eHealth, Inc. (EHTH) Q1 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2020 eHealth, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. [Operator Instructions]. I would now like to hand the conference over to your speaker today, 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 first quarter 2020 financial results. On the call this afternoon, we will have Scott Flanders, eHealth's Chief Executive Officer; and Derek Yung, 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 relating to our expectations regarding our Medicare business including Medicare enrollment growth, consumer demand, our competitive advantage and expectations regarding our online enrollment. Our plans to use our equity offering proceeds to invest in the Medicare business and putting marketing initiative, expansion of our telesales capacity and enhancements to our technology platform, our Medicare growth strategy including our customers acquisition and demand generation strategy, customer retention efforts, online engagement agent productivity and current acquisition strategy. Our expectations regarding our direct-to-consumer model, the benefits of our customer care agent remote model, the profitability of our business, seasonality, churn, lifetime values, upgrading expenses including system variable costs and the impacts of COVID-19 on our business. Our member estimates revised 2020 full-year guidance, our outlook for the second and third quarters of this year and our plans to provide further update to our 2020 and five year growth plan and the content of such guidance and growth plans. Forward-looking statements on this call represent eHealth 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 this 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 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 are considered non-GAAP under the SEC Regulation G. The reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measures, futures versus information included in our press release and in our SEC filings, which can be found on our Investor Relations website. And at this point, I returned to pull over to Scott Flanders

Thank you, Kate and welcome everyone. We finished the first quarter in an unprecedented environment shaped by significant disruptions to the global economy and our daily lives as a result of the Corona Virus. In this environment our mission to connect every person with the highest quality, most affordable health insurance for their life circumstances is more relevant and important than ever. Being enrolled in the right plan is especially important to our main customer segment seniors, as they are being disproportionately impacted by this pandemic. Our omni-channel consumer engagement platform allows seniors to research and enroll in Medicare plans in a safe environment online or by speaking to a licensed insurance agent on the phone without having to leave their house and allowing them to avoid the face-to-face interactions that traditional agents depend on to sell plans. In addition to delivering outstanding service to our customers, the safety of our employees is a top priority in this challenging environment. In March, we shifted our entire U.S. workforce to a remote model, including all of our customer care agents. This was a major undertaking accomplished in a matter of days, and seamlessly with the transition having no impact on our operations. In fact, the average productivity of our agents in the first quarter increased compared to a year-ago despite this major change to their work, environment and routine. I want to acknowledge our team's resilience and tenacity over the past several weeks, and express my gratitude for their unrelenting focus on our mission. Turning to our performance for the quarter, the fundamentals of our business are strong and we are continuing to drive meaningful Medicare revenue and enrollment growth. Building on our momentum of the past two years, especially our record performance in 2019 we are pleased to deliver another quarter bout performance. First Quarter approved Medicare members grew 46% compared to a year-ago, with Medicare Advantage approved members growing 59%. First quarter Medicare revenue grew 75% year-over-year, driven by strong enrollment volumes and a favorable trend at the estimated lifetime values of our Medicare members, which Derek will describe in greater detail. We continue to drive a rapidly growing customer acquisition success through our diversified portfolio approach to our demand generation strategy. Our direct-to-consumer channels provide balanced customer traffic, through digital advertising, direct response TV, direct mail, email, and organic search initiatives. While our strategic partnerships with large retail pharmacies, hospitals, and other affinity groups remain a substantial and unique driver of new business. In the first quarter, we achieved another meaningful year-over-year increase in the number of Medicare applications submitted online, including unassisted and partially assisted agent online enrollments. 24% of our first quarter applications for Medicare major medical products were submitted online, compared to just 12% one year-ago. On an absolute basis, the total number of applications for Medicare major medical products submitted online more than tripled, compared to the first quarter of 2019. As a reminder, our target is to reach 34% online penetration for the full-year of 2020 and we are well on-track to achieve it. Despite the broader economic challenges and disruption to major parts of the healthcare market, the Medicare market remains very strong with a large selection of high-quality and affordable plans available to seniors. Our enrollment growth continues to significantly outpace the overall market, driven by our omni-channel engagement model that emphasizes customer choice and provide individualized comparison tools that are unique to eHealth, and in light of social distancing and the lingering health concerns related to COVID-19, we believe seniors will find our platform to be an even more important and valuable resource. Turning to our first quarter financial results. Total revenue for the first quarter of $106.4 million, grew 55% year-over-year. Our adjusted EBITDA was $11.1 million, a 30% year-over-year increase. GAAP net income was $3.- million and cash flow from operations in the first quarter was positive $8.9 million. During the quarter, we have raised approximately $227 million through an equity offering to support continued strong organic growth in our core Medicare market. Despite the significant growth achieved in each of the last two years, which was well-ahead of overall market growth rates, our Medicare memberships still represents just 1% of the total Medicare population in the country. We see tremendous opportunity to build additional scale and capture market share. As of March 31st, we had $246 million in cash, cash equivalents and marketable securities and no debt on our balance sheet. We plan to deploy this capital in our Medicare business, including to finance marketing initiatives, fund further expansion of our telesales capacity, and underwrite continued enhancements to our technology platform, such as projects aimed at increasing customer retention and boosting online engagement and conversion rates. We are in the process of developing our operational strategy for this year's annual enrollment period, which takes into account the growth capital now available to us post offering as well as some of the important learnings from the last AEP. One of the interesting applications of successfully shifting our customer care agents to a remote model is the flexibility this model can potentially offer us in staffing for the high volume fourth quarter . Deploying home-based agents, opens up new geographies for our talent acquisition, produces office space as a constraint on the growth of our employed agent population and could overtime boost our overall agent productivity by decreasing our reliance on outsource call center agents. While we had had recent success in increasing productivity of our employed agents and outsourced call center agents, our internal employed agents continue to convert demand into applications at consistently higher rates. Optimization of our sales and marketing efforts remains a central focus of our long-term growth strategy. Our individual and family plan approved members declined 19%, compared to the first quarter of 2019. We saw an uptick in IFP enrollments in March, which has carried through in second quarter and was likely driven by consumers losing employer coverage and turning to the individual market. However, this did not sufficiently offset slower activity in the first two months of the quarter. We continue observing increased retention as existing IFP plans resulting in higher estimated LTVs in this business. Approved members for small business group products declined 15%, compared to the same quarter a year-ago. We entered this year with great momentum, and have once again started the year strong generating significant Medicare enrollment growth and exceeding our expectations for the quarter. eHealth is proving to an increasingly important destination for consumers in this challenging environment, a testament to a significant value that we provide to consumers by bringing choice, transparency and convenience to the selection of health insurance. We are updating our 2020 annual guidance to reflect our first quarter outperformance, and I want to specifically note that, our revised guidance does not reflect the deployment of cash raised in the equity financing. Similar to last year, we are working to lock down our operational plan for the annual enrollment period by the end of June and it is into share our revised projections with you at the time we report second quarter earnings. We continue to see significant growth potential that can be captured by further expansion of our telesales capacity, combined with driving an increased percentage of Medicare enrollments through our online platform. Meaningfully, the new work-from-home model for our agents provides an additional avenue for revenue and profit leverage during AEP that has not been available to the business in prior years. In short, I remain excited and confident about our growth opportunities for 2020 as the eHealth model continues to perform well and we demonstrate the Company's differentiated value proposition in the market. And now I will turn the call over to Derek Yung who will review our first quarter financial results in greater detail and provide a revised guidance ranges.

