Good afternoon, everyone, and welcome to eHealth Inc.'s Conference Call to Discuss the Company's Second Quarter 2021 Financial Results. At this time, all participants have been placed in a listen-only mode. This floor will open for your questions following the presentation. It is now my pleasure to turn the floor over to Kate Sidorovich the Company's Senior Vice President of Investor Relations and Strategy. Please go ahead.

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 Second Quarter 2021 Financial Results. On the call this afternoon, we'll have Scott Flanders, eHealth's Chief Executive Officer; John Pierantoni, our Chief Accounting Officer and Principal Financial Officer; and John Wang, Vice President of Finance. 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 Investor Relations 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, our competitive advantage and market opportunities; our investments in our e-commerce and call center capabilities, agent training, quality assurance efforts and expected impact on our business. Our ability to grow our internal agent force, increase agent productivity and improve customer experience and the quality of enrollment, our expectations regarding our individual and family plan business and growth opportunities there, our expectations regarding our online enrollments, member acquisition costs and retention 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 third quarter of 2021 and our full year 2021 financial guidance. Forward-looking statements on this call represent eHealth's views as of today. You should not rely on the statements as representing our views in the future. We are to 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 10-K and quarterly reports on Form 10-Q filed with the Securities and Exchange Commission, which you may access through the SEC website or from the Investor Relations section of our website. We will be presenting certain financial measures on this call that are considered non-GAAP under SEC Regulation G. For reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure, please refer to the information included in our press release and in our SEC filings, which can be found in the About Us section of our corporate website under the heading Investor Relations. And at this point, I'll turn the call over to our CEO, Scott Flanders.

Thanks, Kate, and good afternoon to everyone joining us today. Second quarter results were strong, with revenue, profitability and Medicare Advantage enrollments exceeding our expectations. During the quarter, we made significant progress towards expanding and enhancing our telesales organization, continue to scale our digital business and saw positive trends in our under 65 business. Following our first quarter outperformance, strong momentum in our Medicare Advantage enrollment growth continued in April and early May before slowing down as we compare it against the COVID-related special enrollment period that was available to seniors last year. For the full quarter, our approved Medicare Advantage members grew 30% compared to the second quarter of 2020. I'm pleased to report that we successfully achieved our Medicare agent recruiting targets for the second quarter and are on track to meet the goal of our telesales capacity being made up of 90% full-time agents. At the start of the EAP, we achieved a significant pivot in our sales organization, a short amount of time and expect for it to benefit our customer experience and the quality of our enrollments. The Medicare market continues to evolve. The ongoing trend towards increased popularity and penetration of Medicare Advantage plans is accompanied by broadening of planned selection, expansion of covered services. The MA is an important growth area for health insurance companies. And while carriers continue to pursue enrollment growth and market share gains, we are also seeing a shift towards heightened awareness and focus on enrollment quality among our key carrier partners. Based on our recent conversations with carriers, we expect that insurance companies will be increasingly evaluating broker performance on quality of their enrollments, including retention rates and customer satisfaction in addition to volumes. This sector-wide movement provides an opportunity for eHealth to take a leadership position establishing…

Thanks, Scott, and good afternoon, everyone. Second quarter results reflect higher-than-expected growth in our Medicare enrollments, strength in the IFP business and a significant investment in our internal Medicare agent force ahead of the annual enrollment period. Second quarter Medicare revenue of $73.2 million declined 9% compared to a year ago. Underneath that, Medicare commission revenue from new enrollments grew 9% year-over-year, driven primarily by a 30% growth in approved Medicare Advantage members. The impact of strong MA enrollment growth on our revenue was partially offset by a 4% decline in Medicare Advantage lifetime values in line with our expectations and negative residual or tail revenue in our Medicare business compared to the second quarter a year ago. Negative tail revenue in the Medicare segment was largely attributable to our PDP product line that is being impacted by a continuing shift in consumer demand away from stand-alone drug plans and other factors. Our estimated number of commission-generating Medicare members was approximately 877,000 at the end of the second quarter or an increase of 22% with estimated Medicare Advantage membership increasing 38% compared to a year ago. Second quarter estimated trailing 12-month churn for Medicare Advantage plans was 42% unchanged relative to the first quarter of the year. As Scott mentioned, we continue to experience significantly lower churn in members who enrolled online. For MA plans with effective date of January 1, '21, we're observing year-to-date churn rates that are approximately 40% lower for the fully unassisted online cohort compared to telephonic enrollments. Per member cash collections in our Medicare business continue to grow, driven by commission rate increases and higher contribution from new to Medicare Advantage members that typically generate higher first year commission payments. Please consult our earnings slides posted on the Investor Relations site for data reflecting our…

