eHealth, Inc. (EHTH) Q4 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to eHealth's Conference Call to discuss the company's Fourth Quarter and Full Year 2015 Financial Results. At this time, all participants are in a listen-only mode. Later, we will have a question-and-answer session, and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to your host for today's conference, Ms. Kate Sidorovich, Vice President of Investor Relations. Ma'am, you may begin.

Thank you. Good afternoon and thank you all for joining us today either by phone or by webcast for discussion about eHealth Inc.'s fourth quarter and full year 2015 financial results. On the call this afternoon, we'll have Gary Lauer, eHealth's Chief Executive Officer; and Stuart Huizinga, eHealth's Chief Financial Officer. After management completes its remarks, we will open the lines for questions. As a reminder, today's conference call is being recorded and webcast from the IR 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 includes statements regarding future events, beliefs and expectations, including our estimated high speed Medicare advantage and Medicare products membership and our specifications about change of the membership. Our belief that the Medicare market is becoming a year-on business. I'll believe that we can reduce the cost of acquiring new Medicare members. The Medicare market opportunities including future growth of the market, our expectations about the growth and profitability of that in Medicare businesses. The impact of new regulations and member conversion rates. Our expectations for commission payments in the next open enrollment period and the impact in our 2016 results. Our strategy going into the first quarter of 2016, and our intention to pursue the fast growing Medicare market and to manage our individual and standalone business to profitability. I believe that revenue from the Medicare business will exceed revenue from the IC business in 2016. Our increased focus on an investment in the Medicare are estimates related to commissions earned from ISD and Medicare members. Our estimates related to revenue, EBITDA, EPS and stock based compensation for 2016, our expectations regarding sequential trends for 2016. The impacts of cost reduction measures on profitability in the first quarter of 2016, an expected increase in the first quarter Medicare renewal revenue, and finally our expectations about our first quarter EBITDA. 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. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in our forward-looking statements. We describe these and other risks and uncertainties in our annual report on Form 10-K, and quarterly report on Form 10-Q, filed with the Securities and Exchange Commission, which you may access through the SEC website or from the Investor Relations section of our website. 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, and thanks, everyone, for joining us today. As we report our fourth quarter and full year 2015 financial results. For the full year 2015, eHealth generated revenue of $189.5 million. A non-GAAP diluted earnings per share of $0.43 with adjusted EBITDA of $11.1 million, an increase of 129% compared to our 2014 adjusted EBITDA. Revenue for the fourth quarter was $50.1 million, non-GAAP loss per share for the fourth quarter was $0.56 and adjusted EBITDA was negative $9.5 million. Revenue and earnings for the fourth quarter and the full year were better than we had anticipated. Our year-end cash balance was $62.7 million with no debt. Our strategy throughout 2015 was to expand our Medicare business at a fast-pace, which we did. Total estimated Medicare membership at the end of the year grew 60% compared to the end of 2014. Medicare commission revenue for the full year 2015 grew over 60% compared to 2014. I would also like to point out that as we grew Medicare membership and revenue significantly, we're also able to improve our cost of acquisition for submitted Medicare application year-over-year. Our cost of acquisition improvements illustrate how we're gaining efficiencies in this rapidly growing business. Most importantly, our total commission revenue for all [indiscernible] products across the company grew 8% in 2015 compared to 2014, reflecting once again the importance of leverage of our Medicare business. During 2015, we've made strategic and operational changes in our individual and family plan business, which reflect our view of this turbulent market. In March of 2015 we implemented a significant cost reduction program to better align our cost with the affordable care act markets environment. As a result, our individual business continued to be highly profitable in 2015, and we are able to deploy much of this profit into growing our Medicare business, while at the same time increasing our 2015 adjusted EBITDA over the previous year. At this point, I'd like to make some comments on several fourth quarter highlights. And I will start with our Medicare business. Medicare is at the core of eHealth's growth strategy and our 2015 results speak to our successful execution in this fast-growing market. During the fourth quarter as well as throughout all 2015, we saw a strong consumer demand on our Medicare platform. Fourth quarter 2015 submitted Medicare Advantage applications grew 23% compared to the fourth quarter a year ago. Total Medicare applications, which also include Medicare Supplement and Prescription Drug Plan products grew 15% year-over-year. The strong application activity and favorable member retention that we observed throughout the year, allowed us to grow our estimated year-end Medicare Advantage membership by 73% and our total Medicare membership by 60% compared to 2014. An important part of our Medicare strategy is to make it a year around business. In 2015, for the first time since we entered the Medicare market, Medicare Advantage applications that we submitted outside or that were submitted outside of the annual enrollment period contributed more than half of total Medicare Advantage submitted applications for the year. For the full year of 2015, we grew submitted Medicare Advantage applications by 49% compared to 2014. We believe that the seasonality that