Thanks Scott, and good afternoon everyone. Our first quarter financial results reflect underlying strength of our platform and continued strong execution in our Medicare business, despite the challenging public safety and related macroeconomic environment. We entered the year on a strong note with a first quarter Medicare revenue of $96.2 million, growing 75% compared to a year-ago, driven by a 46% increase in approved Medicare members, 86% growth in non-commission revenue as well as an increase in residual or [tell] (Ph) revenue recognized during the quarter. The Medicare segment generated a profit of $22 million, an increase of 103%, compared to the first quarter of 2019. The open enrollment period was particularly important contributor to our first quarter Medicare enrollments this year with Medicare Advantage approved members growing 59%, compared to your first quarter a year-ago. Medicare Advantage enrollments attributable to the open enrollment period represented a larger percentage of our total approved Medicare members, compared to first quarter of 2019. Our estimated number of revenue generating Medicare members was approximately 726,000 at the end of the first quarter on increase of 44%, compared to a year-ago. Similar to a year-ago, we saw an increase in Medicare Advantage member churn to above average levels during the first quarter. It was driven primarily by higher than average attrition rates into cohort that we enrolled during the last AEP in Q4 of 2019. As you recall, we observed a similar increase in Q1 of last year which was followed by a decline in member churn in subsequent quarters. We believe that this new seasonal patterns of consumer behavior is due to their introduction of the open enrollment period in 2019 and that seniors will optimize their plan during the first quarter, a less likely to churn later in the year. The churn is likely to be even more pronounced this year as more seniors took advantage of the open enrollment period on our platform compared to a year-ago. We currently expect for churn to decline later in the year as it was the case in 2019 and continue to forecast 2020 Medicare Advantage lifetime values to be roughly flat with last year's. It is also important to note that churning our member base is highest in year one and declined significantly in subsequent years. For example, our average first year churn for a Medicare Advantage member is in the mid-thirties that decline to just under 20% in year two and then again to 11% year three. In year four and beyond churn rates have dropped to single digits. As a result in periods of high growth when new members represent a larger percentage of our total member base, we see a higher total implied churn. We have provided our historical average churn rates by year as part of our first quarter 2020 earnings slide posted on our investor relations website. First quarter constrained lifetime values of our Medicare Advantage product grew 5% year-over-year due primarily to an increase in average commission payments per member. As a reminder, our constraint LTVs are derived by applying a constraint factor through statistical estimates of expected lifetime commission received. We are effectively discounting the revenue we booked compared to what we expect to collect. Since the adoption of ASC606 for revenue recognition, our cash collections from Medicare Advantage plans have generally exceeded initial estimates reflecting the appropriate conservatism of our approach. This dynamics has contributed to the recognition of residual or tail revenue for Medicare Advantage members in every quarter in 2019 and again in Q1 of 2020. I would like to note that beginning with this quarter Q1 of 2020 we will be reporting the number of new paying members added during the quarter with the goal of providing additional transparency into our membership dynamics. The Delta between approved members and new paying members access because not all prove out applications result in an active policy for various reasons. For a given period this conversion rate also is impacted by the lag between the time an application gets approved by high carrier and we will receive the commission payments for that possibly as we count an applicant as a new paying member when we receive the commission payments. For example, in the first quarter of 2020 we had 85,000 approved Medicare members and added 161,500 new paying members reflecting a significant spillover of enrollments from Q4 of 2019. The difference between the two metrics tend to be especially pronounced in the first and fourth quarters, given the large number of enrollments to prove during the annual enrollment period in the fourth quarter, do not start generating commissions until the first quarter when these plans become effective. Turning to our individual family and small business segment, first quarter revenue from this segment was 10.3 million a 26% decline compared to a year-ago. This was driven by lower IFP enrollments and tail revenue compared to a year-ago, partially offset by increase in short-term and small business group commissions. The individual family small business segment remained a profitable standalone business for the first quarter, generating segment profit of $2.6 million, compared to $6 million in the first quarter of 2019. Our estimated individual and family plan membership at the end of the first quarter was approximately 113,000 down 13% compared to estimated membership reported at the first quarter a year-ago. The estimated number of members on small business products was approximately 44,000 a 3% increase compared to a year-ago. Our total revenue for the first quarter was $106.4 million, an increase of 55% compared to the first quarter of 2019. Our total estimated membership at the end of the quarter for all products combined was approximately 1,137,000 members. Now I would like to review our operating expenses and profitability metrics. First quarter operating expenses reflect a higher run rate in fixed costs as we scaled our business in the second half of 2019 in preparation for our annual open enrollment period. We anticipate year-over-year growth rates in G&A and technology and contents spend to start normalizing in the third quarter. For