Good day, ladies and gentlemen. And welcome to the Q4 2017 and Full Year 2017 eHealth Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will host a question-and-answer session and our instructions will be given at that time [Operator Instructions]. As a reminder, this conference call is being recorded for replay purposes. It is now my pleasure to hand the conference over to Ms. Kate Sidorovich, Vice President of Investor Relations. Ma'am, you may begin.

Thank you. Good afternoon, and thank you all for joining us today, either by phone or by webcast for a discussion about eHealth Inc's fourth quarter and full year 2017 financial results. On the call this afternoon, we'll have Scott Flanders, eHealth's Chief Executive Officer and Dave Francis, eHealth's Chief Financial and Chief 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, plans and expectations, including statements relating to growth in our Medicare business as application for submitted applications for packages and for Medicare and IFP products, our expectations for partnerships; our planned investments, including with respect to Medicare Supplement and small business, our plans for IFP marketing and expectations as a result of recent and proposed legislation and policies, our plan for cost reallocation, the impact of our office closure, expansion of profit margins and continued investment in growth; the expected impact in our revenues, earnings and balance sheet of our adoption of new revenue recognition guidance, our estimate for average annual commissions for small group members and for the average constrained lifetime value of an improved member for each of our product categories. Our guidance for 2018 including our guidance for total revenue, segment revenue and profit, adjusted EBITDA, corporate shared service expense and non-GAAP net income per share, adjusted EBITDA per share, operating cash flows and cash used for capital expenditures and our estimates for 2017 total and segment revenue and profit under new revenue recognition guidance. Forward-looking statements on this call represent eHealth's views…

Thank you, Kate and good afternoon, everyone. 2017 marked the first full calendar year of my tenure as CEO at eHealth. It was a busy year for us as we took on the large task of repositioning eHealth for sustainable growth in our core markets on a financially disciplined basis with a goal to deliver strong and predictable results for our shareholders. To reflect briefly, we entered 2017 with several key objectives for the year, to grow our Medicare business on a cost basis that allows for attractive and sustainable margins, to focus specifically on establishing a larger and more aggressive growth profile in the Medicare supplement market, to correct deficiencies within our Medicare tele sales organization, to build a foundation for growth in our small business health insurance business and to reestablish growth in our individual and family health insurance business after several years of regulatory and market headwinds. Our aim was to accomplish each of these objectives while also returning the company to the financial and operating discipline necessary to achieve our financial goals. I can report that we've made strong and tangible progress on four of the five objectives I listed, while also delivering revenue and EBITDA results for 2017 that were in line with our guidance for the year. Our Medicare business resumed double-digit submitted application growth in the second half of the year and is now positioned for further growth acceleration on a cost basis that is substantially more attractive than at any point in the company's history. Our recent acquisition of GoMedigap provides a strong foundation for our expansion in the Medicare supplement segments of the Medicare market. Our in-house tele-sales organization is now converting demand at higher rates than a year ago and we are building on a network of reliable call center…

Thanks Scott. Good afternoon, everyone. We have a lot to cover today. I'll begin by reviewing our financial performance for the fourth quarter and fiscal year 2017, excuse me. I will then discuss the new ASC 606 revenue recognition accounting standard, which we are adopting starting in the first quarter of this year and how it will impact our financial statements and metrics going forward. Finally, I will provide our 2018 guidance on the new accounting basis. Our quarterly and annual financial results reflect three key dynamics. First, the continuing expansion of our Medicare membership, second our successful and continuing efforts to rationalize the cost structure in our Medicare business to position it for growth acceleration at sustainable margins and third, a challenging environment in the individual market that resulted in lower new enrollments and the continuation of significant churn in our existing individual and family plan member base during the year. In the Medicare business, our fourth quarter revenues of $22.9 million grew 16% while full-year revenue of $102.6 million grew 28% compared to a year ago. The estimated number of revenue-generating Medicare members was 384,900 at the end of the fourth quarter, up from 304,900 at the end of the fourth quarter of 2016 or an increase of 26%. We were able to drive this growth while at the same time significantly reducing variable marketing cost per approved Medicare member, reversing the trend of cost of acquisition inflation over the past several years. For the full year 2017, the loss from our Medicare segment declined 43% to $18.8 million from a loss of $33.1 million in 2016. For the fourth quarter, the Medicare segment generated a loss of $16.3 million compared to a loss of $22 million in the fourth quarter of last year. Fourth quarter 2017 revenue…

