NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts, unaudited)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
GoHealth, Inc. (the “Company”) is a leading health insurance marketplace and Medicare-focused digital health company whose mission is to improve access to healthcare in America. The Company works with insurance carriers to provide solutions to efficiently enroll individuals in health insurance plans. The Company’s proprietary technology platform leverages modern machine-learning algorithms powered by nearly two decades of insurance purchasing behavior to reimagine the optimal process for helping individuals find the best health insurance plan for their specific needs. The Company’s insurance agents leverage the power of its vertically integrated customer acquisition platform to enroll members in Medicare and individual and family plans. Certain of the Company’s operations do business as GoHealth, LLC (“GoHealth”), a wholly owned subsidiary of the Company that was founded in 2001.
The Company was incorporated in Delaware on March 27, 2020 for the purpose of facilitating an initial public offering and other related transactions in order to carry on the business of GoHealth Holdings, LLC (formerly known as Blizzard Parent, LLC), a Delaware limited liability company, and its wholly owned subsidiaries (collectively, "GHH, LLC"). On July 17, 2020, the Company completed an initial public offering of 43,500 shares of its Class A common stock at a public offering price of $21.00 per share (“the IPO”), receiving approximately $852.4 million in net proceeds, after deducting the underwriting discount and offering expenses.
Pursuant to a reorganization into a holding company structure, the Company is a holding company and its principal asset is a controlling equity interest in GHH, LLC. As the sole managing member of GHH, LLC, the Company operates and controls all of the business and affairs of GHH, LLC, and through GHH, LLC and its subsidiaries, conducts its business.
Basis of Presentation and Significant Accounting Policies
In connection with the Company’s IPO, the Company completed a series of organizational transactions (the “Transactions”). The Transactions included:
•The amendment and restatement of the existing limited liability company agreement of GHH, LLC to, among other things, (1) recapitalize all existing ownership interests in GHH, LLC (including profits units awarded under the existing limited liability company agreement of GHH, LLC) and (2) appoint the Company as the sole managing member of GHH, LLC upon its acquisition of LLC Interests in connection with the IPO;
•the amendment and restatement of the Company’s certificate of incorporation to, among other things, provide for (1) Class A common stock, with each share of the Company’s Class A common stock entitling its holder to economic rights and one vote per share on all matters presented to stockholders generally and (2) Class B common stock, with each share of the Company’s Class B common stock being a non-economic share but entitling its holder to one vote per share on all matters presented to stockholders generally (provided that shares of Class B common stock may only be held by the Continuing Equity Owners and their respective permitted transferees);
•the issuance of 307,980 shares of the Company's Class B common stock, including the issuance of 229,399 such shares to the Continuing Equity Owners, which is equal to the number of LLC Interests held directly or indirectly by such Continuing Equity Owners immediately following the Transactions, for nominal consideration;
•the issuance of 43,500 shares of the Company’s Class A common stock to the purchasers in the IPO in exchange for net proceeds, after taking into account the underwriting discount and offering expenses payable by the Company, of approximately $852.4 million;
•the acquisition by the Company of the Blocker Company in a merger transaction (the “Blocker Merger”), which Blocker Company held 45,503 LLC interests and a corresponding amount of the Company’s Class B common stock (which shares were cancelled after the Blocker Merger), in exchange for 40,683 shares of the Company’s Class A common stock and payment of $96.2 million in cash to Blocker Shareholders;
•the use of the remaining net proceeds from the IPO to (i) pay $508.3 million in cash to redeem 25,480 LLC Interests held directly or indirectly by the Continuing Equity Owners, (ii) satisfy in full $100.0 million in aggregate face amount of senior preferred earnout units in connection with the Transactions, and (iii) use for general corporate purposes; and
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GoHealth, Inc.
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2021 Form 10-Q
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9
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•the Company entered into (1) a stockholders’ agreement with Centerbridge and NVX Holdings, Inc., (2) a registration rights agreement with certain of the Continuing Equity Owners and (3) a tax receivable agreement with GHH, LLC, the Continuing Equity Owners and the Blocker Shareholders.
In connection with the IPO, the Company became the sole managing member of GHH, LLC and controls the management of GHH, LLC. As a result, the Company consolidates GHH, LLC’s financial results in its Condensed Consolidated Financial Statements and reports a non-controlling interest for the economic interest in GHH, LLC held by the Continuing Equity Owners. Substantially concurrently with the consummation of the IPO, the existing limited liability company agreement of GHH, LLC was amended and restated to, among other things, recapitalize its capital structure by creating a single new class of units (the “common units”) and provide for a right of redemption of common units (subject in certain circumstances to time-based vesting requirements and certain other restrictions) in exchange for, at the Company’s election, cash or newly-issued shares of Class A common stock on a one-for-one basis. In connection with any redemption, the Company will receive a corresponding number of common units, increasing the Company’s total ownership interest in GHH, LLC.
Immediately following the completion of the Transactions and the IPO, the Company owned 26.8% of the economic interests in GHH, LLC, while the Continuing Equity Owners owned the remaining 73.2% of the economic interests in GHH, LLC. Net income and loss is allocated to the Continuing Equity Owners on a pro rata basis, assuming that any Class B common units that are subject to time-based vesting requirements are fully vested.
