Good day and thank you for standing by. Welcome to the GoHealth's Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer I would now like to hand the conference over to your speaker today, Jay Koval, VP of Investor Relations. Please go ahead.
Thank you, Joelle, and good afternoon, everyone. I want to thank each of you for joining GoHealth's Q2 2021 earnings call. Joining me today are Clint Jones, Co Founder and Chief Executive Officer and Travis Matthesen, Chief Financial Officer. This afternoon's conference call contains forward looking statements based on our current expectations. Numerous risks Certain 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 any of these statements whether due to new information, future events or otherwise. After the market closed today, we issued a press release containing our results for the Q2 of fiscal 2021. In addition to presentation materials that Clint and Travis In the press release, we have listed a number of risk factors that you should consider in conjunction with our forward looking statements. Other significant risk factors are described in our Form 10 ks and 10 and Review reports filed with the Securities and Exchange Commission.
During this call, we will be discussing certain non GAAP financial measures. These measures, a reconciliation to the most directly comparable GAAP financial measures and the reason management believes they provide And with that, I'd like to turn the call over to Clint.
Thanks, Jay, and thanks for joining us to discuss our Q2 year to date 2021 results. I'll start with some highlights from the quarter as well as update you on our revised outlook for 2021. Travis will then cover the financials in more detail Slide 4 highlights the strong top line results we delivered during the Q2. 2nd quarter net revenue grew 55%, A modest acceleration compared to the Q1, driving year to date growth of 50%. These results are towards the high end of our expectations, enabled by the strong progress we have made increasing our agent capacity, turning well above our 50% growth targets for the year.
Executing on our agent headcount investment, combined with powerful internal marketing positions us well to drive strong momentum over the balance of the year and into 2022, allowing us to tighten our 2021 revenue outlook to a range of $1,200,000,000 to $1,300,000,000 Our internal Medicare business continues to fuel our results With growth of 84% in the 2nd quarter and 74% year to date, as our leading choice platform is driving strong share gains in a growing Medicare market. Year to date Medicare Advantage carrier approved submissions increased 52% to 324,000 And LTVs grew 11% as there are ongoing investments in Telecare and prior expansion of our carrier footprint continue to drive higher quality Our Encompass platform delivered $17,000,000 of incremental LTV revenue by providing value added services beyond enrollment, and positioning us as a leading digital health company. Slide 5 walks through the solid progress we're making towards The planned investments in our agents, training and technology against a backdrop of strong consumer demand from seniors for our voice platform to compare and enroll in plans. As you recall, we experienced significant agent supply constraints during last year's and these 2021 investments to drive high volumes over the coming years while maintaining excellent quality for our carrier partners.
First, we are on track to grow our agent count by over 50% this year. CC and E grew 118% in the 2nd quarter due to significant investments in our infrastructure and agent count. Costs per agent are running ahead of expectations given the unusually tight labor markets, which are driving both higher attrition rates for new agents and higher cost to recruit and train them. This has driven revised expectations for CC and E to grow roughly 80% for the full year or an additional $50,000,000 compared to our original plan. Revenue upside from these new agents will be limited in the near term by the length and training modules, including the sector wide focus on quality and compliance.
And while we experienced a higher level of unproductive agent hours during the 2nd quarter that will continue into the Q3. We expect the associated training and quality initiatives driving these unproductive hours generating strong returns during this year's ADP and into 2022. 2nd, our technology investments are positioning us for efficiency gains. This includes enhanced lead scoring and routing to provide our specialized agents with the decision support technology needed to enroll consumers in the right plan from day 1 with a high degree of conviction, as well as investing in tools for our Telecare agents to execute our encompass initiatives. First half technology investments more than doubled last year's levels, supporting conversion gains for new agents hired in 2021 versus those hired in 2020.