Thanks, Dave. I've never been more excited about the growth opportunities for our business. We have a Medicare business poised for 25% growth it's embedded applications on a significantly more attractive and sustainable cost basis. And we are now able to clearly show the substantial profitability of that business under ASC 606. The acquisition of GoMedigap significantly expands our opportunities in the Medicare supplement market and provides us with considerably more balance and broader capabilities across our Medicare product offering. Our individual and family plan and small group businesses are being managed in a disciplined fashion for Fyfe growth opportunities in the future as we work toward delivering market disruptive technology services for our customers. Expanding revenue and profits were providing a unique and valuable suite of technologies and services to our customer base continues to be my focus and that of the entire company. We are well positioned to achieve these objectives. Operator I turn it over to questions.

[Operator Instruction] And our first question will come from a lot of Tobey Sommer with SunTrust. Your line is now open.

Hi, this is Kim on for Tobey. Thank you for taking my questions. First of what is the contribution of GoMedigap embedded in your 2019 guidance in terms of revenue, EBITDA and EPS? Thank you.

Hi Kwan, thanks for the question. We’re not breaking out the contribution. What I will tell you is that, for me a membership growth perspective in our Medicare business, we expect that the contribution from GoMedigap will really only be reflected in about 4% to 5% of that 25% growth that Scott was talking about previously. So strong organic growth and my supplement from the GoMedigap folks, but not a large contributor to top or bottom line.

Got it. And when do you expect the Medicare business to become cash flow positive?

Certainly by 2019 and depending on how we perform this year there is a chance that it goes cash flow positive this year, but certainly expecting it to do so next year.

Okay. And lastly on the commission side, do you assume stable commission rates or compression associated with ASC 606?

We've done a pretty extensive regression analysis on CMPM across all the different parts of the business and what we've found over the last two to three years that outside of the progression of Medicare commissions as we talked about extensively for business it sold mid-year. There hasn't been any kind of meaningful compression and commissions. So, we're expecting everything to remain as it has been for the last couple of years.

That's helpful. Thank you very much.

Thank you. And our next question will come from line of George Sutton with Craig-Hallum. Your line is now open.

Thank you. Scott, I'm wondering as you look at your Medicare partnerships many of which were relatively new this past season, what did you learn that gives you the increased confidence in the 2018 relative to growing with some of those partnerships? And I wonder if you could break some of the opportunities down between folks like hospital groups versus pharmacy partners versus affinity groups?

Okay. So, while, we did learn a lot and as we acknowledged in our script that we - the partnerships developed more slowly than we expected. Our penetration of the total opportunity has been virtually deminimus. And so, we don't have to get a lot better to have substantial orders of magnitude of growth in ‘18 over ‘17. Let me start at the hospitals. We did under 2000 enrolments in that channel, it was a seven-figure net investment to build out the human capital and to onboard the nine systems that we brought on board last year. We expect to double the number of partners this year and we expect much deeper penetration. So, these aren’t massively material numbers, but we expect to approach five figures. Well, I guess we're all ready. We should we should do it in the neighborhood of 10,000 we think. We've budgeted a little more conservatively than that. But that market place we had the opportunity to reach over 400,000 beneficiaries in those systems and we close to 0.5% a percentage point of them. And so, I just give you a sense of what we see as the opportunity. And our strategy of enrolling those patients and Medicare Advantage is very aligned with the hospital systems and so we held a two day off site. It was earlier in February was it was late January and we had every one of our business partners represented there in person with senior executives was very encouraging. And just demonstrate us how excited they are about that marketplace. Than some of the other partnerships like Union Plus plots and others, it just has taken longer for us to fully integrate our brand with their brands. And we still see the opportunity as significant and what we're trying to do is aligned with what they - what their mission is. And so, it's just taken us longer, it's been more individual meetings, and more education, alignment of marketing plans to bring these - to full it - more fully penetrate the opportunity.

