Good day. Thank you for standing by, and welcome to the Q1 2021 eHealth, Inc. Earnings Conference Call. [Operator Instructions]. Thank you. I would now like to hand the conference over to your speaker today, Ms. Kate Sidorovich, Vice President of Investor Relations. The floor is yours.

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 2021 financial results. On the call this afternoon, we'll have Scott Flanders, eHealth's Chief Executive Officer; and Derek Yung, Chief Financial Officer. After management completes its remarks, we'll open the lines for questions. As a reminder, today's conference call is being recorded and webcast from the IR section of our website. A replay of the call will be available on our website following the call. We will be making forward-looking statements on this call that include statements regarding future events, beliefs and expectations, including statements relating to our expectations regarding our Medicare business, including Medicare enrollment growth, consumer demand, quality of enrollments and market opportunities; our investments in operational and technology initiatives and expected positive impact on our business; our ability to grow our internal agent force, increase agent productivity and deepen customer engagement; our expectations regarding our online enrollments, member acquisition costs, retention and recapture rates; our expectations regarding our financial performance, the profitability of our business, seasonality churn, lifetime values, member estimates, and operating expenses. And finally, our outlook for the second quarter of 2021, the annual enrollment period and our full year 2021 financial guidance. Forward-looking statements on this call represent our views as of today. You should not rely on these statements as representing obvious in the future. We undertake no obligation or duty to update information contained in these 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…

Thank you, Kate, and welcome all. We had a strong start to 2021, with first quarter Medicare enrollment growth significantly exceeding our expectations. First quarter results benefited from a number of operational and technology enhancements that we introduced over the past several months. Most importantly, these initiatives are expected to have a long-term positive impact on our business as we continue to scale in the Medicare and broader health insurance market. The way people shop for health insurance coverage is changing, and we are strongly positioned to deliver choice, transparency and a convenient enrollment process that consumers are increasingly demanding. Health insurance distribution is evolving towards a consumer-centric model, supported by robust e-commerce and call center capabilities. And that is exactly what eHealth brings to market. As we continue to drive profitable growth, one of our key operational priorities this year is enhancement of our call center operations to make our agents more productive, further increase enrollment quality and deepen customer engagement. During the first quarter, we accelerated the shift in our telesales away from third-party vendor agents toward a predominantly in-house agent model, and we are seeing results. This shift combined with a more robust reallocation process, led to a significant increase in our average agent productivity compared to the first quarter of 2020, stronger than initially expected first quarter Medicare enrollment growth and a reduction in acquisition cost per approved Medicare member. We believe that call center issues that affected our fourth quarter 2020 execution driven primarily by the underperformance of external vendor agents are now behind us. Our operational improvements contributed to strong financial performance in the first quarter, with revenue, adjusted EBITDA and earnings all exceeding our expectations. Total revenue for the first quarter was $134.2 million, a 26% year-over-year increase. Our first quarter GAAP net…

Thanks, Scott, and good afternoon, everyone. We delivered a strong first quarter, driving higher-than-expected growth in our Medicare and individual family and planned enrollment. First quarter enrollment outperformance was achieved while at the same time, reducing acquisition costs per approved member for Medicare and IFP major medical products. First quarter Medicare revenue of $121 million grew 26% compared to a year ago driven primarily by a 45% increase in approved Medicare members, including a 65% increase in approved Medicare Advantage members. The positive impact of strong growth in our Medicare enrollments was partially offset by lower lifetime values and residual revenue compared to Q1 a year ago. Residual or tail revenue in the Medicare segment was close to 0, in line with our expectations and compared to approximately $9 million a year ago. Our Medicare Advantage LTVs declined 4% compared to Q1 of 2020. This was favorable to our expectations helped by increased contribution from new to MA members and favorable carrier mix. Acquisition costs per approved Medicare Advantage member, which includes marketing and customer care and enrollment costs, declined 12% compared to the first quarter a year ago. The ratio of Medicare Advantage to LTV to total acquisition cost was 1.5, a 9% increase compared to Q1 2020. On an as-adjusted basis, by subtracting carrier advertising dollars from our total acquisition costs, our LTV to COA ratio was 1.7. The ratio of LTV to marketing COA was 2.7, and it was 3.2 on an adjusted basis, excluding carrier advertising dollars. Medicare noncommission revenue grew 5%, roughly in line with our expectations of flat noncommission revenues this year compared to 2020. During the first quarter of 2021, we revised the calculation of segment profit and adjusted EBITDA to exclude amortization of capitalized software development costs. This was done to enhance…

[Operator Instructions]. Your first question comes from the line of Jailendra Singh from Crédit Suisse.

