eHealth, Inc. Announces Second Quarter 2007 Results
"The second quarter of 2007 for eHealth is one in which we extended our leadership position in the online health insurance market. Our strong financial performance demonstrates the growing leverage and power of our company's financial model and operational efficiencies." said Gary Lauer, chief executive officer of eHealth.
Second Quarter Results
Revenue-- Revenue totaled $21.1 million for the second quarter ended June 30, 2007, compared to revenue of $14.2 million for the second quarter of 2006, an increase of 48%.
Membership-- New demand, as measured by the number of members approved during a quarter, grew by 32% compared to the second quarter of 2006. Estimated membership at June 30, 2007 grew 41% over estimated membership at June 30, 2006.
Operating Income--Operating income increased to $4.2 million for the second quarter of 2007, compared to operating income of $1.5 million for the second quarter of 2006. Operating margins were 20% in the second quarter of 2007, up from 11% in the second quarter of 2006. Non-GAAP operating income, which excludes the effects of stock-based compensation, increased to $4.5 million for the second quarter of 2007, compared to non-GAAP operating income of $1.6 million for the second quarter of 2006. Non-GAAP operating margins were 21% in the second quarter of 2007, up from 11% in the second quarter of 2006. Non-GAAP operating income and margins exclude $111,000 and $340,000 of stock-based compensation expense in the second quarters of 2006 and 2007, respectively.
Pre-tax Income--Pre-tax income for the second quarter of 2007 was $5.5 million, a 232% increase compared to pre-tax income of $1.6 million for the second quarter of 2006. The provision for income taxes for the second quarter of 2007 was $2.2 million, representing an effective tax rate of 41%, compared to the provision for income taxes in the second quarter of 2006 of $49,000, representing an effective tax rate of 3%.
Net Income--Net income for the second quarter of 2007 was $3.2 million, or $0.13 per share on a diluted basis, compared to net income of $1.6 million, or $0.08 per diluted share, for the second quarter of 2006. Non-GAAP net income for the second quarter of 2007 was $3.5 million, or $0.14 per share on a diluted basis, compared to non-GAAP net income of $1.7 million, or $0.09 per diluted share, for the second quarter of 2006, an increase of 109%. Non-GAAP net income and non-GAAP net income per diluted share exclude $108,000 and $319,000 of stock-based compensation expense, net of income tax effect, in the second quarters of 2006 and 2007, respectively.
Cash Flow--During the second quarter of 2007, cash flow from operations increased to $7.2 million, compared to $3.2 million in the second quarter of 2006. Cash, cash equivalents and marketable securities available-for-sale as of June 30, 2007 totaled $102.8 million, compared to $90.5 million as of December 31, 2006.
Year-to-Date Results
Revenue--Revenue totaled $40.6 million for the six months ended June 30, 2007, compared to revenue of $27.2 million for the six months ended June 30, 2006, representing a growth rate of 49%.
Operating Income--Operating income increased to $6.9 million for the six months ended June 30, 2007, compared to operating income of $2.6 million for the six months ended June 30, 2006. Operating margins were 17% in the six months ended June 30, 2007, up from 9% in the six months ended June 30, 2006.
Pre-tax Income--Pre-tax income for the six months ended June 30, 2007 was $9.3 million, a 237% increase compared to pre-tax income of $2.8 million for the six months ended June 30, 2006. The provision for income taxes for the six months ended June 30, 2007 was $3.8 million, representing an effective tax rate of 41%, compared to the provision for income taxes in the six months ended June 30, 2006 of $72,000, representing an effective tax rate of 3%.
Net Income--Net income for the six months ended June 30, 2007 was $5.5 million, or $0.22 per share on a diluted basis, compared to net income of $2.7 million, or $0.14 per diluted share, for the six months ended June 30, 2006.
Cash Flow--Cash flow from operations increased to $10.6 million for the six months ended June 30, 2007, compared to $3.7 million in the six months ended June 30, 2006.
Updated Guidance
eHealth is providing updated guidance for its full year ending December 31, 2007 based on the most recent information available:
-- Total revenue expected to be in the range of $85 million to $87 million, up from the company's previous forecasted range of $81 million to $84 million.
