UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): April 23, 2020
(Exact Name of Registrant as Specified in its Charter)
| (State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) | ||||||
(Address of principal executive offices) (Zip Code)
(650 ) 584-2700
(Registrant’s telephone number, including area code)
Not applicable
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
| Item 2.02 | Results of Operations and Financial Condition. | |||||||
On April 23, 2020 , eHealth, Inc. (the “Company”) issued a press release announcing its financial results for the first quarter ended March 31, 2020. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.
On April 23, 2020 , the Company posted supplemental investor material on its investor relations webpage at http://ir.ehealthinsurance.com. The Company intends to use its investor relations webpage as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD. A copy of the supplemental investor materials is also furnished as Exhibit 99.2 to this Current Report on Form 8-K and is incorporated herein by reference.
The information in Item 2.02 of this Current Report on Form 8-K and the exhibits attached hereto are intended to be “furnished” and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. Except as shall be expressly set forth by specific reference in such filing, the information contained herein and in the accompanying exhibits shall not be incorporated by reference into any filing with the Securities and Exchange Commission made by the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
| Item 9.01 | Financial Statements and Exhibits. | |||||||
(d) Exhibits
| Exhibit No. | Description | ||||
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| eHealth, Inc. | ||||||||
| Date: | /s/ Derek N. Yung | |||||||
Derek N. Yung Chief Financial Officer (Principal Financial Officer) | ||||||||
Exhibit 99.1
eHealth, Inc. Announces First Quarter 2020 Results
First Quarter 2020 Overview
•Revenue for the first quarter of 2020 was $106.4 million, a 55% increase compared to $68.8 million for the first quarter of 2019.
•GAAP net income for the first quarter of 2020 was $3.5 million compared to net loss of $5.2 million for the first quarter of 2019.
•Adjusted EBITDA was $11.1 million for the first quarter of 2020 compared to $8.6 million for the first quarter of 2019.
•Net cash provided by operating activities for the first quarter of 2020 was $8.9 million compared to $12.7 million for the first quarter of 2019.
SANTA CLARA, California — April 23, 2020 — eHealth, Inc. (NASDAQ: EHTH), a leading private online health insurance marketplace, announces today its financial results for the first quarter ended March 31, 2020.
Scott Flanders, chief executive officer of eHealth stated, “In this challenging environment shaped by the COVID-19 pandemic, our company mission to connect every person with the highest quality, most affordable health insurance for their life circumstances is more relevant and important than ever. As social distancing measures remain in place around the country, we are glad to be able to continue to meet consumers wherever it is easiest, most convenient, and safest for them to engage - online and by speaking to a licensed insurance agent over the phone.”
Mr. Flanders continued, “Building on our strong momentum of the past two years, and our record performance in 2019, we are pleased to deliver another quarter of outperformance. The fundamentals of our business are strong and we are achieving strong operating metrics across the business by executing on a clear strategy and making targeted investments to drive growth. Our updated 2020 annual guidance reflects our outperformance to-date, but does not include the additional investments we are contemplating and planning for this year’s Annual Enrollment Period. These will be provided in conjunction with our second quarter results.”
GAAP — First Quarter of 2020 Results
Revenue — Revenue for the first quarter of 2020 totaled $106.4 million, a 55% increase compared to $68.8 million for the first quarter of 2019. Commission revenue for the first quarter of 2020 totaled $99.7 million, a 55% increase compared to $64.2 million for the first quarter of 2019. Other revenue for the first quarter of 2020 was $6.7 million, a 48% increase compared to $4.5 million for the first quarter of 2019.
Revenue from our Medicare segment was $96.2 million for the first quarter of 2020, a 75% increase compared to $54.9 million for the first quarter of 2019. Revenue from our Individual, Family and Small Business segment was $10.3 million for the first quarter of 2020, a 26% decrease compared to $13.9 million for the first quarter of 2019.
Income (Loss) from Operations — Income from operations for the first quarter of 2020 was $1.0 million compared to loss from operations of $9.2 million for the first quarter of 2019.
Pre-Tax Income (Loss) — Pre-tax income for the first quarter of 2020 was $1.4 million compared to pre-tax loss of $8.6 million for the first quarter of 2019.
Benefit from Income Taxes — Benefit from income taxes for the first quarter of 2020 was $2.0 million compared to $3.5 million for the first quarter of 2019.
Net Income (Loss) — Net income for the first quarter of 2020 was $3.5 million, or $0.13 net income per diluted share, compared to net loss of $5.2 million, or $0.24 net loss per diluted share, for the first quarter of 2019.
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Segment Profit — Medicare segment profit was $22.0 million for the first quarter of 2020, a 103% increase compared to $10.8 million for the first quarter of 2019. Profit from our Individual, Family and Small Business segment was $2.6 million for the first quarter of 2020, a 57% decrease, compared to $6.0 million for the first quarter of 2019.
Non-GAAP — First Quarter of 2020 Results
Non-GAAP Net Income — Non-GAAP net income for the first quarter of 2020 was $10.3 million, or $0.39 non-GAAP net income per diluted share, compared to non-GAAP net income of $7.2 million, or $0.33 non-GAAP net income per diluted share, for the first quarter of 2019.
Non-GAAP net income and non-GAAP net income per diluted share for the first quarter of 2020 are calculated by excluding $8.7 million of stock-based compensation expense, $0.5 million of amortization of intangible assets and $2.4 million of the income tax effect of these non-GAAP adjustments from GAAP net income and GAAP net income per diluted share.
Non-GAAP net income and non-GAAP net income per diluted share for the first quarter of 2019 are calculated by excluding $3.2 million of stock-based compensation expense, $13.3 million of expense for the change in fair value of earnout liability related to our acquisition of GoMedigap, $0.5 million of amortization of intangible assets, and $4.7 million of the income tax effect of these non-GAAP adjustments from GAAP net loss and GAAP net loss per diluted share.
Adjusted EBITDA — Adjusted EBITDA was $11.1 million for the first quarter of 2020 compared to $8.6 million for the first quarter of 2019. Adjusted EBITDA is calculated by adding stock-based compensation, change in fair value of earnout liability related to our acquisition of GoMedigap, depreciation and amortization expense, amortization of intangible assets, other income, net, and benefit from income taxes to GAAP net income (loss).
Approved Members, New Paying Members and Estimated Membership
Approved Members — The number of approved members for all Medicare products, which includes Medicare Advantage, Medicare Supplement and Medicare Part D Prescription Drug Plans, was 84,702 in the first quarter of 2020, a 46% increase compared to 57,899 in the first quarter of 2019. The number of approved members for major medical individual and family plan products declined by 19% in the first quarter of 2020 to 9,365 compared to 11,598 in the first quarter of 2019.
New Paying Members — The number of new paying members for all Medicare products was 161,564 in the first quarter of 2020, a 61% increase compared to 100,113 in the first quarter of 2019. The number of new paying members for major medical individual and family plan products was 15,510, a 28% decrease compared to 21,402 in the first quarter of 2019. New Paying Members consist of approved members from the period presented and any periods prior to the period presented from whom we have received an initial commission payment during the period presented.
Estimated Membership — Total estimated membership as of March 31, 2020 was 1,136,954, a 19% increase compared to 952,239 estimated members we reported as of March 31, 2019. Estimated Medicare membership as of March 31, 2020 was 725,943, a 44% increase compared to 503,877 estimated members reported as of March 31, 2019. Estimated major medical individual and family plan membership as of March 31, 2020 was 113,483, a 13% decrease compared to 130,297 estimated members reported as of March 31, 2019.
Cash — First Quarter of 2020
Cash Flows — Net cash provided by operating activities was $8.9 million for the first quarter of 2019, compared to net cash provided by operating activities of $12.7 million for the first quarter of 2019.
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2020 Guidance
Based on information available as of April 23, 2020, eHealth is updating its guidance for the full year ending December 31, 2020 previously provided on February 20, 2020. These expectations are forward-looking statements and eHealth assumes no obligation to update these statements. Actual results may be materially different and are affected by the risk factors and uncertainties identified in this press release and in eHealth’s annual and quarterly filings with the Securities and Exchange Commission.
