eHealth, Inc. (EHTH) Q1 2013 Earnings Report, Transcript and Summary

Hello, and welcome to the Q1 2013 eHealth, Inc. Earnings Conference Call. My name is Myesha, and I will be your operator for today's call. [Operator Instructions] Please note this conference is being recorded. I will now turn the call over to Kate Sidorovich, the company's Vice President of Investor Relations. Please go ahead.

Good afternoon, and thank you all for joining us today, either by phone or by webcast, for a discussion about eHealth, Inc.'s first quarter 2013 financial results. On the call this afternoon, we have Gary Lauer, Chief Executive Officer of eHealth; and Stuart Huizinga, eHealth's 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 expected Medicare policy life; planned investment in our Medicare business; our expectation that our first quarter will increasingly benefit from Medicare renewals; future growth in Medicare membership and revenue; expansion of our Medicare plan selection; our hiring plans; implementation of the Affordable Care Act; our participation in enrolling uninsured; maintaining our position as the leading exchange; our ability to use a tax benefit to positively impact operating cash flow; seasonality in our Medicare business; projections of operating results for 2013, including our 2013 guidance for revenue, EBITDA, EPS, stock-based compensation expense, amortization of intangibles and effective tax rate; also, revenue and revenue growth in the second quarter of 2013; technology and content expenses for 2013; earnings for our second quarter of 2013; earnings growth for 2013; and the strength of fourth quarter 2013 Medicare revenues. These forward-looking statements are based on management's current expectations and assumptions that are 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 our relationships with [indiscernible] and our product selection from health insurance carriers, our preparation for and ability to manage operational demands from our Medicare business and participation in selling individual health insurance products in government exchanges. 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 or annual report on Form 10-K, filed with the SEC and available on the Investor Relations page of eHealth's website and on the SEC website. Forward-looking statements on this call represent eHealth's views as of today. You should not rely on these statements as representing our views in the future. We undertake no obligation or duty to update information contained in these 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 Regulation 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. Good afternoon, and thanks, everyone, for joining us today as we report our first quarter 2013 results. Throughout the quarter, we made good progress in both of our major business areas, the Individual & Family Plan business and the Medicare business. Our Individual & Family Plan business continued to strengthen, with double-digit year-over-year growth in both submitted applications and approved members. Additionally, we generated annual growth in our Individual & Family Plan commission revenue for the second quarter in a row. Closely related to our Individual & Family Plan business, we're experiencing continuing strength in sales of our ancillary products, which are primarily dental, vision and accident policies, with approved members growing almost 100% year-over-year. In our Medicare business, members who renewed their Medicare products during the first quarter generated approximately 50% of the total first quarter Medicare revenues. We're beginning to see leverage that results from the recurring nature of revenue in our Medicare business, where our average expected life of a policy significantly exceeds what we typically observe in the Individual & Family Plan business. This is precisely why we've been investing in Medicare for the past few years, with the objective of growing a significant member base. We plan to continue to invest for growth in this business, with specific focus on expanding our product inventory and enhancing our direct fulfillment capabilities. At this point, I'd like to comment on our financial results for this past quarter. First quarter revenue was $43.2 million, and GAAP earnings per share was $0.11, and EBITDA was $6.6 million. At the end of the quarter, we had $114 million in cash on the balance sheet and no debt. Stuart will discuss these results, including our cash flow, in more detail a little bit later during this call. During the first quarter, we increased our existing share repurchase authorization by $30 million, bringing the total aggregate amount that may be repurchased under the program to $60 million of eHealth common stock. I'd like to note that, as of the end of the quarter, we completed the initial $30 million in repurchases authorized under the program and still have another $30 million remaining under the authorization. We continue to believe that at current share price levels, repurchasing our shares is a prudent use of our cash. And now I'd like to make some further comments about our Individual & Family Plan business results. Our first quarter Individual & Family Plan submitted applications grew 10% year-over-year, and our approved Individual & Family Plan members grew 14%, reflecting solid demand for our individual product offerings. Our estimated Individual & Family Plan membership grew 8% compared to the first quarter of 2012, allowing us to achieve annual growth in Individual & Family Plan commission revenues. This represents a significant improvement from the first quarter a year ago, when our Individual & Family Plan commission revenue declined $3 million on an annual basis. As a reminder, during