Good day ladies and gentlemen and welcome to eHealth, Inc.’s Q2 2023 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode. The floor will be open for your questions following the presentation. It is my pleasure to turn the floor over to Eli Newbrun-Mintz, Senior Investor Relations Manager. Please go ahead.

Good morning and thank you all for joining us today. On the call this morning, Fran Soistman, eHealth’s Chief Executive Officer; and John Stelben, Chief Financial Officer will discuss our second quarter 2023 financial results. Following these prepared remarks, we will open up the line for a Q&A session with industry analysts. As a reminder, this 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 later today. Today’s press release, our historical financial news releases, and our filings with the SEC are also available on our Investor Relations site. We will be making forward-looking statements on this call about certain matters that are based upon management’s current beliefs and expectations relating to future events impacting the company and our future financial operating performance. Forward-looking statements on this call represent eHealth’s views as of today and actual results could differ materially. We undertake no obligation to publicly address or update any forward-looking statements in future filings or communications regarding our business or results. The forward-looking statements, we will be making during this call are subject to a number of uncertainties and risks, including, but not limited to those described in today’s press release, and in our most recent Annual Report on Form 10-K and our subsequent filings with the SEC. We will also be discussing certain non-GAAP financial measures on this call. Management’s definitions of these non-GAAP measures and reconciliations to the most directly comparable GAAP financial measures are included in today’s press release. With that, I’ll turn the call over to Fran Soistman.

Thank you, Eli and thank you all for joining us this morning for eHealth’s second quarter 2023 earnings call. eHealth delivered strong Q2 results with revenue and profitability ahead of our expectations, driven in part by positive tail revenue, which reflects favorable commissions and persistency trends in our book of business. We are well on track in our preparations for the annual enrollment period, and I’m confident in eHealth’s ability to execute against our goal returning to Medicare enrollment growth on a significantly improved operational and cost foundation in the fourth quarter. Based on our strong performance year-to-date, we are raising our 2023 annual guidance ranges for total revenue, GAAP earnings, and adjusted EBITDA. The Medicare market represents an attractive growth opportunity for eHealth. As we continue to successfully execute on our transformation plan, we believe we are in a strong position to effectively grow our share of a Medicare opportunity at favorable economics. Importantly, we believe that distinguishing eHealth as a trusted advisor for beneficiaries and as a reliable source of high quality enrollment volume for carriers is key to our success over the coming quarters and years. Carriers continue to offer a significant choice of Medicare Advantage plans with a wide range of coverage features, premium points and supplemental benefits. Recent public commentary from major carriers reinforces their ongoing commitment to the Medicare Advantage business and delivering superior value in health outcomes to seniors. We believe that recent developments including changes in star ratings, risk adjustment models and CMS reimbursement rates may lead to shifts in the carrier’s competitive landscape during the upcoming AEP and create additional need for trusted advisors like eHealth to help beneficiaries understand the implications, the plan changes, and evaluate their coverage options. eHealth is actively engaged in planning sessions with our carrier partners…

Thank you, Fran. Second quarter results came in ahead of our expectations driven primarily by the positive adjustment revenue we recognized in the quarter and important validation are commission’s receivable asset. Q2 results also reflect the work in preparation for the upcoming AEP, including hiring and training of new benefit advisors. Total revenue for the second quarter was $66.8 million, an increase of 32% compared to the second quarter of 2022. This includes Medicare segment revenue of $55.4 million, an increase of 35% year-over-year and revenue from our Individual, Family and Small Business Group segment of $11.3 million, an increase of 21% over the same time period. Positive net tail or adjustment revenue was $18.7 million, including $13.4 million in the Medicare segment and $5.3 million from the IFP and SMB segment. Excluding the impact of the tail, second quarter revenue was within our expectations. As Fran mentioned in his remarks, we have over $170 million of cumulative tail revenue produced since we implemented ASC 606. The tail recognizes quarter in our Medicare segment is in large part related to the two most recent complete January cohorts. We see this as further proof of the stability of our LTVs and believe it should give investors confidence in our contract asset receivable. GAAP net loss of $23.5 million, improved from $37.5 million in Q2 2022. Adjusted EBITDA loss of $14.8 million improved from a loss of $33.3 million a year ago. These improvements in our earnings were driven by stronger revenue as well as operational enhancements and impact from our 2022 transformation efforts. Turning to the Medicare segment, second quarter enrollments across all Medicare products declined 30% year-over-year in line with our expectations. Similar to the first quarter, this enrollment decline reflects a reduction in our marketing spend and productive agent…

