eHealth, Inc. (EHTH) Q4 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the fourth quarter 2012 eHealth Incorporated earnings conference call. My name is Ayesha and I will be your coordinator for today's call. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Kate Sidorovich, eHealth's Vice President of Investor Relations. Please proceed, ma'am.

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 full year 2012 financial results. On the call this afternoon, we will have Gary Lauer, eHealth Chief Executive Officer; and Stuart Huizinga, eHealth 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 webcast from the Investor Relations section of our website. A replay of the call will be available on our website following the call. We will be making forward-looking statements on this call that include statements regarding projections of operating results for 2013, such as our 2013 guidance for revenue, EBITDA non-GAAP dilutive earnings per share, stock-based compensation expense and amortization of intangibles. Our ability to accelerate our revenue and earnings for growth, our expectation regarding 2013 growth in IFP applications, members and revenue, our ability to increase Medicare enrollment efficiency, our Medicare member estimates and our ability to generate recurring revenue. Our expectation regarding the growth of our Medicare revenues and their exceeding cost in our Medicare business. The Medicare market is a substantial opportunity and our ability to further penetrate it. Our beliefs regarding market opportunities and dynamics created by the Affordable Care Act, expected quarterly revenue and earnings per share trends in 2013 and our planned increase in technology and content expense. These forward-looking statements are based on management's current expectations and assumption that are inherently subject to various risks and uncertainties that could cause actual results to differ materially from those set forth in such forward-looking statements, including risks associated with the direct and indirect impact of healthcare reform in our business, our ability to maintain relationships with health insurance carriers, our success in marketing and selling Medicare-related health insurance plans and aiding recurring revenue streams. Other factors that could cause operating, financial and other results to differ, are described in eHealth's most recent quarterly report on Form 10-Q and annual report on form 10K, filed with the SEC and available on the Investor Relations page of our website. Forward-looking statements on this call, represent eHealth's views as of today. You should not rely on these statements as presenting our views in the future. We'll undertake no obligation or duty to update information contained in this forward looking statements, whether as a result of new information, future events or otherwise. We will be presenting certain financial measures on this call that will be considered non-GAAP under SEC regular G. For reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure, please refer 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.