the first quarter of 2011, 2 years ago, we experienced significant commission rate reductions as a result of the Affordable Care Act medical loss ratio requirements. We are pleased that we've been able to absorb these commission rate changes and return to Individual & Family Plan membership and revenue growth, while maintaining solid profitability. As I mentioned earlier, our ancillary products, including dental, vision, short-term and accident insurance, contributed another strong quarter. Commission revenues from these products increased 80%, and approved members grew 96% year-over-year. Ancillary products are becoming increasingly attractive to consumers as a way to access benefits not found in many major medical individual products. Our Medicare business was an important contributor during the first quarter, driven in part by revenues from Medicare members who renew during the first quarter. As a reminder, Medicare Advantage and Prescription Drug Plan policies sold during the Annual Enrollment Period have an effective date of January 1. So we expect that the first quarter of every year will increasingly benefit from Medicare renewals as we continue to grow this important business. Correspondingly, the renewal Medicare commission revenue in the first quarter of 2013 came primarily from members who purchased product during previous Annual Enrollment Periods. First quarter 2013 Medicare revenue was $10.1 million, representing a 57% year-over-year growth rate, while Medicare commission revenues more than doubled year-over-year. The higher growth rate in Medicare commission revenue compared to total Medicare revenue is due to the fact that during the first quarter of 2012, we were still generating revenues from referring Medicare leads to third parties. In contrast, during the first quarter of this past year, we fulfilled in-house, as a broker, almost 100% of the Medicare demand that we generated. We had no material revenues from the sale of leads. Our goal in our Medicare business is to continue to grow the membership and revenue base in a meaningful way. Some of our key priorities in this business include the enhancement of our in-house fulfillment capabilities and increasing conversion rates on Medicare demand that we generate. Conversion rates, in particular, can be an important lever in growing our Medicare membership and further increasing the profitability of a member. As a part of the effort to improve conversion rates, we are working and giving consumers more choice and expanding our Medicare plan selection with products from additional health insurance carriers. We expect to achieve good progress in this area in time for the next Annual Enrollment Period. As part of our investment in Medicare, we will be hiring people over the next few quarters in order to prepare for the demand we expect during the upcoming Annual Enrollment Period, and to ensure an adequate training period for these people. Stuart will provide more color on our investment plans in this area later during the call. The number of estimated revenue-generating Medicare members that we had at the end of the first quarter grew 114% year-over-year and 7% sequentially. The total number of Medicare products sold during the quarter grew 20% compared to the first quarter last year. As a reminder, the majority of Medicare sales for the year occur during the Annual Enrollment Period in the fourth quarter, and member adds outside of the fourth quarter will be substantially lower in other periods. The number of Medicare Supplement products we sold grew in excess of 60%, although off a small base, as we expand our planned inventory and sales efforts in this area. Finally, I'd like to make some comments on our preparation for the implementation of the Affordable Care Act. On October 1 of this year, it is expected that state exchanges will begin to function, individual health insurance products meeting the Affordable Care Act requirements will be available for purchase and enrollment with an effective January 1 start date, and federal premium tax credit subsidies will be available to those who qualify. Of note, it is estimated that more than 30 states will not be operating their own exchanges. Rather, these exchanges will be run by the federal government, called a federally-facilitated exchange. Clearly, these new government exchanges represent a new market entrant and potential competitor for us. At the same time, we believe that we can be a very important participant in the process to enroll over 30 million Americans who are currently uninsured, per the objectives of the Affordable Care Act. And as part of this, we are working closely with the Department of Health and Human Services in Washington D.C. and several states to become approved as a Web-based entity, which would allow subsidy-eligible individuals to purchase and enroll through eHealth. We can be a significant enrollment resource to consumers and help achieve the Affordable Care Act enrollment objectives. We are also continuing to enhance, evolve and improve our consumer offerings and experience. We simply want eHealth to be an outstanding and unbiased online platform for consumers, both before and after the implementation of the Affordable Care Act. So in summary, I'm pleased with our first quarter performance. Revenue growth of 17% demonstrates that our strategy has been sound. Our Individual & Family Plan business has grown for the past 2 quarters, and our Medicare business is beginning to provide meaningful revenue contributions. We are optimistic about this coming year and especially, our market position in both businesses. Now I'll turn the call to Stuart to give you some more details and summary of our financial results. Stuart?

