Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the Q1 2020 E House Inc. earnings Conference call I.
I do some all participants on ellipse element.
After the speakers reputation that will be a question answer session.
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I went out here in the concept you speaker for today, Kate Sidorovich, Vice President Investor Relations Ma'am you may begin.
Thank you.
Good afternoon, and thank you all for joining us today, either by phone or by webcast for discussion about you health Inc. first quarter 2000, and when you financial results on the call. This afternoon, well has got slender see health Chief Executive Officer, and they're young Chief Financial Officer. After management completes its remarks, well open the lines for questions.
As a reminder, today's conference call is being recorded in the webcast from the IR section of our website a replay of the coal will be available on our website following to coal will be making forward looking statements on this call. It includes statements regarding future events beliefs and expectations, including statements relating to our expectations regarding all.
Medicare business, including Medicare enrollment growth comes human demand, our competitive advantage and expectations regarding online enrollment I plan to use our equity offering proceeds to invest in the Medicare business, including marketing initiatives expansion of all telesales capacity and enhancements to our technology platform, a Medicare growth strategy.
Including all customer acquisition and demand generation strategy, a customer retention efforts online engagement agent productivity and talent acquisition strategy occupations regarding our direct to consumer model the benefits of all customer care agent remote model the profitability of all business seasonality churn lifetime values operating expenses.
I'm, putting fixed and variable costs and the impact of cotton 19 on our business I remember estimates revised 2020 full year guidance outlook for the second and third quarters over this year and now plans to provide further updates throughout 2020 guidance and five year growth plan and the contents of such guidance Some girls club.
Forward looking statements on this call represent the health views as of today, you should not rely on statements as we're presenting I'll use in the future want to take an obligation no duty to update information contained in the forward looking statements.
What is the result of new information you choose and so otherwise forward looking statement, a subject to risks and uncertainties that cause actual results to differ materially from those projected enough forward looking statements. We describe these and other risks and uncertainties in our annual report on form 10-K in a quarterly reports on form 10-Q.
Filed with Securities Exchange Commission, which you may access through they ask you see website or from the Investor Relations section of our website.
We'll be presenting certain financial measures on this call. It I consider non cap on the FCC regulation G. for reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure. Please refer to the information included in our press release and you now as you see filings, which can be found on our Investor Relations website.
And at this point I will turn to pull over to Scott Blenders.
Thank you Kate and welcome everyone.
We finished the first quarter and an unprecedented environment.
By significant disruptions to the global economy, and our daily lives as a result of the Corona virus.
And this environment our mission to connect every person with the highest quality most affordable health insurance for their life circumstances is more relevant and important than ever.
Being enrolled in the right plan is especially important to our main customer segment seniors as they are being disproportionately impacted by this pandemic.
Our omnichannel consumer engagement platform allow seniors to research and enroll in Medicare plans, they safe environment online or by speaking to a licensed insurance agent on the phone without having to leave their house and allowing them to avoid the face to face in Iraq.
Actions the traditional agents depend on to sell plants.
In addition, delivering outstanding service to our customers the safety of our employees is a top priority in this challenging environment.
In March we shifted our entire U.S. workforce tour remote model, including all of our customer care agents. This was a major undertaking accomplished in a matter of days and seamlessly with the transition having no impact on our operations.
In fact.
Average productivity of our agents in the first quarter increased compared to a year ago. Despite this major change to their work environment and routine.
I want to acknowledge heart teams resilience and tenacity over the past several weeks and express my gratitude for their unrelenting focus on our mission.
Turning to our performance for the quarter fundamentals of our business are strong and we're continuing to drive meaningful Medicare revenue and enrollment growth.
Building on our momentum over the past two years, especially our record performance in 2019, we're pleased to deliver another quarter of outperformance.
First quarter approved Medicare members grew 46% compared to a year ago with Medicare advantage approved members growing 59%.
First quarter Medicare revenue grew 75% year over year, driven by strong enrollment volumes and a favorable Trinity estimated lifetime values of our Medicare members, which Derek will describe in greater detail.
We continue to drive rapidly growing customer acquisition success through our diversified portfolio approach to our demand generation strategy.
Our direct to consumer channels provide balanced customer traffic through digital advertising.
Direct response TV.
Direct mail.
Female and organic search initiatives, while our strategic partnerships with large retail pharmacies hospitals and other affinity groups remain a substantial and unique driver of new business.
In the first quarter, we achieved another meaningful year over year, increasing the number of Medicare application submitted online, including unassisted and partially assisted agent online enrollment 24% of our first quarter applications for Medicare major medical products were submitted online.
Compared to just 12% one year ago.
An absolute basis, the total number of applications for Medicare major medical products and that it online more than tripled compared to the first quarter of 2019.
As a reminder, our target is to reached 34% online penetration for for the full year 2020, and we're well on track to achieve it.
Despite the broader economic challenges and disruption to major parts of the health care market. The Medicare market remains very strong large selection of high quality and affordable plans available to seniors.
Our Roma growth continues to significantly outpaced the overall market driven by our omni channel engagement model that emphasizes customer choice and provides individualized comparison tools that are unique to email.
In the wake of social distancing and the lingering health concerns related to covert 19, we believe cgrps will find our platform to be an even more important and valuable resource.
Turning to our first quarter financial results total revenue for the first quarter $106.4 million grew 55% year over year or adjusted EBITDA was $11.1 million, a 30% year over year increase GAAP net income was 3.8 dollars a cash flow from operations and.
First quarter was positive $8.9 million.
