Good day, ladies and gentlemen and welcome to the eHealth Incorporated Fourth Quarter and Full Year 2016 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call maybe recorded. I would like to the conference over to Kate Sidorovich, Vice President, Investor Relations. You may begin.

Thank you. Good afternoon and thank you all for joining us today either by phone or by webcast for a discussion about eHealth Inc.'s fourth quarter and full year 2016 financial results. On the call this morning, we will have Scott Flanders, eHealth's Chief Executive Officer and Dave Francis, 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 statements regarding our Medicare small business and individual and family health insurance market strategy, our expectations that the new administration's policies will emphasize private sector participation and have potential positive implications for our business. Our expectations regarding the individual and family health insurance markets, our five year revenue and adjusted EBITDA targets, our beliefs regarding our ability to achieve this target, the profitability and growth of our individual and family plan business, with respect to future periods, changes to our Medicare sales and marketing efforts designed to generate demand, improve conversion and lower the cost of acquisition. Our plans to leverage strategic relationships and grow contribution from our direct marketing channel, lifetime member economics and expected churn of Medicare supplement plan, aggressive expansion in the Medicare supplement market, projections regarding our 2017 Medicare submitted application growth and profitability of our new Medicare enrollments in 2017, the profitability and targets, segment profit as percentage of segment revenues for the Medicare business segment with respect to future periods, investment in the small business health insurance market, and its projected impact on our 2017 adjusted EBITDA laws,…

Thank you for joining us today, as we report our fourth quarter and full year 2016 financial results. For the full year 2016, eHealth generated revenue of $187 million. Non-GAAP diluted net income per share of $0.17 and adjusted EBITDA of $5.7 million. Revenue for the fourth quarter was $43.8 million. Non-GAAP net loss per share for the fourth quarter was $0.79 and adjusted EBITDA was negative $13.9 million. Our year-end cash balance was $61.8 million with no debt. 2016 was a dynamic year for the company. eHealth has undergone a broad change in leadership team and an extensive strategic review of the business, including a thorough assessment of the company's target in adjacent markets. The result is a newly focused strategy with a core emphasis on growth and execution, diversification of revenue streams and enhancement of member profitability. During the fourth quarter, we began to execute on the eHealth new strategy. As we shared with you on our third quarter earnings call, our current strategic priorities include one, continuing growth in the Medicare market, including an increased focus on the Medicare supplement market, two, aggressively pursuing growth in the small business health insurance market and three, managing our individual and family health insurance business for profitability, while preparing to resume growth in this marketplace on our expectation that the new administration policies will make it more attractive to the private sector. The financial forecast underline our strategic plan targeted five year compound annual growth rate of revenue in excess of 20% and adjusted EBITDA target margins in the mid-20% range by the end of the five-year forecast period. We believe we can deliver these targets through strong execution across our key business areas. I'd like to note that starting with this quarter, we began reporting our financial results and…

Thank, Scott. And good morning, everyone. Today I plan to review our financial performance for the fourth quarter and fiscal year 2016, and provide our 2017 annual guidance. During the fourth quarter of 2016, we began evaluating our business performance and managing our operations as two distinct reporting segments, Medicare and individual, family and small business and we are now reporting revenue and profit by segment. We discussed the methodology behind the allocation revenues and cost by business segment in our earnings release. The earnings release also describes how we calculate segment profit and loss. Our intention is to provide the investment community with greater transparency and a better understanding of the revenue and profit dynamics of our two major business areas. Our fourth quarter results reflected a decline in our individual and family plan membership and revenue, driven largely by the negative impact of the Affordable Care Act on the IFP market and increased CMS restrictions on web-based entities that made it more difficult for us to enroll subsidy eligible individuals. While we continue to generate growth in Medicare membership and revenue, it was not enough to offset the decline in IFP revenue, resulting in overall fourth quarter revenue of $43.8 million, down 13% compared to the fourth quarter of 2015. Revenue for the full year 2016 was $187 million, representing a 1% decline compared to the previous year. Fourth quarter individual, family and small business revenue was $24 million, down 24% compared to the fourth quarter 2015. For the full year 2016, IFP and small business revenue of $106.7 million declined 16% compared to 2015. Our fourth quarter 2016 individual and family plan submitted application volume declined 61% compared to the fourth quarter of 2015. At the same time, our IFP-related variable marketing expense declined at an even…

Thank you. [Operator Instructions] Our first question comes from the line of David Styblo of Jefferies. Your line is now open.