[Operator Instructions] Your first question comes from the line of George Sutton from Craig Hallum. Your line is open. You may ask your question.

Thank you. I wonder, if you could go into more detail on the carriers looking into retention rates and customer satisfaction? Obviously, it's impacting your way you're training and the productivity of the agent. So I wondered if we could dig in there a little bit more.

Sure. This is Tim Hannan. I'll take that one. We've been on this journey of improving the quality of our enrollments for a year now with the launch of our retention initiatives last year. And in conversations with multiple of our carrier partners, they have expressed this desire to see improved quality metrics out of the entire broker channel. And so, we have had numerous conversations about ways that we can deliver that and best practices that we can apply. And some of the ones that we're deploying are what we mentioned earlier in the script, in terms of additional training the verification agents, basically a handoff to a second agent to confirm all of the details of the enrollment an ongoing and enhanced QA of our sales resource. And between those initiatives and the shift to a fully internal workforce, we think we're going to see continued improvement along those metrics. And we're getting favorable response from our carrier partners from the tactics we've deployed so far.

Now you obviously have a huge advantage relative to your competitors with your ability to do everything online. I'm curious, are you -- given this dynamic doing anything to more aggressively target that pure online enrollment population?

Yes, I'll take that one again. As noted in the script, we continue to see faster growth in that segment than any other part of our business. And it's exciting to see it in these quarters, and we expect we'll continue to see that in the back half of the year. We have more enhancements coming to our customer center, which we saw great adoption at the end of last year, and great customer utilization and higher retention as well as further enhancements to our e-commerce experience in general. So, we continue to see momentum. We think the market is moving in that direction, and we invest as much as we possibly can to bring more and more people into that experience.

Next question comes from the line of Jailendra Singh from Credit Suisse. Your line is open.

Thank you. I actually want to follow up on the $20 million revenue guidance reduction in the Medicare business. Help us understand the puts and takes there. First half, sales revenue negative adjustment is around $11.5 million. So are you expecting more revenue write-down in the second half in Medicare business? I mean if something my understanding is your approved members and LTV trends in first half probably exceeded your expectations so it should have held outlook. Just trying to understand what is in that $20 million guidance reduction.

Sure. This is Tim. I'll take that one again, and then others can chime in as necessary. So you are right that we had, I think, conservative outlook coming into the year and the first half of the year has exceeded those expectations. But as we look ahead, we're just maintaining that conservative posture because of some of these new dynamics. So we are making incremental investments into enrollment quality, and so we want to see how that plays out as the year goes on. And we're still in the middle of the shift towards the internal workforce. And so, we'll start to see those people come online, but until we have a greater understanding of their performance and whether there will be more improvement than what we have built into our guidance, we're maintaining that conservative posture.

So I mean, if I can go back to this Medicare party comment of, I think, out of $11.5 million negative adjustment, it was $7.5 million in Medicare PDP. I mean this shift from PDP to MA is not new. I mean, I'm a little surprised on the size of the adjustment there. It looks like maybe it's something probably continues. Help us understand a little more, like what is the adjustment? And why is this coming up now, the magnitude here?

