Q4 2019 Earnings Call
Please standby said today's conference is being recorded if you require any further assistance. Please press star Zero I would now understand the conference over to your speaker today, It's Kate Sidorovich email Vice President Investor Relations. Thank you. Please go ahead man.
Thank you.
Good afternoon, and thank you all for joining us today, either by phone or by webcast for a discussion about E health Inc.'s fourth quarter and full year 2019 financial results wonderful the softer notable how Scott Landers, <unk>, Chief Executive Officer, and Derek Young Chief Financial Officer. After management completes his remarks, well open the lines.
Patients as a reminder, today's conference call is being recorded in the webcast from the IR section of our website a replay of the cool will be available on our website. Following the call well, we'll be making forward looking statements on this school that include statements regarding future events beliefs and expectations, including statements relating to exit.
Patients regarding all Medicare business, including Medicare enrollment girls can see when demand a competitive advantage our share of total Medicare and Medicare advantage enrollment and growth in online Medicare enrollment I'll make hand girls strategy and investments in the Medicare business, including our investments in telesales capacity marketing initiatives and our technology.
What you platform and capabilities.
Expectations regarding the profitability of all business seasonality operating cost lifetime, they do retention rates and cost of acquisition our estimates over the lifetime data Obame Medicare plans and expectations that enhancement tell Medicare advantage lifetime data estimation model will provide a more predictable forecasting oversee killer app.
And finally, Oh 2020 full year guidance and outlook for the first quarter of 2020, including all assumptions and our ability to deliver on our guidance for.
Forward looking statements on this school represent eat healthy uses of today you should not your line to statements as there are presenting our views into future. When did take not obligation would you need to update information contained in this forward looking statements. What is the result of new information future then to otherwise forward looking statements are subject to risks.
And uncertainties that could cause actual results could differ materially from those projected in our forward looking statements. We described these and other risks and uncertainties in <unk> annual report on form 10-K.
Quarterly reports on form 10-Q filed with the Securities Exchange Commission, which you may access through the FCC website or from the Investor Relations section of our website.
Well, we'll be presenting certain financial measures on this cool that considered non-GAAP on to actually see regulation G. for reconciliation on each non-GAAP financial measure to the most directly comparable GAAP financial measure. Please refer to the information included in our press release issued today and in our SEC filings, which can be falling into about.
As section of all corporate website under the heading Investor Relations and at this point I will turn to coal, but just got slanders.
Thank you Kate and good afternoon, everyone.
2019 was a record year free health punctuated by the strongest annual enrollment period, and our company's history and financial results that significantly exceeded our 2019 annual guidance across multiple metrics, including revenue GAAP net income and adjusted EBITDA.
Our Medicare enrollment volumes exceeded our expectations in the first three quarters of the year Emboldening us to more than double our telesales capacity going into this AGP compared to a year ago and to make a significant investment and marketing and technology initiatives.
These investments have clearly paid off as we achieved 88% growth and approved Medicare members in the fourth quarter of 2019 compared to a year ago.
Growth in fourth quarter 2019 approved members for Medicare advantage products was especially strong at 100%.
We achieved these high levels of enrollment growth high cost effective basis as evident in our meaningful margin expansion compared to 2018.
Equally noteworthy was a 200% year over year growth, our fourth quarter Medicare application submitted on line.
Which represents a combination of fully unassisted and partially assisted agent online enrollments.
36% of our fourth quarter applications for Medicare major medical products, including Medicare advantage and Medicare supplement plan were submitted by our customers online.
A meaningful increase compared to 22% a year ago.
Underneath that the unassisted online enrollments, where customers never interact with one of our eight sales agents grew 107%.
While partially assisted enrollments grew over 280% and the fourth quarter compared to Q4 2008 G.
Our strong fourth quarter performance allowed us to significantly exceed our full year 2019 target of customers completing 20% of major medical Medicare enrollment is online with actual online contribution coming in at 27%.
These metrics very strong validation of a strategic pillar of our business that a rapidly growing portion of Medicare customers not only feel comfortable transacting online that will increasingly demand this capability and a maximum choice consumer friendly online experience.
Similar to the evolution scene and other consumer facing verticals, such as the retail shopping brokerage and travel markets.
We are facilitating as accelerating trend for digital engagement, the Medicare market with further investments in our Omnichannel shopping and enrollment platform.
Meeting seniors wherever it is easiest and most convenient for them to engage with us online or on the phone.
Our industry NPS scores are consistently in the eighties to ninetys range, demonstrating the value we are providing to our rapidly expanding base of senior customers.
He else unique value proposition allowed us to grow our estimated Medicare membership at a rate that is 14 times the growth rate of the overall Medicare market and to grow our estimated Medicare advantage membership at five times the rate of the Medicare advantage market.
Turning quickly to the individual and family and small business markets approved members for the individual and family plan products grew 1% during the fourth quarter 2019, compared to the fourth quarter a year ago.
This was in line with essentially flat year over year enrollments seen in a broader individual market. During the open enrollment and also reflected our continuing emphasis on the Medicare business and allocating our marketing resources.
Proved members for the small business group products declined 16% during the fourth quarter compared to same quarter, a year ago as we focused on higher margin members, while deemphasizing smaller less profitable groups.
In addition to our strong operating results the fourth quarter and full year financials reflect the positive impact of 42.3 million in revenue, resulting from a change.