During the quarter, we raised approximately $227 million through an equity offering to support continued strong organic growth in our core Medicare Mark.
Despite the significant growth achieved in each of the last two years, which was well ahead of overall market growth rates, our Medicare Medicaid membership still represents just 1% of the total Medicare population in the country.
We see tremendous opportunity to build additional scale and capture market share.
As at March 31st we got $246 million in cash cash equivalents in marketable securities and no debt on our balance sheet.
We plan to deploy this capital in our Medicare business, including to finance marketing initiatives.
On further expansion of our telesales capacity.
Underwrite continued enhancements to our technology platform, such as projects aimed at increasing customer retention and boosting online engagement and conversion rates.
We are in the process of developing our operational strategy for this year's annual enrollment period, which takes into account the growth capital now available to us post offering as well as some of the important learnings from the last AGP.
One of the interesting applications have successfully shifting our customer care agents to a remote model is the flexibility. This model can potentially offer us and staffing for the high volume fourth quarter.
Deploying home based agents opens up new geographies for our talent acquisition.
Reduces office space as a constraint on the growth of our employed agent population.
And could overtime boost our overall agent productivity by decreasing our reliance on outsourced call Center agents.
Well, we have had recent success, increasing and increasing productivity of our employed agents and outsource call Center agents, our internal employed agents continue to convert demand into applications that consistently higher rates.
Optimization of our sales and marketing efforts remains a central focus of our long term growth strategy.
Our individual and family plan at prove members declined 19% compared to the first quarter 2019, we saw an uptick in I've P. enrollments in March which has carried through to the second quarter and was likely driven by consumers, losing employer coverage and turning to the end individual market.
However, this did not sufficiently offset slower activity in the first two months of the quarter.
We continue observing increased retention of existing I.S.P. plans, resulting in higher estimated ltds in this business.
Approved members for small business grew products declined 15% compared to the same quarter a year ago.
We entered this year with great momentum and if once again started the year strong generating significant Medicare enrollment growth and exceeding our expectations for the quarter.
Health is proving to be an increasingly important destination for consumers in this challenging environment, a testament to a significant value that we provide to consumers by bringing choice transparency and convenience to the selection of health insurance.
We are updating our 2020 annual guidance to reflect our first quarter outperformance I went to specifically note that our revised guidance does not reflect the deployment of cash raised in the equity financing.
Similar to last year, we're working to lock down our operational plan for the annual enrollment period by the ended June and it into share our revised projections with you at the time, we report second quarter earnings.
We continue to see significant growth potential that can be capture by further expansion of our telesales capacity combined with driving an increase percentage of Medicare enrollment through our online platform.
Meaningfully the new work from home model for our agents provides an additional avenue for revenue and profit leverage during ATP that has not been available to the business in prior years.
In short I remain excited and confident about our growth opportunities for 2020 as the E Health model continues to perform well and we demonstrate the company's differentiated value proposition in the market.
Now I'll turn the call over to Derek Young who will review, our first quarter financial results in greater detail and provide our revised guidance ranges.
Thanks, Scott and good afternoon, everyone.
Our first quarter financial results reflect underlying strength of our platform and continued strong execution in our Medicare business. Despite the challenging public safety unrelated macroeconomic environment.
We entered the year on a strong note with the first quarter Medicare revenue of 96.2 million growing 75% compare to a year ago, driven by 46% increase in approved Medicare members, 86% growth in non commission revenue as well as an increase in residual foretell revenue recognized during the.
Quarter.
The Medicare segment generated a profit of 22 million an increase of 103% comparative first quarter 2019.
The open enrollment period was approved are particularly important contributor to our first quarter Medicare enrollment this year with Medicare advantage approved members growing 59% compared to first quarter a year ago.
Medicare advantage enrollments attributable to to open enrollment period represented a larger percentage of our total approved Medicare members compared or first quarter 2019.
Our estimated number of revenue generating Medicare members was approximately 726000 at the end of the first quarter or an increase of 44% compared to a year ago.
Similar to a year ago, we saw an increase in Medicare advantage member turn to above average levels during the first quarter.
It was driven primarily by higher than average attrition rate into cohort that we enrolled during the last in Q4 2019.
As you recall, we observed a similar increase in Q1 of last year, which was followed by a decline in member churn in subsequent quarters.
We believed that this new seasonal pattern of consumer behavior is due to their introduction of the open enrollment period in 2019 and that seniors will optimize their clients during the first quarter, a less likely to churn later in the year.
The trend it is likely to be even more pronounced this year as more seniors took advantage of to open enrollment period on our platform compare to a year ago.
We currently expect for churn to decline later in the year as was the case in 2019 and continue to forecast 2020, Medicare advantage lifetime values to be roughly flat with last years.
It is also important to note that churn in our member base is highest in year, one and declined significantly in subsequent years. For example, our average first churn first year churn for Medicare advantage member isn't a mid Thirtys does decline to just under 20% in year, two and then again to 11.
First on the year three.
And your four and be on churn rates have dropped to single digits.
As a result in periods of high growth when new members represents a larger percentage of our total member base, we see higher total imply churn.
We have provided our historical average churn rates by year as part of our first quarter 2020 earnings slides posted on our Investor Relations website.
[noise] first quarter constrained lifetime values of our Medicare advantage product grew 5% year over year due primarily to an increase in average commission payments per member.
As a reminder are constrained ltvs are derived by applying a constraint factor Trust us. This statistical estimate of expected Lifetime Commission receipts.
