eHealth, Inc. (EHTH) Q1 2019 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q1 2019 eHealth, Inc. earnings call. [Operator Instructions]. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, 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 first quarter 2019 financial results. On the call this afternoon, we'll have Scott Flanders, eHealth's Chief Executive Officer; and Derek Yung, Chief Financial 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 relating to our expectations regarding our Medicare business including expansion opportunity in the Medicare market; our expectations regarding profitability, Medicare enrollment growth, our share of total Medicare enrollment, growth in online enrollment and telesales capacity, and our investment in the Medicare business; our expectations regarding our individual family and small business segments, including our strategy and our ability to grow our enrollment capabilities, the profitability of all Medicare and individual family plans business, seasonal patterns, conversion rates, and acquisition costs; our expectations regarding seasonality and agent headcount, our views regarding the current political environment and changes to the structure of the Medicare market, our revised 2019 full-year guidance including our assumptions and our ability to deliver on our guidance. Forward-looking statements on this call represents e-health 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 the forward-looking statements whether as a result of new information, future events, or otherwise. Forward- looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in our forward-looking statements. We describe these and other risks and uncertainties in our Annual Report on Form 10K and quarterly reports on Form 10Q 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 are considered non-GAAP under SEC regulation G. For reconciliation of each non-GAAP financial measure to the moon directly comparable GAAP financial measure, please refer to the information included in our press release and in our SEC filings, which can be found in the About Us section of our corporate website under the heading Investor Relations. And at this point, I will turn the call over to Scott Flanders.

