eHealth, Inc. (EHTH) Q3 2026 Earnings Report, Transcript and Summary

Hello, everyone. Thank you for joining us, and welcome to the Q3 2026 eHealth, Inc. Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Eli Newbrun-Mintz, Senior Manager of Investor Relations. Eli, please go ahead.

Good afternoon, and thank you all for joining us. On the call today, Derrick Duke, eHealth's Chief Executive Officer; and John Dolan, Chief Financial Officer, will discuss our third quarter 2026 financial results. Following these prepared remarks, we will open 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 or 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, except as required by law. 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 will turn the call over to Derrick Duke.

Thank you, Eli, and good afternoon, everyone. Our third quarter results were in line with our expectations and reflect our 3 priorities for 2026, implementing our Lifetime Advisory Model, materially improving our cash flow profile and laying the foundation for a return to sustainable growth beginning next year. Third quarter revenue was $21.3 million. GAAP net loss was $35.9 million and adjusted EBITDA loss was $39.9 million. This year, we have intentionally reduced Medicare-related marketing outside the primary enrollment periods. This allows us to concentrate demand generation investment in the months offering the highest expected returns, while giving our licensed benefit advisers greater capacity to engage with existing members during the balance of the year. In addition to lower variable spending, our third quarter results benefited from a 17% year-over-year reduction in fixed cost, which we define as the combination of our technology and content and general and administrative expense lines. Most importantly, our operating cash flow increased significantly to $19.6 million for the first 9 months of the year, compared to $10.6 million for the same period a year ago, nearly doubling. Fourth quarter operating cash flow is currently expected to also show a meaningful improvement compared to Q4 of '25. As a result, we believe we're still on track to generate breakeven or better operating cash flow for the full year. As we have said on previous calls, the seasonality of our revenue and earnings is more pronounced under the Lifetime Advisory Model. And while Q3 was seasonally low in terms of revenue, it is one of the most important operational quarters as we prepare for the annual enrollment period. This AEP, beneficiaries are seeing another cycle of significant changes to Medicare Advantage plans, and we anticipate consumer shopping to remain strong. At the same time, we believe there are industry trends that point to sector stabilization starting next year, which bodes well for beneficiaries and Medicare brokers. Carriers are operating in a more predictable environment with a greater understanding of the levers available to balance growth and profitability. Medical loss ratios for certain key carriers have also begun to improve as reflected in their earnings reports year-to-date. We are seeing emerging growth mandates from carriers focused on specific plan types and geographies. Importantly, sponsorship revenue is beginning to return gradually this AEP, reflecting the value carriers continue to place on high-quality distribution partners. We are also seeing increased interest in our carrier-dedicated Amplify business. During the quarter, we signed a new BPO agreement with a top 3 Medicare carrier to provide carrier-branded enrollment support during AEP. We expect both sponsorship revenue and this BPO relationship to begin contributing revenue in the fourth quarter. Taken together, these developments suggest that in '27, the Medicare Advantage market could be emerging from a period of disruption and starting to shift toward a disciplined growth environment. We believe eHealth is well positioned to benefit from that transition through our strong carrier relationships, emphasis on enrollment quality and consumer engagement and broad geographic presence. In Q3, we completed our pre-AEP adviser hiring and conducted key training processes through our extensive Sales Mastery University program. During the quarter, licensed advisers reached out to existing members to review annual notices of change, identify potential gaps in coverage and introduce relevant ancillary products. These activities reflect the broader role our advisers are playing under the Lifetime Advisory Model, supporting members not only at the point of enrollment, but throughout the year as their health care and coverage needs evolve. We continue to see encouraging early proof points of our Lifetime Advisory Model. Ancillary cross-sell rate exceeded 40% in the third quarter, nearly doubling year-over-year. We're also seeing a positive retention impact, including improved first 90-day retention for policies enrolled by our advisers since its launch. While these indicators are based on a small sample size, they reinforce our conviction that a deeper