody. So what's beautiful about PlanFit Save is that when we do that work, we're providing peace of mind to the consumer, we're providing really low cost to no cost retention services for health plan, who invest millions of dollars every year trying to figure out how to engage with that population and keep them retained and satisfied. And we're also able to reorient that consumer so that they can really get the maximum value out of those benefits that made them shopping in the first place. They don't remember what the benefits were, they weren't understanding how to utilize them, we can reorient them at that time. And now we're having the ability to start to get compensated for that work. And that is what you can expect from us. Do the right thing, prove that everybody wins from it, and then find a way to ensure that we are getting revenue or compensated for that work that we're doing in a very symbiotic way. And so that's the way to think about it. Think the top of funnel, all those interactions, we're continuously working to find more and more of that that is going to be able to be compensated for hard work we do. Most of the industry is driving to just conversion, conversion, conversion, convert to a new enrollment. That's the only thing that's triggered compensation in the past. And now we're finding ways from just doing the right thing, we're starting to get compensated for that as well, in addition to appropriately enroll, all doing what's right for the consumer and right for the health plan. So that's what's really exciting about where we're going, what Plan Fit States is opening up. And we're making great progress and have really good demand from the health plan to jump on board to this added element of the reorientation on top of a typical Plan Fit checkup to reengage the consumer with those health
spk20: plans. Thank you. This concludes the question and answer session. I would now like to turn it back to Vijay Kote for closing remarks.
spk11: Thank you all for your attention and participation in today's call. We are very excited about what is there to come. Our team has been working diligently to prepare, not just for this annual enrolling period, but where we're anticipating the needs of the population and the overall Medicare landscape to be for years to come. What you learn if you've been around this business for a while, it's not just a seasonal business, it's a cyclical business. And you need to make investments and prepare for all of that. And we made those investments in Plan Fit checkups last year, and you're seeing the value of that with Plan Fit States as we anticipated the need for health plans to really focus on retention as well as targeted growth. Our tools, our team, our commitment to the consumer is what differentiates us and enables us to be more predictable in these types of changing environments. We stabilize what seems to be a volatile market. And that's exciting, I think, for us, for our consumers, for our team, and for our shareholders. So thank you for your time and your continued interest in our organization.
spk20: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
spk00: Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank
spk20: you. Thank you. Thank you. Good morning, and welcome to Go Health Second Quarter 2024 earnings conference call. My name is Marvin, and I'll be your operator for today's call. Currently, all participants are listen-only mode. Following the prepared marks, we'll conduct a -and-answer session. As a reminder, this conference has been recorded. I'll now turn the call over to John Shea, Vice President of Investing Relations. John, you may begin.
spk17: Thank you, and good morning. Welcome to Go Health Second Quarter 2024 earnings call. Joining me today are Vijay Kote, Chief Executive Officer, and Katie O'Halloran, Interim Chief Financial Officer. Today's conference call contains forward-looking statements based on our current expectations. Numerous known and unknown risks and uncertainties may cause actual results to differ materially from those anticipated or projected in these statements. Many of the factors that will determine future results are beyond the company's ability to control or predict. You should not place undue reliance on any forward-looking statements, and the company undertakes no obligation to update or revise any of these statements, whether due to new information, future events, or otherwise. Earlier today, we issued a press release containing our results for the second quarter of 2024. We have posted the release on the Go Health website under the Investor Relations tab. In conjunction with our forward-looking statements, we encourage you to consider the other risk factors described in our 2023 annual report on Form 10-K and our other filings 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, and the reconciliations are set forth in the press release. I will now turn the call over to Go Health CEO Vijay Kodde.