The Transactions were considered transactions between entities under common control. As a result, the financial statements for periods prior to the IPO and the Transactions have been adjusted to combine the previously separate entities for presentation purposes.
GHH, LLC is a holding company with no operating assets or operations and was formed to acquire a 100% equity interest in Norvax, LLC (“Norvax”). On May 6, 2020, Blizzard Parent, LLC changed its name to GoHealth Holdings, LLC. GHH, LLC owns 100% of Blizzard Midco, LLC, which owns 100% of Norvax. For all of the periods reported in these Condensed Consolidated Financial Statements, GHH, LLC has not and does not have any material operations on a standalone basis, and all of the operations of GHH, LLC are carried out by Norvax. On August 15, 2019, GHH, LLC entered into a series of arrangements to acquire 100% of the equity interest in Norvax. On September 13, 2019, Blizzard Merger Sub LLC, a transitory merger company of Blizzard Midco, LLC, merged into Norvax, with Norvax continuing as the surviving limited liability company and GHH, LLC's operating entity (the “Acquisition”).
The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information, but do not include all information and footnote disclosures required under U.S. GAAP for annual financial statements. In the opinion of management, the interim Condensed Consolidated Financial Statements include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position, results of operations and cash flows as of the dates and for the periods presented. All intercompany transactions and balances are eliminated in consolidation. Certain prior period amounts have been reclassified to conform with the current period presentation, including a reclassification of unbilled receivables that was previously reported within accounts receivables, net to prepaid expenses and other current assets within the Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Cash Flows. Refer to Note 9, “Revenue,” for information on unbilled receivables. These reclassifications had no impact on the Company’s financial position, results of operations, or cash flows.
Use of Estimates
The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the Condensed Consolidated Financial Statements, and the reported amounts of revenues and expenses during the reporting periods. The Company bases its estimates on historical experience and on various other assumptions that management believes are reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. There have been no material changes to the Company’s significant accounting policies as discussed in the notes to the Company’s audited consolidated financial statements as of and for the year ended December 31, 2020.
Seasonality
A greater number of the Company’s Medicare-related health insurance plans are sold in its fourth quarter during the Medicare annual enrollment period when Medicare-eligible individuals are permitted to change their Medicare Advantage and Medicare Part D prescription drug coverage for the following year. As a result, the Company’s Medicare plan-related commission revenue is typically highest in the Company’s fourth quarter.
The majority of the Company’s individual and family health insurance plans are sold in its fourth quarter during the annual open enrollment period as defined under the federal Patient Protection and ACA and related amendments in the Health Care and
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GoHealth, Inc.
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2021 Form 10-Q
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10
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Education Reconciliation Act. Individuals and families generally are not able to purchase individual and family health insurance outside of the open enrollment period, unless they qualify for a special enrollment period as a result of certain qualifying events, such as losing employer-sponsored health insurance or moving to another state. As a result, the Company’s individual and family plan-related commission revenue is typically highest in the Company’s fourth quarter.
Recent Accounting Pronouncements
Recent Accounting Pronouncements Not Yet Adopted
The Company qualifies as an “emerging growth company” pursuant to the provisions of the Jumpstart Our Business Startups Act (“JOBS Act”). The JOBS Act allows an emerging growth company to delay adoption of new or revised accounting standards applicable to public companies until such standards are applicable to private companies. The Company has elected to use the adoption dates applicable to private companies. In the event that the Company no longer meets the requirements of being an emerging growth company, the effective adoption dates of such standards would be that of non-emerging growth companies.
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842). The guidance specifies that lessees will need to recognize a right-of-use asset and a lease liability for virtually all their leases except those which meet the definition of a short-term lease. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or financing. Classification will be based on criteria that are similar to those applied in current lease accounting, but without explicit bright lines. Per ASU 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): effective Dates for Certain Entities, issued June 2020, the guidance in ASU 2016-2, as amended, is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company is currently evaluating the new guidance to determine the impact it will have on its Condensed Consolidated Financial Statements and related disclosures.
In November 2019, the FASB issued ASU 2019-11, Financial Instruments – Credit Losses (Topic 326), which amends the guidance for accounting for assets that are potentially subject to credit risk. The amendments affect contract assets, loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. Per ASU 2019-10, issued November 2019, the guidance is effective for annual and interim periods beginning after December 15, 2022. Early adoption is permitted. The Company is currently evaluating the new guidance to determine the impact it will have on its Condensed Consolidated Financial Statements and related disclosures.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). The guidance simplifies the accounting for income taxes and is effective for annual and interim periods beginning after December 15, 2021. Early adoption is permitted. The Company is currently evaluating the impact to its Condensed Consolidated Financial Statements and related disclosures.
2. FAIR VALUE MEASUREMENTS
The Company defines fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques the Company uses to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company classifies the inputs used to measure fair value into the following hierarchy:
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Level 1 Inputs
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Unadjusted quoted prices in active markets for identical assets or liabilities.
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Level 2 Inputs
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Unadjusted quoted prices in active markets for similar assets or liabilities; unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability.
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Level 3 Inputs
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Unobservable inputs for the asset or liability.