Hi, there. Goode morning, and thanks for the question. Maybe I'll just start on the longer term guidance to get a better understanding of the assumptions that are in there, especially by segment. I know its Medicare you guys are talking about getting to 20% in the out year plus, from a loss and at the same time it sounds like you're certainly changing some go to market strategies for attracting applications. How do we get comfortable that you have a visibility already to see a path towards that profit ability over the next few years here, when were pretty early on in the process of moving forward to that. And then on the IFP side in those longer-term assumptions, what do you guys assume that market looks like in a few years when broker commission cuts continue to happen or many brokers are not paying, can that business remained profitable over the next two years under this environment that we're in right now? So if you could start with those, that would be great.

Thanks, David. I'll hit the Medicare and I think the IFP discussion probably requires a little bit broader strokes. I'll let Scott talk a little bit more about what we've been doing in Washington on that plant, and how that impacts the nuts and bolts to that of business. The Medicare side is, we've had an opportunity to dig into the business, both through the strategic planning process and the strategic alternatives process that we've been going through. We've been able to identify a number of areas where we believe we are not operating at an optimal level and have considerable upside relative to both how we are going to market the source customers, as well as how we're operating from a sales process perspective. What I will tell you is that we believe that we have a suite of content and decision support services as Scott mentioned earlier on the call that from a new business perspective will enable us to get into some market segments from a customer acquisition perspective that are significantly higher quality customers that we can acquire at lower cost basis, and our early moves to get into those markets have been greeted very favorably by the partners that we are working with. So we see a lot of runway relative to early traction in some of the strategic efforts. Some of those we'll talk a little bit more in depth about at our March 23 meeting. But we are we are already beginning to see the benefits of that change, and go to market strategy relative to some of those strategic partners. From sales process perspective, we do believe that we've identified several areas where we can take those lower-cost customers, hitting our platform and convert them at a higher rate and candidly to…

And then on the IFP side?

Okay, could you just re-ask it because I was so absorbed with Medicare.

Sure, sure, just the outlook right now is very tenuous, you know, we through our channel sites continue to hear about broker commission cuts, I mean, the plans providing any commissions whatsoever. It sounds like you guys are thinking you might be able to possibly even enroll some new folks in the open enrollment period for '18. So I'm just curious what does your long-term targets assume happens in and the IFP business for either enrollments or revenue, how do you guys are looking about that business plan, I mean, obviously that we still don’t even have a plan from Trump yes. So what are you thinking about that looks like?

So Dave, again, I'll let Scott talk about the bigger picture stuff. As it relates to how we are looking at modeling business right now, you're absolutely right, what you described in terms of what the market looks like currently from an IFP perspective is spot on. The - particularly in the in the SEP period, the brokers that have continued to stay in the market are aggressively stepping away from the market as a result commissions are hard to come by and new business is hard to come by for us. What we have built into our expectations from a modeling perspective is that given our context with what's going on in Washington, that we expect the double redirect to be removed from our enrollment process by the time we get into OEP in late '17 for the '18 enrollment year and that we are able to transact business back in the marketplace, which is still not in great shape as an individual market, but significantly better than what we had to deal with in 2016, something that begins to look more like what we were able to transact in 2015. And it's important to note that during OEP those carriers that are in the market to step up with commissions we have not seen a degradation in commission rates, though it's too early to tell what the race will be going into the next OEP. But if the handcuffs that were put on us back in February 2016 are taken off, again we conservatively expect it will be able transact business, much as we did back in 2015, which was significantly below peak levels for us as well. So from a modeling perspective, we believe we've addressed it conservatively relative to what's going on the marketplace. I'll let Scott talk a little bit more about what we're seeing relative to the regulatory outlook.