Change an estimate for expected cash commission collections relating to some of our existing Medicare advantage plans.
Last month, when we released our preliminary 2019 results we were in the process of finalizing our work to enhance the Medicare advantage lifetime value forecasting model and therefore provided our revenue.
Adjusted EBITDA and earnings ranges on an operating basis, which excluded this positive impact from our change in estimate.
Derek will provide more details on these enhancements to our forecasting model and their impact on our financial results.
For the full year, he helped generated revenue of $506.2 million or 101% annual growth, including the positive revenue impact I. Just described 2019, adjusted EBITDA was $133.2 million, 296% and.
Growth and GAAP net income was $66.9 million also including the positive revenue adjustment.
Revenue for the fourth quarter was $301.7 million GAAP net income was $88.8 million and adjusted EBITDA was $142.6 million again, reflecting this benefit.
Looking ahead, we anticipate the strong momentum we built over the past two years to continue into 2020.
We expect to continue outpacing the overall market growth by leveraging our differentiated omni channel engagement platform demonstrated consumer value proposition and our demand generation expertise.
At the midpoint, our 2020 annual guidance calls for nearly 30% revenue growth accompanied by EBITDA margin expansion expansion, including the positive impact from the enhancements to our M&A LTV model on our 2019 results.
Derek will go over some of the key assumptions behind our guidance in his prepared remarks.
On the execution fraud, we plan to make further enhancements to our platform with an emphasis on ease and transparency of the online consumer experience. Our goal for Twentytwenty is to reach a 34% contribution for Medicare Major Mehta goal application submitted online.
And now I will turn the call over to our Chief Financial Officer Derrick Young.
Thanks, Scott and good afternoon, everyone.
On today's call I will go over our 2019 financial results in greater detail and provide our 2020 annual guidance He health fourth quarter and full year 2019 financial results reflect our strong execution is significant investments in Medicare related telesales capacity and marketing initiatives throughout the year as we can see.
When you to scale, a Medicaid business, achieving strong revenue and enrollment growth while expanding margins.
Our results also included the impact of enhancements made to our Medicare advantage lifetime value forecasting model that will enable us to better estimate lifetime values of our Medicare advantage plans.
During the fourth quarter, we work with an external corporate valuation consultant to assess our existing approach and incorporate statistical tools to increase the accuracy of our Medicare advantage plans, our lifetime value estimates.
It's an emphasis on improving our member retention forecasting.
Since the adoption of AOCI six so six for revenue recognition, our cash collections for Medicare advantage plans happened general exceeded initial estimates suggested by our lifetime value model, reflecting the conservatism of our approach.
This dynamic has contributed in the past quarters to the recognition of increasing amounts of residual or tail revenue from Medicare advantage members approved in prior periods.
At the same time, we have limited visibility into the precise timing of to tell revenue recognition.
Under our model, we were assessing residual revenue in the quarter when the entire commission receivable on a Medicare advantage cohort had been fully collected.
The exact timing of that final collection can be difficult to predict.
In the hands model addresses this forecasting concern.
So enhanced model that now that we now have implement it uses a modified Kaplan Meier statistical model rather than historical two year moving averages for the purpose of estimating a Medicare member retention.
It is expected to result in lower volatility of our Medicare advantage lifetime value estimates and also provide far more predictable forecasting of a residual revenue.
We incorporate all relevant historical data into the model with larger weight plays on the most recent three years of observations to improve the accuracy of our lifetime value estimates.
Going forward will be assessing and booking residual revenue on each Medicare advantage plan cohort. When there is strong statistical evidence. It will not result, improbable reversal of revenue into future.
Currently for Medicare advantage plans this would be around three years from the time of enrollments.
Three years is about the average life of our Medicare advantage plans and also real represents a mark after which we observed significant decline and retention variability for the remainder of the cohorts life.
Our fourth quarter financial results reflect a 42.3 million positive revenue impact from the change in estimate for expected cash commissioning collections for Medicare advantage plans since we began selling such products and through the third quarter of 2019.
Total fourth quarter 2019 tell revenue related to Medicare advantage plans was 50.8 billion.
It's important to note that even excluding the positive impact from the enhancement of the Medicare advantage LTV model.
He helped significantly outperformed our 2019 revenue GAAP net income and adjusted EBITDA guidance.
And now I will review, our fourth quarter and full year 2019 financial results.
In the Medicare business, our fourth quarter revenue was 282.6 million, excluding to 42.3 and the impact from an enhancement of the Medicare advantage lifetime value model.
Fourth quarter Medicare revenue was 240 point Threemillion.
Representing a 98% year over year growth.
Full year 2019, Medicare revenue was 447 million.
Excluding the impact of enhancement of the M.A. LTV model, our full year Medicare revenue was 404.7 million or a 92% growth compared to year ago.
This strong growth was driven by a combination of growth in a proof of Medicare members and an increase in non commission revenue in particular revenue generated from our Medicare plant advertising program.
For the fourth quarter 2019, the Medicare segment generated a profit of 149.3 million.
Excluding the impact from enhancement of the EMEA LTV model.
Medicare segment profit was 107 billion, an increase of 82% compared to a year ago.
For the full year 2019, Medicare segment profit was 155.2 million or 112.9 million, excluding the impact from that has been up an M.A. LTV model.