spk11: Thank you, John, and good morning, everyone. I'd like to begin by sharing commentary on our quarterly performance along with updates on our general business activities and initiatives. In the second quarter of 2024, our internal captive team empowered nearly 525,000 consumers to navigate their Medicare option, utilizing the Plan-Fit Checkup via our proprietary Encompass workflow. Along with supporting over 155,000 new enrollments in Q2, we also provide a peace of mind to over 125,000 consumers confirming their current plan is best for their needs. Our performance during Q2's special enrollment period, or SEP, exceeded our expectations for submissions, revenue, and adjusted EBITDA. While our total submissions were down 6%, submissions generated by our internal captive agents increased 14% -over-year, versus a 33% decline in submissions from our external Go partner solutions or GPS agents. We are particularly pleased with our internal captive results, especially considering the shopping and switching dynamics have remained unchanged since the last annual enrollment period, or AEP, and are not expected to change significantly until Q4 of this year when health plans release new benefits. Due to market dynamics, we anticipated -over-year declines from Q1 through Q3. Our team has managed these expected factors by driving efficiencies and reducing costs. We believe these results show the benefit of our proprietary Encompass workflow and Plan-Fit Checkup process. At Go Health, our mission is to provide support and clarity to Medicare consumers in a landscape often marked by confusion and uncertainty. There are over 65 million Medicare-eligible individuals in the United States, and approximately half of them are enrolled in Medicare Advantage plans. One-third of Medicare consumers live in counties with more than 50 plans available. The abundance of options can be overwhelming. This complexity often deters consumers from shopping for better options because they are unsure who to trust or where to begin. We believe Go Health is the premier resource to empower these individuals to make informed and personal decisions because of our proprietary and objective tools as well as our well-trained tenured agent workforce. We are continuing our evolution from a traditional Medicare enrollment company to a Medicare engagement company, focusing on building high-quality long-term relationships with our consumers. We believe this shift emphasizes a more integrated and interactive approach to consumer care, cementing our unique and vital role in the Medicare landscape. On our last two quarterly calls, we highlighted several market factors that could influence our performance this year. Due to the dynamics of the industry, we expect clarity on the impact of these factors in Q4 once AEP starts. As typical, the market dynamics we observe in the fourth quarter of 2024 for AEP will continue for a full four quarters running through the third quarter of 2025. As a reminder, there are five key market factors. One, the final rate notice on commissions for the 2025 plan year. Two, the final 2025 marketing rule from the Centers for Medicare and Medicaid Services, or CMS. Three, planned product and benefit differentiation between 2024 and 2025. Four, marketing efficiency within this election season. And finally, relative health plan competitiveness and its effect on plan mix. As we become more selective in the health plans we include in our marketplace, this factor impacts sales per submission or revenue per sale and agency versus non-agency revenue distribution. As we report our second quarter results, we have updates regarding these factors. On market factor one, as we previously discussed, CMS issued the final rate notice, which aligns with our expectations for the base commission schedule. The 2025 final rate notice introduced margin pressure for health plans, which we believe will likely lead to benefit disruption and market exits, particularly for non-special needs plans. Major health plans confirm significant upcoming benefit disruption in their Q1 earnings calls. Similarly, we expect on average 20% plus increases in premiums for beneficiaries currently on Medicare supplements. We believe these rate increases and disruption could lead to a significant increase in consumer shopping and switching during the upcoming AEP, presenting a positive opportunity for Go Health's business model. More recently, many health plans had the opportunity to resubmit their bids due to a series of successful lawsuits on StarScore. While this may change AEP's competitive dynamics, we know that many health plans are targeting growth in specific markets and products. Notably, some are focusing on a special needs population, a segment that Go Health is uniquely equipped to attract and serve. These strategies and priorities will vary by health plan and geography, but we believe we are ideally positioned to help plans achieve targeted and measured growth. On market factor two, in April, CMS published the final 2025 marketing rules, addressing independent agent and broker compensation and introducing new guidelines. However, the US District Court in Texas stayed the effective date of the compensation provisions of the rule, and later, CMS acknowledged that because of the court's order, the status quo would be maintained through AEP. As we have already commented, we believe the final rule as published had minimal impact to our business model, but the court order and subsequent CMS guidance confirmed that it is business as usual. The one part of the rule that we expect to be implemented as planned pertains to the restrictions in the new rule surrounding conduct commonly attributed to lead generators. Those restrictions should not affect Go Health because we held ourselves to the standards of the new rule years before the rule was even proposed. And accordingly, we think these restrictions are good for the industry at large to protect consumers from confusing and unintended sales calls. As we contemplate the remaining factors, we are cautiously optimistic about shopping and appropriate switching during AEP. As part of our strategic shift from enrollment to engagement, we believe in building trusted relationships with consumers and putting them in the right plan for their needs. As a reminder, we have always indicated that we plan to have a portfolio of agency and non-agency contracts varying by health plan and product, but MIX would be dependent on the plans most suitable for the consumers we serve. Based on our early reads, though still to be refined based on actual benefit releases later this year, we see a MIX shifting towards contracts with agency arrangements versus non-agency arrangements. The evolving market dynamics are expected to result in tailwinds for submissions, revenue and adjusted EBITDA. However, we expect a -over-year decline in cash flow from operations due to the shift from non-agency revenue. We are committed to supporting the consumers throughout their Medicare journey and believe doing the right thing will ultimately increase engagement and retention. We look forward to providing an