Q3 2020 eHealth Inc Earnings Call
All participants are in a listen only mode. After.
The speakers presentation, there will be a question and answer session.
A question during the session you will need to press star one on your telephone if.
If you require any further assistance please press star zero.
Please be advised that todays conference call is being recorded.
I would now like to hand, the conference over to your speaker today, Ms., Kate Sidorovich, Vice President of Investor Relations. Thank you. Please go ahead.
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. third quarter 2020 financial results on the call. This afternoon, we'll have Scott Flanders Health, Chief Executive Officer, and Erik Young Chief Financial Officer. After management completes its remarks, we'll open the line for question.
As a reminder, today's conference call is being recorded and a webcast from the IR section of our website and a replay of the call will be available on our website. Following the call we'll be making forward looking statements on this call that includes statements regarding future events beliefs and expectations, including statements relating to our expectation.
Regarding non Medicare business, including Medicare enrollment growth consumer demand, our competitive advantage expectations regarding online enrollments and retention and recapture rates on investment telesales capacity internal each oncology agent productivity tools and incentive customer engagement and retention initiatives and enhancements.
Dart technology platform as well as Dick's that this positive financial and operational impact of all investment expectations regarding the Medicare market up Acumedia, our direct to consumer broker channel online marketing and strategic partnership channels, the profitability of our business seasonality Ciaran lifetime values planned persistency.
Remember estimates total acquisition cost per member and operating expenses and finally I'll also looks like you know enrollment period in our 2020 financial guidance for.
Forward looking statements on this call represent the house views as of today, you should not rely on these statements as representing our views in the future Wendy Kei acknowledge allegations or duty to update information contained in the forward looking statements. What is a result of new information future events or otherwise forward looking statements are subject to risks and it's.
Certainties that could cause actual results to differ materially from those projected in our forward looking statements. We describe these and other risks and uncertainties in our annual report on form 10-K, and quarterly reports on form 10-Q filed with the Securities and Exchange Commission, which you may access through the FTC website or from the IR section of.
Oh website will be presenting certain financial measures on the school that I considered non gap on the FCC regulation G. for reconciliation of each non-GAAP financial measure the most directly comparable GAAP financial measure. Please refer to the information included in our press release and in our SEC filings, which can differ.
And in the about US section of our corporate website under the heading Investor Relations and at this point I will turn the call over to Scott's lenders.
Thank you Kate and welcome everyone.
This has been a busy and successful quarter preparing for the most important Medicare selling season of the year and deploying our retention enhancement initiatives across the entire organization.
We achieved substantial progress in both areas, which are closely interrelated given that our focus this annual enrollment period is on driving growth by targeting high LTV high margin enrollments.
Okay dimmer engagement and retention initiatives are expected to have long lasting positive financial impact, but most importantly, they are aimed at further enhancing customer experience as they shop for and rural start utilizing their Medicare plans.
Well update you on the key initiatives an achievement that were made during the quarter in just a moment.
First let me provide a summary of our third quarter financial results.
Total revenue for the third quarter was $94.3 million, a 35% year over year increase.
Our adjusted EBITDA was negative 13.3 million and our gap.
Net loss was 14.5 million. These results were in line with our expectations for the quarter and reflect an investment made in our Medicare telesales capacity with an emphasis on expanding our in house agent force as well as marketing investments ahead of the ATP.
The number of third quarter Medicare approved members grew 17% compared to a year ago.
This includes 28% year over year growth and approve Medicare advantage members and.
M.A. enrollment growth was dominated by our online marketing as a strategic partner channels, which grew well above the overall enrollment growth for the quarter, reflecting our emphasis on these high ROI channels with higher propensity to bring in consumers who are comfortable transacting online.
Our third quarter Medicare major medical online enrollments included.
Putting fully unassisted and partially assisted.
Online enrollments grew 107% on a year over year basis in the third quarter.
36% of our applications for these products were submitted by our customers online. This was above our expectations and a meaningful increase compared to 21% in Q3 a year ago.
Building on the momentum achieved in the third quarter and following our technology released conducted a head of the ATP, which I'll cover in more detail in a moment. We currently expect 45% to 50% of our fourth quarter, Medicare and major medical applications to be submitted online.
This is compared to 36% in Q4 2019.
Our fulfillment mix has significant implications for the average policy persistency given that online enrollments tend to retain the product longer but first year retention rates higher by approximately 25% to 30% that members who enroll telephonically.
In addition to the selling more demand online we've made significant changes to our telesales organization we.
We have broadened its mandate to focus on not only enroll but but extending it to proactive post enrollment engagement has customer start utilizing their Medicare policies.
This strategy is deployed broadly through our training program agent compensation structure lead ranking it allocation and our product and technology initiatives.
As we announced last month, we have successfully completed staffing of our telesales organization ahead of the ATP and achieved a meaningful shift towards in house sales capacity.
This ATP, we will have 120% more internal agents compared to a year ago.
In House E health agents now represent roughly 45%.
Of our total sales force compared to just 30% last ATP.
Our internal agents have on average superior productivity rates and generate and robots with higher average persistency compared to outsourced call Center agents.
As a result, we expect that this shift a positive implications for our overall conversions in per member acquisition cost compared to a year ago as well as for how well we retain members post enrollment.
The compensation structure of our in House agents was also adjusted to link a significant portion of it to persistency of their enrollments. This.
This aligns compensation strategy with our goals and gives agents who are producing positive retention outcomes and opportunity to increase their overall compensation.
Porting our sales agents. This ATP will be team of over 200 customer care employees. This team will include enrollment specialists and a dedicated retention team comprised of agents will handle inbound inquiries from our existing members and outbound agents, who will target policies ranked at higher.
[noise] respite churn based on our data analytics as well as any plan structure changes we identify in the market.
We deployed our first cohort of dedicated retention agents last month, and if sense observed encouraging early results of their efforts. We expanded this team above our initial expectations ahead of the ATP.
Last month, we conducted a major technology release across the key areas of our customer engagement platform further widening the competitive moat between E health and the more traditional in person and telephonic only broke.