we've typically experienced in our Medicare business is beginning to change. In this current first quarter, we are once again seeing significant patient growth year-over-year. For the full year 2015, total Medicare revenues grew 42%, while Medicare commission revenues grew 63% over the prior year. In the fourth quarter of 2015 all the Medicare revenues grew 38% year-over-year, while Q4 Medicare commissions grew 32%. As a reminder, our total Medicare revenues comprised of Medicare commissions and Medicare advertising revenue. Our average cost of acquisition for Medicare application declined approximately 14% in 2015 compared to a year ago. By the way, we calculate the average cost of acquisition per submitted application by dividing variable Medicare marketing and advertising costs by the number of applications for Medicare supplement and Medicare advantage products submitted during the year. The 14% cost of acquisition improvement is significant. And as we continue to expand and diversify our customer generation sources and become more effective at converting Medicare demand, we hope to continue making progress with cost of acquisition over time. I think everyone knows how compelling the Medicare market demographics are. It's estimated that on average 10,000 individuals in the United States will be having their 65th birthday each year in the next 15 years. This market is poised for strong organic growth. We plan to continue significant investment for growth in our Medicare business throughout 2016. To provide a bit more insight as to why we're still focused on Medicare, I'd like to comment on our unit economics as well as profitability expectations for this business. We estimate that on average a Medicare advantage member will generate approximately $1,450 that's 1,450 in lifetime commission revenues. Including all variable cost associated with acquiring a Medicare advantage member, including marketing and call center variable expenses. The average lifetime contribution margin we project MA member is above 50%. And note that approximately 85% of our Medicare commission revenues come from Medicare advantage members. We also have efforts underway that generate more of these members online without any call center support, which over time can result in even a better margin profile. Based on our current expectations, we believe our Medicare business will turn profitable over the next several years when you take into account all costs including variable expenses and allocation of corporate overheads. Looking at on a variable cost basis, we are already close to being profitable. As a reminder, we recognize all of our acquisition cost of Medicare as we incur them while commission revenue gets recognized over the life of the member. And by the way, if we achieved growth rates even higher than we've been experiencing, it may take longer to get to profitability in this business, but we will have an even higher member in revenue base. In our individual family plan business, our 2015 strategy was simple. Keep it as a profitable business and only pursue opportunities that we view to be cost effective. Fourth quarter individual and family plan submitted applications grew 14% compared to the fourth quarter a year ago to 114,600 applications. However, we saw less demand in January, the last month of the open enrollment period, reflective of the overall market trend based on the enrollment data for government exchanges released by the Centers for Medicaid & Medicare Services earlier this month. The number of total individual and family plan submitted applications that we generated over the entire open enrollment period was down 22% from last year's OEP to a 172,181 submitted applications. At the beginning of the year 2015 as we saw softness in the individual market, we decided not to pursue application growth at the expense of higher acquisition cost in line with our strategy for the individual business. As such, we reduced our cost of acquisition per submitted IFP member during this open enrollment period compared to the prior year. During the year, we are able to enroll subsidy-eligible individuals into qualified health plans as a web-based entity. The center for Medicare and Medicaid services has recently directed us and other WBEs web-based entities, to make changes to the process for enrolling individuals in the qualified health plans through the Federal Health Insurance Exchange. This change requires that we use a different pathway through which individuals are enrolled in these QHPs. These changes have been implemented and may adversely affect our conversion rates during next open enrollment period. In addition, several health insurance carriers have recently reduced OR eliminated broker commissions on individual products they have for sale during the current SEPs. By the way THE SEP stands for Special Enrollment Period, which allows enrollment outside of the open enrollment period under very specific circumstances. Carriers have informed us that they will resume more standard commission payments in time for enrollments recurring during the next open enrollment period. Because individual and family plan application volumes are very low during the SEP. We think this will have minimal impact on commission revenue in 2016 and has reflected in the guidance will be providing to you today, but it could impact future periods. Now I would like to make some comments on our outlook for 2016. As you've seen, we are pursuing an exciting and very fast growing Medicare business and our strategy is to capitalize on this. While at the same time, operating the individual and family plan business for profit and cash flow maximization. Stuart will be giving specifics on our guidance for 2016, but it's important to note that we plan to grow revenue and EBITDA, which indicates the importance and impact of our Medicare business. Medicare commission revenues are expected to be greater than individual family plan commission revenue in 2016 for the first time. We're very pleased with our execution in 2015 and given the turbulence and uncertainty in the ACA market, we are fast becoming more and more of a Medicare marketplace. Now I'll call the - turn the call over to Stuart.

