eHealth, Inc. (EHTH)

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eHealth, Inc. (EHTH)

Q1 2009 Earnings Call

April 28, 2009 5:00 pm ET


Kate Sidorovich - Director of IR

Gary Lauer - President and CEO

Stuart Huizinga - SVP and CFO


Youssef Squali - Jefferies and Company

William Morrison - ThinkEquity

Justin Post - Merrill Lynch

George Sutton - Craig-Hallum

Sameet Sinha - JMP Securities

Jim Friedland - Cowen and Company

George Askew - Stifel Nicolaus

Peter Costa - FTN Midwest



Good day, ladies and gentlemen, and welcome to the Q1 2009 eHealth Incorporated Earnings Conference Call. (Operator Instructions).

I would now like to turn the call over to Kate Sidorovich, the company's Director of Investor Relations. Please proceed.

Kate Sidorovich

Good afternoon and thank you all for joining us today either by phone or by webcast for a discussion about eHealth, Inc. first quarter 2009 financial result. 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 the impact of our transaction with Health Benefits Direct on our financial results, including its contribution to revenue and its accretivness, our offering of [Dubong] health insurance products in China, the timing and substance of healthcare reform legislation and its impact on our market opportunity, future spending, our 2009 marketing and advertising expense as a percentage of revenue, fluctuation in our marketing and advertising expenses, our expectation that we'll pay cash taxes at a lower rate than our GAAP income tax rate in our guidance for revenue, stock-based compensation expense, adjusted income tax rate and GAAP diluted earnings per share for the year ending December 31, 2009.

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.

At this point, I will turn the call over to Gary Lauer, Gary?

Gary Lauer

Thank you and good afternoon, everyone. I'd like to begin by commenting on some of our financial highlights for the first quarter.

Revenue of $31.9 million grew 21% over the first quarter a year ago. Individual and family plan application growth was 23%. Earnings per share were $0.12 and non-GAAP operating margin, excluding the effect of stock-based compensation, was 20%. We generated $4.7 million in operating cash flow during the quarter which kept our overall cash and marketable securities balance over $150 million as of March 31.

I would like to also note that we repurchased $4.6 million in common stock during the quarter pursuant to our stock repurchase program. We are pleased with the first quarter individual and family plan submitted application growth. The economic environment during the first quarter continue to be challenging, yet we saw more individuals, families and businesses coming to eHealth to find affordable quality health insurances as illustrated by our record application volume.

Of particular note was our direct channel performance that generated 41% of total IFP submitted applications, which was 33% year-over-year application growth in this channel. The performance marketing partner channel contributed 34% of our individual and family plan submitted applications and the online advertising channel contributed 25%.

First quarter application growth was achieved while carefully managing our acquisition cost. In fact, our acquisition cost per member declined sequentially as compared to the fourth quarter of 2008. In the first quarter, we also saw a sequential improvement in our estimated member retention rate. Stuart will discuss these metrics in more detail shortly.

We believe that our first quarter application volume was influenced by the growing visibility of eHealth driven by many factors, more people searching for their own health insurance, media focus on the plight of newly uninsured, the presidents and congresses attention to healthcare reform and our own aggressive marketing and public relations efforts.

We found in the first quarter that the eHealth value proposition of giving people online access to quality, affordable health insurance continues to grow more relevant. We also continue to see a significant number of unemployed people come to eHealth based on customer care center surveys that we conduct.

Driving high visibility for eHealth was our continued media outreach and public relations objective during the first quarter. Through a combination of newspaper articles, press releases and numerous television and radio appearances, we educated consumers on various health insurance topics, including the highly relevant subject of COBRA and COBRA alternatives.

The new federal COBRA subsidy provided us even more opportunities to proactively educate consumers regarding their alternatives. Our emphasis on consumer education was effective and contributed over 33% growth as I noted earlier in the direct channel as people came to eHealth to get answers and research affordable health insurance options.

During the quarter eHealth was featured on the Today Show, Good Morning America, the CBS Early Show and several times on CNN. We are also featured in many well known print media publications like USA Today, The New York Times, The Wall Street Journal, Kiplinger's Personal Finance, Redbook Magazine, The Chicago Sun-Times, The Los Angeles Times and others. The broad national exposure for media placements and press releases not only drove direct traffic to our ecommerce platform, but also helped our national search ranking.

A press release containing frequently asked questions on the COBRA subsidy contributed to our having the top search result on Google for highly relevant COBRA-related keywords for several days, which generated significant traffic to our COBRA learning center. In addition to driving near term application growth, we are accomplishing an even more important goal, building long-term brand recognition, which has been and remains one of our top strategic priorities.

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