eHealth, Inc.

Good morning, everyone, and welcome to eHealth, Inc.' 's conference call to discuss the company's third quarter 2024 financial results. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the prepared remarks. I will now turn the floor over to Eli Newbrun-Mentz, Senior Investor Relations Manager. Please go ahead.

Good morning, and thank you all for joining us today. On the call today, Fran Soisman, eHealth's Chief Executive Officer, and John Dolan, Chief Financial Officer, will discuss our third quarter 2024 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 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 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 except as required by law. 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 Soyssen.

Thank you, Eli. Good morning, and thank you all for joining us today. In the third quarter, eHealth achieved our revenue and profitability targets, delivered significant growth in Medicare application volume, and completed final preparations for the annual enrollment period. We successfully scaled and trained our agent force, finalized our brand-driven marketing materials, and made further enhancements to the online consumer experience. We also entered this critical selling season with a pipeline of appointments for new and existing members that was materially larger than it was at the same time last year. We maintained this strong momentum in the first weeks of the AP with call volume and online visits to our platform up meaningfully year over year. The early indicators also point to increased effectiveness of our telesales organization as we are converting demand at greater rates compared to a year ago. We stand ready to assist our existing members to ensure they continue to be enrolled in plans that best fit their needs. We are pleased with these early results while recognizing that much of our AEP performance thrives on the final weeks and even days of AEP. Before I review our third quarter operational highlights, it is worth reemphasizing the differentiated value proposition that eHealth brings to our carrier partners and beneficiaries. On the carrier side, eHealth delivers quality enrollment volume at scale across our agency and amplified fulfillment models. We supplement these standout capabilities with local market focus and access to actionable data on how carrier plans perform against their peers and which plan features are especially important to beneficiaries as they select coverage. For beneficiaries, we offer among the broadest selection of plans relative to our peers while remaining truly carrier agnostic. We are also differentiated in our delivery of exceptional customer experience. eHealth's expert teams of licensed benefit advisors and rich suite of omnichannel enrollment tools, including our unique end-to-end online enrollment engine, provide our customers guidance through a complex and high-stakes plan selection process in a pressure-free environment. With respect to the broader Medicare Advantage environment, some of the key trends we have highlighted over the course of this year are clearly materializing. We've seen meaningful changes in plan benefits and star ratings, as well as changes in carrier strategies that are becoming increasingly market and product specific. Our choice model is especially important during a dynamic enrollment period such as this one. eHealth performance is not tied to any specific carrier, and our key objective is to match each customer with the best possible coverage from the wide selection of national and regional plans we offer. Our value proposition as a trusted, unbiased advisor is resonating with beneficiaries as they evaluate their coverage options with AEP. With an expected increase in consumer shopping, we believe we are well positioned to take market share in an industry with decreasing competitive capacity. At the same time, this environment also necessitates a focus on protecting our existing book of business. To that end, we have introduced several advisor and technology-driven retention initiatives, which I will describe shortly. Moving now to our annual enrollment period preparations. In 2023, we launched our rebranding strategy and the integrated marketing campaign, Your Medicare Matchmaker. These initiatives centered around our customers and delivered significant uplift to our direct channel's last AEP. This year, we have built on this initial success across every touchpoint. Our materials reinforce our value proposition while also layering in new messaging that acknowledges the specifics of this enrollment period and highlights our real advisors as consumers, unbiased, transparent Medicare matchmakers. During the AEP, we plan to continue growing our key direct branded channels while remaining agile in terms of geographic and channel-based marketing dollar deployments. We are also placing increased emphasis on lead nurturing to better monetize the significant call volume and online traffic that we are seeing on our platform. We expect this integrated marketing strategy to drive better quality and higher converting leads, as well as greater brand recognition and loyalty from the members we enroll. Further, our local market approach is