eHealth, Inc. (EHTH) Q4 2016 Earnings Report, Transcript and Summary

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, growth potential of the small business health insurance markets and expectations regarding revenue, an increase in small business membership for the next four years, investments in our technology platform and sales and enrollment processes, impact of our efforts to make the conversion rate, our ability to enroll subsidy eligible consumers during the fourth quarter of 2017 and its impact on revenue and expense, status of our strategic alternatives process, our guidance for 2017 total revenue, revenue from the Medicare segment, revenue from the individual family and small business segment, adjusted EBITDA, Medicare segment loss, individual family and small business segment profit, corporate shared service expenses and non-GAAP net loss per share. Finally our long-term financial goals, including margins on an adjusted EBITDA basis for a five year period. Forward-looking statements on this call represent eHealth's views as of today. You should not rely on the 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 statement. We describe these and other risks and uncertainties in our annual report on Form 10-K and quarterly reports on Form 10-Q, filed with the Securities and Exchange Commission, which you may access through the SEC website or from the Investor Relations section of 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 the corporate website under the heading, Investor Relations. And at this point, I will turn the call over to Scott Flanders.

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 providing annual guidance on a business segment basis. This in an effort to provide additional transparency into the financial dynamics of our two key business segments. One, the individual family and small business segment, and two the Medicare business segment. Our earnings release details the allocation of revenues and costs by business segment and outlines the methodology we use for such allocations, as well as the methodology we use to calculate segment profit and loss. This approach is aligned with our new operating structure, which emphasizes direct measurement and accountability of group executives, for revenue growth and profitability of their business segment. Turning to our individual and family plan business. In 2016, we saw a further deterioration in the individual market, as a result of the ACA. As carriers withdrew further from the market and substantially curtailed their marketing activities for individual products. This dynamic was further exacerbated starting in February of 2016, as CMS forced us to utilizing inefficient double redirect process for enrolling subsidy eligible consumers. As this process negatively impacts our ability to enroll subsidy eligible customers and reduces our conversion rates, we made significant cuts during the fourth quarter to our IFP-related marketing spend saw a 60% decline in our submitted IFP applications compared to the fourth quarter of 2015. Given that Q4 is the largest enrollment period of the year for individual plan, this downturn will have a significant impact on our revenues and profitability in 2017,which Dave will describe in more detail. So why are pursuing this market. Simply put, I believe that the individual and family insurance - health insurance market is at par, but we haven't yet seen a detailed plan from President Trump, for replacing provisions of the ACA. We do believe that his plan will emphasize private sector participation, especially with respect to health insurance distribution and potentially reduce the role in financing of government exchange. We are very involved in public policy as it relates to the Affordable Care Act. Following the election, we changed our government affair strategy and engaged new consultants and outside counsel with specific expertise in healthcare and access at the highest levels of the new administration. I personally spend a lot of time in DC since the election and had met with multiple lawmakers. I'm very encouraged by what I'm hearing. Its worth noting that we don't currently expect immediate fixes to the IFP market. In fact, during the special enrollment period, we are seeing further reductions to broker commission and fewer plans to our customers, including mini states and zip codes where we are currently not able to offer any IFP plans at all. Like the headwinds in this market, our estimated membership economics in the individual business remained very attractive, when combined with reductions in IFP related spend, we implemented over the past year and a half, the IFP business remained very profitable on a standalone basis. In 2016, our individual, family and small business segment generated profit of more than $67 million, but the IFP product line contributing the vast majority of this profit. Dave will discuss our segment performance in greater detail later on the call. Our 2017 projections assume that during the next open enrollment period we have the same connection to the federal exchange we used in 2015 before we were forced to use the cumbersome double redirect process last year. Should the new administration take an effective action to stabilize the IFP market? They could have further positive implications for our long-term financial plan. Finally, in our five year plan, we project that our individual, family, and small business segment will remain solidly profitable on a standalone basis in each year. Turning to Medicare. This market remains an important area of growth for eHealth. 