Q3 2021 eHealth Inc Earnings Call

Yeah.

Good morning, everyone and welcome to Ehealth, Inc Conference call to discuss the company's third quarter 2021 financial results. At this time all participants have been placed in a listen only mode before will be opened for your questions. Following the presentation. It is now my pleasure to turn the floor over to Eli <unk> Investor Relations manager. Please go ahead.

Okay.

Good morning, and thank you all for joining us today, either by phone or by webcast for a discussion about Ehealth Inc's third quarter 2021 financial results on the call. This morning, we will have.

<unk> soy spend helps chief Executive Officer, and Christine Janofsky, Ehealth Chief Financial Officer.

After management completes its remarks, we will open the lines 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.

We will be making forward looking statements on this call that includes statements regarding future events beliefs and expectations, including statements relating to our expectations regarding our Medicare business, including Medicare enrollment consumer demand, our competitive advantage and market opportunities our expectation.

Regarding the health insurance distribution industry, including current trends.

Our investments in our E Commerce and call center capabilities quality initiatives and technology and the expected impact of these investments on our business.

Our expectations regarding our individual and family business and growth opportunities.

Our ability to increase agent productivity and improve customer satisfaction retention and other quality metrics, our expectations regarding our online enrollments member acquisition cost and lifetime values, our expectations regarding our business strategy and financial performance, including the profitability of our business.

Cash flows conversion rates customer retention seasonality lifetime values member estimates and operating expenses and our full year 2021 financial guidance.

Forward looking statements on this call represent <unk> views as of today.

You should not rely on these statements as representing our views in the future. We undertake 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 <unk>.

For 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 SEC website or from the Investor Relations section of.

Our web site.

We will be presenting certain financial measures on this call that are considered non-GAAP under under SEC regulation G for.

For a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure. Please refer to the information included in our press release and in our SEC filings, which can be found in the about US section of our corporate website under the heading Investor Relations at this point I will turn the call over to Francois.

Istent.

Thanks, Neil and good morning to everyone joining us today as we report our third quarter 2021 financial results.

As you know I became CEO of Ehealth, just one week ago today.

I've received a warm welcome from our very talented employees and I look forward to working together in the years ahead.

Before I review, our financial and operating results for the quarter I want to take a few minutes to introduce myself and share why I am excited and energized to be leading ehealth.

As a bit of background on me I've spent nearly 40 years in the healthcare industry, including serving as president of government services for Aetna pre and post acquisition by Cvs Health.

Where I was responsible for leading the strategic execution and profitable growth plans for aetna's, Medicare Medicaid individual and public exchange and federal employee health benefit businesses.

While there I built and led the team that achieved sustained accelerated revenue and earnings growth coupled with strong stars ratings and compliance performance among many other accomplishments.

Prior to my time at Aetna served in executive leadership positions across a number of health care and managed care companies, including Coventry healthcare principal healthcare and Carefirst Blue Cross Blue Shield of Maryland.

Before I share comments on our third quarter performance and fourth quarter outlook I want to acknowledge my predecessor, Scott Flanders.

Scott transformed ehealth during his tenure as CEO, including important diversification of products by introducing and scaling Medicare advantage and ancillary offerings offerings to supplement our Iot capabilities.

This set the stage for the creation of a highly effective digital Medicare distribution strategy.

Scott's leadership and contributions throughout the past six years, so given ehealth is steadfast differentiated foundation.

Importantly, Scott assembled a talented management team with whom I have begun building strong relationships.

I look forward to working with this team to develop strategic goals execute our plans and conquer our challenges.

I would also note that having gone through similar leadership transitions before this one has been a near textbook transition.

As previously announced Scott has agreed to stay on in a consulting role with the company through the end of this year.

I want to take this opportunity to introduce Christine Janofsky, our new Chief Financial Officer, who joined Ehealth.

In September <unk>.

Christine brings more than 20 years of finance and insurance experience. Most recently, serving as senior Vice President Chief Accounting Officer at Lincoln Financial Group.

Since joining the organization Kristina and I are already off and running and I look forward to partnering with her to shape, our strategic and financial direction for 2022 and beyond.

You'll hear from her a bit later on the call today.

Okay.

I joined Ehealth based on my deep appreciation for the company's unique customer centric platform and a strong belief in the significant opportunities ahead of us.

We're harnessing powerful secular trends that when combined with refreshed strategic thinking and planning followed by disciplined execution will drive the company's growth and value creation.

Among the positive secular trends are in expanding Medicare population that continues to enjoy a long runway continued momentum and popularity of the Medicare advantage program.

And the increasing number and complexity of Medicare plans.

Consumers across all demographic groups are increasingly favoring choice and the ability to comparison shop for impactful purchases.

Increasingly applies to health care.

In addition, our digital platform provides the health of the strong competitive advantage seniors adoption of the Internet for research social interaction shopping and other daily needs is growing and has been accelerated by the global Covid pandemic.

In short I see our consumer centric omnichannel marketplace as the health insurance distribution model of the future.

Aligned with the evolving needs and preferences of our customers.

Another important development is the heightened awareness and focus on beneficiary enrollment quality among our key carrier partners.

Let me take a moment to define what I mean by enrollment quality.

Simply stated, it's ensuring that Ehealth presents Medicare beneficiaries with choices that best align with their eligibility status lifestyle health conditions, and economic means all with minimal disruption to their existing provider relationships and prescription medications.

And the N ehealth wants to ensure the beneficiaries make an informed choice based on these criteria to establish the foundation for a healthy carrier member relationship.

And then further as her satisfaction trust and experience with Ehealth.

As with many aspects of business and our personal lives that underwent significant changes due to the COVID-19 pandemic.

Medicare advantage products are marketed and distributed to seniors has also changed with more plants now being sold through telesales supported by licensed agents.

When a new product is introduced or a large shift in distribution channels occur. It is not uncommon for this change to be accompanied by compliance related measures to guarantee the customers are receiving the same quality experience that's with established distribution networks.

CMS has always appropriately placed the best interest in safety of beneficiaries at the center of everything they do.

They expect their contracted carriers distribution partners to do the same.

As a downstream delegated entity Ehealth has the same obligations as our carrier partners.