especially relevant to SAEP as carriers have telegraphed they will be precise in their marketing and benefit structure strategies. In support of that, we have launched messaging, targeting areas that are experiencing the most planned disruption year over year. Another important area of focus ahead of the AAP was positioning ourselves for greater conversion rates across our omnichannel enrollment platform. The call center side, we successfully reached our hiring goals with an advisor mix that is more tenured relative to last year. In Q3, our first-year license advisors performed better than the equivalent classes in Q3 of last year, driven by enhanced training protocols and new agent-facing sales tools. This AEP, we are employing a larger number of screeners than we have in the past. Screeners conduct a preliminary needs assessment and ensure callers are routed to an appropriate licensed agent or our customer service team dedicated to helping existing members. This function improves customer experience by reducing hold times and enhances the efficiency of our licensed advisors as screen calls convert at significantly higher rates than unscreened calls. On our online platform, we continue to advance the personalization and simplicity of the eHealth digital consumer experience. With AEP, we expect to benefit from our differentiated tech-enabled features such as match monitors, live advise which is our one-way video enrollment experience license agent chat co-browsing our proprietary plan recommendation tool and others ehealth was a pioneer and remains a leader in digital consumer experience when it comes to shopping for and enrolling into health insurance given the significant amount of shopping that we anticipate and the back-end loaded nature of the aep Our end-to-end online capabilities represent a significant advantage in absorbing peaks in consumer demand. Instead of waiting on hold, an industry-wide phenomenon that is typical during the last days of any AEP, but could be especially pronounced this year, customers can transact on our platform right away using the same plan recommendation engine available to our licensed agents. Ultimately, We are ready to service customers through the enrollment channel that best matches their preference, whether by phone, online, or hybrid, and believe we are well positioned to efficiently convert within a wide range of demand patterns. I also want to highlight our retention strategy. With significant plan changes underway, we are laser focused on engaging eHealth customers to ensure their plans fit their individual health and financial needs. In addition to carrying a dedicated team of agents that take calls from existing eHealth members, we are proactively reaching out to current members whose coverage might be changing. Our goal is for beneficiaries to feel supported, heard, and empowered to make the right decision for their unique circumstances. Using our data models, we identify members who will be impacted by the upcoming changes and invite them to use our self-service tool, Match Monitor. This new tool summarizes lengthy and often confusing annual notice of change, or ANOCs, to create a concise summary of key plan changes and features. Match Monitor also provides a short list of alternative plans recommended by our proprietary algorithm and compares these plans side by side versus the beneficiary's current coverage. To date, we've seen a strong response to the outreach we have done. Turning to Amplify, our new and growing carrier dedicated fulfillment model and an important area of diversification. We expect Amplify will play an important role during AEP, supplementing our core agency business with attractive margin and cash payback cycles. Carriers choose Amplify because of our high level of service, strong conversion rates, and the deep expertise of our advisor base. In the lead up to the fourth quarter, we implemented learnings from last AEP to deliver even better performance for our carrier partners and their customers. We believe this model offers broad potential for expansion in 2025 and 26 as we continue to add new partners and grow within our existing dedicated arrangements. Last month, we reached an important milestone attaining HITRUST certification, a globally recognized certification that demonstrates an organization's compliance with rigorous security and privacy requirements. Many carriers require that their BPO partners are HITRUST certified in order to serve as an extension of their internal telesales operations, and this achievement widens the universe of potential Amplify customers. Furthermore, last month we also announced our certification from Great Place to Work, a global leader in workplace cultural recognition. This certification was based entirely on information gathered from our current employees about their experience working for e-health. We see it as a key indicator of the success of our completed business transformation. We know that company culture supports business performance and are deeply proud of this important achievement. As a whole, we are seeing the fruits of the operational, cultural, and technological improvements I've been discussing. In the third quarter, Medicare Advantage