The following is the updated guidance for the full year ending December 31, 2020:
•Total revenue is expected to be in the range of $600.0 million to $640.0 million, compared to the previous guidance of $580.0 million to $620.0 million. Revenue from the Medicare segment is expected to be in the range of $553.0 million to $589.0 million, compared to the previous guidance of $533.0 million to $569.0 million. Revenue from the Individual, Family and Small Business segment is expected to be in the range of $47.0 million to $51.0 million, consistent with the previous guidance.
•GAAP net income is expected to be in the range of $70.0 million to $85.0 million, compared to the previous guidance of $68.0 million to $83.0 million.
•Adjusted EBITDA(a) is expected to be in the range of $125.0 million to $140.0 million, compared to the previous guidance of $120.0 million to $135.0 million.
•Medicare segment profit(b) is expected to be in the range of $157.0 million to $174.0 million, compared to the previous guidance of $152.0 million to $169.0 million. Individual, Family and Small Business segment profit is expected to be in the range of $17.0 million to $18.0 million, consistent with the previous guidance.
•Corporate(c) shared service expenses, excluding stock-based compensation and depreciation and amortization expense, is expected to be in range of $49.0 million to $52.0 million, consistent with the previous guidance.
•Cash used in operations is expected to be in the range of $61.0 million to $64.0 million, compared to the previous guidance of $52.0 million to $55.0 million, and cash used for capital expenditures is expected to be $18.0 million to $20.0 million, consistent with the previous guidance.
•GAAP net income per diluted share is expected to be in the range of $2.55 to $3.10, compared to the previous guidance of $2.64 to $3.23 per share.
•Non-GAAP net income per diluted share(d) is expected to be in the range of $3.41 to $3.90, compared to the previous guidance of $3.56 to $4.09 per share.
| (a) | Adjusted EBITDA is calculated by adding stock-based compensation, change in fair value of earnout liability, depreciation and amortization expense, amortization of intangible assets, other income, net, and provision (benefit) for income taxes to GAAP net income (loss). | ||||
| (b) | Segment profit is calculated as revenue for the applicable segment less Marketing and Advertising, Customer Care and Enrollment, Technology and Content and General and Administrative operating expenses, excluding stock-based compensation, change in fair value of earnout liability, depreciation and amortization expense and amortization of intangible assets, that are directly attributable to the applicable segment and other indirect Marketing and Advertising, Customer Care and Enrollment and Technology and Content operating expenses, excluding stock-based compensation, depreciation and amortization expense and amortization of intangible assets, allocated to the applicable segment based on usage. | ||||
| (c) | Corporate consists of other indirect General and Administrative operating expenses, excluding stock-based compensation and depreciation and amortization expense, which are managed in a corporate shared services environment and, since they are not the responsibility of segment operating management, are not allocated to the reportable segments. | ||||
| (d) | Non-GAAP net income per diluted share is calculated by adding stock-based compensation expense per diluted share, change in fair value of earnout liability per diluted share, intangible asset amortization expense per diluted share and the income tax effect of these non-GAAP adjustments to GAAP net income per diluted share. | ||||
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Webcast and Conference Call Information
A Webcast and conference call will be held today, Thursday, April 23, 2020 at 5:00 p.m. Eastern / 2:00 p.m. Pacific Time. The live Webcast and supporting presentation slides will be available on the Investor Relations section of eHealth’s website at http://ir.ehealthinsurance.com. Individuals interested in listening to the conference call may do so by dialing (877) 930-8066 for domestic callers and (253) 336-8042 for international callers. The participant passcode is 8091632. A telephone replay will be available two hours following the conclusion of the call for a period of seven days and can be accessed by dialing (855) 859-2056 for domestic callers and (404) 537-3406 for international callers. The call ID for the replay is 8091632. The live and archived webcast of the call will also be available on eHealth's website at http://www.ehealthinsurance.com under the Investor Relations section.
About eHealth, Inc.
eHealth, Inc. (NASDAQ: EHTH) operates a leading health insurance marketplace at eHealth.com and eHealthMedicare.com with a technology and service platform that provides consumer engagement, education and health insurance enrollment solutions. Our mission is to connect every person with the highest quality, most affordable health insurance and Medicare plans for their life circumstances. Our platform integrates proprietary and third-party developed educational content regarding health insurance plans with decision support tools to aid consumers in what has traditionally been a confusing and opaque health insurance purchasing process, and to help them obtain the health insurance products that meet their individual health and economic needs. Our omni-channel consumer engagement platform is designed to meet the consumer wherever they prefer to engage with us, and enables consumers to use our services online, through interactive chat, or by telephone with a licensed insurance agent. We have created a marketplace that offers consumers a broad choice of insurance products that include thousands of Medicare Advantage, Medicare Supplement, Medicare Part D prescription drug, individual and family, small business and other ancillary health insurance products from over 180 health insurance carriers across all fifty states and the District of Columbia.
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 our expected growth in 2020, our estimates regarding total membership, Medicare membership, Individual and Family plan membership and ancillary and small business membership, our estimates regarding constrained lifetime values of commissions per member and constraints on lifetime value by product category, our plans to invest in our Medicare business, and our guidance for the full year ending December 31, 2020, including our guidance for total revenue and revenue from our Medicare segment and our Individual, Family and Small Business segment, GAAP net income, Adjusted EBITDA, profit from our Medicare segment and our Individual, Family and Small Business segment, Corporate shared service expense, cash used in operations and cash used for capital expenditures, and GAAP net income per diluted share and non-GAAP net income per diluted share.
These forward-looking statements are inherently subject to various risks and uncertainties that could cause actual results to differ materially from the statements made. In particular, we are required by the Accounting Standards Codification 606 — Revenue from Contracts with Customers to make numerous assumptions that are based on historical trends and our management’s judgment. These assumptions may change over time and have a material impact on our revenue recognition, guidance, and results of operations. Please review the assumptions stated in this press release carefully.
The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include our ability to retain existing members and enroll new members during the annual healthcare open enrollment period and Medicare annual enrollment period; changes in laws and regulations, including in connection with healthcare reform or with respect to the marketing and sale of Medicare plans; competition, including competition from government-run health insurance exchanges; the seasonality of our business and the fluctuation of our operating results; our ability to accurately estimate membership and lifetime value of commissions; changes in product offerings among carriers on our ecommerce platform and the resulting impact on our commission revenue; our ability to execute on our growth strategy in the Medicare market; the continued impact of the COVID-19 pandemic on our operations, business, financial condition and growth prospects, as well as on the general economy; exposure to security risks and our ability to safeguard the security and privacy of confidential data; our relationships with health insurance carriers; customer concentration and consolidation of the health insurance industry; our success in marketing and selling health insurance plans and our unit cost of acquisition; our ability to hire, train and retain licensed health insurance agents and other employees; the need for health insurance carrier and regulatory approvals in connection with the marketing of Medicare-related insurance products; changes in the market for private health insurance; consumer satisfaction of our service; changes in member conversion rates; changes in commission rates; our ability to sell qualified health insurance plans to subsidy-eligible individuals and to enroll subsidy-eligible individuals through government-run health insurance exchanges; our ability to maintain and enhance our brand identity; our ability to
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derive desired benefits from investments in our business, including membership growth initiatives; reliance on marketing partners; the impact of our direct-to-consumer email, telephone and television marketing efforts; timing of receipt and accuracy of commission reports; payment practices of health insurance carriers; our ability to successfully make and integrate acquisitions; dependence on our operations in China; the restrictions in our debt obligations; compliance with insurance and other laws and regulations; and the performance, reliability and availability of our ecommerce platform and underlying network infrastructure. 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 or Annual Report on Form 10-K filed with the Securities and Exchange Commission and available on the investor relations page of eHealth’s website at http://www.ehealthinsurance.com and on the Securities and Exchange Commission’s website at www.sec.gov.
All forward-looking statements in this press release are based on information available to eHealth as of the date hereof, and eHealth does not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made, except as required by law.
Non-GAAP Financial Information
This press release includes financial measures that are not calculated in accordance with U.S. generally accepted accounting principles (GAAP). To supplement eHealth’s condensed consolidated financial statements presented in accordance with GAAP, eHealth presents investors with non-GAAP financial measures, including non-GAAP net income (loss); non-GAAP net income (loss) per diluted share; and adjusted EBITDA.
•Non-GAAP net income (loss) consists of GAAP net income (loss) excluding the following items:
◦the effects of expensing stock-based compensation related to stock options and restricted stock units,
◦change in fair value of earnout liability,
◦amortization of intangible assets, and
◦the income tax impact of non-GAAP adjustments.
