Earnings Call Transcript - GOCO Q2 2025

Operator, Operator

Good day, and welcome to the GoHealth Second Quarter 2025 Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference call over to John Shave, Vice President of Investor Relations. Please go ahead.

John E. Shave, Vice President of Investor Relations

Thank you, and good morning. Welcome to GoHealth's Second Quarter 2025 Results Call. Joining me today are Vijay Kotte, Chief Executive Officer; and Brendan Shanahan, 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 announcing a series of strategic capital and governance actions that significantly enhance GoHealth's financial flexibility and long-term positioning as well as our results for the second quarter 2025. We have posted the release on the GoHealth website under the Investor Relations tab. In the press release, we have listed certain risk factors that you should consider in conjunction with our forward-looking statements. We encourage you to consider the other risk factors described in our Form 10-K and Form 10-Q reports filed with the 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 in our press release. You may also refer to the investor presentation posted to the Investor Relations section of our website for reconciliations of non-GAAP measures to the most comparable GAAP measures discussed during this call. I will now turn the call over to GoHealth's CEO, Vijay Kotte.

Vijay Kumar Kotte, CEO

Thanks, John. Our press release issued earlier today provides the detailed components of our results of operations for Q2 2025. We believe the capital and governance milestones achieved in recent weeks, as detailed in the 8-K also filed this morning, are far more consequential to the trajectory of the business and will be the focus of our call today. As you may recall, at the end of June, we began by amending our existing credit agreements to extend the maturity of our revolving credit facility and providing a covenant holiday so we could focus our energy on a more fulsome and long-term solution for our capital structure. Since that amendment, we have been working diligently to co-design and negotiate with all relevant stakeholders the agreement we successfully closed yesterday for a super-priority senior secured term loan facility totaling $115 million. The new facility includes $80 million in new money, half funded at closing and half available on a delayed draw basis, plus the roll-up of $35 million in existing revolving loans. We believe that this capital and amendment alleviate the going concern status with our auditors, provides us with the financial runway to prepare for the upcoming annual enrollment period and allows us the capacity to pursue a range of strategic options, including acquisitions. The agreement also includes covenant relief through the third quarter of 2025, maturity extensions through 2029 and consent from our lenders to evaluate additional capital structure solutions. As part of the transaction, our lender group received equity consideration equal to 4,766,219 shares of Class A common stock, reinforcing strong alignment with GoHealth's long-term success. We also made meaningful changes to our governance structure to support this next phase. Contemporaneously with the execution of this new facility, 3 new directors were appointed to our Board, replacing 3 outgoing members. Together, these capital and governance actions represent a significant step forward for GoHealth. They provide not just the flexibility to operate and invest, but also a clear path to capitalize on broader industry dynamics. Combined with our recent progress in technology, product diversification and cost discipline, we believe we are well positioned to execute in the dynamic Medicare landscape. Critically, this facility allows us to actively pursue mergers and acquisitions in a fragmented market that we believe is ripe for consolidation. We are convinced that GoHealth is uniquely positioned to be a disciplined acquirer and integrator, leveraging our proprietary technology, automation and AI to drive scale, efficiency and stockholder value creation. This new facility gives us the capacity to move forward with confidence as we evaluate potential transactions. Finally, a brief update on our quarterly filing. Although our Form 8-K and quarterly results press release were filed today, we are in the final stages of completing intangible asset impairment testing with our auditors. The going concern evaluation has already been completed, and we expect that designation to be removed. Based on preliminary results, we do expect to record an impairment related to intangible assets. This is the only remaining item required to finalize our Form 10-Q, which we anticipate completing shortly. We're encouraged by the support of our lenders, the clarity of our strategic direction and the financial flexibility now in place to pursue meaningful stockholder value creation opportunities. Everything we're doing from strengthening our capital position to evaluating and potentially pursuing strategic M&A is focused on creating long-term value for our consumers, our partners and our stockholders. With that, we welcome your questions.

Operator, Operator

Our first question comes from David Storms with Stonegate.

David Joseph Storms, Analyst

Just want to start with this new loan. Maybe you could help us compare and contrast the covenants, how stringent they are compared to the old.

Vijay Kumar Kotte, CEO

Yes, David, I appreciate the question. The covenants, as we worked through our negotiations with the lenders, were really collaborative in the process, right? So these covenants, as we said, align with shareholder and stakeholder priorities and are going to be more flexible for us than we previously had. We are only going to have one covenant moving forward, and that is a minimum liquidity covenant. And that covenant allows us flexibility to have that grow and be nimble within the AEP period. So we see this as being more flexible for the company than the previous set of covenants that we had.