Thank you. Kate, and welcome everyone. We delivered another quarter of strong execution in our Medicare business, which performed well ahead of our expectations demonstrating both our unique value proposition for healthcare consumers and our ability to drive those consumers to our market leading engagement and enrollment platform at scale. During what has traditionally been a seasonally slow quarter for health insurance enrollment activity, we submitted new applications for approximately 64,000 Medicare customers representing 82% growth compared to the first quarter of 2018. Our first quarter Medicare commission revenue grew 77% and our Medicare segment profit grew 240% over the same time period a year ago. Total revenue for the first quarter of $68.8 million grew 60% year-over-year, our adjusted EBITDA was positive $8.6 million, and our cash flow from operations in the first quarter was a positive $12.7 million. Our GAAP net loss, which includes expense related to the stock component of the GoMedigap acquisition earn-out that is mark to market, was $5.2 million. Further demonstrating the strength of our positioning and execution, we completed a successful equity offering in January raising over $126 million to aggressively pursue the large opportunity we see in the Medicare market and positions us to continue to grow our Medicare business at rates in excess of the market's growth. As a result of this equity offering and our strong cash flow in the quarter, our cash balance as of March 31 stood at over $135 million with no debt. We plan to deploy this capital primarily to finance our organic growth plans, including investments in Medicare related marketing initiatives, expansion of telesales capacity, and enhancement of our technology platform and online sales capability. We are grateful to the investors who recognize the unique opportunities ahead for eHealth and have actively supported our growth strategy. Based on our first quarter outperformance and our current investment plans for the year, we are increasing our 2019 annual revenue and adjusted EBITDA guidance. Derek will provide the updated ranges later on the call. In our Medicare business, we delivered exceptional growth across all major product categories. First quarter Medicare Advantage applications grew 79%, Medicare Supplement applications grew 61%, and Prescription DrugPlan applications 135% compared to the first quarter a year ago. First quarter Medicare revenue grew 78% year-over-year driven by strong enrollments as well as an increase in non-commission revenue. This strong enrollment and revenue growth was partially attributable to the reintroduction of the Medicare open enrollment period in the first quarter, which allowed Medicare Advantage enrollees to switch from one Medicare Advantage plan to another outside of the annual enrollment period. Our business benefited from this new OEP as the eHealth customer engagement platform creates an unmatched comparison in shopping experience for Medicare customers to make an informed and confident purchasing decision. I want to highlight, however, that our success in driving strong first quarter enrollments went well beyond taking advantage of the open enrollment period related demand. Our fourth [ph] quarter performance demonstrates that our marketing efforts and improvements in both online and telesales customer engagements are resonating at greater scale with Medicare customers. As a result, we made a decision to retain the vast majority of our internal call center agents and focused on serving the growing customer demand for our Medicare engagement and enrollment services. Having an increased Asian headcount in place this year enabled us to be more aggressive in our marketing outreach across multiple customer acquisition channels to take advantage of the significant customer demand for our service platform during the first quarter. This included seniors taking advantage of the open enrollment period, but also a large number of individuals turning 65, Medicare Supplement enrollees, and other Medicare beneficiaries that could enroll in plans during the first quarter regardless of the open enrollment period. We continue to capture and convert this increasing customer demand at attractive acquisition costs. Our major customer acquisition channels; including direct, online advertising, and the partner channel; each delivered strong application growth compared to the first quarter of 2018. I specifically want to highlight the online advertising channel, which grew in excess of 500% albeit off a relatively small base. Generating a larger percentage of applications from online channels such as paid search advertising is an important component of our marketing strategy given that these leads have a much higher propensity to convert online. Based on our performance in the last 2 quarters and ongoing marketing tests, we continue to see significant customer demand for our solutions and plan to invest in scaling customer acquisitions across all of our key channels while keeping acquisition cost steady. In addition to expanding our marketing outreach, we are focused on scaling our telesales capacity and further improving our online enrollment experience to support our demand generation and ensure that it is converted efficiently while providing optimal consumer experience. There are three key points worth noting. First, we are driving an increasingly higher percentage of our Medicare plan enrollments online to reduce reliance on the call center over time and enhance the scalability of our Medicare platform. In the first quarter, 12% of our Medicare Advantage and Medicare Supplement applications were submitted online compared with 7% last year while total major medical online enrollments increased 192% year-over-year. We continue to invest in making improvements to our digital customer experience and driving customers into this unique market leading platform. Simply put, our digital platform is a key differentiator for e-Health and is a source of both revenue and margin leverage for our business. Secondly, we are taking advantage of the changing seasonality of the Medicare business. Given current expectations that the open enrollment period will reoccur in the first quarter, we plan to retain a higher number of licensed in-house agents throughout the year. The increase in agent headcount not only allows us to better service the increased customer demand that our platform and marketing investments generate, but we have seen that increased agent tenure improves agent proficiency during the critical fourth quarter selling season. A more seasoned telesales force benefits both our customers and our business. Finally, as another effective tool to cost effectively augment our telesales capacity, we will continue to deploy the outsourced call center model end of fourth quarter to accommodate seasonally high demand. We demonstrated the value of this model during the last annual enrollment period and plan to invest further in this capability. The Medicare market continues to represent a very attractive growth opportunity for the company and we believe that our platform is unique in both its ability to create significant value for consumers and to generate significant returns for investors. We will continue to work aggressively to extend our market leadership and grow our share of this important market while maintaining a focus on serving each individual customer and meeting their specific needs. Our individual and family plan business performed largely in line with our expectations during the first quarter. Submitted applications for major medical products declined 51% compared to a year ago in the absence of favorable regulatory changes and as a result of our prioritizing our investments in our Medicare business. At the same time, our individual and family plan commission revenue grew 70% as a result of members staying on plans longer than estimated under our revenue recognition policy. We are also seeing a significant increase in estimated lifetime values of individual and family plan members related to better than expected policy duration. Turning to the small business market. The number of submitted applications grew 14% compared to the first quarter of 2018 with commission revenue growing 12% over the same time period. Similar to our Medicare business, our strategy and our small group business is to increase the number of applications and enrollments that occur online. During the quarter, we brought additional states and carriers into our leading -- industry leading online application glove. The individual family and small business segment remained profitable during the quarter despite declining individual and family plan enrollments and the investments that we are making in the small group market. We continue to look for opportunities in this business to innovate and grow the digital engagement and enrollment capabilities that are unique to our platform while managing the businesses for profitability and optionality as each market evolves. We entered 2019 with great momentum and exceeded our expectations in the first quarter setting the stage for another year of strong execution and growth. We continue to see significant potential to scale customer acquisition in the Medicare market while maintaining attractive costs and achieving operating leverage against our fixed costs. At the midpoint of our revised annual guidance, we now expect to generate revenue growth of approximately 29% and EBITDA growth of over 70%. We will talk in more depth about the dynamics driving both near-term and long-term performance of the business at our Investor Day scheduled for May 7 in New York. I look forward to seeing many of you at this meeting. Please reach out to Kate if you have any questions or would like to register. Before I turn the call over to Derek, I believe it is important to acknowledge the recent stock price volatility experienced by many healthcare companies in the context of the political discourse around different concepts branded as quote Medicare for All. We believe that the financial and political viability of radical changes to the structure of the Medicare market are untenable. We continue to operate our business under the belief proven by our results that consumers are in great need of the education and enrollment solutions that the eHealth platform uniquely provides in the market and it's a need met by our technology and engagement services will remain high among consumers regardless of the political environment. I am proud to lead a company such as eHealth with a clear, valuable, and unique mission to help millions of healthcare consumers enroll the best insurance product for their health and economic circumstances. With that, I will now turn the call over to Derek, who will review our first quarter financial results in greater detail and provide revised guidance ranges for the full year.