the full-year 2020, we expect to see the fixed costs leverage resulting in margin expansion relative to 2019. The overall variable cost - acquisition cost per approved Medicare member which includes marketing and customer care related spends increased by 5% year-over-year. Underneath that variable call center cost per approved Medicare member grew 6% year-over-year as we retain a larger number of agents fall into Annual Enrollment Period compared to last year. This increase also reflect costs associated with moving our call center to remote model in March in light of the Corona Virus crisis. Marketing costs per approved member grew 5% primarily reflecting a shift in channel mix with a continuing increase in enrollment volumes coming from our digital advertising channels, and the decline in contribution from some of our partners that pull back on marketing initiatives in this environment. For the full-year 2020, we continue to expect that total variable acquisition cost per approved Medicare member will come down to 2019 levels driven primarily by further gains in agent productivity. GAAP net income for the first quarter of 2020 was $3.5 million compared to GAAP net loss of $5.2 million for the first quarter of 2019. Adjusted EBITDA for the first quarter of 2018 was $11.1 million, compared to $8.6 million for the first quarter 2019. We calculate adjusted EBITDA by adding stock based compensation, change in fair value of earn out liability, depreciation, amortization, amortization intangible assets, other incomes and benefits for income taxes to our GAAP net income. Our first Quarter cash flow from operations was $8.9 million, compared to $12.7 million for the first quarter of 2019. Capital expenditures, which include capitalized internally developed software costs were approximately $6.1 million for the first quarter. As of March 31st we had 246 million in cash, cash equivalents and marketable securities, and we had no debt outstanding under a line of credit. Our balance sheet also reflect a significant commissions receivable balance of approximately $560 million that is comprised of $125 million dollars expected collected over the next 12-months and $435 million in long term commissions receivable. We are updating our 2020 annual guidance to reflect our outperformance to-date, and an increase in our diluted share accounts following the equity offering that we completed in March. As Scott mentioned, this guidance does not reflect our full investment plan for the upcoming AEP as a result of the increased working capital provided by the offering. We are now forecasting revenues for 2020 to be in a range of $600 million to $640 million, compared to the prior guidance of range of $580 million to $620 million. Medicare segment revenues are now expected to be in a range of $553 million to $589 million, compared to prior guidance of $533 million to $569 million. Individual, family and small business segments revenue is expected to be in a range of $47 to $51 million, which is unchanged compared to prior guidance. We expect GAAP net income for 2020 to be in a range of $70 million to $85 million, compared to the prior guidance range of $68 million to $83 million. We expect 2020 adjusted EBITDA to be in a range of $125 million to $140 million, compared to prior guidance range of $120 million to $135 million. 2020 Medicare segment profit is now expected to be in a range of $157 million to $174 million, compared to the prior guidance range of $152 million to $169 million. Individual, family and small business segment profit is expected to be in a range of $17 million to $18 million, which is unchanged compared to product guidance. Guidance were corporate services expenses excluding stock-based compensation and depreciation and amortization expenses remains unchanged at approximately $49 million to $52 million. GAAP net income per diluted share for 2020 is expected to be in a range of $2.55 to $3.10, compared to prior guidance of $2.64 to $3.23 per share. Non-gap net income per diluted share for 2020 is expected to be in a range of $3.41 to $3.90, compared to prior guidance range of $3.56 to $4.09 per share. Cash used in operations for 2020 is now expected to be in a range of $61 million to $64 million, compared to prior guidance range of $52 million to $55 million. Cash used for capital expenditures is expected to be $18 million to $20 million, which is unchanged from prior guidance. Finally, I would like to comment on sequential trends. Consistent with previous seasonality trends, the second and third quarter Medicare enrollment volumes are at the lowest points compared to other times of the year. Last year, our year-over-year growth in the second quarter was aided by a particularly week comparison period in 2018 that included the closure of our Westford Massachusetts sales center in May of 2018. While we expect year-over-year growth in the second quarter to remain strong, the rate of increase would not benefit to the same degree due to just weaker comparison period Q2 of last year. Second quarter [tel] (Ph) revenue is also expected to decline sequentially. Similar to last year, we will be retaining the majority of our in-healthy agents posts OEP, which is expected to result in a further increase in agent productivity during the critical selling season in Q4, but is adding to our cost base during the lower volume second and third quarters. As a result, we currently expect the second quarter revenue growth to be approximately 20% on a year-over-year basis and we expect our adjusted EBITDA loss in a mid single-digit millions of dollars for the quarter. We continue to refine our sales and marketing investment plans for the fourth quarter and expect to finalize those plans over the rest of this quarter. We plan to provide further updated guidance for 2020 that includes the anticipated results of those investments as well as an updated five-year outlook at the time of our second quarter earnings report. I want to remind you that these comments in our guidelines are based on current inductions 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. I would now like to turn back to Scott's who will make some short closing remarks and then open up call for questions. Scott.

