eHealth, Inc. (EHTH) Q3 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Q3 2020 eHealth, Incorporated 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 call is being recorded. I would now like to hand the conference over to your speaker today, Ms. Kate Sidorovich, your Vice President of Investor Relations. Thank you. Please go ahead ma’am.

Thank you. Good afternoon and thank you all for joining us today either by phone or by webcast for a discussion about eHealth, Inc's third quarter 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 Web site and a replay of the call will be available on our Web site 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, our expectations regarding our online enrollments, and our retention and recapture rates. Our investment in telesales capacity, internal agent counts, agent productivity tools and incentives, customer engagement and retention initiative and enhancements to our technology platform, as well as the expected positive financial and operational impact of our investments. Our expectation regarding the Medicare market opportunity, our direct to consumer broker channel, our online marketing and strategic partnership channels, the profitability of our business, seasonality, churn, lifetime values, claim persistency, member estimates, total acquisition cost per member and operating expenses. And finally, our outlook for no enrollment period in our 2020 financial guidance. 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 statement, 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 Web site or from the IR section of our Web site. 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 most directly comparable GAAP financial measures, 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 Web site under the heading Investor Relations. And at this point, I will turn the call over to Scott Flanders.

Thank you, Kate, and welcome everyone. This has been a busy and successful quarter preparing for the most important Medicare selling season of the year and deploying our retention enhancement initiatives across the entire organization. We achieved substantial progress in both areas, which are closely interrelated given that our focus this annual enrollment period is on driving growth by targeting high LTV, high margin enrollments. Our customer engagement and retention initiatives are expected to have long lasting positive financial impact. But most importantly, they are aimed at further enhancing customer experience as they shop for enroll and start utilizing their Medicare plans. I will update you on the key initiatives and achievements that were made during the quarter in just a moment. But first, let me provide a summary of our third quarter financial results. Total revenue for the third quarter was $94.3 million a 35% year-over-year increase. Our adjusted EBITDA was negative 13.3 million and our GAAP net loss was 14.5 million. These results were in line with our expectations for the quarter and reflect an investment made in our Medicare telesales capacity, with an emphasis on expanding our in-house agent force, as well as marketing investments ahead of the AEP. The number of third quarter Medicare approved members grew 17% compared to a year ago. This includes 28% year-over-year growth and approved Medicare Advantage members. MA enrollment growth was dominated by our online marketing and strategic partner channels, which grew well above the overall enrollment growth for the quarter, reflecting our emphasis on these high ROI channels, but higher propensity to bring in consumers who are comfortable transacting online. Our third quarter Medicare major medical online enrollments including fully unassisted and partially assisted online enrollments grew 107% on a year-over-year basis in the third quarter, 36% of our applications for these products were submitted by our customers online. This was above our expectations and a meaningful increase compared to 21% in Q3 a year ago. Building on the momentum achieved in the third quarter and following a technology release conducted ahead of the AEP, which I'll cover in more detail in a moment, we currently expect 45% to 50% of our fourth quarter Medicare major medical applications to be submitted online. This is compared to 36% in Q4 of 2019. Our fulfillment mix has significant implications for the average policy persistency given that online enrollments tend to retain the product longer, but first year retention rates higher by approximately 25% to 30% that members who enroll telephonically. In addition to fulfilling more demand online, we've made significant changes to our telesales organization. We have broadened its mandate to focus on not only enrollment, but extending it to proactive post enrollment engagement, has customers start utilizing their Medicare policies. This strategy is deployed broadly through our training program, agent compensation structure, lead ranking and allocation and our product and technology initiatives. As we announced last month, we have successfully completed staffing of our telesales organization ahead of the AEP and achieved a meaningful shift towards in-house sales capacity. This AEP we will have 120% more internal agents compared to a year ago. In-house eHealth agents now represent roughly 45% of our total sales force compared to just 30% last AEP. Our internal agents have on average superior productivity rates and generate enrollments with higher average persistency compared to outsourced call center agents. As a result, we expect that this shift have positive implications for our overall conversions and per member acquisition costs compared to a year ago, as well as for how well we retain members post enrollment. The compensation structure of our in-house agents was also adjusted to link a significant portion of it to persistency of their enrollments. This aligns compensation strategy with our goals and gives agents who are producing positive retention outcomes and opportunity to increase their overall compensation. Reporting our sales agents AEP will be team of over 200 Customer Care employees. This team will include enrollment specialists and a dedicated retention team comprised of agents who will handle inbound inquiries from our existing members and outbound agents who will target policies ranked at higher risk for churn based on our data analytics, as well as any plan structure changes we identify in the market. We deployed our first cohort of dedicated retention agents last month and have since observed encouraging early results of their efforts, we expanded this team above our initial expectations ahead of the AEP. Last month, we conducted a major technology release across