Thanks, Gary, and good afternoon, everyone. Our first quarter 2013 revenue was $43.2 million, a 17% increase as compared to the first quarter a year ago. This is our strongest quarter in terms of total revenue growth since the fourth quarter of 2009. Commission revenue for the quarter was $38.3 million, representing 22% annual growth, also our best performance since late 2009. Commission revenue growth was driven primarily by our Medicare business, where commissions grew in excess of 100% year-over-year. We're also pleased with continued traction in our Individual & Family Plan business, which delivered commission revenue growth for the second quarter in a row. First quarter 2013 Individual & Family Plan commissions increased by approximately $800,000 on a year-over-year basis. Other revenue, which includes sponsorship, eCommerce On-Demand, Government Systems and non-commission Medicare revenue, was $5 million. This represented a 12% decline compared to the first quarter a year ago, driven primarily by our transition to a commission-based direct fulfillment model in Medicare. In Q1, we fulfilled in-house, as a broker, close to 100% of the Medicare demand that we generated and had no material Medicare lead revenue. For comparison purposes, in Q1 of 2012, the sale of leads accounted for over 10% of total Medicare revenues. During the quarter, we saw a strong demand for our Individual & Family major medical plans, with IFP submitted application volume up 10% and approved IFP members up 14% compared to Q1 2012. Total approved members for all products were up 36%, driven by activity in ancillary products. In Q1, we topped the 1-million mark in our membership, with approximately 1,054,000 total estimated members at the end of the quarter. This represents 24% growth over estimated membership reported at the end of the first quarter of 2012. The number of revenue-generating Individual & Family Plan members was up 8%, while the number of other members increased 95%, driven by the increase in our Medicare and ancillary product customer bases over the past 12 months. Now I'd like to review our operating expenses for the quarter. Excluding stock-based compensation and the amortization of acquired intangibles, our non-GAAP operating expenses increased in absolute terms and as a percentage of revenues, relative to the comparable period a year ago. The increase in our first quarter operating expenses as a percentage of revenues compared to Q1 2012 was driven primarily by our planned investment in technology and content. As we discussed in our last earnings call, we're investing in eHealth's technology platform this year to stay at the leading edge in terms of our user experience and functionality. Our goal with this investment is to maintain eHealth's position as the leading exchange of choice for health insurance, as we near a major implementation stage of the Affordable Care Act. First quarter 2013 non-GAAP tech and content expense, which excludes stock-based compensation expense, was $6.4 million or 15% of revenue, up from $5.1 million or 14% of revenue in Q1 2012, an increase of 25% in those expenses. Non-GAAP customer care and enrollment and G&A, which excludes stock-based compensation expense, also grew slightly as a percentage of revenue in the first quarter as compared to Q1 of 2012. Meanwhile, first quarter 2013 non-GAAP marketing and advertising expense, which excludes stock-based compensation expense, decreased from 34% last Q1 to 33% of revenue this quarter. First quarter non-GAAP operating income, excluding stock-based compensation and the amortization of acquired intangibles, was 14% of revenue or $5.9 million. This compares to 16% of revenue or $6 million in the first quarter a year ago. As I explained earlier, our first quarter margin was impacted by our planned investments in the areas of technology and content and Medicare-related customer care and enrollment. For the full year 2013, we continue to expect that our non-GAAP earnings will grow approximately in line with our revenue in terms of percentage year-over-year growth. This implies a relatively stable non-GAAP operating margin for 2013 versus last year. EBITDA for the first quarter of 2013 was equal to EBITDA for the first quarter of 2012, at $6.6 million. First quarter 2013 GAAP earnings per share were $0.11 compared to $0.10 in Q1 of 2012. First quarter non-GAAP EPS, which excludes the impact of the amortization of acquired intangibles, stock-based compensation and related income tax benefit, was $0.17. Our cash flow from operations was an outflow of approximately $500,000 compared to an inflow of $5.1 million in the first quarter of 2012. A significant item impacting our Q1 operating cash flow was a $3.5 million tax benefit item, which resulted from stock option exercises during the quarter. This item negatively impacted our first quarter operating cash flow but had an offsetting positive impact on our cash flows from financing activities, resulting in a neutral impact on the total cash flow to the company in Q1. Later this year, we expect to see a positive $3.5 million impact on our operating cash flow as we use this tax benefit item to reduce our actual cash taxes paid. So from an operating cash flow standpoint, it's a timing difference, which is expected to wash when you look at the full year. We also experienced a new seasonal difference in our cash flow that comes from our shift to the direct fulfillment model in Medicare during 2012. This seasonal change reduces our Q1 cash flow and increases our Q4 cash flow compared to our previous model that included lead generation revenue. Specifically, in the first quarter last year, we had a significant collection of receivables that had been generated during the fourth quarter 2011 Annual Enrollment Period by our Medicare lead generation activities. With the shift to direct fulfillment, we no longer have this Q1 pickup, rather, we expect to see a seasonal benefit to our cash flow in the fourth quarter from new Medicare enrollments during the Annual Enrollment Period. Capital expenditures for the first quarter were approximately $1.5 million. As of March 31, 2013, our cash and marketable securities balance was $114 million compared to $141 million at the end of the fourth quarter of 2012. Our cash balance reflects our share buyback activity under the repurchase plan, which was initially authorized for $30 million in September of 2012 and later expanded by another $30 million in March of this year. As Gary mentioned earlier, during the first quarter, we completed the first $30 million portion of the program. With respect to guidance and based on information currently available, we are reaffirming the revenue, EBITDA, stock-based compensation expense and earnings per share guidance for the full year 2013 that we provided on our fourth quarter 2012 earnings call. I also want to comment on certain expected quarterly trends in 2013. Starting on the top line, I want to remind you that we recognize the majority of our renewal commission revenues in Medicare during the first quarter, which is the second largest Medicare quarter for us, after Q4, in terms of annual seasonality. As Gary mentioned, Medicare renewal revenue represented approximately 1/2 of our total Medicare revenue of $10.1 million in Q1. As a result, for Q2, we expect a sequential decline in revenue from Q1. You should still expect to see revenue growth on a year-over-year basis in Q2. The Medicare renewal revenue stream is the reason that we made the shift to direct fulfillment from the lead generation model, and we're pleased to see that beginning to pay off this quarter. Our strategy is to continue to invest in growing our Medicare membership and the associated recurring revenue base as we go forward. Along these lines, we are adding Medicare customer care representatives earlier than we did last year to optimize the team's expertise in preparation for the Annual Enrollment Period. You will also continue seeing higher tech and content expense as a percentage of revenues throughout the year compared to 2012. If you combine these investments with the seasonal sequential top line step-down in Q2, you should expect a pretty meaningful step-down in earnings in Q2 versus Q1 of this year. The majority of the earnings growth that is implied by our 2013 annual guidance range is expected to come in the fourth quarter, when we expect seasonally strong Medicare revenue to absorb our investments in tech and content and customer care and enrollment. I'd like 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. And we undertake no obligation to further update our guidance. And now I'd like to open up the call for questions. Operator?