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Fair Value Measurements
In connection with the Acquisition, GHH, LLC agreed to pay additional contingent consideration if certain financial targets are achieved. The fair value of the contingent consideration liability was measured using a Monte Carlo simulation and is discounted using a rate that appropriately captures the risk associated with the obligation. In connection with the IPO, a significant shareholder assumed the outstanding contingent consideration liability and the Company recorded the settlement of the $62.4 million liability as an increase to additional paid-in capital.
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GoHealth, Inc.
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2021 Form 10-Q
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11
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The following table sets forth the changes to the fair value of the contingent consideration for the three months ended March 31, 2020.
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(in thousands)
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Balance at Dec. 31, 2019
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$
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242,700
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2020 earnout fair value adjustment
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4,400
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Balance at Mar. 31, 2020
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$
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247,100
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The carrying amount of certain financial instruments, including cash and cash equivalents, accounts receivable, commissions receivable, accounts payable, accrued expenses, and commissions payable approximate fair value due to the short maturity of these instruments. Commissions receivable are recorded at constrained lifetime values. The carrying value of debt approximates fair value due to the variable nature of interest rates.
3. GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill
During 2019, the Company allocated $380.3 million and $6.2 million of the goodwill recognized in connection with the Acquisition to its Medicare—Internal segment and Medicare—External segment, respectively, based on an estimate of the relative fair value of each reportable segment.
The Company tests goodwill for impairment at the reporting unit level annually and whenever events or circumstances make it more likely than not that an impairment may have occurred. A reporting unit is an operating segment or one level below an operating segment to which goodwill is assigned when initially recorded. The Company has four reporting units, which are the same as its four operating segments.
There was no impairment of goodwill for the three months ended March 31, 2021 and 2020.
Intangible Assets
The gross carrying amounts, accumulated amortization and net carrying amounts of the Company’s definite-lived amortizable intangible assets, as well as its indefinite-lived intangible trade names, are as follows:
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Mar. 31, 2021
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(in thousands)
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Gross Carrying Amount
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Accumulated Amortization
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Net Carrying Amount
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Developed technology
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$
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496,000
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$
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109,829
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$
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386,171
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Customer relationships
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232,000
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35,960
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196,040
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Total intangible assets subject to amortization
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$
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728,000
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$
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145,789
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$
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582,211
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Indefinite-lived trade names
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83,000
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Total intangible assets
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$
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665,211
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Dec. 31, 2020
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(in thousands)
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Gross Carrying Amount
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Accumulated Amortization
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Net Carrying Amount
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Developed technology
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$
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496,000
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$
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92,114
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$
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403,886
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Customer relationships
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232,000
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|
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30,160
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201,840
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Total intangible assets subject to amortization
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$
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728,000
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$
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122,274
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$
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605,726
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Indefinite-lived trade names
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83,000
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Total intangible assets
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$
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688,726
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There was no impairment of intangible assets for the three months ended March 31, 2021 and 2020.
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GoHealth, Inc.
|
2021 Form 10-Q
|
12
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As of March 31, 2021, expected amortization expense related to intangible assets for each of the five succeeding years is as follows:
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(in thousands)
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Developed Technology
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Customer Relationships
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Total
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Remainder of 2021
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$
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53,142
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$
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17,400
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$
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70,542
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2022
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|
70,857
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23,200
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|
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94,057
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2023
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70,857
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23,200
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|
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94,057
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2024
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70,857
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23,200
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94,057
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2025
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70,857
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23,200
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94,057
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Thereafter
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49,601
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85,840
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135,441
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Total
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$
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386,171
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$
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196,040
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$
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582,211
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4. LONG-TERM DEBT
The Company’s long-term debt consisted of the following:
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(in thousands)
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Mar. 31, 2021
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Dec. 31, 2020
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Credit Facilities
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$
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411,330
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$
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412,373
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Less: Unamortized debt discount and issuance costs
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(11,178)
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(11,803)
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Total debt
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400,152
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400,570
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Less: Current portion of long-term debt
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(4,170)
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(4,170)
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Total long-term-debt
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$
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395,982
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|
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$
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396,400
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On September 13, 2019, in connection with the Acquisition, Norvax (“the Borrower”) entered into a first lien credit agreement (the “Credit Agreement”) which provides for a (i) $300.0 million aggregate principal amount senior secured term loan facility (the “Term Loan Facility”) and (ii) $30.0 million aggregate principal amount senior secured revolving credit facility (the “Revolving Credit Facility").
During 2020, the Company entered into a series of amendments to the Credit Agreement to provide for (i) $117.0 million of incremental term loans (the “Incremental Term Loan Facility”) and (ii) $28.0 million of incremental revolving credit (the “Incremental Revolving Credit Facilities”).
The Company collectively refers to the Term Loan Facility, the Revolving Credit Facility, the Incremental Term Loan Facility, and the Incremental Revolving Credit Facilities as the “Credit Facilities”.
As of March 31, 2021, the Company had a principal amount of $295.5 million and $115.8 million outstanding on the Term Loan Facility and Incremental Term Loan Facility, respectively. The effective interest rate was 7.5% at both March 31, 2021 and December 31, 2020. The Company had no amounts outstanding on the Revolving Credit Facility and the Incremental Revolving Credit Facilities, which had a remaining capacity of $58.0 million in the aggregate as of March 31, 2021.
