eHealth, Inc.

Ladies and gentlemen, and welcome to eHealth Inc's Q2 2023 earnings conference call. At this time, all participants have been placed in listen-only mode. The floor will open for your questions following the presentation. It is now my pleasure to turn the floor over to Eli Newborn-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, eHealth's Chief Executive Officer, and John Stelben, Chief Financial Officer, will discuss our second quarter 2023 financial results. Following these prepared remarks, we will open up 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 SEC are also available on our investor relations site. 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 operating performance. Forward-looking statements on this call represent eHealth's views as of today, and actual results could differ materially. We undertake no obligation to publicly address or update any forward-looking statements and 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 and in our most recent annual report on Form 10-K and our subsequent filings with the SEC. We will also be discussing certain non-GAAP financial measures on this call. Management's definitions of these non-GAAP measures and reconciliation to the most directly comparable GAAP financial measures are included in today's press release. With that, I'll turn the call over to Fran Swaisman.

Thank you, Eli, and thank you all for joining us this morning for eHealth's second quarter 2023 earnings call. eHealth delivered strong Q2 results with revenue and profitability ahead of our expectations, driven in part by positive sale revenue. which reflects favorable commissions and persistency trends in our book of business. We are well on track in our preparations for the annual enrollment period, and I'm confident in eHealth's ability to execute against our goal of returning to Medicare enrollment growth on a significantly improved operational and cost foundation in the fourth quarter. Based on our strong performance year-to-date, we are raising our 2023 annual guidance ranges for total revenue, gap earnings, and adjusted EBITDA. The Medicare market represents an attractive growth opportunity for eHealth. As we continue to successfully execute on our transformation plan, we believe we are in a strong position to effectively grow our share of the Medicare opportunity at favorable economics. Importantly, we believe that distinguishing eHealth as a trusted advisor for beneficiaries and as a reliable source of high-quality enrollment volume for carriers is key to our success over the coming quarters and years. Carriers continue to offer a significant choice of Medicare Advantage plans with a wide range of coverage features, premium points, and supplemental benefits. Recent public commentary from major carriers reinforces their ongoing commitment to the Medicare Advantage business and delivering superior value and health outcomes to seniors. We believe that recent developments, including changes in star ratings, risk adjustment models, and CMS reimbursement rates, may lead to shifts in the carrier's competitive landscape during the upcoming AEP and create additional need for trusted advisors like eHealth to help beneficiaries understand the implications of plan changes and evaluate their coverage options. eHealth is actively engaged in planning sessions with our carrier partners to support them in this AEP with both customer acquisition and retention. We believe that, similar to last year, Changes to plan offerings and benefit structure will differ by carrier and geography, underscoring the importance of our broad carrier selection and local market focus. Our carrier and channel agnostic enrollment platform uniquely serves the diverse preferences and needs of beneficiaries as they engage in the critically important process of finding the optimal coverage. This unique and proprietary platform is critical to our ability to deliver on our mission to expertly guide consumers for their health insurance options when, where, and how they prefer. If our platform deems that a beneficiary is already in the right plan, when they contact us, we see it equally critical to keep that person enrolled in their coverage and instill confidence that it offers the best value for their needs. As part of our mission-driven strategy, We're also investing to expand our Medicare supplement expertise as this product can deliver significant value to select geographic and socioeconomic segments of the Medicare eligible population. Our mission-driven value proposition and beneficiary pledge create the foundation for our collaborative relationships with our carrier partners. The telebroker channel is an important element of carriers' broader distribution strategy in the direct-to-consumer markets, including MA, MedSupp, and IFP. However, we believe that carriers will be increasingly consolidating their broker relationships, narrowing them down to best-in-class channel partners that are most aligned on quality standards and deliver superior customer experience. eHealth continues to receive positive feedback from carriers with respect to the significant progress we've achieved over the past two years in driving in our enrollment quality and CTM scores. Second quarter results show another material improvement in CTM performance year over year. And recently, one of our three largest carriers awarded eHealth a quality award for having the lowest CTMs within their broker channel. We also continue to expand our carrier services, adding new beneficiary engagement services, ancillary products, and supporting our carrier direct channel for BPO and overflow arrangements. We were excited to showcase