[Operator Instructions] First question is from George Sutton with Craig-Hallum.

This is Jason on for George. First question, Gary, can you give a little bit more color on some of the Medicare conversion rates that you experienced in Q1? You talked about that as an area of improvement from last quarter. And if you could just talk about if we saw improvement there and what you're doing to improve that.

Yes, Jason, you bet. Well, several things. We are continuing to evolve and develop our online offerings, and frankly, look to enroll more seniors online and to make that a more efficient process. And we're seeing progress there. Secondly and importantly, we want to add more product inventory. Just like in the Individual business, we think choice is a big part of the value proposition and critically important here. We are, in fact, are in the process of adding some significant product right now, and we think there will be some more coming as well, that's very important. We'll be making announcements pertaining to that as we bring those on. But yes, we're pleased with the progress that we're making on the conversion side of the Medicare business. All of our energy and all of our efforts are focused on the Annual Enrollment Period coming up in several months, and that's what we're driving toward right now. Hence, the early investment in headcount, and a lot of the work that we're doing in terms of adding product as well, is in anticipation of what we want that product portfolio to look like come the Annual Enrollment Period.

Okay. Can you give us any expectations of timing as far as those products being added to the platform?

Some are in process right now. And with several of those, when we have them up and running, we'll -- I think we'll probably be making announcements. And several others aren't quite that far along, but we're making very, very good progress.

Okay. And then in terms of submitted applications, so for the last 2 quarters, we've seen pretty significant improvement there. And just wondering if there's anything different that you're doing there, if there's anything you can point to for the reason for that improvement in submitted apps and approved members.

Well, I think there are several things. We'll certainly continue to improve our work on search, especially search engine optimization, which is natural or organic search. Our partner program is making nice contributions. We very much stabilized page search, which, frankly, was out of balance for several quarters after the commission rate reductions we took 2 years ago. We believe, at least anecdotally, that there are less agents and brokers selling these products today on a one-on-one basis, just because the commission levels aren't as lucrative for them as they were a few years ago. We think there is somewhat less confusion or uncertainty about the Affordable Care Act and people waiting for the things that they expected from the Affordable Care Act that don't transpire, like free health insurance and so on. And I think also, our brand name is becoming more ubiquitous and more well-known. I'm, frankly, really pleased, that with all of the -- at least all you hear about -- all the turbulence you hear about that people anticipate with the Affordable Care Act coming on, we're seeing some really, we think, some good growth and some real stability in this business, and what we see right now indicates that, that's going to continue.

Okay, great. And then just last for me. So one trend that you've talked about in the past is that you've seen a shift in employers looking at defined contribution plans instead of defined benefit plans. I'm just wondering if you can provide any color on how that's playing out as the year progresses.