Fully accept these responsibilities and believe broker performance will be increasingly evaluated on customer satisfaction retention and other quality metrics. In addition to volumes.

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

While there are upfront cost and a near term impact on enrollment volumes that I will address shortly.

We believe that this trend will change the competitive landscape in our space and create significant competitive advantages for digital brokers that successfully work with carriers on attaining quality coals.

I recognize that I'm transitioning into the CEO role here at Ehealth at a critical point the evolution of the Medicare distribution industry.

Planned to leverage my multi decades long experience in health care and managed care to further strengthen our relationships with carrier partners improved data flow between parties and maximize the lifetime value of enrollments we deliver.

My initial focus as CEO is on our execution in the annual enrollment period.

10 weeks of AEP are a critical time, when we operate at our peak capacity and call center utilization and generate a large portion of our total annual Medicare enrollments revenues.

While a lot of preparation occurs in the weeks and months prior to the enrollment season.

The execution during AEP is critical.

We are monitoring the effectiveness of our diversified marketing programs and the performance of our Telesales organization daily.

And we're making course corrections in real time and will use this insight to improve our go forward AEP strategy and execution.

This year, a number of important initiatives and changes were implemented ahead of AEP.

One common thread among them is our enhanced focus on enrollment quality.

Perhaps the most important change that took place operationally since last AEP involves our telesales organization.

Earlier this year, we've made an aggressive pivot in our telesales channel to a model driven predominantly by in house sales agents.

We launched a major talent acquisition campaign and had the largest class a fulltime agents in our history successfully recruited and on boarded.

We entered this AEP with more than 95% of our telesales capacity made up of internal agents ahead of our initial goal of 90%.

Second we took a number of steps to further enhance consumer experience and enrollment quality on our platform.

Includes the addition of an enrollment verification step for telephonic enrollments as well as supplemental training for our agent force.

Third we migrated our call center technology to a cloud based contact center, which provides robust new capabilities to train agents support them in their interactions with customers and monitor their performance in real time.

Finally, we continuously evolve our lead generation capabilities and this year, we upgraded lead scoring and routing tools across all call centers.

Turning to our online capabilities, our digital platform, an important competitive differentiator for Ehealth continues to evolve and is attracting a growing number of Medicare customers.

During the third quarter, the summer online unassisted, Medicare advantage and Medicare supplement submitted applications grew 58% compared to the same period in 2020.

We expect it to remain an important growth driver during this AEP delivering M E enrollments with Ltvs that historically had been 30% to 40% higher compared to telephonics sign ups.

Ahead of the AEP, we launched the next release of our recommendation engine to further improve the accuracy of personalized plan matching based on machine learning and leveraging data from hundreds of thousands of online customer interactions.

On the customer engagement side, our customer center tool continues to gain traction with more than 195000 individuals creating accounts since it was launched in October of 2020.

We continue to see this as a meaningful differentiator, allowing members who use customer center to connect more deeply with ehealth and ultimately retain at better rates.

We expect the combination of optimized plan matching and engagement with customer center to have a positive impact on customer satisfaction.

With their plan selection and to resolve and higher member retention and recapture on our platform.

Demand for Medicare advantage plans remained strong and Ehealth is well positioned to help seniors navigate an increasingly broad and complex range of plans.

This year, we prioritized, our strategic partner and online channels as well as company driven direct mail initiatives that had been associated with higher quality higher margin enrollments.

Now turning to our third quarter financial results.

Our third quarter, Medicare enrollment volume and revenue were negatively impacted by the enrollment quality efforts, we introduced during the quarter.

Specifically, we're seeing a reduction in our call center conversion rates in part due to the new quality measures that had been implemented.

The decline in conversions was compounded by the impact of a large number of new sales agents trained and deployed during the third quarter along with the recent migration to a new call Center technology.

I want to emphasize that after we absorb the near term cost in conversion rate deterioration from these efforts, we expect them to drive greater retention and ltvs out of our enrollments in the longer term.

We also expect that they will establish ehealth as a top tier quality distribution channel for our carrier partners.

Setting a high bar for other major brokers.

We continue to collaborate with carriers to confirm that these new quality enhancements are working.

I'm confident we've taken the right steps to put the customer experience and quality of enrollments at the center of what we do and.

And I believe we're establishing ehealth as the gold standard within the sector.

Third quarter revenue was $63 9 million or 32% year over year decline.

Our third quarter GAAP net loss was 53 million and our adjusted EBITDA was negative $55 2 million.

Total Medicare approved applications declined 22% compared to Q3, a year ago impacted by lower tele sales conversion rates on top of the funnel demand exceeded demand that we saw in Q3 2020.

Our online business continued to grow with unassisted online applications, increasing more than 50% year over year for Medicare advantage and Medicare supplement plan enrollments combined.

Conversion rates on our online platform increase compared to a year ago, driven by improvements to the online user experience that we've implemented.

Now I'd like to make some observations about our AEP execution to date.

And the first three weeks of AEP, we've seen solid consumer interest on our Omnichannel platform.

At the same time, our telephonic conversion rates, while showing a meaningful improvement compared to Q3.

Behind our forecast.

Given the extensive changes we've implemented to our telesales organization.

Our agents are taking time to adjust.

However, we remain confident that the sales proficiency of most of our call center sales agents increase with each beneficiary encounter every day and every week.

We expect this will result in our continuing to close the conversion gap and place Ehealth in a stronger position throughout the balance of the annual enrollment period and into the Medicare advantage open enrollment periods.

While our online business continues to generate strong growth is not yet large enough to offset the underperformance of our call Center operations.

We are adjusting our 2021 financial outlook, including our revised revenue range of 535 million to $575 million.

They've revised GAAP net loss range of 63 million to $43 million in.

And our revised adjusted EBITDA range of negative $20 million to breakeven.

Christine will provide more color to our revised outlook in her comments later in the call.

As I mentioned earlier my focus as a CEO has been first and foremost on AEP execution.

Simultaneously I'm conducting a deeper review of Ehealth operations financial performance, including cash flow simulations.

Current operating model organizational structure and strategic imperatives.