Thank you. [Operator Instructions] The first question comes from George Sutton of Craig-Hallum. Please go ahead.

Thank you. John, I wondered if you could address the thoughts on LTVs going forward, given the tail revenues are suggestive obviously of you’ve been under betting on the LTVs here to four, and you also mentioned the most recent cohort was performing better than expected, which also would technically influence LTVs, so can you walk through that for us?

Sure George, thank you for the question. I think on the LTVs in our guidance, we had a view of what LTVs, where they’d be headed. I think that as you think about the January 2024 cohort and the recent CMS commission increases that was a little bit lower than probably we expected, but that’s going to be offset by the more positive retention we’ve seen and underneath that some carrier mix. So we feel good about the LTVs being sort of flat to maybe slightly above where we were running last year, but those are the main reasons.

Fran, you mentioned that you had some incremental thoughts on the CMS rules as they were laid out from what you had discussed on the last quarterly call, could you just share what those incremental thoughts are?

Good morning, George. Thanks for the question. Our views have not changed much in the quarter. There still remains the CMS marketing guidelines to be published, and I think it really comes down to one component of the 48-hour rule, and that specifically is with respect to whether appointments are necessary when a beneficiary is responding to, say a postcard or some other direct mail or other marketing communications. Most of our volume is really inbound that does not require the 48-hour scope of appointment. So we still feel very good about that situation. That said, we’ve increased our appointment setting capabilities because we think that it’s a value-add for customers, prospective customers to, we’re a society that likes instant gratification. We – our patience is warned if we’re waiting on call by scheduling they can focus on, what’s on their mind, what they need, insurance on or whether they’re in a shopping mode, and we can be very efficient about that. So, but back to your the main point of your question, I don’t think there’s going to be anything or shattering when the guidelines come out. We think this, that’s the very manageable situation.

Got it. If I could just sneak one more in, you mentioned your large carrier deal was beginning but, I believe you had a program with them last year. Can you just talk about the year-over-year expectations relative to that situation?

Happy to George. Again, the customer in question, we hate to be so sort of cryptic about it, but we’ve been asked not to disclose the relationship by that particular customer. We currently support them in a call overflow capacity today. That changes to a dedicated carrier arrangement. So essentially we become their primary source for closing their leads. That’s, something, we’re really excited about, number one, it plays to our strengths and while the structure of the arrangement will be changing after the first year into more of a fee based, we’ll be in a broker of record relationship with them during the AEP. Is that helpful?

Perfect. That is. Thank you very much.

Sure.

Thank you. The next question comes from Jonathan Yong of Credit Suisse. Please go ahead.

Hey, thanks for taking my question. I’m just curious if you received the first early look at the carrier benefit design and changes for the upcoming AEP season, and how does it track relative to your expectations prior years, and any thoughts on what it may mean for the overall market based on what you see so far?

Good morning, Jonathan. It’s Fran. Let me start this off. Thanks for the question. We’re still in the process of meeting with our robust carrier options. The team is still having meetings with both some of our largest carrier partners as well as some of the regional and local carriers. So it’s pretty fluid at this point. That said, early indications are, if you’ve seen one, you’ve seen one, meaning one carrier in one market. I think it’s oftentimes lost in the conversation that we tend to describe like star scores and on averages, when in fact they vary on a contract by contract basis, which is usually the notes are a defined geography. So, as I’ve said in my earlier remarks, I think it’s going to play out that, they’re going to be markets where certain carriers are very strong and markets where they may not be as strong as they were this year. So it’s, I wouldn’t draw any final conclusions other than it’ll be an opportunity for customers to do a market check and make sure those existing MA customers are getting the best value either for zero premium or for the out-of-pocket cost that they’ll incur.