Where effectively discounting to revenue, we booked compare to what we expect to collect.
Since the adoption of 86 Opex for revenue recognition, our cash collections from Medicare advantage plan have generally exceeded initial estimates, reflecting the appropriate conservatism of our approach.
This dynamic has contributed to the recognition of residual or tell revenue from Medicare advantage members in every quarter in 2019 and again in Q1 of 2020.
I'd like to note that beginning with this quarter Q1, or 2020, we'll be reporting the number of new paying members added during the quarter with the goal of providing additional transparency into our membership dynamics.
The Delta between approved members and new paying members excess because not all prove out applications result in an active policy for various reasons.
For a given period. This conversion rate also is impacted by the lag between the time to application gets approved buyer carrier and will receive the commission payment for that possibly as we count an African as a paid new paying member when we receive the commission payments.
For example in the first quarter of 2020, we had 85000 approved Medicare members and at 161500, new paying members, reflecting a significant spillover of enrollments from Q4 2019.
The difference between the two metrics tend to be especially pronounced in the first and fourth quarters, given a large number of enrollments approved during the annual enrollment period in the fourth quarter do not start generating commissions until the first quarter. When these plans become effective.
Turning to our individual family and small business segment.
First quarter revenue from the second was 10.3 million, a 26% decline compared to year ago.
This was driven by lower IP enrollments and tell revenue compared to year ago, partially offset by increased in short term in small business grew commissions.
The individual family small business segment remained a profitable standalone business for the first quarter generating segment profit of 2.6 million compared to 6 million in the first quarter 2019th.
Oh estimated individual and family plan membership at the end of the first quarter was approximately 113000 down 13% compare that estimated membership report it in a first quarter a year ago.
The estimated number a members on small business product was approximately 44003% increase compared to a year ago.
Our total revenue for the first quarter was 106.4 million, an increase of 55% compared to first quarter 2019.
Our total estimated membership at the end of the quarter for all products combined with approximately 1.137 million members.
Now I'd like to review, our operating expenses and profitability metrics.
First quarter operating expenses reflect a higher run rate in fixed costs as we scale our business in the second half a 29 came in preparation for our annual.
Open enrollment period.
We anticipate year over year growth rates in DNA and technology content spend to start normalizing in the third quarter for the full year 2020, we expect to see fixed cost leverage resulting in margin expansion relative to 2013.
So overall variable cost.
The acquisition cost per approve Medicare member, which includes marketing and customer care related spend increased by 5% year over year.
Underneath that variable call center cost per approved Medicare member grew 6% year over year as retained a larger number of agents falling into annual enrollment period compared to last year.
This increase also reflect costs associated with moving our call center to remote model in March in light of the Corona buyers crisis.
Marketing cost per ARPU of member grew 5%, primarily reflecting a shift in channel mix with a continuing increase enrollment volumes coming from our digital advertising channel and the decline in contribution from some of our partners that pull back on marketing initiatives in this environment.
For the full year 2020, we continue to expect that total variable acquisition cost per approved Medicare member will come down from 2019 levels driven primarily by further gains in agent productivity.
GAAP net income for the first quarter of 2020 was 3.5 million compared to GAAP net loss of 5.2 million for the first quarter 2019.
Adjusted EBITDA for the first quarter of 2020 was 11.1 million compared to 8.6, knowing for the first quarter Tweener team.
We calculate adjusted EBITDA by adding stock based compensation change in fair value of earn out liability depreciation and amortization amortization of intangible assets other income and benefit for income taxes to our GAAP net income.
Our first quarter cash flow from operations was 8.9 million compared to 12.7 million for the first quarter 2019.
Capital expenditures, which included capitalized internally developed software costs for approximately 6.1 million for the first quarter.
As of March 30, Onest wed 246 million cash cash equivalents and marketable securities and with no debt outstanding under our line of credit.
Our balance sheet also reflect a significant commissions receivable balance of approximately 560 million that is comprised of 125, knowing that we expected collect over the next 12 months and 435 million in long term commissions receivable.
We are updating our 2020 annual guidance to reflect our IPO outperformance to date and an increase in our diluted share count fall into equity offering that we completed in March.
As Scott mentioned this guidance does not reflect our full investment plan for the upcoming upcoming HPP as a result of the increased working capital provided bite offerings.
We're now forecasting revenues for 2022 in a range of 600 to 640 million.
Compared to prior guidance of range of 580 to 620 million.
Medicare segment revenues are now expected to be in a range of 553 to 589 million compared to prior guidance of 533 to 569 million.
Individual family and small business segments revenue is expected to be in the range of 47 to 51 million, which is unchanged compared to prior guidance.
We expect GAAP net income for 2020 to be in a range of 70 to 85 million.
Imperative prior guidance range of 60 to 83 million.
We expect 2020 adjusted EBITDA to be in a range of 125 to 140 million.
Comparative prior guidance range of 120 to 135 million.
2020, Medicare segment profit is now expected to be in a range of 157 274 million.
Pairs or prior guidance range of 150 to 169 million.
Individual family and small business segment profit is expected to be in a range of 17 to 18 million, which is unchanged compared to prior guidance.
Guidance for corporate shares services expenses.
Excluding stock based compensation depreciation amortization expenses remained unchanged at approximately 49.
To 52 million.
GAAP net income per diluted share for 2020 is expected to be in a range of $2.55 to $3 intensive.
Comparative prior guidance of $2.64 to $3.23 per share.
Non-GAAP net income per diluted share for 2020 is expected to be in a range of $3.41.