During the Q4 earnings call I plan to share more about my assessment of the company's foundation and direction as well as highlights of our strategic plan for 2022.

I've also observed that the mission driven nature of this company is very important to our employees and I intend to stay true to the company's core mission of <unk>.

Ehealth customers with quality affordable health insurance options.

Admission that hasn't changed since he helps inception.

Through recent initiatives, we've heightened our focus on enrollment quality.

Customer retention and this will remain a critical component of our execution going forward.

I see opportunities to increase our sales effectiveness are dedicating our call center agents to more define geographies. So that they can be even more responsive to consumers and provide deeper insights until available plan options.

I expect to be prepared to share more specifics with you during our Q4 'twenty one earnings call.

Another opportunity area is to have our brand stand not only for carrier agnostic choice, but also to be increasingly seen as a trusted source, where clearinghouse irrelevant health care related material to help consumers navigate the complex health care system.

I also believe there's an opportunity to broaden our platform beyond our current focus on sales and enrollment to encourage current prospective ehealth members to visit our website frequently.

In my experience. This is critical to building loyalty and drawing consumers to our platform year round, rather than just during the enrollment periods.

I also see the online business is a critically important component of the health business model.

It's characterized by superior unit economics, and quality metrics, while also appealing to the growing segment of the senior population, that's comfortable and actually prefers to transact online.

I expect to continue our focus in driving accelerated growth in our online enrollments.

Our focus goes well beyond maintaining strong enrollment and revenue growth is.

It's very clear to me that Ehealth must demonstrate to our investors that we can generate strong EBITDA margins and produced positive cash flows and a shorter cycle.

Though I've been in the CEO chair all of six days I've been evaluating the business for the last few weeks and I believe there's a path to achieve all of these objectives.

We will get there through a combination of manage growth by controlling our rate of growth on a product specific basis to the most efficient distribution and marketing channels and further diversification of products with particular emphasis on those that lend themselves to being sold online.

At the same time, ehealth will be focusing on accelerating strategies aimed at increasing customer loyalty and reducing member churn.

My initial review of the business also has revealed potential for enhancing our performance through tighter alignment with our key carrier partners stronger execution in our telesales environment and further operational improvements, including deeper integration of data and analytics across all of our key operational areas.

Medicare remains our core market, however, with the resurgence and stabilization of the individual and family health insurance market. The time is ripe for ehealth to renew our focus and I L. P to support the overarching objective of our balanced portfolio and positive EBITDA and cash flows Chris.

Christine and I will also be revisiting, our five year financial plan and expect to share our long term targets with investors next year.

Before I turn the call over to Christine to review the quarter in our financial results in more detail.

To emphasize how excited I am to be leading ehealth.

Throughout my career I've been guided by the goal of providing Americans with access to quality and affordable health care options, while reducing the complexity of the health care system.

It is a privilege to join and lead a company, whose mission and values are closely aligned with mine.

And I'm committed to leading health in a direction that provides our shareholders with compelling reasons to main confidence in our company.

I will now turn the call over to Christine.

Thank you Fran and good morning, everybody.

I'm excited to be joining ehealth leadership team at this critical juncture for the company and the broader health insurance distribution industry.

I sure friends conviction that our core Medicare market presents a significant opportunity for generating sustainable profitable growth and that E health Tech enabled and customer centric approach gives us an advantage in driving towards market leadership.

I look forward to getting to know ehealth investors and sell side analysts over the coming months.

And now let me review, our third quarter financial results.

Beginning with our Medicare business third quarter financial performance of our Medicare segment reflects our investment in AEP preparedness and the impact of our enrollment quality initiatives.

As Fran outlined we believe these quality initiatives will have a significant positive impact on our competitive positioning and relationships with our carrier partners.

Well over time and drive customer satisfaction.

Better retention and higher Ltvs on our platforms.

However, these quality initiatives did have a negative impact on our call center conversion rates in the third quarter.

I will provide more color around our call center performance shortly.

<unk>, our preliminary observations during the first weeks of the AP.

Third quarter, Medicare revenue was 46.4 million down 34% on a year over year basis.

Medicare Commission revenue was 42 5 million or a decline of 17%.

Driven primarily by a 22% decline in our overall Medicare approved members.

Within our main Medicare advantage product approved members declined 18% to approximately 37000.

At the same time lifetime values of our Medicare advantage members increased 9% year over year to $975, primarily as a result of higher commission rates.

Medicare advertising revenue declined two 4 million from $19 million in Q3 of 2020.

This was partially driven by timing with 7 million of total advertising revenue shifting from Q3 to Q4.

In addition, we believe that the nature of our sponsorship arrangements with carriers is evolving and will increasingly be driven by the quality of broker enrollments.

Medicare segment loss was $52 9 million compared to a loss of $14 1 million in Q3 of 'twenty 'twenty.

We expected a larger Medicare segment loss this year in the third quarter, driven primarily by a large increase in customer care and enrollment cost as we had pivoted our telesales organization to a predominantly internal agent model and ramped up the hiring of our agents.

For approximately eight to 10 weeks earlier than in 2020.

However, third quarter segment loss was wider than expected due primarily to agent reorientation.

Toward our quality initiatives, which resulted in lower conversion rates in the corner.

As well as a year over year decline in high margin sponsorship revenue.

Well, we don't disclose actual conversion rates for competitive reasons I'd like to comment on the trend in this metric year to date.

Our conversion rates improved during the first quarter of 2021 open enrollment period growing 24% year over year.

This reflected ramping down our vendor agents and focusing more on our tenured internal agent force that has historically performed at higher conversion rate compared to vendor agents.

As we pivoted to a predominantly in house agent model, we expected for the growth trend in conversions to carry into the second half of the year. However.

However, during the third quarter are telephonic conversions declined over 30% compared to last year, reflecting the impact of enrollment quality initiatives that we implemented.

In addition.

A larger percentage of our agent base was represented by new internal agents hired ahead of this AEP compared to a year ago further depressing conversion.

As we entered a pea on October 15th conversion rates have increased compared to the third quarter, reflecting the typical seasonality of this metric.

At the same time rates continued to lag forecasted levels.

We see our quality initiatives as the primary driver of conversion shortfall that has impacted both our new <unk>.