Thanks, Kate, and thanks, everyone for joining us today as we report our fourth quarter full year 2012 results. This past year was a pivotal one for eHealth. The return to revenue and GAAP earnings growth after a challenging 2011 completed the transition of our Medicare business to a direct fulfillment model ahead of schedule and saw a significant improvement at our individual and family plan business. Revenue for the fourth quarter was $45.3 million, GAAP diluted earnings per share was $0.11 and cash flow from operations was $5.2 million. For the full year 2012, eHealth generated revenue of $155.5 million and GAAP diluted earnings per share of $0.34 with total cash flows from operations for the year of $24.9 million. Our year-end cash balance was $141 million, which reflects approximately $1 million in share repurchases completed during the fourth quarter. As a reminder, on September 10, 2012, we announced a $30 million share repurchase program, our fourth, in 4 years. The 2012 annual revenue and earnings growth was achieved through a meaningful expansion of our Medicare business, where we saw strong growth in demand, enrollments and revenues throughout the year. And an effective cost management strategy, which allows us to remain profitable and cash flow positive as we continue to invest in Medicare and integrate the commission rate reductions we incurred in early 2011 in our Individual and Family Plan business. We believe that we can build on this progress in 2013 and further accelerate our revenue and bottom-line growth, which is reflected in our guidance range for the year. What I plan to do today is summarize our financial results for the fourth quarter and the year, discuss the performance of our Individual and Family Plan business, walk you through our progress in the Medicare business and conclude by making comments about our 2013 guidance and the overall outlook for this year. At our individual and family plan business, we were encouraged by the continuing progress across the key metrics that we track. The submitted application growth rate improved in each quarter of 2012, finishing the year at a solid 10% year-over-year growth in the fourth quarter, a significant improvement from a 7% decline in the fourth quarter a year ago. Pertinent indicators, including growth and approved and revenue-generating individual and family plan members and individual family plan commission revenue trends, all improved throughout the year. Stuart will go over these metrics in greater detail later during this call. But I wanted to point out that in the fourth quarter, our individual and family plan commissions grew year-over-year, for the first time since we started incorporating commission rates reductions at the beginning of 2011. We believe this reflects a turning point in this important area of our business and expect to grow our individual and family plan member base and our individual and family plan revenues during 2013. At this point, I'd like to make some comments about Medicare. 2012 was a very important year for our Medicare business as we successfully completed the transition to a more lucrative commission based direct fulfillment model, well ahead of our original schedule. As a reminder, when we first entered the Medicare business in 2010, almost 100% of our Medicare revenue came from one-time lead payments. A lot of work has been done in the last couple of years to develop in-house fulfillment capabilities and transition to a direct broker model like our individual business, which is characterized by higher projected lifetime revenue values and margin dollars compared to the sale of leads. In the fourth quarter of 2012, we fulfilled in-house as a broker, almost 100% of the Medicare demand that we generated. This compares to approximately 47% of Medicare demand generated in the fourth quarter a year ago. It's important to note that in 2012, we had to forego a portion of near-term Medicare revenues by moving away from the Medicare lead business, ahead of our original plan. This short-term revenue impact is due to the fact that all revenue from lead referrals is recognized up front while commission revenues are recognized over the lifetime of the policy with initial revenues potentially lagging product sale by several weeks to a couple of months. In addition to this timing factor, we believe that we were not nearly as efficient as we can be in converting the demand into new enrollments. The number of leads required to generate an enrollment in the fourth quarter was higher than we frankly had expected to see. However, we think that conversion rates can improve substantially over time as we observed when we built our individual business. So with this in mind, we're very pleased with the Medicare enrollment and revenue growth that we achieved in 2012. For the full year 2012, the number of total Medicare members sold grew in excess of 85% compared to 2011 and the number of Medicare Advantage members sold grew 137% for the full year 2012. It's important to point out that growth in Medicare demand and enrollments persisted throughout the year including outside of the Annual Enrollment Period, further validating our Medicare strategy and our view of this important market. I'd also like to note that sales of major Medicare products, specifically Medicare Advantage and Medicare Supplement sales, accounted for over 70% of total product sales in the fourth quarter, with the remainder coming from prescription drug plans. This compares to approximately 60% contribution from like products in the fourth quarter of 2011 a year ago. We exited the Annual Enrollment Period with approximately 70,000 estimated revenue-generating Medicare members. We expect that these members will generate recurring annual revenues for eHealth and represent a solid revenue foundation on which we plan to build in 2013 and beyond as we bring more Medicare members on board. Total Medicare revenue was $13.5 million for the fourth quarter and $31.3 million for the full year 2012. Our ancillary products, which include dental, vision, short-term and accident insurance, are making an important contribution to our revenue and consumer experience. Our goal is to provide eHealth costumers with a comprehensive marketplace for all of their health insurance needs and increase the lifetime revenue per member. Starting in 2011, we enhanced our cross-selling programs and are seeing good results from these efforts. Ancillary product membership growth accelerated in each quarter of 2012 and was up 98% for the year. Full year 2012 commission revenues generated from ancillary products grew in excess of 50% compared to 2011. Now I'd like to make some comments regarding our outlook for this year, 2013. We expect that this year, our Medicare revenues will continue growing at double digit growth rates as we plan to further expand our membership base and layer in new recurring revenue streams. Base on demand trends that we are observing, the Medicare market remains a major opportunity for eHealth as our current membership represents a very small fraction of the existing Medicare Advantage, Medicare Supplement and Prescription Drug Plan enrollments across the market. As I commented earlier, we're pleased to see a return to individual and family plan submitted application and membership growth. We plan to build on this momentum and continue generating application, membership and commission revenue growth in this important business area during this year of 2013. Presently, we expect to generate low to mid-single digit growth in individual and family plan revenues for the full year of 2013. So we're very pleased with the progress we achieved in 2012 in the 2 key areas of our business, Medicare and the Individual and Family Plan business. Stuart will provide details on our 2013 guidance in his remarks, but I want to note that we plan to generate annual revenue and EBITDA growth of 10% at the midpoint of our guidance range. Before I do turn the call over to Stuart, I want to comment on some of the changes in the market environment that we anticipate as a result of the Affordable Care Act. For example, we expect that the implementation of the ACA, the Affordable Care Act, will result in an increase in the number of consumers purchasing individual insurance, which can significantly expand our market opportunity. The extent to which we might benefit from this expansion will depend partially on determination by states and the Federal government regarding our ability to enroll subsidy eligible individuals. Our success will also depend on how effectively we compete against state and federal exchanges, new competitors that just don't exist today. Finally, in the fourth quarter of 2013, as the implementation of the Affordable Care Act begins, we may experience unusual demand patterns and see changes in product supply as carriers announce new products and remove others to meet the requirements of the Affordable Care Act. These and other changes may affect individual product sales and membership. And now I'd like to turn the call over to Stuart who will take you through our financial results in much greater detail. Stuart?