-- Non-GAAP net income, excluding stock-based compensation expense, expected to be in the range of $12.0 million to $13.5 million, up from the company's previous forecasted range of $10.5 million to $12.0 million.
-- Non-GAAP earnings per diluted share, excluding stock-based compensation expense, expected to be in the range of $0.47 to $0.52 per share, up from the company's previous forecasted range of $0.40 to $0.45 per share.
-- Cash flow from operations expected to be in the range of $21 million to $23 million, up from the company's previous forecasted range of $19 million to $21 million.
Webcast and Conference Call Information
A Webcast and conference call will be held today, Tuesday, July 31, 2007 at 5:00 p.m. EDT / 2:00 p.m. PDT. The Webcast will be available live on the Investor Relations section on eHealth's website at http://ir.ehealthinsurance.com. Individuals interested in listening to the conference call may do so by dialing 866-314-9013 for domestic callers and 617-213-8053 for international callers. The participant passcode is 63444828. A telephone replay will be available two hours following the conclusion of the call for a period of 30 days and can be accessed by dialing 888-286-8010 for domestic callers and 617-801-6888 for international callers. The call ID for the replay is 35314162. The archived Webcast will also be available on the company's website.
About eHealth, Inc.
eHealth, Inc. is the parent company of eHealthInsurance, the leading online source of health insurance for individuals, families and small businesses. eHealthInsurance presents complex health insurance information in an objective, user-friendly format, enabling the research, analysis, comparison and purchase of health insurance products that best meet consumers' needs. eHealth and eHealthInsurance are registered trademarks of eHealthInsurance Services, Inc.
eHealth, Inc. was founded in 1997 and its technology was responsible for the nation's first Internet-based sale of a health insurance policy. eHealth is headquartered in Mountain View, California. Additional information can be found on eHealth's website, www.ehealthinsurance.com.
Forward-Looking Statements
This press release contains statements that are forward-looking statements as defined within the Private Securities Litigation Reform Act of 1995. These include statements regarding eHealth's market and financial progress, the growing leverage and power of the company's financial model and operational efficiencies, revenue growth and total revenue, stock-based compensation expense, net income, net income per diluted share and cash flow from operations guidance for 2007. These forward-looking statements are inherently subject to various risks and uncertainties that could cause actual results to differ materially from the statements made, including risks associated with acceptance of the internet as a medium for the purchase of health insurance, eHealth's ability to continue to increase its membership base and expand its relationships with health insurance carriers and marketing partners, retention of eHealth's members, increased rates of member turnover, changes in eHealth's relationships with insurance carriers, system failures or capacity constraints, dependence upon Internet search engines to attract consumers who visit eHealth's website, the performance, reliability and availability of eHealth's ecommerce platform and underlying network infrastructure, the effectiveness of eHealth's marketing and public relations efforts, exposure to online commerce security risks, reliance on marketing partners for the sale of health insurance, competition, protection of intellectual property and intellectual property rights claims, regulatory penalties and negative publicity, compliance with insurance and other laws and regulations, and changes in laws and regulations. Other factors that could cause operating, financial and other results to differ are described in eHealth's most recent Quarterly Report on Form 10-Q as filed with the Securities and Exchange Commission and available on the investor relations page of eHealth's website at www.ehealthinsurance.com and on the Securities and Exchange Commission's website at www.sec.gov. Other risks may be detailed from time to time in reports to be filed with the Securities and Exchange Commission. eHealth does not undertake any obligation to update any forward-looking statement to conform the statement to actual results or changes in expectations.
Non-GAAP Financial Information
This press release includes financial measures that are not in accordance with generally accepted accounting principles in the United States ("GAAP"). To supplement eHealth's consolidated financial statements presented in accordance with GAAP, eHealth presents investors with certain non-GAAP financial measures, including non-GAAP operating income, non-GAAP net income and non-GAAP net income per diluted share.
-- Non-GAAP operating income consists of GAAP operating income excluding the effects of expensing stock-based compensation related to stock options, restricted stock and restricted stock units in accordance with SFAS 123R beginning in 2006 and amortization of deferred stock-based compensation expense in accordance with APB 25 for grants made prior to 2006.