member adviser relationship can improve consumer experience, while supporting retention, ancillary product revenue and member lifetime value over time. Our Medicare Matchmaker brand continues to resonate with beneficiaries and represents an important competitive advantage in an industry where distribution has historically lacked meaningful consumer brand recognition. In the fourth quarter, we expect branded channels to drive the majority of our AEP applications similar to last year. These channels typically produce high-quality enrollments and serve as an entry point to a lifetime advisory relationship. On the product side, we launched Content Genius, an AI-powered platform that streamlines how we gather, validate and publish information for thousands of Medicare Advantage plans from our broad network of insurers. This information is leveraged by our proprietary plan recommendation technology, which powers both the consumer-facing online experience as well as tools used in adviser-assisted applications. This new tool has already significantly improved content loading speed with comparable accuracy, while reducing the cost of content processing, a major undertaking ahead of every AEP that used to be labor-intensive. Alongside our Medicare priorities, we continue to advance the diversification initiatives that we expect to contribute more meaningfully to our growth over time. Individual coverage health reimbursement arrangements, or ICHRA, remain an important part of that strategy. Based on a recent survey conducted by eHealth, 54% of small and midsized businesses offering group coverage are facing premium increases of 10% or more for 2027. 73% of those businesses are considering discontinuing traditional health benefits in 2027, with cost being a key factor. 58% are pursuing alternatives such as level-funded or self-funded plans or ICHRA arrangements. For ICHRA arrangements, the administration recently introduced CHOICE as a new consumer and employer-facing name for this benefit model and launched materials intended to make the model easier for employers to understand and evaluate. We believe greater employer awareness can support broader adoption over time. eHealth is continuing to build the capabilities, partnerships and technology infrastructure needed to participate in the growth of this exciting opportunity in a disciplined and capital-efficient way. In Q3, we announced a partnership with BerniePortal, a human resources and benefits administration platform. Through the partnership, more than 5,000 employers and 1,000 insurance brokers working with BerniePortal are expected to have access to eHealth for a needs analysis and support in evaluating CHOICE arrangement options. The integration of our platforms is intended to create a more seamless experience for employers, brokers and employees, while making it easier for employees to compare their individual coverage options. The third quarter also marked my first full year as CEO of eHealth. Over the past year, we've taken a number of important steps to strengthen the company and position it for the future. We launched the Lifetime Advisory Model, began transitioning the organization toward deeper, more durable member relationships, and continue to build our diversification capabilities. We implemented a cost reduction program that is on target to reduce 2026 variable and fixed operating costs and expenses by approximately $90 million compared with 2025. And we established 3-year financial targets centered on expanding profitability and cash flow generation with the goal of returning to sustainable revenue growth beginning in '27. With respect to our balance sheet, the management team and our advisers have recently renewed our discussions with our preferred equity partner, H.I.G., to evaluate specific options for improving eHealth's capital structure. With the earliest redemption date for the preferred coming up at the end of April of 2027, we believe both parties are highly motivated to arrive at a mutually acceptable agreement. It is important to note that the company's redemption obligations related to the preferred equity are subject to certain limitations that safeguard the company's liquidity. This provides the parties with the opportunity to continue discussions towards a suitable outcome that supports the company's operational plans and long-term value. We remain committed to continuing these discussions, and we'll provide updates regarding these discussions as appropriate. In the first 3 weeks of this selling season, we've seen strong consumer demand at attractive lead costs across our platform. Our agents are balancing volume targets with an emphasis on member engagement and retention, essential elements of our Lifetime Advisory Model. The most critical part of AEP remains ahead of us, and the entire organization is focused on successful execution. Thank you to our employees for their hard work and commitment, and to our shareholders and business partners for their continued support. I'll now turn the call over to John.