Thanks, Gary, and good afternoon, everyone. Today I plan to review our financial performance for the fourth quarter and fiscal year 2015 and provide our 2016 annual guidance. Our 2015 financial results reflects successful execution of the company's growth strategy in the Medicare market and our decision to manage the individual and family plan business for profitability and cash flow generation. Our fourth quarter 2015 revenue was $50.1 million and a 11% increase compared to the fourth quarter of 2014. Revenue for the full year 2015 was $189.5 million, representing a 5% increase compared to the full year 2014. Fourth quarter Medicare commission revenue was up 32% compared to the fourth quarter of 2014, driven primarily by the new Medicare enrollments that we generated during the quarter. Full year 2015, Medicare commission revenue grew 63% over 2014. Fourth quarter individual and family plan, ancillary and small business commission revenue was down 3% compared to the fourth quarter of 2014. With an increase in average commission revenue per individual and family plan member offsetting some of the decline in the estimated number of revenue generating individual and family plan members. For the full year 2015, individual and family plan, ancillary and small-business commission revenue declined 8%, compared to 2014. Strong growth in Medicare commission revenue allowed us to grow our total commission revenue on a year-over-year basis, both in the fourth quarter and full year 2015. Our commission revenue for the fourth quarter 2015 was $41.1, a 7% year-over-year increase. Total commission revenue for 2015 of a $171.3 million grew 8% compared to 2014. Other revenue, which includes sponsorship, e-commerce on-demand and non-commission Medicare revenue, was $9 million in the fourth quarter, a 37% increase compared to Q4 2014. This growth was driven primarily by higher Medicare advertising revenue and also by an increase in lead generation revenue in our individual and family plan business. Turning to membership metrics, the estimated number of revenue generating Medicare members was 228,900, up from the $143,500 at the end of the fourth quarter of 2014, for an increase of 60%. Our fourth quarter 2015 individual and family plans submitted application volume grew 14%, compared to the fourth quarter of 2014. For the full year 2015, our IFP submitted application volume declined 5.5% compared to a year ago. Our estimated individual and family plan membership at the end of the fourth quarter was approximately $503,300, down 3% compared to the estimate membership we've reported for the third quarter of 2015 and down 11% compared to the estimated membership we reported for the fourth quarter a year ago. These estimated membership metrics are within our range of expectations and reflective of our strategy to manage this business for profitability, while investing in Medicare growth. As a remainder, the vast majority of applications submitted during the fourth quarter were for products with effective dates of January 1, 2016 or later. And the resulting members from these applications would not become paying members until 2016. The contributions from individual and family plan members approved during the fourth quarter to our individual and family plan membership will depend on the rate at which these members convert into revenue generating members. The estimated number of members on ancillary and small business products was over 412,000 at the end of the year or slightly higher compared to a year ago. Our total estimated membership at the end of the quarter for all products combined was approximately 1.14 million members, which represents a 2% increase over estimated membership reported at the end of the fourth quarter of 2014. Now, I'd like to review our operating expenses. Total operating costs for the fourth quarter and full year 2015 declined as a percentage of revenues compared to a year ago, driven primarily by growth in revenue and by cost reductions implemented in March of 2015. Full year 2015 operating costs also benefited from lower acquisition costs for Medicare member, as we continue to drive efficiencies in this business. Let me provide more detail around our operating expenses for the quarter. Fourth quarter 2015 non-GAAP marketing and advertising expense, which excludes stock-based compensation expense, was $31 million or 62% of