-- Non-GAAP net income consists of GAAP net income excluding the effects of expensing stock-based compensation including the related income tax impact.
-- Non-GAAP net income per diluted share is calculated by dividing non-GAAP net income by GAAP weighted average diluted shares outstanding.
eHealth believes that the presentation of non-GAAP operating income, non-GAAP net income and non-GAAP net income per diluted share provides important supplemental information to management and investors regarding financial and business trends relating to the company's financial condition and results of operations. Management believes that the use of these non-GAAP financial measures provides consistency and comparability with the company's past financial reports and that the exclusion of the items described above provides an additional measure of the company's operating results and facilitates comparisons of the company's core operating performance against prior periods and business model objectives. This information is provided to investors in order to facilitate additional analyses of past, present and future operating performance and as a supplemental means to evaluate the company's ongoing operations. Externally, the company believes that non-GAAP operating income, non-GAAP net income and non-GAAP net income per diluted share continue to be useful to investors in their assessment of the company's operating performance and valuation.
Non-GAAP operating income, non-GAAP net income and non-GAAP net income per diluted share are not calculated in accordance with GAAP, and should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. Non-GAAP financial measures have limitations in that they do not reflect all of the costs associated with the operations of the company's business as determined in accordance with GAAP. As a result, you should not consider these measures in isolation or as a substitute for analysis of eHealth's results as reported under GAAP. The company expects to continue to incur expenses similar to the non-GAAP adjustments described above, and exclusion of these items from non-GAAP financial measures should not be construed as an inference that these costs are unusual or infrequent. The company compensates for these limitations by prominently disclosing GAAP operating income, GAAP net income and GAAP net income per diluted share and providing investors with reconciliations from the company's GAAP operating results to the non-GAAP financial measures for the relevant periods.
The accompanying tables provide more details on the GAAP financial measures that are most directly comparable to the non-GAAP financial measures and the related reconciliations between these financial measures.
EHEALTH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30,
December 31, 2006 2007
----------------- -------------
Assets (1) (unaudited)
Current assets:
Cash and cash equivalents $ 90,316 $ 85,409
Short-term marketable securities
available-for-sale 158 17,386
Accounts receivable 717 731
Deferred income taxes 2,257 1,199
Prepaid expenses and other current
assets 1,926 2,229
----------------- -------------
Total current assets 95,374 106,954
Property and equipment, net 3,936 3,668
Deferred income taxes 5,165 2,689
Other assets 453 679
----------------- -------------
Total assets $ 104,928 $ 113,990
================= =============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 1,440 $ 1,072
Accrued compensation and benefits 3,743 3,392
Accrued marketing expenses 1,647 2,101
Deferred revenue 62 207
Other current liabilities 1,979 1,869
----------------- -------------
Total current liabilities 8,871 8,641
Other non-current liabilities 317 300
Stockholders' equity:
Common stock 22 23
Additional paid-in capital 159,576 163,276
Deferred stock-based compensation (254) (175)
Accumulated deficit (63,655) (58,150)
Accumulated other comprehensive
income 51 75
----------------- -------------
Total stockholders' equity 95,740 105,049
----------------- -------------
Total liabilities and stockholders'
equity $ 104,928 $ 113,990
================= =============
(1) The condensed consolidated balance sheet at December 31, 2006 has
been derived from the audited consolidated financial statements at
that date.
EHEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts, unaudited)
Three Months Six Months
Ended Ended
June 30, June 30,
--------------- ---------------
2006 2007 2006 2007
------- ------- ------- -------
Revenue:
Commission $13,837 $19,799 $26,556 $38,173
Sponsorship, licensing and other 360 1,273 676 2,388
------- ------- ------- -------
Total revenue 14,197 21,072 27,232 40,561
Operating costs and expenses:
Cost of revenue-sharing 279 401 483 818
Marketing and advertising (1) 5,146 6,782 10,006 13,712
Customer care and enrollment (1) 2,708 2,858 5,304 5,857
Technology and content (1) 2,397 2,922 4,653 5,917
General and administrative (1) 2,147 3,935 4,232 7,390
------- ------- ------- -------
Total operating costs and expenses 12,677 16,898 24,678 33,694
------- ------- ------- -------
Income from operations 1,520 4,174 2,554 6,867
Other income, net 121 1,279 212 2,446
------- ------- ------- -------
Income before income taxes 1,641 5,453 2,766 9,313
Provision for income taxes 49 2,225 72 3,808
------- ------- ------- -------
Net income $ 1,592 $ 3,228 $ 2,694 $ 5,505
======= ======= ======= =======
Net income per share:
Basic - common stock $ 0.32 $ 0.14 $ 0.55 $ 0.25
Basic - Class A nonvoting common
stock $ 0.32 -- $ 0.55 --
Diluted - common stock $ 0.08 $ 0.13 $ 0.14 $ 0.22
Diluted - Class A nonvoting common
stock $ 0.08 -- $ 0.14 --
Net income:
Allocated to common stock $ 1,577 $ 3,228 $ 2,669 $ 5,505
Allocated to Class A nonvoting common
stock 15 -- 25 --
------- ------- ------- -------
Net income $ 1,592 $ 3,228 $ 2,694 $ 5,505
======= ======= ======= =======
Weighted-average number of shares used
in per share amounts:
Basic - common stock 4,913 22,653 4,867 22,199
Basic - Class A nonvoting common
stock 49 -- 45 --
Diluted - common stock 19,214 25,526 19,078 25,479
Diluted - Class A nonvoting common
stock 49 -- 45 --
__________
(1) Includes stock-based compensation
as follows:
Marketing and advertising $ 11 $ 38 $ 11 $ 68
Customer care and enrollment 9 37 13 56
Technology and content 59 139 89 273
General and administrative 32 126 39 215
------- ------- ------- -------
Total $ 111 $ 340 $ 152 $ 612
======= ======= ======= =======
EHEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
Three Months
Ended Six Months Ended
June 30, June 30,
---------------- ----------------
2006 2007 2006 2007
------- -------- ------- --------
Operating activities
Net income $ 1,592 $ 3,228 $ 2,694 $ 5,505
Adjustments to reconcile net income
to net cash provided by operating
activities:
Deferred income taxes -- 2,102 -- 3,595
Depreciation and amortization 370 424 694 851
Stock-based compensation expense 111 340 152 612
Deferred rent (6) (25) (6) 2
Loss on disposal of property and
equipment -- 18 -- 18
Changes in operating assets and
liabilities:
Accounts receivable (86) 157 (177) (14)
Prepaid expenses and other
current assets (126) 272 (314) (78)
Other assets (1) (184) (2) (227)
Accounts payable 156 (224) (93) (116)
Accrued compensation and
benefits 682 768 (362) (347)
Accrued marketing expenses 147 (32) 577 454
Deferred revenue 106 6 283 145
Other current liabilities 238 313 245 171
------- -------- ------- --------
Net cash provided by operating
activities 3,183 7,163 3,691 10,571
------- -------- ------- --------
Investing activities
Purchases of property and equipment (227) (528) (417) (753)
Changes in restricted investments (1) -- (2) --
Purchases of short-term marketable
securities -- (17,324) -- (17,325)
Maturities of short-term marketable
securities -- 88 -- 88
------- -------- ------- --------
Net cash used in investing
activities (228) (17,764) (419) (17,990)
------- -------- ------- --------
Financing activities
Costs incurred in connection with
initial public offering (775) (252) (1,371) (252)
Net proceeds from exercise of common
stock options 160 2,796 378 2,897
Principal payments in connection
with capital leases (2) (71) (4) (175)
------- -------- ------- --------
Net cash provided by (used in)
financing activities (617) 2,473 (997) 2,470
------- -------- ------- --------
Effect of exchange rate changes on
cash and cash equivalents (1) 26 3 42
------- -------- ------- --------
Net increase (decrease) in cash and
cash equivalents 2,337 (8,102) 2,278 (4,907)
Cash and cash equivalents at
beginning of period 9,356 93,511 9,415 90,316
------- -------- ------- --------
Cash and cash equivalents at end of
period $11,693 $ 85,409 $11,693 $ 85,409
======= ======== ======= ========
EHEALTH, INC.
