eHealth, Inc. (EHTH)

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eHealth, Inc. (EHTH)

Q4 2008 Earnings Call Transcript

February 12, 2009 at 5:00 pm ET


Gary Lauer - Chairman, President and Chief Executive Officer

Stuart Huizinga - Senior Vice President and Chief Financial Officer

Kate Sidorovich - Director, Investor Relations


Youssef Squali - Jefferies & Co.

George Sutton - Craig-Hallum Capital

Neil Gagnon - Gagnon Securities

Richard Fetyko - Merriman Curhan Ford & Co.

Jim Friedland - Cowen & Company

William Morrison - ThinkEquity, LLC

Justin Post - Merrill Lynch

Carl McDonald - Oppenheimer & Co.

Peter Costa - FTN Equity Capital Markets

Randy Katz - JMP Securities



Good day, ladies and gentlemen, and welcome to the fourth quarter and fiscal year 2008 eHealth earnings conference call. My name is Kamisha and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator instructions) I would now like to turn the call over to your host for today's call, Ms. Kate Sidorovich, Company's Director of Investor Relations. Please proceed, ma'am.

Kate Sidorovich

Good afternoon, and thank you all for joining us today either by phone or by webcast for a discussion about eHealth Inc.’s fourth quarter and fiscal year 2008 financial results. On the call this afternoon, we will have Gary Lauer, eHealth’s President and Chief Executive Officer, and Stuart Huizinga, eHealth’s Chief Financial Officer. After management completes its remarks, we will 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 from the Investor Relations section of our website following the call. We will make forward-looking statements on this call. All statements other than statements of historical facts are forward-looking statements.

Forward-looking statements made on this call will include statements regarding future growth, the introduction of particular products in traditional market, the addition of more carrier partners to Ubao, the significance of our business opportunity, future healthcare reform, healthcare reform increasing the market's redress, the stimulus bill creating additional interest in COBRA options, future revenue growth, future non-GAAP operating margins, generation of operating cash, our future investment of cash and marketable securities, product's retention, future interest income, expected GAAP and cash tax rates, use of net operating losses and realization of cash flow benefit from net operating losses, guidance for 2009 revenues and revenue growth, stock-based compensation and earnings per share, 2009 marketing and advertising expense as the percentage of revenue, future benefits of skill and operating expenses, 2009 target operating margins and the impact of expected 2009 interest income and stock-based compensation expense on 2009 GAAP earnings per share.

Forward-looking statements are based on assumptions and assessments made by the Company’s management, based on factors they believe to be appropriate. Forward-looking statements are subject to risks and uncertainties that could cause actual results, developments, and business decisions to differ materially from those contemplated by these 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 website.

Forward-looking statements made on this call represent the Company’s views as of today. You should not rely on these statements as representing our views in the future. We undertake no duty to update or revise any forward-looking statements made during this call, whether as a result of new information, future events, or otherwise.

We will be presenting certain financial measures on this call that will be considered non-GAAP under SEC Regulation G. For reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure, please refer to the information included in our press release and in our SEC filings, which can be found on our corporate website under the heading Investor Relations.

And at this point I will turn the call over to Gary Lauer. Gary?

Gary Lauer

Good afternoon and thank you for joining us today. I would like to begin by commenting on some of our financial results for the fourth quarter. Revenue of $29.5 million grew 22% over the fourth quarter a year ago. Individual and family plan application growth was 18%, marketing and advertising expense as a percentage of revenue improved to 39% compared to 40% in the third quarter of 2008. Earnings per share were $0.14 and non-GAAP operating margin, excluding the effects of stock-based compensation, was 22% up from 23% a year ago. We generated $7.4 million on operating cash flow during the quarter and over $30 million for the entire year bringing our overall cash and marketable securities balance to $150 million with no debt on our balance sheet as of the end of the year. As our financial results illustrate, we continue to execute on our operating plans and grow our business in the midst of an extraordinary macroeconomic environment.

As we all know, the economy continue to deteriorate in the fourth quarter of 2008 with unemployment reaching 7.2% in December, up from 6% in the third quarter, consumer confidence dropping to an all time low and December retail sales declining almost 11% year-over-year. Initial estimates indicate that fourth quarter ecommerce sales were down year-over-over for the first time since the US Department of Commerce started to track the sector in 2000 and we are unfortunately seeing many businesses and industries in various states have declined. Against this backdrop, we are very focused on operating efficiency and aggressive marketing to keep growing eHealth at high rates relative to many other companies, and most importantly to help people find quality health insurance options. We would like to grow even faster and think we can in the long run. Like everyone else, however, we are operating in a very challenging economy.

The fourth quarter results are reflective of our disciplined approach to spending in order to grow our membership base profitably. Even though margin optimization is not our highest priority, we maintain a close focus on operating efficiencies and watch carefully where and how we spend in this environment. In the past quarter, we deliberately brought our marketing and advertising expense down within our range for 2008 of 35% to 39% of revenues. We also exercised discipline in other operating expense areas resulting in year-over-year improvement in our non-GAAP operating margins for the fourth quarter and for the full year. Additionally, we saw improvement in our member retention rates as Stuart will describe more fully.

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