revenue compared to $28.1 million or 62% in the fourth quarter of last year. Our marketing costs are directly tied to the application volume in each quarter. During the fourth quarter, we grew submitted applications in our Medicare and individual and family plan businesses while maintaining a disciplined approach to acquisition cost per application. Fourth quarter 2015 non-GAAP second content expense, which excludes stock-based competition expense, was $8.5 million or 17% of revenue, down from $10 million or 22% of revenue in Q4 of 2014, reflecting the impact of the cost reduction program implemented in March of 2015. Fourth quarter 2015 non-GAAP customer care and enrollment expense, which excludes stock-based compensation expense, was $13.4 million or 27% of revenue compared to $14.3 million or 32% of revenue in Q4 of 2014. This reflects a significant decrease in customer care resources in our individual and family plan business pursuant to the cost reduction program, partially offset by our investment in Medicare dedicated customer care staff during the annual enrollment period. Adjusted EBITDA for the fourth quarter of 2015 was negative $9.5 million, an improvement from negative $12.9 million for the fourth quarter of 2014. Full year 2015 adjusted EBITDA was $11.1 million compared to $4.8 million for the full year of 2014. Fourth quarter and full year 2015 adjusted EBITDA were better than we had anticipated. We calculated adjusted EBITDA by adding restructuring charges, stock based compensation and depreciation and amortization including the amortization of acquired intangibles to our GAAP operating income. Fourth quarter 2015 non-GAAP net loss per share was $0.56, compared to net loss of $0.44 for the fourth quarter of 2014. Non-GAAP net loss for the fourth quarter of 2014 included a tax benefit of $0.35 compared to a tax benefit of $0.01 in the fourth quarter of 2015. Full year 2015 non-GAAP net income per diluted share was $0.43 compared to the non-GAAP net loss per share of a $0.001 for the full year 2014. GAAP net loss per share was $0.67 for the fourth quarter of 2015 compared to a loss of $1.08 for the fourth quarter of 2014. GAAP net loss per diluted share was $0.26 for the full year of 2015 compared to a loss of $0.88 for the full year 2014. Our fourth quarter 2015 cash flow from operations was $1.2 million compared to negative $4.1 million for the fourth quarter of 2014. For the full year 2015, we generated $13.7 million in cash flow from operation compared to $1.8 million in 2014. Capital expenditures for the fourth quarter of 2015 were approximately $660,000 and were approximately $3 million for the full year. Our cash balance was $62.7 million at December 31, 2015, up more than $11 million from the $51.4 million at the beginning of the year. And now I would like to comment on our expectations for 2016. We are forecasting revenues for 2016 to be in the range of $195 million to $203 million. We expect 2016 EBITDA to be in a range of $11.5 million to $17 million. Non-GAAP diluted earnings per share for 2016 is expected to be in the range of $0.38 to $0.68 per share. For the full year 2016 (sic) 2015, stock-based compensation expense is expected to be in the range of $6.5 million to $8 million. Now I would like to address some of the sequential trends for the year. We expected the first quarter of 2016, to be seasonally highest in terms of revenues and earnings. Similar to last year, we expect to recognize the vast majority of our Medicare renewal revenues during the first quarter. Given that, renewal commissions are paid on our existing Medicare book-of-business and do not have marketing expense associated with them, they contribute greatly to the bottom line. In addition first quarter profitability will benefit from cost reductions that we put in place in March of last year and our decision to run the individual business for profit maximization. As a result, we projected significant increase in our first quarter 2016 EBITDA compared to the first quarter year ago. We also expect, the first quarter to be our highest EBITDA quarter of 2016. I want to remind you that these comments on our guidance are based on current indications for our business, which may change at any time. We undertake no obligation, to update these comments or our guidance and now we would like to open up the call for questions. Operator?