This latest technology release takes customer experience to the next level through personalized data driven plan recommendations and a unified experience that allow seniors to move seamlessly between our online platform and agent interaction, whether telephonically or through tax and emails.
Underlying this 360 consumer experience as a customer center technology, which we released last month and is unmatched in our industry.
Using our customer center to consumer.
Consumers can create a secure personal profile containing their physician preferred pharmacy drugs and other key medical and personal data that is assessable, both through our online platform and by agents. When they are interacting with the customer this tool, which has already been adopted by thousands of our customers since last month.
Not not only provides for a better enrollment process, but also facilitates future interaction and post transaction engagement colluding plan analysis should customer needs or plan instructor change.
We believe this capability will have a significant positive impact on our online enrollment volumes customer retention and importantly member recapture rates.
But then our telephony systems, we changed the process for lead ranking an allocation to align it closer with our strategic and financial goals, including increased emphasis on retention.
In the past leaves were ranked based on their estimate of conversion rates with highest converting leads allocated to our best agents for this ATP. We are taking a more holistic view of demand generation assigning leads scores based on estimated Ltvs. In addition to conversion rates.
On the demand side of the equation our market opportunity is continuing to expand with CMS projecting another year of strong 10% Medicare advantage enrollment growth.
This ATP seniors had an even broader selection of high quality affordable plant with many major carriers expanding their geographic coverage.
Well also be an ATP different from any other.
Any other prior year, given cobot and its impact on consumer behavior. Many seniors are likely to feel more comfortable with telephonic or an online interaction instead of a face to face broker visit and this can prove to be another meaningful tell tailwind for the direct to consumer broker channel.
Finally, the shift to online is here and it's real we are.
We are seeing it in our enrollment numbers and an overall patterns of consumer behavior on our platform. This.
This dynamic is expected to have a strong positive impact on our competitive positioning.
Consumer value proposition and our member economics and.
Yeah, we feel confident in our ability to leverage these powerful industry trends by driving demand on our platform at attractive acquisition costs.
Our approach to marketing as opportunistic.
We are proactively shifting investments across channels to maximize return on our marketing dollars and meet our internal targets for LTV to total acquisition cost per member ratio.
We believe that momentum and our online marketing and strategic partnership channel seen in Q3 will continue into HP and will resolve in these channels growing above our total fourth quarter Medicare enrollment growth.
As I mentioned earlier these channels.
Are more likely to bring in consumers, who are comfortable transacting online compared to more traditional marketing initiatives, such as Directv and mail.
In addition members originating in our strategic partner channel tend to have higher than average retention rates, regardless of whether they were enrolled telephonically for online.
Our partners are increasingly recognizing our value proposition.
They appreciate that we offer access to the largest plan selection among the DTC brokers and the ability to provide a seamless experience for their customers by safely and securely pre populating the customers doctors preferred pharmacy and drug data through our proprietary personal code technology.
For either an into an online or telephonic enroll but on the whole platform.
More partners are digitally integrating with us for this ATP, which is expected to be another meaningful driver of online enrollments.
For Q4, we expect the partner channel will grow in excess of 80% driven by new relationships as well as expanding relationships with existing partners, including large national retailers, such as Walgreens and Cosco.
In addition to partnering with major national chains, we're going deeper into the pharmacy and provider channel.
We have now extended our platform to serve thousands of independent and community pharmacies providers nationwide.
Before I turn the call over to Derek I'd like to address churn dynamics on our platform.
Turn levels for Medicare advantage plans have stabilized in the third quarter, but the trailing 12 month churn flat sequentially at 842%.
Importantly, the absolute levels of churn have declined significantly compared to first and second quarters.
And the third quarter, an estimated 30000 Medicare advantage members churn compared to 87004.
54000 in Q1 and Q2, respectively.
You should expect to see the initial impact of the comprehensive retention program that we put in place reflected in this metric in the first quarter of 2021 has.
These initiatives mature and impact an increasing number of customers on the health platform, we expect to see a continuing improvement in our member retention and recapture rates.
In conclusion I'm pay.
Pleased with our accomplishments this quarter, we entered the annual enrollment period from a position of strength and are expecting to generate significant Medicare enrollment, while reducing our per member acquisition costs a powerful combination we are.
We are also focused on enrollment quality and expect that members that we enrolled this ATP will on average stay on their policies longer and generate higher lifetime commissions compared to the ATP a year ago as a direct result of the retention and customer engagement initiatives that we put in place.
As always our customers are at the center of everything we do a deal and we are acutely focused on enhancing and simplifying their experience by meeting them, where they want to be whether online through interaction with our licensed agent or customer care specialists worth the rate.
Hi, Brent agent assisted online enrollment.
I believe the work we've done so far this year has positioned us uniquely well in this large and growing market to capitalize on the opportunity at hand.
I will now turn the call over to Derek.
We'll go over our financial results in greater detail.
Thanks, Scott and good afternoon, everyone. Our third quarter results reflect strong momentum in our Medicare online enrollments significant growth in carrier advertising revenue and investment in our telesales capacity and technology initiatives ahead of the Medicare annual enrollment period.
In our Medicare business third quarter revenue of $70.4 million grew 23% compared to a year ago, driven by a 17% growth in approved Medicare members and a 103% growth in care advertising revenue, reflecting carrier recognition of ehealths value proposition and significantly.
Roland growth potential in online marketing until those channels this annual enrollment period.
Our Medicare segment loss was 16 million, reflecting investments as we prepare for what is expected to be another record fourth quarter selling season in terms of revenue enrollment volume and profitability.
Year to date, our Medicare segment profit was 19 $4.4 million compared to 5.9 million for the same period last year for an increase of over 200%.
Our estimated number of paying Medicare members was approximately 734000 at the end of the third quarter up from approximately 551000 at the end of the third quarter 2013 for an increase of 33% well above the growth rates of Medicare advantage market and the overall Medicare.
In markets.
Third quarter 2020 revenue from an individual family in small business segment was 23.9 million and 88% increase compared to a year ago.
This was primarily driven by 37% increase in approved IP members for major medical plan products accompanied by a continued to trend of longer duration for these products and an 18 point million in residual for tell revenue that we booked in this segment during the quarter.