David Joseph Storms, Analyst

That's great. And I know you mentioned in your prepared remarks, this allows you to maybe pursue some M&A activities. I know it's probably still pretty early innings in this, but any sense of what a profile would look like for an ideal transaction?

Vijay Kumar Kotte, CEO

Yes, David, we've talked about this in the past as opportunities for consolidation in the industry, especially after we completed the ETQ acquisition last year. We always want to focus on those that we can, we believe that there's a lot of integrated value. So if there's a diversification of product, talent, there's contract assets, there's size and significance that can be enabled via our platform of tools, that's the type of targets we're looking for, those that align with our values and have all of those components in some way, shape or form that can advance our capabilities on a faster pace than we can do on our own.

Operator, Operator

Our next question comes from the line of Rob McGuire with Granite Research.

Robert Miles McGuire, Analyst

Could you discuss whether the transformative acquisitions are a significant priority for the three new Board members and lenders? Are they urging you to pursue this more aggressively, considering the transactions you've explored and completed so far?

Vijay Kumar Kotte, CEO

No, great question, Rob. Yes, we've always been looking for those great opportunities. However, due to our capital structure, it was very challenging to seriously consider paying for those types of transactions. We had a fantastic opportunity with e-TeleQuote, which excited us and allowed us to proceed with that deal. As you will see in our filings, the new Board members will be joining a Transformation Committee. This committee will explore numerous opportunities for the company, including securitizations, other financing options, and various financial capital structure possibilities, with a specific focus on identifying and evaluating acquisition opportunities. This represents a more concentrated effort with the ability to pursue such transactions. Additionally, as noted in our press release and filings, our lenders have already approved a fund of up to $250 million for us to chase new transactions, which is something we haven’t had before. These factors highlight why things are different now, with the focus of the new Board members, the establishment of the Transformation Committee, and the capacity to pursue these transactions.

Robert Miles McGuire, Analyst

I appreciate that. I think we'll probably get some more questions on this topic, but just to shift real quick. Can you just talk a little bit about your CAC in the quarter, where you think you can get that down to perhaps by year-end? And as well as just the revenue per submission, down a little on a year-over-year basis. Maybe you can just discuss that a little.

Vijay Kumar Kotte, CEO

Yes, Rob, I think the best way to describe the quarter is consistent with what we spoke about on the Q1 call, which is we read the market. In May, we pulled back significantly from the Medicare Advantage space and writing new business there, primarily because of the uncertainty around health plans, what they were doing, their actions tied to their profitability, et cetera. So we read the market and we reacted to that. So Q2 is not a great indication of the capabilities and the unlock in our cost structure that we can deliver. And that will be more representative as we grow, as we deliver more volume, and we expect performance in the forward-looking quarters. As you think about coming and preparing for AEP with a very measured thought process and preparing for a traditional marketing environment where we are going to be monitoring to see what the health plans are doing, but as health plans indicate more traditional behaviors will be a better indication of things like revenue per sale or sales per submission as we reported or direct cost of submission. But in total, we still believe that there's more efficiency there, and we are delivering more of those capabilities to enable that efficiency.

Operator, Operator

Our next question comes from the line of Pat McCann with NOBLE Capital.

Patrick Joseph McCann, Analyst

I have a question about the shares issued to the lenders. It seems like you experienced some dilution to make this happen. Was that something you anticipated? How does that align with your expectations? Are you satisfied or disappointed with the number of shares you had to issue? Is there anything I might have missed regarding whether those could have been options? Could you provide a brief overview of the share count dilution?

Vijay Kumar Kotte, CEO

Yes, Pat, that's a great question, and I appreciate you bringing it up. It's one I anticipated. To put it simply, there are 4.7 million Class A common shares within that total count. It's challenging to isolate a specific aspect of the overall deal structure to critique. However, when we consider the complete picture — including the new funding, extended maturities, covenant flexibility, the new debt basket for acquisitions, and the removal of the going concern — there are many positive aspects. We're very optimistic about the flexibility this arrangement provides, as well as the alignment of incentives among our stakeholders. More importantly, it positions us to take significant action in an industry we believe will continue to be fragmented, one that can really benefit from leveraging proprietary technology to achieve greater efficiency. Overall, we are excited about what this deal brings us in terms of flexibility and options, allowing us to be proactive rather than simply reactive.

Patrick Joseph McCann, Analyst

Okay. I might have missed it, so I apologize if I did, but could you comment on the interest rate situation regarding the new liquidity you have gained?

