Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 eHealth Incorporated Earnings Call. My name is Melanie, and I'll be your coordinator today. [Operator Instructions] As a reminder, today's meeting will be recorded. I would now like to turn the call over to Kate Sidorovich, eHealth's Director of Investor Relations. Please proceed.

Good afternoon, and thank you all for joining us today, either by phone or by webcast, for a discussion about eHealth, Inc.'s fourth quarter and fiscal year 2011 financial results. On the call this afternoon, we will have Gary Lauer, eHealth's President and Chief Executive Officer; and Stuart Huizinga, 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 will be webcast from the Investor Relations section of our website. A replay of the call will be available from the Investor Relations section of our website following the call. We will make forward-looking statements on this call. All statements other than statements of historical facts are forward-looking statements. The forward-looking statements made on this call will include statements regarding plans and projections for our Medicare business; projected lifetime Medicare member commissions; the size and growth of the Medicare market; submitted application and membership growth; the impact of commission rate reductions; changes in the health insurance industry; our investment in Medicare; earnings per share growth; the diversification of our business; seasonality and timing of our financial results; future cash taxes and tax rates; and all guidance for revenue, EBITDA, non-GAAP diluted earnings per share, stock-based compensation, and amortization of intangibles. Forward-looking statements are subject to risks and uncertainties that could cause actual results, developments and business decisions to differ materially from those contemplated by these statements. We describe 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 eHealth's website. Forward-looking statements made on this call represent the company's view as of today. You should not rely on these statements as representing our views in the future. We undertake no duty to update or revise any forward-looking statements made during this call, whether as a result of new information, future events or otherwise. We will be presenting certain financial measures from this call that will be 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 finance -- to the information included in our press release and in our SEC filings, which can be found in the About Us section of our corporate website under the heading Investor Relations. And at this point, I will turn the call over to Gary Lauer.

Thank you all for joining us today as we report our fourth quarter and full year 2011 results. With many changes in our marketplace, 2011 was a dynamic and productive year for eHealth. During the year, we achieved tremendous progress across key aspects of our Medicare business and generated strong growth in Medicare related to demand, enrollment, revenues and commission-generating membership. In our Individual & Family Plan business, we absorbed health care reform-related reductions in broker commission rates, made corresponding adjustments to our marketing expenditures and continued to operate efficiently. And most importantly, in the face of many changes, we generated strong earnings and cash flow. Overall, eHealth is rapidly becoming a broader and more diversified company, both from a revenue and product offering standpoint. What I plan to do today is summarize our financial results for the fourth quarter and the year, walk you through our achievements in the Medicare business, discuss trends in our Individual & Family Plan business and conclude by making comments about our 2012 guidance. Revenue for the fourth quarter was $43.1 million, driven by strong contributions from our Medicare business. Earnings per share was $0.11 and cash flow from operations was $2.5 million. For the full year 2011, eHealth generated revenue of $152 million and earnings per share of $0.31, with total cash flow from operations for the year of $22.5 million. Our year-end cash balance was $124 million, which reflects approximately $7 million in share repurchases completed during the fourth quarter alone. We have no debt and our shares outstanding after the January 2012 completion of the buyback program were 19.4 million. As an update, through the 3 repurchase programs we've completed over the past 3 years, we have repurchased approximately 6.4 million shares and reduced our outstanding share count by 23% since…

Thanks, Gary, and good afternoon, everyone. I'll start by reviewing our financial results for the fourth quarter and calendar year 2011. Our fourth quarter revenue was $43.1 million and our 2011 annual revenue was $151.6 million. Commission revenue for the fourth quarter, which includes commissions we generated in our Medicare business, was $31.3 million. Other revenue, which includes sponsorship, eCommerce On-Demand, Government Systems and Medicare lead revenue, was $11.8 million. For the quarter, our total other revenue plus Medicare commissions represented over 36% of total revenue compared to approximately 22% of revenue in the fourth quarter of 2010. Fourth quarter 2011 Medicare revenue was approximately $12.5 million. I'd like to note that our fourth quarter revenue declined 4% compared to the fourth quarter of 2010 revenue of $44.7 million as adjusted for a onetime revenue item in Q4 2010. As a reminder, in 2010, our fourth quarter and full year results included a onetime revenue item of approximately $6 million or $0.15 on an earnings per share basis, reflecting a commission prepayment that we received from one of our carrier partners on a number of existing policies and members. The 4% year-over-year decline in fourth quarter revenues was attributed primarily to a $2.9 million decrease in commission revenues resulting from the impact of the reduction in our Individual & Family Plan commission rates, which became effective in January of 2011. This reduction in IFP commissions however was partially offset by our strong results in our emerging Medicare business, including growth in our Medicare commission and referral-based revenues. In the fourth quarter, our individual and family major medical plans submitted applications declined 7% year-over-year, which was a marked improvement from the 3 prior quarters. And as Gary mentioned, in 2012, our submitted application growth rates are expected to further improve. In…

[Operator Instructions] And our first question comes from the line of Richard Fetyko with Janney Capital.