Borrowings under the Credit Facilities are, at the option of the Borrower, either (i) alternate base rate (“ABR”) plus 5.50% per annum or (ii) LIBOR plus 6.50% per annum. In addition to paying interest on the principal amounts outstanding under the Credit Facilities, the Borrower is required to pay a commitment fee of 0.50% per annum under the Revolving Credit Facility and Incremental Revolving Credit Facilities.
The Term Loan Facility and Incremental Term Loan Facility are payable in quarterly installments in the principal amount of 0.25% of the original principal amount. The remaining unpaid balance on the Term Loan Facility and Incremental Term Loan Facility, together with all accrued and unpaid interest thereon, is due and payable on or prior to September 13, 2025. Outstanding borrowings under the Revolving Credit Facility and the Incremental Revolving Credit Facilities do not amortize and are due and payable on September 13, 2024.
The Borrower’s obligations under the Credit Facilities are guaranteed by Blizzard Midco, LLC and certain of the Borrower’s subsidiaries. All obligations under the Credit Agreement are secured by a first priority lien on substantially all of the assets of the Borrower, including a pledge of all of the equity interests of its subsidiaries. The Credit Agreement contains customary events of default and financial and non-financial covenants. The Company is in compliance with all covenants as of March 31, 2021.
On May 7, 2021, the Company entered into a fourth amendment to the Credit Agreement, which provided $142.0 million of incremental revolving credit (the “Incremental No. 4 Revolving Credit Facility”). Outstanding borrowings will be due and payable on September 13, 2024. Interest, fees, prepayment terms, covenants and other matters are the same as those under the Credit Facilities.
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GoHealth, Inc.
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2021 Form 10-Q
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13
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5. STOCKHOLDERS' EQUITY AND MEMBERS' EQUITY
In connection with the Company’s IPO in July 2020, the Company’s Board of Directors approved an amended and restated certificate of incorporation and amended and restated bylaws. The amended and restated certificate of incorporation authorizes the issuance of up to 1,100,000 shares of Class A common stock, 690,000 shares of Class B common stock and 20,000 shares of preferred stock, each having a par value of $0.0001 per share. The number of shares of Class B common stock authorized is reduced for redemptions and forfeitures as they occur.
The Company’s amended and restated certificate of incorporation and the GoHealth Holdings, LLC Agreement require that the Company and GoHealth Holdings, LLC at all times maintain a one-to-one ratio between the number of shares of Class A common stock issued by the Company and the number of LLC Interests owned by the Company, except as otherwise determined by the Company. Additionally, the Company’s amended and restated certificate of incorporation and the GoHealth Holdings, LLC Agreement require that the Company and GoHealth Holdings, LLC at all times maintain a one-to-one ratio between the number of shares of Class B common stock owned by the Continuing Equity Owners and their respective permitted transferees and the number of LLC Interests owned by the Continuing Equity Owners and their respective permitted transferees, except as otherwise determined by the Company. Only the Continuing Equity Owners and the permitted transferees of Class B common stock are permitted to hold shares of Class B common stock. Shares of Class B common stock are transferable for shares of Class A common stock only together with an equal number of LLC Interests.
Holders of shares of the Company’s Class A common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Each share of Class B common stock entitles its holders to one vote per share on all matters presented to the Company’s stockholders generally. Holders of shares of Class B common stock will vote together with holders of the Company’s Class A common stock as a single class on all matters presented to the Company’s stockholders for their vote or approval, except for certain amendments to the Company’s amended and restated certificate of incorporation or as otherwise required by applicable law or the amended and restated certificate of incorporation. Holders of our Class B common stock are not entitled to participate in any dividends declared by our board of directors. Under the terms of the Company’s amended and restated certificate of incorporation, the Company’s board of directors is authorized to direct the Company to issue shares of preferred stock in one or more series without stockholder approval. The Company’s board of directors has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock.
The Continuing Equity Owners may, subject to certain exceptions, from time to time at each of their options require GoHealth Holdings, LLC to redeem all or a portion of their LLC Interests in exchange for, at the Company’s election (determined by at least two of the Company’s independent directors who are disinterested), newly-issued shares of Class A common stock on a one-for-one basis, or to the extent there is cash available from a secondary offering, a cash payment equal to a volume weighted average market price of one share of the Company’s Class A common stock for each LLC Interest so redeemed, in each case, in accordance with the terms of the GoHealth Holdings, LLC Agreement.
The weighted average ownership percentages for the applicable reporting periods are used to attribute net income (loss) and other comprehensive income (loss) to the Company and the non-controlling interest holders. The non-controlling interest holders' weighted average ownership percentage for the three months ended March 31, 2021 and as of December 31, 2020 was 71.2% and 73.8%, respectively.
Upon the Company’s dissolution or liquidation, after payment in full of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any, holders of Class A common stock and Class B common stock will be entitled to receive ratable portions of the Company’s remaining assets available for distribution; provided, that the holders of Class B common stock shall not be entitled to receive more than $0.0001 per share of Class B common stock and upon receiving such amount, shall not be entitled to receive any of the Company’s other assets or funds with respect to such shares of Class B common stock.