And tenured agents.

Our third quarter online conversion rates were well above last year's levels and our online Medicare business continues to deliver strong enrollment growth both in Q3 and in the first month of Q4.

Our estimated number of commission generating Medicare members was approximately 875000 at the end of the third quarter for an increase of 19%.

With estimated Medicare advantage membership, increasing 33% compared to a year ago.

Okay.

Turning to our individual family and small business segment.

Third quarter revenue from this segment was $17 5 million.

A 27% decline compared to a year ago, driven primarily by lower I S. T and ancillary net adjustment revenue of $10 million compared to $17 1 million in Q3 of 2020.

I proved I S. P members grew 88% accompanied by another double digit year over year increase in Ltvs.

Now I'd like to review, our third quarter operating expenses.

Q3, non-GAAP customer care and enrollment costs was $48 2 million.

Up 13% and reflective of our investment in the internal agent force as we on boarded agents earlier in the year.

Third quarter non-GAAP marketing spend was 41 million up 30% year over year, reflecting lower enrollment volumes that were offset by higher marketing costs per approved member.

Third quarter, non-GAAP, G&A expense declined, 4% and non-GAAP Tech and content expense grew 11% compared to Q3 of 2020.

A significant deceleration in our fixed cost growth compared to the first half of the year.

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

Third quarter operating cash flow was negative 71 million compared to $1 4 million in the year ago quarter, reflecting wider net loss as well as working capital dynamics this quarter.

<unk>, an increase of approximately $16 7 million and use of cash mostly related to prepaid expenses to fund certain AEP marketing campaigns earlier than last year.

$19 8 million additional use of cash related to the timing of accounts payable.

And a $17 2 million decline and source of cash from deferred revenue as carriers moved away from pre funding fourth quarter advertising.

Turning to our balance sheet.

As of September 30, we had $227 7 million in cash cash equivalents and marketable securities.

Our balance sheet also reflects a significant commissions receivable totaling 757.4 million that is comprised of $194 2 million that we expect to collect over the next 12 months and $563 2 million and long term Commission.

<unk> receivable.

Within our earning slides I want to highlight a few pages on slide 10, you will see that cash collections on our MAA cohorts enrolled in 2019 and earlier has now exceeded upfront acquisition cost and our cash positive.

This is consistent with our expectations for payback of acquisition cost and approximately two years for the MA product.

These cohorts will continue to generate recurring commission stream as we collect renewal payments with some members remaining on our platform for over 10 years based on historical observations.

On slide 11, we updated our analysis of trailing 12 month cash collections and our Medicare segment.

Our Medicare cash collections grew 37% year over year outpacing our estimated membership growth.

In Q3 T T M cash collections per Medicare member, a $465 grew 11% year over year.

Reflecting the favorable Medicare advantage plan commission rate trend and growing contribution from new to them as members.

Cash flow will be a key focus for this management team.

As Fran and I are taking a close look at our operations and work on the short term and longer term business plan and forecast, we will be emphasizing strategic and operational decisions that can accelerate our path to becoming cash flow positive.

Turning to guidance.

Given that our call center conversion rates are currently below our forecast we feel that it is prudent to revise our 2021 annual guidance ranges. Despite the fact that the most important weeks of the AEP are still ahead of us.

I will now provide the highlights of our revised guidance.

Please consult our earnings press release for the complete 2021 guidance information.

Yeah.

Total revenue is now expected to be in the range of 535 million to $575 million compared to the prior range of 660 million to $700 million.

Revenue from the Medicare segment is expected to be in the range of 471 million to 509 million compared to the prior range of 601 million to $639 million.

Revenue from the individual family and small business segment is expected to be in the range of 64 million to 66 million compared to the prior range of 59 million to 61 million.

We now expect GAAP net loss to be in the range of 63 million to $43 million compared to the prior range of GAAP net income of 42 million to $57 million.

Adjusted EBITDA is now expected to be in the range of negative 20 million to zero compared to the prior range of 110 million to $125 million.

Looking forward, we are taking proactive steps to enhance the consumer experience and enrollment quality on our platform and there are many opportunities for Ehealth ahead.

We remain committed to our mission of serving as a consumer advocate and the health insurance market and continue to believe that our tech enabled customer centric approach positions us well for growth.

And shareholder value creation.

Fran and I are energized to be here to lead the company into its next chapter.

With that I'd like to now open up the call for questions.

<unk>. Please open the line.

Ladies and gentlemen, if you have a question or a comment at this time. Please press. The Star then the one key on your Touchtone telephone. If your question has been answered or you wish to move yourself from the queue. Please press the pound key.

First question comes from George Sutton with Craig Hallum.

First welcomed a friend and Christine challenging day to start, but I wanted to walk through the logic of the fact that the top of the funnel actually increased pretty significantly. So clearly your marketing is working bringing people in it was all the challenges below that.

And I wondered if you could just bifurcate that.

The call Center technology issue the impact of the enrollment verification step just trying to better understand what was missing in that equation.

George Good morning, It's Fran. Thank you for your welcome and thank you for your question I'm going to go ahead and.

Begin to answer that Tim is here with me and.

Tim will supplement my my response.

You've asked the.

An important question and it's a it's.

Kind of I think a straight answer in a complicated answer that goes with it.

The the volume you're right that the volume at the top of the funnel.

Strong.

And it's something that we.

Troll and then again, we don't control in other words regeneration.

In terms of the activities that we can create through <unk>.

Direct mail.

PV streaming.

Streaming and so forth creates a demand [noise] pardon me.

And it makes the phones ring.

We also have to have capacity to answer those phones and that's through our.

Sales agents the.

The combination of that then.

<unk> provides the opportunity to then.

Convert those.

Those sales opportunities into sales.

The technology.

The cloud technology that we implemented earlier in the year is working largely fine we haven't really had any difficulties.

Glitches with the technology, So let me state that upfront.

<unk>.

The.

Quality enrollment activities.

We began implementing a early second quarter to the third quarter have been where the challenge exists in terms of.

Firming.

That's the beneficiaries in our plan.

<unk> that they desire it has extended the talk times.

What's strange capacity.

And therefore, you don't necessarily.

