2021-10-06-瑞士信贷集团-第三季度预览_26页_1mb

e-Brokers Summary: 3Q21 Preview and Industry Analysis

Core Content Overview

This document provides a comprehensive preview of the third-quarter 2021 (3Q21) earnings for the three e-brokers: EHTH, GOCO, and SLQT. It includes insights into their performance, market share, revenue trends, EBITDA margins, and cash flow dynamics. The analysis is based on Credit Suisse estimates and company data.

Main Points and Key Insights

1. Earnings Preview for 3Q21

• EHTH: Expected to exceed consensus revenue, driven by "Other Revenue" which is seasonally higher. EBITDA guidance is conservative, potentially absorbing higher CC&E costs.
• GOCO: 3Q21 consensus for EBITDA is slightly high; the company expects CY3Q21 EBITDA to be breakeven, while the consensus is at +$7 million. Agent hiring and training concerns remain, but the company showed a positive tone.
• SLQT: Earnings are expected to align with consensus, and while the company has faced persistency issues, it is expected to outperform peers in managing these challenges.

2. Revenue Trends

• Consolidated Revenue: Grew 44% in 1H21, 14% in 3Q21, and is expected to grow 89% in 2020.
• Y/Y Growth: EHTH grew 2.5% in 3Q21, GOCO 16.5%, and SLQT 20.9%.
• Medicare Revenue: Represented 83% of total revenue in 3Q21, up from 78% in 2020. GOCO has the highest exposure at 98%, followed by EHTH (84%) and SLQT (65%).

3. Medicare Advantage Approved Policies

• Total Approved Members: Increased from 277 in 2019 to 1,879 in 2021, with the group's market share expected to grow to ~24% in 2021.
• GOCO: Surpassed EHTH in MA approved policies in 2020 and is expected to surpass EHTH in 2021.
• SLQT: Maintains the highest LTV in the group, though it is expected to decline Y/Y due to lower persistency and higher assumptions.

4. Medicare Advantage LTV Trends

• EHTH: LTV increased 5.0% in 3Q21 and is expected to remain stable.
• GOCO: LTV increased 5% in 3Q21, driven by persistency gains and Encompass platform revenue.
• SLQT: LTV is expected to decline 10.0% in CY3Q21, with a more conservative approach to assumptions.

5. Agent Strategy and Productivity

• EHTH: Reduced external agent reliance to ~5%, with internal agents representing ~95% of total agents. Expected to reduce agent hiring due to increased productivity.
• GOCO: Expects agent count to grow >50% in 2021, with a focus on training and quality. Agent costs are a concern.
• SLQT: Employed ~1,356 core agents and ~1,944 non-agent FTE employees. Hired ~2K additional employees, mostly flex agents, during AEP.

6. Medicare Segment Margins

• EHTH: Expected to improve Y/Y as it realizes returns on recent investments.
• GOCO: Internal Medicare margins at ~44.5% in 2020, but are expected to dip in CY21 due to higher agent costs.
• SLQT: Margins are expected to decline due to planned investments and lower LTV.

7. Other Revenue Trends

• EHTH: Other revenue is expected to remain flat in 3Q21.
• GOCO: Other revenue is expected to decline ~23% in 3Q21.
• SLQT: Other revenue is expected to grow ~6% in 3Q21 and ~58% in CY21, driven by Population Health and SelectRx.

8. Cash Flow and Capital Needs

• Operating Cash Flow: Negative for EHTH and SLQT in 2021, while GOCO's cash flow is expected to remain negative but less severe.
• Capital Raising: EHTH raised capital via H.I.G. Capital's $225 million convertible preferred stock investment. GOCO and SLQT may need additional capital in the future, though GOCO is not planning an equity raise in 2021.

Key Takeaways

• The e-broker group is expected to report earnings in line with consensus in 3Q21, but the quarter is likely to be range-bound due to lack of positive catalysts.
• Medicare remains the dominant revenue driver, with GOCO having the highest exposure.
• SLQT's LTV is the highest in the group, but it faces challenges with persistency and LTV trends.
• EHTH is transitioning to an internal agent model, which should improve productivity and reduce hiring needs.
• GOCO and SLQT are investing in technologies and training to enhance agent performance and customer retention.
• Cash flow remains a challenge for all three companies, with EHTH having raised capital, while GOCO and SLQT may need to raise additional capital in the future.

Valuation and Outlook

• EHTH: Target price (TP) is $59, with a conservative outlook on revenue and EBITDA.
• GOCO: TP is $7, with a focus on managing agent costs and improving productivity.
• SLQT: TP is $18, with a rebound in shares after a significant drop post-FY4Q21 earnings.

The group is expected to see continued growth in market share, driven by the increasing importance of the e-broker channel and improved performance in managing churn and LTV. However, challenges such as higher agent costs, lower persistency, and negative operating cash flow may affect their financial outlook.