•Non-GAAP net income (loss) per diluted share consists of GAAP net income (loss) per diluted share excluding the following items:
◦the effects of expensing stock-based compensation related to stock options and restricted stock units per diluted share,
◦change in fair value of earnout liability per diluted share,
◦amortization of intangible assets per diluted share, and
◦the income tax impact of non-GAAP adjustments per diluted share.
•Adjusted EBITDA is calculated by adding stock-based compensation, change in fair value of earnout liability, depreciation and amortization expense, amortization of intangible assets, other income, net and provision (benefit) for income taxes to GAAP net income (loss).
eHealth believes that the presentation of these non-GAAP financial measures provides important supplemental information to management and investors regarding financial and business trends relating to eHealth’s financial condition and results of operations. Management believes that the use of these non-GAAP financial measures provides consistency and comparability with eHealth’s past financial reports. Management also believes that the items described above provides an additional measure of eHealth’s operating results and facilitates comparisons of eHealth’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 eHealth’s ongoing operations. eHealth believes that these non-GAAP financial measures are useful to investors in their assessment of eHealth’s operating performance.
Non-GAAP net income (loss), non-GAAP net income (loss) per diluted share and Adjusted EBITDA 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 used in this press release have limitations in that they do not reflect all of the revenue and costs associated with the operations of eHealth’s business and do not reflect income tax 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. eHealth expects to continue to incur the stock-based compensation costs and purchased intangible asset amortization costs described above, and exclusion of these costs, and their related income tax benefits, from non-GAAP financial measures should not be construed as an inference that these costs are unusual or infrequent. eHealth compensates for these limitations by prominently disclosing GAAP net income (loss) and GAAP net income (loss) per diluted share and providing investors with reconciliations from eHealth’s GAAP operating results to the non-GAAP financial measures for the relevant periods.
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The accompanying tables provide more details on the GAAP financial measures that are most directly comparable to the non-GAAP financial measures described above and the related reconciliations between these financial measures.
Investor Relations Contact
Kate Sidorovich, CFA
Vice President, Investor Relations
2625 Augustine Drive, Second Floor
Santa Clara, CA, 95054
650-210-3111
kate.sidorovich@ehealth.com
http://ir.ehealthinsurance.com
(Tables to Follow)
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EHEALTH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
| March 31, 2020 | December 31, 2019 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 184,167 | $ | 23,466 | |||||||
| Short-term marketable securities | 33,683 | — | |||||||||
| Accounts receivable | 668 | 2,332 | |||||||||
| Commissions receivable — current | 125,252 | 174,526 | |||||||||
| Prepaid expenses and other current assets | 9,202 | 7,822 | |||||||||
| Total current assets | 352,972 | 208,146 | |||||||||
| Commissions receivable — non-current | 435,465 | 414,696 | |||||||||
| Property and equipment, net | 12,875 | 10,518 | |||||||||
| Long-term marketable securities | 24,409 | — | |||||||||
| Operating lease right-of-use assets | 43,396 | 36,621 | |||||||||
| Restricted cash | 3,353 | 3,354 | |||||||||
| Other assets | 19,300 | 18,004 | |||||||||
| Intangible assets, net | 9,516 | 10,062 | |||||||||
| Goodwill | 40,233 | 40,233 | |||||||||
| Total assets | $ | 941,519 | $ | 741,634 | |||||||
| Liabilities and stockholders’ equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 8,906 | $ | 24,554 | |||||||
| Accrued compensation and benefits | 18,473 | 29,578 | |||||||||
| Accrued marketing expenses | 4,711 | 12,041 | |||||||||
| Earnout liability — current | — | 37,273 | |||||||||
| Lease liabilities — current | 4,174 | 4,759 | |||||||||
| Deferred revenue | 2,683 | 2,570 | |||||||||
| Other current liabilities | 3,736 | 2,210 | |||||||||
| Total current liabilities | 42,683 | 112,985 | |||||||||
| Deferred income taxes — non-current | 61,623 | 64,130 | |||||||||
| Lease liabilities — non-current | 41,992 | 34,305 | |||||||||
| Other non-current liabilities | 3,535 | 3,050 | |||||||||
| Stockholders’ equity: | |||||||||||
| Common stock | 37 | 35 | |||||||||
| Additional paid-in capital | 717,380 | 455,159 | |||||||||
| Treasury stock, at cost | (199,998) | (199,998) | |||||||||
| Retained earnings | 274,157 | 271,852 | |||||||||
| Accumulated other comprehensive income | 110 | 116 | |||||||||
| Total stockholders’ equity | 791,686 | 527,164 | |||||||||
| Total liabilities and stockholders’ equity | $ | 941,519 | $ | 741,634 | |||||||
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EHEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts, unaudited)
| Three Months Ended March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Revenue: | |||||||||||
| Commission | $ | 99,669 | $ | 64,227 | |||||||
| Other | 6,739 | 4,546 | |||||||||
| Total revenue | 106,408 | 68,773 | |||||||||
| Operating costs and expenses: | |||||||||||
| Cost of revenue | 1,138 | (77) | |||||||||
| Marketing and advertising | 37,764 | 23,941 | |||||||||
| Customer care and enrollment | 30,535 | 19,944 | |||||||||
| Technology and content | 15,740 | 9,017 | |||||||||
| General and administrative | 19,653 | 11,278 | |||||||||
| Amortization of intangible assets | 547 | 547 | |||||||||
| Change in fair value of earnout liability | — | 13,306 | |||||||||
| Total operating costs and expenses | 105,377 | 77,956 | |||||||||
| Income (loss) from operations | 1,031 | (9,183) | |||||||||
| Other income, net | 373 | 557 | |||||||||
| Income (loss) before benefit from income taxes | 1,404 | (8,626) | |||||||||
| Benefit from income taxes | (2,048) | (3,467) | |||||||||
| Net income (loss) | $ | 3,452 | $ | (5,159) | |||||||
| Net income (loss) per share: | |||||||||||
| Basic | $ | 0.14 | $ | (0.24) | |||||||
| Diluted | $ | 0.13 | $ | (0.24) | |||||||
| Weighted-average number of shares used in per share amounts: | |||||||||||
| Basic | 24,719 | 21,831 | |||||||||
| Diluted | 26,179 | 21,831 | |||||||||
(1) Includes stock-based compensation as follows: | |||||||||||
| Marketing and advertising | $ | 1,730 | $ | 629 | |||||||
| Customer care and enrollment | 662 | 273 | |||||||||
| Technology and content | 1,617 | 549 | |||||||||
| General and administrative | 4,705 | 1,778 | |||||||||
| Total stock-based compensation expense | $ | 8,714 | $ | 3,229 | |||||||
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EHEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
| Three Months Ended March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Operating activities: | |||||||||||
| Net income (loss) | $ | 3,452 | $ | (5,159) | |||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 823 | 655 | |||||||||
| Amortization of internally developed software | 1,501 | 719 | |||||||||
| Amortization of intangible assets | 547 | 547 | |||||||||
| Stock-based compensation expense | 8,714 | 3,229 | |||||||||
| Deferred income taxes | (2,141) | (3,543) | |||||||||
| Change in fair value of earnout liability | — | 13,306 | |||||||||
| Other non-cash items | 223 | (1,194) | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | 1,664 | 221 | |||||||||
| Commissions receivable | 26,873 | 17,648 | |||||||||
| Prepaid expenses and other assets | (159) | 1,111 | |||||||||
| Accounts payable | (16,279) | (768) | |||||||||
| Accrued compensation and benefits | (11,104) | (9,390) | |||||||||
| Accrued marketing expenses | (7,329) | (7,147) | |||||||||
| Deferred revenue | 113 | 2,897 | |||||||||
| Accrued expenses and other liabilities | 2,009 | (383) | |||||||||
| Net cash provided by operating activities | 8,907 | 12,749 | |||||||||
| Investing activities: | |||||||||||
| Capitalized internal-use software and website development costs | (3,564) | (1,487) | |||||||||
| Purchases of property and equipment and other assets | (2,508) | (1,509) | |||||||||
| Purchases of marketable securities | (58,064) | — | |||||||||
| Cash used in investing activities | (64,136) | (2,996) | |||||||||
| Financing activities: | |||||||||||
| Proceeds from issuance of common stock, net of issuance costs | 228,024 | 126,051 | |||||||||
| Net proceeds from exercise of common stock options | 1,091 | 2,367 | |||||||||
| Repurchase of shares to satisfy employee tax withholding obligations | (4,375) | (1,280) | |||||||||
| Repayment of debt | — | (5,000) | |||||||||
| Acquisition-related contingent payments | (8,751) | (9,542) | |||||||||
| Principal payments in connection with leases | (58) | (25) | |||||||||
Net cash provided by financing activities | 215,931 | 112,571 | |||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (2) | 62 | |||||||||
Net increase in cash, cash equivalents and restricted cash | 160,700 | 122,386 | |||||||||
| Cash, cash equivalents and restricted cash at beginning of period | 26,820 | 13,089 | |||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 187,520 | $ | 135,475 | |||||||
9
EHEALTH, INC.
