Good day, ladies and gentlemen. And welcome to the Q3 2017 eHealth Inc. 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 follow at that time [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Kate Sidorovich, Vice President of Investor Relations. Please go ahead.

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 third quarter 2017 financial results. On the call this afternoon, we have Scott Flanders, eHealth's Chief Executive Officer and Dave Francis, eHealth's Chief Financial and Operations Officer. After management completes its remarks, we’ll 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 mission to become the market's leading consumer health engagement company, the progress we'll continue to make in furtherance of that mission, the effectiveness of our sales organization and demand generation channel, growth in Medicare submitted application and membership, positive trends in non-Medicare business, our partnerships with hospitals, pharmacies and organizations, and marketing opportunities from such partnership, expected increased demand from the Medicare and our enrollment period, our focus on the open enrollment periods, our use of our four school center operators, our television advertising efforts, our Medicare lead conversion retention rates, accept challenges in the individual health insurance market, factors that increase our share of total new enrollment, this open enrollment period, our expectations regarding the size of the individual health insurance market, our ability to enroll such eligible customers and took health plans that will be federal exchange without leaving our Website during the upcoming '18, our health insurance benefits package ability to meet the individual consumers specific health insurance and pricing needs, our expectations regarding increased growth rates to individual submitted applications during the fourth quarter and our goals with submitted Medicare…

Thank you, Kate. Welcome everyone. Upon becoming eHealth CEO nearly 18 months ago, our singular focus has been to meet the health insurance needs of our customers and thereby restore and reposition the company for aggressive growth in pursuit of our mission. During the fourth quarter selling season, we interact with most of our new customers and many of our renewing customers. During this critical timeframe, our most important goal is to carefully and thoroughly employ the talent of our people and the technology of our processes to assure that each and every customer gets a plan with benefits and cost that they regard as being an optimum match for their health insurance needs and wants. We regard ourselves as a team that is committed to delivering customer satisfaction, not merely selling insurance. Let me be clear, doing the right thing for the customer is also doing the right thing for the business. A satisfied customer is a customer who is more likely to renew, thus enhancing the long-term value of that customer. Today I will review our third quarter results; our financial goals and our execution milestones as we enter the important fourth quarter selling season for our Medicare and IFP businesses. As we shared with you on our last earnings call, we observed positive trends in our Medicare business toward the end of the second quarter, driven by initiatives that enhance the effectiveness of our sales organization and better aligned our demand generation enrollment efforts. These positive trends have continued yielding results for the third quarter that are consistent with our previously announced guidance for the year. Third quarter revenue was $26.6 million. Our adjusted EBITDA was negative $17.5 million. GAAP net loss per share was $1.11 and non-GAAP net loss per share was $0.98. Cash flow from…

Thanks Scott, Good afternoon, everybody. Now I'll walk through our third quarter financial results in greater detail. Our third quarter revenue was $26.6 million, a decrease of 17% compared to $32.1 million for the third quarter of 2016. Third quarter commission revenue was $24.7 million an 18% decline compared to the third quarter a year ago. During the quarter, we continued to grow our Medicare membership and commission revenue at a strong pace, while the individual and family plan business remain challenged by the unfavorable market conditions that Scott described earlier. Third quarter Medicare commission revenue was $9.8 million, an increase of 46% compared to the third quarter of 2016, driven primarily by new Medicare enrollments during the quarter and renewal commissions on existing Medicare supplement plan members, which are booked throughout the year. Third quarter Medicare revenue also benefited from favorable trends and retention rates on our Medicare book of business as well as the rate at which submitted Medicare application convert into paying members. Submitted applications for all Medicare products grew 20% year-over-year with Med submitted applications growing in excess of 50%. The number of estimated Medicare members that we had at the end of the quarter grew to 315,000, up 30% compared to Q3 of 2016. Third quarter individual and family plan commission revenue was $13.2 million, a decline of 39% compared to the third quarter a year ago. Our estimated IFP membership at the end of the second quarter was 227,300 down 42% compared to the estimated membership we reported for the third quarter a year ago. The estimated number of members on small business products was approximately 33,000, a 16% increase compared to a year ago. Our total estimated membership at the end of the quarter for all products combined was approximately 874,000 members. During…

[Operator instructions] And our first question comes from the line of George Sutton from Craig Hallum. Your line is open.