And congratulations on a good quarter here. Maybe Derek, following up on your last few comments there. I was wondering if you can double-click a little bit more into the reasoning behind keeping full year outlook essentially unchanged despite a strong Q1 and pretty favorable trends across the board on LTV, enrollment and productivity? And I appreciate all the color on Q2, but are there any other puts and takes we should keep in mind or you just want to be prudent given the last year experience and we are still early in 2021?

Yes, Jailendra, it's a good question. So we outperform our expectations on many business performance metrics, as you saw in Q1, and we continue to see strength in many of those areas, and we expect to flow through the rest of the year. There are a lot of puts and takes. And as you heard, we still expect LTVs in Q2 to be down low to mid-single digits and tail revenue continues to be conservative. It's still too early. AEP, obviously, Q4 is the biggest quarter for us, especially in profitability. And you are right that we are looking to be prudent and make sure that we see this strength that we've seen in Q1 continue in Q2 and Q3 and therefore, keeping our guidance the same.

Okay. And one follow-up on your comments around what happened last year in Q1 and Q2 with respect to some of the membership attrition for Q1 observed after the reporting period. Just curious if there's any such risk this year? Just trying to understand what gives you better visibility. It looks like you've taken a little conservative view there. Just trying to understand how much of the sequential step-up in that member turnover ratio is driven by the fact that you are just being conservative in terms of if similar phenomena we saw last year played out again this year. Just help us understand the comfort there?

Yes, yes. No, absolutely. That's a good question. So historically -- so last year, we had used a combination of cash collections, historical patterns and data from carriers to estimate our ending membership, which turn out to be higher than what it turned out to be, right, in Q2 of last year -- or Q1 last year. So this year, we are being more conservative and rely more on our cash collections. And also, we've accelerated or reconciliation with carriers on membership status than compared to last year. And we thought that would be prudent, obviously, given kind of the experience last year. And also this is now the third year that we've seen the open enrollment period in Q1, which has created a different pattern that we've seen in past in terms of member switching between Q1 and Q2. And so we factor that in there, and we're more comfortable and expect our estimates to be in line with what we see in terms of variance, small variance compared to actuals.

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

Congrats on a strong quarter. You gave some new metrics on new to MA members. What did that look like in the year ago period? And what are your expectations on a go-forward basis? And can you describe the delta in first year commissions for those folks?

Yes. So just a reminder, we -- for the January 2021 effective policy, which are predominantly enrollments that came from AEP, the new to Medicare percentage of enrollments was 47%, which is what you heard in the prepared remarks. That is better than last year, and we've seen an improvement in that trend for this metric really in the back half of the year that's extended obviously into AEP. So the delta of new to Medicare to a renewal enrollment could be an additional $200 roughly of administrative fees. So it is fairly significant compared to obviously a renewal. And it's something that -- and just as a reminder, the new to Medicare bucket consists of 2 populations of people. One is the agent, people who are turning 65, who is enrolling in Medicare Advantage. And the other folks are folks that are in the original Medicare and fee-for-service Medicare that are switching into a Medicare Advantage for the first time. In our Investor Relations material, you can see how we size the overall market and the new to Medicare portion, especially agent portion is a fairly significant portion of people who can qualify for Medicare Advantage and, therefore, be part of this new to Medicare target. So it is a contributor to our, let's say, higher rates and better improved LTVs. Tim, do you have any comment to add to that from a business perspective?

No, I think you've summed it up well.

And then on a go-forward basis, do you expect that proportion to grow?

We do...

I'll jump in and take that one, Derek. So it is something that we are working to address that audience more and more aggressively. And we know that, that audience engages online at higher rates than older members do. And so as we see more and more adoption of our online enrollment, we think it will help us with that market segment, in particular, and so we're designing more features on the website, marketing materials, et cetera, to address that market segment. So we don't have a specific forecast for it, but it is something we're working on.

Got it. Okay. Okay. So LTVs they are impacted by higher commissions and higher persistency because it's coming through the online channel?

Yes.

Okay. And then a follow-up, any changes on your internal agent versus external agent account for this year? I know you mentioned you're hiring earlier, but are you hiring -- do you still expect it to be kind of a 90-10 split for this year?

Yes. I think that's a fair estimate. There's been nothing that we've seen in our early hiring and recruiting that would change our outlook at this point.

Your next question is from Frank Morgan from RBC Capital Markets.

