Q2 2021 eHealth Inc Earnings Call

Good afternoon, everyone and welcome to Ehealth, Inc Conference call to discuss the company's second quarter, but I did want to line financial results at this time.

All participants have been placed in a listen only mode.

Now I will open for your questions. Following the presentation. It is now my pleasure to turn to for their overage of Pizza Darvish, The company's senior Vice President of Investor Relations and strategy. Please go ahead.

Thank you.

Good afternoon and thank.

You all for joining us today, either by phone or by webcast for discussion about Ehealth, Inc. 's second quarter 2021 financial results I want to call. This afternoon, we'll have Scott Flanders, Ehealth, Chief Executive Officer, John Purion, 'twenty, our Chief Accounting Officer, and principal financial Officer, and Shan Wang plus.

Current or finance after management completes his remarks, we'll open the line for questions. As a reminder, today's conference call is being recorded and webcast from the Investor Relations section of our website a replay of the call will be available on our website. Following the call, but we will be making forward looking statements on this call that include statements.

Regarding future events beliefs, and expectations, including statements relating to our expectations regarding our Medicare business, including Medicare enrollment growth consumer demand, our competitive advantage and market opportunities our investments in our E Commerce and call center capabilities agent training quality assurance efforts and expect.

That could impact on our business our ability to grow our internal agent force increased agent productivity and improve customer experience and a quota of enrollments our expectations regarding our individual and family plan business and growth opportunities there.

Patients regarding our online enrollments member acquisition cost and retention rates.

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Regarding our financial performance the profitability of our business seasonality churn lifetime values member estimates and operating expenses and finally, our outlook for the third quarter of 2021, and our full year 2021 financial guidance forward looking statements on this call represent ehealth views as of.

To date, you should not rely on these statements as representing our views in the future when to take no obligation or duty to update information contained in these forward looking statements whether as a result of new information future events or otherwise forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from.

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 SEC's website or from the Investor Relations section of our website, we will be presenting certain.

Initial measures on this call that are considered non-GAAP under FCC regulation G for a conciliation 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 in our SEC filings, which can be found in the about US section of our corporate website under the heading investor.

And finally <unk> and at this point I'll turn the call over to our CEO Scott Flanders.

Thanks, Kate and good afternoon to everyone joining us today.

Second quarter results were strong with revenue profitability and Medicare advantage enrollment exceeding our expectations.

During the quarter, we made significant progress towards.

Expanding and enhancing our telesales organization.

To scale, our digital business and saw positive trends in our under 65 business.

Following our first quarter outperformance strong momentum in our Medicare advantage enrollment growth continued in April and early may or slowing down as we compare it against the COVID-19.

Moving related special enrollment period that was available to seniors last year for.

For the full quarter, our approved Medicare advantage members grew 30 per cent compared to the second quarter of 2020 I.

I am pleased to report that we successfully achieved our Medicare agent recruiting targets for the second quarter and are on track.

The goal of our tele sales capacity being made up of 90% full time agents.

By the start of the AAP we.

We achieved a significant pivot in our sales organization, a short amount of time I expect for it to benefit our customer experience and the quality of our enrollments.

To be per market continues to evolve.

Ongoing trend towards increased popularity and penetration of Medicare advantage plans as a company by broadening of plan selection expansion of covered services.

M&A is an important growth area for health insurance companies and wall carriers continue to pursue.

Pursue enrollment growth and market share gains. We are also seeing a shift towards heightened awareness and focus on enrollment quality among our key carrier partners.

Based on our recent conversations with carriers, we expect that insurance companies will be increasingly evaluating broker performance on quality.

The Medicare enrollments, including retention rates and customer satisfaction in addition to volumes.

This sector wide movement provides an opportunity for ehealth to take a leadership position, establishing our platform as the gold standard for customer experience within the sector.

Our customer.

<unk> centric choice model and longtime mission, serving as a consumer advocate.

<unk> us well to partner with carriers on their effort.

This also builds on the initiatives that we launched last year aimed at customer engagement and retention and lifetime value enhancement.

We are now looking for additional.

Additional ways to improve customer experience enhance accuracy of plan recommendations and reduce rapid dis enrollment starts.

Starting in Q3, we introduced mandatory additional training for our agents added a new customer care role to verify Medicare enrollments prior to submission and are expanding other.

QA efforts.

The recent migration of our call Center technology to a cloud based contact center will also provide new robust capabilities to train agents and monitor their performance in real time.

Enhancing our ecommerce experience and growing the contribution from our online.

Enrolment is another critical initiative for Ehealth.

In fact, Medicare members, who have enrolled through a fully unassisted online process on our platform represent our highest quality enrollments with highly favorable retention rates.

Fully unassisted online major medical Medicare Apple.

<unk> grew 80% year over year and continued to outpace our overall Medicare enrollment growth.

Our internal goal continues to be for our unassisted online enrollments to represent $100 million in commission revenue in 2021 at superior member Economics.

Application higher than average Ltvs, driven primarily by lower churn and a higher contribution from new to Medicare advantage enrollees that generate significantly higher first year commissions compared to planned switchers.

