eHealth, Inc.

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

Good morning, and thank you all for joining us today. On the call this morning, Fran Soisman, e-health's chief executive officer, and John Stelvan, chief financial officer, will discuss our fourth quarter and fiscal year 2022 financial results and our financial outlook for 2023. Following these prepared remarks, we will open the line for a Q&A session with industry analysts. As a reminder, this 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 later today. Today's press release, our historical financial news releases, and our filings with the SEC are also available on our investor relations website. We will be making forward-looking statements on this call about certain matters that are based upon management's current beliefs and expectations relating to future events impacting the company and our future financial or operating performance. Forward-looking statements on this call represent e-health's views as of today, and actual results could differ materially. We undertake no obligation to publicly address or update any forward-looking statements in future filings or communications regarding our business or results. The forward-looking statements we will be making during this call are subject to a number of uncertainties and risks, including but not limited to those described in today's press release, our annual report on Form 10-K, and our other filings with the SEC. We will also be discussing certain non-GAAP financial measures on this call. Management definitions of these non-GAAP measures and reconciliations to the most directly comparable GAAP financial measures are included in today's press release. With that, I'll turn the call over to Frans Leister.

Thank you, Yves Lai, and good morning to everyone joining us today as we report our fiscal year and fourth quarter 2022 financial results. On this call, I will, one, review our annual enrollment period performance, which exceeded our expectations and reflected the early progress of our transformation plan. Two, update our strategic and operational priorities for 2023. And finally, share our outlook for this year. I'd like to begin by sharing our view of the Medicare market and eHealth's critically important role. The Medicare Advantage program offers strong value propositions to seniors through superior health outcomes compared to traditional Medicare and a wide selection of quality and robust plans at affordable premiums. Today, seniors have a large choice of provider networks, coverage options, and supplemental benefits such as over-the-counter medications, dental, vision, and hearing, as well as gym memberships through plans offered by multiple health insurance carriers. Further, many carriers provide beneficiaries with access to programs to address social determinants of health, including transportation and food assistance, as examples. For certain segments of the senior demographic, a combination of traditional Medicare with MedSupp can also be an attractive choice of health coverage complemented with ancillary services such as dental, vision, and hearing. With all the robust options, however, comes complexity. We view our role in this industry as a trusted and transparent advisor to seniors as they make the critical decision of assessing their options and choosing a healthcare plan that best fits their needs and preferences. We are well positioned to deliver on this mission based on our broad network of leading carriers, unbiased plan recommendation tools, and our unique omnichannel consumer platform. Our omnichannel platform allows customers to seamlessly shift between telephonic, self-serve online, and online-assisted interactions with eHealth while researching and enrolling in the plan. Simply put, We aim to meet consumers on their terms, guiding them through their health insurance and related options when, where, and how they prefer. Our strategic and operational decisions are informed by the company-wide goal of being a gold standard in quality and distribution at scale of Medicare, individual, small group, and ancillary products. As I shared on our last earnings call, This mission has been operationalized through our customer pledge outlining our commitment to beneficiaries, consumers, and caregivers, and the experience they can expect when they work with eHealth. We also remain committed to maintaining close and collaborative relationships with our carrier partners and supporting their customer experience goals. Following the AEP's completion, we have received positive preliminary feedback from several of our largest carrier partners with respect to our enrollment quality, including a meaningful reduction in Medicare Complaint Tracking Module or CTM scores and an improvement in persistency compared to a year ago. As a reminder, CTMs reflect beneficiary complaints filed directly with CMS. Since implementing a host of enrollment quality-related initiatives in the third quarter of 2021, eHealth has observed a 50% decrease in its CTM rates from 2021 to the most recent AEP based on preliminary data available to date. We also continue to receive positive anecdotal feedback from carriers, including from one of our largest carrier partners, who shared that our enrollment quality metrics are in line with their own internal sales channel. We are steadily moving towards our goal of becoming the gold standard in enrollment quality within our sector, while also achieving and exceeding our financial targets. Last month, we released our preliminary fourth quarter and fiscal year 22 results, which came in above annual guidance ranges that we provided earlier in the year. Today, we will share more detail about our fourth quarter financial and operating performance and the key drivers behind our effective AEP execution. Shortly after I joined eHealth as CEO in November of 2021, we mapped out a business transformation plan that included several strategic initiatives, including overhauling our marketing and sales processes to lower the cost of acquisition, improve the quality of leads, and improve our sales advisors' selling techniques. all with the ultimate goal of improving conversion rates. Further, we were focused on evolving the customer journey to create a memorable shop, educate, advise, and enroll experience. From a financial standpoint, returning to sustainable profitable growth and positive cash flow generation became our North Star. In early 2022, we initiated a company-wide cost reduction plan and purposefully slowed down our enrollment growth, choosing to forego enrollment volume that did not support our target margins. During this last AEP, we pursued targeted demand generation