Vijay Kumar Kotte, CEO

Yes, it's in the 8-K, but ultimately, I think the rate for the new money is 550 plus SOFR. Additionally, there is a multiple on invested capital commitment that depends on when the payback for that priming or super-priority funding occurs, and it is tiered over time with the first inflection point being if we pay that back before the end of this calendar year.

Patrick Joseph McCann, Analyst

Got it. If I could shift the focus to the business operations, do you have any comments on how final expense has performed now that we’ve completed the second quarter? Also, have there been any changes in your outlook as we approach AEP?

Vijay Kumar Kotte, CEO

Yes. As we told you, there would be more substantive, meaning final expense, GoHealth Protect and that suite of products, which has been highlighted by our final expense or guaranteed acceptance product. We have been continuing to deploy that as we pulled our resources away from Medicare Advantage, as we said in Q1. We've refocused them at scale into the final expense product, training them, preparing them, getting them appointed to do that with significance that is now coming through in the financial statements. You'll see it under other revenue, and you'll see it as a line item there. Just north of approximately $8 million in the quarter was recognized there. We're seeing expectations meet our performance. Our performance is meeting those expectations. Our team is really excited about the product we're offering. It really aligns well with the population that we serve, and it is a great way to reconnect and reengage with our consumer base. So we're excited about that. We continue to expect to do that for the foreseeable future and have it as a portfolio product that we offer, and we're able to scale up with our capacity and shift it amongst GoHealth Protect and our traditional Medicare Advantage shopping and matching process. As we think about the AEP period, it's still very early to assess what's going to happen. We're being very measured in the way we think about our overall capacity to serve that population. Of course, this new facility that we put in place is going to help provide us the capital and the ability to invest as we see the market open up. But we've got very different messages from health plans. They're taking a little bit longer than usual to give us guidance as to what they expect or what they want. But most of the things that we've always seen still hold true. That is that health plans have very specific areas where they like to grow, other areas that are more problem areas for them. And they like to find partners who can help be very precise in the way that we can support their growth efforts. And that's always been a differentiator for GoHealth. We have a very sophisticated technology and supply-demand matching mechanism that allows us to be very targeted in geographies and to cut the market and prioritize markets accordingly while still not putting our thumb on the scale, letting consumers within those markets have access to the best products, but being able to match the health plans' goals along with the consumers' needs is a valuable asset for us. And so we'll still monitor that information to see what the health plans are doing. We do expect it to be disruptive. We've already heard certain health plans making significant changes to their benefits that would disrupt significant ownership amongst the overall Medicare Advantage pool. And so we'll monitor that. There are other players who said they want to maintain stability. But across the board, we know that all the carriers have areas they want to grow and have areas they want to be stable. And we're looking forward to partnering with them, but it's still too early to tell exactly where and with whom and how much. So more to come as we get that information over the coming weeks and months.

Operator, Operator

Our next question comes from the line of Jim Sidoti with Sidoti & Co.

James Philip Sidoti, Analyst

I understand that the past few months have focused on strengthening the balance sheet. Now that this phase is complete, what will be the top priority for management? Will it involve exploring new deals or preparing for the AEP? What will the primary focus be for the next six months?

Vijay Kumar Kotte, CEO

Jim, I appreciate the question. Let me just start there. You hit all the items. We have just put forward a Transformation Committee. We've got that capacity. We're going to be pursuing. We believe there are opportunities, and there are a number of strategic things we should be considering within the marketplace, and we want to make that a focus while we are continuing to develop our GoHealth Protect and enhance that product offering for consumers and begin the more diligent preparation and reading of the marketplace in advance of AEP. So those are the 3 priorities. To do that, you need to have a solid team, and you want to make sure that you've got everybody focused on all the right things, and ensuring that we are maintaining our team and the energy around it and investing with very thoughtful efforts in partnership with our Board is where we're focused. We're going to onboard these new Board members as part of this governance structure. We're going to get the Transformation Committee going, and we're going to be focused on AEP.

James Philip Sidoti, Analyst

And with regards to GoHealth Protect, is performance in line with where you thought it would be at this point? And are there other products similar to that, maybe not life insurance, but other products you can add to diversify what you guys offer?