Decimated number of revenue generating Medicare members was approximately 711000 11000 at the end of fourth quarter of 29 team up from 487000 at the end of fourth quarter 2018, or an increase of 46%.
As Scott noted our 2019 Medicare membership grew well ahead of the overall Medicare enrollment as reported by the CMS.
I would also like to address the dynamics and constraining lifetime values of our Medicare members.
During the fourth quarter, we continue to observe favorable changes in retention rates for the Medicare advantage cohort that were enrolled in the annual enrollment period in the fourth quarter of 2018.
In combination with higher commission rates in 2019 compared to 2018.
And a positive impact from the enhancements to our forecasting model. This contributed to a 2% increase in fourth quarter and a 5% increase in full year 2019, Medicare advantage ltvs compared to a year ago.
Fourth quarter and full year Medicare supplement LTV, both declined by 6% compared to 2018.
This was primarily driven by slight decline retention rates and this book of business.
Fourth quarter 2019 revenue from our individual family and small business segment was 19.1 million, a 44% increased compared to a year ago.
For year 2019 revenue in this segment was 59.2 million, a 45% increase compared to 2018.
Revenue growth was driven primarily by higher lifetime values for individual and family plan and short term products as well as a residual or tell revenue from our existing individual and family plan members.
This was partially offset by a decline in a number of prove members on individual small business group and really the ancillary products as we continue to focus our investments in the Medicare business.
The individual family and small business segment remained profitable for stay on a standalone basis generating profit segment profit of 23.4 million for the full year and eight point threemillion for the fourth quarter 2019.
Our estimated individual and family plan membership and the fourth quarter was approximately 128000 down 15% compared to it at the estimated membership reported at the end of fourth quarter a year ago.
The estimated number of members on small business products was approximately 43000 at the end of the year, a 9% increase compared to year ago.
Total revenue for fourth quarter 301.7 million, excluding to 42.3 million impact from the enhancement of the M.A. LTV model fourth quarter revenue was 259.4 million, an increase of 92% compared to the fourth quarter of 2018.
Okay.
Revenue for the full year 2019 was 506.2 million.
Excluding the impact from enhancement of the M.A. LTV model revenue for the full year 2019 was 463.9 million.
And and 85% increase compared to 2018.
Now I will review, our operating expenses and profitability metrics in 2019, we delivered meaningful margin expansion for the second year in a row.
2019, adjusted EBITDA margin, excluding the positive impact of an enhancement of EMEA LTE of a model was 20% compared with 13% in 2013, reflecting fixed cost leverage as we grew our revenue base.
Including the impact of enhancement of them a model our 2019 adjusted EBITDA margin was 26%.
At the same time variable marketing cost per approved member and on Medicare business increased as we invested for accelerated enrollment growth and market share expansion, leading to higher costs for select initiatives within our direct and partner channels.
A larger contribution from online advertising channels, which on average have higher acquisition costs also led to an increase in marketing cost of acquisition.
2019 variable marketing cost per approved Medicare member grew 11% compared to year ago.
Yes.
Customer care and enrollment costs per approved Medicare members grew 13% from 2019 compared to 2018.
Similar to marketing costs. This annual increase reflects our significant investment and growth of our Medicare business.
First in 2019, we made a decision to retain a larger number of agents during our low volume second and third quarters and that started to hire and train agents early in the year ahead of the annual enrollment period with a goal of increasing their productivity during the critical selling season and to accommodate our marketing initiatives drew.
In the special enrollment period.
In addition, during the annual enrollment period, we incur agent overtime costs during peak volume times and also saw a longer to average call times, reflecting increased selection and complexity of Medicare advantage plans.
Finally, our 2019 customer care enrollment costs include expenses related to the opening of our new Telesales Center in Indianapolis.
Okay.
Adjusted EBITDA for the fourth quarter of 2019 was 142.6 million or 100 point threemillion, excluding the impact from the management of the EMEA LTV model compared to 51.9 million what fourth quarter of 22018.
Full year 2019, adjusted EBITDA was 133.2 million or 90.9 million, excluding the impact from the enhancement of the EMEA LTV model compared to 33.7 million for the full year 2018.
We calculate adjusted EBITDA by adding restructuring charges, which isn't costs stock based compensation change in fair value of earn out liability depreciation and amortization, including the amortization of acquired intangibles other income and provision and benefit for income taxes to our GAAP net income.
[noise], including the impact from enhancement of in EMEA LTV model, our fourth quarter 2019, GAAP net income was 88.8 million compared to 26.1 million in the fourth quarter 2018.
Full year 2019, GAAP net income was 66.9 million compared to 0.2 million in 2018.
Excluding the impact from the enhancement of the EMEA LTV model, our fourth quarter and full year 29, net income would have been lower.
Our fourth quarter 2019 cash flow from operations was negative 56.8 million compared to a negative 8.7 million for the fourth quarter 2018.
For the full year 2019 cash flow from operations was negative 71.5 million, reflecting significant investments in our Medicare enrollment growth, which accelerated in 2019 relative to growth rates, we posted in 2018.
I would like to remind you that while we pay the vast majority of our member acquisition expenses in the same quarter when we generate enrollment most carriers do not paid initial because the commissions associated with enrollments during the annual enrollment period until January of next year, what those policies become effective.