2016 was another year of double-digit growth in our estimated Medicare membership that was up 33% compared to 2015 year end. However, we also saw a deceleration of growth in submitted Medicare applications in the second half of the year combined with a meaningful year-over-year increase in cost of acquisition per member. I'm disappointed with these results and believe that we can do much better. One of the main factors behind the recent slowdown application growth rates is the lingering impact of changes we made in our sales and marketing processes in response to compliance requirements issued by CMS. We continue to work with our carrier partners on making the sales and enrollment process more effective within the confines of the compliance guidelines. As importantly, I am not satisfied with the profitability of our Medicare business and the quality of demand that we've been generating. Since the inception of our Medicare business, we have relied heavily on the lead generations partner channel that used to be productive, but is becoming more expensive as we scale. While variable acquisition costs including marketing and customer care and enrollment costs required to generate an incremental Medicare member continues represent less than 50% of the members estimated lifetime value, I believe there is a lot of upside to member profitability that we are beginning to actively pursue. Going forward, we plan to leverage strategic relationships with key industry participants, including providers, pharmacy and other entities to drive their customers to eHealth in exchange for access to our industry-leading consumer engagement content and decision-support technology, as well as our customer care and enrollment support. We also plan to grow the contribution from our direct channel by enhancing eHealth's brand and providing proprietary tools to assist seniors in their plan research and selection. These efforts are already underway, and we expect the demand generated through these channels will come at a more attractive cost of acquisition and will convert better. Our performance in the Medicare supplement part was solid in 2016, reflecting our new emphasis on marketing Medicare supplement products. Medicare supplement plans are less regulated compared to Medicare advantage plan and offer better lifetime member economics with lower expected churn, based on a historic membership data. For the full year 2016, Medicare supplement applications grew 56% year-over-year, compared to a 10% decline in 2015. I believe a more balanced and complete marketing focus on both Medicare advantage and Medicare supplement plan significantly broadens the addressable market of our Medicare business and can better serve the diverse health insurance needs of our customers. Going forward, we plan to continue to emphasize aggressive expansion in the Medicare supplement market, including the expansion of a dedicated customer care and enrollment team. We think 2015 is a transition year for our Medicare business, while growth is still our primary goal for the Medicare market, in order to get back to application growth rate of 20% to 30% on a more profitable basis, we are adjusting the methods by which we are generating demand. This is a priority for the Medicare business for 2017, as we transition to diversify customer engagement and acquisition channels in the Medicare market, we project that our 2017 submitted Medicare applications will grow in mid to high teens,. still solid growth but a lower annual growth rate compared what we generated in the past few years. At the same time, we expect the average projected profitability of our new Medicare enrollments to increase in 2017 compared to last year. As we look beyond 2017, our target segment profit as a percentage of segment revenues for the Medicare business segment, we plan to achieve by the end of the five-year period it’s in the mid 20%. Turning to the small business market. We see significant growth potential for eHealth in this business. Over the past few years we maintained a stable and profitable member base of around 300,000 small business members with no dedicated marketing and just a handful of agents to support the enrollment and customer service. Our research indicates that businesses with fewer than 20 employees are clearly underserved and a large share of small business owners are dissatisfied with the service they receive from traditional brokers. We believe that by leveraging our demand generating expertise into this segment of the insurance market and by using technology to improve a very manual and inefficient sales and enrollment process across the market, eHealth can build differentiated offerings and take market share. This is a large and underserved markets with over 20 million individuals employed by businesses with fewer than 20 employees. An estimated 50% of these businesses offer health insurance to their employees. During the fourth quarter, we double the number of dedicated sales and enrollment agents to support the marketing initiatives that