We believe that years of investment in building out our.

But the street, leading digital platform have given ehealth, a meaningful advantage and targeting enrollees from younger demographics, who are increasingly interested in using online platforms to research and enroll in health care plans.

We have seen our highest retention among those enrollees, who also created.

And this customer center account with Ehealth as a reminder, our customer center is an online customer account tool that allows for data driven customer engagement and helps us maintain our relationship with our members after the initial enrollment.

We see this as a meaningful differentiator, allowing members who use customers.

<unk> to act more deeply with Ehealth and ultimately retain at better rates. We are now at 143000 customer center accounts with additional enhancements coming to this tool and our overall e-commerce experience.

Our total online applications, including unassisted.

<unk> and partially agent assistance submissions represented 80 for 38% of our second quarter applications for Medicare major medical products up from 30% a year ago.

We believe that our ongoing investments in our tele sales operations technology and QA.

<unk> 7 per cent, a significant barrier to entry into the Medicare distribution market as carriers place, an increasing value on enrollment quality.

On the demand generation side, we continue to invest in our online and strategic partnership channels.

Although legacy channels such as Directv.

We'll direct mail remain a part of our marketing mix their contribution has been reduced as ehealth leans into demand generation channels that offer us more favorable unit economics and better competitive differentiation.

And the strategic partner channel.

We are leveraging the relationships that pharmacies.

And to health care providers and patient engagement companies have with Medicare beneficiaries.

Partners put their faith in Ehealth because of our technology breadth of plan choice and our dedication to putting customers first.

Ahead of this year's AEP.

We've expanded our relationship with Walgreens cost.

In Silversneakers, we also added exciting new partnerships with Cardinal health adherence health site for health and several others.

In our ISP business, we are seeing an encouraging combination of strong enrollments as well as continuing increase in persistency of our existing.

<unk> business.

Approved ISP members grew 78% during the quarter compared to the second quarter of last year.

Along with $16 million in tail revenue from prior period, ISP enrollments generated a 178% increase in ISP segment revenue compared.

To Q2 of 2020.

The ISP market is benefiting from secular tailwind driven by the passage of the American Rescue Plan Act in March of this year.

This legislation expanded access to premium credit, making ISP plants, more affordable, which will allow a larger percentage of.

Book escalation to get the quality coverage that major medical plans offer.

But by the administration is now proposing a permanent expansion of exchange subsidies.

It is estimated that these changes increased the total number of people eligible for subsidized marketplace coverage by more than 20%.

Other pop as a result, we are seeing renewed interest in this market from insurance carriers as well as our strategic partners such as pharmacies health care networks and other industry players that want to help their patients take advantage of these new opportunities to access care.

The majority of our ISP enrollments are done online.

No agent assistance, providing for attractive unit economics in this business.

Combined with a favorable market environment. This should create interesting growth opportunities for us in our <unk>.

<unk> business going forward.

Second quarter revenue was $96.6 million a 9% year.

With me are increase our second quarter GAAP net loss was $18.4 million and our adjusted EBITDA was negative $13 million reflect data of a significant investment we made in our in house Tele sales operations.

Our Chief Accounting Officer, John Purion, Tony will provide more details on our second quarter financial.

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Since our last earnings call, we welcome saves our Serrano to our board of directors, where she will serve as a member of the compensation Committee. Mr. Soriano, who is the Chief Executive Officer of <unk> Corporation.

Leading national personal lines insurance district.

He brings.

Our board more than 20 years of leadership in the financial insurance and business services industry, including significant experience in direct to consumer sales of insurance products.

We also announced last week that we have appointed Erin Russell to our board of Directors Ms. Russell has deep health care industry experience.

Including serving on the board's activity health Devilbiss health care, and 20, <unk> century oncology Sheila.

She will sit on the audit and strategy Committee as we look forward to her contributions.

As we closed the first half of fiscal 2021.

I am encouraged by the early success.

<unk> and scaling our call center operations around the internal agent model and implementing a number of important initiatives to position our agents for success.

Our online business continues to gain traction significantly outpacing our overall Medicare enrollment growth.

Generating higher quality enrollment characterized by better retention and higher contribution from younger tech savvy demographics, including those who are new to Medicare.

Our mission to serve as a consumer advocate in the health insurance market has not changed since the inception of the company and is reinforced.

For us now by our heightened dedication to customer service member engagement and retention and quality of iron enrollments.

We believe that our differentiated customer centric choice model positions us well for continuing growth and shareholder value creation.

Finally, a quick update.

Date on our CFO succession plan.

As we conduct our search for a permanent CFO, John Purion, Tony Our Chief Accounting Officer, and principal financial Officer, and John Wang Vice President of Finance are co leading the finance function reporting to me.

Both Johns were leaders on our finance team with Derek was still low.

And we are confident in them as leaders of our interim finance team.

Ill now turn the call over to John for you and Tony will go over our second quarter financial results in greater detail.

Thanks, Scott and good afternoon, everyone.