This compares to 7.7 million and segment total revenue in Q3 or disco.
The.
Your family a small business segment profit for $18.3 million compared to a profit of 3.8 million in the third quarter of 2019, driven largely by a positive impact hotel revenue generated by our IP and ancillary products during the quarter.
Our estimated individual and family plan membership at the end of the third quarter was approximately 112800 down 14% compared to estimated membership reported at the end of the third quarter a year ago.
Our total revenue for the third quarter was 94.3 million, an increase of 35% compared to the third quarter of 29.
Our total estimated membership at the end of the quarter for all products combined was approximately 1.14 million members approximate including approximately 245000.
I made of members on ancillary products.
Okay.
Now before I move on to discuss operating expenses I want to provide more detail on the dynamics that we're seeing with member retention, an estimated lifetime values for ltvs in our Medicare business.
Please note that we report churn as any planned switching by paying member even if the changes made on our platform and you health remote remains to broke a record.
This also includes plan changes within the same carrier.
As a reminder, given that we observe churn on a lag our quarter end membership figures measure the estimated number effective policies paid by members based primarily on cash collections and historical retention data.
As Scott mentioned in his prepared remarks, our estimated third quarter paying member churn in our Medicare advantage business declined substantially compared to the first and second quarters.
This was primarily driven by seasonal factors.
Was within our expected range.
The trailing 12 month return of 42% continues to be dominated by the churn from Q1, 2020, which will no longer be a factor into the 12 week 12, and 12 months average as of Q1 next year.
In our Medicare advantage business similar to carriers and other brokers, we experienced highest churn in the first year falling policy enrollment in the.
In the second year average churn rates have dropped and have continued to decline as policies mature.
Within the first year churn has been quite well within the first year churn has been quite front end loaded.
Over 70% of our first year churn and Medicare advantage plans has occurred in the first 90 days of policy life.
Our largest enrollment volume quarter is Q4 with members that we enrolled during that period and during the first 90 days of policy life in Q1 of the following year.
As a result, the first quarter is the most meaningful period in terms of persistency data.
We believe that this ATP, our new enrollments will benefit greatly from a from a comprehensive retention program that Scott described earlier in the call and we expect that the initial impact of that to be evident in our Q1 2021 estimated retention metrics.
In terms of estimated lifetime values for 2020, we continue to guide to a roughly six to present the percent decline in Medicare advantage LTV is for the full year and a 10% decline for the fourth quarter compared to the same period a year ago.
For next year, we're currently maintain conservative target of getting back to 2019 Medicare advantage LTV levels.
Our Medicare Commission cash collections for the trailing 12 months period ended September Thirtyth were 240 million or approximately $420 per Medicare advantage equipment member.
This represents a 47% increase in the total Medicare Commission cash collections and a 12% increase in per Medicare advantage equivalent member collections compared to the tolling 12 month period ended Q3 2019.
As part of our earnings slides posted on our Investor Relations site. We have provided some further information on our cash collection cycle in the Medicare business.
This analysis compares the upfront acquisition costs spent to acquire each of our annual Medicare advantage.
I guess cash cohorts generated by these members today.
You will see that our 2018 Medicare advantage cohorts already generating positive cash flow in excess of our initial acquisition costs. While the 2019 cohorts are nearing break even on that basis.
In general our commissioning cash collections in Medicare continue to be favorable when compared to initial estimates used for LTV at the time, we recognize revenue.
Now I would like to review, our operating expenses and profitability metrics.
Q3 has always been a big investment quarter for Medicare as we expand our telesales capacity and deploy technology upgrades in preparation for the annual enrollment period.
This ATP, we made a shift in our Asian mix toward more full time in house agents.
Following a successful hiring season, we increased the number of internal agents, 120% compared to last year's peak at the same time or total agent number including outsource cost agents increased approximately 40%, which is well below the expected growth in fourth quarter Medicare enrollments.
This is due to a higher expense expected percentage of Medicare major medical online enrollments, which include unassisted and partially Asian assisted enrollment compared to 2019 as well as better agent productivity as a result of enhance leak ranking the allocation system and new call Center technology deploy ahead.
The fee, including enforceable the increases the speed and accuracy of capturing drug and provided data.
Our third quarter costs per approved Medicare member declined 2% compared to a year ago, driven by a 7% decline from that customer care enrollment costs offset by 11% increase in marketing cost per member.
Agent cost per approval were favorable compared to last year due to higher percentage of online worlds.
Some of this was due to timing of our agent and boring expense, which will occur later in the year compared to 2019.
The increase in our marketing cost per approved Medicare member was driven primarily by a larger portion of applications originating from our online marketing channels, which tend to have a higher average marketing costs, but also higher propensity to convert online with no or reduced Asian involvement.
Given a favorable trend in acquisition cost per Medicare member in Q3, and the fact that we anticipate we will be able to drive more enrollments per agent this compared to a year ago, we expect that our fiscal year 2020 acquisition cost per member, including agent and marketing costs will decline in price.
Suddenly 10%.
The decline would more than offset the forecasted reduction in our 2020 Medicare advantage Ltvs and will allow us to achieve a higher LTV to total acquisition cost per member ratio as well as an increase in our overall EBITDA margin in our Medicare business compared to 2019.
Turning to profitability metrics GAAP net loss for the third quarter of 2020 was 14.5 million compared to GAAP net loss of 11 million for the third quarter of 2019.
Adjusted EBITDA for the third quarter of 2020 was negative 13 point threemillion compared to negative $18.8 million for the third quarter of 2019.
Calculate adjusted EBITDA by adding stock based compensation compensation expense change in fair value of earn out liability depreciation and amortization amortization of intangible assets other income and benefit from net income from income taxes to our GAAP net loss.
Our third quarter cash flow from operations was 1.4 million compared to a negative 15.9 million for the third quarter of 2019.
Cash flow from operations benefited from significant in quarter carry advertising revenue.
As of September Thirtyth, we had 197.8 million in cash cash equivalents and marketable securities and we had no debt outstanding and other are under our line of credit.
Our balance sheet also reflects a significant commissions receivable balance of 604 million.