Thanks Derek. Before we get into Q&A, I would like to wrap up our prepared remarks today by emphasizing that in the face of the disruption to the global economy and our daily lives resolving from the Corona Virus, our team is more committed than ever to our mission of connecting every person with the highest quality, most affordable health insurance for their life circumstances. The most important things you should know coming out of this call are the fundamentals of our business continued to improve and we are achieving strong operating metrics across the business by executing on a clear strategy and making targeted investments to drive growth. Any way you cut it, our financial results reflect the significant progress we are making. Our omni-channel customer engagement platform is ideally positioned to serve seniors safely and more effectively both now and in the future. The addition of work-from-home capabilities for our agents adds to the significant revenue and margin leverage opportunities we have in 2020 and beyond. Our updated 2020 annual guidance reflects our outperformance to-date, but not the additional investments we are contemplating and planning for this year's annual enrollment period. These will be provided in conjunction with our second quarter results. So I'm proud of the efforts of our team to deliver in this challenging environment and believe that we are well positioned to continue driving growth, margin expansion and shareholder value as we execute on our growth strategies. With that Derek and I look forward to answering your questions. Operator, please open the line.

Thank you. [Operator Instructions] Our first question is from Jailendra Singh of Credit Suisse. Your line is now open.

Thanks lot, hi guys. So thanks for clarifying your comments in the press release that the guidance does not include investment, but it looks like it does not include the benefits on those investments as well. I guess that was creating some confusion. I want to follow-up on the comments you made around the increased churn in the first quarter for your Q4 2019 cohort in particular. Can you provide color on your review capture rate? Did that improve what you saw last year and the point I'm trying to get to this is that if build this increase churn among seniors. It may not be a bad outcome from your perspective. As long as those seniors stay on your platform, so help us get us fair bout the recapture rate what you are seeing on your books.

Right and just to clarify on your first point Jailendra, you are correct that we very intentionally increased our guidance for the full-year by only the amount of our beat to consensus in Q1. And we did the same thing in Q1 of 2019 and then we increased by well over 2x that amount after our Q2 earnings call when we had our full agent staffing and marketing mix plans in place. The same process is going to be undertaken this year and just to remind everyone, we increased our guidance last year to $375 million after Q2, and without tail revenue adjustment, we came in at $464 million, a $90 million beat to that upgraded guidance. So we are counting on the same type of process this year. We were not in position at the end of Q1 to be able to quantify exactly what the level of increase in the investment and revenues would be. To your other question on the churn. Churn is an aspect of our model. And we are the marketplace where seniors come to shop to compare plans. And we saw an elevated churn in Q1 of 2019 off of heavy enrollment in For 2018, and that was because CMS opened up the first quarter for enrollment for switching. The same experience happened this year. The recapture rate this year was 10%, against a recapture rate of 9%. So only very modestly up. This is an area where we see opportunity for improvement, but baked into all of our LTVs and all of our financial accruals is the assumptions of the actual churn rates. Tim, can I let you elaborate someone on this?

Sure. This is Tim Hannan. Yes, you know, I think what we saw was the same behavior we saw last year, as Scott said our recapture rate was slightly better. What we are excited by is with this extra year of understanding and data. We will be able to go and improve on these metrics we think overtime, because we will be able to understand how to make better recommendations during the annual enrollment period. And then in the OEP, which of our members we can target or should target as potentially needing to adjust their plans. So it is now a part of animal life here. And we think with our scale and the breadth of choice we have, we can learn at a faster rate and improve on these metrics.

Okay thanks for that. And then I want to ask about the customer acquisition costs with all the advertisement costs, number of advertisers being down. Just at a high level curious on your thoughts around customer acquisition costs, getting easier in a recessionary environment as various other companies are cutting down on ad spending. Any thoughts on that? If you see that could be some benefit for you guys.

