eHealth, Inc.

Good morning, everyone, and welcome to eHealth Inc.' 's conference call to discuss the company's third quarter 2021 financial results. At this time, all participants have been placed in a listen-only mode. The floor will be open for your questions following the presentation. It is now my pleasure to turn the floor over to Eli Newbrun-Vince, Investor Relations Manager. Please go ahead.

Good morning, and thank you all for joining us today, either by phone or by webcast, for a discussion about eHealth Inc.' 's third quarter 2021 financial results. On the call this morning, we will have Fran Soisman, eHealth's Chief Executive Officer, and Christine Janowski, eHealth's Chief Financial Officer. After management completes its remarks, we will open the lines for questions. As a reminder, today's conference call is being recorded and webcast from the Investor Relations 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 enrollments, consumer demand, our competitive advantage and market opportunities, our expectations regarding the health insurance distribution industry, including current trends, our investments in our e-commerce and call center capabilities, quality initiatives and technology, and the expected impact of these investments on our business. Our expectations regarding our individual and family business and growth opportunities. Our ability to increase agent productivity and improve customer satisfaction, retention, and other quality metrics. Our expectations regarding our online enrollments, member acquisition costs, and lifetime values. Our expectations regarding our business strategy and financial performance including the profitability of our business, cash flows, conversion rates, customer retention, seasonality, lifetime values, member estimates, and operating expenses, 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 undertake no obligation or duty to update information contained in 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. We will be presenting certain financial measures on this call that are considered non-GAAP under SEC Regulation G. For reconciliation 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. At this point, I will turn the call over to Franz Weissman.

Thanks, Eli, and good morning to everyone joining us today as we report our third quarter 2021 financial results. As you know, I became CEO of eHealth just one week ago today. I've received a warm welcome from our very talented employees, and I look forward to working together in the years ahead. Before I review our financial and operating results for the quarter, I want to take a few minutes to introduce myself. and share why I'm excited and energized to be leading eHealth. As a bit of background on me, I've spent nearly 40 years in the healthcare industry, including serving as president of government services for Aetna, pre and post acquisition by CVS Health, where I was responsible for leading the strategic execution and profitable growth plans for Aetna's Medicare, Medicaid, individual and public exchange, and federal employees health benefit businesses. While there, I built and led a team that achieved sustained accelerated revenue and earnings growth, coupled with strong STARS ratings and compliance performance, among many other accomplishments. Prior to my time at Aetna, I served in executive leadership positions across a number of healthcare and managed care companies, including Coventry Healthcare, Principal Healthcare, and CareFirst Blue Cross and Blue Shield of Maryland. Before I share comments on our third quarter performance and fourth quarter outlook, I want to acknowledge my predecessor, Scott Flanders. Scott transformed eHealth during his tenure as CEO, including important diversification of products by introducing and scaling Medicare Advantage and ancillary offerings to supplement our IFP capabilities. This set the stage for the creation of a highly effective digital Medicare distribution strategy. Scott's leadership and contributions throughout the past six years have given eHealth a steadfast, differentiated foundation. Importantly, Scott assembled a talented management team with whom I've begun building strong relationships. I look forward to working with this team to develop strategic goals, execute our plans, and conquer our challenges. I'd also note that having gone through similar leadership transitions before, this one has been a near textbook transition. As previously announced, Scott has agreed to stay on in a consulting role with the company through the end of this year. I want to take this opportunity to introduce Christine Janowski, our new Chief Financial Officer, who joined eHealth in September. Christine brings more than 20 years of finance and insurance experience, most recently serving as Senior Vice President and Chief Accounting Officer at Lincoln Financial Group. Since joining the organization, Christine and I are already off and running, and I look forward to partnering with her to shape our strategic and financial direction for 2022 and beyond. You'll hear from her a bit later on the call today. I joined eHealth based on my deep appreciation for the company's unique customer-centric platform and a strong belief in the significant opportunities ahead of us. We're harnessing powerful secular trends that when combined with refreshed strategic thinking and planning, followed by disciplined execution, will drive the company's growth and value creation. Among the positive secular trends are an expanding Medicare population that continues to enjoy a long runway, continued momentum and popularity of the Medicare Advantage Program, and the increasing number and complexity of Medicare plans. Consumers across all demographic groups are increasingly favoring choice and the ability to comparison shop for impactful purchases. This increasingly applies to healthcare. In addition, our digital platform provides eHealth with a strong competitive advantage as seniors adoption of the internet for research, social interaction, shopping, and other daily needs is growing and has been accelerated by the global COVID pandemic. In short, I see our consumer-centric omnichannel marketplace as the health insurance distribution model of the future, aligned with the evolving needs and preferences of our customers. Another important development is the heightened awareness and focus on beneficiary enrollment quality among our key carrier partners. Let me take a moment to define what I mean by enrollment quality. Simply stated, it's ensuring that eHealth presents Medicare beneficiaries with choices that best align with their eligibility status, lifestyle, health conditions, and economic means, all with minimal disruption in existing provider relationships and prescription