Yes. So, there is -- you're right, the shift away from PDP isn't new, and it is certainly a factor in this. There are other more specific in fact, individual partner level performance metrics that we saw in this quarter that we don't expect to persist going forward. So it is driven, I think, at large by the shift away from PDP, but there are some more specific factors that drove it to what it is in this quarter.

Jailendra, to one of your questions, we do not expect to see another quarter of net revenue impairment in the second half of the year. So we anticipate to have, in fact, positive tail revenue in our Medicare Advantage business. There could be some remaining small impairment on the PDP side, but overall, we expect to be on the positive there.

Okay. And then one last one here. For this trailing 12-month MA member turnover ratio, you disclosed every quarter, which is helpful to get some sense on the churn trend. It was up slightly both year-over-year and sequentially when you expand to a decimal point. I mean just trying to understand that all the initiatives we have put in place for the last 12 months, I mean why is that not having any positive impact on that that ratio in particular?

Yes, that has remained certainly high, as we said last quarter as well. I think every quarter, we are learning more and more about the things that will move this metric. And it is a 12-month metric, so it's a little bit slow to move, but we still expect to make more progress going forward. I think the shift to the internal agents is one additional change that we'll start to see materialize, and we are making further optimizations in where we acquire our traffic. So we talked about the progress in driving into our online channels, in driving volume from our strategic partners. Among our paid sources, we continue to optimize as well. So, there are a number of things that we believe have certainly enhanced the customer experience and driven quality improvements, but we continue to drive as we learned additional things and we'll see that materialized going forward.

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

Hi guys. Thanks so much for the question. Can you talk about -- is there anything you can say particularly about the 2020 cohort that you signed up in the fourth quarter regarding churn? Like, are those lives like churning at a similar pace versus prior years? Just any other color you could provide there, I think, would be helpful.

Sure. This is John. I can go to some detail for that cohort. I think overall, we're very pleased with the valuations in that cohort. In regards to our projections, we've certainly leveraged the more recent churn experience of recent periods. So, we have seen favorability in regards to values in those cohorts. So, I'd say they're conservative LTVs. We're very comfortable with how they are tracking on an overall basis.

Okay. And maybe also, could you provide some -- I think you talked a little bit about some of the hiring details in the quarter. What percent of the agents have you hired already that you think that you need for a 2021? And could you talk about the hiring environment more broadly? Obviously, there have been conversations about labor shortages and wage increases and things like that across the economy as a whole. So that would be helpful as well to hear.

Sure. This is Tim. I'll take that one. So the good news for us is that our AEP hiring is now largely completed. And so, we are excited to have the workforce that we need for the AEP either already started or about to start. And the dynamics were challenging. So, we saw slower recruiting on some of the earlier cohorts, and then we accelerated as we made adjustments. So, it was more competitive. We brought resources to bear and made some adjustments to our comp plan that are essentially neutral, but that made the role more attractive and we're ready for AEP.

Got it. And any differences in terms of how the hiring will -- sorry, the training will like rollover, over the course of the next, what, 4-ish months?

Yes. So I mean, we'll feel some of that training expense in Q3 for sure, as these classes -- these last classes are in training and then are of lower productivity as they begin to ramp. So, we'll feel the full brunt of that, which was driving the Q3 EBITDA that John talked about. But we believe that bringing these agents on earlier based on the experience we've seen in prior years and prior training cohorts will allow them to be more effective during the AEP certainly than some of the classes we brought on, on the external side late in the year last year.

The next question comes from the line of Steven Halper from Cantor. Your line is open.

Just a question on the tail revenue. I guess that explains why the PDP revenue was negative in the table. But on the $16 million rough number in IFP tail, what buckets were those in?

Buckets, meaning products or buckets, meaning age of cohorts?

No, no, no. What products?

The products, it was across the line. So in regards to the tail revenue for IHP, it was with our non-qualified plans with dental, with vision. It was all across the line. We continue to see much stronger retention than our estimates have been. Driven by COVID, I think we've been cautious with respect to evaluating how those are trending, but they continue to trend quite favorably. And so, that was the rationale for the tail revenue that you see this quarter.

