eHealth, Inc.

Good day, thank you for standing by, and welcome to the Q1 2021 eHealth, Inc. 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 one on your telephone. Please be advised that today's call is being recorded. If you require any further assistance, please press star zero. 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 first quarter 2021 financial results. On the call this afternoon, we'll have Scott Flanders, eHealth 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 Medicare business, including Medicare enrollment growth, consumer demand, quality of enrollments, and market opportunities. Our investments in operational and technology initiatives and the expected positive impact on our business. Our ability to grow our internal agent force, increase agent productivity, and deepen customer engagement. Our expectations regarding our online enrollments, member acquisition costs, retention, and recapture rates. our expectations regarding our financial performance, the profitability of our business, seasonality, churn, lifetime values, member estimates, and operating expenses. And finally, our outlook for the second quarter of 2021, the annual enrollment period, and our full year 2021 financial guidance. Forward-looking statements on this call represent our views as of today. You should not rely on these statements as representing our views in the future. We undertake no obligation or duty to update information contained in these forward-looking statements, 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 SEC website or from the Investor Relations section of our website. Please be advised that the company, its directors, and certain of its executive officers are participants in the solicitation of proxies from the company's shareholders in connection with the 2021 Annual Meeting of Shareholders. The company intends to file a definitive proxy statement with the SEC in connection with any such solicitation of proxies. Shareholders are strongly encouraged to read such proxy statement once available and all other documents filed with the SEC carefully and in their entirety as they contain important information. Information regarding the identity of the company's participants and their direct or indirect interests by security holdings or otherwise can be found in the company's annual report on Form 10-K for the fiscal year ended December 31, 2020, and the company's definitive proxy statement for the 2020 annual meeting on file with the SEC. And updated information will be included in the company's definitive proxy statement for the 2021 annual meeting and other materials to be filed with the SEC. These materials can be obtained free of charge through the SEC website at SEC.gov or from the IR section of our website. We will be presenting certain financial measures on this call that are considered non-GAAP under SEC Regulation G. For conciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure, 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. We had a strong start to 2021 with first quarter Medicare enrollment growth significantly exceeding our expectations. First quarter results benefited from a number of operational and technology enhancements that we introduced over the past several months. Most importantly, these initiatives are expected to have a long-term positive impact on our business as we continue to scale in the Medicare and broader health insurance market. The way people shop for health insurance coverage is changing, and we are strongly positioned to deliver choice, transparency, and a convenient enrollment process that consumers are increasingly demanding. Health insurance distribution is evolving towards a consumer-centric model supported by robust e-commerce and call center capabilities, and that is exactly what eHealth brings to market. As we continue to drive profitable growth, one of our key operational priorities this year is enhancement of our call center operations to make our agents more productive, further increase enrollment quality, and deepen customer engagement. During the first quarter, we accelerated the shift in our telesales away from third-party vendor agents toward a predominantly in-house agent model, and we are seeing results. This shift, combined with a more robust lead allocation process, led to a significant increase in our average agent productivity compared to the first quarter of 2020, stronger than initially expected first quarter Medicare enrollment growth and a reduction in acquisition costs per approved Medicare member. We believe that call center issues that affected our fourth quarter 2020 execution, driven primarily by the underperformance of external vendor agents, are now behind us. Our operational improvements contributed to strong financial performance in the first quarter, with revenue, adjusted EBITDA, and earnings all exceeding our expectations. Total revenue for the first quarter was $134.2 million, a 26% year-over-year increase. Our first quarter gap net loss was $800,000 and our adjusted EBITDA was $17.3 million. Importantly, we grew our Medicare Advantage enrollments 65% compared to a year ago, with total Medicare enrollments growing 45%. We generated this growth while reducing total acquisition costs per approved Medicare member by 12%, with agent costs per member declining 24%, driven by strong agent productivity. First quarter cash flow from operations also exceeded our expectations at positive $42.8 million compared to $8.9 million a year ago, reflecting significant growth in our member base that is generating recurring cash commissions and an increase in cash collections per Medicare member that we continue to observe through March of this year. Our per-member cash collections have benefited from a larger percentage of new to Medicare Advantage enrollments, including consumers who are turning 65 and seniors moving from the traditional fee-for-service program. Brokers typically receive significantly higher first-year commission payments for enrolling these new to MA customers compared to commission rates paid for switchers. New to MA members represented approximately 47% of our total MA policies with an effective date of January 1, 2021. During the quarter, we continue to advance our e-commerce leadership. Online applications, including unassisted and partially agent-assisted submissions, represented 35% of our total first quarter applications for Medicare major medical products, up from 24% a year ago. The number of fully unassisted online applications for Medicare major medical products grew 106% year over year, well above our overall Medicare enrollment growth. While fully unassisted applications still contribute a relatively small share of our total Medicare enrollments, we expect them to generate close to $100 million in commission revenue in 2021. These enrollments tend to have higher lifetime values due to better retention and lower per-member acquisition costs, pointing to significant earnings and cash flow generation potential of our online business. Our customer center that we launched in October of last year now has over 130,000 accounts, which helps us create long-term relationships and data-driven engagement with customers who enrolled. These metrics demonstrate the significant traction our e-commerce platform has been gaining, which represents a strong competitive differentiation for e-health and aligns our business with secular trends in the market. First quarter estimated trailing 12-month churn for Medicare Advantage plans declined to 42% from 43% a year ago, driven primarily by better retention of members that we enrolled during the fourth quarter of 2020. The biggest positive impact on member retention in this cohort was related to increased contribution from online enrollments compared to 2019 AEP. Based on preliminary estimates, churn trend for our older MA cohorts relative to last year was mixed. What is clear is that we were more successful in recapturing members who switched plans. As a reminder, we count all plans switching on our platform that requires a new application as churn. For the full year 2020, our recapture rate was 14% compared to 11% for 2019. While higher recapture rates do not impact LTVs, which are measured on a policy basis, they do translate into higher enrollment volumes at reduced acquisition costs. and reflect stronger, stickier relationships with our members. We manage our business to unit economics with LTV to acquisition cost ratio being an important metric that reflects the underlying profitability and cash flow generation potential of new members that we enroll. Due to agent productivity improvements and stronger recapture rates leading to reduced acquisition cost per enrollment, Our first quarter LTV to acquisition cost ratio in the Medicare business has improved considerably on a year-over-year basis. We expect to see another meaningful improvement in member profitability during the fourth quarter AEP and for the full year 2021 compared to 2020. As we execute on our operational plans, we continue to engage constructively with our shareholders. Earlier in the first quarter, we announced an agreement with Hudson Executive Capital. As part of that, we added John Haas to our board of directors, and we'll add another independent director in due course. John is already providing valuable perspectives to the board. With these appointments, the company will have added five new directors over the last three years. We are also continuing to engage with another one of our shareholders, Starboard Value. We have held numerous and extensive discussions with them to better understand their views and are working to achieve a constructive resolution to these discussions. The eHealth board is open-minded with respect to value creation opportunities and will continue to take the actions that it believes are in the best interest of eHealth and all of its shareholders. With a successful first quarter behind us, we are starting to scale our telesales organization to prepare for the 2021 AEP. We expect this year's agent headcount growth to be driven predominantly through hiring a full-time career agents who have historically been significantly more productive and generated higher retention enrollments compared to vendor agents. In addition to a major shift towards the internal agent model, we are making other changes to make our telesales organization more effective and further enhance the consumer experience. We leveraged eHealth and industry data to develop a set of criteria and behaviors that make an agent successful and are taking a more scientific and targeted approach to hiring, training, and career development with our customer care and enrollment specialists. As we have indicated previously, we identified use of screeners as a best-in-class call center practice. We introduced our first team of internal screeners during the first quarter. The screener-assisted process allows us to answer more customer calls and convert them at higher rates. Screeners will be an important element of our enhanced digital lead scoring and routing process that we expect to fully launch ahead of the AEP. Finally, we have added top call center talent in the areas of sales operations, agent training, customer experience, and compliance. We are making important progress. but recognize we still have work to do to prepare for a successful annual enrollment period. The major ramp up in agent hiring is planned for June and July of this year, which is approximately six weeks ahead of our typical schedule, reflecting our enhanced training protocol and a major shift in our telesales model. We believe that a combination of a longer training period and an increased percentage of internal eHealth agents will have a significant positive impact on our telesales conversion rates and customer experience. In conclusion, the Medicare market remains large and attractive. We are in a strong position to increase our market share and solidify our technology leadership. Despite significant double-digit growth in our enrollments and revenue over the past several years, eHealth Medicare membership still represents less than 2% of total consumers enrolled in Medicare in 2020. Our approved Medicare Advantage members represented only 5% of total annual opportunity in the Medicare Advantage market last year, which is comprised of seniors switching between MA plans and new to MA enrollments. And it's important to note that our penetration of the new to MA opportunity, including consumers turning 65, and those switching from traditional fee-for-service Medicare has been increasing. We believe that we have been successfully resolving the call center related issues that negatively impacted our agent productivity and resulting enrollment volume and acquisition costs last AEP and will continue building on this momentum as we scale our agent headcount. Retention improvement continues to be one of our top operational priorities and will report on our progress in this area throughout the year. We expect to benefit from our recent initiatives applying to a greater portion of our book of business, including a larger percentage of our existing members being enrolled online, continuing retention team efforts, and stronger recommendation algorithms, as well as emphasizing marketer channels that generate higher LTV enrollments, such as online advertising and strategic partner channels. With these operational enhancements in place, eHealth is well positioned to deliver on our goals for 2021. And now I will turn the call over to Derek.