SEGMENT INFORMATION
(In thousands, unaudited)
| Three Months Ended March 31, | |||||||||||||||||
| 2020 | 2019 | % Change | |||||||||||||||
| Revenue: | |||||||||||||||||
Medicare (1) | $ | 96,151 | $ | 54,901 | 75 | % | |||||||||||
Individual, Family and Small Business (2) | 10,257 | 13,872 | (26) | % | |||||||||||||
| Total revenue | $ | 106,408 | $ | 68,773 | 55 | % | |||||||||||
| Segment profit: | |||||||||||||||||
Medicare segment profit (3) | $ | 21,960 | $ | 10,826 | 103 | % | |||||||||||
Individual, Family and Small Business segment profit (3) | 2,603 | 6,024 | (57) | % | |||||||||||||
| Total segment profit | 24,563 | 16,850 | 46 | % | |||||||||||||
Corporate (4) | (13,448) | (8,296) | 62 | % | |||||||||||||
| Stock-based compensation expense | (8,714) | (3,229) | 170 | % | |||||||||||||
| Change in fair value of earnout liability | — | (13,306) | (100) | % | |||||||||||||
| Depreciation and amortization | (823) | (655) | 26 | % | |||||||||||||
| Amortization of intangible assets | (547) | (547) | — | % | |||||||||||||
| Other income, net | 373 | 557 | (33) | % | |||||||||||||
| Income (loss) before benefit from income taxes | $ | 1,404 | $ | (8,626) | (116) | % | |||||||||||
Segment Information
We evaluate our business performance and manage our operations as two distinct reporting segments:
•Medicare; and
•Individual, Family and Small Business.
| (1) | The Medicare segment consists primarily of amounts earned from our sale of Medicare-related health insurance plans, including Medicare Advantage, Medicare Supplement and Medicare Part D prescription drug plans, and to a lesser extent, ancillary products sold to our Medicare-eligible customers, including but not limited to, dental and vision plans, as well as our advertising program that allows Medicare-related carriers to purchase advertising on a separate website developed, hosted and maintained by us and our delivery and sale to third parties of Medicare-related health insurance leads generated by our ecommerce platforms and our marketing activities. | ||||
| (2) | The Individual, Family and Small Business segment consists primarily of amounts earned from our sale of individual, family and small business health insurance plans and ancillary products sold to our non-Medicare-eligible customers, including but not limited to, dental, vision, and short-term insurance. To a lesser extent, the Individual, Family and Small Business segment consists of amounts earned from our online sponsorship program that allows carriers to purchase advertising space in specific markets in a sponsorship area on our website, our licensing to third parties the use of our health insurance ecommerce technology, and our delivery and sale to third parties of individual and family health insurance leads generated by our ecommerce platforms and our marketing activities. | ||||
| (3) | Segment profit is calculated as revenue for the applicable segment less marketing and advertising, customer care and enrollment, technology and content and general and administrative operating expenses, excluding stock-based compensation, depreciation and amortization expense, acquisition costs, change in fair value of earnout liability, restructuring charges and amortization of intangible assets, that are directly attributable to the applicable segment and other indirect marketing and advertising, customer care and enrollment and technology and content operating expenses, excluding stock-based compensation, depreciation and amortization expense and amortization of intangible assets, allocated to the applicable segment based on usage. | ||||
| (4) | Corporate consists of other indirect general and administrative operating expenses, excluding stock-based compensation, depreciation and amortization expense, which are managed in a corporate shared services environment and, because they are not the responsibility of segment operating management, are not allocated to the reportable segments. | ||||
10
EHEALTH, INC.
SUMMARY OF SELECTED METRICS
COMMISSION REVENUE BY PRODUCT
(In thousands, unaudited)
| Three Months Ended March 31, | |||||||||||||||||
| 2020 | 2019 | % Change | |||||||||||||||
| Medicare: | |||||||||||||||||
| Medicare Advantage | $ | 68,347 | $ | 39,843 | 72 | % | |||||||||||
| Medicare Supplement | 15,170 | 8,597 | 76 | % | |||||||||||||
| Medicare Part D | 5,661 | 2,336 | 142 | % | |||||||||||||
| Total Medicare | 89,178 | 50,776 | 76 | % | |||||||||||||
Individual and Family: (1) | |||||||||||||||||
| Non-Qualified Health Plans | 1,446 | 2,629 | (45) | % | |||||||||||||
| Qualified Health Plans | 1,210 | 3,508 | (66) | % | |||||||||||||
| Total Individual and Family | 2,656 | 6,137 | (57) | % | |||||||||||||
| Ancillaries: | |||||||||||||||||
| Short-term | 2,216 | 1,316 | 68 | % | |||||||||||||
| Dental | 743 | 790 | (6) | % | |||||||||||||
| Vision | 243 | 462 | (47) | % | |||||||||||||
| Other | 1,049 | 951 | 10 | % | |||||||||||||
| Total Ancillaries | 4,251 | 3,519 | 21 | % | |||||||||||||
| Small Business | 2,971 | 2,640 | 13 | % | |||||||||||||
| Commission Bonus | 613 | 1,155 | (47) | % | |||||||||||||
| Total Commission Revenue | $ | 99,669 | $ | 64,227 | 55 | % | |||||||||||
| (1) | We define our individual and family plan offerings as major medical individual and family health insurance plans, which does not include Medicare-related, small business or ancillary plans. Individual and family health insurance plans include both qualified and non-qualified plans. Qualified health plans are individual and family health insurance plans that meet the requirements of the Affordable Care Act and are offered through the government-run health insurance exchange in the relevant jurisdiction. Non-qualified health plans are individual and family health insurance plans that meet the requirements of the Affordable Care Act and are not offered through the exchange in the relevant jurisdiction. Individuals that purchase non-qualified health plans cannot receive a subsidy in connection with the purchase of those plans. | ||||
11
EHEALTH, INC.
SUMMARY OF SELECTED METRICS
COMMISSION REVENUE SUMMARY
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Medicare: | |||||||||||
Commission Revenue from Members Approved During the Period (1) | $ | 81,125 | $ | 50,582 | |||||||
Net Commission Revenue from Members Approved in Prior Periods (2) | 8,979 | 1,067 | |||||||||
| Total Medicare Segment Commission Revenue | $ | 90,104 | $ | 51,649 | |||||||
| Individual, Family and Small Business: | |||||||||||
Commission Revenue from Members Approved During the Period (1) | $ | 5,796 | $ | 6,225 | |||||||
Net Commission Revenue from Members Approved in Prior Periods (2) | 3,769 | 6,353 | |||||||||
| Total Individual, Family and Small Business Segment Commission Revenue | $ | 9,565 | $ | 12,578 | |||||||
| Total Commission Revenue | $ | 99,669 | $ | 64,227 | |||||||
________
(1) These amounts include commission bonus revenue.
(2) These amounts reflect our revised estimates of cash collections for certain members approved prior to the relevant reporting period that are recognized as adjustments to revenue within the relevant reporting period. These amounts include revenue associated with renewing small business health insurance members.
12
EHEALTH, INC.