Does it hit small business also?

To a lesser extent, yes, too much lesser extent for a small business.

And the other question is regarding Q3, you said, total revenue would be basically flat sequentially with Q2. Is that correct?

Correct.

Okay. And then so what's implied in your -- the LTV assumption underlying that number?

So, we're expecting to see growth in the back half of the year for LTVs. So, I think one of the things that Kate had mentioned earlier as well, we feel very comfortable with the LTV valuations that we have. So, we don't see exposure in those LTVs. We also think that there's opportunity for growth in those LTV values in the back half of the year, both for Medicare and for non-Medicare as well.

Next question comes from the line of Frank Morgan from RBC Capital. Your line is open.

I wanted to go back to this change in the Medicare revenue and profitability assumptions. Just wanted to make sure that was solely related just to this change in the PDP assumptions and incremental investments. There was no change to anything else like enrollment or LTV?

That's correct.

And maybe while we're on the hate to harp on the PDP, but could you tell us what were your previous assumptions? And what are your assumptions going forward as it relates to that segment for LTVs?

So, I think as it relates to PDP, we saw incremental churn that we had not anticipated. So we've updated those estimates. So we don't believe there is significant exposure with PDP going forward. So, we're very comfortable with those levels of LTVs. We also have tail potential with some other Medicare products that we also monitor. So I think overall, we're very, very comfortable with our LTV values for the rest of the year.

Okay. And that was actually my next question was, what's driving the expectation for the tail revenue growth in -- is it just Medicare? Or is it specifically MA?

It's with Medicare Advantage, primarily. Just tracking our estimates, I think we have our LTV values we track and we monitor them and we recognize tail revenue when we feel comfortable that there won't be a reversal. And so, I think as we're looking at analyzing these, we think that there's some potential opportunity for modest level tail revenue in the back half of the year.

You want to put a number on that by chance just kind of a broad generalization of kind of what you might expect to see there?

No, I don't think we typically guide. I mean, it's not something we guide to because these are valuations that we update every quarter. So, it's not something that we guide to.

Got you. And then I noticed a fairly significant increase on the technology and content expense in the quarter. Any color about what's going on there?

Yes. This is Phillip Morelock. We had significant onetime investments in terms of our cloud migration. It's a big priority for the year. We've invested in our cloud-based contact center. We also made significant investments in our customer center, our e-commerce platform. We anticipate those will normalize relative to revenue for the back half of the year.

Got you. And then as it relates to the sales force additions, it sounds like that's mostly in place. How do you envision that playing out in terms of return to work versus working from home? What percentage of this now permanent sales force you think will actually be back in your call centers versus working from home?

It's a great question and something that we're continuously evaluating. I mean, the good news is, we have trained our entire workforce to be capable in a remote environment, so most people have been through some period of either working force remote, being trained remote. And we are opening up our call centers to the vaccinated population for the back half of the year and some are comfortable with that, some are not. So, we'll get leverage out of having people in the office, but we don't expect any impact to performance for those that have to remain at home.

Got you. And one final one here. You talked about the carriers looking for higher-quality business, are there any kind of potential carrots or sticks that might go with that in the future? Have there been any discussions around changing compensation structures based on the quality of the business has? Thanks.

Yes, Frank, this is Scott. No pressure or suggestion that commissions would decline in any way. The carriers are not reducing their focus on wanting to grow their market share. They just want to do so while ensuring an improving customer experience and reduced complaints. And so, will they subsidize the broker channel more aggressively, potentially, but those are discussions that are in the early stage.

Got you. And just to go back to this one issue, again, about the tail revenue. The tail revenue down by $11 million, but the revenue guide down is about $20 million. Could you kind of square that up with us?

Sure. This is John. I'd say, we're -- obviously, it's something that Tim had mentioned earlier in regards to looking at the forecast and being conservative, as we're going into the back half of the year. I think that took advantage of that opportunity as part of this process.

There were also the incremental costs that Scott called out around customer quality that play a role there in.