the key areas of our customer engagement platform, further widening the competitive move between eHealth and the more traditional in person and telephonic-only brokers. This latest technology release takes customer experience to the next level, through personalized data driven plan recommendations and a unified experience that allow seniors to move seamlessly between our online platform and agent interaction whether telephonically or through texts and emails. Underlying this 360 consumer experience is a customer centered technology which we released last month and is unmatched in our industry. Using our customer center tool, consumers can create a secure personal profile containing their physician, preferred pharmacy, drug and other key medical and personal data that is accessible both through our online platform and by agents when they are interacting with the customer. This tool which has already been adopted by thousands of our customers since last month’s launch not only provides for a better enrollment process, but also facilitates future interaction and post transaction engagement including plan analysis should customer needs or plan structure change. We believe this capability will have a significant positive impact on our online enrollment volumes, customer retention, and importantly, remember recapture rates. Within our telephony systems, we change the process per lead ranking and allocation to align it closer with our strategic and financial goals, including increased emphasis on retention. In the past leads were ranked based on their estimated conversion rates, but highest converting leads allocated to our best agents. For this AEP, we are taking a more holistic view of demand generation assigning lead scores based on estimated LTVs, in addition to conversion rates. On the demand side of the equation, our market opportunity is continuing to expand with CMS projecting another year of strong 10% Medicare Advantage enrollment growth. This AEP, seniors have an even broader selection of high-quality affordable plans, with many major carriers expanding their geographic coverage. This will also be an AEP different from any other prior year given COVID and its impact on consumer behavior. Many seniors are likely to feel more comfortable with telephonic or an online interaction instead of a face-to-face broker visit. And this can prove to be another meaningful tailwind for the direct to consumer broker channel. Finally, the shift to online is here and it's real. We are seeing it in our enrollment numbers and an overall patterns of consumer behavior on our platform. This dynamic is expected to have a strong positive impact on our competitive positioning, consumer value proposition and our member economics. And we feel confident in our ability to leverage these powerful industry trends by driving demand on our platform at attractive acquisition costs. Our approach to marketing is opportunistic. We are proactively shifting investments across channels to maximize return on our marketing dollars and meet our internal targets for LTV to total acquisition cost per member ratio. We believe that momentum and our online marketing and strategic partnership channels seen in Q3 will continue into AEP and we'll resolve and these channels growing above our total fourth quarter Medicare enrollment growth. As I mentioned earlier, these channels are more likely to bring in consumers who are comfortable transacting online compared to more traditional marketing initiatives such as DirectTv and mail. In addition, members originating in our strategic partnered channel tend to have higher than average retention rates, regardless of whether they were enrolled telephonically or online. Our partners are increasingly recognizing our value proposition. They appreciate that we offer access to the largest plant selection among the DTC brokers and the ability to provide a seamless experience for their customers by safely and securely pre-populating the customers, doctors, preferred pharmacy and drug data through a proprietary personal code technology for either an end-to-end online or telephonic and robust on the eHealth platform. More partners are digitally integrating with us for this AEP, which is expected to be another meaningful driver of online enrollments. For Q4, we expect the partner channel will grow in excess of 80% driven by new relationships, as well as expanding relationships with existing partners, including large national retailers such as Walgreens and Costco. In addition to partnering with major national chains, we are going deeper into the pharmacy and provider channel. We have now extended our platform to serve thousands of independent and community pharmacies and providers nationwide. Before I turn the call over to Derek, I'd like to address churn dynamics on our platform. Churn levels for Medicare Advantage plans have stabilized in the third quarter, but the trailing 12 months churn flat sequentially at 42%. Importantly, the absolute levels of churn have declined significantly compared to first and second quarters and the third quarter an estimated 30,000 Medicare Advantage members churn compared to 87,000 and 54,000 in Q1 and Q2 respectively. You should expect to see the initial impact of the comprehensive retention program that we put in place reflected in this metric in the first quarter of 2021. As these initiatives mature and impact an increasing number of customers on the eHealth platform, we expect to see a continuing improvement in our member retention and recapture rates. In conclusion, I'm pleased with our accomplishments this quarter, we enter the Annual Enrollment Period from a position of strength and are expecting to generate significant Medicare enrollment, or reducing our per member acquisition costs a powerful combination. We are also focused on enrollment quality and expect that members that we enrolled this AEP will on average, stay on their policies longer and generate higher lifetime commissions compared to the AEP a year ago, as a direct result of the retention and customer engagement initiatives that we put in place. As always, our customers are at the center of everything we do at eHealth. And we are acutely focused on enhancing and simplifying their experience by meeting them where they want to be, whether online, through interaction with our licensed agent, or customer care specialist, or through a hybrid agent assisted online enrollment. I believe the work we've done so far this year has positioned us uniquely well in this large and growing market to capitalize on the opportunity at hand. I will now turn the car over to Derek Yung, who will go over our financial results in greater detail.