Thanks, Gary and good afternoon, everyone. Today, I plan to review our financial performance for the fourth quarter and fiscal year 2012 and provide our 2013 annual guidance. Our fourth quarter revenue was $45.3 million, a 5% increase compared to the fourth quarter of 2011. Our 2012 annual revenue was $155.5 million or a 3% increase compared to 2011. Commission revenue for the fourth quarter was $37.3 million, representing 19% annual growth, a meaningful improvement compared to a 21% year-over-year decline in the fourth quarter of 2011. Fourth quarter 2012 commission revenue growth was driven primarily by our Medicare business. We also resumed growth in our individual and family plan commission revenue for the first time since 2010. As a reminder, individual and family plan commission revenue declined by as much as $3 million year-over-year in the first quarter of 2012. Declines in this revenue category moderated throughout 2012 and we are very pleased to finish the year with a $400,000 annual growth in individual and family plan commissions in the fourth quarter. During the fourth quarter, we also observed strong year-over-year growth and commission revenues from our ancillary products. Other revenue, which includes sponsorship, eCommerce On-Demand, Government Systems and non-commission Medicare revenue was $8 million, down from $11.8 million in the fourth quarter year ago or a 32% decline. The decline was driven primarily by our transition from lead sales to a commission-based direct fulfillment model in Medicare. As a result of this transition, our lead revenues declined in each quarter of 2012 compared to the corresponding quarters in 2011. The impact in moving away from the Medicare lead business was especially pronounced in the fourth quarter. Q4, 2011 was our peak quarter for Medicare lead revenues while in Q4, 2012, this revenue category was nominal since we fulfilled in-house as a broker almost 100% of Medicare demand that we generated. I'd like to stress again that our direct fulfillment business is characterized by higher projected lifetime revenue values and margin dollars compared to the sale of leads. Our individual and family major medical plans submitted application volume grew 10% compared to the fourth quarter of 2011 and the estimated number of revenue-generating individual and family plan members was up 5%. Our total estimated membership at the end of the quarter for all products combined was approximately 983,000 members, which represents 21% growth over estimated membership reported at the end of the fourth quarter of 2011. The estimated number of revenue-generating Medicare members was 70,600, up from 24,300 at the end of the fourth quarter of 2011 for an increase of 191%. The estimated number of members on ancillary and small business products was 202,600 at the end of the year, compared to 116,200 at the end of 2011, reflecting 74% annual growth. Now I'd like to review our operating expenses for the quarter. Excluding stock compensation and asset impairment charge and the amortization of acquired intangibles, our non-GAAP operating expenses increased both in absolute terms and as a percentage of revenues relative to the comparable period a year ago. Similar to the third quarter of 2012, increase in the total amount of our operating expenses was driven primarily by our investment in customer care and enrollment in the Medicare business. Fourth quarter 2012 non-GAAP customer care and enrollment expense, which excludes stock-based compensation expense, was $9.1 million or 20% of revenue, up meaningfully from $6.6 million or 15% in the fourth quarter a year ago. This investment was required to support our in-house fulfillment efforts. As a reminder, in the fourth quarter of 2011, we were still fulfilling less than 50% of Medicare demand in-house compared to almost 100% this quarter -- this past quarter. Non-GAAP marketing and advertising technology and content and G&A expenses, excluding stock-based compensation and the amortization of acquired intangibles, were relatively flat year-over-year. Non-GAAP cost of revenue declined from 3% of revenue in Q4, 2011 to just under 2% in the fourth quarter of 2012. This decline was primarily driven by the phasing out of our project with the Department of Health and Human Services. Total marketing and advertising spend in our Individual and Family Plan business increased compared to the fourth quarter of 2011 as we grew our submitted applications volumes. At the same time, per unit cost of acquisition declined again year-over-year. This represents the 10th consecutive quarter of improvement in this metric, measured as our total marketing and advertising expense excluding Medicare costs per individual on an IFP submitted application. Fourth quarter non-GAAP operating income, excluding an asset impairment charge, stock based compensation and the amortization of acquired intangibles, was 14% of revenue or $6.4 million down from 15% of revenue or $6.6 million in the fourth quarter a year ago. EBITDA for the fourth quarter of 2012 was $6.6 million compared to EBITDA of $7.2 million for the fourth quarter of 2011. Fourth quarter 2012 non-GAAP earnings per diluted share were $0.18 and full year 2012 non-GAAP EPS was $0.61. Fourth quarter 2012 GAAP earnings per diluted share were $0.11 and full year GAAP EPS was $0.34. Fourth quarter and full year GAAP EPS, include a negative impact of a $0.01 per diluted share for an asset impairment charge. Our cash flow from operations was $5.2 million, a meaningful increase compared to $2.5 million in the fourth quarter of 2011. For the year, our cash flow was $24.9 million, up from $22.5 million in 2011, for a 10% increase for the year. Capital expenditures for the fourth quarter of 2012 were approximately $700,000 and were approximately $3.9 million for the full year. Our cash balance was approximately $141 million at December 31, 2012. And now I'd like to comment on our expectations for 2013. We're forecasting revenues for 2013 to be in the range of $168 million to $174 million. We expect 2013 EBITDA to be in the range of $23 million to $29 million. We calculate EBITDA by adding stock-based compensation and depreciation and amortization, including the amortization of acquired intangibles to our GAAP operating income. Non-GAAP diluted EPS for 2013 is expected to be in the range of $0.61 to $0.71 per share compared to 2012 non-GAAP EPS of $0.61. For the full year 2013, stock based compensation expense is expected to be in the range of $6 million to $7.5 million. The amortization of intangibles is expected to remain relatively flat compared to 2012 amortization of intangibles of $1.6 million. I also want to make some comments on certain expected quarterly trends in 2013. Currently, we expect the revenues will grow on a year-over-year basis in each quarter of 2013, while we expect earnings growth to be back-end loaded. For example, in the first half of 2013, earnings are expected to be flat to slightly down compared to the first half of last year. Finally, I'd like to note that despite our continuing investment in the Medicare business, we expect that for the full year 2013, Medicare revenues will exceed our direct to variable costs associated with this business. These are what we consider to be the variable cost that we incur to generate our Medicare revenue and consists of the costs related to our Medicare sales agents and the customer care enrollment, variable marketing and advertising costs and revenue sharing on some of our Medicare members. This is an important development, given that in 2011 and 2012, Medicare represented a meaningful drag on our EBITDA margins. At the same time in 2013, we plan to increase our investment in technology and content to stay at the leading edge in terms of our user experience and to help to ensure that eHealth remains the leading exchange of choice for health insurance. Because of that, our 2013 guidance implies a similar EBITDA margin percentage compared to last year, despite the expected improvement of profitability in our Medicare business. I want to remind you that these comments as well as our annual guidance are based on current indications for our business, which are subject to change at any time. We undertake no obligation to further update our guidance. And now we'd like to open up the call for questions. Operator?