campaigns and de-emphasized certain channels, such as DirecTV, while driving strong performance within our affiliate and strategic partner channels, as well as through dedicated carrier arrangements. Driven by changes to our marketing program implemented in 2022, we were able to generate higher quality leads during this AEP compared to a year ago and converted them at much improved rates within our call centers. Higher conversion rates were also driven by meaningful process improvements in our telesales organization. For our license and service agents, or benefit advisors, ahead of the AEP, we redesigned our advisor hiring and training program introduce new advisor-facing technology tools, and launch the local market operating model where our benefit advisors specialize by region, which better aligns our sales model with the local community-based nature of healthcare delivery and the health insurance industry. To better bridge our online and telesales experiences, last year we introduced co-browsing and chat capabilities. The online chat tool in particular had a pronounced positive impact on the AP on conversion rates for the online visitors who used it. It also positively impacted approval rate and initial retention for these enrollments based on data we have to date. In addition to creating a positive user experience, chat also effectively leverages time and capacity of our benefit advisors as one person can manage multiple chats simultaneously. As a testament to the success of these initiatives, our fourth quarter telephonic conversion rates increased approximately 25% compared to Q4 of 2021. This represents a meaningful operating lever given the significant call volume we received in Q4. Adjusted EBITDA margins on our fourth quarter Medicare enrollments were more than doubled as Medicare Advantage lifetime values remain stable, while total variable acquisition costs per approved MA equivalent member declined by 18% compared to a year ago. Through a combination of strategic and operational initiatives, along with cost transformation measures, we increased fourth quarter adjusted EBITDA by 76% year over year, partially driven by our intentionally reduced enrollment volumes and revenue compared to a year ago. Fourth quarter revenue of $196.3 million represented a decrease of 19% year over year and drove adjusted EBITDA of $49.5 million up from $28.2 million in Q4 of 21. Fourth quarter GAFNIT income was $20.7 million. It's important to note that over the past several months, we have observed trends suggesting that our industry peers are taking similar action in terms of prioritizing sustainable profitability versus growth at all costs. In fact, we believe that the Medicare distribution market has reached an inflection point with brokers refocusing their effort and resources on enrollment margins and member retention. In addition to bringing a more rational approach to demand generation, which benefits all players in the industry, We see this trend as having a positive effect on consumers as brokers place increased emphasis on the overall customer enrollment experience, including plan fit and a long-term member retention. During the fourth quarter, we managed our liquidity much more effectively than we initially forecasted. More specifically, total cash outflow for fiscal year 2022, excluding the impact of our $70 million term loan and associated costs and net securities activities was $44 million favorable to our guidance range of $110 to $90 million of outflow. We ended the year with sufficient liquidity to support our business needs and objectives in 2023. Business transformations are driven by people, and in the period of time following our last earnings call, we rounded out the senior leadership team with three new additions. John Stelvan joined eHealth as Chief Financial Officer in November of 22. John has significant financial leadership experience in healthcare, most recently at CBS Health Aetna, where he had multiple roles, including CFO Government Services Division, covering Medicare, Medicaid, Federal Employees Program, and public exchange businesses. John has already made his impact felt driving the development of our 2023 financial plan. This year, we announced that Caton Barberia joined eHealth as our Chief Digital Officer. Caton's extensive track record building strategic digital roadmaps at customer-focused companies make him the ideal person to further our technology leadership in the sector. Third and finally, Laura Saskins returned to eHealth at the beginning of February as Senior Vice President of Communications. Laura returns with a wealth of knowledge and experience to once again lead eHealth's communication initiatives and activities. With these three hires, I've completed the new senior leadership team that's executing on our transformation plan, strategic initiatives, and pursuing the exciting opportunities we see ahead of us. We are pleased with the significant operational achievements made over the course of last year, culminating in a successful annual enrollment period. However, We are just getting started and see even greater upside to the efficiency of our marketing and sales organizations. In 22, we intentionally reduced enrollment volumes and total revenue as we implemented necessary organizational and operational changes, ultimately with the goal of returning to sustainable, profitable growth. We expect to achieve this through disciplined volume growth, further improvement in our enrollment margins, strict fixed cost controls, and developing revenue streams outside of our core MA broker business. At the midpoint, our 2023 annual guidance reflects 6% revenue growth while achieving significant year-over-year improvement in adjusted EBITDA. John will elaborate further in his remarks that will follow mine. Moving now to our 2023 operational priorities, these objectives are meant to build on the success of our transformational initiatives implemented last year and reflect our commitment to continued improvement across all areas of operations. The four objectives are as follows. First, to continue to build on last year's progress with an eHealth omnichannel marketing and lead generation engine. Second, to improve conversion rates across our entire enrollment platform, regardless of how the customer chooses to interact with eHealth. Third, to introduce the next phase of our customer retention strategy. And finally, to further diversify eHealth's revenue streams. I'll now provide further detail on each of these objectives. First, we will continue building out a unified omnichannel marketing engine. Last year, we significantly improved our lead quality and lowered our acquisition costs