SUMMARY OF SELECTED METRICS
(Unaudited)
Three Three
Months Months
Ended June Ended June
Key Metrics: 30, 2006 30, 2007
--------------------------------------------------------- -----------
Operating cash flows (1) $ 3,183,000 $ 7,163,000
IFP submitted applications (2) 71,500 88,300
IFP approved members (3) 60,900 78,200
Total approved members (4) 87,000 114,600
Total revenue (5) $14,197,000 $21,072,000
Total revenue per estimated member for the
period (6) $ 44.83 $ 46.48
As of As of
June 30, June 30,
2006 2007
----------- -----------
IFP estimated membership (7) 265,900 383,400
Total estimated membership (8) 328,100 463,600
Three Three
Months Months
Ended June Ended June
30, 2006 30, 2007
----------- -----------
Marketing and advertising expenses (9) $ 5,146,000 $ 6,782,000
Marketing and advertising as a percentage of
total revenue (10) 36% 32%
Other Metrics:
----------------------------------------------
Source of IFP submitted applications (as a
percentage of total IFP applications for the
period):
Direct (11) 39% 40%
Marketing partners (12) 36% 30%
Online advertising (13) 25% 30%
----------- -----------
Total 100% 100%
=========== ===========
Acquisition cost per individual on IFP
submitted applications (14) $ 46.91 $ 49.98
Notes:
---------------------------------------------------------------------
(1) Net cash provided by operating activities for the period from the
condensed consolidated statements of cash flows.
(2) Individual and Family Product ("IFP") applications completed on
eHealth's website during the period.
(3) New IFP members reported to eHealth as approved during the period.
Some members that are approved by a carrier do not accept the
approval and therefore do not become paying members.
(4) New members for all products reported to eHealth as approved
during the period. Some members that are approved by a carrier do not
accept the approval and therefore do not become paying members.
(5) Total revenue recognized during the period (all sources) from the
condensed consolidated statements of operations.
(6) Calculated as total revenue recognized during the period (see note
(5)) divided by average estimated membership for the period
(calculated as beginning and ending estimated membership for all
products for the period, divided by two).
(7) Estimated number of members active on IFP insurance policies as of
the date indicated.
(8) Estimated number of members active on all insurance policies as of
the date indicated.
(9) Marketing and advertising expenses for the period from the
condensed consolidated statements of operations.
(10) Calculated as marketing and advertising expenses for the period
(see note (9)) divided by total revenue for the period (see note
(5)).
(11) Percentage of IFP submitted applications from applicants who came
directly to the eHealth website through unpaid search engine results
or otherwise.
(12) Percentage of IFP submitted applications from applicants sourced
through eHealth's network of marketing partners.
(13) Percentage of IFP submitted applications from applicants sourced
through paid search, portals and related sites.
(14) Calculated as marketing and advertising expenses for the period
(see note (9)) divided by the number of individuals on IFP
applications completed on eHealth's website during the period.
EHEALTH, INC.
GAAP TO NON-GAAP RECONCILIATION
FOR THE THREE MONTHS ENDED JUNE 30, 2007
(In thousands, except per share amounts, unaudited)
Statement of Operations Reconciliation
---------------------------------------------------------------------
Three Months Ended June 30, 2007
---------------------------------------
Percent
of
GAAP Non-GAAP Total
Reported Adjustments Results Revenue
--------- ----------- -------- --------
Revenue:
Commission $19,799 $ -- $19,799 94%
Sponsorship, licensing and
other 1,273 -- 1,273 6
--------- ----------- -------- --------
Total revenue 21,072 -- 21,072 100
Operating costs and expenses:
Cost of revenue-sharing 401 -- 401 2
Marketing and advertising (1) 6,782 (38) 6,744 32
Customer care and enrollment
(1) 2,858 (37) 2,821 14
Technology and content (1) 2,922 (139) 2,783 13
General and administrative
(1) 3,935 (126) 3,809 18
--------- ----------- -------- --------
Total operating costs and
expenses 16,898 (340) 16,558 79
--------- ----------- -------- --------
Income from operations 4,174 340 4,514 21
Other income, net 1,279 -- 1,279 6
--------- ----------- -------- --------
Income before income taxes 5,453 340 5,793 27
Provision for income taxes (2) 2,225 21 2,246 10
--------- ----------- -------- --------
Net income $ 3,228 $ 319 $ 3,547 17%
========= =========== ======== ========
Net income per share:
Basic - common stock $ 0.14 $ 0.02 $ 0.16
Diluted - common stock $ 0.13 $ 0.01 $ 0.14
Weighted-average number of
shares used in per share
amounts:
Basic - common stock 22,653 22,653 22,653
Diluted - common stock 25,526 25,526 25,526
(1) Non-GAAP results exclude the effect of expensing stock-based
compensation related to stock options, restricted stock and
restricted stock units in accordance with SFAS 123R beginning in
2006, in addition to the amortization of deferred stock-based
compensation expense in accordance with APB 25 for grants made prior
to 2006.
