eHealth, Inc.

Good afternoon everyone and welcome to the eHealth Inc conference call to discuss the company's second quarter 2022 financial results. At this time, all participants have been placed in listen mode. The floor will be open to your questions following the presentation. It is my pleasure to turn the floor over to Eli Newbrun Mintz, Senior Investor Relations Manager. Please go ahead.

Thank you, operator. Good afternoon, and thank you all for joining us today, either by phone or by webcast, for a discussion about eHealth, Inc.' 's second quarter 2022 financial results. On the call this afternoon, we 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 line 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 trends in the healthcare insurance distribution industry, consumer demand, our competitive advantage, and market opportunities. Our expectations regarding our Medicare and individual and family businesses, including our Medicare enrollment and other product offerings. our expectations regarding our ability to improve customer conversion, customer retention, and other quality metrics, our expectations regarding our marketing channels, our telephone and online enrollments, our e-commerce platform, and our member acquisition strategy, our expectations related to our short- and long-term strategies, operating plan, and financial goals, including our transformation initiatives, our expectations regarding our financial performance, including the profitability of our business, cash flows, conversion rates, customer retention, lifetime values, member estimates, and fixed and operating expenses, and our full year 2022 financial guidance. Forward-looking statements on this call represent e-health'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 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 some of 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 earnings release issued today 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 Fran Soyston.

Thank you, Eli, and good afternoon to everyone joining us today for our second quarter 22 earnings call. During my prepared remarks, I will provide an update on our progress in implementing our strategic initiatives, discuss second quarter financial and operating results, and revisit our outlook for the remainder of the year. I'd like to begin, though, with some higher-level thoughts on our industry. The online and telesales health insurance distribution industry has faced multiple challenges over the past two years that have required the key players, including eHealth, to make conscious changes to our enrollment growth strategies, including a shift in approach to demand generation to achieve enrollment margins that support the economics of this business. Other top priorities for our industry include increasing member retention, continuously enhancing beneficiary experience, and maintaining a solid compliance track record as regulatory requirements evolve. The businesses that respond to these challenges effectively will be rewarded with deeper relationships with their customers and carrier partners. And as the industry continues to evolve, we believe growth will return along with more stable financial performance. We believe customers deserve a trusted and unbiased advisor and shopping platform offering a broad selection of quality carrier options to meet their personal health insurance needs and preferences. Further, consumer needs and expectations range from do-it-yourself to limited assistance or advice to full agent's assistance to the customer or caregiver. Consumers also choose to interact with brokers in a variety of ways, including by telephone, online unassisted using a computer or a mobile device, or through a hybrid online agent-assisted process. eHealth is listening to consumer preferences regarding the shopping experience for their health insurance needs and has built a robust and convenient omnichannel platform that continues to evolve today. eHealth Medicare and individual and family businesses provide significant value to both beneficiaries and carriers and remain attractive growth opportunities. our comprehensive omnichannel shopping and enrollment platform, and our expertise in using data science to simplify complex and personally impactful decisions regarding health insurance are foundational to our value proposition, which is built to meet consumers on their terms. We believe that eHealth will maintain and strengthen its leadership position in the large and growing direct-to-consumer health insurance distribution industry as we implement our impactful new, short, and long-term transformational initiatives identified in the past year. I'll now move on to our second quarter progress and performance. In Q2, we continued to execute on the six-point operating plan that we've outlined on our prior earnings calls and took further steps in our cost savings journey. Currently, we are on track to deliver more than $60 million in annualized cost savings through targeted reductions in both variable and fixed cost. In the second quarter, we implemented a targeted workforce reduction while maintaining strong expertise in areas of our strategic focus. We have also conducted a thorough review of each marketing campaign and partnership, phasing out those arrangements that did not fit our member acquisition cost criteria. Additionally, as part of our cost savings initiatives, we have set a course to significantly reduce our real estate footprint and to become a virtual-first workplace. This will eliminate a large fixed cost center over time. The primary goal of these cost savings initiatives remains unchanged, returning to profitable growth and cash flow generation on an accelerated timeline. We are also seeing signs of a more rational approach to marketing spend and enrollment growth in the broader Medicare distribution industry. Based on these observations