SUMMARY OF SELECTED METRICS
APPROVED MEMBERS
(Unaudited)
| Three Months Ended March 31, | |||||||||||||||||
| 2020 | 2019 | % Change | |||||||||||||||
| Medicare: | |||||||||||||||||
| Medicare Advantage | 64,898 | 40,741 | 59 | % | |||||||||||||
| Medicare Supplement | 10,838 | 8,631 | 26 | % | |||||||||||||
| Medicare Part D | 8,966 | 8,527 | 5 | % | |||||||||||||
| Total Medicare | 84,702 | 57,899 | 46 | % | |||||||||||||
| Individual and Family: | |||||||||||||||||
| Non-Qualified Health Plans | 4,820 | 6,071 | (21) | % | |||||||||||||
| Qualified Health Plans | 4,545 | 5,527 | (18) | % | |||||||||||||
| Total Individual and Family | 9,365 | 11,598 | (19) | % | |||||||||||||
| Ancillaries: | |||||||||||||||||
| Short-term | 12,138 | 14,932 | (19) | % | |||||||||||||
| Dental | 9,710 | 13,056 | (26) | % | |||||||||||||
| Vision | 4,501 | 6,415 | (30) | % | |||||||||||||
| Other | 4,325 | 5,212 | (17) | % | |||||||||||||
| Total Ancillaries | 30,674 | 39,615 | (23) | % | |||||||||||||
| Small Business | 3,603 | 4,252 | (15) | % | |||||||||||||
| Total Approved Members | 128,344 | 113,364 | 13 | % | |||||||||||||
Approved Members
Approved members consist of the number of individuals on submitted applications that were approved by the relevant insurance carrier for the identified product during the period presented. Approved members may not pay for their plan and become paying members.
13
EHEALTH, INC.
SUMMARY OF SELECTED METRICS
NEW PAYING MEMBERS
(Unaudited)
| Three Months Ended March 31, | |||||||||||||||||
| 2020 | 2019 | % Change | |||||||||||||||
| Medicare: | |||||||||||||||||
| Medicare Advantage | 86,299 | 49,531 | 74 | % | |||||||||||||
| Medicare Supplement | 11,560 | 9,786 | 18 | % | |||||||||||||
| Medicare Part D | 63,705 | 40,796 | 56 | % | |||||||||||||
| Total Medicare | 161,564 | 100,113 | 61 | % | |||||||||||||
| Individual and Family: | |||||||||||||||||
| Non-Qualified Health Plans | 9,553 | 14,012 | (32) | % | |||||||||||||
| Qualified Health Plans | 5,957 | 7,390 | (19) | % | |||||||||||||
| Total Individual and Family | 15,510 | 21,402 | (28) | % | |||||||||||||
| Ancillaries: | |||||||||||||||||
| Short-term | 12,260 | 20,119 | (39) | % | |||||||||||||
| Dental | 10,413 | 14,384 | (28) | % | |||||||||||||
| Vision | 5,571 | 8,848 | (37) | % | |||||||||||||
| Other | 4,313 | 5,891 | (27) | % | |||||||||||||
| Total Ancillaries | 32,557 | 49,242 | (34) | % | |||||||||||||
| Small Business | 5,156 | 6,992 | (26) | % | |||||||||||||
| Total New Paying Members | 214,787 | 177,749 | 21 | % | |||||||||||||
New Paying Members
New Paying Members consist of approved members from the period presented and any periods prior to the period presented from whom we have received an initial commission payment during the period presented.
14
EHEALTH, INC.
SUMMARY OF SELECTED METRICS
ESTIMATED MEMBERSHIP
(Unaudited)
| As of March 31, | |||||||||||||||||
| 2020 | 2019 | % Change | |||||||||||||||
Medicare: (1) | |||||||||||||||||
| Medicare Advantage | 404,262 | 280,763 | 44 | % | |||||||||||||
| Medicare Supplement | 97,527 | 76,875 | 27 | % | |||||||||||||
| Medicare Part D | 224,154 | 146,239 | 53 | % | |||||||||||||
| Total Medicare | 725,943 | 503,877 | 44 | % | |||||||||||||
Individual and Family (2) | 113,483 | 130,297 | (13) | % | |||||||||||||
Ancillaries: (3) | |||||||||||||||||
| Short-term | 23,553 | 23,626 | — | % | |||||||||||||
| Dental | 123,260 | 137,179 | (10) | % | |||||||||||||
| Vision | 70,590 | 76,303 | (7) | % | |||||||||||||
| Other | 36,012 | 37,985 | (5) | % | |||||||||||||
| Total Ancillaries | 253,415 | 275,093 | (8) | % | |||||||||||||
Small Business (4) | 44,113 | 42,972 | 3 | % | |||||||||||||
| Total Estimated Membership | 1,136,954 | 952,239 | 19 | % | |||||||||||||
_________
(1) To estimate the number of members on Medicare-related health insurance plans, we take the sum of (i) the number of members for whom we have received or applied a commission payment for a month that may be up to three months prior to the date of estimation (after reducing that number using historical experience for assumed member cancellations over the period being estimated); and (ii) the number of approved members over that period (after reducing that number using historical experience for an assumed number of members who do not accept their approved policy and for estimated member cancellations through the date of the estimate). To the extent we determine we have received substantially all of the commission payments related to a given month during the period being estimated, we will take the number of members for whom we have received or applied a commission payment during the month of estimation.
(2) To estimate the number of members on Individual and Family health insurance plans ("IFP"), we take the sum of (i) the number of IFP members for whom we have received or applied a commission payment for a month that may be up to three months prior to the date of estimation after reducing that number using historical experience for assumed member cancellations over the period being estimated; and (ii) the number of approved members over that period (after reducing that number using historical experience for an assumed number of members who do not accept their approved policy and for estimated member cancellations through the date of the estimate). To the extent we determine we have received substantially all of the commission payments related to a given month during the period being estimated, we will take the number of members for whom we have received or applied a commission payment during the month of estimation.
(3) To estimate the number of members on ancillary health insurance plans (such as short-term, dental and vision insurance), we take the sum of (i) the number of members for whom we have received or applied a commission payment for a month that may be up to three months prior to the date of estimation (after reducing that number using historical experience for assumed member cancellations over the period being estimated); and (ii) the number of approved members over that period (after reducing that number using historical experience for an assumed number of members who do not accept their approved policy and for estimated member cancellations through the date of the estimate). To the extent we determine we have received substantially all of the commission payments related to a given month during the period being estimated, we will take the number of members for whom we have received or applied a commission payment during the month of estimation. The one to three-month period varies by insurance product and is largely dependent upon the timeliness of commission payment and related reporting from the related carriers.
(4) To estimate the number of members on small business health insurance plans, we use the number of initial members at the time the group was approved, and we update this number for changes in membership if such changes are reported to us by the group or carrier. However, groups generally notify the carrier directly of policy cancellations and increases or decreases in group size without informing us. Health insurance carriers often do not communicate policy cancellation information or group size changes to us. We often are made aware of policy cancellations and group size changes at the time of annual renewal and update our membership statistics accordingly in the period they are reported.
15
Estimated Membership
Estimated membership represents the estimated number of members active as of the date indicated based on the number of members for whom we have received or applied a commission payment during the month of estimation.
Health insurance carriers bill and collect insurance premiums paid by our members. The carriers do not report to us the number of members that we have as of a given date. The majority of our members who terminate their policies do so by discontinuing their premium payments to the carrier and do not inform us of the cancellation. Also, some of our members pay their premiums less frequently than monthly. Given the number of months required to observe non-payment of commissions in order to confirm cancellations, we estimate the number of members who are active on insurance policies as of a specified date.
After we have estimated membership for a period, we may receive information from health insurance carriers that would have impacted the estimate if we had received the information prior to the date of estimation. We may receive commission payments or other information that indicates that a member who was not included in our estimates for a prior period was in fact an active member at that time, or that a member who was included in our estimates was in fact not an active member of ours. For instance, we reconcile information carriers provide to us and may determine that we were not historically paid commissions owed to us, which would cause us to have underestimated membership. Conversely, carriers may require us to return commission payments paid in a prior period due to policy cancellations for members we previously estimated as being active. We do not update our estimated membership numbers reported in previous periods. Instead, we reflect updated information regarding our historical membership in the membership estimate for the current period. As a result of the delay in our receipt of information from insurance carriers, actual trends in our membership are most discernible over periods longer than from one quarter to the next. As a result of the delay we experience in receiving information about our membership, it is difficult for us to determine with any certainty the impact of current conditions on our membership retention. Healthcare reform and its impacts as well as other factors could cause the assumptions and estimates that we make in connection with estimating our membership to be inaccurate, which would cause our membership estimates to be inaccurate.
16
EHEALTH, INC.