A couple of questions on the Medicare investments in 2012. Will they be -- continue to primarily be in marketing, advertising and some customer enrollment? And then, what is your estimated lifetime value of a customer now in the Medicare segment? And then lastly, on the commission per revenue, I think you reported $38.47, which was up sequentially. I was just curious, we've hit the bottom in that and we should see that trend higher as the Medicare piece of business continues to increase as a percentage of total?

Richard, it's Gary. Just in terms of investment categories. Clearly, marketing and advertising, both in terms of just the sheer volume we invest there, as well as more broadening and diversification of what we do. Secondly, technology. As we continue to work to make the consumer experience for seniors even a better and more appealing one than it's already been. And thirdly, customer care. Just as we continue to generate more demand, we need more fulfillment capability and more support as well. So those would be the 3 areas. Marketing, advertising, technology and customer care. I'll let Stuart talk about quantifying.

Yes, from a dollar standpoint, the largest cost by far is the variable costs of the marketing, advertising and the customer care and enrollment. Marketing and advertising being the larger one, just like it was this year, but very much on the variable side. As to lifetime value of a member in Medicare, we haven't published a number there. But one thing I can point back to is on our last call, we mentioned that Medicare Advantage products, as an example, can generate from $1,500 to $2,000 a member over a 5- to 6-year life. Our contracts that our carriers are typically a 5- to 6-year contract that they pay us. So as long as a member stays on a policy for that 5 or 6 years, that can be $1,500 to $2,000 for a member, so very attractive relative to our IFP product. You mentioned the average commission per member. That did tick up a little in Q4, that's largely driven by the Medicare sales in Q4. Underneath all that, the individual and family commission per member continues to decline as the commission reductions from a year ago or beginning of Q1 2011 continue to work their way through our membership base and become a bigger and bigger percentage of our overall membership for IFP. That commission per member should continue to decline across 2012. As we mentioned, that should bottom out at the early beginning of 2013.

Got it. And then lastly, if I may, actually, on the Medicare side, just curious, do you think you could have generated more demand if you had more product and where is the status in terms of the carrier relationships on the Medicare side? Just curious what the bottlenecks are or were you sort of maxed out in terms of customer service as well?

Yes, Richard, it's Gary. I'd say that the opportunities are still very, very significant in this business for several reasons. One is just the sheer number of people that are aging in. Secondly, related to that, that people are just living longer. And thirdly, for us specifically, is our ability to fulfill. We certainly had more product inventory and more carriers in this past Annual Enrollment Period than we did a year ago. But frankly, still not as much as we would like to have or need. As you know, we invested in ramp up in our customer care operations. But as I indicated in my comments, we're very pleased that 40% of all the demand we generated we're able to fulfill in-house. But when you think about that, that's not a big number, so we've got a lot of headroom there in terms of opportunity to fulfill a lot more in-house. And then, from what we saw last year and what we're seeing in the beginning of this year, as I commented as well, from a demand standpoint, we think we can also significantly increase the demand that we have the opportunity to fulfill as well. So clearly, the business, as it's growing, hasn't reached the point that we want it at in terms of our ability to fulfill all this demand that we generated, and we continue to generate demand at a fast increasing rate as well. But we don't look at that as bottlenecks or challenges as much as we do as just sheer opportunity that's staring us in the face here.

Our next question comes from the line of Jim Friedland with Cowen.

Given that the IFP business is becoming the legacy business now and that Medicare really has some pretty exciting economics around it, are you guys being too conservative in terms of EBITDA generation? Is it worth it to put more marketing dollars into all 3 of the areas, but -- or sorry, more investment dollars into all 3 of the areas that you just mentioned, particularly marketing? Or do you feel it has to be a little bit more gradual because you need to get on more participating plans and you can't put the pedal to the metal? And I asked that question just because Wall Street has already baked in relatively low expectations on growth, so the expectation levels might allow you to be more aggressive on the investment front.

Yes, Jim, first, I would respectfully disagree about the nature of the individual business. We don't see it as a legacy business at all. It's still the major revenue generator for us. We still generate a large volume of applications and members. In fact, the largest in the business. And just that, that market that we're facing there continues to get larger. I just saw a Gallup survey that was released 2 days ago. It's very interesting, and I'll just read to you the highlights. 46 -- 44.6% of Americans receive health insurance from their employer in 2011 compared to 45.8% in 2010. In 2008, 49.2% of Americans receive insurance from their employers. So people getting employer-based insurance, just the sheer numbers are going down per Gallup. We see that in the places as well the individual business getting larger. And then with the Affordable Care Act, and not to get all into policy, but if you're willing to assume that the Affordable Care Act survives, the Supreme Court and the election this year and so on, you get to 2014, you're looking at a very, very large individual market opportunity as well. So I just want to make a point there, we're very focused on that and feel really good about it. In the fourth quarter, we're quite satisfied with the 7% decline in applications because the cost of acquisition is as low as it's been in 3 years for us, and we didn't -- not something we stumbled on. We have been highly, highly focused on that and we think we're going to make really, some very good progress this year in terms of the application volumes compared to last year at a, what we think is a very favorable cost of acquisitions. So this is still a…

Our next question comes from line of Nathaniel Schindler with Bank of America.