The impact of this timing our cash cycle was exaggerated in 2019 as we shared on the fourth quarter call a year ago. In 2018, we saw some commission payments related to our annual enrollment period enrollment coming earlier than we expected with a smaller percentage of payments being pushed out into first quarter compared to historic.
Patterns.
This develop development had a beneficial impact in 2018, but had a negative impact on our cash flow from operations in 2019.
In January 2020, we received approximately 59 million in commission payments related to the fourth quarter 2019 enrollments.
Capital expenditures, which include capitalize internally developed software costs were approximately 16.9 going forward for year.
Our cash balance was 26.8 million, including restricted cash and we had no outstanding debts.
We ended the year with commission receivable balance of 589 million.
And now I will provide our 2020 annual guidance.
We are forecasting revenue for 2020 to be in a range of 582 620 million with Medicare segment revenue in a range of 533 to 569 million and individual family and small business segment revenue in a range of 47 to 51 million.
We expect GAAP net income for 2020 to be in a range of 68.
To 83 million.
We expect 2020 adjusted EBITDA to be in a range of 120 to 135 million.
2020, Medicare segment profit is expected to be in a range of 152 to 169 million an individual family in small business segment profit is expected to be in a range of 17 to 18 million.
Corporate share services, excluding stock based compensation and depreciation and amortization expense is expected to be in a range of 49 to 52 million.
GAAP income per diluted share for 2020 is expected to be in a range of $2.64 to $3.23 per share.
Non-GAAP income per diluted share for 2020 is expected to be in a range of $3.56 to $4 in nine cents per share.
Cash used in operations is expected to be in a range of 52 to 55 million in cash used for capital expenditures is expected to be 18 to 20 million.
At the midpoint, our 2020 revenue guidance implies a 29% growth compared to our 2019 revenue excluding to 42.3 million positive impact due to enhancement of the Medicare advantage lifetime value model.
This growth is expected to be driven primarily by Medicare enrollment growth.
Similar to last year, our 2020 guidance assumes no improvement in Medicare lifetime values.
Based on the midpoint of our adjusted EBITDA guidance, we expect to generate a margin of 21% a margin expansion of approximately 150 basis points varies our 2019 adjusted EBITDA margin of 20% after excluding a positive impact with the 42.3 million from an enhancement of the M. LTV model.
This margin expansion expected expected to be driven primarily by continuing leverage in our fixed costs.
At the same time, we will continue to invest for growth in our telesales capacity marketing with combined marketing and customer care enrollment expenses growing roughly in line with projected 2020 revenue growth.
On a per approved member basis, our Medicare business, we expect to drive improvements in customer care enrollment costs in 2022 increased contribution from fully unassisted online enrollments to total Medicare applications.
Further leverage from our agent facing technology tools and managing for stronger cost efficiencies in our outsource telesales model.
Marketing cost per approved Medicare member expected stay roughly in line with 2019 levels.
Finally, I would like to make some comments with respect to the seasonality. We expect this year. We're currently expecting a similar pattern in terms of each quarters percentage contribution total annual revenue as in 2019, excluding the impact from enhancement of our EMEA Ltd model during the fourth quarter of 2019.
The fourth quarter will continue contribute disproportionately to revenue and earnings driven by timing of Medicare annual enrollment period, and Obama care open enrollment period selling season.
In the first quarter of 2020, we expect adjusted EBITDA to be relatively flat compared the first quarter of 2019.
I want to remind you that these comments in our guidance are based on current indications of our business. Our current estimates assumptions and judgments, which may change any time, our actual results may differ as a result of changes in our estimates assumptions adjustments when undertakes no obligation to update our comments all our guidance.
In conclusion, we ended 2019 on a strong nodes delivering record performance during the annual enrollment period and expanding our share of America remark market.
We're now pacing well ahead of our five year financial plan that we share investors in may of 2019, and anticipate updating our long term projections later this year.
With that I'll turn it back to operator for questions.
As a reminder to ask a question we need to press star one on your telephone to withdraw your question press the pound or hash key.
Your first question is from gentlemen, addressing of credit Suisse.
Hey, guys. Thanks, a lot I.
I would like to better understand the 29% comments, you're making in terms of growth either what a good.
I mean, if you ex out.
Pick out for 42.3 number but.
Ex out all the enhancement in the NPV model.
How your core revenue growth would have looked from 29 to 2020 is this still 29% I'm just trying to understand that.
Yeah. So John just good question, so they're 29% offer the midpoint of guidance is a comparison due 2019 revenue excluding that 42.3 million.
So when you exclude 40 Dupont feel what are your totaled 50.8.
And a 4200 grief that.
And Tony Tony Tony number does not include any benefit from seeing revenue under this new enhancement.
[laughter].
And the 2020 guidance there is implied revenue.
And the expectation for tell revenue from the Medicare business. When you exclude the 42.3 million is to be flat.
Okay and then.
I'd like to better understand the implication for the increasing that person thing of late and Goldman clearly pretty basic increased from 22 person to 36% or that you had given you're pretty decent margin leverage.
Then what do you actually Flotek is this I'm thinking of where you want incentivizing, you'll brokers that you may not be yet realizing the full benefit of online enrollment at least on though I suspect side.
On that.
Yes, it's a good question July there so within that increase as Scott said in his prepared comments is there are two components one around unassisted online enrollments, where there is no interaction with call Center agents, which was the type that I think you were just referencing and a assisted on iOS.