And third, our Encompass platform and GoHealth brand investments are also on track. We are focused on becoming the trusted advisor to help seniors navigate their healthcare journey and drive better health outcomes. TeleCare powers our encompass platform Our marketing team has been hard at work diversifying our lead generation efforts to optimize the returns from our spend as we build the GoHealth brand among consumers. Slide 6 summarizes our revised full year outlook, where we tightened our revenue expectations for 2021, given our leadership position and strong progress towards our full year strategic priorities. These revenue gains will require more investment than originally planned Due to the pandemic related tight labor markets, as we look to ensure we can meet anticipated demand while improving the member experience.
We expect long lasting gains as this agent base will create a foundation of the talent needed for future years of efficient growth. Our new adjusted EBITDA range for fiscal 2021 is $300,000,000 to $330,000,000 driven by the higher than anticipated CC and E expenses. This resulted in an EBITDA margin of 25% after incorporating these upfront investments in carrying costs as agents ramp into 2022. With that quick intro, let me pass the call over to Travis to run through our results in more detail. Travis?
Thanks, Clint. Slide 8 looks at our 2nd quarter and year
to date top line results.
The robust trends in our Medicare business drove 53% commissionable growth in the quarter, towards the high end of our expectations and 54% for the first half. Year to date Medicare commissions were fueled by the combination of 52% growth in carrier approved Medicare Advantage submissions and 11% LTV Total revenue grew 50% during the first half to $401,000,000 including enterprise revenue of 80,000,000 Slide 9 highlights the high rates of revenue growth our Medicare internal team is delivering, with 84% growth during the 2nd quarter 74% year to date. Our sector is not only healthy, but also growing at one of the fastest rates we have seen with roughly 10% volume gains expected this year as carriers continue to reinvest in the value of their Medicare Advantage offerings as well as mid single digit commission growth in 20212022. Medicare External, which is powered by small and midsized agencies Operating under our carrier agreements, compliance and technology platform saw revenue gains of 24% year to date. ISP, our under-sixty five business, declined 57% given our reallocation towards the faster growing and higher margin Medicare business.
Driving strong submission growth with improving LTVs is a testament to the quality of our marketplace as our tech enabled agents help consumers find the best fit policy for them. Slide 10 examines the drivers of the LTV gains and overall quality that GoHealth has been delivering for carrier partners over the last 5 quarters. These LTV gains are the result of large investments we made over a year ago in our TeleCare team and Encompass offerings, along with our expanded carrier footprint, all of which improve an already great platform. Carriers are increasingly focused on the quality of enrollments from the e broker channel, and we believe we are LTV increases over the last year have been driven by the persistency gains that our TeleCare team is driving through our consumer engagement strategy as well as additional revenue from administering services for carrier partners under our Encompass platform. We delivered $17,000,000 of Encompass revenue, contributing to our first half LTV gains, and we believe that our accelerated investment in Encompass Infrastructure positions us for future gains as we expand our services and carrier reach.
Slide 11 highlights our focus on maximizing revenue per submission, demonstrating the benefits of our unique carrier and partner relationships. This slide highlights the 16% growth for the first half to $11.28 and it includes commissions, enterprise revenue as well as our Encompass revenue. As a reminder, we collect cash for enterprise and Encompass services quicker than commissions, which further improves an already rapid payback period. We are moving thoughtfully to lengthen our lead at commercializing our Encompass programs, and we have a proven track record of over delivering for our growing network of partners. We have been encouraged by the carrier and partner response and believe Encompass positions us well over the coming years as we help partners improve the effectiveness programs beyond enrollment, positively impacting our carrier long term profitability as we leverage our position in the value chain to deliver results.