Based on information available as of October 22nd E. Health is reaffirming its guidance for the full year ending December 30, Onest 2020.
Our guidance ranges are included in our third quarter earnings release for your reference.
I want to remind you that these comments and our guidance are based on current indications for our business on a current estimates assumptions and judgments, which may change at any time, although actual results may differ as a result of changes in our estimates assumptions and judgment when undertakes no obligation to update or comments or our guidance.
And now we will open the call for questions operator.
Ladies and gentlemen, we will now open it up for question and answer session. If you wish to ask a question. Please press star one on your telephone if you wish to cancel your request you may press, the pound or hash key.
Please stand by while we compile the Q and new roster.
[noise] [noise]. Your first question comes from the line of dry land refrain from credit Suisse.
Your line is now open.
Yes, thanks, good luck.
Quickly on the quick clarification on what comments at all and member turnover of coins.
I know, it's declining from $54 in the second quarter to 30003rd quarter, but then to your second quarter include like some 20000 members Donna lets catch up from first quarter. So on an apples to apples basis, not that big decline just kind of flesh out there, but what are you going to be good we understand that song.
Yes, Hey, Joe This is Derek so you remember correctly that in Q3 that we did have a catch up on.
What was reported coming out of Q2, where there you should have been a shift and the turnover members.
Reporting Q3 into Q2, so you're correct that remember that from a seasonal basis that is still a significant client we look at absolute numbers, even on the adjusted basis.
Going from Q2, Q2, Q3 due to obviously, what we typically see as the seasonal enrollment with a peak.
Okay I just want to also understand trends in EMEA approved members in third quarter I understand second quarter had some sep benefit, but still a sequential decline somewhat on $60. An approved members in the second quarter to $45 and code quota.
Can you talk a little bit more color there that would use for food members in M- third quarter kind of try to expectation that would you say there was some some gideon just any any color there.
Yes, well our in enrollment volumes for Q3 was in line with our expectations as was the overall top line expectations. So as you know Q3 is a seasonally low quarter for our business and from a investment perspective are.
Our goal is to prepare for the annual impaired moment period, both for sales marketing and also for technology investments as you heard in.
You heard in the call we feel very good about all those plans and everything that we've seen relative to how we have been executing.
So we expect that to deliver on our plan for the full year.
We have provided in our guidance in Q2.
Got it can you provide any given the trends in Q3 can you share any like whats going up year over year growth are you expecting modi it affecting your guidance for the Medicare advantage approved member for fourth quarter.
Yes, yes, so implied in our guidance based on year to date results. Our Medicare revenue in Q4 growth, we close to 50% I think is around 47%.
Enrollment growth will be.
Higher than that because our Medicare advantage ltvs as expected to be declining year over year by 10%. So if you kind of back to that number to enrollment growth in Q4 would be close to 60% year over year for Medicare advantage.
Okay, and then last one I was wondering if you guys can comment on the recent developments in the competitive landscape the wall.
Wal Mart trying to enter the market can you just curious on your parts there and I'm, assuming you guys use Wal Mart as one of your channel partners. This has any implication on that relationship.
Well, yes.
We don't know what the walmarts long term strategy as but they've been a partner of ours in years past and continue to be this year, where expanse expecting and enhanced.
Spillover calls from Walmart this year over last year of a fairly significant amount.
But so we see them as a partner or not a competitor.
Okay. Thanks.
Yes.
Your next question comes from the line of George Sutton from Craig Hallum.
Your line is now open.
Thank you I Wonder if you could go into a little more detail on what you referred to is encouraging results from the first month of your retention initiatives given that obviously the trailing 12 month indicator is not really representative of any of that impact.
His team on the line yes.
Yes, I can take that one.
So we obviously when the last call we talked about the full review, we were doing and initiatives that we were.
Putting in place and one of the largest most impactful was our retention team.
And that team started up in early September with the first wave of agents that we took from our sales floor existing sales floor as well as new recruits and right out of the gate, we can see very encouraging signs on the impact they were having on our consumers.
Most notably when consumers were calling to cancel 90% of the time, we were able to keep them as we help customers an overwhelming majority in their current plan. So there was a gap in our.
In how we were serving our customers that was very apparent very quickly. So that is one of the main reasons why we expanded our.
Retention team in the run up to ATP to adding.
Agents to do outbound, calling to our high risk customers and to be able to handily a larger inflow, we licensed agents for our existing customers.
Okay, and just just I heard correctly, you would call folks and 90% of the folks that you were talking to that we're going to churn you were able to keep in it on the shelf.
Yes, I did I hear that correct.
Sorry, Cedar inbound call so customers would call with a concern of some kind and previously would be routed to a sales agent who was attempting to sell them something new when that probably wasn't appropriate and so when somebody would call in and expressed that they wanted to cancel or make a change 90% of those calls resulted in.
Them remaining any help customer and prior to the establishment of this team that we would not have had any ability to save them. The way. We do now you were.
You were getting 10%.
I believe the map was before so that's that's encouraging change.
One more question so.
You mentioned that you're going to have less focus on quote high conversion.
Customer volume and more focus on a higher LTV opportunities meeting.
Looks like folks that would churn at a slower pace can you just give us a picture of what those different kinds of customers look like and then how predictable that is.
Yeah, I'll take that one again Scott.
They're all we have been able to leverage our data and analytics to better understand what drives persistency and at a high level, we talk about channel being a big driver of that but the main reason for that is the kinds of customers that we attract through different channels and.
And we have been able to change the targeting within all of our channels. Some are just more likely to produce the right kinds of customers than others.
I won't go into all the details about what makes somebody a good customers because it's competitively sensitive, but we used to look for high conversion rates exclusively and we can now see there were unprofitable pockets of customers customer types that we should avoid and certainly not prioritize the way we had.
Been previously so conversion is still important as a significant driver of LTV, but the long term expected value of the customer is now what we rank calls on and evaluate our agents on their ability to drive.
Perfect. Thank you guys George just one more thing to add to that.
The other two leading indicators in terms of what we expected improvements in persistence season Ltvs are base on fulfillment mix that we commented on in terms of our mix of online, which is 25% to 30% more favorable historically on Ltvs and also the use of internal agents.