Oh in every single hour of the day have.

The ability to answer all the calls that come in.

So therein lies part of the challenge.

Plus as we mentioned, we hired a whole new workforce.

So the learning curve.

This is another challenge, which I think continues to improve every day, so I'm very confident that.

That is not as much of the challenge today as it was let's say.

Six weeks ago or eight weeks ago.

So.

I believe that we have demonstrated our ability to create the demand.

Through our marketing efforts.

In our carrier relationships.

We have the ability to recruit agents.

And to retain those agents and train them.

But that's a lot of change that's occurred in a short period of time.

And I think that has put pressure on the.

The results.

Yeah.

This led to the shortfall I think it's important to point out that.

We're running.

Head of the same period last year.

So there hasn't been a failure relative to.

Where we were this time last year for the AEP, we're running.

Nearly 50% higher than our Medicare enrollments.

First the same period last year.

We're just running well below our forecast.

So our forecast was was bold.

And that's what's led to us having to revise the guidance. So I've just shared a lot with you let me.

<unk> tend to fill in any gaps sure yeah.

I mean, I'd just echo everything that you said for and I think it's a fair assessment on the demand generation side, one of the advantages of the new of the new platform as it allows us to regulate where demand comes from and more real time and so there are challenges that are seeing their demand channels that are seeing challenges, but we're able to manage that much more dine.

I am actually than we could in the past and are doing so.

Through Q3 and into AEP.

The biggest driver really was the quality initiatives and it was driven.

Driven by additional training for agents looking them off the phones and reinforcing key messages.

Greater adherence to our script.

And enforcing that as they're selling and then the verification process that we've talked about I think on the last call where at the end of a call. It an additional agent would review and ensure the beneficiary understood everything.

But they were getting in their plant and it was those changes.

More than anything else that drove the change in performance.

If I could just ask one more thing that Fran coming with your history from Aetna understanding the push pull of third party relationships versus in house distribution.

I wondered if you could just give us a little picture into what you see uniquely as the opportunity here and I'm sort of designing this for folks who were taking a longer term view on this opportunity.

<unk>.

Thanks for that question George.

Yeah.

I've really enjoyed my time on the carrier side and and it's been interesting already just in the first week I have reached out to a few of them.

My carrier relationships in fact, I had a call.

This Friday with with one of our carrier partners and and.

And those carrier relationships are critically important and I would say.

The state of the state of those relationships.

Good.

And I intend to make them great.

And what I mean by that is to make sure that we are performing.

Performing consistent with our expectations and needs.

Consistently and well always in lockstep.

It's a really critically important partnership.

They they need.

And organization organizations like <unk>.

Health to meet their needs.

Pretty much all of the majors are building omni channel distribution capabilities.

But they they need that flex they need the ability to flex.

Yeah.

They can't.

They they don't want to have the sort.

The fixed costs.

Of having a distribution capability like ehealth for our competitors.

So.

But they also want to make sure that it's done in a manner that is consistent with CMS requirements in terms of the compliance.

And therein lies into some of the challenges over the past year.

So.

Our job is to.

Get off the radar.

That area in terms of the CPM.

And I'm quite confident we will do that.

Thank you. Our next question comes from <unk> Singh with Credit Suisse.

Thank you and good morning, everyone. So following up on these quality initiatives impacting the conversion rate.

Extra training required and broker spending more time at the 10 years.

Turning to understand how much of this headwind is just temporary versus permanent or there's some changes in the guidelines from CMS from insurers at this level of conversion rates are here to stay just help us understand that.

Happy to do that and good morning.

And again, it's Fran and I'll ask Tim to supplement.

I believe large large part.

This is temporary.

I believe that the conversion rates will continue to improve.

And.

I think we will close the gap and in fact.

I think.

Organizations that are committed to continuous quality improvement have to then exceed wherever the benchmark was at the time. So my expectation is is that we're always going to get better.

And that our conversion rates are going to continue with continuously improve the.

The timeline on that I'm not going to commit to.

But I will tell you that.

That's all done through your training efforts.

Making sure that you're hiring the right people in the first place because I think there is.

There are.

Very different kind of relationship dealing with the senior population and I think that some people are better at that than others.

In terms of being better listeners.

Having that empathetic.

Mindset.

And you know sometimes.

Sometimes we get it right, sometimes we don't so the other element of this is that.

Our senior society is becoming more and more diverse from a cultural perspective, and we have to make sure that.

Because we are building our distribution for the future that our sales agents reflect.

The composition of our society.

For Medicare eligible as well cultural requirements.

Language requirements and do it exceptionally well so I think that that will improve the conversion rate as well. So let me ask Tim to sure Yeah, you know.

As Fran said these were pretty substantial changes that we implemented for our organization and we saw the conversion rates declined dramatically over.

Over the course of their implementation, but what we've seen subsequent to that is there improvement and so we have been steadily making progress that as people are becoming more comfortable with the new process more comfortable with how we want them to sell new agents getting more familiar and more experience and so that upward trajectory gives us confidence that these.

These are temporary that we can improve I would also say we've been working in very close concert with our carrier partners and their call center operations and they've gone through similar transformation. Some of them have gone through similar transformations before and seen exactly that behavior, where you end up actually converting better in the long run with a healthier.

Book of business and better customer relationships, but that changing how you sell.

Is is difficult and so we're continuing to watch for ways that we can drive that improvement additional training additional changes to our technology.

And that will inform 2022 and beyond.

Yeah. Thanks.

That makes sense a quick a follow up around the comments you made about our expanding E House business beyond just Medicare Commission business I was wondering if you could flush out some of the areas you see most opportunities. Some of your peers have talked about population health medication management various soft dollar arrangements ehealth has been historically.

Pakistan dose items, just wondering if we should expect any near term changes too.

Well I'm going to keep you in suspense a little longer.

What I believe is necessary is.

To look for opportunities where.

Ehealth can become.

A trusted source of information that is relevant for not just the senior population but.

Consumers in general for Health care.

Yeah.

Where there is an opportunity for them to visit our website frequently and their lives that loyalty.

Brand opportunity.

We have a I think.

A great website and great online capabilities that.

I view as.