by narrowing down our marketing channels and campaigns to pursue only the highest ROI initiatives. This year, we see an opportunity to start diversifying our channel mix through a disciplined, test-based approach. Under the strong leadership of our CMO, Michelle Marbelle, Our re-engineered marketing initiatives will be increasingly driven by audience segmentation and targeting, leveraging differentiated messages that highlights what's unique about eHealth and extending touchpoints with non-converting website visitors as well as our existing customers. We will also be aligning our marketing engine more closely with the new structure of our telesales organization by emphasizing local market and product-specific campaigns. Ultimately, the goal is to further customer engagement and establish a strong, distinct brand that effectively communicates our differentiated value proposition as a fully transparent advisor to customers in a complex health insurance industry. Second, we will continue to prioritize improving consumer experience and conversion rates across our entire platform, regardless of how the customer first interacted with eHealth or how the final enrollment is made. As I mentioned earlier in the call, last year's introduction of the new omnichannel features, including co-browsing and chat capabilities, had a positive impact on our ability to close sales. This year, we will be further refining our digital funnel to make the user experience even more frictionless and intuitive. Another goal of these optimizations is to enhance the accuracy of the information we collect in order to provide the best advisory service and plan recommendations. On the telesales side, we are expanding the percentage of benefit advisors who will specialize in a specific geography and the work product, which has demonstrated a positive impact on the depth of their expertise and effectiveness in serving our customers. On the technology side, work is already underway to add a new feature that further enhances the enrollment experience through multiple touch points in our omnichannel customer journey. The fundamental success of e-health sales operation depends on our investment in people and will continue to foster the skill and career growth of our strong base of benefit advisors. Our third priority is to introduce the next phase of our customer retention strategy with the intention of reaching aggressive two-year goals that we have set for ourselves internally. Our retention program starts before the enrollment through marketing and branding built to create long-lasting impressions. One of the keys to our branding strategy is to create a lasting awareness of who eHealth is and what we do with the ultimate goal of long-term customer loyalty. The retention effort continues during the enrollment process by providing an excellent customer experience and optimal plan matching through enhanced recommendation analytics tools and carries on post-enrollment through continued engagement using a data-driven approach, targeting the optimal times to engage our existing customers. The success of these initiatives will be measured by our ability to keep our beneficiaries in the e-health advisory ecosystem, even as they switch plans or carriers based on changes to their personal needs or plan design. In aggregate, this new retention strategy will bring a more thoughtful approach to building a year-round personalized relationship with our beneficiaries, focusing on high impact rather than high volume customer communications. The fourth and final operational priority is to further diversify eHealth's revenue stream. While we continue to hold the utmost conviction in the MA opportunity, we believe supplementing broker record Medicare Advantage sales with other revenue streams will help us improve our LTV to CAC ratios while playing an important role on our path to reaching sustainable profitability and improved liquidity. This includes our plan to expand dedicated carrier arrangements and BPO business opportunities to account for a larger share of total enrollments. These arrangements play to our core strengths and are becoming a valuable supplement to our core MA business as they carry no direct marketing costs and can offer attractive unit economics. In fact, earlier this month, we learned we had the winning proposal for a new carrier dedicated arrangement with one of our major carrier partners in support of this strategy. We also plan to place an increased emphasis on our individual, family, and small business, or IFP, segment, which has been consistently profitable over the last several years. We believe that the growing adoption of the Individual Coverage Health Reimbursement Arrangement, or ICRA, And the potential impact for Medicaid redetermination will drive increased interest and demand for major medical IFP plans and create incremental opportunities for e-health in this market. This year, we also plan to market targeted investments for growth in our Medicare supplement and ancillary product business. Additionally, we will be leaning into member engagement services that both deepen our relationship with beneficiaries and offer valuable revenue opportunities in the lower volume quarters of the year. Recapping 2022, it was a pivotal year in progressing towards our goal of sustainable, profitable growth while strengthening our standing as a gold standard in health insurance and ancillary product distribution at scale and demonstrating eHealth's value proposition to our carrier partners. We expect to continue to build on this momentum in 23 with a number of impactful operational initiatives underway. The guidance we published earlier this morning as part of our earnings release is indicative of the progress we continue to make as an organization and puts eHealth on a path towards achieving profitable growth in 2024. Further, we are currently in the process of planning our first investor day since 2019 to be held in person in New York in May of this year, where we intend to discuss our longer-term strategic and financial goals. Finally, I would like to take a moment to acknowledge eHealth's senior leadership team, our management, and all the employees of the company for their important work that supported the strong results that we reported today. It is inspiring to see the commitment, and the dedication of our teams across the organization, united in their goal with helping beneficiaries find the best possible health care coverage. I believe this team will continue to excel in 2023, and I look forward to sharing our progress throughout the coming year. I'll now pass the baton to our Chief Financial Officer, John Stelpen. John? Thank you, Fran.