and to further our goal of eliminating the underperforming customer acquisition channels, we made the decision to reduce our investment in telesales capacity and variable marketing in the second half of the year relative to the original operating plan. This means we expect to have fewer Medicare Advantage enrollments while achieving the same or better profitability on these enrollments by focusing on the highest ROI channels and increasing lead conversion rates. In the second quarter, we recognized the revenue impairment of 8.7 million, caused mostly by lower than expected retention within Medicare cohorts enrolled during the first half of 2021, before the implementation of our enrollment quality initiatives. The revenue impairment and our new lower marketing spend plan for the year informed the lower revenue guidance range, while GAAP net income and adjusted EBITDA guidance ranges were lowered by the net amount of the impairment. Conversely, our lower cost outlook for the year is also the reason that we are increasing our guidance for total cash flow outflow. Because cash flow is not an ASC 606 item, it is not impacted by the impairment. These revised numbers can be found on our earnings press release and earnings slides. Christine will provide more context for the impairment and our new outlook for this year later on the call. At this point, I'd like to revisit each of the six areas of our operating plan and discuss our executional progress in each of them. First, as I mentioned, we are on track to achieve above and beyond our plan reductions in cost structure and working to identify additional areas of savings for the second half of 2022 and into 2023. Second, We are deploying marketing dollars in a way that we expect will drive better unit economics, including the optimization of our marketing mix to focus on channels where we hold strong competitive differentiation. In accordance with this goal, we have further reduced our investment in the DIRECTV channel. For the upcoming AEP, our investment in DIRECTV will be branded and limited to specific geographies where we see the best opportunity and we plan to build on this approach in the coming years. Absolute dollar investment in the lead aggregator channel declined significantly in the second quarter compared to a year ago, but remained a meaningful portion of our overall channel mix. Moving into the AEP, we will be dramatically reducing the contribution from this channel, maintaining only those lead generator relationships that fit our LTV to CAC targets. In the second half of 2022, We plan to ramp our exposure to the online advertising channels, direct mail, and email marketing, as well as lead nurturing, where we, for example, will leverage hundreds of thousands of online applications that are left partially completed every quarter. The emphasis on targeted marketing through audience segmentation and promoting the e-health brand will apply broadly across our marketing initiatives going forward. Additionally, we look forward to announcing our new chief marketing officer in the coming weeks. This critical new hire will be leading the next stage of our omnichannel demand generation strategy. Third, as previously shared, we're slowing down our telephonic enrollment growth this year while emphasizing agent training and retention initiatives, piloting a local market-centric model, and increasing the contribution from dedicated carrier arrangements to de-risk our marketing strategy and boost conversion rates. While our telephonic conversion rates remain impacted by the enrollment quality initiatives introduced last year, they did track ahead of our expectations in the second quarter. We're also seeing continuing traction with our quality metrics. Our carrier partners have acknowledged our success in executing on the commitments we made coming out of the 2021 AEP to improve quality through CTM reductions as the cohort enrolled during the 2022 AEP has demonstrated lower CTMs and better retention. We're following through on our quality commitments with impactful actions that have further strengthened our carrier relationships. In addition, we believe that sustained improvements in CTM metrics is a leading indicator for customer satisfaction and improved retention performance for our new enrollments. In fact, members who we enrolled during the most recent AEP continue to track significantly better relative to prior AEP cohorts in terms of persistency. Year-to-date lapse rate on our 22 AEP cohort is approximately 10% better than what we observed with the 21 AEP cohort at the same time a year ago. Ahead of the AEP, we are putting in place a number of programs aimed at further improving agent performance. One of these programs is eHealth University, which is a higher touch training model meant to help agents enhance their sales skills, in addition to obtaining required Medicare plan and regional market knowledge. Our product team also made significant progress this quarter, iterating on and testing enhancements to our selling process. In Q2, we successfully launched an online chat tool powered by licensed agents and piloted a co-browsing feature that allows our agents and customers to screen share for a more effective navigation of the enrollment experience. We are seeing early positive impact on conversion rates for customers who took advantage of these new tools. This is an example of improving the experience for our agents and customers during the selling process as we frequently hear from beneficiaries that they want to be able to see the plans in front of them as an agent is describing the available plan options. As we ramp for the AEP, we are building an agent base that is leaner and more agile than in past years, supplementing with a small number of third-party agents. Reflecting our revised outlook and focus on the most profitable enrollments, we have reduced our hiring