Right. So just to put a finer point on it, we have very conservative enrollment projections for the 2017 open enrollment. Because we see the same things to your market checks are indicating in terms of further carrier exiting of the market and there are some carriers that rather than X they are paying no commissions because they really don't want this business, because in a in a word its unprofitable for that. Dave and I are taking this call actually from Washington DC, and our government affairs offices, we are here both this week and having senior-level meeting both with the administration and with Congress and making our case heard, as to what is necessary to repair the individual market, which has collapsed and is collapsing at an accelerating rate. And so if no action were to be taken in this market there won't be one for the 2018 enrollment year. So the view that we have is that everything that can be done from a regulatory front pursuant to President Trump's executive order that he signed on its first or second day is going to be done with the HHS and CMS administration. And then further that healthcare remains the number one priority to repeal and replace in par as part of the budget reconciliation in March and April before taking on tax reform in August and that was reaffirmed in my pence's speech last night at SeaTac convention and it is consistent with everything we're being told by senior administrative registration officials. So we believe that our IFP submitted app forecast will end up proving to be conservative. We very carefully indicated here that we are only assuming a restoration of the electronic pathway for enrollment. We are not assuming that the market gets more robust, but we also aren’t assuming that it deteriorates further.

Okay. And then my other question is on a small group initiative here, you guys are making a fairly large bet, I think you said about two thirds of the EBITDA loss something like $10 million or 5% of the company's market cap is going toward these investments, if I think I triangulate all that right. How can you help investors and this is one question I get from any of them about what you're dealing here, what the opportunities, why it looks good from an economic perspective. Certainly I can appreciate that there's a lot of mom and pops out there that you are going against streamlining with technological standpoint, a lot of the enrollment process, it also seems to be a situation where that might be costly to do and tough to scale, can you help us to get a little bit more perspective on what you see is so attractive about that business and that can drive attractive unit economics?

Yes. Well, first I'd like to agree with you that is material and it’s in that range of spending and to put a finer point on it, its 16% of our cash. And so I look at it as even three times more material than the 5% of our market cap that you indicated because I husband [ph] the cash very carefully and hold very high ROI expectations for it, if we're going to use it for anything other than return to shareholders. So let me make that firm note and commitment to you. But with respect to small business, this was a key insight from our hundred day strategic plan and when we understood that we had 300,000 members who are highly sticky – as 330,000 members that are sticky that we were generating with virtually no customer acquisition cost because they were coming off the trans with our search engine optimization. The keywords that were one or two in every single insurance term and we were processing them in a highly manual way and ended the customer care engagement post enrollment was also highly manual. The integration, interface with a carrier again highly manual. So given that we've done automated every aspect of that customer purchasing journey, as well as integration on the B2B side with a carrier in the IFP business and you just heard how enormously profitable the IFP business is even in its down year it would be $68 million force last year. And so even with all of this and the small business was profitable, we obviously had a small level, but it was only a $6 million business for us. So we have - those internal assessments, the external assessment is the feedback from these mom-and-pop businesses, ideal target size is 4% to…

Yes. The only thing I'd add Dave, is that there is a significant opportunity as we've – as we look at the market to tap into what we've identified as at least an $8 billion market opportunity. The micro into the marketplace with a significantly differentiated go to market strategy and a technologized platform that is just is completely unique in the marketplace and provides a level of access and service to this segment of the marketplace which just doesn't have any today. And because of the significant investment that we made on the IFP side and the fact that a majority of that technology investment translates very clearly over to this segment of the marketplace, we believe that we're not just stepping up to the place and swinging the bat, we're kind of starting from second base here and the opportunity with a meaningful investment, but one that is manageable on our end to tap into a significant market opportunities substantially.

Dave, just to give you some of the metrics on this, what your appetite is, it certainly got mine, we estimate $300 LTV per group and was groups with only five members on average that’s because of high commission and very low churn. It makes substantial reason once a small business has set this up, as long as it's functioning for them. They are disinclined to churn, unlike the individual market, which has very high churn rate. And so we think that there is very attractive unit economics in this business. We're not incurring a large fixed cost to go after it. And so again, we will just - we will continue to monitor it and we're committing on this call to report on it on a quarterly basis.

Thanks for the answers. I'll step back for others.

Thank you. Our next question comes from the line of Tobey Sommer of SunTrust. Your line is now open.

Thanks. Could you update us in the expressions of interest that you received from external parties in 2016?

While I would say there were more than one, and we were in multiple conversations throughout this period and we continue to have narrowed down those conversations. But we've not yet included the process and are indicating on today's call that we will conclude the process by March 23.

Okay. And in terms of your margin goals, that are long-term that you articulated?

Yes.