Thanks, Scott, and good afternoon, everyone. First quarter financial results reflect our strong execution and high investments in our Medicare marketing and telesales efforts, continued improvements in Medicare online sales activity, and the positive impact of the Medicare Advantage open enrollment period on our business. In our Medicare business, our first quarter revenue of $54.9 million grew 78% compared to a year ago. This strong growth was driven primarily by a 69% year-over-year increase in approved Medicare members and to a lesser degree by growth in non-commission revenue. The Medicare segment generated a profit of $10.8 million, an increase of 240% compared to the first quarter of 2018 driven by fixed cost leverage and lower agent costs per approved member from enrolling more members online compared to a year ago. Our estimated number of revenue generating Medicare members was approximately $504,000 at the end of the first quarter, up from approximately $382,000 at the end of the first quarter of 2018 or an increase of 32%. First quarter 2019 revenue from our individual family and small business segment was $13.9 million, a 13% increase compared to a year ago. This increase was driven by growth in commission revenues generated by the individual and small business products and growth in non-commission revenues primarily related to sale of leads. As Scott mentioned, we are seeing higher than expected retention in some of the older cohorts of our individual and family plan members. Pursuant to the 606 revenue recognition accounting standard, we recognize any residual revenue or [indiscernible] revenue in the quarter when cumulative cash collected from these cohorts exceeds the initial revenue that we booked at the time when these members first enrolled through eHealth. As a result, in some quarters our individual and family plan commission revenue might grow driven by residual revenue from existing members even as the number of new enrollments is declining. The individual family and small business segment remained profitable on a standalone basis for the first quarter generating segment profit of $6 million compared to $3.5 million in the first quarter of 2018. Our estimated individual and family plan membership at the end of the first quarter was approximately 130,000, down 29% compared to the estimated membership we reported at the end of the first quarter a year ago. The estimated number of members on small business products was approximately 43,000, a 21% increase compared to a year ago. Our total revenue for the first quarter was $68.8 million, an increase of 60% compared to the first quarter of 2018.Our total estimated membership at the end of the quarter for all products combined was approximately 952,000, including approximately 275,000 estimated members on ancillary products. Now I would like to take -- like to review our operating expenses and profitability metrics. In the first quarter, we made significantly larger investments in Medicare related marketing activities and telesales capacity compared to the first quarter of 2018. Including flex capacity, our peak first quarter agent headcount was approximately 80% higher compared to a year ago. This increase in headcount allowed us to invest more aggressively in marketing, especially in digital marketing initiatives. The overall variable cost per approved Medicare remember, which includes marketing and customer care related spend, increased slightly by 6% year-over-year demonstrating our ability to generate significant enrollment growth while preserving member profitability. Underneath that, variable call center costs per approved Medicare member declined 2% year-over-year as we transacted more enrollments online. Marketing costs per approved member grew 16%. For full-year 2019, we continue to expect that total variable acquisition costs per approved member for Medicare will remain relatively flat compared to 2018. On the fixed cost side, both G&A and tech and content expenses grew at single-digit percentage rates, significantly lower compared to our year-over-year revenue growth reflecting operating leverage in our business model. First quarter non-GAAP operating costs; which excludes stock-based compensation, acquisition costs, restructuring charge, change in fair value of earnout liability, and amortization of intangibles; were 89% of revenue compared to 104% of revenue for the first quarter of 2018. Adjusted EBITDA for the first quarter of 2019 was $8.6 million compared to a negative $1.2 million for the first quarter 2018.We calculate adjusted EBITDA by adding restructuring charges, acquisition costs, stock-based compensation, change in fair value of earnout liability, depreciation and amortization, amortization of acquired intangibles, other income, and benefit for income taxes to our GAAP net income. GAAP net loss for the first quarter of 2019 was $5.2 million compared to a GAAP net loss of $4.8 million for the first quarter 2018. First quarter GAAP net loss includes a non-cash charge of $13.3 million related to an increase in fair value of the earnout liability assuming connection with eHealth's acquisition of GoMedigap. The increase was driven by eHealth's share price appreciation. First quarter GAAP net loss per diluted share was $0.24 compared to a net loss per share of $0.26 for the first quarter of 2018. Non-GAAP net income per diluted share was $0.33 compared to a net loss per share of $0.07 for the first quarter of 2018.Our first quarter cash flow from operations was $12.7 million compared to $10.7 million for the first quarter of 2018. Our trailing 12 months cash flow from operations for the period ending March 31st was negative $1.2 million, a significant improvement compared to negative $13.2 million for the 12-month period ending March 31st, 2018. Given the seasonality of our business, it is helpful to look at our cash flows using April through March cycle as the our AEP related cash expenses, which are incurred in the fourth quarter with cash collections for AEP related enrollments that are spread between Q1 and -- Q4 and Q1. As we discuss cash flow dynamics in the future, we will guide investors to look at this April through March annual cycle as we believe it more accurately reflects the true annual cash flow dynamics of the business. We are currently guiding to negative $20 million to $25 million in cash flow from operations for the full calendar year 2018 -- 2019 with strong Medicare enrollment growth amplifying the impact of the time lag between AEP related cash spend and cash collection. However, correcting for this line by using