We are progressing well on our 2021 investments, positioning us for a strong AEP as well as continued success into 2020 Slide 12 walks through the year to date EBITDA and revised outlook for 2021, driven primarily by the higher CC and E costs resulting from broader labor market challenges. As Clint mentioned, we are tracking ahead of plan to grow our agent count by over 50%. Unfortunately, unusually tight labor markets have created multiple cost pressures, particularly for a successful high growth company like That is rapidly expanding our workforce. Competition for workers is as tight as ever, creating higher recruitment and retention costs, not to mention the costs associated with agent attrition. Given the larger than expected new agent attrition as well as lower productivity from new agents as they ramp, We have decided to hire additional agents during the Q3 and now expect CC and E expense to increase by over 80% for the full year were roughly $50,000,000 more than in our prior outlook.
Even at these elevated levels, we can drive strong returns on these new agent investments as they prepare us well for the most important part of our year, AEP, when we expect to benefit through higher answer rates, conversion and favorable quality. And of course, these agents will help drive continued growth into 2022 as we start the year with a significantly higher count than we entered 2021. Moving down the P and L. Marketing and advertising spend combined with cost of revenue grew in line with our expectations. Combined costs were up 55% year to date, roughly in line with total revenue growth of 50%.
Our marketing team continues We tightened our 2021 revenue outlook to a range of $1,200,000,000 to $1,300,000,000 given our strong top line momentum, while reducing EBITDA expectations to account for the higher CC and E costs. While we believe the higher labor costs will prove to be temporary, We have modeled in that they persist over the balance of 2021, driving our new adjusted EBITDA range of $300,000,000 to 330,000,000 at a 25% margin. We expect strong top line momentum to continue into the back half of the year And elevated 3rd quarter CC and E costs will likely result in breakeven EBITDA for the quarter. We then expect to deliver solid operating leverage into the Q4 on the heels of these investments. Our plan anticipates continued strong revenue gains powered by our agent growth and marketing capabilities, as well as improvements in efficiency at capturing opportunities.
We won't need a big year over year increase in the number of qualified leads to hit our numbers, but rather we are working towards better capitalizing on delivered opportunities through higher answer rates and increased conversion, which will improve our efficiency. Slide 15 highlights our strong up 75% over the comparable period from a year ago. Our capital structure and overall financial position is also With $113,000,000 of cash on hand. This is in addition to our upsized revolver of $200,000,000 all untapped and the refinancing of the majority of our term loans to drive annualized cash interest cost savings of over 7,000,000 As we build out our membership base, we have great access to inexpensive debt financing to continue to grow our book of business over the coming years, positioning us to generate strong cash flow, excluding the variable costs associated with driving high growth, as well as the Significant opportunity to monetize our consumer base through our Encompass platform. With that, let me now turn the call back over to Clint.
Thanks, Travis. Slide 17 revisits the strategy behind our Encompass initiatives as we look for additional ways to monetize a rapidly growing customer base and drive First, we are uniquely positioned to help GoHealth members better navigate their healthcare journey and improve health outcomes. 2nd, we enable carriers to improve their key financial and quality metrics by better understanding their customers' needs. And third, we advocate for consumers and connect them with high quality care delivery partners that further support the goals of consumers and carriers. We believe there is a significant market opportunity to expand GoHealth's downstream capabilities and are very excited about the infrastructure we are building to Additional revenue opportunities in very attractive markets, as evidenced by our $17,000,000 in Encompass revenue during the 1st 6 months of the year.
Slide 18 highlights the last 20 years of evolution in GoHealth's strategy to drive sustained growth, including our Encompass platform. As we reflect back on our 1st year in the public markets, the global pandemic created an ever changing environment that we continue to navigate by remaining true to our mission of Our marketplace platform and agent assisted model enabled us to provide education, choice and transparency to seniors in a fast growing Medicare market. As we look ahead, our strategy to maximize returns for shareholders is straightforward. We operate as a trusted advisor for seniors, helping them compare Medicare options and enroll in the best plan from the comfort and safety of their home versus traditional distribution model. In the In the process, we help carrier partners add high quality members, creating enormous value for them while rapidly scaling our customer base.