An engine that has tremendous horsepower, that's not being utilized today.

As effectively as it could and should and.

Some of my initial observations are how do we put more of those horses to work.

So more to come on that.

Thank you. Our next question comes from Elizabeth Anderson with Evercore.

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

I was wondering if you could talk a little bit more about the variable Medicare marketing costs in the quarter I didn't see him there.

And you know if they're variable one of the things that they did that change in enrollment in the quarter I wasn't necessarily the biggest driving factor. There I know you mentioned the cares and moving away from the pre funding some of that flow through our advertising. So I was just wondering if you could walk us through some of the components there.

Oh, good morning, Elizabeth, It's Fran I'm going to let Tim take that.

We what I will say before I turn it over to Tim is that one of my first observations. When I arrived here was I was very impressed with the way our strategy was put together in terms of the ability to make course corrections if you will.

Literally by the day in terms of how we deploy our lead Gen dollars and.

So that if something is not working as we had intended.

We could shut it down and move money elsewhere or.

Not makes the spend altogether, so I'll, let I'll, let him expand on that sure. Thanks, Brent Yeah. When it comes to Q3 marketing expense, it's important to remember that we do a lot of experimentation in Q3. So there are different things that we test out in advance of the AEP to evaluate how effective they'll be to inform.

From what our AEP marketing spend will be by channel and so theres, a little bit of that that drives up our call.

Costs in the quarter, but on a unit basis. The biggest driver of the cost is the conversion rate that we're seeing in the in the sales center. So for every dollar spent how many.

Enrollments do we drive on the marketing side is in part driven by how effective the agents are they take the calls.

So on a unit basis, it was driven more significantly by.

The conversion rates, we were seeing in the call center, a little bit of it as a shift more towards online where we have higher.

Marketing costs and that will probably continue to be something that will we will see going forward.

And then a little bit of it was also that experimentation that we do in the quarter.

That's super helpful and I was wondering can you share any commentary about the relative outlook. He is in the quarter.

Just more generally about the different channels, whether you know assisted on on online unassisted, telephonic and and and eastern thought there for for the remainder of the year.

Fran I'll, let Christine makes some comments.

On the relative Ltvs.

If we can get to your question Christine for thank you for and thank you all as the best for the question as we think about our Medicare L. T V. Certainly in the third quarter, we've seen an increase primarily driven by the higher commission rates and an increase in the contribution that we've seen to total enrollments from our new.

Medicare advantage.

So with from a historical perspective, we've seen that increase we expect that to continue.

That continued trend as well.

Does that answer your question Elizabeth.

Her line is actually all left the queue.

Yeah.

Our next question comes from Steven around Accretable Barclays.

Hi, Thanks, good morning, everybody.

Just a couple of questions here first regarding the new telesales reps.

Are you just kind of touched on this a little bit but I'm curious if there's any metrics you can share on what ehealth expectations were for placements per telephonic rep. During the AEP, where that metric is trending up now either you know its not raw numbers, maybe just the 1% down we could probably do the math just given the data has been provided but maybe you could just provide some color and save us some time, if you got any.

Additional numeric color around that and then I have a follow up.

After the answer that question.

Good morning, Steven.

Fran and Tim is going to give you a quick answer on that one sure yes. So.

We don't provide the expected enrollments per rep by by cohort or in general, but what we do watch internally is there loveland productivity.

Given both by how many calls are able to take how efficient they are with their time and then their conversion rate.

And what we're watching is how the newer classes performed relative to our more tenured agents and I can tell you that the progression of our new agents in relationship to our tenured agents is on track the issue that the larger issue that we're seeing around these quality initiatives have sort of lowered the water level across the board.

But in terms of how our new agents are progressing as we would expect.

Okay.

One quick follow up here just on the line of questioning regarding how much of this pressure might be temporary versus other longer term just to kind of throw. This question out there is there any dynamic where either the training or the current performance of the new reps.

Potentially less dynamic because it's happening in a work from home environment or is this the majority of the Repsol and one call center together, where there's some synergy where they're kind of learning from each other et cetera, because we've seen some of your competitors you know leverage that sort of dynamic I'm curious if you have any color just on how you're set up around all that.

Stephen its Fran.

All of our sales agents are working.

From home. So we have not returned to a work environment.

Across the country as of yet.

But what I can tell you is that the ability to measure metrics.

For each of our sales agents and for that matter most of our workforce.

Terms of productivity.

Yeah.

There is high high levels of confidence.

So that's that's not a concern both quantitatively as well as qualitatively because calls are recorded.

So we have the ability to.

Identify whether call win.

As it should have gone from a qualitative perspective in.

Either.

Give that person a you know a pat on the back for handling the call pro.

<unk> and doing it with great.

Great.

Or if they didn't handle the call well.

To intervene with with some immediate.

Training reinforcement.

So the fact that.

We're not back into on site.

A call center environment.

Yeah.

Hasn't been a detriment.

Okay. Okay. That's helpful color. Thank you.

Yes.

Our next question comes from Frank Morgan with RBC capital markets.

Good morning, I wanted to go back you had made some comments about some expectations around.

Changes I think you said a tighter alignment with your carrier partners.

Just curious if you could provide some more color there and and I'm just curious sort of their attitude, obviously CMS. Some of these recent marketing directives.

I suppose we're reflecting some concerns on the part of CMS, but what is that relationship with carriers and are they seeing the same frustration, but does it seems like maybe CMS is also.

Starting to express thanks.

Good morning, Frank and thank you for your question.

I think that the relationship really.

Is the line too.

How they're how they're performing relative to the Tms.

And recognizing that.

These are omnichannel.

Distribution.

Organization, So see Tms are coming from multiple channels and not just one channel.

So.

You never know what ultimately triggers CMS is.

Concerns with it it's not necessarily driven exclusively from one channel.

I think it's fair to say that.

With the pandemic there has been a shift from.

Selling across the kitchen table to more telesales.

So.

This should come as no surprise that there's more focus on the telesales activities.

From a monitoring perspective.

And.

I should also say that.

B C T M.

Process has been around for about 15 years and it hasnt changed since it was rolled out in terms of.

Operator.