I guess staying on the subject of -- I'm sorry, on the subject of customer retention and your efforts there. I'm curious, it looks like you made some decent progress on the recapture rate up to about 14%. Is there some level of that we think you should get to? Is there some kind of target level there, I suppose, you could share with us today?

So I'll take that one. This is Tim. There is no target that we're trying to get to. I think what we realized a year ago when we started down this path on retention was that there were definite opportunities for us to better serve our customers. And we see that recapture rate being one sign of that. And we're still just basically less than 1 year into that that exploration. And so we've learned a lot from the AEP on ways that we could be more effective serving our customers. And so we think it will continue to go up. But there isn't a level at which we would stop or that we think we are approaching sort of diminishing returns. So far, the more effort we put in here, we see clear progress as we do so.

Got you. And I'm just curious in the guidance, any changes with regard to cash flow or cash burn in light of the fact that you are going to be hiring sooner and you'll bring these people more people on and bringing them on sooner. Any change in your outlook with regard to cash use and cash burn?

No change on a full year outlook for cash use and cash burn, Frank. But given our pivot to more internal agent staffing and earlier staffing, we do expect operating cash flow to be more unfavorable relative to a year ago and likely Q3 as well.

Okay. But no change from what you previously contemplated. Is it because you think you'll just by the fourth quarter or well, I don't know that, that would help you in the -- by the -- I was going to say, would that help you in the fourth quarter, but it sounds like it's more of a first quarter that it would -- first quarter of next year before it would help you?

It will help in the fourth quarter because the agents will be more productive, so we wouldn't be staffing agents later than compared to a year ago. So on a full-year basis, our cash use is still consistent with our full year guidance.

Okay. Lastly -- go ahead.

We are at after the first quarter, it significantly exceeded our plan, the cash flow from Q1.

Got you. And just one final on this new into Medicare. Are there any -- I mean, obviously, you get paid a better commission here. Any other kind of indirect benefits of that? Is it better growth market? Or is there any impact that it could have on churn, anything like that? And I'll hop.

I can jump in and take that one, Scott. So there's a number of benefits from acquiring customer sort of new to Medicare or new to the product. The first is they tend to have longer duration with the product. There's a variety of reasons for that from just being younger and healthier, less familiarity with switching. So they tend to be a more -- they tend to have a longer duration. Then on top of that, as we enhance our retention techniques and capabilities, whether it'd be online or telephonic, getting a customer earlier gives us a chance to win them again later. And so it's helpful on the front end. But we think if we can win those customers once, then that gives us a great chance to win them again in the future.

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

I was impressed with the agent cost per member improvement, and I wanted to focus there, if I could. And first, your online submissions, which continue to improve. I'm just curious if you could talk to that trend and how that is operating relative to your expectations? And any sense on where we could go there? And then secondly, the use of screeners. I wanted to better understand how you're planning to use screeners. Honestly, in our secret shopping in the past, we've assumed there were screeners. So I wanted to just better understand how they're being utilized?

Let me take the online piece, and then I'll pass it off to Tim to talk specifically on the screener question, George. So we are -- so our full year guide on the online submission target is 43% last year with 37%. We are tracking ahead of that goal coming out of Q1, given what you heard. The favorability of that comes from more favorable performance out of our online unassisted online enrollments, which has higher LTVs and lower acquisition costs, obviously, given that there's no cost interaction. So that is the population that is more important from a financial benefit perspective. So -- but we're not changing a full year target. Again, still want to be conservative, given it's early. And obviously, online enrollments really, really peaked in Q4. But we're feeling good about where that's tracking. Tim, you want to talk about the screener question?

Sure. Well, first, on the agent productivity, we saw in Q4 last year that what was dragging down our performance was these vendor agents. And the actions we took then really put us in a position for our internal agents to thrive during Q1. And we got off to a very fast start, and then that continued through the quarter. And we overhauled the leadership of our sales organization in the last 3 months. And those leaders have really made a big impact. And so it's not just the agents, it's the leadership of the sales organization and the tools that we're giving them, the training that we're giving them, there's a real momentum within our sales organization as we look to go forward, which is why we're so optimistic. On the screener question, in particular, we have periodically used screeners. So we use them in a very limited fashion during AEP, and we did see benefit to doing so. And the benefit was primarily that we kept our licensed agents off of calls that were customer service calls or low probability prospect calls. And so we rolled out the first two classes of our screeners in the last 2 months. And we are seeing that they can help us get more and more leverage out of our licensed agent population. And we're investing early there so that we can test and learn our way into how to use them, how to train them, but I'd say it's still early days, and everything we've seen so far is very encouraging.