Right, but that would be cost not revenue, right?

Yes, that's correct. Yes.

So, the delta between the 20 and the 11, what would that be on the revenue side?

I think we're taking advantage of trying to be conservative with our projections going forward, as we're looking to train and bring new members on board as well. I think that process is something that we're working through in the back half of the year, and so we thought it would be prudent to do so.

Frank, the most important moving piece was, we didn't want to increase the overall guidance. As John and Scott both mentioned, I want to be conservative. And when we looked at where our IFP guidance was, we were already at our guidance after the first two quarters of the year. So really, the only way for us to maintain the guidance was to reshuffle the segments. So that's probably why you might have some -- a little bit trouble on the top line. But a big piece of that actually was the tail of revenue that would addressed in the beginning. So, IFP tail revenue is well ahead of our estimates and Medicare tail revenue specifically in the PDP product is below.

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

Maybe if we can go back a little to the IFP segment. Even stripping out the tail revenue, it was strong, and it was strong last quarter too. Just curious, if you can give us some more guidance on how we should think about that business going forward, not just for '21, but '22 and beyond? Is there some temporary things that happened this year that will not repeat next year and maybe some things are made permanent? Can you just give us some guidance on how to think about that? And are you going to increase investment in that platform, so folks can actually get subsidies through eHealth that are actually being redirected to a partner site?

Sure. This is Tim. I'll start off and others can join in. So to the last part of your question, are we increasing investment? Yes, we are increasing some of our investments in the IFP space. What's great about that business for us is that most of those enrollments come online. So, we've been able to capture this extra demand without having to staff up call center agents like we would in the Medicare part of the business. And I think the outlook is going to be driven like you said, by some of the regulatory -- or the legislative environment. So, this has certainly been changed by having more people be subsidy eligible. If that were to persist going forward, this market would continue to be very attractive for us. We continue to see longer persistency and now faster enrollment growth. So, we've stayed in this business, expecting a moment like this might come. I think as we get clarity on what the regulatory environment will look like going forward, we'll calibrate our investments. But we're taking advantage of the opportunity in the short term for sure.

Got it. Okay. Okay. And I guess, sticking with that regulatory or legislative framework, there's talk that Democrats will introduce a bill that adds dental vision and hearing in reconciliation. I wanted to get your read on how likely that is to pass and how that may impact your Medicare business if it were to pass.

Well, I can't speculate on the likelihood of legislation. Right now, it doesn't look like the polls exist on the Democratic side to get the $3.5 trillion partisan bill passed. But if it was, that's a substantial expansion of benefits that would make MA even more popular for seniors. So it would be a substantial enhancement to Medicare Advantage. We think it would accelerate that migration that's already occurring from traditional fee-for-service to Medicare Advantage.

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

I wanted to start out and ask if the '21 enrollment in revenue growth rates continue into next year and beyond, when would the Company turn cash flow positive?

So, we're still expecting to be cash flow positive in 2023. And we, as we noted in the script, are sitting at $305 million of cash on hand, and we expect the cash that we have raised to take us to cash flow positive.

Okay. What is pure online enrollment, and I'm curious, if there is an interplay between that figure and your relatively, I guess, short experience having the customer center up and running?

So I don't think we're breaking out the growth or the share that is coming from the online unassisted by itself. In terms of the interplay between the growth of that and the customer center, I don't think it's affecting the growth rate of the product or the adoption of online unassisted. But what we are seeing is enhanced retention and utilization of those members who have the customer center. Maybe Philip, if you want to expand on that.

I think that's right. It's a far greater lever for us in the near term there is retention those years. But in addition, having a full suite of offerings for consumers year-round in addition to kind of the core shopping period, we should see over time, greater conversion rates and greater offerings for consumers in the online space.

The one additional point is the online unassisted over-indexed to new to Medicare, which are favorable first year economics and cash flow. And you can see that show up in the improved cash collections.

Okay. And just a broad question and I'll leave it simple. What are your thoughts on industry consolidation?