Thanks, Scott, and good afternoon, everyone. Our third quarter results reflect strong momentum in our Medicare online enrollments, significant growth in carrier advertising revenue and investment in our telesales capacity and technology initiatives ahead of the Medicare Annual Enrollment Period. In our Medicare business, third quarter revenue of 70.4 million grew 23% compared to a year ago, driven by a 17% growth in approved Medicare members and a 103% growth in carrier advertising revenue, reflecting carrier recognition of eHealth value proposition and significant enrollment growth potential in online marketing and telesales channels, this Annual Enrollment Period. Our Medicare segment loss was 16 million reflecting investments as we prepare for what is expected to be another record fourth quarter selling season in terms of revenue, enrollment volume and profitability. Year-to-date, our Medicare segment profit was 19.4 million, compared to 5.9 million for the same period last year, an increase of over 200%. Our estimated number of paying Medicare members was approximately 734,000 at the end of the third quarter up from approximately 551,000 at the end of the third quarter of 2019 for an increase of 33% well above the growth rates of Medicare Advantage market and the overall Medicare markets. Third quarter 2020 revenue from an individual family and small business segment was 23.9 million an 88% increase compared to a year ago. This was primarily driven by 37% increase in approved IP members for major medical plan products accompanied by a continued trend of longer duration for these products and an 18 million in residual or tail revenue that we book in the segments during the quarter. This compares to 7.7 million in segment tail revenue in Q3 [Technical Difficulty]. The individual family and small business segment profit was 18.3 million compared to a profit of 3.8 million in the third quarter of 2019 driven largely by a positive impact of tail revenue generated by our IFP and ancillary products during the quarter. Our estimated individual and family plan membership at the end of the third quarter was approximately 112,800 down 14% compared to estimate membership reported at the end of the third quarter a year ago. Our total revenue for the third quarter was 94.3 million, an increase of 35% compared to the third quarter of 2019. Our total estimated membership at the end of the quarter for all products combined was approximately 1.14 million members including approximately 245,000 estimated members on ancillary products. Now before I move on to discuss operating expenses, I want to provide more detail on the dynamics that we're seeing with member retention and estimated lifetime values for LTVs in our Medicare business. Please note that we report churn as any plan switching by paying member, even if the changes made on our platform and eHealth remains the broker of record. This also includes plan changes within the same carrier. As a reminder, given that we observed churn on a lag, our core and membership figures measured the estimated number of effective policies paid by members, based primarily on cash collections and historical retention data. As Scott mentioned in his prepared remarks, our estimated third quarter paying member churn in our Medicare Advantage business declined substantially compared to the first and second quarters. This was primarily driven by seasonal factors and was within our expected range. The trailing 12-month churn of 42% continues to be dominated by the churn from Q1 2020, which will no longer be a factor into the trailing 12 months average as of Q1 next year. In our Medicare Advantage business similar to carriers and other brokers, we experienced highest churn in the first year following policy enrollment. In the second year, average churn rates have dropped and have continued to decline as policies mature. Within the first year, churn has been quite frontend loaded. Over 70% of our first year churn in Medicare Advantage plans has occurred in the first 90 days of policy life. Our largest enrollment volume quarter is Q4 with members that we enrolled during that period and during the first 90 days of policy life in Q1 of the following year. As a result, the first quarter is the most meaningful period in terms of persistency data. We believe that this AEP, our new enrollments will benefit greatly from the comprehensive retention program that Scott described earlier in the call. And we expect that the initial impact of that to be evident in our Q1 2021 estimated retention metrics. In terms of estimated lifetime values for 2020, we continue to guide to a roughly 60% decline in Medicare Advantage LTVs for the full year and a 10% decline for the fourth quarter compared to the same period a year ago. For next year, we currently maintain conservative target of getting back to 2019 Medicare Advantage LTV levels. Our Medicare commission cash collections for the trailing 12 months period ended September 30 were 240 million, or approximately $420 per Medicare Advantage equivalent member. This represents a 47% increase in the total Medicare commission cash collections and a 12% increase in per Medicare Advantage equivalent member collections compared to the trailing 12 -month period ended Q3 2019. As part of our earnings slides posted on our Investor Relations site, we have provided some further information on our cash collection cycle in the Medicare business. This analysis compares the upfront acquisition costs spent to acquire each of our annual Medicare Advantage cohorts against cash cohorts generated by these members to-date. You will see that our 2018 Medicare Advantage cohorts are already generating positive cash flow in excess of our initial acquisition costs, while the 2019 cohorts are nearing breakeven on that basis. In general, our commission cash collections in Medicare continue to be favorable when compared to initial estimates used for LTV at the time we recognize revenue. Now I would like to review our operating expenses and profitability metrics. Q3 has always been a big investment quarter for Medicare as we expand our telesales capacity and deploy technology upgrades in preparation for the Annual Enrollment Period. This AEP we made a shift in our agent mix toward more full-time in-house agents. Following a successful hiring season, we increase the number of internal agents 120% compared to last year's AEP, at the same time, our total agent number including outsourced call center agents increased approximately 40% which is well below the expected growth in the fourth quarter Medicare enrollments. This is due to a higher expected percentage of Medicare major medical online enrollments, which include unassisted and partially agent assisted enrollments compared to 2019, as well as better agent productivity as a result of an enhanced league ranking and allocation system, a new call center technology deploy ahead of the AEP including an important tool that increases the speed and accuracy of capturing drug and provided data. Our third quarter cost per approved Medicare member declined 2% compared to a year ago, driven by a 7% decline in customer care enrollment costs offset by 11% increase in marketing cost per member. Agent costs per approval were favorable compared to last year due to higher percentage of online enrollments. Some of this was due to timing of our agent onboarding expense, which we incurred later in the year compared to 2019. The increase in our marketing cost per approved Medicare member was driven primarily by our larger portion of applications originating from our online marketing channels, which tend to have a higher average marketing cost, but also higher propensity to convert online with no or reduced agent involvement. Given a favorable trend and acquisition cost per Medicare member in Q3, and the fact that we anticipate we will be able to drive more enrollments per agent this AEP compared to a year ago, we expect there are fiscal year 2020 acquisition costs per member, including agents and marketing costs will decline approximately 10%. The decline would more than offset the forecasted reduction in our 2020 Medicare Advantage LTVs and will allow us to achieve a higher LTV to a total acquisition cost per member ratio, as well as an increase in our overall EBITDA margin in our Medicare business compared to 2019. Turning to profitability metrics, GAAP net loss for the third quarter of 2020 was 14.5 million compared to GAAP net loss of 11 million for the third quarter of 2019. Adjusted EBITDA for the third quarter of 2020 was negative 13.3 million compared to negative 18.8 million for the third quarter of 2019. Calculate adjusted EBITDA by adding stock-based compensation expense, change in fair value of earnout liability, depreciation, amortization, amortization of intangible assets, other income and benefit from income taxes to our GAAP net loss. Our third quarter cash flow from operations was 1.4 million, compared to a negative 15.9 million for the third quarter of 2019. Cash flow from operations benefited from significant in quarter carry advertising revenue. As of September 30, we had 197.8 million in cash, cash equivalents and marketable securities and we had no debt outstanding under our line of credit. Our balance sheet also reflects a significant Commission's receivable balance of 604 million. Based on information available as of October 22, eHealth is reaffirming its guidance for the full year ending December 31, 2020. Our guidance ranges are included in our third quarter earnings release for your reference. I want to remind you that these comments and our guidance are based on current indications for our business on 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?