Two $9 and through $3.90 compared to prior guidance range of $3.56 to $4 a nine cents per share.
Cash used in operations for 2020 is now expected to be in a range of 61 to 64 million compared to prior guidance range of 50 to 55 million.
Cash used for capital expenditures is expected to be an 18 to 20 million, which is unchanged from prior guidance.
Finally, I would like to comment on sequential trends.
Consistent with previous seasonality trends, the second and third quarter Medicare enrollment volumes are at the lowest points compared to other times of the year.
Last year, our year over year growth in the second quarter was aided by a pretty clearly a week comparison period in 2018 that included the closure of our Westford, Massachusetts sales center in May of 2018.
While we expect year over year growth in the second quarter to remain strong the rate of increase will not benefit to the same degree due to this weaker comparison period in Q2 of last year.
Second quarter tell revenue is also expected decline sequentially.
Similar to last year will be retaining the majority of our in house agents Post LP, which is expected to result in a further increase in Asia productivity during the critical selling season in Q4, but as adding to our cost base during to lower volumes second and third quarters.
As a result, we currently expect a second quarter revenue growth to be approximately 20% on a year over year basis, and we expect.
Adjusted EBITDA loss in the mix mid single digit millions of dollars for the quarter.
We continue to refine our sales and marketing investment plans for the fourth quarter expect to finalize those plans over the rest of this quarter. We plan to provide further update guidance for 2020 that includes the anticipated results of those investments as well as an update at five year outlook at the time of our second quarter earnings report.
I want to remind you that these comments in our guidance based on current indications about business and our current estimates assumptions and judgment, which may change at any time, our actual results may differ as a result changes our estimates assumptions and judgments we undertake no obligation to update our comments our guidance.
I'll now like to turn it back to Scott, who will make some short closing remarks, and then we'll then open up call for questions Scott.
Thanks Derek.
Are we going into Q on a I'd like to wrap up our prepared remarks today by emphasizing that in the face of the disruption to the global economy, and our daily lives, resulting from the current of Iris. Our team is more committed than ever to our mission of connecting every person with the highest quality most affordable health insurance for their life Sir.
Stances.
Most important things you should know coming out of this call.
Are the fundamentals of our business continued to improve and we are achieving strong operating metrics across the business by executing on a clear strategy and making targeted investments to drive growth anyway, you cut it our financial results reflects the significant progress we're making.
Our omnichannel customer engagement platform is ideally positioned to serve seniors safely and more effectively both now and in the future.
The addition of work from home capabilities for our agents adds to the significant revenue and margin leverage opportunities, we have in 2020 and beyond.
Our updated 2020 annual guidance reflects our outperformance to date, but not the additional investments we're contemplating and planning for this year's annual enrollment period. These will be provided in conjunction with our second quarter results.
So I'm proud of the efforts of our team to deliver in this challenging environment and believe that we are well positioned to continue driving growth.
Margin expansion and shareholder value as we execute on our growth strategies with that Derrick and I look forward to answer your questions. Operator, Please open the line.
Thank you.
As we managed to ask your question. Please press Star wondering your telephone to draw your questions you may parts of town key.
Please standby, while we compared to any roster.
One moment please.
Our first question is from Magellan's, we're seeing of credit Suisse. Your line is open.
Thanks, a lot hi, guys. So thanks for clarifying comments nope, that's moved that guidance the.
Does not include investments, but it looks like it does not include the benefit from those investments as well I guess Douglas, creating some computer.
I wanted to follow up on the comments you made a down the gliese shown in the first quarter 44 to 19 M- cohort in particular can you provide any color on to your recapture rate did that in Google you saw last year and the point Im trying to pick. The this is that you did increase John among steamy as it may not be a bad outcome from your perspective.
As long as those senior stay on your platform. So just help us get us feel about the recapture rate what you're seeing in there on your book.
Right and just to clarify on your first point to lender you are correct that we very intentionally increased our guidance for the full year by only the amount of our beat to consensus in Q1.
As and we did the same thing in Q1 of 2019, and then we increased by well over two acts that amount.
After our Q2 earnings call when we had our full agent staffing and marketing mix plans in place. The same process is going to be undertaken this year.
And just to remind.
Everyone. We increased our guidance last year to $375 million after Q2 and without tail revenue adjustment. We came in at 464 million a 90 million dollar beat to that upgraded guidance. So we're counting on the same.
Type of process. This year, we were not in position at the end of Q1.
To be able to.
To quantify exactly what the level of increase in the investment and revenues would be to your other question on the churn churn.
Churn is an aspect of our model and we are the marketplace. We're seeing years calm to shop to compare plants and when we saw an elevated churn in Q1 of 2019 office.
Heavy enrollment in Q4 of 2018 and that was because CMS opened up the first quarter for enrollment for switching the same experience happened this year.
The recapture rate this year was 10% against a recapture rate of 9%. So only very modestly up this is an area, where we see opportunity for improvement, but baked into all of our ltvs and all of our financial accruals is the assumptions of the actual churn rate.
Tim can I, let you elaborate someone on this.
Sure. This is Tim Henman, Yes, I think what we saw was the same behavior. We saw last year as Scott said, our recapture rate was slightly better what we're excited by his with this extra year of.
Understanding and data will be able to go and improve on these metrics, we think overtime, because we'll be able to understand how to make it better recommendations during the annual enrollment period, and then India weepy, which of our members, we can target or should target as potentially needing to adjust their plan. So it's it's now a part of annual light.