April to March cash cycle, we expect to be cash flow positive for the 12 months ending March 31st, 2020. Capital expenditures, which include capitalized internally developed software costs, were approximately $3 million for the first quarter. Our cash balance was $135.5 million as of March 31st and we had no debt outstanding under our line of credit. Our balance sheet also reflects a significant commissions receivable balance of $328.2 million that is comprised of $113.8 million that we expect to collect over the next 12 and $214.4 million in long-term commissions receivable. We are increasing our 2019 annual guidance to reflect our outperformance to-date and our current plans for Medicare related investments for the rest of the year. We are now forecasting revenues for 2019 to be in the range of $315 million to $335 million compared to our prior guidance range of $290 million to $310 million. Medicare segment revenues are now expected to be in a range of $281 million to $297 million compared to the prior guidance of $256 million to $272 million. Guidance for 2019 Individual, Family and Small Business segment revenue range is unchanged at $34 million to $38 million. Assuming the impact of the non-cash charge related to the increase in fair value of the earnout liability in connection with eHealth's acquisition of GoMedigap remains at $13.3 million. We expect GAAP net income for 2019 to be in the range of $15 million to $20 million compared to prior guidance range of $16.3 million to $21.3 million. We expect 2019 adjusted EBITDA to be in the range of $55 million to $60 million compared to prior guidance range of $45 million to $50 million. 2019 Medicare segment profit is now expected to be in the range of $90 million to $94 million compared to prior guidance range of $80 million to $84 million. Guidance for the 2019 Individual, Family and Small Business segment profit remains unchanged at breakeven to $1 million. Guidance for corporate shared service expenses, excluding stock-based compensation and depreciation and amortization expense, remains unchanged at approximately $35 million. Assuming the impact of the non-cash charge related to an increase in fair value of the earnout liability in connection with the GoMedigap acquisition remains at approximately $0.53 per share, GAAP net income per diluted share for 2019 is expected to be in the range of $0.60 to $0.79, which is unchanged. Non-GAAP net income per diluted share for 2019 is expected to be in the range of $1.54 to $1.73 compared to prior guidance range of $1.11 to $1.25 per share. Cash used in operations for 2019 is expected to be in the range of $20 million to $25 million compared to prior guidance range of $17 million to $20 million. Cash used for capital expenditures is expected to be $13 million to $14 million, which is unchanged. Well, I like to point out that in addition to revise revenue and earnings projections, these updated ranges reflect our re-forecast in terms of fully diluted shares. Our initial guidance that we provided on the fourth quarter and full-year 2018 earnings call conservatively contemplated approximately 27 million average fully diluted shares outstanding for the purpose of calculating 2019 income per share. Now that we have finalized our 2019 hiring plans as well as projections for employee equity compensation, which reflect among other things a recent increase in eHealth share price, we expect to average the number of fully diluted shares for 2019 to be approximately 25 million. Finally, I would like to make some comments with respect to the seasonality that we expect this year. The second and third quarters of 2019 are expected to benefit from the higher full-time Asian headcount that we are retaining this year. Second quarter in particular has an easy revenue comparison with last year when we are still in the process of rationalizing our Medicare call center capacity after closing our Westford base facility in February of 2018. The fourth quarter will continue to be -- contribute disproportionately to revenue for the year driven by the timing of the annual enrollment period and the open enrollment period selling season. At the same time, we will have a comparison of Q4 last year, which was extremely strong in terms of Medicare revenue and enrollment. The full-year 2019 revenue growth rate of approximately 29% at the midpoint of our revised guidance reflects this dynamic and our current view of investments in the fourth quarter. We continue to refine our sales and marketing investment plans for the fourth quarter and expect to finalize those plans in the next three months. Turning to profitability. In 2019 we are retaining a larger number of in-house Medicare agents throughout the year compared to 2018, including during the seasonally slower third -- second and third quarters. We also plan to make targeted hires in our technology group to support our online and mobile enrollment initiatives. We are currently expecting that our second quarter EBITDA loss will be at least at the same level as last year in absolute terms and our third quarter EBITDA loss could be higher than last year's. The fourth quarter will remain seasonally largest in terms of revenue, enrollments, and profitability. For the full year, we expect to generate EBITDA margin of approximately 18% at the midpoint of our guidance compared to 13% in 2018. The EBITDA margin expansion implied by our guidance is driven primarily by continuing leverage that we expect to see in our fixed costs as we grow enrollments and expand our revenue base. As I mentioned earlier, full-year 2019 acquisition costs per approved Medicare member including marketing and call center costs are expected to be relatively flat with 2018. We continue to base our guidance on the assumption of flat lifetime values or LTVs compared to a year ago. As Scott mentioned, we look forward to seeing many of you at our Investor Meeting in New York on May 7 where in addition to sharing more detailed operational information, we will also provide additional financial information including an update to our long -term financial plan, which reflects our recent strong performance and outlook for the coming years. I want to remind you that these comments and our guidance are based on current indications of our business and our current estimates, assumptions and judgments; which may change at any time. Our actual results may differ as a result of changes in our estimates, assumptions, and judgments. We undertake no obligation to update our comments or our guidance. And now, we will open the call for questions. Operator?