are already underway in the small business group market for 2017. We are also investing in our technology platform to make the enrollment process easier for small business and their employees, while differentiating our market facing footprint. The investment we are making in our small business initiative is large relative to our current revenue run rate in this area. In fact, two thirds of our total projected EBITDA loss of 2017 is driven by our small business investment. We expect to generate significant revenue and membership growth as a result of this investment for the current forecast for a 50% increase in our small business membership each year for the next four years. We plan to report on our execution progress on a regular basis and are fully prepared to make the necessary adjustments to our small business strategy if we are not delivering on projected growth. As we look forward to 2017, will clearly be a year of transition for eHealth. Our investments are aimed at driving meaningful expansion in Medicare and small group membership to build a strong foundation of recurring commission revenues. We are also investing to make our sales and enrollment processes within in these areas more efficient which over time should further enhance lifetime profitability of our members. We do expect to report a significant EBITDA loss this year as reflected in our 2017 guidance. However, the $62 million in cash on our balance sheet provides ability to make these investments and position the company to return to profitable growth. As I mentioned earlier, we currently target a five year revenue compounded annual growth rate of 20%, along with an adjusted EBITDA target margin percentage in mid-20s or better by the end of the five-year forecast period. More specifically, we are targeting to get to breakeven in 2018, generate low double-digit margins in 2019 and 20 plus percent margins in 2020 and thereafter all on adjusted EBITDA basis. These numbers represent our long-term financial goals and should not be viewed as guidance. We undertake no duty to update them. Before I turn the call over to Dave I wanted to give you an update on the strategic alternatives process that we announced on the third quarter call. We are currently wrapping up the process and plan to have it completed in time for our analyst day which will take place on March 23 in New York City. And now I'll turn the call over to Dave.

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 higher rate of 76% over the same time period, as we continue to manage this business for profitability given the current CMS headwinds. Our estimated IFP membership at the end of the fourth quarter was approximately 361,000, down 28% compared to the estimated membership we reported for the fourth quarter a year ago. The estimated number of members on small business products was approximately 30,000 at the end of the year and 8% increase compared to a year ago switching. Switching over to Medicare. Fourth quarter Medicare revenue was $19.7 million, an increase of 6% compared to the fourth quarter 2015, driven primarily by new Medicare enrollments that we generated during the quarter and continued growth of our membership. Full year 2016 Medicare revenue of $80.3 million grew 27% over 2015, again, reflecting expansion of our member base. The estimated number of revenue generating Medicare members was 304,900 at the end of the fourth quarter, up from 228,900 at the end of the fourth quarter of 2015 or an increase of 33%. As a reminder, our Medicare commission revenues for the fourth quarter and the full year were negatively impacted by a change in how we were paid on many of our new Medicare enrollments that occurred outside of the annual enrollment period. As a reminder, CMS now allows carriers to either prorate the commission payment from the time of enrollment and through year-end or pay the brokerage full year of commissions upfront. As we discussed in our third quarter call, a number of our large carrier partners switched this year to prorating their payments which had a total annual revenue impact of just under $5 million. For the full year 2016, submitted Medicare application volume grew 31% compared to 26% growth generated in 2015, while our submitted application volume were strong in the first half of the year, we experienced a slowdown growth rates during the third and fourth quarters. Our fourth quarter of 2016 submitted Medicare applications grew by only 15%, one of the main factors behind the slowdown in submitted application growth was a decline in sales conversion rates compared to the fourth quarter a year ago. Some of that decline was driven by changes to the sale process we introduced midyear in response to new CMS marketing guidelines as we indicated on our last earnings call. Over the past several months, we have worked with our Medicare carriers to mitigate the impact of these changes and have developed a number of tactics to enhance the effectiveness of our sales process within the confines of the regulations. As a result, the year-over-year decline in conversion rate moderated in Q4, compared to what we observed during the third quarter of 2016. So we remain dissatisfied with the level of sales conversions and believe that there is room for improvement. We are also expecting to see over time a