Here, and we think with our scale in the breadth of choice, we have weakened learned at a faster rate and improve on these metrics.
Okay and then the thanks for that and then the I wanted to ask about the customer acquisition cost.
The all doing a good discipline cost number paid within those good ideas being down just a high level curious on your part at all and you know customer acquisition costs getting easier in the recessionary environment and various other companies are cutting down on AD spending any any thoughts on that if you see that could be some.
Benefit for you guys.
So Tim had as our Chief revenue office, who runs all of sales and all of marketing for Us Tim I'll, let you elaborate.
Sure. So I think on on the disruption from Kobin 19, and what it could mean two different channel I think it will it will differ by channel. So in some places it may open up inventory opportunities for us to advertising places that maybe we had been priced out of before hadn't experimented with but in other places.
Is it as Derek noted in his comments, it's disruptive to certain partners, who now can't market on our behalf. So generally speaking it does make more advertising inventory available to us, but it will vary channel by channel and we'll be watching to see how to adjust our investments based on what we what we observed.
Okay and my last question this but to your online and Goldman person gauge of 24%.
But I need to do a big down on how much was the online and Goldman person date in the last two weeks of March was it higher than 25 24 person just just curious if weather with any different.
The senior secured the last two weeks of March.
Tim did you notice anything.
We do see a surge in the last the very ended the quarter. When our agents are more occupied it's not as pronounced as what we see during the annual enrollment period, but it does exist.
Okay. Thanks, a lot.
Thank you next question comes from George Sutton of Craig Hallum. Your line is open.
Thank you I was wondering if you could give us just generically more perspective on the types of things you're contemplating to further grow the business with this.
Additional capital and.
Referring to more agents are internally Bill technology third party technology anything you're thinking from an M&A perspective, that's kind of the angle the question.
Thanks George.
So we're not contemplating any M&A I very pointedly commented in my script that we raised $227 million because of our direct Gannett growth opportunities, we see over the next two years.
Yeah.
Half wholly.
Budgeted for all the tech and content spending we need to get to 34% online enrollment this year and targeting quickly as possible getting.
The percent threshold, we also have.
Brought in all the Gn a that we needed you will see in the second half of the year quite a bit more operating leverage on our revenue growth of what we've had in the first half is just run rate from the last half of 2019. So the investment is going to go into additional agent capacity.
And it's going to go into additional customer acquisition with the objective of us maintaining our overall unit economics.
Perfect. This maybe a question for Tim relative to Medicare plan Finder, which was.
Obviously, a significant issue in Q4 got a lot of seniors into the wrong plans and was expected to provide some.
A fair amount of turnover in Q1, I'm curious if you felt the benefit of that in terms of those are.
Consumers coming to you and do you have any perspective on the Medicare Dot Gov outcomes in Q1.
Good question, so what I would say there is our our feedback would be highly hobby anecdotal would be the best way to describe it we did see increase shopping in Q1 as we described during the open enrollment period and part of that undoubtedly has to come from senior is not being in the right plan.
So we think we benefited from that in some way back hard for us to quantify exactly how much and on Medicare planned fighter generally I mean, I think we haven't seen any.
Significant changes that would.
Change our so our bullishness on our platform the value that we provide in the market and so it has not disrupted our plans anyway.
Okay I appreciate the answers.
Thank you.
Next question comes from Frank Morgan of RBC capital markets. Your line is open.
Good afternoon.
Just first question more of a shopping list question. How much you can you called out a number on how much. The this migration to work from home impacted cost in the core.
Derek Yeah, I can take that it's really not material Frank what it because.
We as Scott comment earlier have seen an increase in productivity year over year in the work on her workforce and we continue to see it even as they move from the physical location call center into work from home so the.
The cost related to moving them a home is really more on the technology side and moving costs into the logistics are there any material.
Got you, Okay, and I guess, when I think about across all the channels, whether its digital advertising or direct television or mail or E mail.
Have you seen over the past several years sort of any change in the mix of the different.
Channels and have you noticed any difference in the retention variance amongst those groups in what are you seeing from that perspective.
Yes, Tim I'll, let you handle that.
Sure. Yes, so you know our investments I'd say ebb and flow based on the performance that we're seeing and it's why we have the portfolio approach that we do and so there are times that will lead more aggressively into something like direct mail.
We'll see a particular creative stopped being quite as effective.
But at that point will rollout of new direct response, TV creative and that will take on more volume. So we are continuously experimenting in our channels will be never want to become too dependent on any one channel.
And we do monitor the downstream quality of the enrollment and make adjustments, but there aren't very significant changes or variants channel. The channel in general we've been enhancing the quality of our enrollments across the board.
Got you are one more and I'll hop I just noticed a obviously you have it included anything in your guidance for the capital, but I did notice your assumptions in guidance around cash flow come off seemed a little bit more negative. So just any color there and I'll hop off thanks.
Yes, Frank So that's actually completely tied to the additional investments may in Q1 to drive more growth.
Got you okay. So it's sort of the operational in that mid if you will that flows through cash flow. Okay. Thank you correct that's right.
Thank you.
Question comes from Tobey Sommer Suntrust. Your line is open.
Thank you I was wondering if you could give us some additional color maybe some examples of revenue and profit opportunities that.
The kind of revelation that you can work from home with home agent has revealed too.
Yes, and I'll turn that to 10, but before I do I was just say, we I commented that it was done within a week and done seamlessly it was not without a stress and strain and I would any of the health executives that are listening I.
Wouldnt want is diminish.