Yes. So Tim Hannan is our chief revenue officer who runs all of sales and all of marketing for us. Tim I will let you elaborate.

Sure. So I think on the disruption from COVID-19 and what it could mean to different channel I think it will differ by channel. So in some places, it may open up inventory opportunities for us to advertise in places that maybe we had been priced out of before or hadn't experimented with. But in other places, as Derek noted in his comments, it is disruptive to certain partners who now can market on our behalf. So, generally speaking, it does make more advertising inventory available to us, but it will vary channel-by-channel and we will be watching to see how to adjust our investments based on what we what we observe.

Okay. And my last question with respect to your online enrollment percentage of 24%. By any chance do you have break down on how much was the online enrollment percentage in the last two weeks of March? Was it higher than 24%? Just curious if where there was any different race you here in last two weeks of March?

Tim. Did you notice anything?

We do see a surge in the last - the very end of the quarter when our agents are more occupied. It is not as pronounced as what we see during the annual enrollment area, but it does exist.

Okay. Thanks a lot.

Thank you. Our next question comes from George Sutton of Craig Hallum. Your line is open.

Thank you. I was wondering if you could give us just generically more perspective on the types of things you are contemplating to further grow the business with this additional capital, and I'm referring to more agents or internally built technology, third-party technology, anything you are thinking of from an M&A perspective that is kind of the angle of the question.

Thanks George. So, we are not contemplating any M&A. I very pointedly commented in my script that, we have raised the $227 million, because of our organic growth opportunities that we see over the next two years, have fully budgeted for all the tech and content spending we need to get the 34% online enrollment this year and targeting quickly as possible getting - percent threshold. We also have brought in all the G&A that we need and you will see in the second half of the year, quite a bit more operating leverage on our revenue growth. What we had in the first half is just run right from the last half of 2019. So, the investment is going to go into additional agent capacity and it is going to go into additional customer acquisition with the objective of us maintaining our overall unit economics.

Perfect. This may be a question for Tim. Relative to Medicare Plan Finder, which was obviously a significant issue in Q4, got a lot of seniors into the wrong plans and was expected to provide some - a fair amount of turnover in Q1. I'm curious if you felt the benefit of that in terms of those consumers coming to you. And do you have any perspective on the medicare.gov outcomes in Q1?

Good question. So, what I would say there is, our feedback would be probably anecdotal, would be the best way to describe it. We did see increased shopping in Q1 as we described during the open enrollment period, and part of that undoubtedly has to come from seniors not being in the right plan. So, we think we benefited from that in some way, but hard for us to quantify exactly how much. And on Medicare Plan Finder generally, I mean, I think, we haven't seen any significant changes that would change our bullishness on our platform, the value that we provide in the market. And so, it has not disrupted our plans in anyway.

Okay. I appreciate the answer.

Thank you. Our next question comes from Frank Morgan of RBC Capital Markets. Your line is open.

Good afternoon. I guess first question, more of a shopping list question. Can you call out a number on how much this migration to work-from-home impacted cost in the quarter?

Derek?

Yes, I can take that. It is really not a material, Frank, because we as Scott comment earlier have seen an increase in productivity year-over-year in the work-from-home workforce and we continue to see it even as they move from the physical location call center into work-from-home. So the cost related to moving them home is really more on the technology side and moving cost and the logistics are there really any material.

Got you. okay and I guess when I think about, across all the channels, whether it is digital advertising or direct television or mail or email, have you seen over the past several years sort of any change in the mix of the different channels and have you noticed any difference in the retention variance amongst those groups and what are you seeing from that perspective?

Yes. Tim I will let you handle that.

Sure. Yes. So you know, our investments, I would say ebb and flow based on the performance that we are seeing and it is why we have the portfolio approach that we do. And so there are times that we will lean more aggressively into something like direct mail. We will see particularly creative stop being quite as effective. And at that point we will roll out a new direct response TV creative and that will take on more volume. So we are continuously experimenting in our channels. We never want to become too dependent on any one channel. And we do monitor the downstream quality of the enrollment and make adjustments, but there aren't very significant changes or variants channel-to-channel. In general we have been enhancing the quality of our enrollments across the board.

Got you. One more and I will hop. I just noticed, obviously you haven't included anything in your guidance for the capital, but I did notice your assumptions and guidance around cash flow from ops seems a little bit more negative. So just any color they are and I will hop off.

Frank. So that is actually completely tied to the additional investments we made in Q1 to drive more growth.

Got you. Okay. So sort of the operational investment if you will that flows the cash flow. Thank you.

Correct. That is right.

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

Thank you. I was wondering if you could give us some additional color, maybe some examples of revenue and profit opportunities that kind of revelation that you can work-from-home with home agent has revealed to you.

Yes and I will turn that to Tim. But before I do, I would just say, I commented that it was done within a week and done seamlessly. It was not without a stress and strain. Any of the eHealth executives that are listening, I wouldn't want to diminish, what a Herculean effort it was and in fact that we have getting productivity probably nothing at my tenure or eHealth impressed or pleased me more. But Tim, I will let you speak specifically some of the possibilities that work for home flexibility might afford us.