Thank you, Derrick, and good afternoon, everyone. Our third quarter results were in line with our expectations and reflect the implementation of our Lifetime Advisory Model and the impact of the cost reduction initiatives we have executed throughout the year. The 85% year-over-year improvement in operating cash flow through the first 9 months of 2026 demonstrates the meaningful progress we have made towards sustainable cash flow generation. During the quarter, we also laid the operational groundwork for a successful AEP with coordinated readiness efforts across the organization focused on supporting our members, capturing high-quality demand and executing efficiently during this critical enrollment period. As Derrick noted, we have engaged external financial advisers to support our discussions with H.I.G. and to evaluate opportunities to further improve our capital structure. Pivoting now to our third quarter results. Please note that unless otherwise specified, all financial metrics refer to our third quarter results and all comparisons are on a year-over-year basis. Medicare segment revenue was $18.1 million, a decrease of 64%, primarily reflecting lower enrollment volume and lower net adjustment or tail revenue. As we have discussed throughout the year, we are intentionally concentrating our Medicare marketing investment in the primary enrollment periods when consumer demand is highest and our expected returns are most attractive. Consistent with that strategy, Medicare variable marketing and advertising expense declined by 73%. Medicare customer care and enrollment expense was 24% lower, reflecting the flexible staffing model we have implemented to better align our sales organization with seasonal enrollment patterns. At the same time, customer care and enrollment expense did not decline at the same rate as application volume. This reflects our decision to retain our core career advisers throughout the year, while using seasonally lower volume periods, the second and third quarters to engage existing members. It also reflects our investment in hiring and training new advisers ahead of AEP. Total Medicare applications submitted declined 55%. Medicare Advantage applications declined 58%, while Medicare Supplement applications declined 23%. Although application volume was lower, we continue to see encouraging early indicators from the Lifetime Advisory Model, such as our ancillary cross-sell rate, which is more than 40%. The ratio of third quarter Medicare segment revenue to Medicare variable marketing and advertising costs was 3.9x, up from 2.9x. The ratio of Medicare segment revenue to total Medicare variable acquisition costs, including variable marketing and advertising and segment CC&E expenses was 0.6x, down from 1x in the third quarter of 2025. Medicare segment gross loss was $12.7 million, compared to $1.2 million. The change primarily reflects lower tail revenue. Medicare tail revenue was $1.5 million, down from $12.1 million. Medicare Advantage lifetime value, or LTV, declined 2%. Despite declines in tail revenue and Medicare Advantage LTV, we are seeing encouraging initial retention trends under the Lifetime Advisory Model. The second quarter was the first full quarter under the new model. Policies enrolled in the second quarter by our career advisers following the launch of the new model have experienced lower churn during the first 90 days as compared to the same period last year, a critical period for a Medicare Advantage policy. We also continue to see strong year-to-date retention for the January 2026 effective policies enrolled during the most recent AEP. This cohort is performing better than the comparable prior year cohort, despite significant plan changes across the Medicare Advantage market. Turning to our Employer and Individual segment. Revenue was $3.2 million, compared with $3.9 million last year. The segment gross profit was $0.1 million, compared with $1 million. As Derrick discussed, we continue to invest selectively in the partnerships, technology and infrastructure needed to participate in the growth of CHOICE arrangements. We remain disciplined in the pace of that investment as we work toward our goal of building a scaled and capital-efficient offering. Turning to our overall cost structure. We continue to track toward our goal of total 2026 cost savings of more than $60 million and fixed cost savings of approximately $30 million. Combined general and administrative and technology and content expenses declined 17%. Total marketing and advertising expense declined 55%, while customer care and enrollment expense declined 22%. Total operating costs and expenses declined 29%. The work we are doing goes beyond reducing expenses in the current year. We are establishing a more efficient cost structure designed to produce operating leverage for our planned return to top line growth in 2027. One of the ways we are controlling our fixed costs is through investment in AI, including the third quarter introduction of our AI content loading initiative, Content Genius. At the same time, we continue to protect the capabilities that are critical to our long-term strategy, including our technology platform, consumer brand, carrier relationships and core adviser base. Turning to cash flow and the balance sheet. Third quarter operating cash flow was negative $11.2 million, a $14.1 million improvement from negative $25.3 million. We ended the quarter with $88.1 million in cash, cash equivalents and short-term marketable securities, compared with $101 million at the end of the second quarter. Our commissions receivable balance as of September 30 was $970.6 million, compared to $907.7 million. We believe our liquidity, significant commissions receivable balance and improving cash flow profile provide a solid foundation for executing our operating and strategic priorities. Based on information available today, we are reaffirming our fiscal year 2026 guidance ranges. We are also updating our expectations for 2026 net adjustment revenue to be in the range of $17 million to $20 million, up from $16 million to $20 million to reflect the $1.4 million in tail revenue that we recognized in the third quarter. You can reference our guidance ranges in the third quarter earnings release and slides posted on the Investor Relations section of our website. Beyond 2026, we remain focused on the longer-term financial objectives we established earlier this year, including our goal of returning to mid-single-digit revenue growth in 2027, accompanied by expanded adjusted EBITDA margins and positive operating cash flow. We look forward to updating you on our progress following the completion of AEP. With that, I'll turn the call back to the operator for questions.

