eHealth, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the fourth quarter fiscal year earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. Thank you. I would now like to hand the conference over to your speaker today, Ms. Kate Sidorovich, Vice President of Investor Relations. The floor is yours.

Thank you. Good afternoon, and thank you all for joining us today, either by phone or by webcast, for a discussion about eHealth, Inc.' 's fourth quarter and fiscal year 2020 financial results. On the call this afternoon, we'll have Scott Flanders, eHealth's chief executive officer, and Derek Jung, chief financial officer. After management completes its remarks, we'll open the lines for questions. As a reminder, today's conference call is being recorded and webcast from the IR section of our website. A replay of the call will be available on our website following the call. We will be making forward-looking statements on this call that include statements regarding future events, beliefs, and expectations, including statements relating to our expectations regarding our capabilities and market opportunities, our strategy to drive Medicare enrollment growth, increase quality of enrollments, and achieve high lifetime values. Our expectations regarding our Medicare business, including Medicare enrollment growth and consumer demand. Our investments in technology and retention initiatives and expected returns of these investments. Our ability to grow our internal agent force, increase agent productivity, and improve customer engagement. Our sales and marketing strategy, including our online strategy and strategic partnership channels. Our expectations regarding our financial performance, the profitability of our business, seasonality, churn, lifetime values, plan persistency, member estimates, total acquisition cost per member, and operating expenses. and our outlook for the first quarter of 2021 and our full year 2021 financial guidance. Forward-looking statements on this call represent eHealth's views as of today. You should not rely on these statements as representing our views in the future. We want to take no obligation or duty to update information contained in this forward-looking statement, whether as a result of new information, future events, or otherwise. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in our forward-looking statements. We describe these and other risks and uncertainties in our annual report on Form 10-K and quarterly reports on Form 10-Q, filed with the Securities and Exchange Commission, which you may access through the FCC website or from the IR section of our website. Please refer to the information included in our press release and in our SEC filings, which can be found in the About Us section of our corporate website under the heading Investor Relations. And at this point, I will turn the call over to Scott Flanders. Thank you, Kate, and welcome all.

As outlined in our preliminary report three weeks ago, the fourth quarter marked a soft ending to a strategically important year. Although 2020 presented challenges, eHealth made notable progress building out our capabilities, evolving our strategies, and positioning the company to capture significant market opportunities ahead. With that in mind and as we enter a new fiscal year, I want to take a step back and speak to what we have built, where we are going, and why we are confident that the actions we are taking will help address the issues that affected our performance last quarter and springboard eHealth into our next phase of growth and success. eHealth has a strong foundation that is differentiated from others in our industry. We are an organization rooted in technology with a best-in-class consumer-facing eCommerce platform. Over the last four-plus years, we have executed a deliberate plan that has enabled us to drive significant growth. We grew our approved Medicare members at a compound annual growth rate of over 40% between 2017 and 2020, while continuing to rapidly accelerate online penetration. Our Medicare revenue and segment profit have grown at a compound annual growth rate of 54% and 66%, respectively, over the same time period. We ended 2020 with an estimated 876,000 Medicare members and over $790 million in commissions receivable. At this stage of eHealth's evolution, we are enhancing our focus on driving quality of enrollments, customer engagement, and higher lifetime values while we continue to scale and profitably grow our share of the important Medicare market. Part of this strategy, in 2020, we launched two strategic initiatives aimed at strengthening our value proposition. The first was an investment in new technologies to dramatically improve our ability to analyze consumer needs and provide them with superior tools to improve accuracy of plan recommendations. The second is a multifaceted program to improve member retention. Our online strategy is a major element of this program. Online users have persistency that is significantly higher compared to those that engage with us telephonically. As a result, these enrollments have higher LTVs while also requiring lower per-member agent costs, providing for superior member economics. Our Customer Center that was launched in October of last year also plays a key role in improved member retention. The Customer Center leverages our online capabilities and is built around our customers and their data in order to personalize customer experience and deepen our relationships with our members