Versus vendor agent. So all that combined in addition to what Tim is doing.
And that has been positive relative to what we expect in terms of increased persistency.
Perfect. Thank you.
Your next question comes from the line of Greg Peters from Raymond James Your line.
Line is now open.
Hi, good afternoon. Thanks for taking I have one question one follow up the first question and I know, it's hard to adjust your scripts on the fly but the stock is down in the aftermarket guys and.
I first flush you know I think if we look at some of the metrics around.
You are declining.
Estimated.
Customer care and enrollment per per approved member we look at the declines in IP and we look at the guidance, that's effectively flat relative to the second quarter.
It might suggest that there is a slowing growth rate of the organization.
Perhaps you could give us an update on how you see that looking forward because as I said the stock is down in the aftermarkets.
Yes, let me kind of comment on your last comment there, which as you know a slowdown in growth so yes.
At the top line came in within our expectations, both in terms of revenue and volume.
Our preparations for what is it really the heavy selling season, which is right now and ATP is good that's what you heard so our guidance.
Has a revenue were spread range of 40 million and EBITDA stood at $15 million.
And we do expect that our results for the full year, we will fall in that range, which.
Which if you back into it is Q4 growth rate a total revenue basis of almost 40% on the Medicare side, almost 50%, which we think is good growth and at the same time we are.
We are as you have heard here, making good progress in a final implementation retention initiatives, which won't show up on our reported metrics because we do need observations on how persisting they see us improved in order for LTV to increase.
Increase again and as a reminder, we had forecasted ltvs for 2021 to get back to 2019 levels and given everything you heard on this call around what we see as the anti.
The impact of initiatives, we feel very very good about that being a likely conservative estimates in terms of what ltvs could be next year.
Got it well I just like to ask the follow up question is just a bond commission receivable, both current and long term because the rates of growth of that slowed in the third quarter on a sequential basis and really you know I think most of your investors view that as the pipeline for future earnings.
And given that you're making the adjustments to the churn.
The churn levels do you expect the growth of those commission receivables to accelerate next year based on current projections or if if if of course turn improves or do you anticipate that the growth rates of those receivable numbers swell.
Stagnate or again the growth rate deteriorate a little bit.
Yes, Greg so that you're digging deep into our day six x. accounted which is great because we need more people like you who do that.
Receivable growth is a bit tricky to look at which I think is.
Did you pointing out because the receivable is large so even when we are growing over at revenue significantly as a percentage of the receivable. It's smaller so with that said there are two drivers by which that where does receivable will grow faster. One is obviously you have your revenue growth is growing EBITDA continues to grow at a healthy clip second one is obviously.
Our persistency improves so given that we expect our processes to improve I would as a ratio of revenue growth to commission revenue.
Receivable growth I would expect the commission revenue growth to be increasing as we see the persistency improves.
Got it thank you for your answers.
Your next question comes from the line of George Hill from Deutsche Bank.
Your line is now open.
Good afternoon, guys and thanks for taking the question I guess, Derek just a first housekeeping question before we go into my follow up is that did you guys actually disclosed what the retention figure was for third quarter and I recognize it's a it's a seasonally slower softer quarter, but I think.
I think the numbers important given the disk.
The discussion from the Q2 call.
Yes, so in our earnings slides, we updated the Medicare advantage membership churn churn.
Turnover chart and that trailing 12 month metric is 42%.
Yes, not the terminated the retention.
The retention thicker.
Oh, the retention figures I'm, sorry, I misunderstood you know, we did not talk about that and the way we actually when we look at that but the.
I'm curious I wish that the most meaningful is after Q1, when we look at the retention date came out of what we saw in the annual enrollment period. So it's too early obviously to comment on that right now since we just started.
Okay, and then maybe a quick follow up I guess for you or for Scott is I guess, given Wal marts wolper entrance into the market and you guys have your relationships with some of the pharmacy organizations.
A lot of large MCR is we're talking about both a slowdown in churn and increasing their reliance on third party brokers going into this ATP season. So I guess could you guys talk about kind of what you've done to either strengthen your partner channels either on the retailer side and is there anything that you've done.
Different on a year over year basis with your partnerships on the carrier side.
Well, we've signed up.
Thousands of pharmacies and our partner channel is one of the bright spots in Q3, and we're expecting it to significantly outgrow our overall growth rate in Q4.
For just the reasons that youve identified and importantly on the.
The enrollments from those channels have a propensity to roll online at a higher rate and whether they enroll online or telephonically they have higher persistency.
Then the traditional DTC channels of direct mail and direct response TV.
Okay helpful. Thank you.
Your next question comes from the line of families events Anderson from Evercore.
It is now.
Hi, guys. Thanks for taking my question I was wondering if you might be able to comment on more broadly on your partnership strategy. I mean, I think you've made some specific comments about Walmart, but I feel like that is sort of under appreciated part of your story. So I just didn't know in terms of what.
Where you're seeing if you with the specific partnerships in terms of like specific areas of the applications or how you think about those regarding your Lcvs Inc.
Yes, So I think if you think about the partner channel and two broad buckets.
One is the provider channel. So these will be a hospital systems that are partnering with E. All to be their official and sole Medicare advantage enrollment partner and and that has been a rapidly growing area for us we expect it to double this year in aggregate.
And then the other would be the pharmacy channel, where we assess the pharmacy customers their customers.
Customers to enroll and part D plans are in a PD plans, where the pharmacy client of ours is a preferred pharmacy and that has been a rapidly growing business as well and I do agree lives, but that is an underappreciated part of our story, it's outgrowing all other aspects of our busy.
Yes in terms of lead source.
And having higher persistency and stronger online enrollment.
Okay and is there any reason you would point to the stronger like persistency and an online enrollment from that group or is it hard to characterize it.
One bucket.
Well I'd say the most important reason is when we take a call from a provider for example, we very often answer the call as the enrollment.
For if its cedar Sinai or another hospital system and so we know that they the client that's calling US is a patient of that hospital system and so we already or are getting them into the plan that will come.
Over all of their physicians all of their specialists.
And so.