Ladies and gentlemen, we will now open it up for a question-and-answer session. [Operator Instructions] Your first question comes from the line of Jailendra Singh from Credit Suisse. Your line is now open.

Quick clarification on your comments around member turnover point. So I know it's declining from 54,000 in the second quarter to 30,000 in the third quarter but then the second quarter include like some 20,000 member turnover catch up from first quarter. So on an apples to apples basis, not that big declines. Can you flush out a little bit more or did we understand that wrong?

Hey, Jailendra, this is Derek. So if you remember correctly, that in Q3, we did have a catch up on what was reported coming out of Q2 where there should have been a shift in the turnover members that it was reporting Q3 into Q2, so you're correct in remembering that. From a seasonal basis, that is still a significant decline, we look at absolute numbers even on the adjusted basis, going from Q2 to Q3, due to obviously what we typically see as the seasonal enrollment with AEP.

Okay. I just want to also understand your trends in MA approved members in third quarter, I understand second quarter has some SEP benefits, but still a sequential decline from around 60,000 approved members in second quarter to 45,000 in third quarter. Can you provide a little bit more color there? Would you say approved members in MA in third quarter kind of flat to expectation, what do you say there was some variance as to any color there?

Yes. Our enrollment volumes through Q3 was in line with our expectations, as well as the overall top line expectations. So, as you know, Q3 is seasonally a low quarter for our business. And from an investment perspective, our goal is to prepare for the Annual Enrollment period, both for sales, marketing and also for technology investments. As you heard in the call, we feel very good about all those plans and everything that we've seen relative to how we have been executing. So we expect to deliver on our plan for the full year as we have provided in our guidance in Q2.

Can you provide any given the trends in Q3, can you share any like what's kind of year-over-year growth are you expecting, are you reflecting your guidance for Medicare Advantage approved member for fourth quarter?

Yes. It was implied in our guidance based on year-to-date results, our Medicare revenue in Q4 growth were close to 50%, I think it's around 47%. The enrollment growth will be higher than that because our Medicare Advantage LTV is expected to be declining year-over-year by 10%. So if you kind of backing that number to enrollment growth in Q, it will be close to 60% year-over-year for Medicare Advantage.

Okay. And then last one, I was wondering if you guys can comment on the recent developments in the competitive landscape with Walmart trying to enter the market. Just AEP, just curious on your thoughts there. And I'm assuming you guys use Walmart as one of your channel partners. And this has any implication on that relationship?

Well, we don't know what Walmart's long-term strategy is, but they've been a partner of ours in years past and continue to be this year. We're expecting enhanced spillover calls from Walmart this year over last year of a fairly significant amount. And by so we see them as a partner, not a competitor.

Your next question comes from the line of George Sutton from Craig-Hallum. Your line is now open.

Thank you. I wonder if you could go into a little more detail on what you referred to as encouraging results from the first month of your retention initiatives. Given that, obviously, the trailing 12-month indicator is not really representative of any of that impact.

Is Tim on the line?

Yes. I can take that one. So we obviously in the last call, we talked about the full review we were doing and initiatives that we were putting in place. And one of the largest, most impactful was our retention team. And that team started up in early September with the first wave of agents that we took from our sales floor -- existing sales floor as well as new recruits. And right out of the gate, we can see very encouraging signs on the impact they were having on our consumers. Most notably, when consumers were calling to cancel 90% of the time, we were able to keep them eHealth customers and overwhelming majority in their current plan. So there was a gap in our -- in how we were serving our customers that was very apparent very quickly. So that is one of the main reasons why we expanded our retention team in the run up to AEP to add in agents to do outbound calling to our high-risk customers, and to be able to handle a larger inflow with licensed agents for our existing customers.

Okay. Just I heard correctly, you would call 90% of the folks that you were talking to that were going to churn you were able to keep in, did I hear that correctly?

Yes, sorry. These are inbound calls. So customers would call with a concern of some kind, and previously would be routed to a sales agent who was attempting to sell them something new, when that probably wasn't appropriate. And so when somebody would call in and express that they wanted to cancel or make a change 90% of those calls resulted in them remaining an eHealth customer. And prior to the establishment of this team, that we would not have had any ability to save them the way we do now.

You are getting 10%. I believe that the math was before. So that's an encouraging change. One more question, so you mentioned that you're going to have less focus on “High conversion customer volume and more focus on higher LTV opportunities” meaning looks like folks that would churn at a slower pace. Can you just give us a picture of what those different kinds of customers look like and how predictable that is?

I'll take that one, again, Scott. So there are -- we have been able to leverage our data and analytics, to better understand what drives persistency. And at a high level, we talk about channel being a big driver of that. But the main reason for that is the kind of customers that we attract through different channels. And we have been able to change the targeting within all of our channels, some are just more likely to produce the right kinds of customers than others. And I won't go into all the details about what makes somebody a good customer, because it's competitively sensitive. But we used to look for high conversion rates exclusively. And we can now see there were unprofitable pockets of customers, customer types that we should avoid and certainly not prioritize the way we had been previously. So conversion is still important as a significant driver of LTV, but the long-term expected value of the customer is now what we rank calls on and evaluate our agents on their ability to drive.

Perfect. Thank you, guys.

George, just one more thing to add to that, the other two leading indicators in terms of what we expect of improvement in persistency’s and LTVs are based on fulfillment mix that we commented on, in terms of mix up online, which is 25% to 30%, more favorable historically on LTVs. And also the use of internal agents versus vendor agents. So all that combined, in addition to what Tim is doing has been positive relative to what we expect in terms of increased persistency.

Your next question comes from the line of Greg Peters from Raymond James. Your line is now open.