favorable impact on conversion rates from our efforts to change our marketing channel mix. Our efforts are aimed to increasing the contribution from strategic partnerships and from direct marketing channels. Historically, customers we have generated through these channels have converted at better rates than leads that we received through paid search and other lead generators. Again, we are not satisfied with our current level of Medicare membership growth or customer conversion and are focused on these operational efforts as a top priority. Our total estimated membership at the end of the quarter for all products was approximately 1 million members, including about 200 – I am sorry, 320,000 members on ancillary products. Now I would like to review our operating expenses. Fourth quarter non-GAAP operating costs, which excludes stock-based compensation, amortization of intangibles grew as a percentage of revenue and were flat in dollar terms, compared with the fourth quarter year ago. Fourth quarter 2016 non-GAAAP marketing and advertising expense, which excludes stock-based comp was down by approximately $3 million year-over-year, reflecting a significant decline in IFP related spend that outpaced the decline in submitted IFP application. At the same time, we saw an increase in Medicare marketing costs, reflecting a 15% growth in submitted Medicare applications and also a higher cost per submitted Medicare application, the cost that we are focused heavily to correct. Fourth quarter 2016 non-GAAP customer care and enrollment expense grew by approximately $2.5 million dollars year-over-year, driven primarily by increases in Medicare agent headcount. We also hired additional customer care personnel to support our small business initiatives. Fourth quarter non-GAAP tech and content costs, which excludes stock-based comp were down $1.4 million compared to a year ago, while non-GAAP G&A expense was essentially flat. For the full year 2016, our non-GAAP operating cost, excluding stock-based comp amortization of intangible and restructuring charges increased both in absolute terms and as a percentage of revenues compared to a year ago. This increase was driven primarily by higher G&A costs, which include approximately $4.8 million in expenses related to management transition and our strategic review and higher customer care and enrollment cost as we ramp our Medicare agent headcount. This was partially offset by over $6 million in savings in marketing and tech and content expenses, primarily reflecting a year-over-year reduction in IFP related expense in these areas. Adjusted EBITDA for the fourth quarter 2016 was negative $13.9 million compared to a negative $9.5 million number for the fourth quarter 2015. Full year 2016, adjusted EBITDA was $5.7 million compared to $11.1 million for the full year 2015. We calculated adjusted EBITDA by adding restructuring charges, stock based comp and depreciation and amortization including the amortization of acquired intangibles to our GAAP operating. Our individual, family and small business segment remain highly profitable on a standalone basis generating segment profit of $67.9 million for the full year and $14.2 million for the fourth quarter of 2016, despite the reductions in revenues that we discussed previously. Our Medicare segment - our Medicare segment generated a loss of $33.1 million for the year and $22 million for the fourth quarter. Please note that segment profit or loss for our two business segments excludes depreciation and amortization expense, stock-based compensation, restructuring charges and amortization of intangible assets in addition to share, general and administrative expenses, which under our new segment reporting structure are reflected under the corporate category. Corporate shared services expenses, which excludes depreciation and amortization expense, stock-based comp and restructuring charges were $29.1 million for the full year and $6.1 million for the fourth quarter of 2016. I will refer you again to - I will refer you again to our earnings release which outlines the allocation of costs by segment in greater detail. Fourth quarter 2016 non-GAAP net loss per share was $0.79, compared to a net loss of $0.56 for the fourth quarter of 2015. GAAP net loss per share was $0.91 for the fourth quarter of 2016 compared to a loss of $0.67 for the fourth quarter of '15. Full year 2016 non-GAAP net income per diluted share was $0.17, compared to $0.43 in 2015. Full year 2016 GAAP net loss per share was $0.27 compared to a loss of $0.26 in 2015. Our fourth quarter of 2016 cash flow from operations was negative $4.7 million compared to positive $1.2 million for the fourth quarter of last year. For the full year of 2016, we generated $4.3 million in cash flow from operations, compared to $13.7 million in 2015. Capital expenditures for the fourth quarter 2016 were approximately $760,000 and were approximately $3.9 million for the whole year. As Scott mentioned earlier, our cash balance for the end of the year was $61.8 million with no debt. Now I'd like now like to comment on our expectations for 2017. As Scott shared earlier on the call, 2017 will be a transition year for the company as we lay the foundation for future profitable growth in the Medicare and small business markets. In addition, our 2017 