[Operator Instructions]. Our first question is going to be from Frank Morgan from RBC.

The subject -- you mentioned this on the IFP segment about better duration, but I'm just curious no retention came up last quarter. Just curious if you can give us an update there on the Medicare part of the business, discuss those dynamics and really what are you doing to improve that retention to drive better LTV? And then my second question is obviously a big transaction in the space with this Willis Towers Watson acquisition or TRANZACT. Just curious about your take on that particular transaction, maybe compare and contrast it to your business and how do you think it affects the overall competitive dynamics in that market?

Let me take the first part around LTVs and then Dave and Scott can comment more on the TRANZACT deal that you referenced. Starting with IFP, as we commented, we are seeing cohorts staying on our book of business and staying in their policies longer, which largely reflects the fact that they appear to be happy with their current insurance coverage. There's not anything actively we're doing there. As a reminder though, given our revenue recognition that we apply a constraint with lifetime value and in IFP it's 15% to 20% so to a certain degree unless something else changed, we would expect that our actual collections to exceed what we initially booked when we estimated LTVs at some point. So, I would say that this is -- the trend around IFP is largely what you would typically expect although we do see some cohorts staying longer in there or the LTVs also being revised upwards. On the Medicare side, I think there are a couple of things that we're referencing too, Frank. One is if you look at our membership numbers, you would see that they have normalized relative to what we saw come out of Q4 where our membership growth -- membership growth seems to have lagged relative to approved member growth and if you work through the numbers, you've seen that that has normalized and that dynamic is related to the fact that we have such a huge number of enrollments in absolute terms that were very late in Q4 that did not become paying members in our membership count until really now reported numbers. On the LTVs for Medicare, you see that on the Medicare Advantage, we've seen a continued increase and that's consistent with the trend in Q4. There's some noise on Medicare Supplement and Medicare Part D and Part D in particular is quite noisy. If you look at it historically, it does bounce around a lot and also subject to maximum carriers. So, nothing to report there in terms of what I see as a trend there if those tend to -- do tend to fluctuate. In terms of initiatives though, we are early on still in some of our customer retention initiatives. We are seeing some impact not significant. As you can tell on the Medicare Advantage LTVs, just the rate changes along with CMS that drove a big portion of that increase and some of the increase is because of longer expectation in terms of duration of the policy, but nothing material relative to retention that I can point to.

With respect to TRANZACT and Dave will get his color as well, the -- we were impressed with the price paid for that business. We know the TRANZACT team well and they are benefiting from many of the demographic and secular tailwinds that we are. And so, we weren't surprised that it would trade for a full value. We perhaps not surprisingly think that we are undervalued by comparison, primarily because of our comparison shopping platform and the services and tools we provide. Just as a point of comparison, we spend almost $40 million more per year than TRANZACT on technology and content. So, we believe that that builds a substantial competitive advantage for us against the other more call center driven models, but we still understood the strategic rationale behind why Willis Towers Watson would want to have a position in this marketplace and we think they bought a very good business. Dave, what would you add?

I think that says it well. I don't have anything to add. The only thing I would add relative back to the membership numbers, Frank, for the fourth quarter versus the first quarter just to put a finer point on it. A lot of the business that we signed in AEP was new business -- new to eHealth for 1/1 enrollment. So those by definition if there were tens of thousands of members that didn't show up as 12/31 members, they do of course now show up as members in the book. So as Derek mentioned, the numbers were -- we were able to show a more normalized number with the first quarter enrollment and get the -- the churn that we've seen in the book has been right in line with our expectations relative to kind of how the business has performed in the past.

And our next question comes from George Sutton from Craig-Hallum.

So Scott, if we think of this as a market share taking opportunity, obviously the Medicare market is very, very strong, but it's clear you're also taking share. Do you have any sense of what your share was this past quarter? And I'm just curious if we think forward a handful of years, what kind of opportunity do you see for yourself there?