update during our November quarterly results call once AP dynamics start to play out. Additionally, there are two emerging market factors that I'd like to discuss. First, several mid-size brokers have ceased operations due to evolving market dynamics and poor management of customer acquisition costs. We believe this will lead to less competition for leads and generally for the attention of Medicare consumers during AP, a potential tailwind for Go Health. In addition, the seasoned agents entering the market offer us the opportunity to pick up tenured new hires as we ramp for AP. Second, Go Health external GPS agents have seen fewer submissions -over-year through Q2. Go Health partners with several smaller brokers as downlines who leverage our technology platform, health plan relationships and support teams to operate effectively. These brokers are also experiencing market pressures resulting in lower production. To offset their lower production, we are in the midst of onboarding several new agencies who we expect to meaningfully contribute to GPS submissions to this AP. Now, let me move from market factors to some exciting developments regarding our strategic investments. In the fourth quarter of 2023, we announced the launch of PlanFit Checkup. This innovative service powered by our proprietary AI-driven PlanFit tool is designed to alleviate stress and enhances the experience for consumers shopping for a Medicare Advantage plan. As we have previously shared, PlanFit Checkup delivers three key consumer outcomes. One, enrolling a consumer in a new plan that better suits their needs. Two, informing the consumer about a superior plan even if they choose not to switch. And three, reassuring the consumer that their current plan remains the best option for their needs resulting in no enrollment change. Importantly, Go Health agents are compensated for completing a PlanFit Checkup regardless of whether the assessment leads to a new enrollment. This ensures that our agents remain focused on providing the best advice and service to our consumers. Based on our launch results, we are well on our way to operationalizing reimbursement for a subset of these PlanFit Checkups in what we call a PlanFit Save with a select few strategic health plan partners. A PlanFit Save is a PlanFit Checkup where our agents reassure the consumer that their current plan remains the best option for their needs resulting in no enrollment change and we help the consumer understand and navigate the benefits of their current plan that are most valuable to them. In this process, we earn compensation for doing the right thing for consumers as well as protecting the existing membership of our health plan partners. This year, we are focusing on streamlining processes and improving call handle time. As part of this effort, we launched Encompass Express, an enhanced consumer-centric model built on the foundation of our original Encompass workflow. Encompass Express includes streamlined scripting and handoffs utilizing tech-driven standardization and automation to deliver efficiency and enhance the consumer experience while maintaining quality. Notably, we have reduced consumer on-phone time by approximately 25% from 90 minutes to 67 minutes. We anticipate these changes will positively impact our financial results more substantively this fall during AAP. We are dedicated to advancing our technology to elevate the consumer experience, boost agent efficiency, and enhance overall quality. Our strategic investments focus on several key areas. First, we are running programs integrating AI and automation into our operation. This initiative aims to streamline processes including agent onboarding, enhance agent efficiency, and deliver more precise, data-driven insights to improve the overall consumer experience. One great example of this is how we have deployed AI to support agent ramp. History has shown us that training and onboarding a new sales agent is a cash drain given their low initial productivity and long ramp time. We've used conversational AI role-play simulations in our agent training program, reducing onboarding time for new agents by 40% In addition, new agents are now providing double the productivity in the first three months compared to new agents last year. You'll see this efficiency reflected in our AAP results this year. Next, our Customer 360 capabilities empower us to drive essential business insights. For example, we can now track a single consumer across multiple shopping seasons and monitor her progression across all touchpoints. When a return consumer calls us, we're able to recognize that consumer and auto-populate where we left off the last time we spoke to them, be it five minutes, five months, or five years ago. This memory of the consumer both reinforces the trust built with them that motivated their proactive outreach to us, as well as provides valuable information to the agent to support added effectiveness and efficiency during the call. Keep in mind, on average, 30% of the calls we get each AAP are from consumers we have served before. Additionally, we can analyze the behaviors of repeat consumers versus first-time consumers at Go Health, delivering customized messaging and services to best serve their needs. We continue to be the industry leader in implementing technology and automation, and we believe we are extending that lead. These initiatives are integral to our long-term transformation from a company focused on Medicare enrollment to one that prioritizes continuous engagement with Medicare consumers. This shift aims to build lasting relationships and improve the overall consumer journey in the Medicare landscape. As we prepare for this year's AAP, which begins in 67 days, we are intensifying our targeted marketing efforts to better identify and reach consumers in need of new options. I am proud of our team's innovation and adaptability, which have led to just over 11% improvement in consumer acquisition costs or direct cost per submission, while upholding the integrity of our encompassed workflow and delivering exceptional service. Market dynamics have remained consistent since the last AAP, which are expected to yield lower volume at higher costs until those dynamics change in Q4. Due to the resiliency of the team, we have been able to offset some of these headwinds via operating efficiencies. You can expect us to continue delivering a superior direct cost per submission compared to the industry. We believe a focus on direct cost per submission enables us to effectively manage expenses and investment in a highly regulated industry where benefits change annually, contracting dynamics change annually, and consumer behavior can vary. We remain confident in our performance expectations for 2024 and beyond and continue to be driven by our commitment to transforming the consumer healthcare journey through continuous innovation and strategic foresight. I want to thank our team for their dedication to our values and our stakeholders for their ongoing support and commitment to delivering long-term value. With that, I will turn it to Katie to detail our financial results.