medications. In the end, eHealth wants to ensure that beneficiaries make an informed choice based on these criteria to establish the foundation for a healthy carrier-member relationship. And it furthers their satisfaction, trust, and experience with eHealth. As with many aspects of business and our personal lives that underwent significant changes due to the COVID-19 pandemic, the way Medicare Advantage products are marketed and distributed to seniors has also changed, with more plans now being sold through telesales supported by licensed agents. When a new product is introduced or a large shift in distribution channels occur, It is not uncommon for this change to be accompanied by compliance-related measures to guarantee that customers are receiving the same quality experience as with established distribution networks. CMS has always appropriately placed the best interests and safety of beneficiaries at the center of everything they do. They expect their contracted carriers and distribution partners to do the same. As a downstream delegated entity, eHealth has the same obligations as our carrier partners. We fully accept these responsibilities and believe broker performance will be increasingly evaluated on customer satisfaction, retention, and other quality metrics in addition to volumes. This sector-wide movement provides an opportunity for eHealth to take a leadership position, establishing our omnichannel distribution platform as the gold standard for customer experience within the sector. While there are upfront costs and a near-term impact on enrollment volumes that I will address shortly, we believe that this trend will change the competitive landscape in our space and create significant competitive advantages for digital brokers that successfully work with carriers on attaining quality goals. I recognize that I'm transitioning into the CEO role here at eHealth at a critical point in the evolution of the Medicare distribution industry. I plan to leverage my multi-decade long experience in healthcare and managed care to further strengthen our relationships with carrier partners, improve data flow between parties, and maximize the lifetime value of enrollments we deliver. My initial focus as CEO is on our execution in the annual enrollment period. The 10 weeks of AEP are a critical time when we operate at our peak capacity in call center utilization and generate a large portion of our total annual Medicare enrollments and revenues. While a lot of preparation occurs in the weeks and months prior to the enrollment season, the execution during AEP is critical. We are monitoring the effectiveness of our diversified marketing programs and the performance of our telesales organization daily, and we're making course corrections in real time, and we'll use this insight to improve our go-forward AEP strategy and execution. This year, a number of important initiatives and changes were implemented ahead of AEP. One common thread among them is our enhanced focus on enrollment quality. Perhaps the most important change that took place operationally since last AEP involves our telesales organization. Earlier this year, we've made an aggressive pivot in our telesales channel to a model driven predominantly by in-house sales agents. We launched a major talent acquisition campaign and have the largest class of full-time agents in our history successfully recruited and onboarded. We entered this AEP with more than 95% of our telesales capacity made up of internal agents ahead of our initial goal of 90%. Second, we took a number of steps to further enhance consumer experience and enrollment quality on our platform. This includes the addition of an enrollment verification step for telephonic enrollments, as well as supplemental training for our agent force. Third, we migrated our call center technology to a cloud-based contact center, which provides robust new capabilities to train agents, support them in their interactions with customers, and monitor their performance in real time. Finally, we continuously evolve our lead generation capabilities, and this year we upgraded lead scoring and routing tools across all call centers. Turning to our online capabilities, our digital platform, an important competitive differentiator for eHealth, continues to evolve and is attracting a growing number of Medicare customers. During the third quarter, the sum of online unassisted Medicare Advantage and Medicare Supplement submitted applications grew 58% compared to the same period in 2020. We expect it to remain an important growth driver during this AEP, delivering MA enrollments with LTVs that historically have been 30 to 40% higher compared to telephonic signups. Ahead of the AEP, we launched the next release of our recommendation engine to further improve the accuracy of personalized plan matching based on machine learning and leveraging data from hundreds of thousands of online customer interactions. On the customer engagement side, our customer-centered tool continues to gain traction, with more than 195,000 individuals creating accounts since it was launched in October of 2020. We continue to see this as a meaningful differentiator, allowing members who use Customer Center to connect more deeply with eHealth and ultimately retain at better rates. We expect the combination of optimized plan matching and engagement with Customer Center to have a positive impact on customer satisfactions. with their plan selection and to result in higher member retention and recapture on our platform. Demand for Medicare Advantage plans remain strong, and eHealth is well positioned to help seniors navigate an increasingly broad and complex range of plans. This year, we prioritized our strategic partner and online channels as well as company-driven direct mail initiatives that have been associated with higher quality, higher margin enrollments. Now turning to our third quarter financial results. Our third quarter Medicare enrollment volume and revenue were negatively impacted by the enrollment quality efforts we introduced during the quarter. Specifically, we're seeing a reduction in our call center conversion rates in part due to the new quality measures that have been implemented. The decline in conversions was compounded by the impact of a large number of new sales agents trained and deployed during the third quarter along with the recent migration to a new call center technology. I want to emphasize that after we absorb the near-term cost and conversion rate deterioration from these efforts, we expect them to drive greater retention and LTVs out of our enrollments in the longer term. We also expect that they will establish eHealth as a top-tier quality distribution channel for our carrier partners, setting a high bar