If you could just bifurcate them and what contributes to the two fronts, maybe this will be just helpful for me. How much of it is just pure scale versus incremental profit improvement initiatives?

It’s a fair question. I don't know that I could necessarily break them down in that regard, I'll answer it this way, the IFP business absolutely benefits from scale. We we've done a very good job, I believe of managing both the technology investment from an ongoing perspective, as well as the marketing investment relative to what's going on in the market place to ensure that what is a strong cash flow generating business remains such, at the same time the Medicare business is one that because it is a more labor-intensive business from a sales perspective, there are benefits of scale to that, but the near-term margin opportunities within the Medicare business candidly becomes much more from a process improvement perspective rather than scale. Again, we're talking about 2017 being a transition year and that we're looking for still solid, but lower than we've been putting up growth in the Medicare business from a submitted application from a revenue perspective, our revenue growth is in the mid to high teens projected for '17 as Scott had mentioned. But the scale opportunities there will come over time, the benefits in the near-term from a profitability perspective being much more process driven however.

One other comment I'd make is, we're assuming our corporate G&A expenses remain flat through this period, which would mean given inflation that we're gaining modest efficiencies along the way. So were showing - we believe that we have all of the staff functions that we need for the business to more than double in revenue.

Okay. And along those lines the last point that I would make is that on a tech and content investment perspective as well there are meaningful investment being made obviously in the small business side, but also in the Medicare side this year and into the early part of next year to further differentiate our go to market capabilities. But as get deeper into '18and further into '19 and beyond the opportunities like with G&A to lever those investments as well are pretty significant also.

Thank you. Just two other question from me, one will dovetail back on the conversations you're having relative to strategic alternatives, did the pace or tenure of those changed post-election with a different outlook for ACA?

We entered into the conversations before and I would say there was some greater interest expressed post-ACA.

Okay. And then in 2017 and '18, what is the cash burn assumption, assuming negative EBITDA that’s fairly substantial '17 and breakeven in '18?

The cash burn largely aligns with our adjusted EBITDA targets and we –as Scott mentioned earlier, we're targeting breakeven performance on corporate basis for 2018. So again we're not going into cash projections, but you can expect the cash would roughly attract the EBITDA.

That’s a fair assumption.

Yes.

Thank you very much.

Thank you. [Operator Instructions] Our next question comes from the line of George Sutton of Craig-Hallum. Your line is now open.

Thank you. Scott, you mentioned that you are very encouraged by what you're hearing from folks in Congress. I wondered if you could just give us a sense of what you're hearing from them relative to your business opportunity and very specifically what are you hearing relative to a potential shutdown or dismantling or muting of the healthcare.gov site? Thanks.

Yes, so I've heard from two most senior officials in the administration that it is their ambition to shut down healthcare.gov. There is a growing sentiment that that should be an ambition. I think the more likely scenario is that healthcare.gov becomes an information site rather than an enrollment site and an e-commerce site that’s inefficiently supported by the government. I think that this would've been inevitable even without our strenuous efforts, to call attention to the $1.9 billion being spent per year on healthcare.gov. The administration highly oriented to eliminating waste and government interference with the private sector. So I couldn't be more optimistic on that front. There's a possibility that there will be a more robust addressable individual market coming out of this, but right now having seen the president's plan we were hesitant to build any outside into these five-year projections.

Hypothetically if we were to see even in information site, but certainly not a transactional site scenario for health dirt care.gov. We have been under the belief that that would be a relative homerun scenario competitively, would you agree with that?

I do and I think it will even be seen by you more so now that we've broken out segment profitability and to see just how profitable that IFP business is.

Okay. One other thing rose the strategic review process, I know you are sensitive to the question, so I'll ask it this simply you are suggesting that it will be concluded by the time you have an analyst day March 23 New York. Should I buy refundable or nonrefundable tickets?

We look forward to updating you when we're able to do so fully.

Okay. Thanks, guys.

Thanks for the questions George.

Thank you. And I am showing no further questions at this time. I like to hand the call back over to Scott Flanders to for any closing remarks.

Thank you everyone and I look forward to catching up with any of you that would like more detailed discussion around our results and our five year forecast. And if don’t have any further question, Dave and I will get back to work. Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. That does conclude today' program. You may all disconnect. Everyone have a great day.