[Operator Instructions] Your first question comes from the line of Richard Fetyko with Janney capital.

On the Medicare side, your revenue grew 6%, which seemed -- it seems low considering the huge, almost tripling of user base or membership base in the Medicare business. Just curious if you could explain that disconnect. I assume some of that is related to the shift from lead gen to direct broker, but maybe there's other sort of revenue delay effects that we're not aware of?

Yes. That is the primary reason for that. It is the shift and the shift has most dramatic impact on the fourth quarter. More than half of our revenue a year ago, in the fourth quarter, was coming from lead sales, which we recognize all of that upfront. Whereas, more than 50% of this year is coming from commissions. So that is -- it's quite a change that we've made year-over-year and that's the main impact. There's a little shift out of Q4 as Gary alluded to, as we move to direct fulfillment. There is a little bit of revenue that lags into Q1.

Okay. And it sounds like the Medicare business revenue you expect to reaccelerate then into double digits. Is that because you won't have the drag from the shift, I guess, anymore? Or it will be -- is that why we're going to see a reacceleration?

Well, we had 53% growth in Medicare revenue this year and we're continuing to target well into double digits there.

Okay. And could you give us some idea what that guidance is based -- what was that assuming in terms of Medicare member growth?

Yes, we're not giving any membership growth numbers out. I think what I would point to is, if you look at our revenue guidance for the year, compared to the revenue we just delivered for 2012, at the midpoint, you see roughly $15.5 million, $16 million of revenue growth and most of that is coming from Medicare.

Richard, this is Gary. I would add that we've got a good size of recurring revenue backlog now. Some of which we'll be enjoying this year that we didn't have the opportunity to see revenue from last year. And secondly, we just -- we continue to see many indications from a demand standpoint that just make us very, very optimistic about this business is, as I comment, probably one of our biggest challenges now is that we've moved to this direct fulfillment sooner than we had frankly planned is now to be -- do a better job at converting this demand into revenue generating members, that's the task at hand right now and that's part of why you see the increase in technology expense in 2013 as well.

Did that conversion change from what it was a year ago for the -- specifically in-house fulfillment?