I have one question and one follow-up. The first question and I know it's hard to adjust your scripts on the fly, but the stock is down in the aftermarket guys. And first flush, I think if we look at some of the metrics around on your declining estimated customer care enrollment per approved member, we look at the declines in IFP, and we look at the guidance that's effectively flat, relative to the second quarter, it might suggest that there's a slowing growth rate of the organization. Perhaps you could give us an update on how you see that looking forward, because as I said, the stock is down in the aftermarket.

Yes. Let me kind of comment on your last comment there, which is slowdown in growth. So, the top-line came in within our expectations, both in terms of revenue and volume, and our preparations for what is really the heavy selling season, which is right now in AEP is good. That's what you heard. So our guidance has a revenue spread range of 40 million and EBITDA spread of 15 million. And we do expect that our results for the full year will fall in that range, which if you back into it is Q4 growth rate, total revenue basis of almost 40% on the Medicare side, almost 50%, which we think is good growth. And at the same time. We are as you have heard here, making good progress in final implementation or retention initiatives, which won't show up on our reported metrics because we do need observations on how persistent EC has improved in order for LTVs to increase again. And as a reminder, we had forecasted LTVs for 2021 to get back to 2019 levels. And given everything you heard on this call around what we see as -- anticipate impact of initiatives we feel very, very good about that being a likely conservative estimate in terms of what LTVs could be next year.

Got it. I just like to ask the follow up question that's just about commission receivable, both current and long-term because rates of growth of that slowed in the third quarter on a sequential basis. And really, I think most of your investors view that as the pipeline for future earnings. And given that you're making the adjustments to the churn levels, do you expect the growth of those commission receivables to accelerate next year based on their current projections or if of course, churn improves? Or do you anticipate that the growth rates of those receivable numbers will stagnate or again, the growth rate deteriorate a little bit?

Yes, Greg, so you're digging deep into our 606 account, which is great, because we need more people like you who do that. Receivable growth is a bit tricky to look at, which I think is what you're pointing out because the receivable is large. So even when we are grown, all right revenue significantly as a percentage of the receivable is smaller. So with that said, there are two drivers by which the word receivable will grow faster. One is obviously if your revenue growth is growing, it continues to grow at a healthy clip. Second one is obviously if our persistency improves. So given that we expect our persistency improve, I would as a ratio of revenue growth to commission revenue receivable growth, I would expect the commission revenue growth to be increasing as we see it persistency improves.

Your next question comes from the line of George Hill from Deutsche Bank. Your line is now open.

I guess Derek, just a first housekeeping question before we go into my follow up. Did you guys actually disclose what the retention figure was for third quarter and I recognize it's a seasonally slower and softer quarter. But I think the numbers important given the discussion from the Q2 call?

Yes. So in our earnings slides we updated Medicare Advantage membership churn turnover chart, and that 12 month metric is 42%.

Great. Yes, not the turnover but the retention figure?

Oh, the retention figures. I'm sorry, I misunderstood. We did not talk about that. And the way we act, the way we look at that but the period by which that's most meaningful is after q1, when we look at the retention, they came out of what we saw in the Annual Enrollment Period. So it's too early obviously to comment on that right now since we just started AEP.

Okay. And then maybe a quick follow up, I guess for you or for Scott is, I guess given Walmart's will call their entrance into the market and you guys have your relationships with some of the pharmacy organizations and a lot of large MCs are talking about both a slowdown in churn and an increase in their reliance on third-party brokers going into this AEPs. And so I guess, could you guys talk about kind of what you've done to either strengthen your partner channels either on the retailer side? And is there anything that you've done different on a year-over-year basis with your partnerships on the carrier side?

Well, we've signed up thousands of pharmacies, and our partner channel is one of the bright spots in Q3. And we're expecting it to significantly outgrow our overall growth rate in Q4 for just the reasons that you've identified. And importantly, the enrollments from those channels have a propensity to grow online at a higher rate. And whether they enroll online or telephonically, they have higher persistency than the traditional DTC channels of direct mail and direct response TV.

Your next question comes from the line of Elizabeth Anderson from Evercore. Your line is now open.

I was wondering if you might be able to comment on more broadly on your partnership strategy. And I think you made some specific comments about Walmart but it's really that is a sort of underappreciated part of your story. So just to know in terms of where you're seeing it with specific partnerships in terms of like the specific areas of the applications or how you think about those regarding your LTVs?

Yes. So I think just think about the partner channel into two broad buckets. One is the provider channel. So these will be hospital systems that are partnering with eHealth to be their official and sole Medicare Advantage enrollment partner. And that has been a rapidly growing area for us, we expected to double this year and aggregate. And then the other would be the pharmacy channel, where we assess the pharmacy customers to enroll in Part D plans or MAPD plans, where the pharmacy client of ours is a preferred pharmacy. And that has been a rapidly growing business as well. And I do agree Elizabeth, it is an underappreciated part of our story. It's outgrowing all other aspects of our business in terms of lead source and having higher persistency and stronger online enrollment.

Okay. Is there any reason you would point to this stronger like persistency and an online enrollment from that group? Or is it hard to characterize it in one bucket?