Thank you. [Operator Instructions] Our question is from Tobey Sommer with SunTrust. Your line is open.

Hi, this is Kwan Kim on for Tobey. Thanks for taking my question. I got a question on the increase in net the cash. Could eHealth repurchase shares now that, your past open enrollments, is there something on the table. Thank you.

Yes. So the answer is that - we're always thinking about that and thinking about how to return the value to shareholders and we've bought back $250 million worth of stock with the history of our company and it's certainly something that we'll be considering, we'll be looking at many ways to return value to shareholders, but the answer is yes, we'll be given that consideration. Last year was a very turbulent year for us because there was so much around the Affordable Care Act. We've restructured the company and we bought it was most prudent to watch the cash balance that we had. We frankly had a better year than we had anticipated. We're very optimistic about this year. And this is not the first time I've heard this question or the suggestion as well. So, thank you, yes.

Okay. And could you talk about how much subsidy eligible enrollment contributed to growth?

Well, we saw an increase this year in subsidy eligibles as a percentage of our total submitted applications. This open enrollment period, it was roughly 55% of our applications. And this time a year ago, NOEP was around 41%. So, that's - that is definitely contributing.

Okay. And regarding the Medicare business, past [indiscernible] profitability, how significant are the changes to your projections, if there were any, are your expectations in line to were doing in the past?

You're asking about Medicare.

Yes.

Yeah. Well, hopefully, it's becoming clear and obvious that we're really going through a pivot and a transition here. Our business mix is changing significantly and changing quickly. And that's really deliberate. We're pushing very, very hard into this Medicare business for all the obvious reasons. As I indicated from a - if you take a look at our variable marketing and advertising and customer care expenses, we're very close to being profitable there right now. We are - we're spending a significant amount of money on acquisitions to grow this member base and the revenue base and that's what really pushes up the point of profitability, I think is I commented if we - we actually see increasing growth rates, which we did last year, that could push it out even a bit further. We're able to fund this and we're able to manage to do this as we're going through this transition in the business mix through the individual business, which is highly profitable and given the current trends and what we know currently, we expect to continue to be for some time. So, we're very fortunate to have that and to be able to capitalize on that, as well as add to whatever we see appropriate.

Okay. Thank you.

Thank you. Our next question is from Dave Styblo with Jefferies. Your line is open.

Hi. Good afternoon. Congrats on the progress guys. On the 2016 guidance, you talked about Medicare revenue being greater than ISP revenue, I guess - I know you think of the underlying details there, but if we assume that ISP continues to sort of erode down, would that be a fair assumption and if so, it looks like Medicare revenue would need to be up about 35% next year to create that crossover. Am I sort of in the bright ballpark there?

So, I think you have the dynamics right. We do expect to decline in the individual and family commissions next year. And then a healthy strong upward growth in Medicare as well. And in our comment about the Medicare commission’s crossing over the level of individual family, that does not include the ancillary commissions, that's a separate line item. So, this is just a big lead of Medicare, being larger than individual by itself.

Right, okay. And so of that - that growth in Medicare, call it whatever 35%, 40% plus something in that range. How much visibility do you have and what are your assumptions that you're baking into there, clearly you had a nice pickup in sequential membership in the fourth quarter, it sounds like a lot of that revenue will actually get booked in the first quarter, because they find out pretty late and can you just kind of walk us through how much confidence or visibility you have on that - on that growth rate baked into the guidance?

Well, if I look at last year more than 40% of what we recorded as revenue came from renewals. So a good chunk of what we - what we book each year as revenue comes from the renewal base, which is ever expanding obviously at a much fast pace. Now that we actually had a higher growth rate for Medicare Advantage this year in 2015 than we had in 2014. That's going to help very much with renewals. I mean, you're right, we do get some spillover revenue from our fourth quarter sales that spills into Q1, so we have visibility on that. And then, we will obviously have some visibility given just what we're seeing here in the first quarter so far in terms of what growth rate we're experiencing with new sales, which will drive the rest of it. So, we're organizing ourselves around healthy - another very healthy growth year in Medicare, looking to hire additional sales agents to staff up to that to spend more marketing funds against it. And I think we have quite a bit of visibility on a good chunk of this.

Yeah. We really like what we see there and as Stuart said, we feel like we got good visibility. And I think as I had commented, Stuart may have - added to that as well. More than half of our Medicare Advantage applications last year came outside of the annual enrollment period, which is really quite unusual and in some ways, it's kind of box the experience of a lot of others at least historically in this business and what we expected. And we pushed really hard for that. And as I said, we're seeing significant growth again already in this first quarter, which is outside of the annual enrollment period. So, it's the combination of all of those things, certainly gives us a confidence about what we're forecasting and what we hope to see in this business.