Okay, great. And then just going into, just seeing a question on those conversations so far, are the carriers looking to provide additional resources via ad dollars or perhaps increasing the commission rates closer to the maximum? Just any color on how they’re discussing, the environment, give it some of their changes, et cetera?

I would say this, Jonathan, it’s very clear to us that the, there’s a much valued relationship that we have with our carrier partners. They value us, they need us to support their growth objectives, particularly when situations where there’s a bit of a, reset in some, among some carriers and in some markets. So it’s not just the growth, its retention. And our view is that if the beneficiary is in the right plan, then we want to encourage them to stay in that plan with that particular carrier. If there’s better opportunities that meets all their other requirements and needs, then of course we’ll help them through that process. But in terms of specifics, ad dollars, it’s still very early in the process. I’d say over the next 45 days, a lot of that will be locked down. We’re about 68 days out from the start of AEP or about 57 days out from the start of the marketing period October 1st. So, we’re progressing on track and I think that carriers certainly are going to do what they think is right for their companies to make sure that they’re in the best possible position for AEP in our relationship.

Great, thanks.

Thank you. The next question comes from Daniel Grosslight of Citi. Please go ahead.

Hi guys. Thanks for taking the question. I want to stick with that line of questioning really on shopping behavior, and I think you’ve been pretty consistent about this since the star scores changes were enacted and the ANOC [ph] rate notes came out. But just given the greater differential and benefit design, I think it’s pretty clear that we’ll likely see some increase shopping this AEP, which is a double-edged sword, right? You’ve got more people coming to your platform and potentially buying, but potentially more churn as well, that’s going to be offset by some of your retention efforts. So I’m just curious, net-net you’re thinking about churn for this AEP, how that may impact LTVs just for the 4Q. And then if you can give any metrics around your recapture rates historically and what you’re expecting for this AEP, that would be very helpful as well.

Good morning, Daniel. Thanks for the question. I feel more confident despite the fact that, as you’ve characterized, and I think your characterization is fair. The key is knowing, which geographies could be most disruptive among the carriers. So, and it’s not something you wait until the annual notice of change, the ANOC comes out this month and beneficiaries start getting notifications of how their current plan will be impacted by changes that carriers are making for next year. We’ve been focusing, as I’ve shared in earlier calls, we’ve been focusing on new retention strategies so that we are touching our customers with greater regularity. And we know that that’s sometimes is more challenging than others because people don’t like to answer the phone. So we have to use email text and other marketing communications to remind them that we’re here for them. So we’re on offense and defense, and I think that will be our strategy throughout AEP. As far as the recapture, historically companies been around 10%, I think that there is great upside to that, and just as we are demonstrating our ability to improve persistency, I think the recapture rate will not retreat, I think it’s every opportunity for us to go on offense and make sure that we recapture much more than what we’ve done historically.

Got it. Okay. And then just a quick one on the increase in CC&E per MA equivalent member this quarter. You mentioned kind of you’re hiring earlier this year, you have less productive agents this quarter on your platform, and historically, can you just remind us how the hiring changed this year versus last year? Because last year you were hiring earlier as well, and if there were any changes in compensation or talent pool makeup that drove that increase? Thanks.

Sure. Going back to last year, we right sized the organization largely in the CC&E, the sales organization. So that began in April of last year. So throughout the second quarter, we were removing agents. So the ramp was, I’d say smaller than this year. We are largely completed in terms of all of the incoming classes. We had a very successful sales recruitment effort. Our HR team really came through in a big, big way as well as our sales supervisors who do the interviewing and the ultimate determination of who they want on their teams. So I’m pleased with our progress. The – our training activities and initiatives are so much more developed this year. We continue to build on success from last year, but taking its new levels. So, I think we’re going to have kind of a better training camp, if you will, as we prepare for the selling season. And we should see, start to see some of that in the third quarter, because we want to give our new benefit advisors as many opportunities to sell as possible leading up to October 15.