We suspect that we gained share. We don't think the market grew at the rate that we did in Q1 all modesty aside. But we think we have well under 2% market share, closer to 1% than 2%. And we believe in the near term we can get to 3% and we have a long term ambition to achieve 5%, George, and we intend to put some meat on those bones in terms of the initiatives that will drive that when we get together on May 7.

Just a broader question for you. Obviously there's going to be a lot of ongoing chatter around this Medicare for All concept. I wondered if you could just provide some perspective on it. I personally am on the side of believing it never happens. But should it have some implementation, what do you see that as meaning for you and your model?

Our belief is that any expansion of Medicare would in the first instance be built off the existing architecture of Medicare. It's the one part of the healthcare ecosystem that has broad acceptance and a high customer satisfaction. And so, we believe there'll be fierce political and industry resistance to upsetting that model. So, the most likely scenario in our view is that you would see a Medicare for more gradual expansion to permitting younger age groups to buy into Medicare. And so, there will not be some massive transition of eliminating group insurance and moving 300 million Americans, 280 million Americans, whatever it is to Medicare. It's just not realistic. We saw with ACA that that bill started out as a single payer health system and by the time industry support was garnered for ACA and enough political support to pass it, it worked well within the existing system and architecture. So I understand the political appeal of the soundbite for Medicare for All, but in a real world the actual implementation even if Democrats ran the table in 2020 would be built off the existing system, which we think we're well-positioned to continue to participate in.

Just to follow on quick. Medicare For More would mean more supplemental need that would be directly beneficial to you, correct?

Well, look, I think in the first instance the easiest move to make would be expanding Medicare eligibility to 62 and over, which will be about -- expansion of about $10 million eligibles on what today is 57 million, 60 million. So, it would add an addressable market of probably 20%. And what's attractive about that demographic is they're e-commerce fluent, they're younger, they're healthier, they'd be highly desired by the carriers, and we think we'd be well positioned to capture more than our share of enrollments in that segment. So in a word -- a sentence, we would see that as a very positive development for the business. Having said that, it's another $100 billion plus of cost for the federal government. So even a modest expansion of that magnitude is a fiscal budget buster and so we're not relying on it in any of our forecasts, but it would be an upside.

Our next question comes from Tobey Sommer from SunTrust.

I was wondering are you able to see your market share by kind of types of sale? And what does market share looks like for you, if it's any different for the company as a whole, when you look at those aging into Medicare turning 65? It seems like maybe making strides in there would be the optimal way to grow if you could pick the poison.

Yes. Well, first I just compliment you for seeing these strong results. Was impressed that you were a front runner on it. To that question, we have a surprising dearth of market knowledge and visibility into that question. What I will tell you is that we underindex on agents, we overindex on switchers and that is part of the challenge of why our retention is not what it can be. And so, it is an important focus of ours to increase our penetration in the agent. I will just say that that is the targeted demographic that is most pursued by the carriers and they are very effective at carpet bombing them with all types of marketing outreach. And so, that's where we underindex and what we overindex in the switching. Dave, would you like to add on? Dave Francis, I'd like you to add on to that.

I think structurally, Tobey, the market for agents is guided toward folks who are moving out of employee sponsored healthcare or health insurance into the individual Medicare market and the transition for those folks, as Scott said, is largely controlled by carriers and the large brokers and consultants that are out there in the marketplace. And it's a very attractive and high margin business for them and they do a very good job of getting their arms around those new retirees as they enter the Medicare market. Where we have found that we do overindex, as Scott said, is where people have had a couple of years of experience in the Medicare market and realizing that hey, I maybe am not getting that which I should be getting or could get a much better deal. They start to look for shopping experiences and find their way to us. And at that point when they hit our platform, as evidenced by our NPS scores that are consistently over 90, they have a great experience, they find what they need, and they buy through us. So we are looking for ways that we can get deeper into the agent side of the market, but as you can see from our growth numbers, we've got lots of opportunity to continue to penetrate parts of the market that are strong.

What are the biggest changes that you plan for eHealth for the fourth quarter AEP? I understand that you probably got 2, 3 months to put them in place in order to have them up and running. And would you describe those changes as evolutionary or revolutionary?

Evolutionary at this point of the sanction there. We see upside to increase our agent count beyond what is in our plan, but that's still evolving. We have the capital now through our successful offering that we could get more aggressive if we see opportunity to hire and train, license appoint strong agents. We do think we could drive the leads that would productively convert with those agents so -- bur it would be evolutionary, Tobey, not anything revolutionary. We are continuing to invest very aggressively in product and technology to improve the user experience. I mean we know that this is aspirational to say we want to make buying Medicare as easy as planning a vacation, but we -- and so we know that's not quite achievable. But there's a huge gap between where we are in user experience and where we can be. And so, you're going to see continued serial improvement over the course of this year with the target of a substantially improved user experience and an AEP peak period compared to last year and we think that's an upside to the guidance we've given you today.