Second quarter results reflect higher than expected growth in our Medicare enrollments.

Strength in the ISP business and a significant investment in our internal Medicare agent Force ahead of the annual enrollment period.

Second quarter, Medicare revenue of $73.2 million declined 9% compared to a year ago.

Underneath that Medicare Commission revenue from new enrollments grew 9% year.

For over year, driven primarily by a 30% growth in approved Medicare advantage members.

The impact of strong MA enrollment growth on our revenue was partially offset by a 4% decline in Medicare advantage lifetime values in line with our expectations and negative residual or tail revenue in our Medicare.

Their business compared to the second quarter a year ago.

Negative tail revenue in the Medicare segment was largely attributable to our PDP product line that is being impacted by a continuing shift in consumer demand away from Standalone drug plans and other factors.

Okay.

Our estimated number of commission.

Generating Medicare members was approximately 877000 at the end of the second quarter or an increase of 22% with estimated Medicare advantage membership, increasing 38 per cent compared to a year ago.

Second quarter estimated trailing 12 month churn for Medicare advantage plans.

It was 42% unchanged relative to the first quarter of the year as Scott mentioned, we continue to experience significantly lower churn and members who enrolled online.

For MA plans with effective date of January 1 'twenty, 1 we're observing year to date churn rates debt or approximately 40% lower for.

Commissions, the unassisted online cohort compared to telephonic enrollments.

Per member cash collections in our Medicare business continue to grow driven by commission rate increases and higher contribution from new to Medicare advantage members that typically generate higher first year Commission payments.

Please consult our earning slides.

For the full lucid on the Investor Relations site for data, reflecting our Medicare cash collections.

As part of the Q2 earnings slides, we've also updated our analysis showing cash payback on our Medicare advantage cohorts by year. As a reminder, this analysis compares the upfront acquisition cost spend to acquire each of our.

<unk> claim a cohorts against cash collections generated by these members to date.

You'll see for their 2019 M. A cohorts have now achieved breakeven on that basis, and we will be generating positive cash flow going forward as we continue to collect monthly renewal payments.

Turning to our individual family and small business.

Our annual meant second quarter revenue from this segment was $23.3 million and 178% increase compared to a year ago, reflecting positive trends in the ISP market that Scott described earlier and included $15.8 million in tail revenue.

In addition to <unk> 78 per cent increase in our.

Isn't this AFP members during the quarter, we observed strong demand for dental and vision products and higher lifetime values across these products compared to a year ago.

Our total revenue for the second quarter was $96.6 million, an increase of 9% compared to the second quarter of 2020.

Our total estimated.

Approved to ship at the end of the quarter for all products combined was approximately 1.270 million members.

And now I'd like to review, our expense and profitability metrics.

In our Medicare business acquisition costs per approved member, which includes marketing and customer care and enrollment costs increased 21 per cent compared.

To the second quarter a year ago.

This was primarily due to an early start in our internal agent ramp this year with internal agents, representing a much larger percentage of our total planned telesales capacity compared to a year ago.

This investment in internal telesales capacity helps us to position for enrollment growth.

Growth in the fourth quarter, AEP and to improve upon enrollment quality.

On the marketing side the year over increase in per member acquisition cost was partially due to the COVID-19 related special enrollment period that existed during Q2 of last year benefiting our conversion rates both online and.

Call Center.

As significantly higher proportion of inbound web visitors and colors were eligible to switch plans.

For a lesser extent it was driven by ongoing shift away from the traditional channels and towards our online advertising channel, which carriers carries higher per enrollment marketing cost, but lower cash.

And in the current enrollment costs cause.

Contribution from the direct TV channel in particular declined to 6% from over 30% in Q2 of last year.

The Medicare segment generated a loss of $17.8 million compared to a profit of $15 million in the second quarter of 2020.

Customer he individual family and small business segment generated segment profit of $17.9 million compared to a profit of $2.7 million in the second quarter of 2020.

Second quarter, non-GAAP Tech and content and G&A expense combined grew 12% compared to a year ago and.

And by 12% on a sequential basis.

These non-GAAP operating expenses exclude the impact of stock based compensation.

GAAP net loss for the second quarter of 2021 was $18.4 million compared to a net loss of $3.4 million for the second quarter of 2020.

Adjusted EBITDA for the second quarter of 2021 was negative $13 million favorable to our expectations due to stronger than expected Medicare advantage enrollments and contributions from our individual and family plan product line.

These refer to our second quarter 2021 earnings release for a full description of how we.

Decline rate adjusted EBITDA.

Our second quarter cash flow from operations was negative $32.1 million compared to negative $21.3 million for the second quarter of 2020.

Year to day cash flow from operations was positive $10.7 million compared to negative $12.4 million.

We calculate year ago.

Trailing 12 month Commission cash collections in our Medicare business were $322 million and grew 39% compared to the trailing 12 months a year ago, driven by membership expansion strong new enrollment growth and higher cash collections per Medicare member.

As of June 30, we had $305 million in cash cash equivalents and marketable securities inclusive of the $214 million of net proceeds from the H I G investment that closed on April 30th.