Well, there's still a lot of discussion about that, and clearly, with the Affordable Care Act coming into play later this year and next year, it becomes an option for many businesses. The part of the mandate that people haven't paid attention to, many people, with the Affordable Care Act, relates to employers, not individuals. The Supreme Court ruled on the individual side of it last year, but there's a mandate that says that every employer with more than 50 employees has to offer health insurance starting in 2014. But the consequences of that mandate, i.e. the tax penalties, aren't very onerous. And companies like McKenzie and Deloitte have done surveys indicating that between 10% and 20% of employers may exit the employee group market and move their employees into some form of the individual market, in some form or fashion. We're hearing and seeing discussion about that. I can't tell you that there's a lot of activity there right now because there's not, but I think it's going to be something really interesting that could begin to unfold next year. I think more importantly, however, those businesses that have less than 50 employees, who, for years, have looked at group health insurance, which is prohibitively expensive because you typically have such a small employee base to spread the risk across, we think these individual products are going to become very attractive to them. And we think that that's a really interesting opportunity that expands the market in ways that most people aren't anticipating right now. So I think this is all yet to be determined. But we're very interested in this side of the marketplace. And frankly, I think we've got -- we're uniquely positioned because of the inventory of product that we have, that can meet so many of these employer needs, especially in small businesses.

Our next question is from Kevin Kopelman with Cowen.

This is Andrew Marok on for Kevin. I just had a couple of questions. If you could talk about what you're seeing in Q2 to date, specifically in the IFP market, if there are any notable trends there. And I know it's early, but I was just wondering if you could speak sort of qualitatively as to your expectations for Medicare revenues in '13, like if Q1 is indicative of what you're expecting for the year.

Well, in the Individual business, the only -- we never make comments during the quarter about what we're seeing specifically. But as I think I commented earlier, we have seen what we think is sound, good growth in Q4 of last year and Q1 of this year, and we're certainly seeing activity right now in the market. It indicates to us that it's going to continue to be a good market for us. There were some expectations that consumers would back off, waiting for the Affordable Care Act to implement. But we're not seeing evidence of that right now. So we like what we're seeing there. I'll let Stuart talk about the Medicare business, but we've reaffirmed our guidance. We're very optimistic about Medicare. We certainly like the revenue contribution we just got. And again, that's a result of the investment we've been making in the last few years to start to build this recurring revenue base. You've got a lot of seniors who are aging in. We expect to have some significant new product offerings. We're enthused about Medicare, and certainly, the way we started makes us quite enthused.

Yes. And I would just add, we haven't given specific guidance by product line for Medicare. It has very good solid growth, obviously, for Q1. It is our high renewal quarter, our highest renewal quarter of the year. So you're comparing to a year ago, when we had a smaller base of numbers up for renewal, so it is a favorable comparison for Q1. But I would be looking for very solid double-digit growth from Medicare this year.

That's great. And if I could -- I didn't hear it earlier. Did you give the percentage breakout of plans that were Medicare Advantage or Medicare Supplement?

We did not. The last couple of quarters, we have mentioned that. In Q4, it was north of 60% that was MA.

The next question is Richard Fetyko with Ergrove [ph] Capital.

A couple of questions. I noticed the approved numbers on the IFP side were really strong. It looks like the sort of the approval rates increased versus the prior quarters [indiscernible]. Could you [indiscernible] to that? And then secondly, in the Medicare revenue, there's a few components. Can you just highlight some of the components? We have the Medicare renewals and then, which, I think, the Medicare-related advertising revenue and then, of course, new Medicare members. Anything else and, perhaps, rank them in order?

Yes. Well, in the Medicare revenue, one of the comments we made is that half of -- approximately half of the Medicare revenue in total this quarter came from renewals. And commissions as a percentage of total Medicare revenues was, by far, the lion's share of total revenue. So new commissions for the quarter from new sales was also a solid component of that. And then to a lesser extent was our other revenue category, which includes the advertising, Medicare advertising. And I'm sorry -- oh, the first question was about our growth in approved members in Individual & Family. We did see a little bit of an uptick in our close ratio between our submitted applications to approved applications this quarter. I'm not sure I would draw any lines off that yet. We typically would like to see more than one quarter's worth of activity there before I'd start talking about any trends.

Okay. And then lastly maybe for Gary, what do you expect from carriers in terms of the Affordable Care Act? What can you expect to outline [ph] the plans and pricing for the exchanges, as well as outside of the exchanges?