Okay. Last question for me. Is there an opportunity for you to more thoroughly explore channel partners and alliances within the Medicare ecosystem to further drive your growth and kind of maybe help you in those aging into turning 65? How challenging is it to thread the needle between getting affiliations perhaps and maintaining your consumer focus?

It's a good and fair question so I'd answer it this way. Every single thing that we do from a go to market perspective has the consumer at the center of it. So any kind of relationship that we enter into; whether it's with pharmacies, hospitals, or other folks within the Medicare ecosystem as you say; it is always with an eye toward how do we serve the consumer in the best way possible. With that in mind, it's -- our outsized growth has been noticed by a lot of players in the Medicare marketplace; folks at both carriers, folks that are servicing carriers and other related companies; and we continue to look at ways that we can work with entities such as that to get access to their customer bases and provide them with the value-add services that we do and create much as we do in the pharmacy and hospital channels, wins for our partner, win for the customer, win for the carrier, and win for us. So, lots of those opportunities out there. We continue to explore a lot of them and hopefully we can talk more about how we are approaching those when we get together with folks in New York on May 7.

And our next question comes from Ross Muken from Evercore.

It's Suzie on for Ross. I wanted to touch on just two things. Is there any color you can provide on what your expected growth would have been in the Medicare business ex the extended enrollment period? Just wanted to get a better understanding of how your first quarter was relative to the prior years ex any unique circumstances. And then a follow-up. What are your thoughts on CMS' final exchange rule? How do you think about the impact of the premium subsidy calc and the user fee exchanges? Do you think it'll be a headwind or more of a neutral impact? Thanks.

It's a good question though on your first one and let me comment on that. So as we had mentioned in the prepared remarks, we did see growth on a more comprehensive level even though we were expecting to a certain degree a benefit from the Medicare Advantage open enrollment period, which was re-enacted for the quarter. So in looking at the numbers, they're not perfectly clean; but we had -- looked at that -- the 60% year-over-year growth, 20 percentage points or 20% of that -- of the 60% growth or a third was likely related to people looking to switch because of this Medicare Advantage open enrollment period. So, this helped. But even without that, also we had sizable growth. The good news on that is the expectation is for that open enrollment for Medicare Advantage to continue on years going on. So, we would expect the ability to help consumers to find the right plan again in Q1 next year. I would say that though as we talked about in the prepared remarks as well, we saw a lot of success carrying more tenure and just more sales agents. And as I mentioned, we intend to continue that in Q2 and Q3 and that actually is a comment in isolation of anything in terms of our ability and our kind of expectation in terms of our ability to drive demand to satisfy those agent investments.

And it's Dave, I'll take the second half your question. There's still a lot that's up in the air relative to waiting on final rules coming out of the regulatory side of things and we're hearing that from our carrier partners as well. What I would tell you is that consistent with what we said in the past, any kind of turbulence in the marketplace that causes premiums to change, networks to change, the way particularly on the prescription drug side of things that premiums and market structure are affected there. Things that cause consumers to have to ask meaningful questions about their coverage, that's good for us. That creates a reason for consumers to come into the market, whether they make a change or not, to look for resources that can help them make a better, more intelligent, more informed decision about what they should be buying from a -- from a Medicare commercial insurance perspective. And we continue to believe that we are best positioned in the market to take advantage of that. So, still a lot to shake out there in terms of what it ultimately looks like for each of the carriers and the plans that they put into the marketplace, all of which however looks from a movement perspective to be positive for our business . We're well positioned for that.

And our next question comes from Dave Styblo from Jefferies.

I wanted to understand a little bit more what's embedded in guidance for a few of the metrics. Just if you can give a sense of the cashaton on the balance sheet. Obviously you guys are going to be looking to deploy that towards some marketing activities. Can you give us a sense if any of that is sort of earmarked for certain things and maybe some of that is already towards the call center reps and so forth and that's maybe implicit in guidance? But trying to get a sense of the ramped-up call center staff, you have excess cash sitting there for additional marketing spend, I think you're still keeping the LTVs flat for the rest of the year. Sort of what are the levers there that we should be thinking about where there might be upside?