spk01: Thank you, Vijay, and good morning. Our 2024 second quarter performance continues to demonstrate the overall stability and resilience in our business model. Second quarter net revenues were $106 million down from $143 million in the second quarter of 2023, primarily due to a decrease in total submissions compared to the prior year. While our total submissions were down, submissions generated by our internal captive agents increased 14% year over year versus a 33% decline in submissions from our external GPS agents. A combination of enhanced training and technology for our agents, along with more effective marketing efforts, helped drive the submission improvement by our internal captive team. I'd like to touch on the Change Healthcare and CrowdStrike technology incidents and how they've impacted Go Health. We use Change Healthcare to assess Medicaid eligibility for consumers during our enrollment process. The Change Healthcare cyber attack and their subsequent outage affected our ability to enroll some consumers. This incident negatively impacted second quarter revenue by over $7 million and earnings in the quarter by over $6 million. Our teams worked diligently to work around this issue, and the primary result was an increase in submissions under our traditional agency contracts versus our non-agency contracts. We expect to have this issue fully resolved before AAP. The more recent CrowdStrike outage had a minimal impact on Go Health, and we do not expect it to impact our third quarter results. Adjusted EBITDA was negative $12 million for the quarter, a decrease of $13 million from the same period of the prior year. The reduction in revenue and impact from Change Healthcare I noted were partially offset by improvements in our cost structure, represented by a 12% reduction in direct cost per submission. These cost savings were primarily attributable to our targeted marketing efforts, and we continue to gain more efficiency through our investments in our proprietary technology and our operating model. Cashflow use in operations was negative $24 million year to date versus cashflow generated from operations of $31 million in the first half of the prior year. The decrease of $55 million year over year was primarily driven by $14 million of fewer agency and non-agency receipts, an $11 million payment made in March to settle the securities class action litigation, and $11.2 million of interest paid in 2024 that related to the last two months of 2023. As a result of the nearly $60 million paid to our term loan lenders during the quarter, we drew $15 million from our revolving credit facility to fund operations during SEP. As is typical this time of year, we made investments to increase marketing efforts, enhance consumer engagement, and maintain the level of service quality that our Medicare consumers expect. As part of our ongoing efforts to strengthen our financial position and support our growth initiatives, we are actively working to refinance our term loan and revolving credit facility. We have been pleased by the receptiveness and interest thus far. Our goal is to find the right structure and partner to ensure we can execute our long-term strategy. We are assessing numerous options to address the upcoming maturities and look forward to updating you in the coming months. As Jay mentioned, several factors will influence our full year performance, many of which will become clearer during AEP. The evolving market dynamics are expected to result in tailwinds for submissions, revenue, and adjusted EBITDA. However, we expect a -over-year decline in cash flow from operations due to the shift from non-agency revenue. Looking forward, we remain confident in our performance expectations for 2024. I will now turn the call back over to Jay for closing remarks.
spk11: Thank you, Katie. We believe our strategic initiatives, particularly in Compass Express, compensation for PlanFIT SAVE, and investments in cutting-edge technology such as AI and automation, have not only boosted our operational efficiency, but also enhanced the service quality provided to Medicare consumers and our health plan partners. As I mentioned previously, we operate in a dynamically changing market landscape. However, we believe our nimbleness and resilience as an organization position us well to seize the many opportunities that will arise during this annual enrollment period and beyond. We expect Go Health to continue as a national leader in enrolling consumers in appropriate Medicare Advantage plans for their needs. We're now ready to take your questions.
spk20: Thank you. At this time, we'll conduct a -and-answer session. To ask a question, you'll need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Ben Hendricks of RBC Capital Markets. Your line is now open.
spk06: Hey, good morning, guys. Thank you very much. Quick question on going back to the market dynamics. I was wondering if you could provide some more color on your thoughts on what is driving some of the competitor exits and if there are parallels there to the lower submission volume among your external GPS agents. Is that all regulatory or are there other factors? And then maybe a little more detail on how you're positioned to address some of the challenges there and an opportunity that might present ahead of AAP. Thank you.
spk11: Thank you, Ben, for the question. When you were speaking of market dynamics, I'm assuming you're talking about other brokerages and agencies and other entities who are in that shopping experience who have exited that space. That's correct, right, Ben?
spk12: Yes, that's right.
spk11: Thank you. As it relates to that, again, I can't go too far into the details. I don't know all of the reasons behind it, but what I'll highlight for you is that I think those of us who have been around this industry for a long time understand that it is constantly changing. You've got to have an appetite for understanding what the business is going to be, be able to predict things will continue to change and be prepared for those. And that includes investing in efficiency and not always just trying to maximize growth in the current period, but you need to make investments for the future. You have to have conviction in that model, you have to have the ability to deploy the cash to make those investments, and you need to be prepared to work and be nimble within any given enrollment season to do just that. And from our observations, there have been other parties who have been challenged by those changing dynamics. Maybe they weren't as focused on just the Medicare population and understanding how that works. They may be parts of portfolios within larger organizations where there wasn't patience. For what is a very nuanced business that you need to be focused on. So some of the information is around those CACS, cost per acquisition going up for those entities where we've seen nice efficiencies, improvements year over year, because we've thought through those dynamics. But really, I think it's a question about how you deploy your cash, invest, and how you can meet your expectations on a multi-year basis as opposed to trying to maximize what you saw last year, the next year, because the dynamics are always changing. So I know that's not a fulsome answer because I just don't know all the details for everybody else and I don't want to try to presume too much. But as it relates to some of our own downlines, yes, they've had some of those same challenges. Access to their own capital structure, how they market, where they get, how they can support their own agents throughout the course of the year. All of those things are relevant factors as to how they can produce more or less in any given time frame. Hopefully that's helpful. Does that work for you,
spk02: Ben? Yes, absolutely.