for other major brokers. We continue to collaborate with carriers to confirm that these new quality enhancements are working. I'm confident we've taken the right steps to put the customer experience and quality of enrollments at the center of what we do, and I believe we're establishing eHealth as the gold standard within the sector. Third quarter revenue was $63.9 million, a 32% year-over-year decline. Our third quarter gap net loss was $53 million, and our adjusted EBITDA was negative $55.2 million. Total Medicare approved applications declined 22% compared to Q3 a year ago, impacted by lower total sales conversion rates, on top of the funnel demand exceeded demand that we saw in Q3 2020. Our online business continued to grow, with unassisted online applications increasing more than 50%. year over year for Medicare Advantage and Medicare Supplement Plan enrollments combined. Conversion rates on our online platform increased compared to a year ago driven by improvements to the online user experience that we've implemented. Now I'd like to make some observations about our AEP execution to date. In the first three weeks of AEP, we've seen solid consumer interest on our omnichannel platforms. At the same time, our telephonic conversion rates, while showing a meaningful improvement compared to Q3, are behind our forecast. Given the extensive changes we've implemented to our telesales organization, our agents are taking time to adjust. However, we remain confident that the sales proficiency of most of our call center sales agents increase with each beneficiary encounter every day and every week. We expect this will result in our continuing to close the conversion gap and place eHealth in a stronger position throughout the balance of the annual enrollment period and into the Medicare Advantage open enrollment period. While our online business continues to generate strong growth, it is not yet large enough to offset the underperformance of our call center operations. We are adjusting our 2021 financial outlook, including a revised revenue range of $535 million to $575 million, a revised GAAP net loss range of $63 million to $43 million, and a revised adjusted EBITDA range of negative $20 million to break even. Christine will provide more color to our revised outlook in her comments later in the call. As I mentioned earlier, my focus as a CEO has been first and foremost on AEP execution. Simultaneously, I'm conducting a deeper review of e-health operations, financial performance, including cash flow simulations, current operating model, organizational structure, and strategic imperatives. During the Q4 earnings call, I plan to share more about my assessment of the company's foundation and direction, as well as highlights of our strategic plan for 2022. I've also observed that the mission-driven nature of this company is very important to our employees, and I intend to stay true to the company's core mission of connecting e-health customers with quality, affordable health insurance options, a mission that hasn't changed since eHealth's inception. Through recent initiatives, we've heightened our focus on enrollment quality and customer retention, and this will remain a critical component of our execution going forward. I see opportunities to increase our sales effectiveness by dedicating our call center agents to more defined geographies so that they can be even more responsive to consumers and provide deeper insights and to available plan options. I expect to be prepared to share more specifics with you during our Q4 21 earnings call. Another opportunity area is to have our brand stand not only for carrier agnostic choice, but also to be increasingly seen as a trusted source or clearinghouse of relevant healthcare-related material to help consumers navigate the complex healthcare system I also believe there is an opportunity to broaden our platform beyond our current focus on sales and enrollment to encourage current prospective eHealth members to visit our website frequently. In my experience, this is critical to building loyalty and drawing consumers to our platform year-round rather than just during the enrollment periods. I also see the online business as a critically important component of eHealth's business model. It's characterized by superior unit economics and quality metrics, while also appealing to the growing segment of the senior population that's comfortable and actually prefers to transact online. I expect to continue our focus in driving accelerated growth in our online enrollments. My focus goes well beyond maintaining strong enrollment and revenue growth. It's very clear to me that eHealth must demonstrate to our investors that we can generate strong EBITDA margins and produce positive cash flows in a shorter cycle. Though I've been in the CEO chair all of six days, I've been evaluating the business for the last few weeks, and I believe there's a path to achieve all of these objectives. We will get there through a combination of managed growth by controlling our rate of growth on a product-specific basis through the most efficient distribution and marketing channels and further diversification of products with particular emphasis on those that lend themselves to being sold online. At the same time, eHealth will be focusing on accelerating strategies aimed at increasing customer loyalty and reducing member churn. My initial review of the business also has revealed potential for enhancing our performance through tighter alignment with our key carrier partners, stronger execution in our telesales environment, and further operational improvements, including deeper integration of data analytics across all of our key operational areas. Medicare remains our core market. However, with the resurgence and stabilization of the individual and family health insurance market, the time is right for eHealth to renew our focus in IFP to support the overarching objective of a balanced portfolio and positive EBITDA and cash flows. Christine and I will also be revisiting our five-year financial plan and expect to share our long-term targets with investors next year. Before I turn the call over to Christine to review the quarter and our financial results in more detail, I want to emphasize how excited I am to be leading eHealth. Throughout my career, I've been guided by the goal of providing Americans with access to quality and affordable healthcare options while reducing the complexity of the healthcare system. It is a privilege to join and lead a company whose mission and values are closely aligned with mine, and I'm committed to lead eHealth in a direction that provides our shareholders with compelling reasons to maintain confidence in our company. I will now turn the call over to Christine.