Thank you very much. So, I wanted to see if we could walk through an update on some of your larger opportunities in terms of partnerships for Medicare going into this period and Dave you used the term meaningfully when you mentioned the growth in Q4 Medicare volume. I wondered if we could get more granular around that word, thanks.

I'll take the second part, then you can take the first. We are standing by our guidance for the year George, in terms of high teens enrollment growth for the Medicare business and given the performance of the front half of the year as we were going through the process of transitioning the whole business model toward a more efficient customer acquisition process as well as getting the issues that we had talked at length about with regard to the sales organization fixed, we continue to stand by that yearly guidance of high teens enrollment growth in the Medicare business and I'll let you do the math on what that might mean relative to a level of fourth quarter performance to get to that level given the performance of the first three quarters, but we're excited about where we sit at the moment given early stages of AEP.

I'll just add to that, that in terms of the first few days, we feel very good about the pharmacy partnership that we signed and were seeing good volumes from the overall partnership channel and so we're optimistic that we're going to deliver against all of our guidance.

Now I am curious as we look at -- as I am on your site now, and I go -- I don't really get drawn into a specific product, nothing is really emphasized today and I'm curious as we get past November 1, is there going to be a little more of an emphasis in terms of driving a customer based on income for example or based on something to one of the different products? For example, if I'm a low-income person, perhaps I will be driven more towards the short-term medical option. I am just curious if this is going to look different in November?

Well we're going to continue to add additional products to the site. So, there will be more variety. We've taken a fairly conservative and cautious approach to ensure that no consumer is confused that these non-ACA compliant plans are anything but what they are. So, we're sensitive to not creating confusion among consumers that were selling major medical at prices well below major medical. So that's what you're seeing and as I indicated in my script, that we are in the early stage of this type of innovation George and we're not certain that we've got the exact equation between the product offering, the pricing and the consumer messaging completely optimized, but we'll be doing real time on the fly AB testing throughout the entire open enrollment period to try to optimize that consumer who cannot afford an ACA plan. Dave, what would you add to that?

Yeah, I know that I guess the two things that I would add are number one, we are being very cautious given the confusion among consumers in the marketplace, the meaningful changes to the structure of OEP this year versus the last four to five years and as remind everyone, OEP is a completely different market every single year because of the supply, the premiums, lack thereof on the supply side. And now this year the fact that we expect to be back in the subsidy eligible market from what CMS is allowing us to do, we expect as well as these new products that we're bringing to market. So, we're excited about the potential for this marketplace and what it could mean for our business over the long term, but as Scott said, we're cautiously optimistic because there's just so much unknown as we enter that selling season next Wednesday on November 1. The last thought that I'd leave you with is a we're going to be one of the few companies in the marketplace that has a solution from a health insurance perspective for every potential consumer in that marketplace whether they're fully subsidy eligible at one end of the spectrum all the way to folks that aren’t subsidy eligible or need something different than a major medical plan if they want to buy a package or an à la carte set of coverage options. We will have a solution for them and the decision-support and content tool for them to make a fully informed and intelligent purchasing decision.

Great. Thank you for that. One other question if I could, I'm just curious of your thought CVS is apparently in talks to buy Aetna. I am curious what implications you would see that having for you?

Yeah, I don't see it as a negative in any respect. Just in general we believe that consumers are benefited from choice and selection and so consolidation is not something we regard as a positive for the consumer if it's one large health insurer emerging with another although it can end up being in the consumer's interest. CVS this is not a horizontal but will be a vertical integration and so I don't see any positive or negative impact on our business.

Yeah, and I would add the we like to see as many carriers in the marketplace as possible as Scott said from a consumer choice perspective. It's also good for our business to the extent to which there is disruption in the marketplace which gives us an opportunity to reach out and engage further with our customers to tell them what has or hasn't changed relative to their benefit and coverage profile and to the extent that this transaction happens and creates more of that disruption that just gives us more opportunities to engage with and potentially transact with a larger set of existing and new customers.