spk06: Maybe go into a little more detail on how you're approaching this, kind of the changes in the regulations for 2025, any specific strategies to mitigate negative impacts from regulations and what you're doing there.
spk11: Yeah, and actually I think I forgot one portion of your question earlier and it will relate to this as well. As we think about AEP and these competitive dynamics of a lot of the different brokers' agencies that aren't going to be there anymore, that have either shut their doors or significantly decreased in size, we believe that's a positive for us because there's less mouth to feed, there's less lead demand, there's less confusing advertising. And this is why it's related to the regulatory component of what you described. If you look at the 2025 rule, that's the main thing that's going to stick now, which is the ability to enforce what has been really a lot of bad actors within the lead generation space, to stop reselling consumer leads to multiple parties and leading to that confusion. And the reason why those lead generators were able to get away with that, or at least to continue to do that as a business, was because there was so much demand for leads. And so when we think about the compounding effect of these other brokerages and agencies within the landscape shutting down or no longer operating in the space, that will also help so that we can have more efficiencies in our own lead generation and avoid confusion. And I'm hopeful that will lead to better compliance with what CMS has put out in the regulations that we've been compliant with for years. As we think about the overall implications, as we said earlier, all reads are that it's more business as usual for a company like ourselves. The final rule and the marketing rules really had very little implication on us at all anyway. But this just reinforces that there's less confusion and uncertainty amongst health plans as well on their interpretation of the rules that could have been there. Now we're able to really focus on how we can serve as many consumers as possible if we go into AEP.
spk02: Thank you very much. If we could shift over to cap structure and
spk06: your refinancing negotiations, you mentioned you were kind of assessing multiple structures. I wonder if you could give us some more detail on kind of receptivity to those structures. Are you looking at any type of unique securitization of receivables within those negotiations and kind of what are the big sticking points in the process of that? In financing negotiations?
spk11: Yeah, I think, Ben, let me just start with the fact that we're... We've been working really hard as a company for multiple years to make sure that we're solid and operating well. And that's coming through in the conversation we're having about looking at the capital structure of the company and looking at different refinancing options. We're looking at all the different options that are on the table and we made good progress on all fronts. And we're pretty excited about where we stand with it. So I won't go too far into that, but I'll say that we wanted to make sure we exhausted all the different potential options for an organization like us and where we are relative to the industry. And so we're pretty excited about how that's progressing thus far.
spk03: Thank you. One moment for our next question.
spk20: Our next question comes from a line of Pat McCann of Noble Capital Markets. Your line is now open.
spk16: Hey, good morning and thanks for taking my questions. My first question is I wanted to talk a little bit about the agency versus non-agency, just particularly because of the whole lifetime value issue that comes up with agency business. So I was wondering if you could maybe give a little more details as to how you consider customer retention when it comes to negotiating agency versus non-agency agreements with the health carriers.
spk11: Pat, good to hear from you. Thanks for the question. This is a really important component to our strategy and has been for a number of years now, which is this dynamic of agency versus non-agency contract structures. And as we've said from the beginning, we never expect nor would want to have 100% one way or the other. And it's a year by year decision as to how we think about the market landscape, how we think about the track record of the health plans and their benefit structures by product and population type. And so even given any one carrier you may have or health plan, you might have one agency versus and one non-agency contract. Some health plans, we might do a more exhaustive pre and post-enrollment relationship on an agency or non-agency basis. So there are a lot of different structures that you might put in place. But as we think about the market dynamics on a year over year basis, as you think the pressures that are put in place, when you see market dynamics that health plans are trying to do land grabs and really grow fast and aggressively, you kind of start to think about what does that do on an LTV basis of the tenure of the consumer. A consumer coming in with a very high benefit plan will have a higher probability of benefits coming down versus going up over time. When you reset benefits and you bring the benefits down to a more stable systematic basis, you're going to have more upward opportunity or stability in those benefit plans. So as we think about trajectories, track records of products, we think about in that vein, you may actually be better off staying on an agency contract versus a non-agency contract with certain carriers based upon those dynamics and where we feel those benefits stack up for consumers. And so as you think about where we were last year, there were some major players. For example, Aetna grabbed a lot of share last year. As you know, they were a big leader in the space. And based upon that structure, we had them on a non-agency contract. And you can see that playthrough as being a very good astute view on where the market was, given that Aetna is making a big clawback on their benefits this year, as they've said publicly. So we didn't have that tail risk on that business. And so we were able to continue to serve that population as appropriate. As we look into the coming year, we make decisions as to which plans will be in our marketplace and offer to our consumers based on what we think is going to be best for them and their rankings, et cetera. So I guess what I'm coming down to is if I believe this AEP, as we think about different carriers and what they're doing and saying about bringing the benefits down to a more stable level to drive their margins, when you write business in that environment, different from even today, when you write in the new AEP with the new benefits that we expect to come out, you should have higher confidence in those cohorts retaining potentially better than historically have. So that's how we're starting to think about it. But again, it's plan by plan, and it's product by product and population by population, the way we've discussed those, with an emphasis on those health plans to allow us to really serve the consumer in a greater way post-enrollment, because that's where the real service comes on retention and long-term satisfaction.