I wanted to see if you could give me a little more color on your guidance for the year with your 4% growth at the midpoint. How much of that is due to Medicare, the $20 million? And how that -- it was in this year and how fast is that growing again next year?

Yes, most of that growth is from Medicare. In that, Individual & Family, we expect it to decline given my earlier comments about the average commission per member and the rate reductions working their way through. That should continue to reduce our revenues from Individual & Family this year, and so the net-net of those is pretty much made up by the Medicare being higher than that decline.

[Operator Instructions] Our next question comes from the line of Robert Coolbrith with ThinkEquity.

Sorry I jumped on late, so I hope some of these won't be repetitive. A few questions. The 40% in-house fulfillment in the quarter, could you give us a comparable figure on that from last year?

Less than half of that.

Okay, great. Then...

I just had to look here.

Sorry. Then looking at application sourcing, we saw that the partner channel, I think embedded in the quarter, wondering if that is mainly Walmart or if you could just comment generally also on the sourcing mix there.

Well, yes, the mix is interesting. Walmart was an important contributor and will continue to be. And as a reminder, Walmart is the largest pharmacy in the country and we're deeply embedded with Walmart at walmart.com in their pharmacy offering especially to seniors. We generated quite a bit of demand simply through our efforts on both paid as well as natural search. We generated quite a bit of demand through PlanPrescriber and a number of different demand generation offerings online that we have with and through PlanPrescriber. We generated some demand through eHealth Medicare, which we're pleased with. We generated some very, very good demand simply, once again, using some of the time and tested marketing sources and channels that we have in the company like media, and specifically, public relations. We published quite a bit in the Medicare area, informational kinds of things for seniors and so on to help give them information and knowledge about making decisions and choices, so we're able to drive demand to us directly just like we do in the individual business as well. So it's a combination of those things. And that wide and broad combination of marketing activities, almost all of which are online, we'll continue to expand in this business for us.

Great. And one follow-up, one final follow-up in the same vein. I just wonder if you could give us an update on the search and your marketing environment on the IFP space. Is that rationalized a little bit at this point? Also just maybe generally a little more color on how you're doing in SEM and SEO in Medicare. Have a lot of your historical advantages sort of ported over to Medicare. And just on the -- what do you think of the sort of the competitiveness of your competitors in Medicare versus in the IFP space in terms of their ability to market successfully through channel partners or through search?

Yes, on the Individual & Family side, we feel we are seeing rationalization there beginning to kick in, and I think that's reflected in the cost acquisition comments that we're making, the year-over-year declines that we're seeing, just starting to see the market begin to digest some of the things that happened over the past year here, so we're happy to see that.

On the SEO and the SEM side of things, yes, that's very important for us on Medicare. We believe that that's a science inside of our business and our company in terms of how we've managed it for years in the individual business. It's been predominantly Google, although it's MSN and Yahoo! for us in the individual business. It's similar in the senior market in the Medicare business. We do all of this essentially in-house, and it was a very important point of acquisition for us, consumer acquisition during the AEP and will continue to be. We manage a lot of keywords there. We do a lot of things to optimize ourselves in the natural area of search and in SEO. From a competitive standpoint, it's a competitive environment there. You're competing with a lot of the carriers who are trying to market and sell their products directly or at least brand themselves. You may have noticed in the fall it wasn't unusual to be watching CNN or FOX News or some of these other cable outlets and see Humana and Aetna and WellPoint and on and on and AARP, United AARP advertising because that's really the season there, and we see some of that in the world of search as well. But I will tell you, because we have most of now -- many of those large brand names, as they are spending an awful lot of money to advertise there and so on, we also get lift from that as well, which helps us with SEO and SEM and our other activities as well. So it's multichannel, it's varied -- the other comment I'll make about the competitors as we -- there is no national online resource to go by products for Medicare expect medicare.gov, which is the federal government exchange. And it's one of the things that frankly was a bit surprising to us as we looked at this business a few years ago. We think it's a big, big window of opportunity. We're doing everything we can to run through that right now. But most of these products are placed where they have been traditionally for years and years, which is through agents, brokers and through the carriers themselves. It's very much like the individual business distribution that was in place when we started eHealthInsurance years ago.

Ladies and gentlemen, we have no further questions. I'd like to turn the call over to Mr. Gary Lauer for closing remarks. Please proceed.

I just like to thank everyone for taking the time this afternoon, and we look forward to talking with many of you one-on-one as well. Thanks.

Ladies and gentlemen, thank you for your participation in today's conference. That does conclude the presentation. You may disconnect. Have a wonderful day.