Yes, Richard, it's a good question. Well, we think that in most states, there should be a vibrant market -- or really, 2 vibrant markets. One is the on-exchange market, which may primarily be subsidy-eligible plans. And that's why it's so important that we become a Web-based entity to help host people. And I'm feeling more and more optimistic about that all the time, because as both the federal government and the states get closer to implementation of the exchanges, I think they're seeing that -- what we've known is that, first of all, outreach is not easy. Enrollment's is not easy, and building these is not easy. I mean, it's very understandable to me. This is very complex stuff that they have to do. And so we can be a, I think, a tremendous asset because we're ready to enroll. We can pre-enroll people. We save taxpayer money because it costs nothing when it goes through us. We bear all of that cost. And we can help to increase the number of people who enroll, which is the objective. So I'm finding more and more enthusiastic acceptance of that as we're talking with government people. And I think there's still more work to be done and certainly more to be, for us, over time, to be disclosing to you on that. So that's one. So I feel good about that. When it comes to the carriers, we all hear and read about sticker shock and premium prices going up and so on, and I don't know a whole lot more about that than anyone else. I do think that it's likely that premiums are going to go up. I'm hoping and I don't think they're going to be prohibitively expensive. I think we're finding that there are more carriers now who want to get into the marketplace, both the exchange marketplace and the off-exchange marketplace, which is primarily products for people who are above the subsidy levels. Notably, WellPoint, in their earnings release yesterday, indicated that they will participate in most exchange markets. We were pleased to see that. We think some of the other larger carriers are going to as well. Because the more products, the more choice there is there, the better it's going to be for consumers and frankly, the better it's going to be for us. So we're waiting and watching. Some of the benefits requirements still have got to be released by the federal government to design these products, but there's a lot of work going on in this area. So all in all, Richard, I think in most states, we're going to have a -- I think we'll have a, as I said, a vibrant market with the non-subsidy-eligible products. And in many of the states, a good exchange market as well. And we think and we hope at prices that make sense and work for consumers.

Our next question is from Caroline LeCates with Lazard Capital Markets.

Just looking at your other revenue line item -- or sorry, other membership line item, and it looks like that's up a lot. And I'm wondering if that's attributable to any one area, like short-term insurance or dental or vision.

Well, we're seeing good, strong growth across the board there. Medicare has been strong, double digit year-over-year. Dental, vision, accident, pretty much across the board, we're seeing very strong growth. I'd say short-term is probably a smaller grower than the others, but I'd say probably more the vision, dental and accident would be big drivers on other.

Okay. And then just on, in terms of the exchange opportunity, when do you expect to start hearing about approvals? And also, do you need approval from each individual state and instances in which the federal government is running the exchanges, or can you get a blanket approval from the federal government?

Yes. Ostensibly, we believe that one approval from the federal government will apply to most, if not all, the states that federal government is working in. And it looks like there's going to be an excess of 30 of those states that are not compliant. So the federal government will be running a federally facilitated exchange, or otherwise known as a federally facilitated marketplace. So we're in discussions right now with Health and Human Services and the appropriate groups there. And the same with the states, especially the states that have got large populations that are a big part of the market. We are optimistic, and as we actually have written contractual relationships, we're moving forward, we'll be telling you about those. But every day, it just seems more and more apparent to me that this partnership of the private sector, someone like us and, perhaps, some others, and government can only help here.

The next question is from Nat Schindler with Bank of America.

Two quick questions. First, as a housekeeping issue, on your report today, your cost of revenue line kind of spiked somewhat uncharacteristically. I was just wondering if you could explain that. And on a separate kind of larger theme issue, if you look -- if you assume you get to work with the federal government exchange and you can process subsidies for the federal government and all noncompliant states, how many -- and you're saying that's 30. So how many of your existing client -- your existing members, who would be subsidy-eligible, would fall outside of that, inside the 20 other states?

So let me take the cost of revenue question. That is very related to the increase in our Medicare revenue from renewals. We have some, what I'll call, revenue-sharing expense related to that -- to those renewal revenues. And so those are recorded along with the revenue to which they relate.

Nat, it's Gary. On subsidy eligibility, we certainly have gotten members who are subsidy-eligible, and we know who they are and where they are and so on. We never disclose that kind of profile or makeup of the member base. But we're spending a lot of time right now on planning, to help ensure that every single member that we have today, who may think about a new product because of the Affordable Care Act, would do that through us. Hence, the Web-based entity capability is really important to us. And let me just say that it's not just the 30-plus federal states, but we're talking to every other state as well. Certainly, our objective is that, in every state we operate in today, which is all 50 states plus the District of Columbia, that we're able to post people who are subsidy-eligible, actually, come October 1 of this year, and certainly, 2014 as we're moving into this.

