GoHealth Starts U.S. IPO Process (Pending:GHTH)


Quick Take

GoHealth (GHTH) has filed to raise $100 million in an IPO of its Class A common stock, according to an S-1 registration statement.

The firm provides an online portal to purchase various types of health insurance.

GHTH is producing some very impressive metrics for its internal Medicare Advantage signup business segment.

I’ll provide an update when we learn more about the IPO from management.

Company & Technology

Chicago, Illinois-based GoHealth was founded to improve online health insurance quoting through brokers. The firm expanded to offer its services directly to consumers via GoMedicare and now accounts for approximately 10% of Medicare Advantage enrollments in the U.S.

Management is headed by co-founder and Chief Executive Officer Clint Jones, who was previously the Intranet Market Manager for HOLT Value, a former division of Credit Suisse.

Below is a brief overview video of GoHealth:

Source: GoHealth

The company’s primary offerings include:

GoHealth has received at least $869 million from investors including Centerbridge Capital Partners.

Customer/User Acquisition

The company acquires leads through search engine marketing, social media networks, organic Web traffic, television and mailers.

GoHealth is paid on a commission basis by insurance carriers when customers enroll in their products as well as for recurring enrolment.

Marketing & Advertising expenses as a percentage of total revenue have been rising as revenues have increased, as the figures below indicate:

Marketing & Advertising

Expenses vs. Revenue

Period

Percentage

Three Mos. Ended March 31, 2020

18.5%

2019

11.6%

2018

12.4%

Source: Company registration statement

The Marketing & Advertising efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Marketing & Advertising spend, dropped to 2.8x in the most recent reporting period, as shown in the table below:

Marketing & Advertising

Efficiency Rate

Period

Multiple

Three Mos. Ended March 31, 2020

2.8

2019

5.0

Source: Company registration statement

Below are various management supplied customer acquisition cost [CAC] and lifetime value [LTV] metrics:

Source: Company registration statement

The figures show strong LTV multiples for various segments of its business.

Market & Competition

According to a 2020 market research report by IBISWorld, the market for online insurance brokerage is expected to reach $31.3 billion in 2020.

The average annual growth in online insurance was approximately 9% from 2015 to 2020.

The main drivers for this expected growth are an increased comfort level of usage of online information and coverage sources for insurance as well as improved technology offerings to automate the process for consumers.

Also, in 2019, one-third of all Medicare participants were also enrolled in Medicare Advantage plans. As Baby Boomers retire at increasing numbers, the growth in Medicare and Medicare Advantage plan participants will increase accordingly, at about 8% per year over the near term.

Major competitive or other industry participants include:

Financial Performance

GoHealth’s recent financial results can be summarized as follows:

  • Sharply growing topline revenue

  • Variable operating profit and margin

  • A swing to strongly positive cash flow from operations

Below are relevant financial results derived from the firm’s registration statement:

Total Revenue

Period

Total Revenue

% Variance vs. Prior

Three Mos. Ended March 31, 2020

$ 141,010,000

104.1%

2019

$ 539,501,000

138.5%

2018

$ 226,205,000

Operating Profit (Loss)

Period

Operating Profit (Loss)

Operating Margin

Three Mos. Ended March 31, 2020

$ 5,827,000

4.1%

2019

$ (32,777,000)

-6.1%

2018

$ 28,763,000

12.7%

Net Income (Loss)

Period

Net Income (Loss)

Three Mos. Ended March 31, 2020

$ (937,000)

2019

$ (41,068,000)

2018

$ 28,114,000

Cash Flow From Operations

Period

Cash Flow From Operations

Three Mos. Ended March 31, 2020

$ 23,587,000

2019

$ (3,000)

2018

$ 5,443,000

(Glossary Of Terms)

Source: Company registration statement

As of March 31, 2020, GoHealth had $152.4 million in cash and $840 million in total liabilities.

Free cash flow during the twelve months ended March 31, 2020, was $12.8 million.

IPO Details

GoHealth intends to raise $100 million in gross proceeds from an IPO of its Class A common stock, although the final amount may differ.

Class A and Class B shareholders will each be entitled to one vote per share.

The S&P 500 no longer admits firms with multiple classes of stock into its index.

Management says it will use the net proceeds from the IPO as follows:

purchase an as-yet undetermined amount newly-issued LLC Interests (or certain LLC Interests if the underwriters exercise in full their option to purchase additional shares of Class A common stock) directly from GoHealth Holdings, LLC

GoHealth Holdings, LLC intends to use the net proceeds from the sale of LLC Interests to GoHealth, Inc. [i] to partially redeem certain of the LLC Interests held by the Continuing Equity Owners, [ii] to satisfy in full as-yet undetermined amount in aggregate principal amount of an obligation relating to an existing equity instrument in connection with the Transactions and [iii] for general corporate purposes to support the growth of the business.

Management’s presentation of the company roadshow is not yet available.

Listed bookrunners of the IPO are Goldman Sachs, BofA Securities, Morgan Stanley, Barclays, Credit Suisse, Evercore ISI, RBC Capital Markets, William Blair, Cantor, and SunTrust Robinson Humphrey.

Commentary

GoHealth is seeking public capital to fund its growth plans.

The firm’s financials show very strong topline revenue growth but fluctuating operating profits, near breakeven net income and strongly positive cash flow from operations in the most recent period.

Marketing & Advertising expenses have been rising as revenues have increased and its Marketing & Advertising efficiency rate has dropped somewhat.

The market opportunity for facilitating health insurance signups online is large and expected to grow at a strong pace over the near term

GHTH is majority owned by Centerbridge, a private equity firm, although notably its debt load is not unusually heavy given its revenue run rate.

GHTH has demonstrated impressive CAC/LTV metrics, with its Medicare Advantage Internal business segment performing quite profitably in this regard.

I look forward to learning management’s assumptions on the IPO pricing and proposed valuation.

Expected IPO Pricing Date: To be announced.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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