while increasing brand awareness. We expect to start seeing clear returns on these investments in the form of efficiency, customer engagement, and retention as early as the first quarter of this year. We strongly believe our progress can be extended to drive growth and market share expansion through high-quality Medicare enrollments. This belief is further validated by our recent announcement that HIG Capital entered into a binding agreement to make a $225 million investment in e-health. HIG is a blue-chip investor that shares our view that Medicare distribution is rapidly moving toward a comparison shopping model and that our technology-driven platform is uniquely positioned. to leverage this trend and achieve market leadership. This investment is subject to customary closing conditions for this type of transaction. While we have ample liquidity to execute on our strategy in the near term, HIG's investment provides us with flexibility to opportunistically accelerate our growth. We are also excited about the pending addition of HIG's Managing Director, Aaron Tolson, to our Board of Directors. Aaron brings valuable expertise and helping companies leverage technology to disrupt their industry. Turning now to our results for the fourth quarter and full year of 2020. Approved members for our main product, Medicare Advantage, grew 30% in the fourth quarter compared to Q4 of 2019. While we continued to grow our enrollments at rates above the overall Medicare Advantage market, these volumes were below our expectations. I'll get into the challenges from the quarter and the actions we are taking to address those in a moment, but it's important not to lose sight of the progress that we've made. First, we have made significant progress towards improving the quality of our Medicare enrollments, which is critical to long-term profitability and cash flow generation. Our fulfillment mix shifted toward channels historically characterized by better retention and higher LTVs. 43 percent of our fourth quarter applications for Medicare major medical products were submitted online, including unassisted and partially agent-assisted online enrollments, up from 36 percent a year ago. Additionally, 81 percent of our telephonic enrollments in the fourth quarter were fulfilled by our internal agents, compared to 68 percent the year before. In addition to an ongoing shift in fulfillment mix, We have rolled out an enhanced lead segmentation and allocation process, introduced a dedicated customer retention team, and revised compensation structure for our internal agents, all in an effort to better align our sales organization with our broader strategic focus on enrollment quality and member retention. We are already seeing some encouraging early signs out of our retention team based on the number of their interactions with our existing members and relationships preserved, whether by keeping a member on the same policy or switching them to another plan on eHealth's platform. Further, our recently launched customer center has already garnered over 100,000 accounts to date. And as more customers become a part of our customer center, we believe their satisfaction and confidence in their Medicare plan choice will increase, a critical element of retention. We expect that our fourth quarter 2020 Medicare enrollments will prove to be of superior quality from a retention perspective compared to our fourth quarter enrollments a year ago, driven by the initiatives I just described. Under our application of the ASC 606 Revenue Recognition Standard, we expect that these initiatives will drive actual lifetime commissions from fourth quarter enrollments in excess of lifetime values that we have booked as revenue for the fourth quarter. This is because our estimated lifetime values are based in large part on historical observations, which do not take into account the expected impact of these initiatives. That said, based on the enrollment cycle in the Medicare business, we will have more visibility into our retention metrics for this new AEP cohort when we report our first quarter results in April. Our 2021 guidance currently assumes that our Medicare Advantage LTVs for the full year will return to 2019 levels, or roughly a 6.5% year-over-year increase. In our individual and family plan business, we reversed several years of major medical plan enrollment declines with a 4% growth driven by a 15% growth in approved members on qualified subsidy-eligible major medical plans in 2020 compared to 2019. The lifetime values of these qualified plans have also increased by over 20% compared to a year ago, driven by favorable retention observations for these plans last year. We support the Biden administration's decision to extend the enrollment period in the IFP market through the end of the first quarter of 2021 to allow consumers additional opportunity to get coverage in this unprecedented environment. We also encourage expansion of subsidies for more Americans who currently cannot afford an ACA plan. At the same time, our fourth quarter included internal and external setbacks, which we began taking steps to address as soon as they were identified. The main driver of our fourth quarter enrollment shortfall was the underperformance of our outsourced agent model. A large portion of our outsourced agents converted consumer demand at rates well below our expectations. Some of this was due to agent onboarding taking place later in the year compared to prior years. Because of COVID, we were