spk16: Got it. That makes sense. And it sounds like the strategy has a lot to do with, of course, your expectations for the upcoming enrollment period, which leads me to my next question, which was just around the financial projections. And with the idea that you would have revenue that is relatively flat with some modest margin expansion, I was wondering to what extent does that bake in some of the possible upswings from the upcoming period, given the market dynamics, or to what extent does it conservatively not include considerations for a strong enrollment period upcoming?
spk11: So let me just take you to a couple of things we said in our prepared remarks. One is that when we gave you those qualitative statements for the full year, what was contemplated at that time was the fact that market dynamics we saw last day, lots of shopping with no reason for appropriate switching, would continue till new benefits were released. So that would mean that Q1 through Q3 should have been lower than last year because of the market dynamics that were continuing going forward. And if you kind of do the math on that with us saying generally flat year over year, you would have seen an upward expectation on the back part of the new benefit plan market dynamics in Q4. Based upon our early reads right now, we're seeing that there are some tailwinds, we believe, based upon what we've observed so far. We don't know to the extent that that will be there, but we do believe there are tailwinds on revenue, adjusted EBITDA, and total submission counts, especially given the advancements we've also been making and the early results we feel pretty good about on efficiencies on that direct cost per submission, VR technology, etc. So the only switch, as we've said, is that we're starting to see that potential decline on agency versus non-agency mix that could impact the cash flow from operations estimates versus last year. But that's really the way we think about it right now, is that we do see that on those qualitative top line, bottom line items, we see some positive tailwinds from the market dynamics we're observing right now and expecting to come to safety.
spk03: Thank
spk20: you, Wilmot, for our next question. Our next question comes from Line Up Jim Sartori of Sartori & Co. Your line is now open.
spk19: Hi, thanks for taking the questions. So if you do have that shift towards agency revenue, do you still expect to be cash flow positive this year, and how do you do that?
spk11: Well, so let's... I think it's too early for us to get too far into exactly the extent to which shifts will happen. These are the right ways that we think about setting up our contracts. Again, we design the contracts with our assessment of the product qualities and we think our extent to which we can serve the consumers the best. And then whatever those contracts are, year over year, we have a distribution of agency versus non-agency. And depending on which product matches best, we'll determine the extent to which that shift may happen between agency and non-agency. So it's just... It's too early to tell. I don't want to get you there. All I know is that it's likely not going to be the same distribution of non-agency as we saw last year. And therefore, that would lead to a lower than what we experienced last year in cash flow from operations. But again, they're all for the right reasons. It's the right plan for the consumer and the way we, you know, appropriately decided which contracts and or product that we prefer to be on agency versus non-agency to deliver the greatest value for us as well, right? Meaning on a revenue and adjusted EBITDA basis, risk adjusted from the way we think about it. So I know you're looking for more of a specific answer, but I just think it's a little too early for us to get too far into that till we know more about the details of the benefit distribution in a more precise way, which won't be evident until closer to October.
spk18: All right, Eamon.
spk19: How are you doing with the use of AI to improve efficiency? You know, are there any... You know, how's that going so far? And do you expect that to continue to improve throughout the year?
spk11: No, I love the question. It's one of the things that has been at the core of what we've been doing for the last couple of years, we talked about Plan Fit. And we really haven't described it in a way that I think the market really has had a chance to understand how unique it really is. When you take the 30 million interactions that we've had and the live interactions we're having every day with consumers and feathering that into how to make the best recommendations for plans, we know, for instance, that when a Plan Fit checkup is done and our proprietary Plan Fit tool uses its logic and AI thinking to really estimate a rank of appropriate, most suitable plans for the consumers, that when we write one of the top plans, it has the highest retention, highest satisfaction for the consumers. So when we start to think again around the agency versus non-agency model, regardless of what type of contract it is, we know that our tools have been designed now to be able to enable the agent to recommend a plan that has the highest probability of the highest tenure and retention value for that consumer because it drives the most customer satisfaction. That's one big place that we've been doing it and continue to develop to do it. We highlighted on the prepared remarks around what we've been doing on training, which is going to come through in significant efficiencies, this AEP. As we think about the onboarding speed, 40% improvements in that, getting to double the productivity that we saw last year in early phases of the gestation of these agents with us. It's a really important component of how you can give live advice for agents to learn on the fly and so they can do it on their schedule and we can do it on our appropriate timeline in different scenarios so they're most prepared to serve this population. Given the amount of focus that Health Plans have been putting specifically on wanting to grow within special needs populations, that's where you need the most training to be great. It's what our agents do better than anyone else. It is their ability to anticipate the needs of special needs populations, the unique question about how to access care and be able to resolve and build that trust on the phone. That is what is truly differentiating and our AI tools have enabled us to do that with training. It's enabling us to do that with high value recommendations so it drives highest retention. We're continuing to use that information to figure out how to best anticipate the needs of the consumers and market to them directly and support that effort.