Moments, where the beneficiary would spend some time consulting with.
Our sales agents into call Center, but then subsequently finished the application online.
And both of those we see those both of those as a positive customer experiences.
And the under.
Assisted online enrollment in particular is one where people would be more comfortable in the a little bit more help.
But is a ability that allows them to be able to take time and make a decision later on if they want to continue with application process. We also see that area as a growth area in allowing more about customers to experience and online enrollment experience and really help.
Yes engaged customer in a way that is just strictly through online techniques.
Hey, Joe lender, it's Dave Francis the other thing to consider is that we're continuing to invest.
Marginal profits into growing the business. So the on the unassisted online side of the business, where there is no interaction with the salesperson. We are investing as we've talked about consistently that savings to drive more business into the online channels. So as the business matures from a growth perspective.
Yes, we'll get even more incremental benefit from a profit perspective, but at the moment, we're taking that incremental profit benefit and plowing it back into additional growth in the business to get more scale.
Either way, we're always focused on making sure that we're driving high margin business as you can see in the expanding EBITDA margins.
With that with a high focus on profitability, even though we continue to invest in an outsized growth in the business.
Okay and then my last question.
And any thoughts around your financial flexibility and in fact, I got on any potential capital raise.
On your parent cash on balance sheet and your cash flow guidance. It seems you Mike how to raise capital at some point just wondering how we're thinking about how about the timing deal.
Yes. Good question, we have adequate capital between the cash on the balance sheet and access to revolver to fund the growth plan Thats.
Outlined in our guidance should we decide to invest in more growth.
We will have to seek financing and we have number of options that do that one of those options is potentially increasing the size of revolver, which we did successfully this past Q4.
Okay. Thanks, a lot.
Your next question is from George Hill of Deutsche Bank.
Hi.
Hi, guys I'm going to pretend to that I'm smart enough to understand the Kaplan Meier as model when I asked a couple of these questions.
We know you off first though [laughter]. So I know you want to dig into that.
I do but probably most of his questions. We'll have to come offline I guess first could you talk about what the LTV would've been in Q4 under the old standard for before the adjustment.
It has been slightly lower but not not not really material differences. So the a enhance model.
The benefit of the has model wasn't necessary to have a higher LTV. It was to create a is it give us a statistical evidence and give us the confidence that we can recognize revenue base on observations that we've seen and comment on previously around cash collections being hired initial estimates okay. That's helpful and then.
I guess.
One of the things, where you guys outperformed our model was in med D. Given that med D is kind of a shrinking product versus my I guess can you just talked about the dynamic where you guys seem to disproportionately take share in the med D book of business or grow by de kind of just like grow Medina way that kind of doesn't reflect market growth of the product.
Well, so George its Dave I'll answer it this way we talk a lot about the tools that we put into the marketplace for customers to help them better determine what plan is best for them.
And that has a lot of that has to do with the drugs that they take so whether it's on the M&A PD side or just on the part D side.
Both our agents and our online tools for four customers, we're seeing a lot of gravitational pull toward them because it helps people make more intelligent decision about what they should be buying.
So it again as we continue to invest in the technology side of the business and I think we've talked about the fact that to the large majority of our part D business is done online on assisted.
That we're we're seeing the value of those those investments pay off in terms of customer engagement follow through on on outsize growth in that part of the business as well.
Okay, and I guess my last one before I hop back in as you guys have already provided guidance for the year you've talked about the earnings guidance. In Q1 is there any commentary you can provide on what type of M&A activity, you're seeing in Q1, either as it relates to churn or new people stepping on board.
Just kind of interesting <unk> I mean, we know the guidance out there just kind of interested this dynamic you're saying.
The business as.
I would say on plan.
Expectation that we had for does Q1 was modeled after what we observe last year, which is there are a population of people who will take advantage of the open enrollment period to allow them to be able to switch into a planned that they think it's better for them. So.
We do have the benefit of hindsight of Q1 last years experience, where logic would then when we hadnt seen this key OE period and long period of time, So we're able to invest into that a little bit more this year, but in general I would say things are tracking on plan for Q1 at the business is strong and we're really feel really good about where we sit at the moment, Okay I'll hop back in the queue. Thanks, Chris.
Your next question is from Greg Peters of Raymond James.
Good afternoon, I think in your prepared comments you spoke about the 2018 vintage what's the retention being running a little bit ahead of plan last year.
And I'm, just curious about how you're thinking about retention characteristics for the 2019 vintage considering it's so much larger than the 2018 vintage it seems like it could be a little bit more volatile, but perhaps you have a view on that.
Good question, Greg I see.
We're not trying to convey that we expected to be more volatility thats, where you are picking up.
From a.
Forecasting and estimation perspective.
[music].
This year, we have to observation from last year of how the open enrollment period in Q1 will play into customer retention and churn.
That was a big wildcard last year, we did our best in making the estimates of what it could be and build invest into this year now with the experience loss or we were able to do better.
We are guiding to a flat LTV and behind that is largely an expectation that there will be no significant deviation from the churn all policy the way should we see in Medicare in 2020.
Okay.
The I want to pivot the another comment you talked about.
Costs per per acquired member.
And you said I think you said you expect them to be relatively flat in 2020 relative to 2019 can you talk about what kind of can you talk quite a demand generation expertise. The reason why I'm asking is we're hearing about incidences of other competitors in the marketplace.