So what would a herculean effort what it was and the fact that Weve gained productivity probably nothing it my tenure already helped as impressed or please me more but Tim I'll like you speak specifically some of the possibility that work for home flexibility might afford us.
Sure. Thanks, Scott, Yes, I think the number one.
Flexibility that it affords us as we've been constrained by the real estate in our call centers for internal agent counts and so we went through the significant effort of opening up a new headquarters in Indianapolis last year recruiting into it a training up those agents and we saw outstanding performance from that effort.
But we had to make sizable upfront investments in order to create that space with a work from home capability we can.
Recruit on from a much broader geographical base than where we've been able to recruit from this point.
And a lot of our agents have been asking for work from home capabilities. So we think this gives us a way to routine high performing evenings over the long haul by giving them the flexibility did not need to come into the come into the office. So we're looking at how will train how we'll licenses and appoint our agents on a remote basis and as we explore.
Got opportunity, we'll have a better sense for just how far we can expand our internal agent based this year, but given that those those agents are higher performing than our pardon regions have been.
Increasing their share of our agent mix will make all of our.
Investments returned better because we'll see higher conversion rates.
As a follow up since this change the competitive landscape because perhaps.
Others discovered their models were not quite as flexible.
Yes, I don't have.
A lot of information.
Competitively I will tell you and we did comment on that that though we've made strides in improving productivity in conversion and are outsourced agents aren't turtle agents are still dramatically.
More productive and so to the extent that were not space limited add to the extent that we can use a hub and spoke strategy and expand more virtually without space increases.
This enables us to increase our mix of captive agents versus outsourced agents and that does.
Enable us to scale more.
To scale was higher quality and with higher productivity. So it is it's an and it was an unexpected outcome of what wasn't otherwise CLO quite unwelcome crisis.
Last question for me it is your online.
Experience.
Formed in skewed your view for what the long term opportunities for online enrollment is.
Well I'll answer that in my from my perspective, and asked them to weigh in as well I know our view is that online is even more important and the mix shifts to both online and telefonica is likely to excel.
Great.
Because of fears of a being in close proximity to strangers, we think seniors are going to be particularly sensitive coming into ATP. Here. We did anything we would think our online enrollment experience in shopping experience is more important.
And not less.
Tim what would you say to it.
No I would I would echo those comments entirely I think we're not sure exactly all the ramifications of the Corona virus in the effects of will have on shopping behavior and preferences of seniors but.
The two models that I would want to have our telephonic and online and so we think with the improvements will make through the year both to the age of workforce. We just described to the technology that our agents use in the call centers, but also to our online experience that we're well positioned in both environments to do to do well.
Thank you.
Thank you. Our next question comes from Dave Styblo Jefferies. Your line is open.
Hi, there thanks to the questions I'm wondering I appreciate the comments on the the proceeds in which you could be using those four towards agent count marketing I was wondering if you talk a bit more about the agent count activity there.
Do you do you guys for C., the the Spike in unemployment 20, 20 million plus being unemployed and in the last five weeks as an opportunity maybe.
Hire folks earlier than you normally would I'm not sure when you when you would typically make those hires but is there an opportunity perhaps grab some of those folks folks earlier than you'd expect and then while we're talking about agent count.
With the the folks that are now working from home once once things sort of normalize with Corona do you expect some of those folks to go back into the office setting or are you finding that this model is just more efficient and and you really just not going to need the real estate anymore and the new model really is to have the vast majority of the agents work from home.
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Well you must have been listening in on some of our internal call a a delayed so some of this is real time data, but yes, I think two things one yes, I do think we will get a higher caliber of age at this summer Dan We did last.
Last summer because of unemployment, we're not reducing our base compensation in fact, we're looking in some places of increasing it we're not looking to decrease any of our agent compensation and as you can imagine as more of our agents are using the.
Assisted online efforts.
They're able to process, most more calls which results in more enrollments and more commissions for that so the second piece of this you didnt ask but it's a corollary sort of implied in your question. We're also expecting lower turnover you know that's an unwelcome aspect of our model is to lose seasoned agents because the.
Season to agents with more than a year of tenure have a 30% higher conversion rate then agents in their first season and so we think it will be we'll be able to recruit more and higher caliber agents as determined by the rate at which they passed to the licensing exams and we believe on this.
Complete speculation I wish to qualify this but all instincts that we have our that our turnover will go down which will reduce our our recruiting training experience expense and give us more seasoned agent is going into the fall. So this is part of the reason that we were so definitive that we're going to be increasing.
Our guidance after Q2, and we just don't know by what exact amount yet because we're so early into all of these factors.
Okay got it and then on on the marketing spend.
You guys, finding any new channels that you really haven't.
I've been able to pursue I know you commented a little bit about some costs coming down but is that likely that you got the flywheel spending you know, what's working really well is it more about spending more money and those existing channels to generate more submitted apps or is there some element, where hey, there's some new emerging opportunities that we have been able to proceed in the past just because.
A capacity limitations and we're going to look at those.
Well I'd like tend to be on the hub to you for that answers so I'll defer to him.
Thanks, Scott So I would say in terms of performance in Q1, we definitely.
For the first two months were not affected by Corona virus and in a significant way and we did lean into what was working there I think what we've seen change in the last six weeks is is other advertisers pull back in may inventory a cheaper in some channels. So particular examples for us would be faced.
You too.
Even some TV placements were looking at.
And making investments in these places to learn whether they would be viable for us I'm on a go forward basis and at what price. So it is it is a combination of us leaning into what we know.
