IPO Preview: GoHealth Files For U.S. IPO

IPOStreet

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

The firm provides online portal software 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.

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 led 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:

  • Medicare - Internal
  • Medicare - External
  • IFP - Individual and Family Plans
  • Other - Internal

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

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.

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.

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

gohealthltvdata

Source: Company registration statement

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

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:

  • AARP
  • Health Insurance Brokers
  • Carrier-employed agents
  • Independent agents and brokers
  • Internet marketers

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:

gohealthpl

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.

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 to purchase an as-yet undetermined 'amount of 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.'

Also, '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.

Goldman Sachs is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 117.6% since their IPO. This is a top-tier performance for all major underwriters during the period.

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.

Glossary Of Terms

(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. IPO stocks can be very volatile in the days immediately after an IPO. Information provided is for educational purposes only, may be incomplete or out of date, and does not constitute financial, legal, or investment advice.)

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