Gary, just quickly to clarify on that. Am I to understand, though, that you have to get not only approval from the federal government, so thus, to get the 30 states, but you then have to go individually through an approval process for each of every other state and the District of Columbia, in order to cover 100% of the area and -- 100% of the country and an ability to process subsidies?

That's correct, yes. Yes. The regulation is such that it's a state-by-state decision. And because the feds are coming in to 30-plus states, that decision defaults to them. But that's correct. So Nat, for example, in California, California is building an exchange. We have got to be able to partner with the state of California, and have California to essentially certify us to do that.

Our next question is from Ned Davis with Wm Smith & Co. Ned Davis - Wm Smith & Co.: I just wanted to drill down a little bit more on the topic you were just talking about, with regard to the state and federal purpose. Maybe I could ask sort of a rhetorical question in reverse. Why would any state that is opening its own exchange refuse eHealth as an agent, and why would the federal government, with regard to all federally organized exchanges, want to restrict you? What would be their motivation?

Well, Ned, I'm not so sure if there is any logical or reasonable motivation or reason, except that, in some cases, they are so consumed and so busy trying to build this, build what we already do, that they simply don't feel they have the bandwidth or the time to entertain anything else. But we have made this, we believe, so simple and so easy, it really takes no technology bandwidth time or energy or resource. The other one, quite frankly, is you deal with some ideology. There are some people in government who believe that they're going to build the next Facebook or Google of the health insurance marketplace, and everyone will come. And I think I know a little bit better about that, having done this for a while here in the Silicon Valley. But for the most part, people are being reasonable, very accepting and understand, really, what this is about. I mean, my theme on this is a really simple one. The president talked about smart government in the State of the Union address. My view is that smart government would be to take the best of the private sector and the public sector, put it together for the better -- the common good. And that's exactly what we want to do in terms of helping to enroll people and help people who are subsidy-eligible. And I have yet to have anyone argue with me, without exception, at any role in government, that this isn't a good thing that we want to do and it's not helpful. So that's why I'm -- I feel really -- I feel very optimistic about this, but I want to note there's still work to be done. Ned Davis - Wm Smith & Co.: Well, people make the analogy to FedEx and UPS versus the Postal Service. Related to that is the question of how the state exchanges, particularly, would be funded. And is there an issue of commissions that you would earn versus, in effect, they would earn in some fashion, to subsidize your operation? Is that something that you think is going to come to a head with a lot of the state exchanges?

I do think so. I don't think they see us cannibalizing their ability to be able to fund their exchanges. I think that they've got -- there's another side to that, which is that there's been an announcement about navigators and navigators earning $58 per enrollee and on and on. That's expensive. And I'll be surprised if you can even do it for $58. But we cost nothing, and many of the states are recognizing that we can really help to save money here because after 2014, these exchanges have to become self-supporting. And there may be a non-exchange fee that a carrier is going to have to pay to be on the exchange, which the exchange will help to support all that. I think the other thing that's important to note is that some states are being aggressive about building their exchanges, like California. Many states are not, which, I think, is another reason why it's so important that we're there, and I think that people recognize that as well. Ned Davis - Wm Smith & Co.: Okay. Well, switching one other topic. I think in the Q4 call, or maybe it was the Q3, '12 call, you talked about your customer service for Medicare, that you had -- you found it was more challenging. You needed kind of a stronger employee on average in terms of the ability to deal with individuals on the telephone and explain issues. Have you gotten that -- it looks like you have gotten that in more balance. And maybe you could just give us an update on that whole situation, because I know you were concerned about it, I think, last year.

Yes. We didn't convert as effectively as we wanted to in the Annual Enrollment Period. I mean, it was as simple as that. It was a number of things. We need more product, which we're working on right now. We needed our people to be more effective. We need better online offerings, all the things in building this business that have go to be done. And as we noted, we're hiring a number of people presently. And over the next several quarters, I think Stuart indicated, there's some expense associated with that, but we're doing that for the express purpose of having these people very well trained and very, very ready when the Annual Enrollment Period gets here, with, we believe, stronger, better online offerings and with more product inventory for seniors to choose from as well. This got a lot of our attention, and we feel like we're making good progress in this area.

Our next question is from Adam Klauber with William Blair. Adam Klauber - William Blair & Company L.L.C., Research Division: A couple different questions. Thinking about prices potentially rising towards the end of the year, when historically, you've looked at elasticity, what level of price increase starts to create more churn in your existing book?