Our balance sheet also reflects significant commissions receivable totaling.

$756 million, that's comprised of 182 million debt, we expect to collect over the next 12 months and $574 million in long term commissions receivable.

Before we get to guidance I'd like to briefly highlight the financial statement impact of the H I G investment.

Second quarter, we accrued the 8% paid in kind dividend, which totaled $3.1 million.

Due to the redemption features available to the preferred stockholders 6 years. After closing accounting rules also require us to recognize changes in the preferred stock redemption value each period.

For this we are also recorded these changes in redemption value using the interest method, resulting in a 1 point for a million dollar adjustment charge during the quarter.

In the third and fourth quarters of the year, we expect the total dividend and changes in redemption value to be approximately $7 million each quarter and while these.

Wages are below the GAAP net income line in the income statement and don't impact our 2021 net income guidance, they do impact our GAAP earnings per share.

This is due to GAAP EPS using net income attributable to common stockholders and it's numerator, which reflects the charges related to convertible preferred stock.

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I'd like to highlight that the H I G investment is a participating security and changes the method for calculating earnings per share as a result, we're providing a new metric for 'twenty 'twenty..1 net income attributable to common stockholders per diluted share to be in the range of 84 cents to $1.39 per.

Per share.

Reflecting an estimated 69 cent reduction in EPS due to the H I G investment.

Our previous guidance of GAAP net income per diluted share of $1.53 to $2.08 per share with 69 cents higher as it didn't include any impacts of the H I G investment.

We're reaffirming our 2021 annual guidance on a consolidated basis, including revenue GAAP net income adjusted EBITDA non-GAAP net income per diluted share corporate shared expenses and cash use in operations are.

Our guidance for GAAP EPS has been adjusted to reflect the impact from the H I G.

It's meant as I just described.

We are updating our 2021 segment guidance to increase revenue and profit ranges for ISP and small business segment and applying a matching reduction to our revenue and profit ranges for the Medicare segment.

This update reflects 1.

Tailed revenue dynamics year to day with tail revenue in our ISP segment exceeding expectations, while Medicare tail revenue has tracked below expectations, delivering driven primarily by the PDP product and to the expected impact on Medicare related expenses of our investment in customer engagement.

And enrollment quality initiatives in the second half of the year.

Specifically, we're now forecasting Medicare segment revenue for 2021 to be in the range of $601 million to $639 million compared to our prior guidance range of 621 to 659 million.

Individual.

Aw family and small business segment revenue is now expected to be in the range of $59 million to $61 million compared to our prior range of $39 million to $41 million.

2021Medicare segment profit is now expected to be in the range of 130 to 146.

<unk> dollars compared to a private prior guidance range of $147 million to $164 million and individual family and small business segment profit is expected to be in the range of $36 million to $38 million compared to our prior range of $19 million to $20 million.

Finally, I'd like to make some comments regarding the expected quarterly cadence in the second half of the year, we expect third quarter revenue to be roughly in line with Q2, while adjusted EBITDA loss expected to be in excess of $30 million.

A few factors are at play here first third quarter 'twenty 'twenty.

6 million line will represent the peak agent head count ahead of the AEP with a large percentage of these agents who are not yet at their full utilization and productivity rates with many still in training.

Second we currently forecast a sequential reduction in ISP tail revenue, which dropped straight to.

For the EBITDA adjusted line adjusted EBITDA line and finally, the near term impact of some of our new member retention initiatives has led to low lower call conversion rates and longer average talk time for telephonic enrollments.

We also anticipate additional spend on agent training and the expansion of our customer service.

'twenty 1 over time, we expect for these initiatives to result in higher lifetime values, an important goal for the company as well as stronger consumer awareness of our choice platform.

I'd like to remind you that these comments on our guidance are based on current indications for our business current estimates assumptions and judgments.

Which may change at any time, our actual results may differ as a result of changes in circumstances, and our estimates assumptions and judgments. We undertake no obligations to update our comments or our guidance I'd now like to open up the call for questions. Operator, Please open the line.

Ladies and gentlemen.

And if you have a question at this time. Please press Star then the number 1 key on your cash down telephone and for a question has been answered at least you remove yourself from the queue. These price to banking again, ladies and gentlemen, if you have questions. At this time. Please press star and then the number 1 key on your Touchtone telephone.

For just for a moment to compile the Q&A roster.

Your first question comes from the line of George Sutton from Craig Hallum. Your line is open you may ask your question.

Thank you I Wonder if you could go into more detail on the <unk>.

Carriers.

Ball parking into retention rates and customer satisfaction, and obviously, it's impacting your where your training and and the productivity of the agents. So wondered if we could dig in there a little bit more.

For this is Tim and I'll take that 1 you know we've been on this journey of improving the quality of our.

<unk> <unk> for a year now with the launch of our retention initiatives last year.

And in conversations with multiple of our carrier partners they have expressed.

This desire to see improved quality metrics out of the entire broker channel.

And so we have had numerous conversations.