Perfect. Thanks guys. Appreciate it.

Thanks George.

[Operator instructions] Our next question comes from the line of Tobey Sommer from SunTrust. Your line is open.

Thank you. With respect to the IFP market, you said you have an application to see if you can use a better connection method. When we find out about that and when will you let us know externally and investment community if and when that happens?

Well, we are in active discussions and real time addressing of all issues with CMS as our peer companies and we believe the CMS is operating in good faith with every intention to enable a web-based entities to programmatically enroll this season by next Wednesday. So, we don't see a hick along that app, but it's not done as yet. Dave, I don't know -- I'd let you address whether this is something we will give notice on.

Tobey this it's a great question. I don't anticipate that we would be making any kind of special announcement. You'll be able to go to our website and see that we're offering plans on a subsidy eligible basis to folks and walking them through all of those decision trees and providing them with the shopping and decision-support tools to make those decisions and to do that all on our website, which they weren’t able to last year. But in terms of making some kind of special announcement in that regard, it's our expectations that we'll be in the marketplace. So, we were operating under that basis.

Okay. With respect to the revenue recognition rules, I am not asking for guidance, can you conceptually explain what the new rules mean even if without numbers? Thanks.

Bulk of it Tobey are that today we essentially recognize revenue and report the business on what is as close to a cash basis as possible. So, we're only recognizing as revenue commissions received in the period that those commissions are received. The new 606 standard requires businesses like ours to in circumstances where there is virtually no service requirement beyond that which we provide at the point of transaction to estimate the lifetime value of that transaction and to recognize all that revenue at the time of the transaction. So what it means is for a Medicare customer as where it will have the biggest impact on our business, we will be aligning the long-term revenue of each customer as we on a highly analytical basis estimate it and recognize that as revenue and all of the expenses, which we already absorb upfront from a P&L perspective will remain the same and it will show the true from our perspective, longer term or full earnings power of each customer as they come into our platform and become part of the eHealth family. So, the impact on the P&L from a revenue perspective and an earnings perspective is going to be meaningful.

Okay. Thank you. The pickup that you had in the Medicare business in the quarter, was that a reflection of the internal-only investments of were anything of the partnerships that you discussed throughout the year or some combination of both?

That was all internal process improvements from both a marketing and a sales center perspective. The partnerships that we've been talking about while they had a marginal impact on new business generated, the vast majority of the new business that we expect to come from those partnerships will be during the annual enrollment period. We did as we mentioned in the prepared remarks absorb some meaningful costs, particularly on ramping up the flex sales agent capacity, which is new for us this year as well as fine-tuning some of our marketing campaigns to get them optimized for the fourth quarter. Those are costs that we incurred in the third quarter, but the new enrollment benefits should virtually all be seen in the fourth quarter results.

All right. Last question for me, given the balance sheet effect that you're kind of in the midst of the cash burn for the selling season but you've got a chunk of it behind you. Is there any acquisitions that you could do to capitalize and what seems like a better growth outlook for both of your businesses that you could get some leverage on the corporate expense side, thanks?

So, what you're saying it could we accelerate our growth with M&A that will have operating leverage given our fixed cost base?

Yeah, given the fact that you've already kind of written out part of the seasonal cash burn unless we have a better estimate for what it may entail. It seems like you would have better visibility to actually think about spending your incremental excess cash above and beyond that?

Right. Well I would agree with the premise that we do not need all of that $51 million for our current projected internal growth projections.

I guess Tobey the other thing that I'd just call out is that as we called out at the beginning of this year, this is a transition year for eHealth. There were a lot of operational changes and clean-up for lack of a better term that we needed to make as an operating team to get this company positioned to fully take advantage of all the opportunities that we see in the marketplace. We are still in the midst of that, but feeling a lot better about where we sit today than we did this time last year and as a result we were always opportunistic looking for things that we can do to add value to shareholders.

Okay. Thank you.

[Operator instructions] And we have no further questions at this time. I would like to turn the call back over to CEO, Scott Flanders for closing comments.

Thank you, everyone for sitting on our call and if you have any further questions, please reach out to Kate and we'll be happy to schedule time with you. Thank you.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.