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GoHealth, Inc.
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2021 Form 10-Q
|
14
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6. SHARE-BASED COMPENSATION PLANS
The following table summarizes share-based compensation expense by operating function for the periods presented:
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(in thousands)
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Three months ended Mar. 31, 2021
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Three months ended Mar. 31, 2020
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Marketing and advertising
|
|
$
|
337
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|
|
$
|
57
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|
|
|
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|
Customer care and enrollment
|
|
796
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|
|
24
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|
|
|
|
|
Technology
|
|
747
|
|
|
73
|
|
|
|
|
|
General and administrative
|
|
3,232
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|
|
325
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|
|
|
|
|
Total share-based compensation expense
|
|
$
|
5,112
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|
|
$
|
479
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|
|
|
|
|
Performance Stock Units (“PSUs”)
During the three months ended March 31, 2021, the Company granted to certain of its employees 489 shares of Class A common stock issuable pursuant to PSUs. The criteria for the market-based PSUs is based on the Company’s total shareholder return (“TSR”) relative to the TSR of the common stock of a pre-defined industry peer group. TSR is measured at the end of the performance period, which is generally the period commencing on the grant date and ending on the three-year anniversary of the grant date. Depending on the relative TSR achieved, the number of PSUs earned can vary from 0% of the target award to a maximum of 200% of the target award. The Company estimated the grant-date fair value of the awards subject to a market condition using a Monte Carlo simulation model, using the following weighted-average assumptions: risk-free interest rate of 0.2% and annualized volatility of 72.0%. The grant date fair value of the PSUs was $22.17. The Company recognizes the grant date fair value of PSUs as compensation expense on a straight-line basis over the three-year performance period. For the three months ended March 31, 2021, the Company recorded share-based compensation expense related to PSUs of $0.5 million.
2020 Employee Stock Purchase Plan (“2020 ESPP”)
On July 7, 2020, the Company adopted the 2020 ESPP. The first offering period of the 2020 ESPP commenced on January 1, 2021, and will expire on June 30, 2021. The purpose of the 2020 ESPP is to provide the Company's eligible employees with an opportunity to purchase designated shares of the Company’s Class A common stock at a price equal to 85% of the lower of the closing price at the beginning or end of each offering period. As of March 31, 2021, the Company had not issued any shares through the ESPP and recorded share-based compensation expense related to the 2020 ESPP of $0.1 million.
7. NET LOSS PER SHARE
Basic loss per share is computed by dividing net loss attributable to GoHealth, Inc. by the weighted-average number of shares of Class A common stock outstanding during the period. Diluted loss per share is computed giving effect to all potentially dilutive shares. Diluted loss per share for all periods presented is the same as basic loss per share as the inclusion of potentially issuable shares would be antidilutive.
Prior to the IPO, the GHH, LLC membership structure included Preferred units, Senior Preferred Earnout Units, Class A common units, Class B common units and Profit Units. The Company analyzed the calculation of earnings per unit for periods prior to the IPO using the two-class method and determined that it resulted in values that would not be meaningful to the users of these Condensed Consolidated Financial Statements. Therefore, earnings per share information has not been presented for periods prior to the IPO on July 17, 2020.
|
|
|
|
|
|
|
|
|
GoHealth, Inc.
|
2021 Form 10-Q
|
15
|
A reconciliation of the numerator and denominator used in the calculation of basic and diluted net loss per share of Class A common stock is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share amounts)
|
|
Three months ended Mar. 31, 2021
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,268)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net loss attributable to non-controlling interests
|
|
(5,178)
|
|
|
|
|
|
|
|
Net loss attributable to GoHealth, Inc.
|
|
(2,090)
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average shares of Class A common stock outstanding—basic
|
|
92,343
|
|
|
|
|
|
|
|
Effect of dilutive securities
|
|
—
|
|
|
|
|
|
|
|
Weighted-average shares of Class A common stock outstanding—diluted
|
|
92,343
|
|
|
|
|
|
|
|
Net loss per share of Class A common stock—basic and diluted
|
|
$
|
(0.02)
|
|
|
|
|
|
|
|
The following number of shares were excluded from the calculation of diluted loss per share because the effect of including such potentially dilutive shares would have been antidilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Three months ended Mar. 31, 2021
|
|
|
|
|
|
|
Class A common stock issuable pursuant to equity awards
|
|
6,539
|
|
|
|
|
|
|
|
Class B common stock
|
|
222,606
|
|
|
|
|
|
|
|
Shares of Class B common stock do not share in earnings and are not participating securities. Accordingly, separate presentation of loss per share of Class B common stock under the two-class method has not been presented.
For periods prior to the Transactions and the IPO, the reported income taxes represent those of GHH, LLC. As a result of the Transactions and the IPO, the Company became subject to U.S. federal and certain state and local income taxes with respect to its allocable share of any taxable income or loss generated by GHH, LLC. There was no pro forma impact on loss per share to reflect income tax expense at an effective tax rate as the Company determined it is not more likely than not that the tax benefits associated with the deferred tax assets arising from the Transactions and the IPO will be realized.
