EHTH

eHealth, Inc. (EHTH)

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eHealth Inc. (EHTH)

Q2 2009 Earnings Call

July 28, 2009 5:00 pm ET

Executives

Gary Lauer - President & Chief Executive Officer

Stuart Huizinga - Senior Vice President & Chief Financial Officer

Kate Sidorovich - Director of Investor Relations

Analysts

Youssef Squali - Jefferies & Co.

Steven Halper - Thomas Weisel Partners

William Morrison - Thinkequity

Mack Finler - Bank of America/Merrill Lynch

Richard Fetyko - Merriman

Jim Friedland - Cowen & Co.

George Askew - Stifel Nicolaus

George Sutton - Craig-Hallum

Sameet Sinha - JMP Securities

Carl McDonald - Oppenheimer

Presentation

Operator

Welcome to the Q2 2009 eHealth Incorporated Earnings Call. (Operator Instructions) I would now like to turn the presentation over to your host for today’s conference, Ms. Kate Sidorovich, Director of Investor Relations of eHealth. 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. second quarter 2009 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 be making 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 implementation of and the relation of platform to Utah Health Insurance exchange. The consideration we expect to receive from members generated through the exchange, our pursuit of additional government opportunities, the passage of healthcare reform legistlation, its content and its impact on our business, marketing and advertising expense as a percentage of revenue in the third quarter of 2009, applications volume in the third quarter of 2009, our target for marketing and advertising expenses as a percent of revenue for 2009, our 2009 factored GAAP tax rate, our expectation regarding the repurchase of shares of our stock and our 2009 guidance for revenue, stock-based compensation expense, GAAP income tax rate and the GAAP net income per diluted share.

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 surety to update or revise any forward-looking statements made during this call whether the 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.

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

Gary Lauer

Thanks, Kate. Good afternoon and thank you all for joining us today. I’d like to begin by commenting on several of our financial highlights for the second quarter.

Revenue of $33.4 million grew 22% over the second quarter a year ago. Earnings per share was $0.16 and non-GAAP operating margin, excluding the effect of stock-based compensation, was 24%. During the quarter, we generated $8.3 million in operating cash flow, bringing our overall cash and marketable securities balance to $160 million as of June 30th. These financial results and others illustrate the continued leverage and strength of our business model.

Second quarter individual and family plans submitted application growth was 17%. By channel, direct continued to be the largest source of submitted applications at 43%, up from 41% in the first quarter of 2009, and 40% in the second quarter a year ago. I will provide more details on each of our marketing channels further on in my prepared remarks today.

During the second quarter, significant progress was made in many important areas of our growing business. For example, we won and signed an agreement with the state of Utah to utilize our internet platform and technology in connection with the Utah Health Insurance Exchange, allowing us to launch our public eCommerce on-Demand or eOD business.

We also added several new carriers and products to our offerings including an important addition to the State of Massachusetts. Additionally, we broadened the utilization of e approval, added important enhancements to our technology platform and continued to expand the presence of our commercial eOD platform and business.

As a reminder, eOD is our technology licensing business that allows carriers and others to market and sell health insurance directly under their name on our internet platform, which we host and to power their broker and agent channels by utilizing our online platform as well. I will talk about most of these areas in more detail later during the call.

I want to conclude today’s call with an update in public policy. As you may know over the past few months, I personally and others have been very heavily focused on healthcare reform and engaged in discussions with key members of the Senate and House Committees, their staffs also who more involved in shaping potential healthcare legislation.

Let me now go over our marketing initiatives by channel. Our direct channel generated 25% annual IFP application growth during the quarter. Strong performance in this channel reflected a continued increase in our visibility driven by media focus on healthcare, growing recognition of the eHealth brand, a public relations outreach and our highly relevant position in the marketplace and our value proposition.

EHealth’s PR strategy remains focused on consumer education, as we continue to share our wealth of information on a variety of essential health insurance topics, in press releases, media appearances, website content and company sponsored webcasts. Through our targeted PR campaigns we reached out to the growing ranks of recently unemployed and to this year’s college grads, who are coming off their parents’ coverage and need to look for quality, affordable health plan.

During the second quarter, eHealth was featured in leading national newspapers like The Wall Street Journal, USA Today, The New York Times and the Washington Post as well as top tier broadcast outlets like CNN, CNN Headline News, CNBC’s On the Money and national public radio.

eHealth was also covered by reporters in large regional papers, a variety of blogs, consumer lifestyle magazines and a multitude of local TV stations. We also had favorable response to e-mail campaigns that targeted former eHealth members, website visitors, who have started, but not completed an application, leads provided by many of our partners and another high relevance groups.

The performance marketing channel generated 21% annual IFP application growth. During the quarter, we continued to add new partners in many major categories. Of note, our new performance based partnerships with CareCounsel, one of the nation’s leading healthcare advocacy firms, Mint.com, a leading online personal finance service and HR.com, the largest social network in online community of human resources executives.

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