Got you. And just a quick question on the H.I.G. timing, you mentioned closing conditions, is there anything unusual in the closing conditions that we should be aware of?

No.

No, nothing unusual. We expect the transaction to close, George.

Okay. Great. And then finally, a comment, if I could, Scott, it's been a long, hard battle, but IFPs turned into a sort of under the radar, nice little growth business, and it's nice to see.

Yes. Thanks for that observation, George. And the Biden proposal to make permanent the elimination of the 400% of poverty cap on subsidies, really makes that a more interesting business for us for the longer term. Carriers are telling us it's become profitable, and they're expecting it to be double-digit growing. So it's not -- we're not changing our guidance on it, but it is a modest upside in our plan for this year.

Your next question comes from the line of Jonathan Yong from Barclays. We will proceed to the next question comes from the line of Elizabeth Anderson from Evercore.

One thing I was intrigued by was when you talked about sort of your increase in recapture rate and some of the other metrics that you mentioned, it sort of imply that you were sort of maybe keeping in touch with some of the seniors a little bit more sort of forming some sort of like relationship more than just sort of signing them up and then hoping they come back next time that they want to switch. Could you talk about sort of what your efforts are there and sort of how you see that progressing over time?

Yes, absolutely. I'll take that one. This is Tim. So last year, we implemented a number of different things, some that were more reactive, where we set up teams that would take inbound calls from existing customers and serve them better than in regular sales agent. But one of the other things that we did is we basically profiled our book of business with our data science team to identify the customers that we felt we would be best served to reach out to. And we ran a series of different tests. We reach out to them with email, with direct mail, outbound calling. So we were definitely more proactive in reaching out to our customers. And then where they may reach out to us, we did a better job serving them. So there was a combination of things that we deployed last year. And again, like I said before, we will -- we're still assessing basically how well different levers work with different populations, and we'll iterate on that for this year.

Got it. That's helpful. And one thing just to -- more of a clarification question. With the H.I.G. Capital convert, can you -- presuming that closes, could you tell us what you think the share count was likely to be in the second quarter?

So Elizabeth, the answer is not yet because the details of that transaction has the conversion price not being set until 120 days after the signing of the term sheet. But there is a ceiling and a floor to that. So there's a range, but we don't know the exact fully diluted count based on the conversion -- until the conversion price is set.

Okay. So you'll update us when you have that number? Or...

Yes, that's right. That's right. And also, it is a convertible, so then that count will adjust based on our stock price as well over time.

Got it. Okay. All right. Yes, that would be helpful to know when you have that.

And I think you know this, Elizabeth, but to be clear, given that as a preferred stock, there's no other P&L impact other than share count, which will flow obviously into EPS as well.

Again, we have the line of Jonathan Yong from Barclays.

Can you hear me now?

Yes.

Yes.

Okay, great. Okay. Just going back to new MA again. You've talked about them being more driven by being online, et cetera, better retention, things like that. And you plan on targeting them a bit more. But I guess what's different between how -- what you're already doing? Because you've obviously been targeting online already. So what's different in terms of how you're going to approach the market to get those new MA members versus getting switchers and normally what you've already done?

Yes. I'll let Tim get into the depths of that. But I think it's important to note that we have 130,000 seniors that have registered with 2 factor authentication to our customer center. And we're already seeing longer retention even though we just launched that site in October. So we are stepping up our engagement with members across the board, but obviously, the cheapest and easiest engagement comes digitally and having the customer centers members enrolled is a big advantage to us. But Tim, you could elaborate, please.

Yes. What I would say is the way a new to Medicare Advantage customer shops is different than a way a switcher shops. And as we've delved into deeper and deeper consumer research, we can see that if you presume that somebody understands all the different elements of a plan, and is just looking to transact, then you may confuse them and underserve them. And so when we talk about building experiences for them, it's updating the content on the website to make sure things are easily explained. It's making sure our agents can educate consumers through the sales process. And so I think our experience historically was more geared for somebody who understood Medicare Advantage well and could choose the right plan effectively. And the bar for a new to Medicare customer, new to Medicare Advantage customer is a little bit higher.

Great. And then just on -- it sounds like you've done some agent hiring already. Can you give us a flavor of how those cohorts are doing now? Were they primarily in training with your other tenured agents? Just give us any flavor there.