<unk> is about ways that we can deliver that and best practices that we can apply in some of the ones that we're deploying are what we mentioned earlier in the script in terms of additional training.

The verification agents basically a handoff to a second agent to confirm all of the details of the enrollment.

Our enrollment ongoing and enhanced QA of our of our sales resource and between those initiatives and the shift to a fully internal workforce.

We think we're going to see continued improvement along those metrics and.

And we're getting favorable response from our carrier partners from the.

Taxes, we've deployed so far.

Now you obviously have a huge advantage relative to your competitors with your ability to do everything on line I'm curious are you given this dynamic.

Doing anything to more aggressively target that pure online enrollment population.

Yeah I'll take that 1 again, we are as noted in the in the script, we continue to see faster growth in that segment than any other part of our business.

And it's exciting to see it in these quarters and we expect we will continue to see that in the back half of the year, we have more enhancements coming to our customer center.

Which we saw great adoption at the end of last year, and great customer utilization and higher retention as well as further enhancements to our e-commerce experience in general. So we continue to see momentum we think the market is moving in that direction and we invest as much as we possibly can to bring more.

And more people into that experience.

Okay. That's it for me Thanks Scott.

Next question comes from the line of Jon Andersen from Credit Suisse. Your line is open.

Thank you I actually wanted to follow up on the $20 million revenue guidance reduction in debt.

Medicare business.

US understand the puts and takes there first half sales.

Sales revenue negative adjustment is around 11.5 million. So are you expecting more revenue line down in second half and Medicare business I mean, if something my understanding of your board members MTV trends in first half probably exceeded expectations. So it should have how about.

Trying to understand what is in that 20 million guidance reduction.

Sure. This is Jim I'll take that 1 again and then others can chime in as net.

Sorry. So you are right that we had I think a conservative outlook coming into the year and the first half of the year has.

Has exceeded those expectations.

But as we look ahead, we're just maintaining that conservative posture because of some of these new dynamics. So we are making incremental investments into into enrolment quality and so we want to see how that plays out as the year goes on and we're still in the middle of.

The shift towards the internal workforce and so we will start to see those people come online, but until we have a greater understanding of their performance.

And whether there'll be more improvement than what we have built into our guidance.

We're maintaining that conservative posture.

So.

I mean, if I can go back for the Medicare part D comment of Scott.

$11.5 million negative adjustment it was 7.5 in your Medicare PDP ship.

Chip from PDP to M&A is not new I mean for somebody to surprise on the size of that just meant there it looks like maybe it's something probably continuous.

Help us understand a little bit more like what is the adjustment.

And why is it coming up now.

Magnitude here.

Yes. So there is youre right did the shift away from PDP isn't new and it is certainly a factor in this there are other more specific and in fact.

Individual partner level performance metrics that we saw.

In this quarter that we don't expect to persist going forward. So that it is driven I think at large by the shift away from PDP, but there are some more specific factors that drove it to what it is in this quarter.

<unk> Q1 of your questions we did not.

Not expect cash.

Another quarter of map.

Revenue impairment in the second half of the year, So we anticipate cash.

In fact positive tail revenue in our Medicare advantage business, there could be some remaining small impairment on the PDP side.

But the overall, we expect to be on the positive there.

Okay, and then 1 last 1 here for the trailing.

Trailing 12 months I mean, remember I don't know what day show you disclose every quarter, which is helpful to get some sense on the churn trend.

It was up slightly both year over year and sequentially when you expand to.

Point.

I mean, just trying to understand that all of the initiatives you put in place for the last 12 months I mean, why is that not having any positive impact on debt.

Debt ratio in particular.

Yes that has remained stubbornly high as we said last quarter as well I think every quarter.

Some of our learning more and more about the things that debt.

We'll move this metric and it is a 12 month metric. So it is a little bit.

Flow to move, but we still expect to make more progress going forward I think the shift to the internal agents is 1 additional change that will start to see materialize and we are making.

We optimizations in where we acquire our traffic so we talked about the progress and driving into our online channels and driving volume from our strategic partners. Among our paid sources, we continue to optimize as well. So there are a number of things that we believe have certainly enhance the customer experience.

Driven quality improvements, but we continue.

Continue to drive.

We learn additional things and we'll see that materialize going forward.

Okay. Thanks, a lot.

Your next question comes from the line of Elizabeth Anderson from Evercore. Your line is open.

Hi, guys. Thanks, so much for the question.

Can you talk.

Further or anything you can do.

Day, particularly about the 2020 cohort that you signed up in the fourth quarter of 2020.

Regarding churn like those lives churning at a similar pace versus prior years.

Just any other color you can provide there I think that'd be helpful.

Sure. This is John can you give me some detail for for that cohort I think overall, we're very pleased with the valuations in that cohort in regards to our projections.

Certainly leverage the more recent current experience of recent periods. So so we have seen favorability in regards.

Regards to the values in those cohorts, so I'd say, they're conservative ltvs were very comfortable with how they're tracking on an overall basis.

Okay.