SUMMARY OF SELECTED METRICS
CONSTRAINED LIFETIME VALUE OF
COMMISSIONS PER APPROVED MEMBER
(Unaudited)
| Three Months Ended March 31, | |||||||||||||||||
| 2020 | 2019 | % Change | |||||||||||||||
| Medicare: | |||||||||||||||||
Medicare Advantage (1) | $ | 1,006 | $ | 954 | 5 | % | |||||||||||
Medicare Supplement (1) | $ | 1,158 | $ | 999 | 16 | % | |||||||||||
Medicare Part D (1) | $ | 260 | $ | 258 | 1 | % | |||||||||||
| Individual and Family: | |||||||||||||||||
Non-Qualified Health Plans (1) | $ | 199 | $ | 178 | 12 | % | |||||||||||
Qualified Health Plans (1) | $ | 240 | $ | 194 | 24 | % | |||||||||||
| Ancillaries: | |||||||||||||||||
Short-term (1) | $ | 150 | $ | 65 | 131 | % | |||||||||||
Dental (1) | $ | 67 | $ | 71 | (6) | % | |||||||||||
Vision (1) | $ | 52 | $ | 63 | (17) | % | |||||||||||
Small Business (2) | $ | 160 | $ | 155 | 3 | % | |||||||||||
Constrained Lifetime Value of Commissions Per Approved Member
(1) Constrained lifetime value (“LTV”) of commissions per approved member represents commissions estimated to be collected over the estimated life of an approved member’s policy after applying constraints in accordance with our revenue recognition policy. The estimate is driven by multiple factors, including but not limited to, contracted commission rates, carrier mix, estimated average plan duration, the regulatory environment, and cancellations of insurance plans offered by health insurance carriers with which we have a relationship. These factors may result in varying values from period to period.
(2) For small business, the amount represents the estimated commissions we expect to collect from the plan over the following twelve months. The estimate is driven by multiple factors, including but not limited to, contracted commission rates, carrier mix, estimated average plan duration, the regulatory environment, and cancellations of insurance plans offered by health insurance carriers with which we have a relationship and applied constraints. These factors may result in varying values from period to period.
17
EHEALTH, INC.
SUMMARY OF SELECTED METRICS
CONSTRAINTS ON LIFETIME VALUE
OF COMMISSIONS PER APPROVED MEMBER
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Medicare: | |||||||||||
| Medicare Advantage | 7 | % | 7 | % | |||||||
| Medicare Supplement | 5 | % | 5 | % | |||||||
| Medicare Part D | 5 | % | 5 | % | |||||||
| Individual and Family: | |||||||||||
| Non-Qualified Health Plans | 15 | % | 15 | % | |||||||
| Qualified Health Plans | 4 | % | 20 | % | |||||||
| Ancillaries | 10 | % | 10 | % | |||||||
| Small Business | — | % | — | % | |||||||
Constraints on Lifetime Value of Commissions Per Approved Member
Constraints are applied to derive LTV of commissions per approved member for revenue recognition in accordance with our revenue recognition policy. The constraints are applied to help ensure that commissions estimated to be collected over the estimated life of an approved member’s plan are recognized as revenue only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with future commissions receivable from the plan is subsequently resolved. We evaluate constraints on a quarterly basis for factors affecting our estimate of LTV of commissions per approved member and apply management judgment to determine the constraints based on current trends impacting our business.
18
EHEALTH, INC.
SUMMARY OF SELECTED METRICS
EXPENSE METRICS PER APPROVED MEMBER
(Unaudited)
| Three Months Ended March 31, | % Change | ||||||||||||||||
| 2020 | 2019 | ||||||||||||||||
| Medicare variable cost per approved member: | |||||||||||||||||
Medicare variable marketing cost per approved Medicare Advantage ("MA")-equivalent member (1) | $ | 349 | $ | 334 | 5 | % | |||||||||||
Medicare customer care and enrollment ("CC&E") cost per approved MA-equivalent member (2) | 364 | 344 | 6 | % | |||||||||||||
| Total Medicare cost per approved member | $ | 713 | $ | 678 | 5 | % | |||||||||||
| Individual and Family Plan ("IFP") variable cost per approved member: | |||||||||||||||||
IFP variable marketing cost per approved IFP-equivalent member (3) | $ | 36 | $ | 24 | 50 | % | |||||||||||
IFP CC&E cost per approved IFP-equivalent member (4) | 79 | 66 | 20 | % | |||||||||||||
| Total IFP cost per approved member | $ | 115 | $ | 90 | 28 | % | |||||||||||
Expense Metrics Per Approved Member
(1) Variable marketing cost per approved MA-equivalent member represents direct costs incurred in member acquisition for Medicare Advantage, Medicare Supplement and Medicare Part D plans from our direct marketing partners and online advertising channels divided by MA-equivalent approved members in a given period. MA-equivalent members is a derived metric and is equal to the sum of Medicare Part D approved members divided by 4, the number of Medicare Advantage approved members and the number of Medicare Supplement approved members in the given period.
(2) Medicare CC&E cost per approved MA-equivalent member is equal to the CC&E expense of our Medicare business included in our operating costs divided by MA-equivalent approved members in a given period. MA-equivalent approved members is a derived metric and is equal to the sum of Medicare Part D approved members divided by 4, the number of Medicare Advantage approved members and the number of Medicare Supplement approved members in the given period.
(3) Variable marketing cost per approved IFP-equivalent member represents direct costs incurred in member acquisition for IFP plans from our direct, marketing partners and online advertising channels divided by IFP-equivalent approved members in a given period. IFP-equivalent approved members is a derived metric and is equal to the sum of the number of short-term approved members divided by 3 and the IFP approved members in the given period.
(4) IFP CC&E cost per approved IFP-equivalent member is equal to the CC&E expense of our IFP business included in our operating costs divided by IFP-equivalent approved members in a given period. IFP-equivalent approved members is a derived metric and is equal to the sum of the number of short-term approved members divided by 3 and the IFP approved members in the given period.