Sure. Thanks Scott. Yes, so I think the number one flexibility that it affords us is we have been constrained by the real estate in our call centers for our internal agent counts. And so we went through the significant effort of opening up a new headquarters in Indianapolis last year, recruiting into it, training up those agents and we saw outstanding performance from that effort. But we had to make sizable upfront investments in order to create that space. With a work-from-home capability we can recruit from a much broader geographical base than where we have been able to recruit from at this point. And a lot of our agents have been asking for work-from-home capabilities. So we think this gives us a way to retain high performing agents over the long haul by giving them the flexibility to not need to come into the office. So we are looking at how we will train, how we will license and appoint our agents on a remote basis. And as we explore that opportunity, we will have a better sense for just how far we can expand our internal agent base this year. But given that those agents are higher performing than our partner agents have been increasing their share of our agent mix will make all of our investments return better, because we will see higher conversion rates.

As a follow-up, does this change the competitive landscape that perhaps others discovered their models were not quite as flexible?

Yes, I don't have a lot of information competitively. I will tell you and we did comment on this deck, though we have made strides in improving productivity and conversion in our outsource agents, our turtle agents are still dramatically more productive. And so to the extent that we are not space limited, to the extent that we can use a hub and spoke strategy and expand more virtually without space increases, this enables us to increase our mix of captive agents versus outsourced agents. And that does enable us to scale more to scale with higher quality and with higher productivity. So it was an unexpected outcome of what was an otherwise quite unwelcomed crisis.

Last question for me, is your online experience informed in skew your view for what the long-term opportunities for online enrollment is?

Well, I will answer that from my perspective and ask Tim to weigh in as well. I know our view is that online is even more important and the mixed shifts to both online and telephonic is likely to accelerate because of fears of being in close proximity to strangers. We think seniors are going to be particularly sensitive coming into AEP here. Anything we would think our online enrollment experience and shopping experience is more important, not less. Jim, what would you say?

No, I would echo those comments entirely. I think we are not sure exactly all the ramifications of the Corona Virus and the effects it will have on shopping behavior and preferences of seniors, but The two models that I would want to have are telephonic and online. And so we think with the improvements we will make through the year, both to the agent workforce we just described, to the technology that our agents use in the call centers, but also to our online experience that we are well positioned in both environments to do to do well.

Thank you.

Thank you. Our next question comes from Dave Styblo of Jefferies. Your line is open.

Hi there. Thanks for the question. I wanted to appreciate the comment on the proceeds and what you could be using else for towards agent count marketing. I was wondering if you talk a little bit more about the agent count activity there. Do you guys foresee the spike in unemployment, you know 2020 million being unemployed and in the last five weeks as an opportunity to maybe hire folks earlier than you normally would. I'm not sure when you would typically make those hires. But is there an opportunity to perhaps grab some of those folks earlier than you would expect? And then while we are talking about agent count, the folks that are now working from home, one thing sort of normalized with Corona, do you expect some of those folks to go back into the office setting or are you finding that this model is just more efficient and you really just not going to need the real estate anymore and the new model really is to have the vast majority of the agents work-from-home?

Well, you must have been listening in on some of our internal calls of the late. So some of this is real time, Dave. But, I think two things. One, yes, I do think we will get a higher caliber of agent this summer than we did last summer because of unemployment. We are not reducing our base compensation. In fact, we are looking in some places of increasing it. We are not looking to decrease any of our agent compensation, and as you can imagine as more of our agents are using the assisted online efforts, they are able to process more calls, which results in more enrollment and more commissions for them. So, the second piece of this that you didn't ask, but it is a corollary sort of implied in your question. We are also expecting lower turnover. That is an unwelcome aspect of our model is to lose seasoned agents, because the seasoned agents with more than a year of tenure have a 30% higher conversion rate than agents in their first season. And so, we think we will be able to recruit more and higher caliber agents as determined by the rate at which they passed their licensing exams, and we believe and this is complete speculation, I wish to qualify this, but all instincts that we have are that our turnover will go down which will reduce our recruiting, training expense and give us more seasoned agents going into the fall. So, this is part of the reason that we were so definitive that, we are going to be increasing our guidance after Q2 and we just don't know by what exact amount yet, because we are still early in to all of these factors.

Okay. Got it. And then on the marketing spend, are you guys finding any new channels that you really haven't been able to pursue on that you commented a little bit about some costs coming down, but is it likely that, you got the slide while spending, you know what is working really well. Is it more about spending more money in those existing channels to generate more submitted apps or is there some element where, there are some new emerging opportunities that we have been able to pursue in the past just because of the capacity limitations and we are going to look at those?

Well, I would like Tim to be on the hook to you for that answer, so I will defer to him.

Thanks, Scott. So, I would say in terms of performance in Q1, for the first two months we are not affected by Corona Virus in a significant way. And we did lean into what was working there. I think what we have seen change in the last six weeks is other advertisers pull back and make inventory cheaper in some channels. So, particular examples for us would be Facebook, YouTube, even some TV placements. We are looking at making investments in these places to learn whether they would be viable for us on a go-forward basis and at what price. So, it is a combination of us leaning into what we know, but broadening our horizons to see what we can learn during this unique moment to expand our portfolio.