revenue and profitability will be impacted by low IFP enrollment volumes generated during the most recent open enrollment period that just ended on January 31. At the same time, our guidance assumes that under the new administration we will be able to enroll subsidy eligible consumers more effectively and drive higher IFP enrollment volumes during the next OEP, which starts in the fourth quarter of 2017. This would not have a significant impact on revenues until 2018, so will result in higher IFP related marketing spend in the fourth quarter 2017 compared to the fourth quarter 2016. Finally, this year we plan to focus on significantly enhancing the quality of the Medicare customer demand that we generate which is expected to have a positive impact on our profitability, but will slow down the pace of expected Medicare membership commission revenue growth in the current year. Turning specifically to guidance. We are forecasting consolidated revenues for 2017 to be in the range of $165 million to $175 million with Medicare segment revenues in the range of 91.5 million to $96.5 million and individual, family and small business segment revenues of $73.5 million to $78.5 million. We expect consolidated 2017 adjusted EBITDA to be in the range of negative $14.1 million to negative $16.1 million. 2017 Medicare segment loss is expected to be in the range of $16.9 million to $17.9 million, individual and family and small business segment profit is expected to be in the range of $29 million to $30 million. Corporate shared services expense, excluding stock-based comp and depreciation and amortization expense is expected to be approximately $27.2 million. Non-GAAP loss per share for 2017 is expected to be in a range of negative $1.49 to negative a $1.59 per share. As Scott shared his prepared remarks, our five year financial targets are to grow revenue at a compounded annual growth rate in excess of 20% and achieve adjusted EBITDA target margin in the mid-20% range at the end of the forecast period. We expect for the individual, family and small business segment to remain profitable this year and as we return to growth in 2018 and beyond. We also expect that the Medicare segment will be highly profitable with segment profit as a percent of revenue well in excess of 20% by the end of the five-year forecast. I want to remind you that these comments and 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'd like to open up the call for questions. Nicole?

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 the marketing cost of acquisition formulae its very arithmetic and the more people you convert to sales, the further down that cost of acquisition goes. So as we're able to execute on the sales conversion process was a new processes that we're putting in place. We believe that we can drive higher revenue and at lower cost. We're already started to see some of that attractions we mentioned earlier. To add that, we're seeing improvement in our conversion rates, Q3 was a very tough quarter, we had a deterioration conversion rates of 10% year-over-year in Q3, that was mitigated down to and only 2% degradation and conversion in Q4. And so we would say that we do see the early signs of making progress in terms of improving Medicare profitability. There was a lot of words in our two prepared statement, but the bottom line is that both of us expressed that we are unhappy and regard an operationally unsatisfactory, the profitability of Medicare and that is not the view of the underlying business economics that are afforded by Medicare, but rather by our poor execution. And so what we are committee today our targets that would only bring us to best practices. And so we are stating those because we see others referenceable companies that are performing at those rates and we're confident we can get eHealth performing similarly.

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 5% under 20, but the ideal size is 4% to 5%. These need health insurance and they don't need a sophisticated HRIS system that probably is in QuickBooks or even their checkbook to cut payroll. But they need to offer health care for retention and recruiting and there is no competitor that has as on the channel support for this group. It's not - it's not cost-effective for physical agents, the call on sale and service, they don't make money for groups of this size. Counter wise they only - the all online services require more handholding by the small business than what they receive. So we believe that we can provide because of our expertise in this market a customized enrollment and customer engagement where they can roll new people, they can change plans, they can interface if they want on the phone or online with us. We truly believe this is a unique offering. Now what we committed to is that we will monitor this very closely and that means quarterly and report back to our investors quarterly is to how we're proceeding and at any point in time our market outlook chip and we know we can execute internally. This is just what we do, but the imponderable here, that’s best for us is that we're right that this segment is robot. If it's not, we will curtail that investment immediately and consider other uses of that cash. Dave what would you add to it?

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.