Okay. And then just one more at just to stay here in Medicare. So, it clearly it seems like your investments and resources deploying towards diversifying into different leads such as TV, I think you guys are doing that and refining the conversions that were maybe missed in prior years or months at least maybe the expansion in Med stuff. Can you just give us a little bit more color and peel back the onion more about these items that you're pushing on a water, what is seeming to impact the business the most?

Well, it's really a combination of things. We had a quite a bit of success last year with TV, which we're really pleased about that's somewhat unusual in this online world and we are continuing that. We're actually transacting more online during this last Annual Enrollment Period. We saw a much larger percentage of transactions of both Medicare Advantage and Prescription Drug Plans online. When I say online, I mean no human interaction at all, no call center. That's really important to us because it obviously gives us a real leverage, when it comes to acquisition cost conversion and on and on. We've got a fast-growing partner channel. We do really well in terms of sourcing through some of the major retail pharmacies across the country that we believe that we've got about 65% of the retail pharmacy outlets across the country that we're partnered with. The inventory of products has expanded with the all of the major names now. So all of this has just been so good for some of the Medicare Advantage business and I might add that we have got project underway inside the company to move more and more of this online without being call center reliant. And just to give you a flavor for that in our under 65 individual business historically about 80% of what we've transacted was gone online. The other 20% needed customer care or call center support. That business today, the individual business, the vast, vast majority of what we do is online. We just have a handful of agents that support that business. We think Medicare is always going to be a bit different because it's a more complex products that. But we're convinced from what we've seen, we can get more and more online, which gives us we think some really interesting leverage. So it's a combination of lot of things here and we're running at this business very, very hard from a lot of different places. You asked about Medicare Supplement, we're not doing as much there yet as we'd like, but we think of awful lot of what we're doing in the Medicare Advantage business is going to transfer into the Med Sup business and that we'll probably become more and more of a contributors. We continue to evolve and develop this it's really exciting Medicare part of the business.

Great. Thanks. I'll hop back.

Our next question is from Steve Halper with FBR. Your line is open.

Hi. Just two quick questions, Gary or Stuart. What are the key variables in the guidance range seems pretty wide understanding that it's early there are some variables. But what are those key variables that you have to consider?

I'd say that the key variables are for both product line is the cost of acquisition that we experienced throughout the year. It's the key variable, it'll impact not only what we spend but also how much we can generate to support revenue. Medicare growth rate for Medicare Advantage is a key driver. And then just ACA, market demand for ACA products will impact this year as well as just the metrics around that. Conversions of those and then just retention rate for the [indiscernible] business, I would say it's another driver.

And then, specifically, Gary, you mentioned the new pathway for QHP submission. What's the timeline to get that, developed and do we have any confidence that the interaction with the healthcare.gov, it's going to be smoother than it was the last time you went through this process. And I'm not going to ask why they changed the pathway?

The pathway that we're using today, it's working. We're rolling QHPs right now in the SEP. It's far from ideal and we've got some work to do on it, and with CMS, that would be very frank. But that's where we sit with it. It's just another example of why we're in this transition and this pivot toward the Medicare business. There are just so many factors in this under 65 business, right now as a result of Obamacare that make it very difficult to the predict. So we've got - it's working and we're enrolling people in qualified health plans, it's not working as well as we would like to be very, very frank. And we hope working with CMS, we can even improve this pathway or find another pathway that works even better for us. But having said all of that, we're - we've been through this - with these people at CMS before, when it comes to Obamacare, here we sit again. And this goes back to, I think Stuart's comments as well to your question about the a bit of the range in our guidance. Some of it comes from this, because of the unpredictability of what's going on there. You may have got the comment that some of the carriers are reducing their our M&A commissions during the SCP and I can't speak for any of them, but you know many several of them have indicated that the business for them at least currently is not profitable. And what they're settling to us another distribution points is they don't want to sell in those products right now.

Right.

It's as simple as that. So, you've had all those variables but I just want to come back to Medicare, it's becoming such an important substantial part of our business, that's really the story about eHealth and frankly, we couldn't be more pleased about where we are right now with that business and it's developing. It is developing faster than the individual business, ever did for us, as we built this company, before Obamacare.