8. INCOME TAXES
The Company is taxed as a corporation for income tax purposes and is subject to federal, state, and local taxes on the income allocated to it from GHH, LLC based upon the Company’s economic interest in GHH, LLC. The Company is the sole managing member of GHH, LLC and, as a result, consolidates the financial results of GHH, LLC. GHH, LLC is a limited liability company taxed as a partnership for income tax purposes, and the subsidiaries of GHH, LLC are limited liability companies for income tax purposes except for a subsidiary and its foreign subsidiary, which are taxed as a corporation and foreign disregarded entity, respectively. As such, GHH, LLC does not pay any federal income taxes, as income or loss is included in the tax returns of the individual members. Additionally, certain wholly-owned entities taxed as corporations are subject to federal, state, and foreign income taxes in the jurisdictions in which they operate, and accruals for such taxes are included in the Condensed Consolidated Financial Statements. For periods prior to the IPO, the Company’s taxes represent those of GHH, LLC.
The Company’s effective tax rate for the three months ended March 31, 2021 and 2020 was 0.42% and 0.21%, respectively. The effective tax rate for each period is lower than the statutory tax rate primarily due to the effect of loss entities for which the Company excludes from its effective tax rate calculation and loss attributable to non-controlling interests.
Tax Receivable Agreement (“TRA”)
In connection with the IPO, the Company entered into a TRA with GHH, LLC, the Continuing Equity Owners and the Blocker Shareholders that will provide for the payment by the Company to the Continuing Equity Owners and the Blocker Shareholders of 85% of the amount of tax benefits, if any, that the Company actually realizes (or in some circumstances is deemed to realize). The amounts payable under the TRA will vary depending upon a number of factors, including the amount, character, and timing of the taxable income of the Company in the future. As of March 31, 2021, the Company has determined there is no resulting liability related to the TRA arising from the Transactions and IPO. Should the Company determine that the TRA liability be considered probable at a future date based on new information, any changes will be recorded within income tax expense (benefit) at that time.
|
|
|
|
|
|
|
|
|
GoHealth, Inc.
|
2021 Form 10-Q
|
16
|
9. REVENUE
Revenue Recognition for Variable Consideration
The Company’s variable consideration includes the total estimated lifetime value (“LTV”) it expects to receive for selling an insurance product after the carrier approves an application. The consideration is variable based on the amount of time it estimates a policy will remain in force, which is based on historical experience or carrier experience to the extent available, industry data, and expectations as to future retention rates. Additionally, the Company considers the application of a constraint and only recognizes the amount of variable consideration that it believes is probable that it will be entitled to receive and will not be subject to a significant revenue reversal in the future.
On a quarterly basis, the Company re-estimates LTV at a vintage level for outstanding vintages, reviews and monitors changes in the data used to estimate LTV, as well as the cash received for each vintage as compared to the original estimates. The difference between cash received for each vintage and the respective estimated LTV can be significant and may or may not be indicative of the need to adjust revenue for prior period vintages. Changes in LTV may result in an increase or a decrease to revenue and a corresponding change to commissions receivable. The Company analyzes these differences and to the extent the Company believes differences in the estimates are indicative of a change to prior period LTVs, the Company will adjust revenue for the affected vintages at the time such determination is made and when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. As a result of this analysis, for the three months ended March 31, 2021, the Company recorded a negative revenue adjustment of $2.2 million relating to performance obligations satisfied in prior periods. For the three months ended March 31, 2020, there was no revenue adjustment relating to performance obligations satisfied in prior periods.
Disaggregation of Revenue
The table below depicts the disaggregation of revenue by product, and is consistent with how the Company evaluates its financial performance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Three months ended Mar. 31, 2021
|
|
Three months ended Mar. 31, 2020
|
|
|
|
|
Commission revenue:
|
|
|
|
|
|
|
|
|
Medicare:
|
|
|
|
|
|
|
|
|
Medicare Advantage
|
|
$
|
168,148
|
|
|
$
|
99,291
|
|
|
|
|
|
Medicare Supplement
|
|
784
|
|
|
2,189
|
|
|
|
|
|
Prescription Drug Plans
|
|
553
|
|
|
571
|
|
|
|
|
|
Total Medicare
|
|
169,485
|
|
|
102,051
|
|
|
|
|
|
Individual and Family Plan:
|
|
|
|
|
|
|
|
|
Fixed Indemnity
|
|
2,781
|
|
|
6,779
|
|
|
|
|
|
Short-term
|
|
400
|
|
|
1,778
|
|
|
|
|
|
Major Medical
|
|
201
|
|
|
186
|
|
|
|
|
|
Total Individual and Family Plan
|
|
3,382
|
|
|
8,743
|
|
|
|
|
|
Ancillary
|
|
1,108
|
|
|
1,266
|
|
|
|
|
|
Small Group
|
|
6
|
|
|
450
|
|
|
|
|
|
Total commission revenue
|
|
173,981
|
|
|
112,510
|
|
|
|
|
|
Enterprise revenue:
|
|
|
|
|
|
|
|
|
Partner Marketing and Enrollment Services
|
|
21,857
|
|
|
17,401
|
|
|
|
|
|
Direct Partner Campaigns
|
|
8,102
|
|
|
7,523
|
|
|
|
|
|
Other
|
|
239
|
|
|
3,576
|
|
|
|
|
|
Total enterprise revenue
|
|
30,198
|
|
|
28,500
|
|
|
|
|
|
Net revenues
|
|
$
|
204,179
|
|
|
$
|
141,010
|
|
|
|
|
|
Contract Assets and Liabilities
The company records contract assets and contract liabilities from contracts with customers as it relates to commissions receivable, commissions payable and deferred revenue. Commissions receivable represents estimated variable consideration for commissions to be received from insurance carriers for performance obligations that have been satisfied. Commissions payable represents estimated commissions to be paid to the Company’s external agents and other partners. Deferred revenue includes amounts collected for partner marketing and enrollment services and technology licensing and implementation fees in advance of the Company satisfying its performance obligations for such customers. The Company had unbilled receivables for performance-based enrollment fees as of March 31, 2021 and December 31, 2020 of $3.6 million and $12.9 million, respectively,
|
|
|
|
|
|
|
|
|
GoHealth, Inc.