Place paying much more a much higher acquisition costs and you guys are just trying to reconcile some market talk with what you guys are reporting.
Yeah. So let me clarify a couple of things numerically as you did hear collect correctly that for Medicare marketing variable cost per approved member expecting that to be.
Flat year over year.
We did also mentioned in prepared remarks that we expect our customer care moment cost improve remember to improve year over year.
And in total for the piano, where say that for our sales and marketing and customer care woman cost to grow same way as revenue. So you heard that correctly.
On the marketing side, you know, we havent seen.
What do you mention impeding our growth I think thats evident in our.
Our numbers.
We have seen higher degree of competition in channels like direct response TV.
In the you know are the competition does for US is primarily still our carrier partners in F. Almost there off course, other brokers as well, but really the composition said that we see emerging more so in channel like Directv is really a carriers and FM most.
Again in the market, we haven't seen that affect us in that manner.
We do have a competitive advantage in our marketing <unk> in our strategic partnerships. So we had discussed in the past that as a growing area for us we have strategic relationships with the largest pharmacies hospital networks carriers and so on and from a cost of acquisition perspective. It is.
An area that on average is better than our direct marketing and other Dan online marketing. It is an area that we would expect grow faster than others My marketing perspective.
Okay. The final question.
Would be I know you highlighted the.
Substantial growth in your commission receivable, both current and Noncurrent.
Can you talk about.
I know you mentioned some of this in your prepared remarks can you talk about the expense associated with that receivable.
Maybe the the Pete the biggest piece would be than the Noncurrent is there any expense associated with that or is that pure pure cash.
So the commission receivable represents the cash collections.
To be collected associate with the commissions that we earned from carriers for the policies that we help acquire customers for them on their behalf. So once that's happened and it's actually the reason why we recognize revenue we do our service application is completed and therefore, we recognized a lifetime value of that from the operating.
Perspective, other than reconciling the cash coming in and the cash.
It that we should be being paid as it broke a record theres no other cost us so.
Because there was no cost against that Greg. It's all the costs have been been expensed in period, and it's all cash seem to be collected free of additional charge.
Your next question is from Frank Morgan of RBC capital markets.
Good afternoon, just one quickly a couple of housekeeping.
Flat share count in your guidance.
25.7 million.
Fully diluted.
Okay in terms of the off you know this.
Growth in the.
And assisted in assisted online enrollment have you had any time yet to figure out what the retention is in that kind of cohort of your business.
Over the over the long haul.
Frank we have looked at that in the past, we haven't seen significant deviations in general depending on someone as telephonic and this has to online assistant online with that said as you heard in the prepared remarks, we had a significant increase.
And the assisted online submission applications. So that is a new a component of it as and that's obviously too early to bill to him to see a and predict any long term differences.
Given the.
Conversion rates and the.
Customer feedback around the experience.
We will be surprised if there's any difference in there and if there is it's most likely positive yeah, Frank the thing to keep in mind relative to these assisted online enrollments as of the tools that we put in a hand of the agents.
In terms of allowing the agent to to then hand off the online enrollment piece to the customer either through an E mail or through a Texas exchange is a set of tools that is unique to us and is something that builds the confidence as we have seen in the customer as they make their decision. So it's too.
Early for some of these these products to be showing any kind of meaningful deviation from.
Historical retention norms, but given the increased level of conversion that we see when those products are used and the.
What we believe is a higher level confidence in the customers purchase decision.
We think that there's there's nothing but but potential upside there relative to persistency of that part of the book relative to what we've seen with the pure telephonic in the past.
Gotcha and then the yeah I think you commented that the tail revenue you were expecting it to actually be flat what was the tail revenue.
So for the full year Medicare Yeah met Medicare tell revenue was.
55 million. So that includes a 42.3 million. So then the remainder 13 and thats. The it's flat in the guidance going in 2020.
Oh, Okay, and just to be so is the 42.3 is that actual cash receipt or is that just.
It is not catwalk.
It is noncash receive on its going to numeric basis. It is.
Our.
Revised expectations, what is expected be collected from those plans.
Okay.
And I guess finally, just a some recent discussions we've had with some of that.
Caretakers, they they've talked about some of the strategic value of third party the benefits of third party broker relationships and.
So you can their input really about targeting specific markets, but also importantly.
The impact on input on plan design any have you seen this is it happening any of your markets and to do you think it.
What do you think long term implications would be for you if so thanks.
Yes, Frank we don't get into a lot of plan design discussions per se with our carrier partners. We do spend a lot of time talking with our carrier partners about what we're seeing a different parts of the market and we occupy unique perch within the Medicare advantage marketing.
Particular, the Medicare market generally as it relates to the market approach in choice approach that we we deploy and that we are ingesting a tremendous amount of information already very granular basis across the entire country relative to two who is who is doing what from a premium benefit design.
Line and pricing perspective, so we are able to engage with the carriers and talk with them with a level of intelligence that that allows them to go into the next year thinking a little bit more intelligently about how they want to approach different markets benefit design and that sort of thing.
But as it relates to specifically getting into plan design and whatnot with the carrier partners. They typically.
Take a lot of the information that we give them and then go in and do their Blackbox work.
And.
It's part of the partnership that we have with them but.