I wouldn't say that it -- no, I wouldn't say that it changed or didn't, meaning from a year ago. But we certainly know, based on our experience with the individual business that we can convert at higher rates than we've converted. We just got to this almost 100% fulfillment very, very recently. Again, it was sooner than we had planned when we provided guidance a year ago and we just got to get better at converting this online, as well as in our call center, it's really pretty simple, it's exactly what we went through in our individual business.

Any specifics you mind to share with us and where you think you can improve?

Sure. Absolutely. And by the way, let me indicate, we do like the conversion rates we've got here now. They're good conversion rates, but we know they can be quite a bit better. We'd like to convert yet even more online. We'd like to sell more Medicare Advantage products online. We think there's an opportunity for much more Medicare Supplement as a product category than we've been selling. We think that as we add more Medicare inventory in regions across the country, we're going to see expansion of these conversion rates. And as we just continue to develop and evolve the consumer facing technology we have on our websites, that alone we think is going to make a big, big difference for us as well. Now remember, we -- we've been in this business only for 2 years. So, when we take a look at where we've gotten, where -- we like it, but we know that there's a lot more to be had.

I'd add a couple of points to that. We also carried over a larger number of agents over from Annual Enrollment Period into the current year and so we're looking to have good group of seasoned agents this time next year for Annual Enrollment Period. And we're also looking to diversify the channels from which we source members and particularly, driving towards more direct, which typically yields better for us.

I see. Okay, that's very helpful. And then lastly, Stuart, this seasonality in the Medicare revenues specifically, obviously will change in the overall seasonality in the business, perhaps -- I understand, a fair amount of the Medicare policies renew in the first quarter. Could you just kind of give us an idea, the best you can, in how we should model that out?

Yes. So the fourth quarter is obviously the largest, given where we are with new sales making up the biggest component of our total Medicare revenues. So Q4 will continue to be the largest quarter of the year. But if you look at the rest of the quarters, Q1 would be the biggest of the 3, given the renewal cycle for Medicare members. At the midpoint of our guidance range, we're showing 10% revenue growth. I would expect that to be a little bit higher in Q1 just given the renewal cycle.

Your next question comes from the line of George Sutton with Craig-Hallum.

So, I wondered if you could go through a single example of a customer that came in last year and that went through the lead generation process and just sort of the revenues associated. You don't need to give a dollar amount, but you call that a dollar. And then the relative dollar that you would get from a person who came through -- and you went through fulfillment, and I'm sensing you probably lose some of those people you would have sent through a lead and gotten paid for, so those end up at 0 revenues. And then you fulfill some of them and get some, are you able to walk through that math?

Yes, I'll attempt that. It takes, obviously, several leads to convert to an approved member on the direct fulfillment side and those several leads that we would have previously referred to a partner, if you add up all the revenue that we would have recognized upfront on the sale of those leads, that amount of revenue would be higher than the first year of compensation that we get from a sale. And the margin in that first year would be higher on the lead revenue as well to go with that higher revenue amount.

George, another way to come at it is that you're right, when we had a lead, we could sell the lead and it was somebody else's responsibility to convert it. When we get the leads, we don't convert every single one of them, obviously, so you've got that differential, but -- and not to get into the numbers, but you could think of it this way that anything that we fulfill in-house over the lifetime of its revenue value could be worth some place between 5x and 30x the value of that lead being sold.

Okay. Now that's helpful. Now, you've mentioned several times that you moved the fulfillment sooner than you planned, but I don't believe it was sooner than you planned when you were giving -- when you were discussing Q4 expectations, is that correct?

I would say that in Q4, we expected that we may have some lead revenue just because of the sheer size of demand that we were generating. We, certainly, in the first 3 quarters, fulfilled more in-house than we had expected, but we were surprised we were able to fulfill essentially everything in the fourth quarter in-house during that EP as we went through it.

Okay. And then lastly, on this point. So relative to the fulfillment -- not, sorry, not fulfillment, conversion. What -- how much of that would you expect might have been competitive, in other words, someone ends up going to another competitor and working with them instead, versus just -- issues you might have had in-house that are fixable in future periods?

Well, we think the majority of our improvement is not going to come from keeping consumers from going elsewhere, rather it's going to come from being much more effective in our customer care centers with these agents who are employees that Stuart talked about. Certainly being better with our online offerings and frankly, in some regions having even more product inventory and choice than we have today. That's 1 of the things we want in our individual business on running this in the Medicare business as well. And we're working on all 3 of those things as you might imagine.

Your next question comes from the line of Steve Halper with Lazard Capital Markets.

Could you just give us some details on the asset impairment charge that you took in the quarter, what was that related to?