|
2021 Form 10-Q
|
17
|
which were reclassified to prepaid expenses and other current assets from accounts receivable, net on the Condensed Consolidated Balance Sheets. The reclassification was based on the Company’s conditional rights to receive consideration based on the services transferred to the customer. Prior period amounts have been reclassified to match the current period presentation. There are no other contract liabilities or contract assets recorded by the Company.
For the three months ended March 31, 2021, the Company recognized $0.1 million of revenue that was deferred as of December 31, 2020.
Commissions Receivable
Commissions receivable activity is summarized as follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Three months ended Mar. 31, 2021
|
Beginning balance
|
|
$
|
810,398
|
|
Commission revenue
|
|
173,981
|
|
Cash receipts
|
|
(183,489)
|
|
Ending balance
|
|
800,890
|
|
Less: Commissions receivable - current
|
|
98,222
|
|
Commissions receivable - non-current
|
|
$
|
702,668
|
|
10. COMMITMENTS AND CONTINGENCIES
Leases
The Company is party to various non-cancelable operating lease agreements for certain of the Company’s offices and data centers with lease periods expiring in 2032. Certain of these arrangements have free rent periods or escalating rent payment provisions, and the Company recognizes rent expense under such arrangements on a straight-line basis.
Legal Proceedings
In September 2020, three purported securities class action complaints were filed in the United States District Court for the Northern District of Illinois against the Company, certain of its officers and directors, and certain underwriters, private equity firms, and investment vehicles alleging violations of the Securities Act of 1933. On December 10, 2020 the court in the earliest filed action consolidated the three complaints, appointed lead plaintiffs and lead counsel for the consolidated action, and captioned the consolidated action In re GoHealth, Inc. Securities Litigation. Lead plaintiffs filed a consolidated complaint on February 25, 2021. Defendants filed responsive pleadings on April 26, 2021 to dismiss the complaint. The Company disputes each and every of plaintiffs’ claims and intends to defend the matter vigorously.
11. RELATED PARTY TRANSACTIONS
The Company is party to various lease agreements with 214 W Huron LLC, 220 W Huron Street Holdings LLC, and 215 W Superior LLC, each of which are controlled by significant shareholders, to lease its corporate offices in Chicago, Illinois. The Company pays rent, operating expenses, maintenance, and utilities under the terms of the leases. For both the three months ended March 31, 2021 and 2020, the Company made aggregate lease payments of $0.3 million under these leases.
On January 1, 2020, the Company entered into a non-exclusive aircraft dry lease agreement with an entity wholly-owned and controlled by certain significant shareholders. The agreement allows the Company to use an aircraft owned by this entity for business and on an as-needed basis. The agreement has no set term and is terminable without cause by either party upon 30 days’ prior written notice. Under the agreement, the Company is required to pay $6,036.94 per flight hour for use of the aircraft. For the three months ended March 31, 2021 and 2020, the Company recorded expense of $0.1 million and $0.7 million, respectively, under this lease.
On May 12, 2020, the Company entered into a lease agreement with Wilson Tech 5, which is controlled by significant shareholders, for a proposed site in Lindon, Utah, beginning in 2022. The Company will not have access to the leased premises until construction is complete (“commencement date”) and is not deemed to be the owner during the construction period. This lease agreement expires ten years after the commencement date. The Company did not make any lease payments during the three months ended March 31, 2021 under this lease. The initial base annual rent will be approximately $4.6 million beginning in mid-2022.
|
|
|
|
|
|
|
|
|
GoHealth, Inc.
|
2021 Form 10-Q
|
18
|
During the twelve months ended December 31, 2020, the Company provided a short-term advancement to NVX Holdings, Inc., which is controlled by significant shareholders, for which the Company recorded a receivable of $3.4 million. The advancement was collected by the Company during the three months ended March 31, 2021.
12. OPERATING SEGMENTS AND SIGNIFICANT CUSTOMERS
Operating Segments
The Company reports segment information based on how the Company’s chief operating decision maker (“CODM”) regularly reviews operating results, allocates resources and makes decisions regarding business operations. The performance measures of the segments include total revenue and profit (loss). For segment reporting purposes in accordance with ASC 280-10, Segment Reporting, the Company’s business structure is comprised of four operating and reportable segments:
Medicare Internal and External: The Medicare internal and external segments consist primarily of revenues earned from sales of Medicare Advantage, Medicare Supplement, Prescription Drug Plans, and Medicare Special Needs Plans (or “SNPs”), for multiple carriers.