It is by no means perfect. There's no judge in jewelry kinds of process. It's it's simply provides beneficiaries and opportunity to.

Logic complaint.

And there isn't a determination whether that complaint.

Has merit.

<unk>.

And sometimes.

And in the range of seriousness can be different too.

Obviously, it's different if someone is.

Meaning that they were misled.

Versus they didn't like the tone of the agent.

Which can be very subjective.

The more serious there. The allegation then then there could be an investigation.

They can be they should be taken with great seriousness.

So it's not a perfect system.

And every every CCM counts the same irrespective of what the nature of it is and as I said, there isn't a kind of a due process. If you will.

<unk>.

And I am sharing that with you because it does play a big role in the relationship.

As the volume.

The ability to.

<unk>.

The amount of sales activity.

Consistent with expectations so.

The relationships are always the best when sales volume exceeds expectations in Cts are below expectation.

Marriage.

So I would say that and.

And I'm still making my way around to all of our carrier partners.

For that very purpose to.

Level set.

So I'm not you know.

I'm in no way in a position to kind of give you a state of the state of our carrier relationships.

With firsthand knowledge, meaning you know what I'm hearing it directly from them.

But I'm I'm I'm, Glenn I have started the process is very important process.

Those relationships.

Our.

They are dynamic.

Because of the need to change throughout the course of the year and over the years.

And I wanted to make sure that.

Ehealth has always in lockstep with what.

Our carrier partners need.

Okay. Thank you.

Yeah.

Our next question comes from Daniel <unk> with Citi.

Hi, guys. Thanks for taking the question I guess I'll stick on the theme of increased CMS scrutiny.

Medicare advertising declined $15 million. This year as you mentioned about a little less than half of that is shifting from Q3 to Q4, but I'm curious how much of the decline in advertising is due to increased CMS scrutiny on Medicare advertising and do you anticipate another decline in total for this AEP.

And then in a similar vein it sounds like the top of the funnel was pretty strong for you guys, but did you see any detriment in lead generation due to this increased scrutiny from CMS.

Yeah.

Good morning, Daniel It's Fran I'll go ahead to start and it has turned to supplement.

Let me say upfront that CMS has been incredibly briefing.

Reasonable about.

The <unk>.

The advertising situation there has been a change but the way that they're managing this over the last several weeks.

Has been very reasonable.

So it has not played a role.

In my judgment in the AEP results.

It's been a little disruptive in that.

We the industry had to.

I'll provide some additional filings with our carrier partners and I know, it's the pressure on our carrier partners, but I don't believe it impacted the AEP that's been more of a.

Let's call it a.

Complied meetings of the compliance requirements, but it hasn't affected the actual.

Top of the funnel.

Hum.

That could change in the future.

But for this current AEP it hasn't had any impact.

<unk>.

And the conversation for another day in terms of the current process of whether it had it it's it's it's really gone too.

Yeah.

Yes.

A viable.

Process in the long term so I just want to establish has not affected.

I think has.

In the case of Ehealth.

We turned the dials based on our capacity.

So if we don't have the capacity, meaning all of the agents available based on talk times.

And presenteeism.

Then we have to turn back.

The number of pieces of mail, we're going to drop.

So that's that's just as important we don't want to drop more mail. For example, then we have the capacity to answer the calls.

So let me stop there and ask Tim to yeah.

Yeah, No I think that's exactly right. It has not created any.

Change in behavior, I think on our part or on the part of anyone in the industry. So far there wasn't administrative sort of headache for our compliance teams to provide all of that information to CMS.

As rapidly as rapidly as they needed to but in terms of what's actually out there nothing has changed and.

The changes on our side are driven by individual channel performance.

Money to where it performs best in outerwear performs worse and then ceasing to acquire calls.

When our agents are occupied and so those are the bigger drivers for us.

Got it and then just in terms of Medicare advertising revenue. This AEP should we expect a decline versus last year.

Yeah.

You mean, the sponsorship revenue.

Yeah, Yeah, the advertising revenue.

I'll take that one Christy yes. So thank you for the question, Yes, we would expect a year over year decline in our advertising revenue for the year.

Sure.

From prior year in what's driving what's driving the decline in advertising revenue.

So you know as we've talked about with all the quality initiatives and and.

That's becoming really increasingly more important to the carriers and certainly to us.

And the carriers are rethinking their sponsorship programs and as such are readjusting. The advertising revenue. So we've certainly seen the decline in third quarter.

Anticipated decline in fourth quarter as well until all of those arrangements are finalized with the carriers next year.

Understood. Thanks for the color.

Sure.

Our next question comes from Tobey Sommer with <unk> Securities.

Thanks wanted to ask a longer term question of you.

Volume of Medicare advantage has been growing high single digit 10%.

Commission is four five.

Even even more some years do you think that that is.

A reasonable rate of long term growth that could be sustained.

And.

Is there anything about your quality initiatives that you think would inhibit the company's ability to grow at that rate or higher.

Yeah.

Yeah.

Good morning, Tobey its Fran let me, let me start and I'll ask our team to supplement my comments.

I think in a perfect world, we continue to grow at.

Very accelerated rate however.

I believe that what.

Is really required here is a more balanced approach.

In our portfolio I think that.

Ehealth has grown at an accelerated rate.

And in large part at the expense of other lines of business.

And.

I think that what.

My again my initial observations are we need to be more balanced.

We have.

We've got ancillary lines.

Probably some additional.

New product lines in the future that.

Don't ask me what they are [laughter] I don't know what they are but im simply saying I want to make room for other products that fit in with.

The portfolio that perhaps would be.

Well suited for online sales, which are our best economics.

And our highest ltvs.

And strongest cash flows.

So.

It's really not about.

Growing for the sake of growing it's growing deliberately.

And getting the best financial outcomes.

Two.

Provide the greatest value to our shareholders.

That's really what I'm focused on.

Okay.

That's kind of what I'm getting at is with the the quality initiatives and the.

The sort of overhaul that is ongoing and the approach to the market.

Oh.

Does that require growing at a.

Slower pace than the market.

For a period of time and if so maybe how long.

Well I'm not sure.

It's going to be lower or about the same.

It depends on what we can achieve from our other lines of business.