Not a lot of involvement in design, but certainly a lot of involvement on the intelligent site.
And your next question is from Dave Styblo, Jeff Jefferies.
Hi, there good afternoon. Thanks for the questions first one was just to circle circle back on on the agent Count. So I think you guys were looking to double that and 19 and maybe you you did and a little bit more than that was the end result, I'm curious can you give us an update.
And your plans for hiring and growth and telesales agents.
Those both that you guys have or also metrics that we can think about for those that you are outsourcing and how you're going to use that to flex up and down.
And how that how that growth compares to the core revenue growth.
Yes, so Dave we were not going to give out specific agent counts right now, but I can give you a little bit more color. So this is this last year, we did invest significantly and gross agent counts that were higher than they were in 2018.
We took the success that we had on the outsourced model in 2018, and Levered that even further into our agent counts in 19, we also expanded our internal capacity through this Indianapolis sales facility as well as expanding in both the gold River in Salt Lake City offices as we approach this year.
We are looking to two obviously further expand to take advantage of the market growth opportunities that we continue to see.
Robustly ahead of us and we will.
We will we will use the the ability to to lever the internal and external forces in a way that allow us as Derek described to bring down.
Our incremental cost of customer acquisition on the on the sales cost side, the CCN east side.
By by being a little bit more optimized relative to how we how we play with that mix of internal versus external understanding that we will have on a gross basis more agents, particularly as we go into the fourth quarter. This year.
Okay, and just to understand management philosophy, I mean, theres an opportunity in the markets still small.
You double last year, and maybe got validation of what you're doing why not double it again or improve growth by 50% or is it something where you just want to be a little bit more measured and making sure. You don't get ahead of your skis or is there just some some training lag capacity infrastructure that that you have to contemplate as you grow that rapidly.
[music].
Yes, it's a balance between between cost and making sure that we continue to manage the business to grow it as aggressively as possible without breaking that we talked last year about the fact that we wanted to put as many plates on each of the bar without breaking the machine and there is.
The non trivial amount of management of a sales organization as large as we had been growing it and it is quite frankly, the rate limit or until we get even more of that business going online and letting the machines do all of the work the the ability for us to two from both the cost into.
To to grow that business as aggressively as possible without making it break is what we are are acutely attuned to so as we as we look at the.
I would say as you look at the guidance that we put out last year and then how we performed against it it's a similar ways to how we're looking at growing the business this year.
And Dave I believe I understand question I think Theres also a timing aspect to it to a Wi.
Put out our guidance, but as we had previous year, we'll continue evaluate what really we expect to invest in Q4 as we get closer given any improves when we seen our technology and also just generally what we see as an opportunity to get more market share later on the year.
Okay, Great and then just one last one from from a margin expansion standpoint, I know you guys want to update you on your longer term projections at some point, but.
You sitting around the 20, 122% margin. Your Bull case was to get to 35% and 2023 I'm curious are you willing to talk about that relative to where where you think you can go are we on track, maybe you're making more investments right now to grow the topline, but but how should we think about the cadence of the.
The margin expansion over time.
I'm going forward.
Yeah. So I commented that we'll be working on a revised five year outlook later on this year as we've done in past couple of years.
In reference to how we perform in 19 compared to the the long term plan that we have published last year on the revenue Seiwert, a full year ahead of that plan on to EBITDA margin, we're somewhere in between.
Next year the year. After so we're not full year ahead, but when the EBITDA dollar perspective, we're actually ahead of.
By four year as well so what youre, saying generally is right is as we are growing at faster rates that we had expected given the opportunity in front of US we are investing more into it and on a comparative basis on a margin percentage, we're not getting to that point, but certainly were.
Delivering on the EBITDA dollars that we would expect anywhere in fact, a four year ahead of that.
Your next question is from new shell of Evercore ISI.
Okay. Thanks, maybe a follow up on the agent discussion can can you just comment on the external agent the underperformance in 80, and why productivity was so much better than the initial guidance nor was it just conservatism or due to lead allocation algorithms performed well was it.
Within certain pockets or certain certain vendors across a much better than you expected.
Yes. It was a combination of all of those I think we did go in with a bit of a conservative view just to make sure that we weren't overstating our ability to deliver there, but candidly the performance of the outsourced agents improved.
Almost daily throughout the entire AGP selling season, a lot of that had to do with the tools that we deployed into all of the sales centers, both internal and external and the new agents, just becoming more comfortable and and fluent with the technologies.
That along with the fact of the marketing and the business development sides of the business continued to drive high quality business into the sales centers.
It all added up to conversion rates that were ahead of our expectations. We were really pleased with everybody's performance, both internal and external.
And I understand I tell us how many agents your item, but do you have so many.
Patients that were new this year that returning the does guidance assume any productivity significant productivity improvements.
He just can you just bear.
Now the guidance assumes.
Same level of productivity.
From agents in total.
Hi, Thanks.
Your next question is from July Sutton of Craig Hallum.
Thank you I don't know for letting Scott answer questions, but I.
I will ask the very commonly seen question I'm getting from my side folks and that is George if I missed the stock and the story and I wanted to address the question from the perspective of market share.
That you had both in 2019 and market share you think you could obtain over the next handful of years.
Particularly given that your 2020 outlook assumes you will continue to gain meaningful share.