We use proprietary technology and data throughout every step of the process to optimize the experience, efficiency and profitability of the member. This drives efficiencies through our fully integrated technology platform, capturing data to optimize LTV to CAC and cash payback periods. We are moving far beyond the $30,000,000,000 inimitable market opportunity through our Encompass platform. 2021 investments in our agents, technology and brand should position us for sustained top and bottom line growth over the coming years with fast cash payback periods. These investments are consistent with our long term approach for shareholder value creation that has driven sustained high rates of growth since we launched the company in 2,001 by successfully navigating an ever changing environment and solving problems for customers and partners.
We have executed well over the last 2 decades and have never been more excited about the future as we operate in a fast growing industry with great underlying economics. Our first half momentum positions us well to deliver over 40% revenue growth at the mid Including LTV increases powered by the investments we are making and our 2021 key initiatives will improve an already great business model that creates the foundation for a multiyear period of strong growth and returns for shareholders. Joelle, we'd now like to open up the call to questions. Thank
you. Please standby while we compile the Q and A roster. Our first question comes from Michael Cherny with Bank of America. Your line is open.
Good afternoon. Thanks for taking the question. Travis, I just want to make sure I heard right Quickly, on EBITDA and EBITDA progression, you said 3Q is supposed to be close to breakeven on just the EBITDA. Is that correct? That is correct.
Okay, perfect. Then just thinking a little bit more about EBITDA and EBITDA dynamics, when you think through the Strength you've had in terms of the commission performance year to date versus the hiring components, at what point does the trade off changed a little bit on that front. And at what point does it make more sense to leverage the resources you have versus the growth you have, maybe give up a little bit of growth? I'm just trying to give a little bit of balance on the fact that the KPIs that appear to be the most important came in particularly strong. And obviously, the guidance And the spend level versus what you initially anticipated is coming under pressure.
So how do you think about that decision on the increased spend the returns you're looking to generate to make sure that that spend is being proven to be effective?
Yes, Mike, this is Clint. Great question. So We're we see a continued large market opportunity here that's not just in 2021. So I think we want to make that The investments we're making and we've set out to make earlier in this year, we're not just about 2021, but as we think about the future of the business. The growth we've seen thus far has been strong, and we're going to continue making these investments and bringing those agents up to speed.
So we are prepared not only for this AEP to maximize the opportunity there, but as we think about 2022 and beyond, the investments have really good payoff periods.
And I guess along those lines, just one more follow-up on that thread. You talked about CC and E being the biggest component of Spend increases. Is there any other way you can parse out the rest in terms of bridging the delta between the previous EBITDA guidance to the new EBITDA guidance? And What else changed? What else was dropped down from revenue that actually might be upside?
Just give us a sense besides CC and E what's moving around?
Yes. Travis, do you want to take that?
Yes. So Mike, as we mentioned, CC and E is the biggest driver and just kind of unpack that a little bit. Think about structural investments Making up roughly 20% of that $50,000,000 as we've invested in training and onboarding and the infrastructure of our increased agents, The remaining 80% are really directly linked to both the agent attrition and agent ramp expenses, we've incurred this year, specifically the And so we are continuing to make investments in those agents to ensure that we'll have the agent capacity to handle consumer demand in AEP this year because as you recall, we were agent constrained in Q4 of 2020 and based off of the market dynamics Clint alluded to, We're ensuring that we have that agent force to handle the demand projected this upcoming AEP.
Great. Thanks.
Thank you. Our next question comes from Elizabeth Anderson with Evercore. Your line is open.
Hi, guys. Thanks for the question. I wanted to go back to the year over year LTV increase. Obviously, that seems slowing growth just in terms of the core business ex Encompass?
Yes. Elizabeth, This is Clint. I'll start. You're absolutely right. We saw strong Encompass momentum this year that we've been investing in Throughout this year and into last year as well that we're seeing the payoffs there.