[Operator Instructions] Your first question comes from the line of Ben Hendrix with RBC Capital Markets.

This is Michael Murray on for Ben. Just looking at the midpoint of your reaffirmed guidance ranges, it looks like you're expecting some year-over-year margin expansion in the fourth quarter despite revenues continuing to decline year-over-year. I wanted to see what's driving that margin expansion. Is this more of a result of your Lifetime Advisory Model, where maybe you have some softer margins in 2Q and 3Q, and then stronger margins in 1Q and 4Q?

Yes. Thanks for the question. I'm going to turn that over and let John take that one.

Michael, thanks for the question. Yes, we're -- as we're looking at the full year, we are looking at the reduced marketing spend and the -- really focused on our cost of acquisition, maintaining the most efficient costs as we generate the demand generation for our advisers.

Yes, Ben, I would also say, this is Derrick. I think it's just generally a reflection of our focus on our cost reduction, improving efficiency, the AI tools that we have launched during the year that's helping drive down administrative costs. I'll also just note that while we're certainly early in the AEP cycle, and as you know, the later we get into the cycle, the higher the volume becomes. But our early indications is our cost per calls and cost per visits are favorable at this point. And so all of those things are leading to the improved margins.

Okay. And just a follow-on on AEP. Just wanted to see if you could give us an early read on volumes relative to your expectations?

Well, just as you just mentioned, we have just reaffirmed our full year guidance. We're on track to deliver those targets. Again, while reiterating what I just said, we understand that the most important weeks of AEP are still ahead of us. We are seeing strong consumer demand. Our brand continues to resonate with consumers. Certainly, the plan changes and plan terminations in the market is leading to high levels of consumer shopping. At the same time, though, as you know, we've made an intentional decision walking into 2026 to reduce our capacity. That's part of the reduced variable spend year-over-year of the $60 million to focus on operating cash flow and the implementation of our Lifetime Advisory Model. As a part of that model, that sales operating model change, we're balancing volume targets. We're emphasizing enrollment quality, member engagement and retention of our existing members, all of those things, which we believe align with where our carrier partners are focused.

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

Derrick, you mentioned emerging growth mandates from some of the carriers. I wondered if you can go into a little bit more detail there. And then on the -- more of a marketing timing question, we obviously, until today, had a plethora of ads in front of us around the political season. I'm curious if you held off on a lot of your marketing until now as a result of that.