That's a god point. So, we shouldn't hold our breadth that this new pathway and the transition to it is going to be any smoother than last time, that sort of my takeaway based on your comment, would you disagree with that?

I would not disagree with that.

Okay. Thanks.

Thank you. And our last question is from Ned Davis with William's Smith. Your line is open.

Yeah. Hi. Thank you. Gary, I'm wondering, there was an article in the New York Times, a week or so ago, very bullish on the Medicare supplemented advantage and carriers were all raving about their profitability. I'm wondering are the marketing dynamics likely to change because this is becoming a more important component of their business? And do you have any idea what your market share is or was say last year, as a percentage of the total enrollments in the industry?

Well, Ned, I'm - yeah I'm aware of the New York Times article and others like that as well. This is an exciting part of the business right now for a whole lot of reasons, not the least of which is this population that is ever-increasing of eligibility for Medicare and people living longer well know that the demographics here. And so, one of the things that we've been - this isn't new for us, we've been running at this business now for five years plus and really been laying down a lot of track to be able to go after it. You're now starting to see the results of that. So, we've got these really good partnerships with the retail pharmacies. As I said earlier, TV is working on. We're getting - we're getting better about doing this online. By the way, I should mention as well. We brought a property two years ago called Medicare.com. We own that property, that URL that address online. And we think the value in that is incredibly high. We're doing a lot of work around that right now from a branding standpoint and is yet another place for consumers to come online for Medicare products. So, we're again, we're doing everything we can to leverage this business. Now, in terms of market share, we're still really, really small and that's the beauty in all of this. When it comes to Medicare Advantage, we're certainly less than 1% of that market right now. We've done some internal work here. If we could just achieve what we achieved in the individual market several - few years ago actually where we had 4% to 5% of the market share, we can just do that along with Medicare Advantage and nothing else. This is a - this is a very substantial business and probably a much different business than we've ever seen in the history of this company. So, we're - that's our objective. We're going after as much market as we can get, but we're doing it in a way that's efficient. And the thing that is probably most pleasing to us in some way is more surprising is that with the kinds of growth rates we have last year, which were very substantial, we brought our cost of acquisition down significantly. And that's because we converted better, we got smarter about all of this, we're doing some of these products and the more of them online. So, I think you can tell, we have a lot of enthusiasm here and this where our focus is.

I - and I - that's great. I just - the other 99% any idea, how much of that is generated by carriers with their own direct marketing as oppose to any kind of third party pharmacies or others outside of the - outside of the carriers themselves?

Yeah. You've got - if you got several places where all of this happens, of course the Federal Government has an exchange called medicare.gov, it's been there for several years and there is some Medicare Advantage and the Some Prescription Drug Plans that get transacted there that's not a substantial number. We've seen a fair amount of market data on the carriers and the carriers spent a lot of money marketing directly, which is when we get it filed, it actually helps us. What their share is, I can't tell you carrier by carrier or as a percentage of the market. You've also got a lot of regional brokers and brokerages that are focused specifically on Medicare. Many of which are captives, so there maybe one that just sells in a manner and there maybe another that just focuses on adding the products and on and on. So, there is a fair amount out there, but there is nothing - there is no one dominant player, maybe that's another way to come out this and that's what we like about it as well. So, we think that the - that the window is opening quickly here and I think it's very significant in terms of what someone maybe us is going to be able to do here.

And so, the carriers, based on this articles and the time that are making such good margins, are expect to, they have a big incentive to keep you as commissionable marketer. It has a good stake.

I would certainly hope so. We're told by some that our cost of acquisition for them is really favorable. We - what we bring to them is highly accurate, there is very little rework. And you've probably seen recently that there is a fair amount of bullishness right now on the Medicare market, in fact CMS just in the last few days, they proposed a rate hike for the Medicare Advantage plans which means the reimbursements for the carriers. So, I think that there is more and more recognition at these products for people who are 65 years of age, and are becoming more and more popular, are really important part of Medicare coverage.

Okay. Terrific. Thank you very much.

Thanks, Ned.

Thank you. We do have one more question from John [indiscernible] with Glacier Peak Capital. Your line is open

I'm sorry. You sort of just touched on it, but just the CMS up in the reimbursement rates. Just want to understand how it exactly kind of affects your business inflows to you?