And George if I could add, the third channel there is the pharmacy channel it's one that we've been involved in for several years now. We talked about the some of the larger partnerships that we had in that channel this last year. That's when we had a lot of eyes on us in terms of our ability to ramp some of those relationships and perform for them at scale. And while we talked about in our preannouncement, the fact that we were disappointed in one of those relationships in particular, the reality is that we still have more than quintupled the size of business that we have been doing with that partner in previous years. And have shown that, we are fully capable of holding up our end of the bargain relative to executing against these. So, we have a robust channel of existing and new partner negotiations going on as we speak and we're very confident that that channel is going to perform very well for us as we get deeper into 2018.

Dave relatively or fully constrained assumptions. Just so, I'm clear using Medicare advantage as an example. When you say it's 5% to 7% constrained helped me understand that, if that means you're what you're actually seeing is 5% to 7% higher than the 810 to 930 and that's the constraint?

That's right. I think that's a good way to think of it. Think of the constraint in layman's terms taking the accounting speak out of it as an insurance policy of sorts to guard against external events and other things so we believe that we have used very proper and where necessary conservative assumptions in developing the LTV. And then further applied that constrained to those LTVs to get to those numbers that we will use to derive recognized revenue.

Okay lastly Scott you mentioned in your prepared comments there you're going to focus on high ROI parts of the business which obviously make sense. I think, I know where those higher ROI places are and where the low would be. But can you kind of walk through your thoughts on that?

Well as you know our Medicare business we report a blended cost of acquisition but there's wide variability across all of those marketing channels with DR-TV being expensive, search engine marketing being expensive, organic search being very inexpensive. And so, part of that answer is, just managing our marketing channels and the partner channel particularly pharmacy and hospitals where were precluded by the regulatory scheme from paying any sort of Rev share our very low cost of acquisition. And so, it's really about managing that mix. And then we announced when we previewed our five-year strategic plan is an objective to migrate more of our Medicare enrolments online. So, whereas in the individual market we're 90% percent, in the Medicare market where 90 percent agent-enabled by phone. And so, it's been an objective of ours but, it's going to be an even higher priority as Dave is assuming the Chief Operating Officer role is to migrate more of our enrolments to online with our agent assist. Dave what would you add to that?

Yeah, I that's all accurate. And the other thing George is, keeping in mind the long-term values of each of the different customer segments that we laid out here, wherever we can identify areas to reduce operating costs where they're not driving to higher ROI and plough those back into some of the areas that Scott just described as a key area of focus for us. And to talk just a little bit quickly about the individual marketplace. While, we're disappointed in how that business has continued to perform we do see opportunities to turn things around in that marketplace and take full advantage of the fixed infrastructure that we've built over the last 20 years to serve that marketplace. So, while the LTV are lower, if we can acquire customers at scale and drive them through that engine the return on investment for those customers as high as well. So, we continue to have a meaningful focus on getting the problems in that business solve for. So, we can drive more meaningful ROI there as well.

Got you. Thanks guys.

Thank you. And our next question will come from the lot of Dave Styblo with Jefferies. Your line is now open.

Hey there, thanks for the questions. I think I think maybe I have about a dozen but will confine myself to just a couple. Maybe starting out on the Medicare application and your underlying assumptions they are talking about 25% plus growth on the app side. And I think that would be – that’s up in the high teens in the back half of ‘17. So, can you just help it to what the improvement is? I think part of it is the acquisition but is the rest largely due to better operational improvement. Now that you guys straighten some things out, or is that also partially driven by the partnerships of Union Plus and AGIA?

Well, all of that and we're going to be laughing relatively easy conversion rates in our call center and first half of this year which is, you'll make that number more achievable than it might seem at first blush. And then all of these partnerships have the benefit of being in their second year of operation. And so, we're just expecting a lot speed - greater penetration.