The most important factor in churn is getting a senior in to the plan that covers all of their doctors and all of their drugs.
And while that's easy to say in one sentence, it's complicated to execute.
In part because.
The beneficiary does not always recall all the physicians that they see in the course of the year. They don't always recall every drug that they're on so when we had information as we do in some cases with the pharmacies, where we know we get we get an electronic length, where we know all of the drugs that are prescribed.
Right for that senior.
We are able to get that senior and two of the optimal plan. So their propensity to churn is much less than say a direct response TV call, where someone's calling from their sofa. They don't have their drugs in front of them. They are spot there being spontaneously responding to.
On offer and they may or may not give us complete information, even though we try.
We exert maximal effort to to extract all of that information.
This is why very often it's inaccurate or incomplete and this is why the retention team that Tim mentioned is so critical because what happens when a senior it shows up to use their plan early in the new year there.
They'll often have a drug thats not included in the part D plan or specialist that they forgot to mention that they see once a year and then they can call us and we can either identify the specialists is in the plan or move them to a plan that does cover all of their.
Sure, Yes, so as I said.
As I said, it's more complicated getting seniors into the right plan that it seems because very often they don't deliver a complete information to us and these partnerships give.
Have a us access to a far more complete patient history. So thats why it works so well.
That makes sense and then just on an unrelated note.
I, it's Pete guidance I mean, I totally appreciate your not wanting to update guidance, one weekend day EAP, but on the IP part I mean, you guys have already done.
You know for close to 43 million in revenue.
For the for the year and just at the high end of your guidance. There's like 51 million. So is there something we should think about in terms of the step down usually we've seen like a seasonal step up in you obviously saw a great deal of outperformance in the third quarter. There. So I just want to make sure. We're taking into account what you guys are thinking.
In terms of the fourth quarter there yes.
Yes, it does but thats a very good catch so so you're right you know we IP business has performed.
Well you know we seen in particular on.
The policy durations can.
Continue to extend and heads.
The increase in total revenue being recognized because we are having people stay on longer.
I think we've seen nine quarters in a row now where ltvs for major medical IP policies increase so so you're correct. So so in terms of kind of how that measures. The guidance I think you're right. You should expect that we would do closer to a top if not above.
Both the I.
IP SMB segment guidance for the full year, given the performance year to date through Q3.
Your next question comes from the line.
Hi, Sheila from Jefferies. Your line is now open.
Hi, there great. Thanks for the questions. Appreciate it first question is just coming back to the Medicare advantage business I know the management team.
During the quarter as in line with your expectations I guess, the hard part I'm trying to wrap my my my arms around is it the deceleration the proved application growth down to 28%, which is less than half of the 60% to 65% growth. We saw in the first half of the year.
I guess that precipitous decline I, just I still don't understand the disconnect and Youve hired.
So many more reps this year.
Is there is there any other explanation in there perhaps it it's just a retooling of the agency slow down growth and leads just to retrain the agents and get them back on track to improve duration as some of the initiatives Youve put forth and then how do we get confidence that that is going to accelerate back up in the fourth quarter again.
Hi, Dave So a few things so its not related to anything operational execution I think what you heard on this call was.
Confidence that our plans are ATP has positioned us well to achieve our plans.
From a more macro perspective, there there is has been a change beyond the seasonal pattern that we typically see with Q1, having the open enrollment period, and then Q2 for the special enrollment period. So we did have something different this year in terms of sequential change for us.
Rome and growth.
And then the last thing I'd say, which will reiterate is really you know given.
Given the choice of investing for growth in Q3 versus Q4.
We would push to Q4, given the much better economics, how we deploy the capital and we feel very good about how we have kind of allocated to our sales and marketing investments towards Q4 growth versus enrolled.
Enrollment growth in Q3.
Okay is that different than last year because of the third quarter of last year.
The approved application growth accelerated and last year, we had the ATP and Andy.
Oh, ERP, so and my understanding was the special loan period. This year wasn't that big of a factor based on maybe some conversations you've had before.
Yes.
I'm, just struggling a little bit to understand that step down.
Yeah, Okay, Yeah, let me explain that so.
Last year in Q3, we did have very very good growth in Q in terms of Medicare advantage approved member enrollments right.
That was a benefit of a very easy comp from the year before so the year before in Q3 2018, we had zero percent growth for Medicare advantage year over year. So we had a very very light comp in Q3 2019.
Okay got it.
Got it and then the second follow up really is just the path magazine Opportunistically spent more especially during a pizza grow faster and deliver the upside to the guidance metrics.
How do you guys think about it for this year do you have the same desire that the EPA to invest more if you see opportunity to grow the business or are you a little bit more reserve just to make sure that again all these new initiatives you put in place you kind of want to just stay within a little bit more the guard rails to make sure you're getting thing down right in the end.
Platform is right before maybe next year as the year, where where growth can flex again back up. So just curious how you think about that from an execution standpoint and investing standpoint.
That's astute observation David that is exactly how we're thinking about it the upside for US is the quality of our enrollments rather than the volume of our enrollments this year.
We're going to over index on ensuring that we restore the ltvs.
And had a meaningful down tick and the churn percentage, we're still going to have strong enrollment growth over 50% enrollment growth FFO based on any business I've ever been associated with those would be seen as strong growth prospects, but compared to how we grew last year.
Where we optimize solely on conversion and took all the volume we can generate this year as we optimize around LTV and conversion it will be a natural ceiling on our growth. So I think.
I think your your wise to see us within the revenue guidance range.
If thats, what youre trying to interpret.
One place that where we will be both the appropriate balance growth and also quality of enrollments in terms of physicians is online enrollments. So given the investments and the trend that we've been on we do.
We do think that.
As you heard that we will make continued improvements and acceleration online enrollment.
Your next question comes from the line of Steve panel from SVB.
Your line is now open.
Good afternoon, guys. Thanks for the question so lot of good color on the in the summer retreat. We appreciate I think I'm just looking at the quarter to me I wanted to focus first on the LTV number. So 898 for M&A in Q3, 20 wondering how that first compares to your expectations and second what gets you confident.