Well, I'd say the most important reason is, when we take a call from a provider, for example, we very often answer the call as the enrollment for, if it's Cedars-Sinai, or another hospital system. And so we know that they -- the client that's calling us is a patient of that hospital system. And so we already are getting them into the plan that will cover all of their physicians, all of their specialists. And so the most important factor in churn is getting a senior into the plan that covers all of their doctors and all of their drugs. And while that's easy to say in one sentence, it's complicated to execute in part because the beneficiary does not always recall, all the physicians that they see in the course of a year, they don't always recall every drug that they're on. So when we have information as we do in some cases with the pharmacies, where we know we get an electronic link where we know all of the drugs that are prescribed for that senior, we are able to get that senior into an optimal plan. So their propensity to churn is much less than say a direct response TV call, where someone's calling from their sofa, they don't have their drugs in front of them, they're being spontaneously responding to an offer. And they may or may not give us complete information, even though we try, we exert maximal effort to extract all of that information. This is why very often it's inaccurate or incomplete. And this is why the retention team that Tim mentioned is so critical. Because what happens when a senior shows up to use their plan early in the new year, they'll often have a drug that's not included in the Part D plan or specialist that they forgot to mention that they see once a year. And then they can call us. And we can either identify that the specialist is in the plan, or move them to a plan that does cover all of their specialists. So, as I said, it's more complicated getting seniors into the right plan than it seems, because very often they don't deliver complete information to us. And these partnerships, give us access to a far more complete patient history. So that's why it works so well.

That makes sense. And then just on an unrelated note, the IFP guidance. I mean, I totally appreciate you're not wanting to update guidance, one weekend to AEP, but on the IFP part, I mean, you guys have already done close to 43 million in revenue for the year. And this is the high end of your guidance, there's like 51 million. So if there's something we should think about in terms of the step down because usually we've seen like a seasonal step up and you obviously saw a great deal of outperformance in the third quarter there. So I just want to make sure we're taking into account what you guys are thinking in terms of the fourth quarter there.

Yeah, that's a very good catch though. So you're right, the IFP business has performed well, we seen in particular on the policy durations continue to extend and hence the increase in total revenue being recognized because we are having people staying on longer. I think we've seen nine quarters in a row now where LTVs for major medical IFP policies increase. So you're correct. So in terms of kind of how that measures the guidance, I think you're right, you should expect that we would do closer to the top if not being a cut above the IFP, SMB segment guidance for the full year given the performance year-to-date through Q3.

Your next question comes from the line of Dave Styblo from Jefferies. Your line is now open.

First question is just coming back to the Medicare Advantage business. I know the management team characterized the quarter as is in line with your expectations. I guess, the hard part I'm trying to wrap my arms around is the deceleration of the approved application growth down to 28%, which is less than half of the 60 to 65% growth we saw in the first half of the year. I guess that precipitous decline, I just still don't understand the disconnect when you've hired so many more reps this year. Is there any other explanation in there, perhaps it's just a retooling of the agency slow down growth and leads just to retrain the agents and get them back on track to improve duration as some of the issues you've put forth? And then how do we get competence that that is going to accelerate back up on the fourth quarter again?

Dave, so a few things. So it's not related to anything operational execution, I think what you heard on this call was confidence that our plans for AEP as positioned as well to achieve our plans. From a more macro perspective, there has been a change beyond the seasonal pattern that we typically see with Q1 having the open enrollment period and then Q2 for that special enrollment period. So we did have something different this year in terms of sequential change for enrollment growth. And then the last thing I would say, which will reiterate is really, given the choice of investing for growth in Q3 versus Q4, we would push to Q4, given the much better economics of how we deploy the capital. And we feel very good about how we have kind of allocated our sales and marketing investments towards Q4 growth versus enrollment growth in Q3.

Okay. And is that different than last year, because of the third quarter of last year, the approved application growth accelerated. And last year we had the AEP and the OEP. So in my understanding was the special loan period this year wasn't that big of a factor based on maybe some conversations you've had before? So I'm just struggling a little bit to understand that step down.

Yes. Let me explain that. So, last year in Q3, we did have very, very good growth in terms of Medicare Advantage, approved member enrollments, right? That was a benefit of a very easy comp from the year before. So the year before in Q3 2018, we had zero percent growth for Medicare advantage year-over-year. So we had a very, very light comp in Q3 2019.

Okay, got it. And then the second follow up really is, in the past, the management team has opportunities to play spent more, especially during the AEP to grow faster and deliver the upside to the guidance metrics. How do you guys think about it for this year? Do you have the same desire just AEP 18 to invest more, if you see opportunities to grow the business? Or are you a little bit more reserved, just to make sure that, again, all these new initiatives you've put in place, you're you kind of want to just stay within a little bit more the guardrail to make sure you're getting things down and the platform is right before maybe next year is a year where growth is once again back up. So just curious how you think about that from an execution standpoint and investing standpoint.

That's astute observation, David, that is exactly how we're thinking about it. The upside for us, is the quality of our enrollments, rather than the volume of our enrollments this year. We're going to over index on ensuring that we restore the LTVs and have a meaningful down tick and the churn percentage. And we're still going to have strong enrollment growth over 50% enrollment growth, though, based on any business I've ever been associated with. Those are be seen as strong growth prospects. But compared to how we grew last year, where we optimized solely on conversion and took all the volume we could generate this year, as we optimize around LTV and conversion, it'll be a natural ceiling on our growth. So I think you're wise to see us within the revenue guidance range if that's what you're trying to interpret.

What one place that where we will be able to appropriate balance growth and also quality of enrollments in terms of persistency’s online enrollments. So given the investments in the trend that we've been on, we do think that as you heard that we will make continued improvements and acceleration in online enrollments.

Your next question comes from the line of Steve Tanal from SVB Leerink. Your line is now open.

A lot of good color on the AEP in the phone we extremely appreciate. I think I'm just looking at the quarter, to me a lot of the focus versus the LTV number. So 898 for MA in Q3 ‘20. Wondering how that first compares to your expectations? And second, what gets you confident that that'll be up 5% sequentially since that's sort of what's needed to hit the 4Q guided down? I think it had been down less than 10 now, it's down 10 to 9.45 in Q4 sequentially. Is that when you expect to see the bump from the commission rate increase? or anything else there it gives you confidence?