the strength of our carrier relations through Aetna's participation in our Investor and Analyst Day in May of this year. eHealth is also committed to maintaining our strong record of regulatory compliance. During the last quarter's earning call and at Investor Day, we discussed the new rules that CMS had announced earlier this year related to marketing materials and sales practices for Medicare products. We shared that we believe our company was prepared to effectively navigate the new rules, and our confidence has only increased since our previous comments. eHealth continues its support of CMS and their goal of improving transparency and customer experience as beneficiaries of Medicare plans. We believe that the rules represent a step towards further rationalization within the demand generation portion of our industry. Last AEP marked an inflection point in our sector as key players began to shift towards a more rational approach to marketing spend and a greater emphasis on profitability. This trend is carried into 2023 and has combined with an ongoing reduction in telebroker capacity due to downsizing and exits by some of our competitors. We expect for this trend to continue, especially with smaller and funding-constrained players, and believe this creates opportunity for e-health to capture a larger share of total customer calls and online visits over time and solidify our position as a gold standard in health insurance distribution. Additionally, during the second quarter, CMS announced a moderate increase of just under 2% in maximum broker commission rates. The increase will be implemented for the 2024 plan year and represents the continuation of the favorable commissioning environment in the MA space. The new rates are in line with our expectations and are one of the positive drivers of lifetime values within our MA product. Moving now to our second quarter financial results. Our enrollment volume, LTVs, and cost performance were largely in line with our expectations. The outperformance in the quarter was driven primarily by positive tail or adjustment revenue of $18.7 million, which reflects the favorable commissions environment of the past two years as well as positive retention dynamics, particularly pertaining to Medicare Advantage members who enrolled during the annual enrollment periods in 2020 and 21. The adjustment revenue underscores the high quality and reliability of our commission's receivable balance, with cumulative positive adjustment revenue to date amounting to more than $170 million since the ASC 606 was initially implemented in 2018. Based on our observations for June, the most recent AEP cohort enrolled in Q4 of last year continues to perform better in terms of retention compared to the AEP cohort from the prior two years. We are pleased with the traction we are seeing in our retention and customer loyalty building initiative, while acknowledging there is still work to be done to improve our retention, and that significant upside remains to improving our persistency and LTVs. quarter total revenue was $66.8 million, an increase of 32% year-over-year. This included a 30% decline in our Medicare enrollment volume, offset by increase in MA and PDP LTVs, as well as tail revenue, as described earlier. Gap net loss and adjusted EBITDA improved substantially on a year-over-year basis, also as a result of the tail revenue. eHealth ended the second quarter with $190 million in cash, cash equivalents, and short-term marketable securities. Operating cash outflow for the quarter was $9.4 million, a significant improvement compared to operating cash outflow of $25.8 million in Q2 of 2022, reflecting our continued focus on financial discipline and strong commission collections. During the quarter, we made important progress in preparing key operational areas of eHealth for a successful annual enrollment period. This AEP represents an important milestone in our transformation program. After dialing back our member acquisition spend last year to focus on rebuilding our sales and marketing organizations and substantially enhancing our cost structure, we are preparing to return to profitable growth in Q4. Our telesales organization has largely finalized advisor hiring, and our comprehensive Medicare and Sales Mastery Training Program is now well underway for these incoming advisors. We're also making final preparations for the launch of our first large carrier dedicated deal, which represents a significant expansion from limited overflow services we've provided to the carriers for the past years. We believe this deal validates eHealth's capabilities in this area and serves as a jumping-off point for other at-scale dedicated carrier arrangements. Smaller deals have already launched or are in the works ahead of Q4. We're also working to find additional efficiencies in our staffing strategy. As a pilot program this cycle, we are introducing a small number of seasonal e-health advisors into our call center operations, which we expect to afford us additional flexibility to meet the capacity requirements of peak AEP demand. Within our marketing organization, we are working to implement the branding and demand generation strategies that were outlined at our Investor Day in May. We're preparing to roll out new lead generation channels and are in the process of finalizing the review and regulatory approval of new marketing messaging plans for launch this AEP. New materials are intended to build eHealth brand recognition as we break out of generic, redundant messaging that has defined our industry for far too long. The new marketing materials are customized to communicate our differentiated value proposition and are