But broadening our horizons to see what we can learn during this unique moment too.
Expand our portfolio.
Got it and then just last one for Derek on on the LTV is for Medicare advantage. I think guidance is there you mentioned is still flat for the year. Despite one q. I think was up 5% and I know the commission rates for brokers are up I think mid single digits. So im just wondering or is that more of a conservative Pos.
Posture on your end or is there something.
Some other element that comes in that would cause the that back to not increase by call. It mid single digit.
Yeah, So you're right that our Q1.
Oh TV for M&A we're.
Increase year over year was largely driven by the rate increase it's actually pretty much right in line and really what the reason why we are forecasting flat LTV is because of the increase of number of seniors. We're seeing taking advantage of the open enrollment period that we see causing that higher.
Churn and a p. cohort.
We are expecting that some of the washer dot to normalize and when that happens this will be than kind of new seasonal trend that we will see from here on out in terms of when we think.
Seniors, who would churn which is when they can switch and when they won't after that which is there and apply that they want so that's why anticipating that's why we're forecasting flat LTV.
Thank you. Our next question comes from George Hill with Deutsche Bank. Your line is open.
Hey, good afternoon, guys and thanks for taking the questions or I guess, Derek you are just a housekeeping question to start.
It was there any meaningful impact on Ltvs in Q1 from the new model that we started using in Q4.
Yeah, Hey, George and so.
Not for Medicare advantage, because enhance model that we had rolled out for Medicare advantage. The adjustments were part of that 42.3 million changes in estimates that was reported in Q4.
We did rollout enhance models for the rest of America products and also our IP major medical products and those enhancement did not produce a significant.
Increase or decrease in Ltvs that had to be reported an adjusted.
But in terms of the ongoing work to enhance our estimates for ltvs and and to ensure that where appropriate conservative.
We continue to do that in Q1 and what successful.
Okay, and Scott kind of a I don't know how real time, you have the data maybe a little bit of speculative question for you because I recognize the Q1 ended before the koby crisis really hit across the country, but I guess are you guys are able to talk about whether you saw anything meaningful I call between the end of that third week of margin kind of up to the moment on ore mining woman dates given the cobot.
Crisis I'm just thinking this has to be something that's kind of meaningfully impacting on the ground broker and that kind of rolled into the question of you know as you as you look at what's happening now which changes in the business.
And the way customers engage kind of become permanent.
Yes, it to the latter question I would say I'm way too early to be speculating as to what will be permanent I am very optimistic that we're going to have.
Kurt enrollment year this year because of the factors, we talked about with respect to field agents were hearing anecdotally that they are struggling to book appointments.
With seniors just stands to reason and we think that will continue.
God forbid that there's a second wave in the fall.
All of which would shut down further further isolate seniors.
We thank all of that plays and well for our model online and telephonic.
We finished strongly with high productivity in those few weeks that we work from home at the end of March and that momentum has continued here.
For the first three weeks of April Tim would you comment further.
Yeah, I mean, I mentioned before we did see a surge in online enrollment at the ended the quarter, but I wouldn't say it was more than we were expecting so we typically see that at the or we saw that last year and we expected to see it again. This year, we will continue to work on broadening our outreach in online channels and if.
Some of those channels I mentioned before become affordable.
And with the improvements were making to our online experience, we maybe able to accelerate some of that shift to online but in terms of as Scott said in terms of consumer behavior, and how it's changed and sort of durable way, where we are not sure yet, but we feel like we are prepared for a number of outcome.
Okay, and Scott I don't know just a quick follow up I know you guys aren't ready to talk about the numbers yet but are you ready to talk at all about what changes might be considered for the upcoming ATP from a strategic perspective.
Yeah, I think the most significant one is last year, we tripled our external agents and just barely not quite doubled our internal agents and we were only able to do that because we stood up Indianapolis after our cap.
Little raise in 19 at this year I believe we'll end up when the numbers all sort themselves out George that will end up adding more internal agents than we do external agents and an absolute number which would mean percentage wise a quite significant increase in internal agents versus X.
Sternal agents.
Okay. That's helpful. Thank you.
Thank you. Our next question comes from Greg Peters of Raymond James Your line is open.
And oil a number my questions have been asked.
I was curious are you were just talking about outsource versus captive.
I'm wondering if you see a different wellbore churn.
Businesses produced Premier outsourced.
Agents versus the captives.
I don't know the answer to that Tim do you have any data.
We don't have any specific data on that we are always looking for ways that we can improve the quality of our mix and so enrollment mehsud agent type marketing channel. We're always looking at ways that we can make adjustments to improve that but nothing.
Significant enough that I would.
Call it out here.
Okay.
I thought I'd just ask.
So last year, when we were tracking your customer care and enrollment costs per approved member it.
In stopped and stuff is probably as to softer the term it went up pretty noticeably in second and third quarter or.
Dropping in the fourth quarter.
Do you anticipate that that's going to be the same sort of a flow that we see this year and I think you said Derek maybe at the beginning your comment you said that you expect customer care and enrollment costs and variable marketing costs to be down this year versus last year can you just refresh me on that please.
Greg So I did so in our guidance and also in our original guidance everybody tries animals rebar original guns, we anticipate and have plans initiatives to have our total variable cost per group Medicare member to be down compared to last year and between the marketing component.
And the customer care enrollment component, we do see.
The customer care component to be to drive what that reduction marketing will probably roughly flat.