submitted applications across both of our fulfillment models grew 26% year over year. Total Medicare submitted applications including MedSupp and prescription drug plans grew 22%. Excluding tail revenue in both periods, third quarter revenue grew 9% year over year, accompanied by improvement in adjusted EBITDA and gap earnings on the same basis. Outside of MA, the Medicare supplement market represents an important option for seniors in areas without robust MA plan offerings, as well as for specific socioeconomic audiences. Medicare supplement could also gain greater adoption in markets where carriers have scaled back their MA benefits this year. As eHealth has focused broadly on Medicare Advantage distribution over the past several years, we've not made corresponding investments in our MedSupp business. This is now changing. Given that MedSub can be sold year-round, we believe it to be an attractive, complimentary business area for us. This year, we have introduced a dedicated MedSub sales team, expanded our carrier options, and are optimizing our marketing strategies to reach this distinct audience more effectively. During the third quarter, we also launched an end-to-end online enrollment experience for MedSub customers, an offering that we plan to expand next year. With respect to our balance sheet, we recently reached an agreement with our term lender, Blue Torch, to extend the maturity of our $70 million loan by one year under slightly more favorable terms, which could further improve depending on the interest rate environment. We continue to work with our advisors towards improving the overall capital structure of our business. In our view, the company has more than sufficient liquidity to continue executing on our strategy in 2025 and 2026 which provides us leverage as we assess our options. In conclusion, I believe this team has positioned eHealth for another successful AEP. I am proud of all the efforts and cross-functional collaboration which went into this process. Last AEP, we returned to enrollment growth on a profitable foundation after rebuilding our sales and marketing functions and enacting a comprehensive cost transformation program. We are now prepared to build on these achievements by delivering above-market MA enrollment growth while maintaining enterprise-wide cost discipline and focus on cash flow generation. With three weeks of AEP completed, we've gotten off to a strong start both in terms of enrollment volume and with respect to our multifaceted plan to serve eHealth's existing members. We look forward to updating you on our full AEP performance during our T4 earnings call. We will also be meeting with investors at the upcoming UBS Healthcare Conference in Southern California next week. With that, I will turn the call over to our CFO, John Dolan. John? Thank you, Fred, and good morning, everyone. I'm excited to have my first earnings call be one where we discuss our continued strong momentum, which is reflected in our third quarter results. Our third quarter financial results were driven by strong execution in our Medicare business and continued improvements in our cost structure. They also reflect our investments in AEP preparedness, a major part of our third quarter operations. Third quarter revenue, excluding net adjustment revenue, or TAIL, was $57.2 million, an increase of 9% year-over-year, driven primarily by strong Medicare enrollments and partially offset by a decline in our employer and individual revenues. Third quarter tail revenue was $1.2 million as compared to $12.2 million in Q3 of 2023. Including tail revenue, third quarter revenue was $58.4 million, or a 10% decrease year-over-year. Medicare segment revenue, excluding tail revenue, grew 13% year-over-year. Including tail revenue, our Medicare segment generated $53.2 million in revenue compared to $55.5 million and Q3 of 2023. During the quarter, we recognized $1.1 million in positive tail revenue from our Medicare segment compared to $9.3 million a year ago. We also saw a year-over-year improvement of $5.6 million in Medicare segment profitability excluding tail revenue, driven primarily by increased application volume and favorable member acquisition costs. Including tail revenue, Medicare segment loss was $17.9 million, reflecting our investment in hiring and training Medicare advisors for our agency and carrier dedicated platforms ahead of the significant shopping volume anticipated by the AEP. As a reminder, within our Medicare segment, we generate two different types of enrollments between agency and amplified fulfillment models. For virtually all of our agency enrollments, eHealth is the broker of record, resulting in commission revenue that is booked based on constrained lifetime value estimates at the time of approval with cash collected over the lifetime of the policy. Amplify, our carrier dedicated model, generates a combination of broker of record and fee-based enrollments. For fee-based enrollments, eHealth does not become the broker of record. Carriers pay us a one-time success fee for each enrollment, in addition to ongoing payments to support dedicated sales teams. As we ramp our fee-based business, it is expected to drive growth in other revenue, but will not