spk20: Thank you. One moment for our next question. Our next question comes from the line of Sandeep Soria of Delaware Street Capital. Your line is now open.
spk04: Hi, this is Sandeep. Can you guys hear me okay? Yes. Good morning, Sandeep.
spk05: Hi, good morning. Thanks for taking the question. First question was, why did non-agency revenue decline year over year given the shifts and the repositioning of the business? I have a couple of other questions that I'm going to ask them one at a time.
spk11: I think the question on non-agency is one that's really determined on market dynamics. Like we said, there's one big piece which is market dynamics of which products are most appropriate this year and what are the contracts we have in place. The other piece that Katie highlighted was the dynamic around the change healthcare outage because there are a number of components of things that we need to do in the way we enroll a consumer to be eligible for non-agency compensation with the different health plans. Due to some of the eligibility challenges we had due to the change healthcare outage, it led us to needing to write some of those enrollments or those applications under an agency basis. There was some shift for that alone, but generally speaking, it really is just a distribution of what consumers came in and which products best match for them. We don't put our thumb on the scale to push it one way or the other. Really, the consumer's needs and who comes in determines what that split will be. We are comfortable with those splits because we think those are the best value for us as well if those were to match for the consumer's
spk05: needs. Got it. The $7 million impact that was highlighted earlier, that could have been more on the non-agency side, but because of the change outage, there was a complete shift to the commission part, commission revenue. Is that the right takeaway? I don't think it's all of it, but I'd say a good portion of it.
spk11: That's a fair assessment.
spk05: Okay, got it. Great. Thanks. Then on the GPS agents, why did they go down? Why did that performance go down? Are those agents shifting to another or an FMO? Are they leaving the industry? Can you give us a little more color on what happened there?
spk11: Yes, it's twofold. One, in any given year, you also always have... Let me take a step back and talk about the strategic value of what the Go Partner Solutions or GPS is for us. It's a great way for us to get access to high quality variable capacity with no fixed cost expense for those periods of high volume in AEP, OEP, et cetera, and even through the SEC period as well. We think it's a unique differentiator for us to do that. We provide them tools, we provide them access to our relationships, insights, training, et cetera, to do that. We have agencies of different size that participate in our downline business. Some of them went out of business. Like we said before, they were trying to grow really fast and they didn't have the cash to really support it and they didn't have the continued access to capital to make the investments that they needed. Some of them just went away. Some of them have decided to reprioritize where they want to grow and what they're going to offer and what is different. They extend the volume they're going to devote to this product. Therefore, you can see some differences there. Some will leave on their own and want to go do their own thing and that's great for them. It could be the right thing for them to do depending on what size they're at and that makes a lot of logical sense. At the same time, we are also onboarding. We've onboarded, let's call it, up to 10, maybe even more, we might pull into the process by the time we're all done in this AAP and those will be significant contributors to our volume in that channel. It's a normal cycle. You'll have one to come in and go out, but I'll say over the last couple of years, we've seen more that shut down and shut their doors due to all the market dynamics that we've been seeing out there. Some we're seeing a more explicit of the largest scale of some of the players that are shutting it down and ours are more mid to smaller scale that are participating in our TTS external agent group. Got it.
spk05: Great. Thanks. Then when I looked at trailing 12-month submissions, I noticed that obviously the company went through a period of massive growth years ago and then it was negative growth as the business stabilized, very negative. Now it's starting to flatten on a trailing 12-month basis and I believe revenues are as well. How should we think about that? Is that the sign that... I'm just wondering your thoughts when you look at the business on a trailing 12-month basis from a submissions perspective and then also from a revenue perspective.