Well, I think that the major players here are gaining share and have critical mass and are scaling. And so, from my perspective, it's healthy that there are three publics that are well funded, well managed in our sector. We each have slightly differentiated business models. As we highlight, we're technology-driven. We have a consumer at the center of our all ambitions and we have a choice model. So, we have a slightly different model than our competitors. But we think it's a net positive that there are strong wealth funded competitors because the carriers can increasingly rely on this channel for consumer engagement, and they can focus on what they do best, which is underwriting and delivery of care. So, we think it's healthy to have competition, and we want to be the leader.

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

I guess, Tim, first, I would ping you on -- could you throw some numbers around retention versus churn? I know the churn number, Jailendra brought it up earlier, was up modestly kind of sequentially. But could you talk a little bit about the Company's initiative on kind of retention of people who are turning versus what the churn stats looks like?

Yes, I mean, as you know, it's a very -- there's a lot of moving parts that sort of sum up to that churn number. And we are having success in some places and less in others. So, we are seeing some of our older cohorts certainly start to retain at higher and higher rates. So, we're doing a good job of doing outreach to some of those members, keeping them in plans, answering their questions more effectively than we ever have before. But then, there's other cohorts, particularly those around the middle of last year related to COVID that are sort of creating a counterbalance or offsetting some of the goodness that we're seeing there. So, we have seen improvement in many of our cohorts and some surprisingly weak results around those particular cohorts, and we're always learning. So we're figuring out, well, which channels do, we drive those people in from. How did they -- who do they interact within the call center, how can we enhance that call center experience and some of the additional things that we're putting in this quarter are geared around the insights that we've uncovered as we've looked at it again. So, it's hard to sort of explain all of the puts and takes, but we think that we're making progress in a lot of different areas that we've identified more areas to take forward. But until we start to drive that number down, we certainly won't be satisfied with what we're seeing.

That's helpful. I guess, Scott, one for you. As you guys have continued to build out the sales force, an employed sales force versus a contract sales force, have you seen significant wage pressure given that it seems to be a topic of conversation everyone else?

Not significant. We did slightly change our compensation to favor the highest quartile of performers and took that compensation out of the bottom quartile. We call it, Feed the Eagles, Starve the Turkeys, strategy. And so, its net neutral as Tim observe, but we should point out that our target comp is in the $75,000 range. So, we're not competing against the entitlements that make it -- and for some service workers, for example, sort of on the margin of whether it's worth it to work or not. And remember that these roles can also be fully deployed from home. So, these are highly attractive jobs. And so far, we haven't seen wage pressure. And as Tim pointed out, I just say lastly, George, we have fully achieved our hiring quotas for the full AEP here through now through today.

That's helpful. And then I guess just two housekeeping items to make sure I understand them correctly. The PIK dividend that was reported in the quarter, that will effectively be the run rate that we should model going forward, is question A. And question B, the negative PDP revenue is effectively a true-up, right? So, any tail revenue that we could see in the back half of the year is the reflection of basically Medicare Advantage lives, not PDP lives? Just want to make sure, I understand those two things conceptually, right?

Sure. So, the preferred stock we closed at the end of April, so it's not the run rate for the PIK dividend. So, the PIK dividend is going to be higher for to end up for Q3 and Q4. We said, in total, for the PIK dividend as well as the accretion charge, it's roughly $7 million each quarter for both of those items.

Okay. And then I think yes, that's perfect. And am I thinking about the negative revenue adjustment rate. It's basically a true-up for lives that have turned off and on into Medicare. And if there's tail revenue that comes in, it's MA-related not PDP related?

That's correct. That is correct. Sure.

Our last question comes from the line of Steven Halper from Canter. Your line is open.

That was my last question. So thank you, George.

I'm showing no further question at this time. I would now like to turn the conference back to Scott Flanders.

Thank you everyone. We look forward to catching up with you in our scheduled calls.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and have a wonderful day. You may all disconnect.