targets this year and are currently expecting a year-over-year reduction in fourth-quarter agent headcount. The fourth element of our operational plan is to continue growing our online business and reinforcing our tech differentiation through targeted investment in our e-commerce platform. I continue to believe that one of our most important competitive modes is our seamless omnichannel enrollment platform led by scalable online enrollment capabilities. We believe that beneficiaries find tremendous value in our end-to-end enrollment capabilities. and that it is critical to maintain and advance this point of differentiation. As we have pulled back on our variable marketing spend across the organization, in the second quarter, we also temporarily scaled back the amount of leads we generated through paid online advertising. While we continue to grow our Q2 online unassisted Medicare Advantage enrollment at 15% year over year, this represented a slower rate of growth compared to prior quarters. The fifth element of our plan is to work with our carrier partners to pursue revenue opportunities and value creation beyond the traditional broker record model. This includes collaborating on ways to enhance beneficiary experience post-enrollment, including joint member engagement and support initiatives. Beneficiary experience is one of the top priorities for carriers, and we are seeing early interest in these joint programs that could drive revenue other than broker compensation. Finally, the sixth point is to pursue cost-effective diversification initiatives. On the IFP side, we are pursuing the Emerging Individual Consumer Health Reimbursement Arrangement, or ICRA, opportunity, which allows employers to fund IFP premiums for their workforce as an affordable alternative to small business coverage. In the second quarter, we intentionally decided to keep our powder dry in order to ramp our spend in the fourth quarter where we see the largest potential for scaling ICRA enrollments. We're also experimenting with ancillary products that target our existing Medicare customer base, such as hospital indemnity products, as well as dental, vision, and hearing products, with the potential for additional products where we see opportunity. And finally, we are evaluating new areas of expansion that represent a departure from our current products and services. We expect any diversification initiative that we undertake after initial testing to have a more favorable first-year cash flow profile relative to an MA sale. Moving to second quarter financial results, total revenue was $50.4 million. GAAP net loss was $37.5 million. Adjusted EBITDA for the second quarter was a loss of $33.3 million. We ended the quarter with $801.6 million in commission receivables. Second quarter, Core operational performance exceeded our revenue and adjusted EBITDA expectations, driven primarily by better than expected telephonic conversion rates in the Medicare business. As I mentioned earlier, in the second quarter, we also recorded an $8.7 million negative adjustment in revenue, which impacted overall results. While we are seeing better retention on the newer Medicare Advantage cohorts enrolled after we introduced the call verification step in July of 2021, some of the older cohorts have churned at elevated rates. Excluding the impact of the negative revenue adjustment, our second quarter revenue was $59.1 million, and adjusted EBITDA loss was $24.6 million. Despite recording this negative tail stemming from older Medicare cohorts, it is still true that the enrollment quality initiatives implemented last July are serving their intended purpose of creating a better overall customer experience while increasing persistency and decreasing CTM rates. As part of our transformation initiatives, we are working on strategies for enhancing EL's capital structure and meeting our long-term capital needs. We expect to be able to discuss this in greater detail later this year when we also plan to feature some of the initiatives from our three-year strategic business plan, along with revenue growth and cash flow outlook. When I was asked to lead eHealth, I was anticipating making leadership changes following the same team-building playbook that has worked for me in the past, namely building a team with complementary skills, bought into our mission and vision, and committed to putting the company first. I believe we're in the final stages of completing this goal. With that as context, in conjunction with our second quarter results, we filed an 8K announcing the departure of our Chief Digital Officer, Philip Morlock. We appreciate Philip's contributions to eHealth during the past four years. A search for a new digital and technology leader is underway, and I'm confident we'll continue to attract great talent to complete the transformation of the leadership team. In the first half of 2022, we welcome new executives to our management team, including our Chief Operating Officer, Chief Transformation Officer, Roman Rary, our new General Counsel, Gavin Gallini, and Chief Accounting Officer, John Dolan. In addition, we plan to announce the appointment of our new Chief Marketing Officer before the end of the month. I'm excited to have these critical hires in place as their energy and enthusiasm is contagious throughout the entire organization. While we are still in the midst of executing our transformation plan, my confidence in eHealth strategy and positioning to take advantage of the attractive Medicare Advantage opportunity remains unwavering. I am confident that the operational, technology, and marketing changes we are making have eHealth on the right track to reach our goal of sustainable, profitable growth and deliver value to our shareholders. I'll now pass the floor to Christine to discuss our financial results and outlook for the second half of 2022 in greater detail. Christine?