That'll be up 5% sequentially since that sort of what's needed to hit the four acute guide of down ticket handed down less than 10 now its down tons or 945 in Q4 up five sequentially is that when you expect to see the bump from the commission rate increase.
Anything else there that give you confidence.
Got it yes, it's Steve So when you look at the Ltvs.
It is important to look at them on a year over year year over year basis.
There is a seasonality with ltvs and the.
Primary driver is seasonality has to do with when does.
That group of customers get to switch plans next so view enrolled in Q3, you have to jump with opportunities, which plans again in Q4, and therefore Q3 ltvs are always going to be seasonally lower so going into Q4, we expect sequential LTV up given that pattern, but of course, given the churn that we have.
Seen.
We are guiding to a lower LTV on a year over year basis.
Got into so the commission rate increases not part of that like anything anything particular that you could point to on why that goes back up 5%. If you made the point earlier there that I think you said, we need observations on how persistency has improved to get LTV back up again. So what gives you the confidence that we're going to go up sequentially as is.
Anything specific to point to.
Yes, it's a specific on a seasonal pattern on the commission rate increases you're right. So.
What we have done historically is.
See how the commission has come in and make the adjustment of the increase on LTV, So that will happen.
Acute and the Q4 so.
In our guidance with this Q4, Dick Fisher and rate increase is not built in.
Okay, Okay fair enough, maybe that could help I suppose and I guess.
That brings us back to the bigger question.
LTV stems from a statistical model that looks back 24 months and trailing 12 months churn is up year on year why wouldn't LTV continue to go down I suppose.
Is there any any any color there any commentary on why do you get comfortable there.
Yes, so the cynical model actually takes in the entire history of.
The data we have basically since 2011 since we haven't been that business. It does weigh more heavily in the most recent two years.
Even the most recent data has a more predictive impact.
Another factor that drives a model is really the volume of data. So if you thought it would take a heavier weight for most recent and Bose.
Volume data so since loss ATP was our biggest enrollment period and the most recent one that is driving our LTV predictions that more so than any other historical cohorts. So we have said that if churn were to remain where they have been the last 12 months coming out of last year.
We do not expect Ltvs to go further lower down what we have already projected for this full year and that this Q4.
Your next question comes from the line of Scott.
From Goldman Sachs. Your line is now thanks.
Hi, good afternoon, Thanks for taking my question.
I want to go back to churn if I can and Derek I think one of the.
Once you made was that when you look at churn, you're really including everybody who switch plans, even those who remain within the yelp platform.
Can you maybe tell us what portion of that churn was such numbers.
Yeah. So you heard that correctly and we clarified that on the call because there has been so a lot of questions about that.
So.
You know we had discussed that our retention I'm coming last year was around 10%.
So so there is.
10%.
Of the people who turned from policy perspective that do come back to our platform. So then if we don't count as trade offs. They don't know churn numbers look better but not by much because 10% rate retention is not the number that we're particularly proud of in terms of recapturing customers right.
Right, Okay and that portion of those 10% do you count those as a as new members them.
Correct, that's right okay.
Okay got it.
And then I apologize for beating a dead horse here with the slowdown in the Medicare approval approved submissions this quarter.
And Derik I heard you say several times it was within expectations.
But.
I'm still trying to understand why the slowdown.
From Threeq, you 19 to Threeq you 20 to this extent was within expectation. So maybe I could take one more time of trying to understand that.
Yeah, Yeah. So the biggest driver you are comparing those two comparison periods is because last year in Q3, 2019, and we had a very very low comp compared to Q3 2018. So if you go back to Q3 18, the year over year growth compared to Q3 17 for Medicare advantage was zero percent we did.
Gross slot.
Okay.
Then the second part of that is a capital allocation for sales and marketing in terms of what we want to put forth that makes sense for Q3 enrollments versus what we can generate in Q4, where we have.
It's better unit economics.
Okay.
But I guess, if I look at not necessarily Threeq 93 to 20, you do see kind of a trend that's been in the 70 does I guess, 60% to 70% range of Medicare advantage growth quarter year over year for each of the last call. It five six quarters.
So so is it that.
Honing in on the units of economics in the fourth quarter that has led you to slow down gross this quarter in particular.
Okay.
It does definitely part of it I mean part of what we're trying to do is off to maximize for it.
LTV do acquisition costs for the full year and that to the extent that we can generate more enrollments out of Q4 versus Q3 that is exactly what we wanted to do and.
And then on your broader comment around kind of the sequential growth.
Obviously.
Q2.
Last quarter, we did have a different environment with special enrollment period to create a more opportunities in Q1 is open enrollment. So we've had a sequence of three.
More unusual macro factors that allow enrollment growth to be.
I have more tailwinds. So we did not see that in Q3 and on in addition to US wanting to optimize for return on investments of between Q3 in Q4.
Got it.
No thats helpful. I appreciate the color.
Your next question comes from the line of Daniel Grasslike from Sidoti. Your line is now open.
Hey, guys. Thanks for taking the question I want to go back to that partner channel, which is looking very strong I would have expected those channel partners to be most affected by COVID-19, given they're largely.
Actually in person.
You know it.
I guess can you talk about what has offset some of the reduced traffic in hospitals and pharmacies.
Recently, and how do you think about perhaps a.
A surge in the winter during ATP and how that might affect traffic at the channel partners.
Yes, I mean, we do watch the provider channel and follow the day.
The public one systems and clearly they are struggling with the cancer the lack of elective surgeries.
But from an enrollment standpoint, most of our enrollments come from having the email and physical addresses.
Of their patients and so we promote directly to them and so.
So we're not even though we do have signage in brochures and each of the facilities. It really is our direct marketing to those pay.
To those patients that that brings them to our site our platform either telephonically or online. So we we are.
Seeing or expecting.
Anything, but fast continued growth I will tell you that they are in we do here from the partner channel.
Biz Dev team that there are a lot of hospital systems, who are smaller that are in deep financial distress or those that don't have a large charitable endowments are really struggling.
Okay, Okay and they essentially.
Ill sell you there their patient list to payout and split thanks revenue with it there is no economic exchange here.
Okay. The yes they are.
The partnership is done for buy them their objectives.
