NEW YORK, NY / ACCESSWIRE / October 3, 2020 / Pomerantz LLP announces that a class action lawsuit has been filed against certain officers of GoHealth, Inc. ("GoHealth" or the "Company") (NASDAQ:GOCO). The class action, filed in United States District Court for the Northern District of Illinois, Eastern Division, and docketed under 20-cv-05701, is on behalf of a class consisting of all persons other than Defendants who purchased or otherwise, acquired GoHealth Class A common stock pursuant and/or traceable to the registration statement issued in connection with GoHealth's July 2020 initial public offering (the "IPO"), seeking to pursue remedies under the Securities Act of 1933 (the "Securities Act") against GoHealth, certain of GoHealth's officers and directors, and the private equity sponsor of the IPO and its affiliates.
If you are a shareholder who purchased GoHealth securities during the class period, you have until November 20, 2020, to ask the Court to appoint you as Lead Plaintiff for the class. A copy of the Complaint can be obtained at www.pomerantzlaw.com. To discuss this action, contact Robert S. Willoughby at email@example.com or 888.476.6529 (or 888.4-POMLAW), toll-free, Ext. 7980. Those who inquire by e-mail are encouraged to include their mailing address, telephone number, and the number of shares purchased.
GoHealth provides an end-to-end health insurance marketplace that purportedly specializes in matching consumers with Medicare Advantage plans. Based in Chicago, Illinois, GoHealth is organized as a holding company, with GoHealth Holdings, LLC ("GHH") as the Company's principal asset, which houses the Company's operations. GHH was formerly known as Blizzard Parent, LLC ("Blizzard"), until it was acquired by the private equity firm Centerbridge (defined below) in September 2019 for $1.1 billion in equity and cash (the "Acquisition"). In connection with the Acquisition, Centerbridge also agreed to pay the Company's selling shareholders up to $275 million worth of additional contingent consideration, to be paid in the form of common and senior preferred earnout units, if the Company achieved certain earnings targets in late 2019 and 2020.
Immediately following the Acquisition, GoHealth reported tremendous growth. From September 13, 2019, through December 31, 2019, GoHealth purportedly generated $308 million in net revenues, compared to just $231 million during the period from January 1, 2019, through September 12, 2019. Thus, GoHealth stated that it had generated substantially more revenues in the three-and-a-half months following the Acquisition than in the eight-and-a-half months preceding the Acquisition. Indeed, GoHealth claimed to have generated more revenues in the three-and-a-half months following the Acquisition than it did during the Company's entire 2018 fiscal year.
GoHealth also represented that its business model was highly profitable, offering the best lifetime value of commissions ("LTV") per consumer acquisition cost ("CAC") of any of its peers. LTV refers to the commission revenues that GoHealth expected to receive from insurance carriers in connection with an approved submission for an insurance policy by a new consumer over time, factoring in a variety of variables such as contracted commission rates, carrier mix, policy persistency, and the number of expected submissions. CAC refers to the cost to GoHealth of acquiring its consumers. Thus, LTV/CAC is a type of profitability metric that generally refers to how much of a return GoHealth expected on its consumer acquisition investments. GoHealth represented that its LTV/CAC ratio for its Medicare Internal segment (the Company's largest and most profitable segment) was 3.9x and 2.7x for 2019 and its first-quarter 2020, respectively, significantly higher than the 1.7x LTV/CAC ratio the Company stated it had achieved during the first quarter of 2019 and, by some estimates, roughly double GoHealth's peers.
Although GoHealth generated net losses in 2019, the Company claimed that this was because it was in growth mode and seeking to expand its presence as a dominant force in the Medicare insurance marketplace. The Company's adjusted earnings before interest, taxes, depreciation, and amortization ("EBITDA")-a metric tailored by management ostensibly to show the Company's core profitability by excluding certain costs-increased considerably in the lead-up to the IPO. GoHealth claimed that its adjusted EBITDA had grown by 388% year over year to $170 million during its pro forma 2019 and by 394% year over year to $35 million during the first quarter of 2020. As a result of its apparently exceptional earnings growth, GoHealth incurred $75 million in contingent consideration liability from the close of the Acquisition through the end of the first quarter of 2020 to be paid out to the Company's prior owners.