Yeah, So hey, George Thanks for giving me a chance to say something odd Yep, we're still in the early.
Stage of share capture.
And it or dancing around this here, but to put a sharper point on it our guidance is impacted by our current balance sheet.
And we wanted to guide with and what capital. We have can represent we have access to today, we do believe the market.
Good.
Yes, we can penetrate more fully.
If we had more cash than we will evaluate that as we get further into the year.
As Dave and Derek both said the year has started off strong we're ahead of plan.
We're ahead of guidance and we have every reason to think that are increasing share a will.
It will be maintained.
We think also.
We are the early stage of a secular shift from purchasing Medicare across the kitchen table, two first telephonic and now telephonic assisted.
With online and online assisted with telephonic and an increasing shift to fully online and we're we're just perfectly positioned for all three.
And it's always been my philosophy in the consumer businesses that I've. Ron is you meet the consumer where they are and we think we've done that we invested ahead.
Of consumer in terms of our tech stack and our consumer experience online, but it's catching up to US now and that's why we feel very strongly just about our accelerating growth rates against the market itself, but also the margin expansion. We think we're just perfectly positioned.
That's very helpful. So one other question relative to Medicare planned finder issues coming out of Q4.
There was a fairly large number of unhappy customers are coming from Medicare Dot Gov. I'm curious if you have specific programs to target those folks and this new or expanded open enrollment period in Q1.
Yes. The short answer is yes, we're still very large caveat that we don't know exactly who those folks are unfortunately, we'd love to under raise their hand, we do think that they're out there in the marketplace finding their way to us.
And back to one of the earlier questions I do believe that Thats part of what drove.
Some of our outperformance on on the online side of the business both in major medical and in part D business, but the fact remains our NPS scores as Scott mentioned earlier on the telephonics side or are still in a high eightys low ninetys and we're seeing just just.
US significant growth on the online side of the business that mark more customers are going through the web and they're they're finding satisfaction with the tool set of capabilities that they have to enroll on our platform.
Perfect. Thank you.
Thanks George.
Your next question is from Tobey Sommer Suntrust.
Thank you is we look at a your plans to increase productivity in margin could you discuss your major initiatives for 20, which my understanding may include.
Working with the the indirect channel as well as exploiting some of the investments you've made in in databases and platforms that can kind of shorten the.
Time that it takes to doing enrollment over the phone in make customer experience better.
Yes, it Tobey I.
We've talked a lot about the fact that on both the partner side and leveraging some other tools in the marketplace that.
Getting more customer information more data specific to each and every customer to enable either our agents or the online platform to to provide a more friction free and more accurate assessment of what's the best product for that customer to get them to the right place faster and easier from.
From a plan selection in enrollment perspective, it's a it's a key area of focus for us.
We are.
A lot of the technology investments that Derek referred to in his remarks are related specifically to that how do we integrate more deeply with our our business partners in the hospital pharmacy affinity and increasingly the financial services markets. How do we how do we accessed customer data through tools like blue.
Button and what have you to to be able to to know more about our customers to make the the enrollment decision and process that much easier and more confidence inspiring for them and that is a key area of focus for us than is an area, where we think we've got a large lead on the marketplace and continue to two.
Invest to to extend and maintain that lead.
One follow up question, if I could it in terms of the share gains that you are taking in the market.
Do you have a sense for whether they're coming from other brokers or.
From the managed care companies themselves or combination of both thanks.
Yes, we think they're coming from the more traditional brokers.
Your final question is from Lisa Springer of singular research.
Thank you.
My question concerns. The unassisted then personally assisted application submitted on line with the positive trend. The net looking forward say over a three to five year period and as you build up the technology platform. How should we think about the percentage looking forward and do you think you'll encounter a natural ceiling at some point that it'll be very difficult to make it higher than say 50 December.
The person at the applications.
So it built into guidance expectation in 2020 that our overall online submission for applications in Medicare will be 34% within that there is growth in both the assisted and unassisted.
My application submission on your question or whether there's a natural sealy.
It's a good one and a good when the we ask a internally as well yeah. Clearly there is a trend as people age in the Medicare who are more tech savvy. They will have a great affinity to using the tools online.
With that said if you award to analyze feature by feature our technology engagement capabilities. They are good they are not best in class. When you look across other industries. There are more mature with E. Commerce, So our product and technology teams feel strongly that even without the secular trend around.
When people, aged and then there are improvements to be made our ability to capture people more in line, both assisted and as a system. Yes, I'm pleased to their likely is a ceiling at some point I mean, it's a demographic and a very complex set of products that that.
Lends itself to wanting more help.
With that said, we're investing heavily to put those tools and as many of those tools as possible in the customers hands.
The other piece here is that we internally about a year and a half ago, we said it very aggressive goal.
Even head teachers pointed out that said 50 in five which was to have 50% of our enrollments.
Within a five year period to go online we saw that is one of those big Harry probably on achievable, but we're going to go for our goals anyway and the way. We're tracking we are going to get there a lot sooner than we had anticipated. Originally so we're really pleased with the trajectory of both the assisted and the assisted.
Traffic that we're seeing it it shows the power of the uniqueness of our platform.
And as Derek and Scott have said, we're going to continue to invest heavily into that to make sure customers have exactly what they want and need from a tool and engagement perspective.
And take advantage of the uniqueness of our of our value prop in that regard [noise].
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].