So, it's a good question and as we -- the guidance does reflect the use of the proceeds from the offering because as we mentioned, we are looking to deploy more cash with the revised guidance of a greater use of cash flow from operations within the fiscal year. So if you kind of do the math between CapEx and cash from operations, we are certainly leveraging the proceeds from the offering. Your comment on excess cash is exactly right. There's a couple of things. We did have a very successful offering so we were able to upsize the offering and be able to raise more money. And the other thing is -- as I mentioned is the guidance reflects the current view of our investments, which we of course have a very close line of sight for Q2 and Q3 because we're already in Q2 and Q3 is only a couple of months away, but we're still finalizing those for Q4. So, this is not yet our final view relative to the deployment of investments, exactly what Scott commented a little bit earlier as well.

And how much of the cash on the balance sheet would be earmarked for that? In other words as you think about -- I mean I guess we can implicitly run into -- run into it through your metrics, but it doesn't seem like there's that much of a cash that might be using -- that might be used for all these activities. Is that sort of a fair assessment?

I think it's fair to say that we're not going to use all the cash that's on the balance sheet for investment for this year. That will be a lie. I think that's a fair...

So, here's the way to look at it. It's a $25 million Increase in revenue and it's a $10 million increase in EBITDA, which is the delta already between prior year and guidance consensus of what we overperformed in Q1. So, we're not going to use -- even though EBITDA is not a direct proxy for cash flow here, we're not going to use more than $20 million of cash.

And the other thing, Dave, to focus on is as Derek said in his prepared remarks that the real cash cycle to keep an eye on here is April to March rather than the calendar year because the money that we invest in the AEP process comes in In that January-February time frame after the year-end. So if you look at Derek's comments about the fact that we should be breakeven to marginally cash flow positive on an operating basis on that 12-month cycle March -- April to March, it gives you a sense as to investment levels that we will be making relative to the cash on hand and what we expect to get back in relative to new sales through that AEP process. So, it's a very disciplined approach to putting that cash to work making sure that we get significant ROI on what we put to work on a short-term basis during the selling season and expect to make that very quickly from a cash flow in the first quarter.

And then just a follow up on the mechanics of kind of how -- how membership flows through in terms of approved members. I know I sort of had a question on this last quarter. But if we take a look at your third quarter '18 MA enrollment, it was right around 235,000 and if I take the fourth quarter and the first quarter approved MA lives, there's about 124,000 there. That takes you up to 350,000 members, if you will, if those all got captured in membership before you account for churn. So that's -- if you take that and compare that to your 1Q actual membership, you're -- there's a delta of about 80,000. I'm just trying to understand where does that 80,000 go. What accounts for that? I know some of that has got to be churn, right. I suspect maybe most of it is, but if I do, then churn looks like it's up over 30% and that doesn't seem to reconcile with what I hear you guys talking about in terms of maybe average duration on the books being longer than that.

Let's walk through the mechanics I did. The mechanics is we report on sent applications and then we also reported on approved members and then between a sent application and approved member, there's both a time lag and a drop off. The time lag is anywhere from 2 to 3 months and then there is a drop off when someone sends an application to when they can have it approved for a variety of reasons. For Medicare Advantage, that drop off is smaller, it's around 5% or so and then for Med Sup, it's larger, it's more or like 20% because there's an underwriting step. So if you look at those numbers and that mapping from applications to approved members, you will see if you kind of do the calculation on more of a rolling 12-month basis some drop off there. And then from approved members to becoming part of our membership, you have to be paid and we also see a drop off there as well and that's much smaller, it's closer to I think about 5% across the board. So again part of that -- I definitely consider churn by our definition because we report revenue on approved member basis and that churn is built into our lifetime value.

Okay. And then what is -- sort of what is that metric for you guys right now? What's that running at?

In terms of duration?

Yes.

So for MA, it's about three years and then for Med Sup it's about 5 year and for PDP it's about five years.

Okay. And it sounded like because you guys did have an increase in the LTVs year-over-year about 8% I think. the underlying [indiscernible] rate dictate low single digits. So is the rest of that explained by just longer duration that...?

That's correct. That's exactly right. So yes, so just to comment more specifically for Medicare Advantage, the LTV increase for this quarter is 8% and then just as you know, just CMS rate increase around 6%. The remainder of that is from improved duration.

Thank you. And I'm showing no further questions. I'd like to turn the call back to CEO, Scott Flanders.

Thank you, everyone. When I closed up our third quarter of '18 earnings call, I shared my tremendous enthusiasm that I had for the prospects of the business and how the team had come together and that I'd never been more excited about how we're positioned. And I would just echo those closing remarks again for how we feel after this first quarter notwithstanding the fact that we are entering into the 2 seasonally slow quarters. As Derek mentioned, we do have easy comparisons in Q2 and Q3, but the important quarter for us is Q4. And I just want to assure all investors that we are riveted on ensuring that we deliver against this revised guidance and that all surprises will be on the upside. Thank you, everyone.

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