Well, of course, our revenue source is the commission that were paid by the carriers to market to sell these products. And, as reimbursement rates go up, one would think that that's good from a commissionable standpoint. Stuart last year affected commissions were about a 1%...

Yeah. Maybe a 1% or 2%. We saw a little bit of an increase last year, for similar other events.

Yeah. And by the way, these are substantial commissions that are paid on these products because that's the complex sale. And as I indicated earlier on Medicaid Advantage, we see about $1,450 in terms of lifetime revenue. We estimate that life to be around five years that may end up even being longer than that. So, the reimbursement rates on the proposed rate hikes from CMS. Yeah, we think that's a positive development in the market for us.

Okay. And then secondly, you've shown the cost of acquisition has drifted down as you guys become more efficient. Is there kind of a floor where it hits were like you said, it was down completely like 14% year-over-year, is there - can you project out sort of how further it can go lower or just sort of your thinking?

Well, we've driven it down the past couple of years. I can tell you, in this business, going down 14% is substantial.

Right.

Yeah. It's going down double-digit percentages the last two years, but that's been very good with the efficiencies we brought in. It's kind of hard to say, one thing that really help when we were growing the individual family business is we got more and more word of mouth and recognition in the marketplace and more direct traffic that helps and I think as we've describe we're still considering ourselves early days in the Medicare business. So over time, I think that would help us. I think doing more and more online as we go would help us as well. So there is some drivers that in front of us I think that can continue to help us there.

Right.

Even as its early days, as we built this individual business several years ago before Obamacare, we're seeing, I would say growth rates, we're seeing take in the market, it's more substantial than we've probably have ever seen in the history of the company and we're certainly seeing from a dollar standpoint, much, much higher potential margins coming out of these products. Just the absolutely dollars alone. We said earlier, just where we are today, we've got about a 50% unit margin and we think we can do some things to make that actually a higher unit margin.

Do you think that kind of the know-how that you've learned or the process that you learn can be application to the supplement business? Or is that just, it's totally different than you guys have the kind of learn that to give them drive down the same sort of acquisition costs.

I think it's - I think there is a lot of similarities. We certainly would use the same platform. We think Medicare.com is a great place to land consumers for Medicare supplement products, we're beginning to do that. The advertising and some of that approach may be a bit different, but we know a lot about that. We really know how to do it online. So frankly that's the - that's the next area we're going to start moving into. Just think about it, we could - if we could - if we can continue to experience some of these healthy growth rates with Medicare Advantage and then start to bring Medicare Sup into a range like that, I mean this becomes - and this becomes really interesting quickly.

Right, right. And then just lastly and this is more coming from sort of a generalized investor standpoint. But your guidance, there are some put and takes on the IFP versus the Medicare, but the guidance doesn't necessarily say you're not having any kind of substance about, this is what GDP is going to do or this is what the macro economy is going to do, this is really quarter of - it could be driven maybe by some rule changes or CMS or some different change, but generally macro, there is nothing that really affects the business at this point.

I think what's macro affected the business has been Obamacare.

Okay.

And we get that. We've taken our lumps over the past three years for that. We've got a whole different approach with that business. As I said we're - we are pivoting quickly and significantly toward Medicare. From a macro standpoint, the trends that were of - the macro kind of influences we know of right now are positive. All these baby boomers aging in, and so many of them being very comfortable transacting online, searching online, learning online, life expectancies increasing, the carriers wanting to go after this business as Ned had pointed out, it's profitable for them. We see those macro trends and those are really good trends. And those for the most part are going to be independent of GDP, economy and everything else because remember the real customer with Medicare is not the person who is 65 years or 66 years of age or my mom who is 90 years of age who buys the product. The customer is the Federal Government because they're paying for this, this has been in place since 1965. And that's not changing anytime soon that we see. And by the way Bernie Sanders is the elected President, there may be a lot more Medicare for us to go after because his solution to healthcare is Medicare for all.

Thank you. I'm not showing any further questions. So I'll now turn the call back over to Gary Lauer for closing remarks.

I just want to thank everybody for taking the time this afternoon. And certainly, look forward to speaking with many of you one-on-one as well. Thank you.