I'll let Travis talk about the core trends we've seen in But you think about year to date up 11% overall, which we're proud of and we'll continue focusing on that. And Travis, you want to add anything to
Sure. I would just echo what Clint said. 1st and foremost, Encompass continues to power growth there, which we're excited See, I think as we've mentioned on other calls, there's some moving parts that goes into LTV, specifically carrier mix and consumer mix, And we've continued to diversify our carrier mix year over year. And as you think about some of the enrollments and just some of the things that occurred in Q2 of last year With the big kind of the big movement with COVID, Q2 of last year, creates kind of a unique comp when you think about the consumers we enrolled And the 11% that Clint mentioned is much more kind of indicative of the overall trends and expectations we're seeing here on a year to date basis.
Okay. That's helpful. And maybe if you guys could comment on the marketing and advertising spend. What are sort of the trends that you're generally seeing there in terms of sort of channels and pricing more broadly?
Yes. Good question. So we've been positive, what we've seen thus far this year. Our marketing team has done a fantastic job Diversifying the efforts in the different channels we are playing in and testing. And we continue to see strong, strong demand.
I think as we think about the remainder of this year and COVID doesn't seem to be going away, there's a lot of conversations about the Delta variant, which we think will continue to drive Accelerated consumers to our platform as they think about enrolling kind of shopping comparing enrolling in plans out of the safety of their home. So really excited about that as we get into AEP. And our clear focus right now is on the agent force, Right. So we're in a situation where we have a strong agent for us to support that strong demand of consumers coming in.
Got it. Okay. Thank you very much.
Thank you. Our next question comes from Tobey Sommer with Truist Securities. Your line is open.
Hey, good evening, everyone. This is Jasper Bibb on for Toby. I was just hoping you could comment on what the higher agent costs And faster growth in MA mean for cash burn this year? And does that change your thinking around not needing to do a capital raise At least this year.
Travis, do you want to take that?
Sure. So you're exactly right. The investments that we're making in CC and E will increase and drive lower cash flows here in the current year. I think as you think about kind of long term, right, The investments that we're making in agents will create a larger membership base for us and larger revenue We'll begin to collect those commissions on as early as Q1 of next year when we get the kind of that 1st year advances as well as collecting on the renewals of our previous vintages. And so from where we sit, we still feel very confident both in our cash position and capital structure Our contract value asset and our continued growth gives us the ability for really, really favorable debt financing as evidenced By the refinancing that we did earlier this quarter.
And so again, we'll continue to be thoughtful about growth rates and the impact on cash flow. But again, as Clint We see a great opportunity with a lot of consumers moving towards our marketplace that we're excited to execute and capitalize on this upcoming AEP.
Thanks. And then just the enterprise revenue guide was unchanged. I think the initial $200,000,000 target you had was mostly work you had in backlog starting the year. So does leaving that unchanged just mean you aren't seeing the same interest in projects you had in 3Q last year or can you update us there?
You're exactly right. Enterprise revenue remains unchanged. The bulk of that is seasonal similar when we see commissions relating around AEP. And again, our focus with the agent ramp has been really delivering on our carrier choice platform Where we're able to offer choice to our consumers and that's where the bulk of our investments have been made.
Okay. Appreciate the color. Thanks guys.
Thank you. Our next question comes from Lauren Schenck with Morgan Stanley. Your line is open.
Hi, this is Nathan Felder on for Lauren. Thanks for taking my question. Can you just talk about what your That guide assumes for labor tightness through the rest of the year. And when do you anticipate those additional costs from agent churn and training to come back down to more historical levels?
Yes. I'll take that at a high level. Travis, you can chime in. So we have modeled out kind of the Current attrition and trends we're seeing now remain throughout this year, and they don't improve. So that's kind of how we're thinking about guidance there.
We've learned a lot over the last several months as we've seen these trends start to tick up on ways we can kind of target them and find ways to improve them. We have not modeled out any improvements in the our assumptions for the remainder of the year. Travis, anything you want to add to that?