Individual and Family Plan and Other (“IFP and Other”) Internal and External: The IFP and Other internal and external segments consist primarily of revenues earned from sales of individual and family plans, dental plans, vision plans and other ancillary plans to individuals that are not Medicare-eligible.
The Internal and External segments relative to both Medicare and IFP are defined as follows:
Internal: The two internal segments primarily consist of sales of products and plans by Company-employed agents offering qualified prospects plans from multiple carriers, Company-employed agents offering qualified prospects plans on a carrier-specific basis, or sales of products and plans through our online platform without the assistance of our agents (do-it-yourself or “DIY”). The Company earns revenue in this channel through commissions paid by carriers based on sales the Company generates, as well as enrollment fees, hourly fees and other fees for services performed for specific carriers and other partners.
External: The two external segments represent sales of products and plans under the Company’s carrier contracts using an independent, national network of agents who are not employed by the Company. These agents utilize the Company’s technology and platform to enroll consumers in health insurance plans and provide a means to earn a return on leads that otherwise may have not been addressed. The Company also sells insurance prospects (or “leads”) to agencies within this channel. The Company earns revenue in this channel through commissions paid by carriers as a result of policy sales, as well as sales of leads to external agencies.
|
|
|
|
|
|
|
|
|
GoHealth, Inc.
|
2021 Form 10-Q
|
19
|
The following table presents summary results of the Company’s operating segments for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Three months ended Mar. 31, 2021
|
|
Three months ended Mar. 31, 2020
|
|
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
Medicare:
|
|
|
|
|
|
|
|
|
Internal channel
|
|
$
|
157,353
|
|
|
$
|
95,287
|
|
|
|
|
|
External channel
|
|
39,500
|
|
|
28,945
|
|
|
|
|
|
Total Medicare
|
|
196,853
|
|
|
124,232
|
|
|
|
|
|
IFP and Other:
|
|
|
|
|
|
|
|
|
Internal channel
|
|
3,975
|
|
|
8,632
|
|
|
|
|
|
External channel
|
|
3,351
|
|
|
8,146
|
|
|
|
|
|
Total IFP and Other
|
|
7,326
|
|
|
16,778
|
|
|
|
|
|
Net revenues
|
|
204,179
|
|
|
141,010
|
|
|
|
|
|
Segment profit (loss):
|
|
|
|
|
|
|
|
|
Medicare:
|
|
|
|
|
|
|
|
|
Internal channel
|
|
46,443
|
|
|
41,735
|
|
|
|
|
|
External channel
|
|
(631)
|
|
|
(322)
|
|
|
|
|
|
Total Medicare
|
|
45,812
|
|
|
41,413
|
|
|
|
|
|
IFP and Other:
|
|
|
|
|
|
|
|
|
Internal channel
|
|
(729)
|
|
|
481
|
|
|
|
|
|
External channel
|
|
160
|
|
|
512
|
|
|
|
|
|
Total IFP and Other
|
|
(569)
|
|
|
993
|
|
|
|
|
|
Segment profit
|
|
45,243
|
|
|
42,406
|
|
|
|
|
|
Corporate expense
|
|
20,327
|
|
|
8,665
|
|
|
|
|
|
Change in fair value of contingent consideration liability
|
|
—
|
|
|
4,400
|
|
|
|
|
|
Amortization of intangible assets
|
|
23,514
|
|
|
23,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
8,688
|
|
|
6,756
|
|
|
|
|
|
Other (income) expense, net
|
|
13
|
|
|
10
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
(7,299)
|
|
|
$
|
(939)
|
|
|
|
|
|
There are no internal revenue transactions between the Company’s operating segments. Substantially all revenue for the periods presented was generated from customers located in the United States. The Company’s CODM does not separately evaluate assets by segment, and therefore assets by segment are not presented. The Company’s assets are primarily located in the United States.
Significant Customers
The following table presents carriers representing 10% or more of the Company’s total revenue for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended Mar. 31, 2021
|
|
Three months ended Mar. 31, 2020
|
|
|
|
|
Anthem
|
|
30
|
%
|
|
32
|
%
|
|
|
|
|
Humana
|
|
28
|
%
|
|
42
|
%
|
|
|
|
|
United
|
|
18
|
%
|
|
7
|
%
|
|
|
|
|
Centene
|
|
16
|
%
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Substantially all of the revenue from these customers was from the sales of products and plans within the Medicare—Internal and Medicare—External segments.
Concentration of Credit Risk
The Company does not require collateral or other security in granting credit. As of March 31, 2021, four customers each represented 10% or more of the Company’s total accounts receivable and unbilled receivables and, in aggregate, represented 87%, or $22.4 million, of the combined total. As of December 31, 2020, three customers each represented 10% or more of the Company’s total accounts receivable and unbilled receivables and, in aggregate, represented 86%, or $23.2 million, of the combined total.
|
|
|
|
|
|
|
|
|
GoHealth, Inc.
|
2021 Form 10-Q
|
20
|