impact our approved membership metrics. Across both fulfillment platforms, eHealth drew a 22% increase in Medicare submissions year over year. Medicare Advantage submissions grew 26%, Medicare Supplement submitted applications grew 5% year-over-year, while standalone prescription drug plan volume continued to decline, reflecting broader market dynamics. As I mentioned, some of that volume is reflected in our reported approved members, while enrollments transacted under fee-based arrangements within Amplify flowed through other revenues, which grew 36% year-over-year. Total acquisition costs per approved Medicare member improved 16% year-over-year, reflecting a 24% decrease in agent costs and a 4% decrease in marketing costs per approved member. As a reminder, second and third quarters are characterized by higher variable costs per approved member relative to Q4 and Q1 as we start to prepare our sales and marketing organization for the upcoming annual enrollment period. This investment is spread over seasonally low enrollment volumes, but is already yielding an attractive return for us in the fourth quarter. Medicare Advantage lifetime value is $990, roughly flat with last year's. Persistency on our Medicare Advantage book of business on a trailing 12-month basis was in line with our expectations and also in line with last year's observations. As Fran describes, member retention is an important area of our operations, and is especially critical during this AEP when some beneficiaries will experience significant changes to their coverage. In this environment, we remain confident in our Commission's receivable assets. As mentioned on previous calls, we regularly assess whether changes in assumptions or evolving trends will result in a change in the estimate of expected cash collections. We only recognize positive adjustments to revenue when it is probable that a significant reversal will not occur. As such, there are significant positive adjustments that have not yet been recognized, including, but not limited to, our initial constraints. In our employer and individual segment, revenue was $5.2 million, with a segment loss of $800,000. This compares to segment revenue of $9.2 million and a segment profit of $4.8 million in Q3 of 2023. The year-over-year decline in segment revenue and profit primarily reflect $2.8 million in lower-tail revenue. Approved members also declined off a low base as this business unit continues to undergo transformation. Moving to our operating expenses, non-GAAP technology and content expense declined 4%, and non-GAAP general administrative expense declined 8% compared to Q3 2023. This was driven by our targeted cost reduction, including additional office closures in the first half of the year in line with our remote first model. With respect to variable costs, non-GAAP customer care and enrollment increased 2% year over year, and non-GAAP marketing and advertising increased 3% year over year, well below the rate of growth in our Medicare submissions. K-3 GAAP net loss 42.5 million compared to 37 million in Q3 of 2023. Adjusted EBITDA, excluding tail revenue, was negative 36 million, an improvement of 4.3 million compared to Q3 a year ago. Including tail revenue, adjusted EBITDA was negative 34.8 million compared to negative 28.1 million last year. Operating cash flow was negative $29.3 million compared to negative $24.7 million in Q3 of 2023, driven by the timing of certain cash receipts and cash compensation dynamics as we carried a larger advisory account this quarter than a year ago. Moving to our balance sheet. We ended the quarter with $117.8 million in cash, cash equivalents, and short-term marketable securities. This compares to $160.6 million at the end of Q3 2023. As Fran mentioned, we believe we have sufficient liquidity to meet our operational needs for 2025 and 2026. We ended the quarter with total commissions receivable balance of $814 million, which compares to $780.6 million at the same time last year. This year-over-year increase reflects the continued growth we have generated in our broker of record application volume well as the positive adjustments we have recognized over the past year net cash collections as a reminder fee-based enrollments transacted on our amplified platform do not increase our commission's receivable balance given that we are paid a one-time success fee these enrollments are characterized by more favorable cash flow timing relative to our agency business as gran noted we continue to work with our advisors towards the longer term solution for improving our overall capital structure of our business. In conclusion, we are pleased with our third quarter financial results and the early read of the AEP data. While we have had a very strong start to the AEP, the most critical weeks of the selling season remain ahead of us. As such, we are reiterating the 2024 guidance ranges that we provided as part of second quarter earnings. You can reference our guidance ranges in the third quarter earnings release. and slides posted on the investor relations section of our website. I look forward to connecting with our investors and analysts during the follow-up calls. And now, operator, please open the line for questions.