Yes. We are we are on track with our hiring. We focused our earliest classes on the screeners, as I mentioned before, because we really see that as an opportunity to create leverage in our licensed agent workforce, and it's not something we've used a lot of before. So a lot of the early classes where we have more performance data is focused on the screeners. But of the licensed agents who are coming on to the floor, we are seeing them come on at a higher level of productivity than maybe some of the classes in previous years. Very early, we're encouraged that we're doing a better job in how we're recruiting and targeting. But the large classes are still to come. So we're not sort of inferring too much from that.

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

I guess, Derek, kind of first, an accounting question a little bit. You talked about kind of how much the increase in revenue the new to Medicare beneficiaries can contribute to result. I guess, did they have a meaningful impact on LTVs in the quarter? And if that segment continues to grow, like how big would it have to be before we would expect it to drive LTVs up?

So George, it did have a positive impact to LTVs for the quarter. Because our expectations for Q1 was Medicare Advantage LTV could still be down up to 10% year-over-year, and we end up being down only 4%. And the new to Medicare increase in our enrollment kind of AEP did contribute as the biggest driver of that. And as we continue to make more progress, obviously, that will also further potentially drive LTVs.

Okay. That's helpful. And then, Scott, I guess you kind of preempted my question on this a little earlier, but kind of the outlook for the IFP business and the Biden plan, you talked a little bit about the combos with the carriers. I don't know if you like -- if you could look out a year or 2, if the proposed changes become permanent as a part of the Biden infrastructure plan, I don't know if you're willing to put any kind of goalpost around how big that segment of the business could be? And maybe talk a little bit about how you execute that business differently from the MA business would be helpful.

Yes. And we are thinking about it, and it could definitely be a $100-plus million revenue business, and it's highly profitable. One of the reasons it merits additional attention, though Medicare is still, by far, the biggest business for us is because the cash flow dynamics are very attractive. We have faster than a 1-year payback on the customer acquisition costs. So it does merit additional attention, and it will get it.

Your last question comes from the line of Tobey Sommer from Truist Securities.

I was wondering if you could elaborate a little bit on the strategies you have to drive more growth in the customer care center and also touch on your partnership strategies to try to increase exposure to age-ins, which would kind of really be the Creme de la Creme in terms of member characteristics, I think.

Tim?

So on the first question, the growth in the customer care center. Are you talking about how we're scaling up our agents?

And how you plan to drive more members participating in it?

In the customer center, for the online customer center.

Yes.

So for the online customer center, there's a number of different ways that we can drive greater engagement. And I think we are very encouraged that the enrollments to this point have far exceeded our expectations. We have plans to enhance the enrollment in the online experience, so make it easier and more prominent and easier for people to get through in terms of enrollment in the customer center, but then greater integration with the telephonic sales process and helping people understand that this is a place they can go and check on the status of their app or get additional details. So I think what we've seen so far was we put it out there with limited sort of integration and saw a great uptake with consumers. And now we're looking for the sort of specific on-ramps where we can accelerate that growth. And then your second question on agent through partners. I mean, you're absolutely right, our partner traffic is our -- tends to be our best traffic. We work very closely with our partners because how we serve their customers is incredibly important to them, knowing that we have unbiased agents that will work with their consumers, makes a big difference. And so we are -- we've really established a cadence of how we can market to their customers, effectively reach out to them, serve them well. And I think the growing track record we have of those being our longest tenured customers really speaks to the quality of the handoff that we have with those partners. So we see growth with our existing partners. We see plenty of opportunities in the pipeline. And it's been a small portion of the membership historically, but it's really growing, and we have high hopes for outperformance in Q4.

Okay. My last question. How would the addition of $200 million in cash available resources impact your growth and strategy implementation?

Well, look, we had said that we would need an infusion of cash to get us to cash flow positive by the end of 2022. And having that in place takes the timing of when we might have to raise that money off the table. It also -- if this growth continues, while we are experiencing stronger cash flows than we anticipated, and stronger per member cash flow, obviously, all the positive and the new to Medicare higher administrative fees help as well. But still, if we grow through the balance of the year at these higher rates, we will be eating more cash this year than our original plan. Because, as you know, we don't break even in the first 12 months and cash on Medicare Advantage enrollments. So what will be great about getting the H.I.G. deal closed is we will be unconstrained in driving growth this year and with the momentum that we have, we could be using some of that cash.

All right. That concludes our question-and-answer session. I will turn the call over back to Mr. Scott Flanders.

Thank you, everyone. Terrific questions this quarter, particularly. It's great to have finished Q1 on a strong note. We're starting out Q2 equally strong, and we look forward to having calls with our analysts and major shareholders over the balance of this week and into next week. Thank you, everyone, for all of your support. Bye now.

This concludes today's conference call. Thank you all for participating. You may now all disconnect.