eHealth, Inc. (NASDAQ:EHTH) Q1 2024 Earnings Call Transcript

eHealth, Inc. (NASDAQ:EHTH) Q1 2024 Earnings Call Transcript May 7, 2024

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Operator: Good morning, everyone, and welcome to eHealth, Inc. Conference Call to discuss the company’s First Quarter 2024 Financial Results. At this time, all participants have been placed in listen only mode. The floor will open for your questions following the prepared remarks. I will turn the floor over to Eli Newbrun-Mintz, Senior Investor Relations Manager. Please go ahead.

Eli Newbrun-Mintz: Good morning, and thank you all for joining us today. On the call today, Fran Soistman, eHealth’s Chief Executive Officer; and John Stelben, Chief Financial Officer, will discuss our first 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 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 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 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 Fran Soistman.

Fran Soistman: Thank you, Eli, and good morning, everyone. Today we plan to review key operational and financial highlights of the quarter and address important recent developments in our industry and how they may impact our company’s strategic positioning and outlook for the year. eHealth delivered another quarter of strong execution in our Medicare business. In Q1, eHealth maintained the momentum we gained during the annual enrollment period, generating double-digit growth in approved Medicare members. This is driven primarily by our enhanced marketing strategies and strong execution in both our fulfillment models, Agency, our choice model, and Amplify, our carrier dedicated model. Importantly, our Q1 Medicare Advantage enrollment growth of 9% year-over-year was accompanied by another year-over-year increase in lifetime values.

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Q&A Session

Combined with our fixed cost reduction efforts, this allowed us to post a significant year-over-year improvement in first quarter adjusted EBITDA. I’m also pleased to report that eHealth achieved positive operating cash flow of $3.3 million for the trailing 12 months ended March 31st 2024, exceeding our target of breakeven operating cash flow for this period. This is an important achievement for our organization and a true testament to the early success of the business transformation plan that we completed in 2023. In comparison, our operating cash outflow was an excess of $150 million for the trailing 12 months ended 3/31/22 at the onset of our business transformation. We believe we can continue to build on these accomplishments and towards a sustainable, profitable growth and cash flow generation.

I will review our Q1 operational highlights momentarily. But first, let me share my thoughts about some important industry developments. Throughout the past two years, there have been many changes in our sector. And we shared our views last year that the sector was rapidly approaching an inflection point. Specifically, we expected to see a shift towards market consolidation and rationalization. That inflection point has now arrived. Medicare brokers are making pivotal changes to their sales and marketing strategies to focus on enrollment quality, profitability, and building long-term member relationships. Those who haven’t or cannot adjust are gradually leaving the market. We’ve seen several exits and transactions over the past 12 months, including one announced last week, and believe there may be more coming.

As this consolidation trend continues, we believe marketing spend will be further rationalized, providing for an increasingly favorable competitive environment for us. With respect to recent managed care industry trends, carriers have publicly commented on several sources of financial pressures, which include increased medical utilization within their Medicare books, a tightening regulatory environment, [STARS] (ph) methodology changes, the Inflation Reduction Act, and lower than expected 2025 reimbursement rates from CMS to name a few. Commentaries from several large carriers suggest that during the upcoming AEP, Medicare plans will emphasize margin preservation over enrollment growth. In practice, this means that we expect to see widespread reduction in certain plan benefits and geographical market exits from some carriers.

These developments make the eHealth consumer value proposition more important than ever. Medicare beneficiaries can receive assistance navigating market complexity, including changes to their benefits, through eHealth’s unbiased choice model, free of charge by accessing our planned comparison tools and expert recommendations from our licensed benefit advisors. In the face of uncertainty, we are committed to being a trusted source of advice empowering our customers to make good decisions when it comes to their health coverage options. In another important development for the sector, on April 4th, CMS published its final policy and technical changes to the Medicare Advantage program for contract year 2025. As we expected, there were quite a few areas of ambiguity in the final rule.

We’ve had extensive discussions with our carrier partners to obtain their views on the practical implications of the rule for the industry. Based on the information available to us at this time, it appears that the MA distribution companies with hourly employees such as eHealth are largely excluded from some of the key provisions related to broker compensation. We will continue our dialogue with carriers and other industry players ahead of the AEP and are confident in our ability to continue navigating the regulatory complexity in this industry, while executing on the 2024 plan we shared on the last earnings call. As such, we are reiterating our 2024 annual guidance. Our strong track record of compliance and ability to react to annual changes in a fast and efficient manner represents a significant competitive advantage for eHealth in the highly regulated MA industry.

Moving on to our first quarter execution, our marketing organization drove strong demand to our choice platform, resulting in 10% total Medicare approved enrollment growth. We remain flexible and opportunistic in allocating marketing budgets to channels and campaigns, which is a key driver of success in our dynamic industry. The open enrollment period brings a different audience to the market compared to the AEP, which also means a shift in relative performance of our marketing channels. For example, during the quarter, we saw strength in direct mail, including our in-house and affiliate partner mail campaigns. At the same time, we pulled back on direct response TV, which performed well for us in Q4 2023. We’ll be investing in this channel again ahead of and into the 2024 AEP, including our plan to create additional innovative brand-driven TV ads.

Within our digital marketing channels, paid search investment outperformed our expectations. We’re gradually shifting emphasis and investment towards in-house efforts, especially within digital channels, which include paid search and search engine optimization. It will take time to fully scale our rebranded presence in these channels. And in the meantime, we continue to work with digital affiliate partners. Given the omnichannel nature of eHealth platform, digital marketing is an essential component of our overall demand generation strategy. We believe that over time, we can gain a meaningful lift from a comprehensive rebranded digital response marketing program, similar to the strong initial brand impact that we saw with our DirecTV advertising last AEP.

Overall, Medicare member acquisition costs were in line with our expectations, while MA LTV grew again on a year-over-year basis. John will discuss our unit metrics in greater detail. Moving now to our Amplify carrier-dedicated platform, which generated just over $7 million in revenue in Q1. We saw continued traction with existing carrier customers performing at or above our expectations for both call volumes and call conversion rates. We are also receiving positive feedback on the quality and efficiency of our sales operation and are building out a pipeline of new dedicated business ahead of the AEP. In addition to MA enrollments, Amplify drove strong Medicare supplemental sales, exceeding our expectations for the quarter. Total Q1 [indiscernible] enrollments across both fulfillment models grew 35% year-over-year, and Amplify contributed meaningfully.