Yes. I would just say simply as you think about it, the bulk And the main driver of the EBITDA range guidance is again driven around CC and E. And really said simply, right, it's costing us more to ramp the 50% agent increase that we called out at the beginning of the year. And those costs were incurred here in Q2 around recruiting and onboarding these agents and then here in Q3, it was there as we're bringing them through our development pod in preparation for AEP. And so I guess kind of the simplest way to say that it's taking us a little bit longer and costing us more to execute on the agent ramp that we called out at the beginning of the year.
Okay, great. That's helpful. Thanks.
Thank you. And the final question comes from Jayendra Singh with Credit Suisse. Your line is open.
Yes, thank you. I want to go back to your comments around enhanced training and tight labor market. Maybe flush out a little bit more what exactly you mean by enhanced training? Is it driven by the quality of agents or personnel you are hiring that they just require more extensive training? Or is it that you are seeing higher attrition, which is driving more investments and training on your part?
And if so, how confident you are in the Quality of these new agents and the productivity and conversion rate from these new agents during the AEP?
Yes. Jalendra, great question. You're absolutely right. We have enhanced our training program for newer agents. That ultimately has led to a much more strict, but also like graduation rate.
We're finding the folks that do graduate and get through, their performance level out of the gate is much stronger than we've seen in years past. I think, obviously, we're in a different dynamic. You think about rewind this business, 1.5 years or so ago, everybody was in person. So you were training in person in classrooms, It was different training experience. So replicating that virtually is something we've been focused on to ensure that not only that we're teaching them All the bases on Medicare, how to sell, but from a quality standpoint, they're doing the right thing and we can track that.
So we have a high degree Confidence of those folks leaving that training program and then getting on the phone and dealing with consumers, it's just taken us kind of more agents to get through there And a longer time frame, which hence the higher investments.
So just following up on that, I mean, one of your competitors recently called out Insurance companies increasingly focused on evaluating broker performance and quality of enrollments and all. So it's not like you have changed the Training program or increase your training like classes objectives, which is rising this call. I just want to make sure I understand that if you are seeing that feedback from your Insurance partners as well.
Yes. So there's an industry wide focus on quality, that everybody is experiencing Talking about right now, we do have a quality component to our training program that we monitor and look at. And obviously, we have a robust QA platform as well. But the overall enhanced training here is really around the sales training, the Medicare knowledge, everything we need to do to get agents ready to sell, Quality being a component of that.
Okay. And then one final question on LTV, the question which was asked earlier. Last quarter, you called out 6% growth in LTV was driven by Encompass revenue. Can you give us how much was how was the year over year trend in LTV Including Encompass this quarter and when we look at the comps for LTV in the second half, it gets tougher. How do you think about year over year LTV trends in the second half?
Travis, do you
want to take it?
Yes. So we saw similar Encompass growth in terms of LTV improvement in Q2 Roughly, I think about 5% of LTV improvement driven by Encompass. Again, as you think about overall LTV In trends, we're continuing to see strong trends in our LTVs. I think, again, as mentioned earlier, Q2 over Q2 created a little bit of a unique comp. When you think about consumer mix and carrier mix being different in Q2 of last year as compared to this year, but again seeing good trends in our LTVs and we'll just reiterate that 11% year to date improvement is kind of indicative of kind of what we expect to see kind of through the back half of the year with Encompass being the biggest driver
This concludes the question and answer session. I would now like to turn the call back over Clint Jones for closing remarks.
Thank you. I want to take this time to thank all of our GoHealth employees. We're Coming up on a year anniversary here for our IPO, very exciting time here at GoHealth, but I want to congratulate all the employees for all the hard work they're putting into In preparation for this AEP, we've got an amazing winning team that is really excited about what the future holds here. So thank you to the team and then thank you to everybody that's attended this call, all the investors and analysts. We look forward to giving you continued updates in November on our next call.
Thank you.