Got it. And then just the last one for Derek on the LTV is for Medicare advantage. I think in your guidance there, you mentioned it is still flat for the year despite 1Q I think was up 5%. And I know the commission rates for brokers are up I think mid-single digit. So I'm just wondering, is that more of a conservative posture on your end or is there something - some other element that comes in that would cause that to not increase by call it mid-single digit.

Yes. So you are right, that our Q1 LTV for MA were - increase year-over-year was largely driven by the rate increase that is pretty much right in line. And really what the reason of why we are forecasting flat LTVs is because of the increase of number of seniors we are seeing taking advantage of the open enrollment periods that we see causing that higher churn in the ADP cohort. We are expecting that certainly last year that to normalize and when that happens this will be then kind of the new seasonal trend that we will see from here on out in terms of when we think seniors return, which is when they can switch and when they won't after that which is there in the plan that they want. So that is what anticipating and that is what we are forecasting flat LTVs.

Thank you. Our next question comes from George Hill with Deutsche Bank. Your line is now open.

Hey good afternoon guys and thanks for taking the questions. And I guess Derek just a housekeeping question to start. Was there any meaningful impact on LTVs in Q1 from the new model that we started using in Q4.

Yes hey George. So not for Medicare Advantage because the enhanced model that we have rolled out for Medicare Advantage adjustments were part of that 42.3 million change in estimates that was recorded in Q4. We did rollout enhanced models for the rest of America products and also our IP major medical products. And those enhancements did not produce a significant increase or decrease in LTVs that had to be reported and adjusted. But in terms of the ongoing work to enhance our estimates for LTVs and to ensure that we are appropriately conservative we continue to do that in Q1 and we are successful.

Okay. And Scott kind of I don't know how real time you have the data, maybe a little bit of a speculative question for you, because I recognize that Q1 ended before the COVID crisis really hit across the country. But I guess are you guys able to talk about whether you saw anything meaningful? I would call it between the end of that third week of March and kind of up to the moment on online enrollment dates given the COVID crisis. I'm just thinking that this has to be something that is kind of meaningfully impacting the on the ground broker and that kind of rolls into the question of as you look at what is happening now, like which changes in the business in the way customers engaged kind of become permanent.

Yes, to the latter question, I would say I'm way too early to be speculating as to what will be permanent. I’m very optimistic that we are going to have a record enrollment year this year because of the factors we talked about with respect to field agents. We are hearing anecdotally that they are struggling to book appointments with seniors. It just stands to reason and we think that will continue. God forbid that there is a second wave in the fall which would shutdown - further isolate seniors. We think all of that plays in well for our model online and telephonic. We finished strongly with high productivity in those few weeks that we work-from-home at the end of March. And that momentum has continued here for the first three weeks of April. Tim, would you comment further?

Yes, I mentioned before, we did see a surge in online enrollment at the end of the quarter. But I wouldn't say it was more than we were expecting. So we typically see that at the - or we saw that last year and we expected to see it again this year. We will continue to work on broadening our outreach in online channels. And if some of those channels I mentioned before become affordable. And with the improvements we are making to our online experience, we may be able to accelerate some of that shift to online. But in terms of as Scott said in terms of consumer behavior and how it has changed in a sort of durable way where we are not sure yet, but we feel like we are prepared for a number of outcomes.

Okay. And Scott I don't know, just a quick follow-up. I know you guys aren't ready to talk about the numbers yet. But are you ready to talk at all about what changes might be considered for the upcoming AEP from a strategic perspective?

Yes, I think the most significant one is you know last year, we tripled our external agents and just barely not quite doubled our internal agents. And we were only able to do that, because we stood up Indianapolis, after our capital raise in 2019. And this year, I believe we will end up when the numbers all sorts themselves out George that we will end up adding more internal agents than we do external agents in an absolute number, which would mean percentage wise, quite significant increase in internal agents versus external agents.

Okay, that is helpful. Thank you.

Thank you. Our next question comes from Greg Peters of Raymond James. Your line is open.

Hello. A number of my questions have been asked. I was curious, are you just talking about outsource versus captive? Wondering if you see a different level of churn business has produced from your outsource agents versus the capitalists?

I don't know the answer to that. Tim, do you have any data?

We don't have any specific data on that we are always looking for ways that we can improve the quality of our mix. And so enrollment method, agent type, marketing channel, we are always looking at ways that we can make adjustments to improve that, but nothing significant enough that I would call it out here.

Okay. I thought I would just asked. So last year when we were tracking customer care and enrollment per approved members it inched up is probably it is too soft determine that went up pretty noticeably in the second and third quarter before dropping in the fourth quarter. Do you anticipate that that is going to be the same sort of flow that we see this year? And I think you said Derek maybe in the beginning of your comments, you said that you expect the customer care and enrollment costs and variable marketing costs could be down this year versus last year. Can you just refresh me on that, please?