Sure. That related to a book of business that we acquired more than 2 years ago. And what we've done is, we've amortized that asset off from that point in relation to the revenue as we take the revenue on that book of business, we've been amortizing the asset. As we sit here today at the end of 2012, the remaining estimated revenue going against that asset is actually slightly lower than the carrying cost of the asset remaining on the books. And so we took an impairment charge on that.

And then, Gary, could you give us an update on some of the conversations that you might be having with states to allow you to enroll subsidy eligible people in those markets. Where are you -- where is the company in terms of those discussions?

Yes, I'm glad you asked that Steve. Well, we're really having 2 sets of discussions. One set of discussions is with the federal government, Health and Human Services specifically because it looks like some place between 25 and 30 states, aren't going to have compliant exchanges, so the federal government, which is the default, that's in the legislation, will come in and run it, what's called an FFE, a Federal Facilitated Exchange. And we're having conversations with the Federal Government right now about being a web-based entity that runs in parallel in those states to the federal exchange, to the FFE, to be another alternative of choice for subsidy eligible people who enroll in eHealthInsurance, so that's one set of discussions. The other set of discussions are with the 20-some-odd states that are actually building exchanges that look like they will be compliant, will be up and running. And we're at various points and discussions with states, some are much further along than others, but we feel optimistic about our being able to do this in many states and the reason is pretty simple, which we continue to point out that the President's objective in passing the Affordable Care Act was to get at least 32 million uninsured Americans coverage and it's what we've done better and more effective than anybody else has ever done it online. It doesn't cost the states or the federal government a cent to have us there next to them enrolling people, so why would you use every viable entity. And we think that what we propose is that, there's a great partnership here between the best of the private sector and the public sector for what we think is the greater common good. So all I can tell you is that the position is well received. We still got some work to do and these states and the federal government, they are very, very heads down trying to get these exchanges built and up and running and don't have a lot of time or bandwidth for much of everything else. Fortunately, we've got a technology approach that we believe is very, very simple, and gets this up and running quickly. So optimistic, but I would say, expect more news forthcoming from us as we progress in this area.

Right. And what about your -- the company's ability to earn commission on these plans that presumably, that would originate at eHealth?

Well, there's going to be 2 sets of plans for sale, really, from our viewpoint. One are QHP, qualified health plans that are subsidy eligible. They'll be on the exchanges and hopefully, and presumably, here as well. And those are for people in many lower income levels and then you simply got other mandate meeting health insurance products that may or may not be on the state exchanges, but may be with us. So we really see kind of 2 large customer segments here. We fully expect, in discussions we've had with carriers indicate to us that these lower income QHPs, the qualified health plans, will be commissionable. I can't tell you they'll be at the same commission rates we are in today. In fact, I wouldn't be surprised if they're not less, simply because of the nature of the products and so on. We would expect the other mandate meeting plans to be commissionable and I certainly can't tell you today that we know of anything or see anything in the marketplace that indicates that the commissions on those would be different than what we experienced and what we have today.

Your next question comes from the line of Kevin Kopelman with Cowen & Company.

Can you give us any more color on how you're thinking about Medicare versus IFP profitability in '13?

Well, as I commented, we are moving to profitability in Medicare and we're defining that as Medicare revenue compared to all the variable costs associated with driving those revenues. I'd say that in 2012, that was a several million dollar drag on margins and in 2013, we're looking for that to be a multimillion dollar benefit to margins.

Okay. And then can you give us any color on -- actually, I think last year, you gave us where Medicare members were as of February. Can you give us any color on what you actually have -- how many members you've enrolled to date in Q1?

No, we haven't put a number together on that this year. We've added the metric of -- we've broken it out for the first time here at the end of the year, as our revenue generating members as of the end of the year and that's an ongoing metric that we plan to continue to update each quarter, so that is our new metric.

Your next question comes from the line of Adam Klauber with William Blair. Adam Klauber - William Blair & Company L.L.C., Research Division: Could you give us an indication of your priority for free cash, how are you going to use free cash in 2013?

Well, we do have an ongoing buyback program in place and we're fully committed to complete that buyback program. And as we have in the past and we will continue into the future, we're always scouring the landscape looking for strategic opportunities for the company in terms of potential acquisitions.

Okay. And how would you say the acquisition environment or opportunity environment is now, compared to, say, a year or 2 ago?