Because we will look to invest more and marketing to capture more market share in enrollments and if you may remember that last year, we lean heavily into staffing early in order to ensure that we had adequate agent capacity to handle it.
The demand in a pea.
The EPA 30 year before lie so in 2018 and in 2017, we had inadequate aging capacity, which meant that we left money on the table and we did I want to do that last year now in a process doing lot. We've learned a lot and part of what we learned as we were to save on bringing people early and really incur.
Her more cost, especially on the vendors I vendor agents external side.
That would have liked and those are the adjustments that we are planning to make this year. In addition to additional investments in technology that would allow us to be able to drive more agent productivity.
But we should still see the customer care and Walnut cost per approved member peak in the third quarter, though based on based on what you've done historically correct. Yeah. Yeah. So yeah, I apologize I didn't catch apart from the seasonal basis, absolutely because we start bringing in new agents for training and for licensing of.
Point, but prior to a pea and when they do that they spend many weeks to prepare and they're not productive to on the sales force. So yeah, we would see from a seasonality perspective.
That number to spike again similar to prior years.
Thank you.
Next question comes from might you sell of Evercore. Your line is open.
Thank you on.
Got it so logic was you said there'll be some behavioral change Gabriel.
And then tele telesales do it globally wondering avoid face to face, but you're going to click on marketing message, specifically highlighting that safety as an aspect.
Yeah, we I actually had a conversation with one of our competitors.
Asking whether we were bold enough.
As you know to take that approach and.
My inclination is now.
I think we haven't staff it'll be a match and natural behavior change that I think doesn't financial people know value yeah, Yeah, I think we have enough.
Tailwinds and word of mouth and just you know this is not this mix shift to telephonic and secondarily online is something that's been happening.
Pace in any case you. We just think these conditions will accelerate in this year.
Hi, naturally maybe Keith.
Thank you don't just little bit more about how cold it is affecting the recruitment and training of agent going it sounds like give a larger pool to draw from now that you have work at home and I would think due to higher employment as well, which is how we're like logistics affected.
Can you get people trained completely remotely and get licensing exams are there were some disruption there.
Yeah, Tim I'll, let you answer yeah, I'll take that one so we are I'd say, it's it's still a little bit early because we haven't begun our.
Full on ramp towards the fourth quarter I'd say the early indications are that we feel like it will allow us to recruit high caliber agents into our workforce.
We have been able to move our training regiment to remote so we have agents right now on a remote training regimen to get up to speed and be some of the first one's deployed this year the licensing and appointments will vary by state and we're evaluating that but we feel confident that we'll have solutions.
That we need or alternatives in terms of recruiting license. They already licensed agent. So we're still evaluating all the ins and outs, but overall to be able to attract more internal high caliber quality agents. We think is going to be a net positive for us.
I just mentioned anything on my last question, we're just going to be like do you think theres more like already.
Easier weekly.
Traditional brokers that already liking because they'll be worried about but we'll be we're not having whether they can do face to face sales.
Yeah, we definitely think that's that is a potential outcome. So were we'll be watching as we recruit to see if that's what we see.
Okay. Thank you very much.
Thank you. Our next question comes from Johnson Young of Barclays. Your line is open.
Thanks for squeezing me in here I'm, just kind of going back to the churn that you're experiencing Oh, we PD as you kind of think about a ATP coming up later this year is anything that you're any steps, you're taking where you could try to help improve retention rates of that a member kind of goes into the right.
Plan without churning and when can you just any thoughts there.
Yes, so that's absolutely another.
Example, you must be listening endo some of our internal discussions we have been making an increasing investment in agent tools and we deployed some of those but we remain in the early days of deploying technology to actually making our agents not just more efficient where we've concentrated in the path.
But also give them better recommendation support tools and decision support tools to get the seniors into the right plan, Tim I'll, let you elaborate.
Yeah, I think that's right I as I said earlier, we will go through the data what we observed in terms of plan changed from A.H.O. weepy from this year and less over last year, but we now have two years of experience to understand how could we improved our recommendation how do we get me.
More people into the right plan the first time around because it's a complex decision making process you know it's their doctors their drugs.
The plan that have changed your new planes introduced into their area. So this is not a simple recommendation and as we get better and better with our breadth of choice. We know that that will that we can win more often than we had been going forward I think beyond that will also know who in our book.
Who didnt change during the might be a wise to look at choices and we'll move them to a better suited policy in the OE D. So we think we can do better on both of those fronts and what will use the data or just acquired from yeah. We view to help us do so.
Thank you.
I last question comes Lisa Springer thing My research your line is open.
Thank you.
My question is is the main driver if the higher technology cost for the quarter was that setting up people to work from home and are those costs pretty much all taking care of now are we going to see more cost for that in the second quarter.
Right.
Right there yet.
The increase.
It was not related what's not driven by the move to work from home for the technology area. We did incurred additional technology costs that they're not material relative to that it's really the run rate in our investments in 19 coming into this year and we do expect it to normalize in the back half of it.
Sure.
In our revised gotten our.
Corporate share a service expenses.
Remains unchanged and we still expect to get fixed cost leverage and margin expansion as implied or revise guidance.
Okay. Thank you.
Thank you I'm showing no further questions I'd like to turn the call back over to management for any closing remarks.
Hi, Thank you everyone for all the attention you paid AG house and we appreciate the very insightful questions today, and we are excited about the second quarter and look forward to updating you had the Q2 earnings call in late July. Thank you everyone.
Ladies and gentlemen. This concludes today's conference. Thank you participating may now disconnect.
Good bye.
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