Yes. George, great to hear from you, and thank you for the question. So I'll take the first one, and then I'll let Michelle speak on your second question. So as it relates to our carrier partners and sort of targeted growth, we do continue with multiples of our partners. They've communicated with us leading up into AEP, that there are specific plan types that they want to grow in, there are specific geographies that they want to grow in. As we mentioned earlier, we are seeing an increasing demand for our Amplify services that help. Again, part of that -- the attractiveness of that for carriers is that that turns into a variable cost for them. And so we're able to provide licensed agent capacity, again, in specific geographies, specific types of plans of where they want to grow. And we're really pleased with where that is at this point in the campaign in this year. And we believe what we're seeing in our early performance is going to give us opportunities in '27 and beyond to grow that business and to be, again, an important partner for some of those carriers. Michelle?

Yes. George, nice to hear from you. I'll answer your question on -- it was related to timing of our marketing spend, how we deploy those funds and did we think about, did the election have any impact on that? Really, our guiding principle on our spend is around the best maximizing return and LTV-to-CAC. And so that does play a factor in sort of the timing. And that is how we decide when we are going to be deploying funds throughout AEP. It's not really specific around the election. The short answer is the election didn't really have a significant impact on the timing of our spend or even on the rates. I think we already mentioned, we're seeing really nice favorability in terms of our cost per call, cost per visit. News is a part of our mix, but also very, very strong in daytime and how we think about optimizing that overall channel mix, programming mix, et cetera.

Perfect. And Derrick, you mentioned the LTV down 2%. And I'm just curious with the ancillary focus, does that get embedded into your lifetime value? Or how should we think of the success that you're seeing in ancillary from an economic perspective?

Yes, really good question. It's an important distinction, George. In the LTVs that we're talking about that are down 2% year-over-year in quarter 3, that excludes any ancillary products or ancillary volume for our members. That is exclusively the MA plan. So as we continue to implement the model, we are evaluating sort of new important KPIs that we're not just tracking internally, but I think eventually that we'll begin to share some of those externally. One of those could be thinking about LTV at the member level and not just at the product level. So the LTVs that we're talking about in the release do not take into account ancillary contribution, if you will. And again, as we noted in our release, we're seeing really, really good adoption of both the consumer response, but also the response by our advisers that are taking the time to evaluate needs and to help consumers find the right plans to meet their needs.

If I could just sneak one more in relative to the BerniePortal partnership. How -- can you explain the economics of how that works for you, how your services are part of that platform?

Yes. I'm going to let Michelle take that.

Yes. Happy to speak to that. So BerniePortal is one of the partners that we would work with. Really, we bring joint capabilities to the partnership. So they are an HR benefit administrative platform. They have several broker relationships, employers. They have relationships. They partner with us to offer the broad range of choice, right, in our marketplace. So we can help their employers define ICHRA/CHOICE contribution strategies and then help the employees navigate and make their plan selection. So throughout the partnership, like we both financially, you asked about the economics. There is sort of a PMPM administration per employee, and then there's also the broker commission.

Got you. Okay.

George, just I want to circle back. I should have mentioned this, and I apologize that I didn't, just to frame maybe how to think about the ancillary LTV. I'm just going to give you 2 examples. Obviously, we have more than 2 products. But on our senior dental offerings and plans, you can think about LTVs for that in the approximately $200 range. For our hospital indemnity plan, you can think about that in the context of approximately $300. So again, by themselves, they don't seem all that significant. But when you add $200 to $300 on top of the -- just shy of $1,000 for Q3 MA LTV on no additional marketing spend, it is a significant increase. And so certainly appreciate that question and you highlighting it.

There are no further questions at this time. I will now turn the call back to Derrick Duke for closing remarks.

Yes. Thank you, guys. I just want to say thank you for joining us today and getting important updates on our year-to-date progress on our 2026 initiatives. I also want to thank all of our One Team eHealth employees that show up every day to serve our members. Your dedication and commitment makes a difference in the lives of people that we serve each and every day. As a company, we remain focused on helping our members evaluate the thousands of health care options during AEP and OEP to ensure that they're making the most informed decision possible to meet their health and financial goals. We look forward to speaking with you on our Q4 call post AEP. Have a great afternoon and evening.

This concludes today's call. Thank you for attending. You may now disconnect.