Well, there's always a number of properties, companies, assets and so on that are out and about, either available or being shopped. We're first and foremost a technology company. What we're interested in is ways to further expand and broaden the technology, so that the consumer experience is yet even a better one and we can reach more consumers. That was really our strategy and our criteria when we acquired PlanPrescriber a few years ago and it's just worked fabulously for us in the Medicare business. We continue to look at different offerings in and around Medicare and the individual business as well. We also think about tools, to give you an example. We're going to have a new competitor next year and those are exchanges, the state and federal exchanges. And one of the comments I didn't make earlier in response to the question about how is it going is we're looking to be a web-based entity. One of the things that we are finding is that all of these government exchanges are focused on one thing, which is the transaction, trying to get someone enrolled. We've done that for a long, long time and very effectively. We're thinking about a lot more than that. For example, once somebody's enrolled, how can we help them to best utilize the product that they've purchased? How can we help them to best manage their health care dollars as of the spend them? How can we help them to make better decisions about care for their children, family members and employees and so on? And we're looking at tools and capabilities and technologies that we can provide to our members that help them with that and again, make this a much more attractive choice than any other place to enroll in health insurance. So those things are certainly on the list of possible acquisition as well. Adam Klauber - William Blair & Company L.L.C., Research Division: Okay. That's helpful. And then as far as the growth in IFP approved members. I mean, you've had nice sequential increases in growth in the last couple of quarters. I'm sorry, could you go again go into what's driving those sequential increases?

Well, I think there's a number of things. I think that the confusion factor over the Affordable Care Act, at least, has died down, it's not going away. I think many people know that now. We've continued to get better at our demand generating activities. We get an awful lot of demand that we generate online because of our presence in search, for example. We've got a really, really broad and deep set of partners that have been contributing. We've been converting really effectively. As I mentioned earlier, that we're working to improve our conversion capability in the Medicare business, it's been very good in the individual business, which is one of the things that makes us optimistic about what we can do in the Medicare business. I think it's a combination of all of those things. We also think that because of the commission rate reductions that occurred a couple of years ago, that there are probably less agents and brokers out there marketing and selling these products today, which would mean for a consumer that, that's not such a viable choice, as it may have been a while ago. We think our brand name is yet better known. We know about -- that word-of-mouth has been strong. We continue to get a lot of media attention because this area is so topical, so it's all of those things. Those are the things, once again, that make us optimistic about the implementation of the Affordable Care Act later this year and next year and our position, our presence and our ability to get a lot of people enrolled, which is the real objective of this legislation.

I think another thing that you'll see when you dig through the numbers is that our direct channel has grown significantly year-over-year and our contributions from our direct channel has increased from 44% a year ago to 49% this most recent quarter. So when Gary talks about the branding and word-of-mouth and search engine optimization, some of the things we've really been very focused on over the last year, it's starting to pay off.

And I would add, by the way, having that strong direct component also impacts our conversions because those consumers who come to us direct have always converted the best. It's one of the reasons why Stuart indicated later -- earlier, I'm sorry, we're moving more heavily toward a direct component of demand generation in the Medicare business as well. It helps our cost of acquisition because the cost of someone coming to us direct is very, very nominal. And it's unusual in the e-commerce world frankly, to have such a high element or percentage of consumers coming to an e-commerce business that just come direct, that we enjoy them. So we're really pleased with the progress we've made there and what we see there. Adam Klauber - William Blair & Company L.L.C., Research Division: Great. And just one follow-up. I'm not sure if I heard this correctly, but in your 2013 guidance, it didn't sound like you're expecting the IFP approved growth to accelerate more from the fourth quarter. Is that right, or you didn't really comment on that?

Well I think we said low to mid-single-digit growth. And one of the reasons that we're making that comment is that the fourth quarter of this year is when the Affordable Care Act enrollment starts and it's just hard for us to see right now what the market is going to look like in that 90-day period. There may be a high confusion factor. You're going to have these exchanges coming into the marketplace. There's going to be a lot of education that's required. So we factored all of that into our guidance and what we see here and we try to be thoughtful about that.

[Operator Instructions] Your next question comes from the line of Ned Davis with William Smith and Company. Ned Davis - Wm Smith & Co.: Gary, I just was wondering, the metrics for the Medicare business -- the expected life and kind of time frame, are those figures being confirmed with the actual commissionable enrollees that you've been signing up over the last couple of years?

To the extent that we have history behind us, we have contractually with our carrier is typically a 5, 6, even longer commission period, over which we get paid. We've really been at this direct fulfillment business only really the last couple of years in a meaningful way. So we don't have that tail yet in front of us, but so far, we've seen stability there.