Dave the thing that I would add is, keep in mind that in the Medicare business last year we achieved the growth that we did in the second half of the year after essentially completely overhauling our customer acquisition strategy. Recall that we were outsourcing all of our TV advertising to a third party in the first part of the year, we insourced all of that, had a lot of learnings from that as well. The sales machine was broken in the first half of the year we changed our leadership and exited the year significantly improved conversion rates. The partner channels as Scott just described we got good traction with several learning tractions with others and a full year now of experience under our belts to optimize better. So, you throw all that together with the benefits that we will also get in terms of having a much more efficient and better position mid subchannel with the addition of GoMedigap and were we're very confident about where we sit in the growth opportunities ahead for the business.

Okay. And then just understand the modelling the way it works is you're going to application, submit application and then there's for example in Medicare and there is some haircuts to that for a member of becoming an approved member. What's the delta there because right now when I take your submitted apps and grow it and apply the restrained revenue metrics that you've had which is a little bit under a thousand I think on average. I have a hard time getting to your revenue outlook for the year. So maybe I'm just assuming that that quite a few folks fall off from being on an estimate app to prove member, but maybe you could walk us through what you're going assumptions are from when somebody submits an application to when they're approved. What that conversion rate is?

I'm not going to give you the specific numbers on that because it bounces around depending on the time of the year and there are other improvements that we continue to make inside the sales organization. But there is a fall off from a submitted application to an approved application, however and the reason we use approved applications for the determination of revenue recognition is that the falloff from approve to paid is a much smaller kind of Delta and one that is very, very predictable given past history. And again, where we're working to improve the – to submit to approved rate and that's part of why the LTVs are what they are when you look at all the different calculations around that. But the level of approvals that we're looking at support the kind of revenue growth in the Medicare business that we're talking about which is just shy of 30% at the midpoint of the range I believe.

And there is also commission Medicare revenue that goes into that range as well as the sale of some end products which you will not get by just taking approved Medicare members and multiplying by Medicare.

Okay helpful. And on the on the individual side, for the administration's decision to extend the duration of short term insurance plans, obviously that's a positive for that segment of the market that you guys have just started attacking. I'm curious how you think about that as a risk to the rest of your subsidized and individual book. Is it possible that you're going to have some defections going from there, taking a short term plan and how do you think about that terms of the guidance that you've established?

Yeah. Anyone who can afford a major medical plan, buys one is really affordability issue that drives people into short term insurance. So, we don't have cannibalization and we had not very substantial volumes in the on QHP segment. So, from our point of view, we see this as almost entirely upside versus any cannibalization.

Okay. And then lastly just on - understanding the cash flow from here, so you guys have $40 million of cash at the end of the year, I think you're paying $15 million of that for GoMedigap and cash in on the stock there. From there, I think I missed your comments about what the operating cash flow and free cash flow was. Was that a drag of about $10 million?

We gave it as range between $8.5 million and $9.5 million cash burn with several million of that were related to supercharging the growth of our new acquisition GoMedigap.

Okay. So, 40, 35 so that kind of gives you about $25 million of cash - sorry about $15 million of cash is sort of how you think about exiting 2018?

We also have some CapEx in there almost $10 million...

We said, we will end up spending no more than $10 million in CapEx.

No more. Okay. So that gets you closer to maybe $5 million or $10 million of cash exiting the year. Is that the right way to think about it?

That is.

Okay. And so just given the volatility of the IFP book and since you do generate quite a bit of earnings still from that book, if that continues to fall and decline like it has, what sort of your back in case you do need to tap markets one way or the other?

We've been looking at several different options. I mean keep in mind that we've got a balance sheet that's debt free at the moment with what you will see when we report Q1 numbers a very large highly visible receivable on it that in worst case, we could tap that as a as a securitized source of funding. But suffice it to say, we’re not concerned about the liquidity of the business.

Okay. Thanks guys appreciate it.

Thank you. And I'm showing no further questions in queue at this time. So, it’s my pleasure to hand the conference back over Mr. Scott Flanders, Chief Executive Officer for some closing comments and remarks.

Thank you, everyone for your support. We are available for calls and discussion at your convenience.

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude our program and you may all disconnect. Everybody, have a wonderful day.