19
EHEALTH, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(In thousands, except per share amounts, unaudited)
| Three Months Ended March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| GAAP net income (loss) | $ | 3,452 | $ | (5,159) | |||||||
Stock-based compensation expense (1) | 8,714 | 3,229 | |||||||||
Change in fair value of earnout liability (2) | — | 13,306 | |||||||||
Amortization of intangible assets (3) | 547 | 547 | |||||||||
Tax effect of non-GAAP adjustments (4) | (2,396) | (4,687) | |||||||||
| Non-GAAP net income | $ | 10,317 | $ | 7,236 | |||||||
| GAAP net income (loss) per diluted share | $ | 0.13 | $ | (0.24) | |||||||
Stock-based compensation expense (1) | 0.33 | 0.15 | |||||||||
Change in fair value of earnout liability (2) | — | 0.61 | |||||||||
Amortization of intangible assets (3) | 0.02 | 0.03 | |||||||||
Tax effect of non-GAAP adjustments (4) | (0.09) | (0.22) | |||||||||
| Non-GAAP net income per diluted share | $ | 0.39 | $ | 0.33 | |||||||
| GAAP net income (loss) | $ | 3,452 | $ | (5,159) | |||||||
Stock-based compensation expense (1) | 8,714 | 3,229 | |||||||||
Change in fair value of earnout liability (2) | — | 13,306 | |||||||||
Depreciation and amortization (5) | 823 | 655 | |||||||||
Amortization of intangible assets (3) | 547 | 547 | |||||||||
Other income, net (6) | (373) | (557) | |||||||||
Benefit from income taxes (7) | (2,048) | (3,467) | |||||||||
| Adjusted EBITDA | $ | 11,115 | $ | 8,554 | |||||||
Explanation of Adjustments
| (1) | Non-GAAP net income, non-GAAP net income per diluted share and adjusted EBITDA exclude the effect of expensing stock-based compensation related to stock options and restricted stock units. | ||||
| (2) | Non-GAAP net income, non-GAAP net income per diluted share and adjusted EBITDA exclude the change in fair value of earnout liability related to the acquisition of GoMedigap, which was completed in January 2018. | ||||
| (3) | Non-GAAP net income, non-GAAP net income per diluted share and adjusted EBITDA exclude amortization of intangible assets. | ||||
| (4) | Non-GAAP net income, non-GAAP net income per diluted share exclude the tax effect of non-GAAP adjustments. | ||||
| (5) | Adjusted EBITDA excludes depreciation and amortization. | ||||
| (6) | Adjusted EBITDA excludes other income, net. | ||||
| (7) | Adjusted EBITDA excludes benefit from income taxes. | ||||
20
EHEALTH, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GUIDANCE
(In millions, except per share amounts, unaudited)
| Year Ending December 31, 2020 | |||||||||||
| Low | High | ||||||||||
| GAAP net income | $ | 70.0 | $ | 85.0 | |||||||
| Stock-based compensation expense | 29.0 | 27.0 | |||||||||
| Amortization of intangible assets | 1.5 | 1.5 | |||||||||
| Tax effect of non-GAAP adjustments | (7.0) | (6.6) | |||||||||
Non-GAAP net income (1) | $ | 93.5 | $ | 106.9 | |||||||
| GAAP net income per diluted share | $ | 2.55 | $ | 3.10 | |||||||
| Stock-based compensation expense | 1.06 | 0.98 | |||||||||
| Amortization of intangible assets | 0.05 | 0.05 | |||||||||
| Tax effect of non-GAAP adjustments | (0.25) | (0.23) | |||||||||
Non-GAAP net income per diluted share (2) | $ | 3.41 | $ | 3.90 | |||||||
| GAAP net income | $ | 70.0 | $ | 85.0 | |||||||
| Stock-based compensation expense | 29.0 | 27.0 | |||||||||
| Depreciation and amortization | 5.0 | 4.0 | |||||||||
| Amortization of intangible assets | 1.5 | 1.5 | |||||||||
| Other income, net | (1.5) | (2.5) | |||||||||
| Provision for income taxes | 21.0 | 25.0 | |||||||||
Adjusted EBITDA (3) | $ | 125.0 | $ | 140.0 | |||||||
Explanation of Adjustments
| (1) | Non-GAAP net income is calculated by adding stock-based compensation, amortization of intangible assets, and the income tax effect of non-GAAP adjustments to GAAP net income. | ||||
| (2) | Non-GAAP net income per diluted share is calculated by adding stock-based compensation expense per diluted share, amortization of intangible assets per diluted share per diluted share, and the income tax effect of non-GAAP adjustments to GAAP net income per diluted share. | ||||
| (3) | Adjusted EBITDA is calculated by adding stock-based compensation, depreciation and amortization expense, amortization of intangible assets, other income, net, and provision for income taxes to GAAP net income. | ||||
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Q1 2020 Financial Results Conference Call Slides April 23, 2020
Safe Harbor Statement Forward-Looking Statements This presentation includes forward-looking statements within the meaning of the federal securities laws. Forward-looking statements generally relate to future events or our future financial or operating performance. Forward-looking statements in this presentation include, but are not limited to, the following: our estimates regarding Medicare membership; our expectations of Medicare Major Medical online application percentage and Medicare Advantage Plan member turnover rate; our expectations of revenue and margin leverage opportunities from the addition of work-from-home capabilities; and our guidance for the full year ending December 31, 2020, including our guidance for total revenue and revenue from our Medicare segment and our Individual, Family and Small Business segment, GAAP net income, Adjusted EBITDA, profit from our Medicare segment and our Individual, Family and Small Business segment, Corporate shared service expense, cash used in operations and cash used for capital expenditures, and GAAP net income per diluted share and non-GAAP net income per diluted share. Our expectations and beliefs regarding these matters may not materialize, and actual results in future periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include those set forth in our filings with the Securities and Exchange Commission, including our latest Form 10-Q and 10-K. The forward-looking statements in this presentation are based on information available to us as of today, and we disclaim any obligation to update any forward looking statements, except as required by law. Non-GAAP Information This presentation includes both GAAP and non-GAAP financial measures. The presentation of non-GAAP financial information is not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of the non-GAAP financial measures included in this presentation to the most directly comparable GAAP financial measures is available in the earnings release issued by eHealth, Inc. on April 23, 2020 announcing its first quarter 2020 results. Management uses both GAAP and non-GAAP information in evaluating and operating its business internally and as such has determined that it is important to provide this information to investors. . 1
COVID-19 Response Working remotely. Shifted No impact to operations. Average agent productivity entire U.S. workforce to a Major undertaking in Q1 increased year over remote model, including all of accomplished seamlessly year customer care agents in days Our mission is more critical than ever. eHealth remains focused on providing outstanding service and support to our customers, and ensuring consumers best understand their coverage options as it relates to COVID-19. 2
eHealth Q1 2020 Highlights Q1 2020 revenue grew 55% compared to Q1 2019, exceeding company’s expectations Medicare segment revenue grew 75% year-over-year, with approved members increasing by 46% year-over-year Medicare segment profit grew 103% year-over-year 24% of Medicare major medical applications submitted online, compared to 12% in Q1 2019(1) $561MM commissions receivable balance at the end of Q1 2020 (1) Represents a combination of unassisted and partially agent-assisted online enrollments. 3
Q1 2020 Revenue Revenue Continue to achieve rapid growth in new Medicare enrollments as a result of diversified portfolio approach to Revenue ($MM) demand generation strategy and effective demand conversion through our omni-channel consumer $ 106.4 engagement platform 55% Direct-to-consumer channels providing balanced $ 68.8 customer traffic through digital advertising, direct response TV, direct mail, e-mail and organic search initiatives Strategic partnerships with large retail pharmacies, hospitals and other affinity groups remain a substantial and unique driver of new business Q1-FY19 Q1-FY20 4
Q1 2020 Net Income (Loss) and Adj. EBITDA(1) Net Income (Loss) Adjusted EBITDA Net Income (Loss) ($MM) Adjusted EBITDA ($MM) $ 11.1 $ 3.5 30% $ 8.6 ($ 5.2) Q1-FY19 Q1-FY20 Q1-FY19 Q1-FY20 Exceeded expectations due to significant growth in Medicare enrollments (1) Adjusted EBITDA is calculated by adding stock-based compensation, depreciation and amortization expense, amortization of intangible assets, change in fair value of earnout liability, other income, net and benefit from income taxes to GAAP net income (loss). 5
Q1 2020 Medicare Segment Revenue and Profit Medicare Segment Revenue Medicare Segment Profit Medicare Segment Revenue ($MM) Medicare Segment Profit ($MM) $ 22.0 $ 96.2 75% 103% $ 54.9 $ 10.8 Q1-FY19 Q1-FY20 Q1-FY19 Q1-FY20 Our estimated number of revenue generating Medicare members was approximately 726,000 at the end of the first quarter, an increase of 44% year-over-year 6
Q1 2020 Medicare Approved Members(1) and New Paying Members(2) Medicare Approved Members Medicare New Paying Members Medicare Approved Members (000s) Medicare New Paying Members (000s) 85 162 46% 61% 58 100 Q1-FY19 Q1-FY20 Q1-FY19 Q1-FY20 Medicare Advantage enrollment growth continues to significantly outpace the overall market, driven by eHealth’s unique omni-channel engagement model (1) Approved members consist of the number of individuals on submitted applications that were approved by the relevant insurance carrier for the identified product during the period presented. Approved members may not pay for their plan and become paying members. 7 (2) New Paying Members consist of approved members from the period presented and any periods prior to the period presented from whom we have received an initial commission payment during the period presented.