Yes, I don't think in the first couple of years, we see that it indicates that, that some of the metrics we've talked about would not be the case, at least, the way they're tracking right now, but time will certainly tell, but what we know from the others in the industry and so on, your expectations here, we think, are very reasonable in terms of lifetime. Ned Davis - Wm Smith & Co.: Switching over to the impact of the Obama care. We heard various figures about the size of the potential uninsured market and how many of them would be prime potential target customers for you. And then there's also this group of people that will find their employers just giving them the choice to enroll in a program. I don't know if you have a metric for that size of that potential market as you to see it over the couple of years, but I'd like to hear that. But my question is really more specific. You've been able to manage your advertising, your search, very, very effectively against volume revenues and profitability. As you addressed this market and the uncertainty of it, which you just mentioned, is this going to require a different type of advertising and search and marketing, or do you feel that your kind of mix of spending that you're doing today plus all the word-of-mouth is going to provide the success or the optimization of your growth into that marketplace?

Well, it's a really important question, and it's one we're giving a lot of consideration to right now. The channels that we operate with today: Partners, online advertising, which is search and the direct, which we've just been commenting on, are certainly all going to be incredibly important and relevant in this new world, especially search online, what we call search engine optimization, but think of it as natural search, the search that you don't pay for. Those are all going to be very, very key. You're going -- and we expect we're going to see, at least for a while, the federal government and a number of the states out with advertising campaigns and spending some money. We think it's going to be more traditional media like and that's all fine. We've always found that when health insurance is a topic, kind of all boats rise and we're one of them. I don't know that we're going to participate in traditional broadcast and print media. Don't be surprised to see us doing a lot of media work in terms of consumer interest stories and things of that nature, that's something that we've always been effective at and again, this area is so topical and so relevant. I think the other question that is going to be, what's the lifetime revenue value going to look like of some of these subsidy eligible kinds of products and that's going to be somewhat determining and cost of acquisition on how we market and how we go about them. I think the other interesting question that's a big one is, how appealing these subsidy eligible products are going -- or subsidy eligible consumers are going to be to the health insurance carriers as well. I think we're going to watch that very carefully because they represent some new and somewhat unknown risk to the carriers. Those who are above the subsidy thresholds, we know well, we've done well with them, there are going to be, we think, many more of them coming into the marketplace and we see that as a bit of a sweet spot for us right now. And then you've raised another point which we haven't talked about today, which is employers and all of the attention, politically in the media over the last year, last few years, has been on the individual mandate and of course, that was settled by the Supreme Court. But there's an employer mandate that says that, ostensibly, every employer with more than 50 employees has to offer health insurance starting in 2014, or pay a penalty. And as many of you may know, that the penalties are not real high. In fact, in our company, we could elect to have everyone go into the marketplace and we would pay $3000 per employee per year as a penalty, for example. That's less than we spend today on health insurance. We won't do that, but there may be other companies that may. Mckenzie, Deloitte, have done surveys in the last year, indicating that they find some place between 10% and 20% of employers may do that. We're looking right now at small and midsize employers. We think there's an opportunity for private exchanges. We've got the entire inventory of products. Yes, that's an interesting -- that's a very interesting one for us, and maybe one you'll hear more about from us over the next several quarters. Ned Davis - Wm Smith & Co.: Just a quick follow-up on that. Do you have a strategic initiative or a marketing initiative underway with companies of say, 50 to 300 employees, or something like that where you'd find to sort of establish your credibility as the potential kind of executing agent, if they do elect to just take the penalty? And/or just agree to pay a certain amount per year and let the employees select their own policies?

Well, I'd answer that 2 ways. One, there's the technology part of this, which is what we call a private exchange where we could take a, b, c companies that's got 200 employees. Take eHealth and all the relevant products in the market or wherever the ABC company is, rebrand it as the ABC company HR insurance exchange, put it in, let the employer decide what kind of a contribution they want to make to employees, let employees select the products. We can do the payroll administration, for example, the employer contribution, as well as the employee contribution, which they're making today most likely, anyway, with a group plan and get them enrolled. And one of the neat things about that for the ABC company is they no longer have the responsibility of finding one product that fits everybody rather everyone can find a product that's most relevant for them through our exchange. So that technology is something that yes, we got work going on as you might imagine, but most of the componentry already exist with us. The bigger question I think is how to get to this -- the ABC companies and it's not something you'd see us do direct. We'll get to leverage our partnerships and we've got many, many partners who have got the ABC company and many others as part of their association, their clients, their customer base, their membership, what have you, and many of these partners are very interested in working with us to provide this capability to the ABC companies. So we're coming out of those 2 ways and we're very intrigued with this opportunity and this idea.

There are no further questions in the queue at this time. I would now like to turn the call over to Mr. Gary Lauer, for closing remarks. Please proceed, sir.

Well, thanks. I just want to thank everyone for taking your time today and for your interest and support and look forward to talking with many of you over the next several weeks and months as well. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.