tailored to our key Medicare audiences, including agents due to Medicare Advantage, switchers within Medicare Advantage, and local markets. We're also increasingly focused on enhancing our targeted messaging and outreach for retention to individuals that fall under the categorization of dual special needs eligible, known as DSNP, and chronic special need plans eligible, known as C-SNPs. Our online platform is also being updated in close coordination with marketing to deploy personalized landing pages that are aligned with our audience targeting strategy. We have introduced new tools and provide a more seamless shopping and enrollment experience to our customers, including online appointment settings, an enhanced mobile site, a streamlined plan selection flow, and expanded educational content. As I mentioned, we are seeing incremental positive impact from a range of retention initiatives introduced last year and are now moving forward with the next phase of our retention program ahead of the critical annual enrollment period. We believe the retention journey begins with helping beneficiaries find the right plan when they first enroll and have found this to be a foundational factor in creating lasting enrollment. We supplement this with our ongoing retention plan, which is centered around post-enrollment with special focus on members with higher propensity to churn based on our data-driven predictive model and deeper integration of member engagement activities with our customer center, which now has over 450,000 accounts. While Q4 disproportionately contributes to annual revenue and earnings, we are increasing our annual guidance ranges for total revenue, gap earnings, and adjusted EBITDA by the amount of the positive adjustment revenue recognized in the quarter net of incremental performance bonus that we accrued in Q2, reflecting an increase in 2023 projections against our original plan. With these changes, we are now expecting to be profitable on an adjusted EBITDA basis at the midpoint of our updated guidance range, an increase from our prior adjusted EBITDA guidance midpoint, which was originally negative $5 million. This is a testament to the traction of our transformation plan and the strong retention performance we are achieving within our historical cohort. None of this would be possible, though, without the critical work of eHealth's leadership team and employees. Their engagement and dedication to this company and the goal of achieving sustainable profitable growth is truly inspiring. I also would like to provide an update with respect to our relationship with HIG Capital, our convertible preferred stock investor. The relationship between HIG and eHealth is the strongest it's been in my tenure as CEO. Our recent conversations with HIG leadership have garnered new insight into how they view eHealth. More specifically, it's clear that the progress eHealth has achieved on its business transformation, reconstituting its leadership team, and positioning itself for longer-term success has resulted in greater confidence with respect to their investment. That said, Over the past year, we've attempted to engage constructively with HIG on various provisions of the investment agreement, and more recently with respect to the minimum asset coverage ratio preferred stock covenant that contractually changes from 2X to 2.5X for a 25% increase, effective later this month. Our decision to reduce our marketing spend as we embarked on a company-wide transformation program allowed us to drive stronger earnings, and cash flow, but also resulted in a temporary decline in our revenue and enrollment growth last year. A decline in enrollment volumes typically translates into lower commissions receivable balance, which is the numerator in the minimum asset coverage ratio. While our operational decisions were encouraged and supported by HIG's representative on eHealth's board of directors, they also put us at risk for tripping the preferred stock covenant related to this ratio. Despite our best efforts to amend the financial preferred stock covenant and corresponding remedies, we were unable to find common ground. After careful analysis and consideration of various options supported by our board of directors, we made the decision to focus on making prudent investments to drive profitable growth irrespective of the impact on the asset coverage ratio preferred stock covenant. The outcome of this decision has been the strong operating and financial performance through the first half of the year that we shared with you today, and we believe will support our ability to drive profitable growth as we enter the very important second half of the year. It is important to note that tripping this preferred stock covenant does not create any issues from an acceleration of principle perspective. The key practical implications are not financial, but rather governance-related, and they include, one, under certain circumstances, HIG could be entitled to an additional board fee. Two, HID would have certain approval rights relating to the hiring and firing of four C-level roles, including CEO and CFO. And three, certain budget approval rights. Looking ahead, our board of directors and management team remain committed to acting in the best interest of the company and all of our shareholders. We are pleased with our results for this quarter and confident that the steps we are taking will enable us to drive significant shareholder value creations. as we work towards achieving sustainable profitability and cash flow generation. I'll now turn the floor to John Selbin, who will walk you through our second quarter financial performance in greater detail.