(2) Non-GAAP results exclude the income tax impact of the stock-based
compensation expense listed in item (1) above.
EHEALTH, INC.
GAAP TO NON-GAAP RECONCILIATION
FOR THE THREE MONTHS ENDED JUNE 30, 2006
(In thousands, except per share amounts, unaudited)
Statement of Operations Reconciliation
---------------------------------------------------------------------
Three Months Ended June 30, 2006
---------------------------------------
Percent
of
GAAP Non-GAAP Total
Reported Adjustments Results Revenue
--------- ----------- -------- --------
Revenue:
Commission $13,837 $ -- $13,837 97%
Sponsorship, licensing and
other 360 -- 360 3
--------- ----------- -------- --------
Total revenue 14,197 -- 14,197 100
Operating costs and expenses:
Cost of revenue-sharing 279 -- 279 2
Marketing and advertising (1) 5,146 (11) 5,135 36
Customer care and enrollment
(1) 2,708 (9) 2,699 19
Technology and content (1) 2,397 (59) 2,338 17
General and administrative
(1) 2,147 (32) 2,115 15
--------- ----------- -------- --------
Total operating costs and
expenses 12,677 (111) 12,566 89
--------- ----------- -------- --------
Income from operations 1,520 111 1,631 11
Other income, net 121 -- 121 1
--------- ----------- -------- --------
Income before income taxes 1,641 111 1,752 12
Provision for income taxes (2) 49 3 52 0
--------- ----------- -------- --------
Net income $ 1,592 $ 108 $ 1,700 12%
========= =========== ======== ========
Net income per share:
Basic - common stock $ 0.32 $ 0.02 $ 0.34
Basic - Class A nonvoting
common stock $ 0.32 $ 0.02 $ 0.34
Diluted - common stock $ 0.08 $ 0.01 $ 0.09
Diluted - Class A nonvoting
common stock $ 0.08 $ 0.01 $ 0.09
Net income:
Allocated to common stock $ 1,577 $ 107 $ 1,684
Allocated to Class A
nonvoting common stock 15 1 16
--------- ----------- --------
Net income $ 1,592 $ 108 $ 1,700
========= =========== ========
Weighted-average number of
shares used in per share
amounts:
Basic - common stock 4,913 4,913 4,913
Basic - Class A nonvoting
common stock 49 49 49
Diluted - common stock 19,214 19,214 19,214
Diluted - Class A nonvoting
common stock 49 49 49
(1) Non-GAAP results exclude the effect of expensing stock-based
compensation related to stock options, restricted stock and
restricted stock units in accordance with SFAS 123R beginning in
2006, in addition to the amortization of deferred stock-based
compensation expense in accordance with APB 25 for grants made prior
to 2006.
(2) Non-GAAP results exclude the income tax impact of the stock-based
compensation expense listed in item (1) above.
SOURCE: eHealth, Inc.
Ashton PartnersInvestor Relations:
Trisha Dill, 415-869-5757
tdill@ashtonpartners.com
www.ashtonpartners.com
or
Media:
Stuart Huizinga, 650-210-3180
Senior Vice President and Chief Financial Officer
stuart.huizinga@ehealth.com
www.ehealthinsurance.com