Maybe also could you provide some I think you talked about that a little bit about some of the hiring details enough for what percent of the agents have you hired already.

<unk> that you think that you need for.

2021 could you talk about the hiring environment more broadly obviously, there have been conversations about labor shortages and wage increases and things like that across the economy as a whole.

That would be helpful as Walter here.

Sure. This is Tim ill take that 1 so the good news for us as debt.

AEP hiring is now largely complete completed.

And so we are excited to have the workforce that we need for the AEP either already started or about to start.

And the dynamics were challenging so we saw slower recruiting on some of the earlier cohorts and then we accelerated as we.

Our adjustments.

So it was more competitive we brought resources to bear and made some adjustments to our comp plan that are essentially neutral.

But I made the role more attractive and we're ready for AEP.

Got it and any differences in terms of how the hiring.

We made a day as a training well like rollover over the course of the next what.

For 4 ish months.

Yes, so we will feel some of that training expense in Q3 for share as these classes. These last classes are in training and then are of lower productivity as they begin.

<unk> ramped so we'll feel the full brunt of that which was what's driving the Q3 EBITDA that John talked about.

But we believe that bringing these agents on earlier based on the experience we've seen in prior years and prior training cohorts.

We'll allow them to be more effective during the AEP certainly.

Certainly than some other classes, we brought on on the external side late in the year last year.

Got it okay. Thank you.

The next question comes from the line of Steve Halper from Cantor Your line is open.

Alright.

Question on the <unk>.

<unk> revenue I guess that explains why.

Again to rate.

PDP revenue.

Negative in the table, but on the.

$16 million rough number.

Pete.

What buckets for those.

Buckets, meaning products.

<unk> buckets, meaning age of cohorts no no no.

What products.

The product.

He was across the line. So in regards to the tail revenue for IHT. It was with our nonqualified plans with dental with vision. It was all across the line we continue to.

Right.

Much stronger retention than our estimates have been.

By Covid I think we've been cautious with respect to evaluating how those are trending but they continue to trend quite favorably and so that was the rationale for the for the tail revenue that you see this quarter.

Does it hit.

Small business also.

To a lesser extent to it too much lesser extent for small business.

And the other question is regarding Q3, you said total revenue would be basically flat sequentially with Q2 is that correct.

Correct.

Okay, and then so what's implied in your.

LTV assumption.

Underlying that number.

So we're expecting to see growth in the back half of the year for Ltvs.

So I think 1 other things that <unk> had mentioned earlier as well we.

We feel very.

But with the LTV evaluations that we have so we don't see it.

Closure in those Ltvs, we also think that there's opportunity for growth in those LTV values in the back half of the year, both for Medicare and for non Medicare as well.

Thank you.

Next question.

Your line of Frank Morgan from RBC Capital Your line is open.

Good afternoon I wanted to go back to this change in the Medicare revenue.

And profitability assumptions.

Wanted to make sure that that was.

Solely related just to this change in the PDP.

Comes from assumptions and incremental investments there was no change to anything else like enrollment or LTV.

That's correct.

And maybe while we're on the hate to harp on the PDP, but could you tell us.

What were your previous assumptions and what are.

Are your assumptions going forward as it relates to that segment for <unk>.

Ltvs.

So I think as it relates to PDP, we saw incremental churn that we had not anticipated. So we've updated those estimates. So we don't believe there is significant exposure.

With PDP going forward. So we're very comfortable with those levels of Ltvs. We also have.

Tail potential with some other Medicare products that we also monitor so I think overall, we're very very comfortable with with our LTV values for a day or for the rest of the year.

Okay.

That was actually my next question was what's driving the expectation for the tail revenue growth.

Is it just Medicare or is it specifically M a.

Amit it's it's with.

With Medicare advantage, primarily.

Okay.

Rob just tracking are tracking our estimates.

I think we have our LTV values, we track and monitor them.

We recognize tail revenue when we feel comfortable that there won't be a reversal and so I think as we're as we're looking at analyzing these we think that there's some potential opportunity for for modest level tail revenue in the back half of the year.

You want to put a number on that by chance just kind of.

And then a broad generalization of kind of what you might expect to see there.

No I don't think we typically guide I mean, it's not something we guide to it because these are valuations that we update every quarter. So it's not something that we guide to.

Got you.

And then.

And noticed a fairly significant increase on the.

LG and content expense in the quarter any any color about what's going on there.

Well, yes.

Yes. This is Philip Morris.

Significant 1 time investments in terms of our cloud migration, so big priority for the year, we've invested in our cloud based contact center.

We also made significant investments in our culture.

Customer center, our E Commerce platform.

Anticipate those will normalize relative to revenue for the back half of the year.

Gotcha and then is.

It relates to the sales force additions it sounds like Thats, mostly in place.

How do you envision that playing out in terms of return to work.

<unk> technology is working from home what what percentage of this.

Now permanent sales force do you think will actually be back in your call centers versus working from home.

Yes, it's a great question and something that we're continuously evaluating I mean, the good news is we have trained our entire workforce to be capable.