Q1 2020 Medicare Major Medical Online Application%(1) Medicare Major Medical Online Application % Medicare Major Medical Online Application % 24% On track to achieve target of 12% 34% online penetration for the full year 2020 Q1-FY19 Q1-FY20 (1) Major Medicare plans include Medicare Advantage and Medicare Supplement plans; Online % represents a combination of unassisted and partially agent-assisted online enrollments. 8
Q1 2020 IFP Segment Revenue and Profit IFP Segment Revenue IFP Segment Profit Individual, Family and Small Business Segment Individual, Family and Small Business Segment Revenue ($MM) Profit ($MM) $ 13.9 $ 6.0 $ 10.3 -26% -57% $ 2.6 Q1-FY19 Q1-FY20 Q1-FY19 Q1-FY20 9
Medicare Advantage Plan Revenue Recognition and Cash Collections • At time of carrier • Cash collected for new Step 1 enrollment approval using Step 2 enrollments and for constrained lifetime value renewals Revenue estimates Cash Recognized • We take an appropriately Collected conservative approach • LTV model was further enhanced with help independent national valuation expert Since adoption of ASC 606, our cash • in 4Q19 collections for Medicare Advantage plans have in general exceeded cash collections originally estimated Step 4 • We recognize “tail • Refresh LTV estimates revenue” when cash Step 3 with latest cash collection under constrained LTVs collection trends indicate data Tail a change to LTV LTV Revenue estimates for previously approved members, Estimates Recognized including impact of any Updated potential market or regulatory changes 10
An Appropriately Conservative Approach Cash Flows Validate LTV Models and Processes National Accounting/Financial Experts Validate Revenue Recognition Processes For Medicare Advantage: Analytical and statistical models for determining • 96% of monthly customer cohorts(1) have cash LTVs and constraints were developed in collections to date that meet or exceed our range consultation with external parties as part of our of forecasted cash flows to date originally ASC 606 adoption and continue to be refined estimated under constrained LTVs(2) Policies further reviewed, documented, and validated with assistance of a “Big Four” • Total cash collections to date are ~9% higher than accounting firm our range of forecasted cash flows to date (2) originally estimated under constrained LTVs Recently, further refined analytics and modeling with work performed by independent national • Recognized ~$60MM of tail revenue since valuation expert beginning of 2019, or ~6% of total revenue since inception of the business in 2010 Our financial statements are reviewed quarterly and audited annually (1) Over 735,000 Medicare Advantage approved members with policy effective dates before 2020. (2) Cash collections from the first quarter of 2018 through the first quarter of 2020, using comparison of actual cash collections from Medicare Advantage approved member monthly cohort with plan effective dates prior to 2020 to cash 11 collections that our initial constrained lifetime value projections indicated would be received from the first quarter of 2018 through the first quarter of 2020.
Medicare Advantage Plan Member Turnover Trend Since Q4 2018 Q42018 Q12019 Q22019 Q32019 Q42019 Q12020 Approved Members(1) 83,376 40,741 36,576 35,171 167,073 64,898 Estimated Beginning (Paying) Membership(2) 235,269 276,357 280,763 291,171 309,180 404,694 New Paying Members(3) 62,817 49,531 36,122 33,974 116,351 86,299 Estimated Ending (Paying) Membership(4) 276,357 280,763 291,171 309,180 404,694 404,262 Medicare Advantage Plan Member Turnover(5) 21,729 45,125 25,714 15,965 20,837 86,731 Trailing Twelve Month Member Turnover(6) 95,065 89,357 102,403 108,533 107,641 149,247 Average Trailing Twelve Month Estimated Membership Plus New Paying Members(7) 262,856 276,949 296,491 316,501 348,362 389,638 Trailing Twelve Month Member Turnover Rate(8) 36% 32% 35% 34% 31% 38% 12
Medicare Advantage Plan Member Turnover Trend Since Q4 2018 (cont’d) (1) Approved members consist of the number of individuals on submitted applications that were approved by the relevant insurance carrier for the identified product during the period presented. Approved members may not pay for their plan and become paying members. (2) Estimated Beginning (Paying) Membership is the Estimated Ending Membership for the period prior to the period of estimation. Membership is estimated using the methodology described in our periodic filings with the Securities and Exchange Commission. From Q4 2016 to Q4 2019, the average variance between the quarterly estimated membership versus the actual membership for Medicare Advantage is 1.4%. (3) New Paying Members consist of approved members from the period presented and any periods prior to the period presented from whom we have received an initial commission payment during the period presented. (4) Estimated Ending (Paying) Membership is the number of members we estimate as of the end of the period. Membership is estimated using the methodology described in our periodic filings with the Securities and Exchange Commission. (5) Medicare Advantage Plan Member Turnover for the period is derived as follows: Estimated Beginning Membership plus New Paying Members minus Estimated Ending Membership. (6) Trailing Twelve Month Member Turnover is the sum of Medicare Advantage Plan Member Turnover for the prior twelve months. (7) Average Trailing Twelve Month Estimated Membership Plus New Paying Members is the sum of (i) trailing twelve month Estimated Beginning Membership, plus (ii) New Paying Members for the trailing twelve month, divided by 4. (8) Trailing Twelve Month Member Turnover Rate is Trailing Twelve Month Turnover divided by Average Trailing Twelve Month Estimated Membership Plus New Paying Members. 13
Medicare Advantage Plan Member Turnover Rate(1) by Year Medicare Advantage Plan Member Turnover Rate(1) by Year Member is on the Plan 45% 35% 36% 30% 25% 18% 15% 16% 5% (2) (3) (4) (5) Year 1 Cumulative Years 2-3 Cumulative Years 4-6 Cumulative Years 7+ (1) Based on actual historical and estimated future member turnover as a percentage of initial paid members for each historical cohort by policy effective date; weighted based on initial paid members (2) Year 1 represents the annual member turnover rate by the 1 year anniversary of the policy effective date (3) Cumulative Years 2-3 represents the sum of incremental annual member turnover rate between the first anniversary and third anniversary of policy effective date 14 (4) Cumulative Years 4-6 represents the sum of incremental annual member turnover rate between the third anniversary and the sixth anniversary of policy effective date (5) Cumulative Years 7+ represents the sum of incremental annual member turnover rate after the sixth anniversary of the policy effective date until the cohort has or is expected to turnover completely
Increasing 2020 Guidance For the full year ending December 31, 2020, we expect: Total revenue in the range of $600.0M - $640.0M, compared to the Corporate(3) shared service expenses, excluding stock-based previous guidance of $580.0M - $620.0M. compensation and depreciation and amortization expense, in the • Medicare segment revenue in the range of $553.0M - $589.0M, range of $49.0M to $52.M, consistent with previous guidance. compared to the previous guidance of $533.0M - $569.0M. • Individual, Family and Small Business segment revenue in the Cash used in operations in the range of $61.0M - $64.0M, range of $47.0M - $51.0M, consistent with previous guidance. compared to previous guidance of $52.0M - $55.0M, and cash used for capital expenditures is expected to be $18.0M - $20.0M, consistent with previous guidance. Adjusted EBITDA(1) in the range of $125.0M - $140.0M, compared to the previous guidance of $120.0M - $135.0M. GAAP net income in the range of $70.0M - $85.0M, compared to previous guidance of $68.0 million to $83.0 million. Medicare segment profit(2) in the range of $157.0M to $174.0M, compared to the previous guidance of $152.0M - $169.0M, and GAAP net income per diluted share in the range of $2.55 to $3.10, Individual, Family and Small Business segment profit in the compared to previous guidance of $2.64 to $3.23 per share. range of $17.0M - $18.0M, consistent with previous guidance. Non-GAAP net income per diluted share(4) in the range of $3.41 to $3.90, compared to previous guidance of $3.56 to $4.09 per share. (1) Adjusted EBITDA is calculated by adding stock-based compensation, change in fair value of earnout liability, depreciation and amortization expense, amortization of intangible assets, other income, net, and provision (benefit) for income taxes to GAAP net income (loss). (2) Segment profit is calculated as revenue for the applicable segment less Marketing and Advertising, Customer Care and Enrollment, Technology and Content and General and Administrative operating expenses, excluding stock-based compensation, change in fair value of earnout liability, depreciation and amortization expense and amortization of intangible assets, that are directly attributable to the applicable segment and other indirect Marketing and Advertising, Customer Care and Enrollment and Technology and Content operating expenses, excluding stock-based compensation, depreciation and amortization expense and amortization of intangible assets, allocated to the applicable segment based on usage. (3) Corporate consists of other indirect General and Administrative operating expenses, excluding stock-based compensation and depreciation and amortization expense, which are managed in a corporate shared services environment and, since they are not the responsibility of segment operating management, are not allocated to the reportable segments. 15 (4) Non-GAAP net income per diluted share is calculated by adding stock-based compensation expense per diluted share, intangible asset amortization expense per diluted share and the income tax effect of these non-GAAP adjustments to GAAP net income per diluted share.
Executing Defined Strategy to Achieve Strong Results and Drive Growth Business fundamentals Omni-channel Addition of work- Updating our 2020 are strong. Executing on customer engagement from-home annual guidance a clear strategy and platform is ideally capabilities for agents to reflect positioned to serve making targeted adds to significant outperformance to-date customers safely and revenue and margin investments to drive most effectively both now leverage opportunities growth. Our financial and in the future in 2020 and beyond results reflect the progress we are making 16