Again, we're early in our process.

One week.

I've got the team doing some simulations right now.

I wish I had a little more time before our first earnings call.

<unk> be a little more specific.

Answering your question, but what I can tell you is that the team is actually doing some simulations.

Right now as we were working on our 2022.

Plans.

Because I do I do want to have a very deliberate strategy to take to our board.

And with.

It was very specific recommendations on it some.

Of course corrections that I think.

With me in our companies and our shareholders' best interest.

Thank you. Our next question comes from Greg Peters with Raymond James.

Hi, Good morning, this is Alex Bolton, calling in for Greg Peters.

Maybe switching I'm looking at page 12 on your presentation.

Seeing member turnover.

Maybe you can talk through maybe that number in Q3 versus your expectations.

I know it's it's.

A little higher than maybe we expected obviously the approved members.

Is lower but maybe you can talk through what your expectations were turned out for turnover are and what they are going forward.

Good morning, Alex friend here I'm going to ask Jonathan to.

Jonathan Michael what are on the call as well and Jonathan.

Take this question.

Yeah happy to take that one so in terms of the turnover I think Q3 came in pretty much.

Similar to our expectation.

And as you know most of that member turnover I really expect in the Q1 period, which as you know pulse AEP and into OUP period.

So there's really not a lot happening and do it.

Whereas for us.

Is that similar pattern.

Yeah.

Slight decline in Q3, and then there's a slight decline in Q4 as well.

Yeah.

Okay. Thank you.

Our next question comes from George Hill with Deutsche Bank.

Yeah. Good morning, guys. Thanks for taking the question and training Christie and welcome to the call I guess this first one for for any Christine on conversion, we've talked a lot about your internal initiatives, but I guess can we talk about some of the externalities, particularly I guess like what I would call. It premium without in Cms's response, and a lot of the chatter around you know what benefits could be added.

Two were taken away from the Medicare advantage benefit design I guess, Tim I would ask do you feel like you've seen the externalities impacted conversion and then my follow up question would be we've talked a little bit about churn and the last question, but we haven't had an update on the retention initiatives I know theres been a lot of moving pieces over the last three to four months, but kind of any update on the on the retention initiatives will be.

Thank you.

Well good morning, and thanks for the questions two excellent questions.

As far as the.

The.

The benefit.

I would have to say that having been on the other side with on the carrier side the richness of the benefits on the M. A R.

Probably have reached the peak they are incredibly rich, which I believe is impacting some of the switch rate.

We'll see how that plays out through the balance of the AEP, but.

Plans.

<unk> received a larger inc rate increase from CMS.

As the Trump administration was was winding down and four $0 premium plan for example that.

Really creates stability.

Normally with the rate adjustment is on the low end.

<unk> have to.

Make adjustments to the plan designs to the benefit designs in order to protect that zero dollars premium.

Which is.

So important to them.

That creates disruption.

Volatile volatility because seniors.

They don't like change.

And I can say that because I became a senior.

In the last 30 days.

So I can say that with the authority.

So I have never seen the MA plans so rich.

Which creates even a wider gap between MA PD and original Medicare.

It's incredibly it's incredible value proposition.

So I think it makes it even a more compelling opportunity for those than original Medicare to convert PD or even those with.

Original Medicare admits up to convert.

I think that's where the focus is maybe a little less on switching.

Let me before I take your second question, let me ask tend to.

Yes, it sounded like part of your question was also around the CMS and how thats changing behavior I think there is.

As I said before it's accretive and administrative headache in terms of uploading all the materials, but it hasnt really change any behavior, thus far.

We're going.

Totally against these quality initiatives, we believe that it's really important to be the highest quality broker in this space and we think that CMS will continue to be involved in.

That will be important.

Important to distinguish or in that there are people, who can meet their going forward sorry go ahead.

Yes, Tim I was just thinking about like the chatter about including dental and vision and hearing into the regular way Medicare benefits is that like slow conversions and do you guys see that as like does that does that slow the process of people who want to sign up for email thinking will there be a change to the regular way benefit that's kind of how I was training. The question. That's how I was thinking about it.

Yes, it's Fran again.

I think thats it.

That was.

Part of the President's.

Larger.

A piece of it.

Pieces of legislation that was still hasnt been.

Yes, so Chris.

Sure sure.

I'm sorry.

I think when they when when the chatter became youre going to have to pay for it.

People.

Loss of interest in it.

When that became part of the talk and then when the President came out I think it was when he was in Baltimore.

At a.

Town Hall meeting he then made a statement.

Uh huh.

I'm paraphrasing, but something along the lines of the <unk>.

<unk> wasn't in the cards for original Medicare So.

And that was.

At the beginning or like maybe a one week into AEP.

So it really hasnt affected.

Okay and then.

Your second question.

Again, I'm going to let Tim.

Address this but I can tell you that one of the big changes that was made was there.

A special team of people that are focused exclusively on retention with any health. So I stole some attempt to thunder I'm going to shut up and let him talk about specifics on that.

On those initiatives yeah, Yeah, I think as you know.

The effects of these changes that we've been making for more than a year and a half or.

Florida, Florida reveal themselves in a lot of cases, so we remain just as focused and committed to it as Fran said, we organized a.

Membership team within the organization.

What pieces from different functions together.

Just redouble our efforts on retention, but the most probably the most exciting retention effort.

Q3 was the quality initiatives.

Having our agents.

Really deliver every part of the script, having the every enrollment go through a verification process. While all of these things were onerous too.

Conversion and certainly drove the conversion rate down.

Both of the early data that we're seeing and the anecdotal feedback we're getting from carriers suggests that the enrollments were delivering our but of a higher quality. So the post sale efforts that we had been engaged and continue the technology improvements internally to improve tracking or I'd say accelerating with the accretion of that new team.

But the most most impactful change.

Change, where the changes on the front end and how we sell during the quarter.

Okay. That's helpful. Thanks, Tim.

And I'm not showing any further questions at this time I'd like to turn the call back to management for any closing remarks.

I want to thank everyone for joining us this morning and.

Christine and the management team, we look forward to.

Working together over the next.

Next year, Thank you very much.

Hello, Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

Goodbye.

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