It's a really good price because historically, when we've seen rates change, in many cases, it's the reason that an individual will start to look at other products. And we're going to see some of that later this year, we think, as a result of all of this. And one of the reasons is that the benefits that are mandated into these products are greater and broader than what the products have carried in the past. And I use this analogy a lot, but if you're going to buy a new car and you want the upgraded leather and the Bose sound system, you're going to pay more. Well, health insurance is no different. So I think that pricing could precipitate more consumers looking and so on. We think that actually could be a good thing from a business standpoint for us. In terms of elasticity, I think there's also another point here kind of on that curve, which is where do you get to the point where these products just aren't affordable for people. And I think that that's a possibility, but I don't think it's a probability. I think there's been some saber-rattling about how prices are going to go sky-high. But when you look at the number of people coming in, and if, and this is another reason I think that it's so important that we're out there with the exchanges hosting subsidy-eligible individuals, if we can bring balance into these pools, if we can bring a lot of healthier people into the pools and so on, who aren't high utilizers, that, fundamentally, is the most important driver of pricing and so on, is utilization. And if we can help to bring in a lot of people, especially younger people who don't utilize a lot and are healthier, that's going to have an impact on pricing, because those are going to be better pools to be able to deal with. Adam Klauber - William Blair & Company L.L.C., Research Division: Right, okay. And just following up, so if prices do move up and clients or members want to move to other lower-priced products, do you have those lower-priced products? Given the regulations, is there that capability to differentiate?

Clearly. And the carriers are going to have to differentiate. When you think about the fact that, at least in theory, there are 30 million people coming to the marketplace that aren't there today, many of them buying these products, if anything, it's going to be so important that the carriers can differentiate their products, add value and make them attractive. We see that in the Medicare business, where the pricing is very much banded and so on, and so are the benefits. I think we're going to see a lot of that here, because I think this is going to end up being very attractive business to a lot of these carriers. So we think there will be good differentiation. We think there will be value propositions in a lot of these products, and part of that's going to be is -- our job is to be able to represent and communicate those to consumers, to help make them a good informed decision.

Our next question is from Scott Fidel with Deutsche Bank.

This is Shawn Bevec for Scott. I just wanted to talk a little bit about the MA rates for 2014. There's obviously been a lot of concern about the rate cuts in 2014, and a lot of the MCOs have talked about the ability to grow membership in 2014 and possibly exit certain markets. I'm just wondering how, first, how the rate cuts might affect your commissions on the MA business. And then, if enrollment growth does come in, in 2014, how would that impact your ability to grow MA membership?

Well, let me talk about the growth first, then I'll go to the commissions. On the growth side, we are still such a small, small fraction of this market, and there are so many seniors coming in. And if you started to have product changes and rate changes and so on, it's going to cause a lot of seniors, we think, to shop. For maybe not all good reasons, but we think that could be an awfully good market environment for us. So we -- it doesn't bother us a bit. And by the way, Medicare Advantage, as you know, Scott, is becoming a more and more popular product. More and more, the seniors are gravitating toward Medicare Advantage. If, for some reason that I can't foresee, Medicare Advantage products weren't viable, Medicare Supplement becomes very viable, because people want more than what they just get from base Medicare. One of the reasons why we're building up our Medicare Supplement inventory and business right now, in fact, we made a comment earlier about the growth we saw in this past quarter, I can assure you, as important as Medicare Advantage and Prescription Drug Plans are, we're doing a lot of work right now in the Medicare Supplement area as well. And those Medicare Supplement products, by the way, are not federally funded nor are they federally regulated. They are state by state. And they pay commission rates that are very, very attractive because it's business that the carriers want a lot. Now going back to Medicare Advantage, if there are reimbursement reductions in the future, one would certainly think that the carriers are going to have to figure out how to cascade that through their modeling and the products and so on. All I can tell you is this, that when we incurred the commission reductions as a result of the medical loss ratio, 2 years ago in the individual business, we were earning about 10% of the premium value, on average, every month. After those reductions, which were in excess of 30%, we were just a touch below 7%. So we went from 10% to 7%. If you look at some of the CMS data -- and I can give you 2 examples. One is Humana and other is United. Of the premium that's paid for a Medicare Advantage product on an annual basis and the commission we earn, it's a touch less than 3%. The commission is very lucrative to us, but we earn a little bit less than 3%. We just don't know of a more efficient way to distribute these products to get them in the hands of seniors than at 3% or less, which is what it costs a carrier to move them through us. So we think that -- and with the kind of volume that we're generating for many of these national carriers and others, we think that the commission side of things is a much different scenario than what we saw in the Individual business, and we think the math is pretty compelling.

We have no further questions at this time. I'd like to hand it over to Gary Lauer for closing remarks.

Well, great. Thanks, everybody, for taking the time this afternoon, and I look forward to speaking with many of you over the next coming weeks and months. Thanks again.