As to capture 100% of the share of wallet.
Of the beneficiary so what they are wanting.
Is that senior to sign up with an M. A plan, where all of the special US all of the services are provided within their system and network. Yeah makes sense. Okay. And then I guess just one on productivity I think last quarter. You mentioned that you expect agent productivity to go up by around 10% is that still the case here.
And given most of the you've hired a lot of internal folks this.
This past quarter and you generally don't get productivity until the second period can you can you talk about how the newer folks on the platform.
How you're expecting them to perform and how that gives you a boost into 2021.
Sure. This is Tim I can take that one so we do still believe we will see the productivity gains that we've outlined.
That are.
A key part of our ATP plans for this year. There is a couple of different ways that we will get there you are right that 10 year does help agents performed better. So one of the things that our algorithms do is make sure that our best performing agents are kept the busiest with the best leads and so having a foundation of.
Core agents, who have been with us for a while.
Gives us the ability to funnel more volume and more high quality volume to them. So that's one.
Second we are we have updated all of our training materials.
Our agents are now better equipped going into the ATP than they have been in years past. So we have a better.
Idea of how to get people ready than we've had in years past and that is both for internal and our partner a partner agents and then third we had better technology for all of our agents to get up to speed faster. So.
Better recommendation algorithms better cues for them on the call things that could be looking out for so all in all we are confident in that ability to get to that goal and it's going to be driven by leveraging the core have experienced agents, but by having a better performance of newer agents than we've seen in years past.
Got it thanks guys.
Okay.
Your next question comes from the line of Frank Morgan from RBC Capital markets. Your line is now open.
Good afternoon, most of my questions have been answered, but I did want to go back to your your assumptions around the growth in the online channel I think you said, 45% to 50% of your apps would be online I'm. Just curious what gives you that that's a really big number and very differentiated but your competitors.
What gives you confidence that you can really achieve that watch enrollment growth are there any early indicators to suggest that that's achievable.
And then so.
Secondly.
If would you would you care to share what the potential split would be between pure enrollment online versus assisted probably my first question.
Yes, Frank I'm going to introduce Philip Morris, who is our chief Digital officer and oversees all proud that data and technology for Iot health, who is responsible for architecting and executing and launching the customer center, because I really want him on the hook for these results will fill up ticket right Hey, Scott.
We have made substantial investments in our platform. The last two years, but certainly this year, we've gone to market not just with the customer center, but with an entire.
Redesign of our E commerce funnel, taking into account customer research that Weve done first party research.
Well as extensive AB testing so far.
The P. period, we're seeing our conversion rates up over 50%.
On the online platform and so we're very confident that the design changes that that we thought we would have results from will in fact deliver those results. Additionally, we're seeing.
Rapid adoption of the customer center technology, we see we saw very quickly got to over 10000 enrollments in the customer center itself and we are seeing more time spent by those customer center users better conversion from those customers center users and it's early but we're optimistic that we'll have a.
Positive impact on our retention figures as well.
In addition, as Scott was mentioning the partner channel as a material driver.
For online for Us and we are seeing increased conversion rates and that partner channel as well from many of the partners that we have due to those data integrations that Scott was talking about.
And I think you also.
Historically that debt.
Sure on assisted role.
Role, but number it was fairly low based on the new studies Youve done any any changes there.
In the mix between assisted doesn't exist at Beaumont enrollment.
Both are growing rapidly, we do CV unassisted growing a little bit faster.
And we are optimistic about that because of all the changes that we've made to our conversion funnel.
The economics.
And then I guess one final one.
In terms of the changeover as it relates to retention some of the changes you've made there are related to the compensation for your sales force. Your internal sales force how has that been received so far is there been any pushback.
From adopting this new structure tied border retention.
This is Jim I'll take that one so so far there hasn't been any push back within the agent workforce.
Our best performing agents. This is a chance for them to to earn more and it's certainly our hope and expectation that they will and we see great retention rate of our of our core agents. So our top 75% of agents, we keep 94% of them on an annual basis. So they're engaged they were consult.
Got it in the process of building this plan and for high performers. This is a chance to earn more money in the long run.
Your next question comes from the line of Tobey Sommer from CIBC. Your line is now open.
Thank you if we think of a multi pronged approach you have to improving customer retention.
Yes.
Getting back to the prior LPV.
For the best outcome or if these initiatives and turn out.
Turning out.
Well could you in fact do better.
I'd like for Tim to answer that because he is singularly accountable to us for those results.
Thanks, Scott, Yes, that's a very astute observation, we we believe that there's opportunities to do much better than where we were in 2019 because.
We had none of these.
Initiatives in place at that time, either so when we build that goal we knew it had a degree of conservatism in it. We know we're learning every single day, how to adjust these programs and make them more impactful tie them better together. So one of the things that we're doing is getting feedback from our retention team back.
To our sales team on ways that they can be improving on the front end. So we believe that that the 2019 LTV is a fine short term goal, but it is by no means but.
The long term success metric here.
Okay. Thank you and then.
Last question is with respect to retention look.
Look at the book and your M- membership.
Based on average star ranking your managed care companies talk about that.
If you have looked at it on that dimension.
As to the ebb and flow of retention over the last 24 months.
Then mirrored in a change in sort of blended star ranking of your membership profile.
Scott I'll take that one as well so we do look at our retention across.
As many different dimensions, as we possibly can and what I would say is that the the overwhelming drivers were.
Factors within our control within our sales funnel and less to do with exhaustion as changes happening around us. So there is no doubt that plant expansion plan changes benefit changes starring changes do.
Do introduce some change.
But they were they were a small driver of the deterioration that we saw.
And so it's something we looked at but again it was not a big driver of our performance.
Thank you.
There are no questions from participants online.
The conference over to the CEO Mr. Scott Flanders for closing remarks. Please go ahead Sir.
Thank you everyone for a year in form questions were excited about how we're positioned for Q4 and looking forward to helping a record number of seniors get into the right Medicare advantage plan and a growing highest fee business and look forward to getting back on the phone with you. After we have a six.
Yes for Q4, thank you everyone.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now.
Yes.
Good bye.
[music].