Unlike many competitors, the Company focused its business on just two insurance carriers: Humana and Anthem. In the first quarter of 2020, 74% of GoHealth's entire net revenues were derived from just these two carriers. This carrier concentration was even higher for GoHealth's all-important Medicare segments at roughly 85% of all segment revenues, despite the fact that Humana and Anthem were estimated to account for just 23% of total Medicare Advantage market-wide enrollment.
GoHealth considers insurance carriers to be its primary customers, rather than consumers because the carriers are responsible for paying commissions to GoHealth in exchange for GoHealth reliably placing policies in compliance with applicable regulations and carrier-specific requirements. The Company does not receive any revenues directly from consumers. The carriers utilize GoHealth as a scalable means of acquiring customers that can be more cost-effective than developing internal acquisition capabilities. According to GoHealth, the Company's high LTV/CAC ratio was primarily the result of the Company's unique competitive advantages in the services it provides to its insurance carrier partners. As described by the Company, GoHealth's "Best-in-Class Medicare LTV/CAC Ratio" is "Driven by Proprietary Technology, Business Processes, Data and Highly Skilled Agents."
On June 19, 2020, just nine months after the Acquisition, GoHealth filed with the SEC a registration statement for the IPO on Form S-1, which, after two amendments, was declared effective on July 14, 2020 (the "Registration Statement"). On July 16, 2020, GoHealth filed with the SEC a prospectus for the IPO on Form 424B4, which incorporated and formed part of the Registration Statement. The Registration Statement was used to sell to the investing public 43.5 million shares of GoHealth Class A common stock at $21 per share, for total gross proceeds of $913.5 million. Proceeds from the IPO were used primarily for the purpose of paying the Company's insiders and Centerbridge and consummating financial obligations which had arisen from the Acquisition.
The Complaint alleges that the Registration Statement for the IPO was negligently prepared and, as a result, contained untrue statements of material fact, omitted material facts necessary to make the statements contained therein not misleading, and failed to make necessary disclosures required under the rules and regulations governing its preparation. Specifically, the Registration Statement failed to disclose that at the time of the IPO: (i) the Medicare insurance industry was undergoing a period of elevated churn, which had begun in the first half of 2020; (ii) GoHealth suffered from a higher risk of customer churn as a result of its unique business model and limited carrier base; (iii) GoHealth suffered from degradations in customer persistency and retention as a result of elevated industry churn, vulnerabilities that arose from the Company's concentrated carrier business model, and GoHealth's efforts to expand into new geographies, develop new carrier partnerships and worsening product mix; (iv) GoHealth had entered into materially less favorable revenue-sharing arrangements with its external sales agents; and (v) these adverse financial and operational trends were internally projected by GoHealth to continue and worsen following the IPO.
Shortly after the IPO, the price of GoHealth Class A common stock suffered significant price declines, and by September 15, 2020, GoHealth Class A common stock closed at just $12.53 per share-over 40% below the $21 per share price investors paid for the stock in the IPO less than two months previously.
The Pomerantz Firm, with offices in New York, Chicago, Los Angeles, and Paris is acknowledged as one of the premier firms in the areas of corporate, securities, and antitrust class litigation. Founded by the late Abraham L. Pomerantz, known as the dean of the class action bar, the Pomerantz Firm pioneered the field of securities class actions. Today, more than 80 years later, the Pomerantz Firm continues in the tradition he established, fighting for the rights of the victims of securities fraud, breaches of fiduciary duty, and corporate misconduct. The Firm has recovered numerous multimillion-dollar damages awards on behalf of class members. See www.pomerantzlaw.com.
SOURCE: Pomerantz LLP
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