Yes Greg, so I did. So in our guidance, and also in our original guidance, our revised guidance annul original guidance, we anticipate and have plans initiatives to have our total variable cost per group Medicare member to be down compared to last year. And between the marketing component and customer care enrollment component, we do see the customer care component to be the driver of that reduction, marketing was probably roughly flat, because we will look to invest more in marketing to capture more market share and enrollments. And if you may remember that last year, we lean heavily into staffing early in order to ensure that we had adequate agent capacity to handle the demand in AEP. The AEP, the year before last, so in 2018 and in 2017 we had inadequate agent capacity, which meant that we left money on the table and we did not want to do that last year. Now in the process of doing that, we have learned a lot and part of what we learn is, we were too safe on bringing people early and really incur more cost, especially on the vendor side, vendor agents or external side, that we would liked. And those are the adjustments that we are planning to make this year in addition to additional investments in technology that would allow us to be able to drive more agent productivity.

But you should still see the customer care enrollment costs per approved member peak in the third quarter though, based on what you have done historically, correct?

Yes, Yes. So, I apologize. I didn't catch that part. From a seasonal basis, absolutely. Because we can start bringing in new agents for training and for licensing and appointment prior to AEP. And when they do that, they spend many weeks to prepare and they are not productive, they are on the sale force. So, Yes, we would see from a seasonality perspective, that number to spike again, similar to prior years.

Thank you. Our next question comes from Mike Newshel of Evercore. Your line is open.

Thank you. Scott, if there some logical as you said there will be some behavioral change favoring internet and telesales due to COVID and limited avoid face-to-face. But are you going to have a like marketing message specifically highlighting that safety as an aspect?

Yes. I actually had a conversation with one of our competitors, asking whether we were bold enough to take that approach and my inclination is no.

It will be a natural behavioral change. I think to make sure people know about you.

Yes, I think we have enough tailwinds and word of mouth and this mix shift to telephonic and secondarily online is something that has been happening a pace in any case, we just think these conditions will accelerate it in this year naturally.

And can you talk just a little bit more how COVID is affecting the recruitment and training of agents? I mean, it sounds like you have a larger pool to draw from now that you have work at home and I would think due to the higher employment as well, but just how are like the logistics affected, can you get people trained completely remotely and get licensing exams or is there some disruption there?

Yes. Tim, I will let you answer.

Yes. I will take that one. So, I would say it is still a little bit early, because we haven't begun our full on ramp towards the fourth quarter. I would say, the early indications are that, we feel like it will allow us to recruit high caliber agents into our workforce. We have been able to move our training regimen to remote. So, we have agents right now on a remote training regimen to get up to speed and be some of the first ones deployed this year. The licensing and appointments will vary by state and we are evaluating that, but we feel confident that we will have solutions that we need or alternatives in terms of recruiting already licensed agents. So, we are still evaluating all the ins and outs, but overall to be able to attract more internal, high caliber quality agents we think is going to be a net positive for us.

You guys just mentioned like on the last question, we are just going to do like do you think there is more like - is that the easier recruit you know traditionally on [indiscernible] because they will be worried about, you know but will be - whether they can do face-to-face sales?

Yes, we definitely think that that is a potential outcome. So we are, we will be watching as we recruit to see if that is what we see.

Okay, thank you very much.

Thank you. Our next question comes from Jonathan Young of Barclays. Your line is now open.

Thanks for squeezing me in here. Just kind of going back to the churn that you are experiencing with AEP, as you kind of think about a AEP coming up later this year, is there anything that you are - any steps you are taking where you could try to help improve the retention rates so that a member kind of goes into the right plan without churning in 1Q just kind of any thoughts there?

Yes, so that is absolutely another example you must be listening end of some of our internal discussions, we have been making an increasing investment in agent tools and we have deployed some of those, but we remain in the early days of deploying technology to actually making our agents not just more efficient where we have concentrated in the past, but also give them better recommendation, support tools and decision support tools to get the seniors into the right plan. Tim, I will let you elaborate.

Yes, I think that is right. As I said earlier, we will go through the data of what we observed in terms of plan change from AEP to OEP from this year and less over the last year. But we now have two years of experience to understand how could we improve our recommendation, how do we get more people into the right plan the first time around because it is a complex decision making process. It is their doctors, their drugs, the plan that have changed or new plans introduced into their area. So, this is not a simple recommendation and as we get better and better with our breadth of choice, we know that that we can win more often than we have been going forward. And I think beyond that, we will also know who in our book, who didn't change during the AEP might be a wiser look at choices then we will move them to a better suited policy and the OEP. So we think we can do better on both of those fronts and we will use the data just acquired from the OEP to help us do so.

Thank you. Our last question comes from Lisa Springer of Singular Research. Your line is now open.

Thank you. My question is the main of the higher technology cost for the quarter, was that setting up people to work-from-home and are those costs pretty much all taken care of now, are we going to see more cost for that in the second quarter?

Go ahead Derek.

The increase was not related was not driven by the move to work-from-home for the technology area. We did incur additional technology costs, but they were not material relative to that. It is really the run rate in our investments in 2019 coming into this year, and we do expect it to normalize in the back half of the year. In our revised guidance, our corporate share services expenses remains unchanged and we still expect to get fixed cost leverage and margin expansion as imply of our revised guidance.

Okay. Thank you.

Thank you. I’m showing no further questions. I would like to turn the call back over to management for any closing remarks.

Thank you everyone for all the attention you paid t eHealth. And we appreciate the very insightful questions today and we are excited about the second quarter and look forward to updating you at the Q2 earnings call in late July. Thank you everyone.

Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.