Vessel in a remote environment. So most people have been through some period of either working for us remote being trained remote.

And we are opening up our call centers too.

To the vaccinated population.

For the back half of the year and some are comfortable with that some are not so we will get leverage out of having.

Capable in the office, but we don't expect any impact to performance for those that have to remain.

At home.

Got you.

And 1 final 1 here.

You talked about the.

The carriers looking for higher quality business.

Are there any.

Any kind of.

Potential carrots or sticks that might go with that in the future has there been any discussions around.

Changing compensation structures based on the quality of the winner of the business adds thanks.

Yeah, Frank this is Scott.

No.

No pressure.

For our suggestion that commissions would decline in any way.

The carriers are.

Not really.

Reducing their focus on wanting to grow their market share.

To do so while ensuring an improving customer experience.

And reduce complaints and so will they subsidize the broker channel more aggressively.

Potentially.

But those.

Those are discussions that are in the early stage.

Okay, and just to go back to this 1 issue again.

<unk> the tail revenue.

The the tail revenue down by $11 million, but the revenue guide down is about $20 million could you kind of square that up with us.

Sure. This is John I would say.

It's something that Tim had mentioned earlier in regard.

<unk> looking at the forecast and being conservative as we're going into the back half of the year.

That.

Took advantage of that opportunity as part of this process.

There are there were also the incremental costs that Scott called out around customer quality debt players play a role there.

Right.

But that would be that would be cost not revenue right.

Yes that is correct yes.

So the delta between the 20 and the 11, what would that be on the revenue side.

I think we're just we're taking advantage of trying to be conservative with our projections going forward.

As we're looking to train and bring new members on board as well and I think that process is something that we're working through in the back half of the year and so we thought it would be prudent to do so Frank the most important moving piece for us.

Didn't want to increase the overall guidance as John and Scott growth mentioned I wanted to be conservative.

And when we looked.

Per our ISP guidance was we were already at our guidance after.

After the first 2 quarters of the year. So so really the only way for us to maintain the annual guidance for us to reshuffle the segments.

So that's that's probably why you might have some a little bit trouble in the top line, but a.

That way you felt that actually work for talent revenue that wasn't addressed from the beginning so ISP tail revenue is well ahead of our estimates and Medicare <unk> revenue specifically in the PDP product as below.

Your next question comes from the line of Daniel Cross line from Citi. Your line is open.

EBITDA.

Hey, guys. Thanks for taking the question maybe if we can go back a little to the ISP segment, even stripping out the tail revenue. It was strong and it was strong last quarter or 2.

Curious if you can give us some more guidance on how we should think about that business going forward not just for 'twenty, 1 by 'twenty 2 and beyond is there some temporary things that happened this.

This year that will not repeat next year and maybe some things are made permanent can you just give us some guidance on how to think about that and are you going to increase investment in that platform. So folks can actually get subsidies through ehealth without actually being redirected to a partner site.

Sure. This is Tim I'll.

I'll start off and others can join in so the last part of your question are we increasing investment.

Yes, we are increasing some of our investments in the Iot space, what's great about that business for US is that most of those enrollments come on line. So we've been able to capture this extra demand without having to staff up call center regions like we would.

Good.

Medicare part of the business and I think the outlook is going to be driven.

Like you said by some of the regulatory.

Legislative environment. So this has certainly been changed by having more people will be subsidy eligible if that were to persist going forward. This market would continue to be very attractive for us.

We continue to see longer persistency and now faster enrollment growth. So we've stayed in this business expecting a moment like this might come and I think as we get clarity on what the regulatory environment will look like going forward, we will calibrate our investments, but we're taking advantage of the opportunity in the short term for sure.

Got it okay, Okay, and I guess sticking with that regulatory or legislative.

Our framework.

There is talk that Democrats will introduce a bill that adds dental vision and hearing.

In reconciliation wanted to get your read on how likely that is to pass and how that may impact your.

For Medicare business, if it were to pass.

Well.

I can't speculate on the likelihood of legislation right now it doesn't look like the boats exist on the Democratic side to get to $3.5 trillion dollar.

<unk>.

Partisan Bill.

Past, but if it was.

A substantial expansion of benefits that would make MAA, even more popular for seniors. So it would be a substantial enhancement to Medicare advantage.

We think it would accelerate that.

Net migration, that's already occurring from traditional fee for service to Medicare advantage.

Okay, great. Thank you.

Your next question comes from the line of Tobey Sommer from Thomas.

Securities Your line is open.

Thanks wanted to start out and ask.

21 enrollment and revenue growth rates continue into next year and beyond 1 with the company turn cash flow positive.

So we're still expecting to be cash flow positive in 2023.

And we.

As we noted in the script are sitting at $3.305 million of cash on hand, and we expect the cash.

Cash that we've raised to take us to cash.

Low positive.

Okay.

What is pure online enrollment and I'm curious if there is an interplay between that figure.

And your.

Relatively I guess short experience, having the customer center up and running.

So I don't think we are breaking out the growth or the share that is coming from the online unassisted by itself in terms of the interplay between the growth of that and.