Got it. Yes, Steve. So when you look at LTVs, it is important to look at them on a year-over-year basis. There is a seasonality with LTVs and primary driver that seasonality has to do with when does that group of customers get to switch plans next, so we enrolled in Q3, you have to develop the opportunity to switch plans again in Q4. And therefore, Q3 LTVs are always going to be seasonally lower. So going into Q4, we expect the sequential LTV speed up, given that pattern. But of course, given the churn that we have seen, we are guiding to a lower LTV on a year-over-year basis.

Got. So the commission rate increase is not part of that, like anything particular that you could point to on why that goes back up. 5%. If you made the point earlier Derek that I think you said we need observations on how persistency has improved to get LTVs back up again. So what gives you the confidence that we're going to go up sequentially, is there anything specific that point to?

The specific on seasonal pattern the commission rate increases, you're right, so what we have done historically is see how the commission has come in and make the adjustment of the increase on LTV, so that will happen in the Q4. So, in our guide for this Q4 that commission rate to increase is not built in.

Okay. Okay. Fair enough. So maybe that could help, I suppose. And I guess, it kind of brings us back to the question of, if LTV stems from a statistical model that looks back 24 months and trailing 12 months churn is up year-on-year. Why wouldn't LTV continue to go down? I suppose. And is there any color there, any commentary on why to get comfortable there?

Yes. So the statistical model actually takes in the entire history of the data that we have, basically since 2011 since we have been in the business. It does weigh more heavily in the most recent two years, given the most recent data has a more predictive impact. Another factor that drives the model is really the volume of data. So it would take heavier weight for most recent and most volume data. So since last AEP was our biggest enrollment period, and the most recent one that is driving our LTV predictions, but more so than any other historical cohorts. So we have said that if churn were to remain where they have been in the last 12 months coming out of AEP last year, we did not expect LTVs to go further, lower than what we have already projected for this full year and this Q4.

Your next question comes from the line of [indiscernible] from Goldman Sachs. Your line is now open.

I want to go back to churn if I can and Derek I think one of the points you made was that when you look at churn, you're really including everybody who switch plans, even those who remain within the eHealth platform. Can you maybe tell us what portion of that churn was such numbers?

Yes. So you heard that correctly. And we clarified that on the call, because there has been a lot of questions about that. So, we had discussed that our retention AEP last year was around 10%. So, there is 10% of the people who churn from policy perspective that do come back to our platform. So then if we don't count as trend, obviously, then our churn numbers will look better, but not by much because 10% retention is not the number that we're particularly proud of in terms of recapturing customers.

Okay. And that portion, those 10%, do you count those as new members?

Correct. That's right.

Okay. Got it. And then I apologize for beating a dead horse here with the slowdown, the Medicare approved submissions this quarter. And Derek, I heard you say several times, it was within expectations. But I'm still trying to understand why the slowdown from 3Q ’19 to 3Q ‘20 to this extent was within expectation. So maybe I could take one more stab at trying to understand that.

Yes. So the biggest driver, you're comparing those two comparison period is because the last year in Q3 2019 we had a very, very low comp compared to Q3 2018. So if you go back to Q3 ‘18, the year-over-year growth compared to Q3 ‘17, for Medicare Advantage, was 0%, we didn't grow as flat. Then the second part of that is a capital allocation, for sales and marketing in terms of what we want to put forth that makes sense for Q3 enrollments versus what we can generate in Q4, where we have much better unit economics.

Okay. But I guess if I look at not necessarily 3Q ‘19, 3Q ‘20, you do see kind of a trend that's been in the 70 to -- I guess, 60% to 70% range of Medicare Advantage growth year-over-year for each of the last five, six quarters. So is it that honing in on the units of economics in the fourth quarter that has led you to slowdown growth this quarter in particular?

That is definitely part of it. I mean, part of what we're trying to do is obviously maximize for the LTV, do acquisition costs for the full year. And in that to the extent that we can generate more enrollments out of Q4 versus Q3, that is exactly what we want to do. And then, on your broader comment around what kind of the sequential growth, obviously, in Q2 last quarter, we did have a different environment with special enrollment period that created more opportunities, Q1 is open enrollment. So we've had a sequence of actually more unusual macro factors that allow enrollment growth to be -- have more tailwinds. So we did not see that in Q3. And on in addition to us, wanting to optimize for return on investments between Q3 and Q4.

Your next question comes from the line of Daniel Grosslight from Citi. Your line is now open.

Hey, guys, thanks for taking the question. I want to go back to that partner channel, which was looking very strong, I would have expected those channel partners to be most affected by COVID-19 given they're largely in person. I guess can you talk about what has offset some of the reduced traffic in hospitals and pharmacies recently? And how do you think about perhaps a surge in the winter during AEP and how that might affect traffic at these channel partners?

Yes. I mean, we do watch the provider channel and follow the public one systems and clearly they are struggling with -- due to the lack of elective surgeries. But from an enrollment standpoint, most of our enrollments come from having the email and physical addresses of their patients and so we promote directly to them. And so if we're not -- even though we do have signage and brochures in each of the facilities, it really is our direct marketing to those patients that brings them to our site, our platform, either telephonically or online. So we aren't seeing or expecting anything but fast continue growth. I will tell you, they are and we do hear from the partner channel biz dev team, that there are a lot of hospital systems who are smaller that are in deep financial distress, but those that don't have a large charitable endowments are really struggling.

Okay, okay. They essentially sell you their patient list to in split…

There's no economic exchange here. The partnership is done by them. Their objective is to capture 100% of the share of wallet of the beneficiary. So what they're wanting, is that senior to sign up with an MA plan, where all of the specialists, all of the services are provided within their system and network.