Got it. And were there any changes in overall compensation structure or levels as well?

Look largely, no. And the reason for that is as I know you, you recall, I believe we are remote first, and I believe that that remote first operating model for the sales organization allows us to manage where there may be some cost pressures in certain markets we can work around that. We want to make sure we’ve got quality benefit advisors representing all the time zones in the United States, so we can meet our prospective customers and current customer’s needs. So I’m not concerned about any cost pressures on the CC&E side.

Yep. Makes sense. Thanks for the color.

Sure.

Thank you. [Operator Instructions] The next question comes from George Hill, Deutsche Bank. Please go ahead.

Yes, good morning guys, and thanks for taking the question. I have kind of another question that’s LTV related. Given that it looks like that we’re moving into a year with higher market share shifts due to some of the issues the plans are having with stars ratings, I guess my first question would be is, how do you guys think that that has a meaningful impact on LTVs in 2024? And do you guys feel like you’re kind of over-indexed to any of the plans that are having star’s issues?

John, why don’t you take that question?

Sure. Let me start with the last part of your question first. We, for the most part, the majority of our commission arrangements are at the CMS Max [ph]. So to the extent that there’s some mix shift between carriers, we think that that could be somewhat muted. The, as we think about projecting our LTVs, and obviously a big piece of that is churn, I like to say persistency instead of churn. But all we can really do is look at our historical data, and as we understand the changes our carriers are making, we try to factor that in as best we can. But again, as I stated earlier, we think that the CMS commission increase, which average was about 1.6% that’s certainly lower than expected. However, as we project LTVs, we do look at our persistency, and how that’s improving then that has a positive impact. So again, overall, I think the LTVs we see to flat to slightly up year-over-year. I’ll stop there. I’m not sure how to expand on that anymore.

No, I think that’s helpful. And Fran, I’d probably ask you a big picture question about industry structure. As there are a couple of publicly traded companies in this space, there’s kind of a fragmented private market. I know that you guys have a little bit of, constrained a little bit around the cap structure and what your investors look like. I guess kind of, do you see any opportunities kind of for industry consolidation where the company could kind of generate excess operating leverage? Or kind of like my big picture question’s kind of about how do you think about industry structure and where we are in industry lifecycle?

Sure. George, I’ll take you back to fourth quarter of last year. I made certain remarks about where the industry is, and where I think it’s going. And I used the phrase, the term inflection point. We reiterated that at our Investor and Analyst Day back in mid-May. We’ve seen it’s almost prophetic because it was that same week we saw some news of financial stress with certain organizations, one declaring Chapter 11 bankruptcy. We know of companies that are looking to exit or have exited others that are looking to divest, but having difficulty. So I think it, if there’s a consolidation, at least the first phase of consolidation is already in motion. And I think there’s every reason to believe that that will continue. Maybe not at the same pace and maybe sometimes where there’s a lot more activity than others. But I do think that this sector is right for some consolidation and I think it will further the rationalization of how these businesses operate. And I think that bodes well for the industry.

Okay. Thank you. I appreciate the color.

Thank you. There are no further questions. I will turn the call over to Fran Soistman for closing remarks.

Well, thank you operator. I want to thank everyone for joining us again today. Appreciate the continued support of eHealth and your interest. We demonstrated in this quarter that the transformation initiatives that were launched more than 16 months ago have really paved the way for a new organizational strategy, and cost structure and approach to this business. We are – I have every reason to conclude that our transformation, our enterprise transformation will largely be wrapped up by the end of this year. There’ll still be some areas where that word may still be used to describe what’s going on. For example, in our old marketing strategy, because we started a little later. But I’m very pleased with the progress the organization has made the health of the company, the organizational health is very, very high, very strong. And that is something we don’t talk about much nor many people talk about in business. But when you look at the ability to navigate difficult, challenging times or opportunistic times the organization of health plays a big role and I’m very pleased with where eHealth is in that process. So again thank you all very much. Have a great day.

Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.