The customer center I don't think its affecting the growth rate of the product or the adoption of online unassisted, but what we are seeing is enhanced.

Retention and utilization of those members who have the customer center, maybe fill up if you want to expand on I think that's right in the far greater lever for us in the near term there is retention.

But in addition, having a full suite of offerings for consumers year round. In addition.

Addition to kind of the core shopping period, we should see over time.

For conversion rates and greater offerings for consumers in the online space.

1 additional point is the.

On line on assisted over index to new to Medicare, which have favorable first year economics and cash flow.

And you can see that show up in.

The improved.

Cash collections.

Okay. Thank you.

And.

Just a broad question and I'll leave it simple what are your thoughts on industry consolidation.

Well.

I think that the major players here are gaining share.

Have critical mass.

Our scaling and so for from <unk>.

My perspective, it's a healthy debt there.

3 publics that are well funded.

Well managed.

In our sector, we each have slightly differentiated business models.

As we highlight.

For technology driven.

The consumer at the center of our.

All ambitions.

And we have a choice model. So we have a slightly different.

Model, our competitors, but we think it's a net positive.

That there are strong well funded competitors because the carriers can increasingly for you.

Rely on this channel for consumer engagement and they can focus on what they do best which is underwriting.

Delivery of care.

So we think its healthy to have competition.

We want to be the leader.

Thank you Tom.

Next question comes from the line of George Hill from Deutsche Bank. Your line is open.

Hey, good afternoon, guys and thanks for taking the question I guess, Tim first.

First I would thing you on could you just put some numbers around retention versus churn I know the churn number 2 lender brought it up earlier was up modestly sequentially, but could you talk a little bit about the Companys initiative on kind of retention of people who are trading versus what the turns debt looks like.

Yes.

As you.

It's a very.

There's a lot of moving parts, but sort of sum up to that that churn number and we are having success in some places.

And less than others. So.

We are seeing some of our older cohorts certainly start to retain at higher and higher rates. So we're doing a good job of doing outreach.

Those members keeping them in plans answering their questions more effectively than we ever have before.

But then theres other cohorts, particularly those around the middle of last year related to Covid that are sort of creating a counterbalance or offsetting some of the goodness that we're seeing there. So we have seen improvement in.

Many of our cohorts and some surprisingly weak results around those particular cohorts.

And were always learning, so we're figuring out well, which channel as we drive those people in from how did day, who do they interact within the call center, how can we enhance that call center experience and some of the <unk>.

Additional things that we're putting in this quarter.

For our geared around the insights that we've uncovered as we've looked at it again so.

It's hard to sort of explain all of the puts and takes but we think that we're making progress in a lot of different areas that we've identified more areas to take forward, but until we start to drive that number down.

We certainly won't be satisfied with what we're seeing.

That's helpful. I guess, Scott 1 for you as you guys have continued to build out the sales force.

<unk> sales force versus the contract sales force have you seen significant wage pressure given that it seems to be a topic of conversation everywhere else.

Not significant.

We did.

Slightly change our compensation to favor the highest quartile performers and took that compensation out of the bottom quartile.

We call it the <unk> and Eagle start the Turkey strategy.

So it's net neutral as Tim observed.

But we should point out that our target comp is in the $75000 range. So we're not competing against.

At.

The entitlements that make it for some service workers for example.

On the on the margin of whether it's worth it to work or not.

And remember that these roles.

It can also be fully deployed from hall. So these are highly attractive jobs and so far we haven't seen.

Wage pressure.

And as Tim pointed out.

I would just say lastly, lastly, Georgia.

Fully achieved.

Our hiring.

Quotas for the full AP here through <unk>.

Through now through today.

That's helpful. And then I guess, just 2 housekeeping items to make sure I understand the mechanically.

Depict dividend that was reported in the quarter that will effectively be.

The run rate debt.

We should model going forward as question.

1 question be the negative PDP revenue is effectively a true up right. So the.

E tail revenue that we could see in the back half of the year is a reflection of basically Medicare advantage lives not PDP lives just want make sure I understand those 2 things conceptually right.

Sure so the.

The preferred stock we closed at the end of April so it's not the run rate for the Pik dividend so the pik dividend.

Is going to be higher for for Q2 and for Q3 and Q4, we said in total for the dividend as well as the accretion charge, it's roughly $7 million.

Corridor for both of those items.

Okay and then.

Yep, that's perfect and am I thinking about the the negative revenue adjustment right. It's basically a true up for lives that are true turned off and on into Medicare and if theres tell revenue that comes in it's M. A M a related that PDP related.

That's correct.

Each that is correct okay.

Okay. That's helpful. Thank you.

Sure.

Our last question comes from the line of Steve Hall for Urban Cantor. Your line is open.

Oh that was my last question. So thank you George.

Okay.

Steve.

I am showing no further question at this time I would like to turn the conference back to Scott Flanders.

Thank you everyone. We look forward to catching up with you.

Our scheduled calls.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and have a wonderful.

Good day, you may all disconnect Goodbye.

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