spk11: No, it's a great question. I really appreciate it, Sandeep, because this is the... What I say is conviction to the business strategies that's really important is that if... I know everybody wants growth, but you've got to determine what the market allows to drive efficiency and prudence around cash deployment. You can drive your growth if you wanted to, if you want to burn a bunch of cash to go there and the market will determine how efficient you can be. As you think about the market dynamics we saw last AP on a TTM basis, you're getting a bunch of that. The market dynamics that we've already highlighted, in any given marketplace, you can have three scenarios of market dynamics between health plans. You can have a scenario where health plans are all being really aggressive and wanting to grow and that causes disruption and that's an efficient market for us to deploy cash and drive submission volumes, etc. The next option is that there's not a lot of investment and benefits. It's a push and if you care about doing what's only appropriate for the consumer, it's going to be a less efficient market for you. Lots of window shopping, not a lot of appropriate switching. Finally, you're going to have a market where there's a lot of negative disruption that brings a lot of shoppers in place and that's a very efficient market. What you'd want to see from us is that when we see those dynamics that we've seen since last AP and that will run through the third quarter of this year, that you want us to be prudent in the deployment of cash because it is not an efficient way to deploy cash to drive growth. You want to be thoughtful about saving that dry powder and being effective when you see the market dynamics coming as we're anticipating Q4 this year. What you have been seeing is over that time, we've been investing in driving efficiencies so that when you do deploy that cash, you're not getting the diseconomies of scale. I think we have a lot of tailwinds around that given the fewer amounts to feed around lead volume because of industry compression of agents out there trying to sell this stuff or market to seniors or Medicare consumers, as well as our deployment of technology drive efficiency on the operational side. Those two things are preparing us to have a pretty exciting, what we think, AEP with lots of dynamism that really are positive for the Go Health business
spk05: model. Great. Thanks for that, Kaller. Last question for me is, how do you think about revenue from PlanFit check? The secondary follow-up question to PlanFit in the quarter was, I saw that submissions were down about 6%, but PlanFit was, I think you said 125,000, I can't remember. Should I be thinking, if I add submissions to PlanFit, that gives me an idea of the number of engagements that you guys did in the quarter? Walk me through how I should think about both the revenue opportunity for PlanFit and then how I should think about submissions in PlanFit as a metric so I can better understand the underlying business.
spk11: Yes, Sue, as you think about... I'm going to try to keep this as organized as possible, but the way you're thinking about it is right. We have X number of submissions, or let me take you to the top of the funnel. We have a number of consumers that reach out to us who need support in the shopping experience. Of those, we're able to take them through a full PlanFit checkup. That experience can result in those three outcomes that I described before. Either we enroll them in a new product that's better for them, we tell them another product is better for them but they choose they don't want to do anything, or you go all the way to the end and we tell them, hey, you're on the right product. Of that total process, you would take the total submissions plus the number ones that we just gave peace of mind, add them together, and that's the ones that would be generally available. Call it, I think, what's 230,000 or so. We talk about what we did in our internal agent pool this last quarter. You would say of those, which ones... Then you have a distribution of how many get enrolled and then how many would be eligible potentially for PlanFit today because you've got to get them through the whole process. Do a full checkup to get eligible for PlanFit Save. Then it varies by health plan from there, but the way I think about our business plan, our business plan is to take the top of funnel all the way through. Anybody who's outreached us, how do we get as many of those interactions to add value to the consumer and then be able to generate revenue for us for doing that work? But staying true to do right for the consumer and find ways to make it work for everybody. What's beautiful about PlanFit Save is that when we do that work, we're providing peace of mind to the consumer, we're providing really low cost to no cost retention services for health plan. Who invest millions of dollars every year trying to figure out how to engage with that population and keep them retained and satisfied. We're also able to reorient that consumer so that they can really get the maximum value out of those benefits that made them shopping in the first place. They don't remember what the benefits were. They weren't understanding how to utilize them. We can reorient them at that time. Now we're having the ability to start to get compensated for that work. That is what you can expect from us. Do the right thing, prove that everybody wins from it, and then find a way to ensure that we are getting revenue or compensated for that work that we're doing in a very symbiotic way. That's the way to think about it. Think the top of funnel, all those interactions. We're continuously working to find more and more of that that is going to be able to be compensated for hard work we do. Most of the industry is driving to just conversion, conversion, conversion. Convert to a new enrollment. That's the only thing that's triggered compensation in the past. Now we're finding ways from just doing the right thing. We're starting to get compensated for that as well, in addition to appropriately enrolling. All doing what's right for the consumer and right for the health plan. That's what's really exciting about where we're going, what Plan Fit States is opening up. We're making great progress and have really good demand from the health plan to jump on board to this added element of the reorientation on top of a typical Plan Fit checkup to reengage the consumer with those health
spk20: plans. Thank you. This concludes the question and answer session. I would now like to turn it back to Vijay Kote for closing remarks.
spk11: Thank you all for your attention and participation in today's call. We are very excited about what is there to come. Our team has been working diligently to prepare, not just for this annual enrolling period, but where we're anticipating the needs of the population and the overall Medicare landscape to be for years to come. What you learn if you've been around this business for a while, it's not just a seasonal business, it's a cyclical business. You need to make investments and prepare for all of that. We made those investments in Plan Fit checkups last year, and you're seeing the value of that with Plan Fit States as we anticipated the need for health plans to really focus on retention as well as targeted growth. Our tools, our team, our commitment to the consumer is what differentiates us and enables us to be more predictable in these types of changing environments. We stabilize what seems to be a volatile market, and that's exciting, I think, for us, for our consumers, for our team, and for our shareholders. Thank you for your time and your continued interest in our organization.
spk20: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Disclaimer