also forced to conduct a remote training and supervision model. We also saw limitations of the outsourced model in terms of access to high-quality agents. This became more obvious as we scaled our telesales operations. As soon as we recognized the issues with our external agents, we took bold action by terminating roughly one-third of our outsourced agent force. It is worth noting that during AEP, our internal agents performed above our expectations, with their fourth quarter conversion rates increasing 12% year-over-year in the aggregate, exceeding our projections of a 10% improvement. On the demand generation side, we observed a significant increase in the combined direct TV spend by carriers and competitors during the annual enrollment period compared to a year ago, leading to higher per-member acquisition costs in this channel relative to our expectations. Combined with lower call conversion rates by our vendor agents, this significantly reduced our return on investments in the DRTV channel. To contain our acquisition costs, we pulled back on our DRTV spend during the quarter, leading to lower than expected volumes from this channel. We also believe that external factors, including the pandemic and, to a lesser extent, the prolonged election cycle, impacted consumer demand on our platform. Going into the 2020 Annual Enrollment Period, we expected a tailwind from more seniors shopping for Medicare online or over the phone instead of meeting face-to-face with a traditional Medicare broker. However, we now believe that there was an offsetting impact on demand from seniors postponing non-urgent health care, which in our view led to reduced Medicare plan switching. Given that a sizable portion of our leads come from the strategic partner channel, including hospitals, provider networks, and pharmacies, we believe the reduced foot traffic and utilization of their services had a negative impact on our enrollment volumes. In conclusion, we believe the factors that impacted our fourth quarter performance were isolated and can be corrected in the near term. We took decisive critical action to fix these issues and cement a strong foundation for our long-term performance and continue to work hard towards this goal, which leads me to 2021 and beyond. As you've just heard me describe, we have an understanding of the issues that impacted our fourth quarter performance. We also have a clearly defined plan in place to address them. We are executing on this plan while continuing to pursue strong Medicare enrollment growth and expansion of our market share. First, we've accelerated the shift in telesales away from third-party vendor agents and toward in-house agents. Historically, our internal agents produced a conversion rates that are on average 30% better compared to vendor agents, and this gap further widened in 2020. Our goal is to have less than 10% external agents in our total telesales headcount for this year's AEP. We plan to grow our internal agent force through a combination of agents at our customer care centers and agents that work remotely. Both groups performed well in the last AEP. Notably, we have taken the lessons we learned from onboarding during this remote work environment and implemented a new onboarding oversight program that we are confident will also help increase agents' productivity and success. Second, we are optimizing our marketing strategy to emphasize channels like our partner and online channels where we can better differentiate our platform from the competition by leveraging our unique e-commerce capabilities and the largest plan selection among broker platforms. The partner and online channels also drive enrollments at higher-forecasted LTVs and in the case of strategic partnerships, lower acquisition costs per member compared to the more traditional channels. Importantly, the initiatives that I have just described are already demonstrating results. First quarter to date, we have seen a 30% increase in agent productivity compared to the same period in 2020. Combined with strong performance in our online marketing channel, this has contributed to over 50% increase in approved Medicare Advantage members quarter-to-date compared to a year ago. The early success of these initiatives gives us confidence to pursue additional, broad-reaching changes to our marketing and sales strategy. We are moving away from transaction-driven marketing to a focus on customer lifecycle, campaigns that span member acquisition and onboarding to retention-focused activities to cross-selling, with a broader range of products. Before I turn it over to Derek, I want to emphasize a few key points. In 2020, we grew our Medicare Advantage approved members 39% and made a major shift towards enrollment quality and customer engagement. We implemented a number of key strategic initiatives and bolstered our sales and marketing organizations. We have aggressively and proactively addressed the factors that impacted our year-end performance. Ultimately, our business is strong and we have the financial firepower to accelerate our growth. As eHealth CEO, a long-term member of the Board of Directors, and one of its largest individual shareholders, I am very excited about the foundation we've built and the investments we're making to scale the company into its next phase of growth and innovation. The initiatives that we have deployed in recent months put us on track to to meaningfully approve performance in 2021. I now turn it over to our CFO, Derek Young.