Vijay Kumar Kotte, CEO

Yes. In Q2, we launched the product at a larger scale for the first time, following a smaller introduction in Q1. We began to increase its scale while pulling back on Medicare Advantage due to the uncertainties in health plans, which we believed was a prudent decision. Overall, that perception of the market proved to be accurate. We transitioned the members and agents to focus on learning and training for the GoHealth Protect product set. We now have more agents with dual licenses in health and life insurance, giving us flexibility to switch between these products. This flexibility allows us to diversify our offerings and adapt to market conditions. Specifically in Q2, the performance aligned with our expectations, and it will continue to grow and evolve in Q3. We will reassess and allocate resources between this product and Medicare Advantage based on the needs of health plans and consumer demand in our targeted areas. To summarize, we are committed to developing the GoHealth Protect product suite. At this time, we’re focused on excelling in what we do rather than introducing many new products without a clear strategy. We aim to optimize GoHealth Protect with our technology and tools. We believe there’s still significant efficiency to unlock, similar to our experience with Medicare Advantage, where we’ve integrated technology for greater efficiency for agents. We are still in the early stages of achieving that level of efficiency with GoHealth Protect, which will remain our focus as we invest further in that suite.

James Philip Sidoti, Analyst

All right. And then just a modeling question. What should we model for share count for Q3 and then Q4 now that this transaction is completed?

Vijay Kumar Kotte, CEO

We'll follow up with you on the one-on-ones to give you all those reconciliations, but it is a good question, and we'll help you with the modeling on that.

Operator, Operator

Our next question comes from the line of Ilya Zubkov with Freedom Broker.

Ilya Zubkov, Analyst

So I have a revenue-related question. So nonagency revenue was notably lower in Q2 compared to the same period last year. Could you just elaborate on the key factors that contributed to the decline?

Vijay Kumar Kotte, CEO

Yes, Ilya, it's great to hear from you. Thank you for your question. Nonagency revenue is primarily driven by carrier or health plan contracts and how competitive those products are in meeting consumer needs. Specifically for Q2, I want to emphasize that we significantly reduced our Medicare Advantage offerings starting in May. We maintained our expected capacity for the population in April, but shifted in May and continued that focus into GoHealth Protect through June. In terms of the agency-nonagency mix, the health plans that performed well during this Special Enrollment Period were predominantly agency plans, similar to what we observed in Q1 during the open enrollment and annual enrollment periods. The plans that offered the best products for consumers functioned on an agency basis, which accounts for the shift we've seen. This change year-over-year is mainly due to the health plan mix.

Ilya Zubkov, Analyst

All right. And one more question. I apologize if I missed it. But I'm just curious, do the current changes in the regulatory environment in the health plan market have any material impact on your confidence in the strength of the upcoming AEP at the year-end, I mean, in terms of the planned switching activity?

Vijay Kumar Kotte, CEO

No, it's a great question. We have some ideas and expectations about what we might see. We monitor the health plans closely to understand their actions. The regulatory environment will affect the health plans, and that impact has likely been accounted for in their bids as much as possible. They have their own views on their competitiveness in the market. Around August and September, we will get more detailed information and then determine how to allocate our resources effectively to generate revenues and returns. Currently, we are in that evaluation phase. I realize it's unsatisfactory, but it's still too early to make a full assessment. We have noted what many health plans have shared in their Q2 earnings calls regarding their strategies for the rest of the year and their profitability outlook. Generally, most companies are indicating that their Medicare Advantage operations are stabilizing. However, some are saying they need to make changes to their benefits to reprice and adjust their business margins. In summary, it looks like we are headed for another disruptive market. I can't quite compare it to past disruptions, but it will certainly be disruptive. Many consumers will require unbiased shopping services like those offered by GoHealth. The key question will be how much health plans are willing to invest so we can provide a high-quality, unbiased shopping experience to consumers.

Operator, Operator

There are no more questions. I will now turn the conference back over to Vijay for closing remarks.

Vijay Kumar Kotte, CEO

Thank you again for joining the call today. We believe this is a new chapter for GoHealth. It gives us an opportunity, as I said before, to really stare at the market and do what we think is necessary to react to the market dynamics. And that is to leverage the investments we've made in technology and capability and know-how to build a very efficient, if not the leading, platform for supporting shopping within the business and then identifying other ways to consolidate this fragmented industry to solve many of the issues that are out there to drive compliance, drive efficiency and deliver a consistent experience for more consumers when they need it most. We're excited about what this opens up. We're excited about the future, and we are looking forward to seeing and hearing from all of you as we continue down that path. Thanks for being part of the story. And most importantly, thanks to my team for driving so hard to deliver these results to make this all. So thank you all, and we look forward to chatting with you soon.

Operator, Operator

This concludes today's conference call. You may now disconnect.