Yes. Makes sense, okay. And then, just one on productivity. I think last quarter, you mentioned that you expect agent productivity to go up around 10%. Is that still the case here? And given most of the -- you've hired a lot of internal folks this past quarter and you generally don't get productivity until the second AEP period. Can you talk about how the newer folks on the platform, how you're expecting them to perform, and then how that gives you a boost into 2021?

Sure. This is Tim, I can take that one. So we do still believe we will see the productivity gains that we've outlined, that are a key part of our AEP plans for this year, there's a couple different ways that we will get there. You're right, that 10 year does help agents perform better. So one of the things that our algorithms do is make sure that our best performing agents are kept the busiest with the best leads. And so having a foundation of core agents who've been with us for a while, gives us the ability to funnel more volume and more high quality volume to them. So that's one. Second, we have updated all of our training materials, our agents are now better equipped going into the AEP than they have been in years past. So we have a better idea of how to get people ready than we've had in years past. And that is both for internal and our partner, partner agents. And then, third, we have better technology for all of our agents to get up to speed faster. So better recommendation algorithms, better cues for them on the calls, things they could be looking out for. So all in all, we are confident in that ability to get to that goal. And it's going to be driven by leveraging the core of experienced agents, but by having a better performance of newer agents than we've seen in years past.

Your next question comes from the line of Frank Morgan from RBC Capital Markets. Your line is now open.

Most of my questions have been answered. But I did want to go back to your assumptions around the growth in the online channel. I think you said 45% to 50% of your apps would be online. I'm just curious what gives you that's a really big number and very differentiated from your competitors. What gives you confidence that you can really achieve that much enrollment growth? Are there any early indicators to suggest that that's achievable? And then, secondly, if would you care to share what the potential split would be between pure enrollment online versus assisted. I have the numbers question.

Yes, Frank, I'm going to introduce Phillip Morelock who's our Chief Digital Officer and oversees all product data and technology for eHealth who is responsible for architecting and executing and launching the customer center because I really want him on the hook for these results. So Philip, take it and run.

Thanks, Scott. We have made substantial investments in our platform over the last two years, but certainly this year, we've gone to market not just with the customer center, but with an entire redesign of our ecommerce funnel, taking into account customer research that we've done first party research, as well as extensive AV testing. So far in the AEP period, we're seeing our conversion rates up over 50% on the online platform. And so we're very confident that the design changes that we thought we would have results from -- will in fact deliver those results. Additionally, we're seeing rapid adoption of the customer center technology. We saw very quickly got to over 10,000, enrollments in the customer center itself. And we are seeing more time spent by those customer center users, better conversion from those customer center users. And it's early, but we're optimistic that will have a positive impact on our retention figures as well. In addition, as Scott was mentioning, the partner channel is the material driver for online for us. And we are seeing increased conversion rates in that partner channel as well from many of the partners that we have due to those data integrations that Scott was talking about.

And I think you also historically that pure unassisted enrollment number was fairly low. Based on the new studies, you've done any changes there in the mix between assisted and unassisted, normal enrollment?

Both are growing rapidly, we do see the unassisted growing a little bit faster. And we are optimistic about that, because of all the changes that we've made to our conversion funnel.

In the economics.

And I guess one final one. In terms of the change, or as it relates to retention, some of the changes you've made are related to the compensation for your sales force -- your internal sales force. How has that been received so far? Has there been any pushback from adopting this new structure, tad order retention?

This is Tim. I'll take that one. So far, there hasn't been any pushback within the agent workforce. Our best performing agents, this is a chance for them to earn more. And it's certainly our hope and expectation that they will. And we see great retention rates of our core agents, of our top 75% of agents, we keep 94% of them on an annual basis. So they are engaged, they were consulted in the process of building this plan. And for high performers, this is a chance to earn more money in the long run.

Your next question comes from the line of Tobey Sommer from Truist. Your line is now open.

Thank you. If we think of the multi-pronged approach you have to proving customer attention does, getting back to the prior LTV represents sort of the best outcome, or if these initiatives turn out, well, could you in fact, you better them?

I'd like for Tim to answer that because he is singularly accountable to us for those results.

Thanks, Scott. Yes, that's a very astute observation, we believe that there's opportunities to do much better than where we were in 2019. Because we had none of these initiatives in place at that time either. So when we build that goal, we knew it had a degree of conservatism in it. We know we're learning every single day how to adjust these programs, make them more impactful, tie them better together. So one of the things that we're doing is getting feedback from our retention team back to our sales team, on ways that they can be improving on the front end. So we believe that that the 2019 LTV is a fine short-term goal, but is by no means the long-term success metric here.

Okay, thank you. And then, my last question is, with respect to retention, do you have a look at the book in your MA membership based on average star rankings here managed care companies talk about that. And if you have looked at it on that dimension, has the ebb and flow of retention over the last 24 months, then mirrored in a change in the sort of blended star ranking of your membership profile?

Scott, I will take that one as well. So we do look at our retention across as many different dimensions as we possibly can. And what I would say is that the overwhelming drivers were factors within our control, within our sales funnel and less to do with exogenous changes happening around us. So there is no doubt that, plan expansion, plan changes, benefit changes, [indiscernible] changes do introduce some change but they were a small driver of the deterioration that we saw. And so it's something we looked at, but again, it was not a big driver of our performance.

There are no questions from participants online. Let me hand the conference over to the CEO, Mr. Scott Flanders for the closing remarks. Please go ahead, sir.

Thank you, everyone for your informed questions. We're excited about how we're positioned for Q4 and looking forward to helping a record number of seniors get into the right Medicare Advantage plan and a growing IFP business and look forward to getting back on the phone with you after we have a successful Q4. Thank you, everyone.

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