eHealth, Inc. Q1 FY2021 Earnings Call

Good day. Thank you for being here, and welcome to the Q1 2021 eHealth, Inc. Earnings Conference Call. I would now like to turn the call over to your speaker today, Ms. Kate Sidorovich, Vice President of Investor Relations. The floor is yours.

Thank you. Good afternoon, and thank you all for joining us today, either by phone or by webcast for a discussion about eHealth, Inc's first quarter 2021 financial results. On the call this afternoon, we'll have Scott Flanders, eHealth's Chief Executive Officer; and Derek Yung, Chief Financial Officer. After management completes its remarks, we'll open the lines for questions. As a reminder, today's conference call is being recorded and webcast from the IR 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 include statements regarding future events, beliefs and expectations, including statements relating to our expectations regarding our Medicare business, including Medicare enrollment growth, consumer demand, quality of enrollments and market opportunities; our investments in operational and technology initiatives and expected positive impact on our business; our ability to grow our internal agent force, increase agent productivity and deepen customer engagement; our expectations regarding our online enrollments, member acquisition costs, retention and recapture rates; our expectations regarding our financial performance, the profitability of our business, seasonality churn, lifetime values, member estimates, and operating expenses. And finally, our outlook for the second quarter of 2021, the annual enrollment period and our full year 2021 financial guidance. Forward-looking statements on this call represent our views as of today. You should not rely on these statements as representing obvious 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 differ 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 website. Please be advised that the company, its directors and certain of its executive officers are participants in the solicitation of proxies from the company's shareholders in connection with the 2021 Annual Meeting of Shareholders. The company intends to file a definitive proxy statement with the SEC in connection with any such solicitation of proxies. Shareholders are strongly encouraged to read such proxy statement once available in all other documents filed with the SEC carefully and in their entirety as they contain important information. Information regarding the identity of the company's participants and their direct or indirect interest by security holdings or otherwise, can be found in the company's annual report on Form 10-K for the fiscal year ended December 31, 2020, and the company's definitive proxy statement for the 2020 annual meeting on file with the SEC. And updated information will be included in the company's definitive proxy statement for the 2021 annual meeting and other materials to be filed with the SEC. These materials can be obtained free of charge through the SEC website at sec.gov or from the IR section of our website. We will be presenting certain financial measures on this call that are considered non-GAAP under SEC Regulation G. 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. And at this point, I will turn the call over to Scott Flanders.

Thank you, Kate, and welcome all. We had a strong start to 2021, with first quarter Medicare enrollment growth significantly exceeding our expectations. First quarter results benefited from a number of operational and technology enhancements that we introduced over the past several months. Most importantly, these initiatives are expected to have a long-term positive impact on our business as we continue to scale in the Medicare and broader health insurance market. The way people shop for health insurance coverage is changing, and we are strongly positioned to deliver choice, transparency and a convenient enrollment process that consumers are increasingly demanding. Health insurance distribution is evolving towards a consumer-centric model, supported by robust e-commerce and call center capabilities. And that is exactly what eHealth brings to market. As we continue to drive profitable growth, one of our key operational priorities this year is enhancement of our call center operations to make our agents more productive, further increase enrollment quality and deepen customer engagement. During the first quarter, we accelerated the shift in our telesales away from third-party vendor agents toward a predominantly in-house agent model, and we are seeing results. This shift combined with a more robust reallocation process, led to a significant increase in our average agent productivity compared to the first quarter of 2020, stronger than initially expected first quarter Medicare enrollment growth and a reduction in acquisition cost per approved Medicare member. We believe that call center issues that affected our fourth quarter 2020 execution driven primarily by the underperformance of external vendor agents are now behind us. Our operational improvements contributed to strong financial performance in the first quarter, with revenue, adjusted EBITDA and earnings all exceeding our expectations. Total revenue for the first quarter was $134.2 million, a 26% year-over-year increase. Our first quarter GAAP net loss was $800,000, and our adjusted EBITDA was $17.3 million. Importantly, we grew our Medicare Advantage enrollments, 65% compared to a year ago, with total Medicare enrollments growing 45%. We generated this growth while reducing total acquisition costs per approved Medicare member by 12%, but the agent cost per member declining 24%, driven by strong agent productivity. First quarter cash flow from operations also exceeded our expectations at positive $42.8 million compared to $8.9 million a year ago, reflecting significant growth in our member base that is generating recurring cash commissions and an increase in cash collections per Medicare member that we continued to observe through March of this year. Our per member cash collections have benefited from a larger percentage of new to Medicare Advantage enrollments, including consumers who are turning 65 and seniors moving from the traditional fee-for-service program. Brokers typically receive significantly higher first year commission payments for enrolling these new to MA customers compared to commission rates paid for switchers. New to MA members represented approximately 47% of our total MA policies with an effective date of January 1, 2021. During the quarter, we continue to advance our e-commerce leadership. Online applications, including unassisted and partially agent-assisted submissions, represented 35% of our total first quarter applications for Medicare major medical products, up from 24% a year ago. The number of fully unassisted online applications for Medicare major medical products grew 106% year-over-year well above our overall Medicare enrollment growth. While fully unassisted applications still contribute a relatively small share of our total Medicare enrollments, we expect them to generate close to $100 million in commission revenue in 2021. These enrollments tend to have higher lifetime values due to better retention and lower per member acquisition costs, pointing to significant earnings and cash flow generation potential of our online business. Our customer center that we launched in October of last year now has over 130,000 accounts, which helps us create long-term relationships and data-driven engagement with customers who enrolled. These metrics demonstrate the significant traction our e-commerce platform has been gaining, which represents a strong competitive differentiation for eHealth and aligns our business with secular trends in the market. First quarter estimated trailing 12-month churn for Medicare Advantage plans declined to 42% from 43% a year ago, driven primarily by better retention of members that we enrolled during the fourth quarter of 2020. The biggest positive impact on member retention in this cohort was related to increased contribution from online enrollments compared to 2019 AEP. Based on preliminary estimates, churn trend for our older MA cohorts relative to last year was mixed. What is clear is that we were more successful in recapturing members who switch plans. As a reminder, we count all plans switching on our platform that requires a new application as churn. For the full year 2020, our recapture rate was 14% compared to 11% for 2019. While higher recapture rates do not impact LTVs, which are measured on a policy basis, they do translate into higher enrollment volumes at reduced acquisition costs and reflect stronger, stickier relationships with our members. We manage our business to unit economics with LTV to acquisition cost ratio being an important metric that reflects the underlying profitability and cash flow generation potential of new members that we enroll. Due to agent productivity improvements and stronger recapture rates, leading to reduced acquisition cost per enrollment, our first quarter LTV to acquisition cost ratio in the Medicare business has improved considerably on a year-over-year basis. We expect to see another meaningful improvement in member profitability during the fourth quarter AEP and for the full year 2021 compared to 2020. As we execute on our operational plans, we continue to engage constructively with our shareholders. Earlier in the first quarter, we announced an agreement with Hudson Executive Capital. As part of that, we added John Haas to our Board of Directors, and will add another independent director in due course. John is already providing valuable perspective to the Board. With these appointments, the company will have added 5 new directors over the last 3 years. We are also continuing to engage with another one of our shareholders, Starboard Value. We have held numerous and extensive discussions with them to better understand their views and are working to achieve a constructive resolution to these discussions. The eHealth Board is open-minded with respect to value creation opportunities and will continue to take the actions that it believes are in the best interest of eHealth and all of its shareholders. With the successful first quarter behind us, we are starting to scale our telesales organization to prepare for the 2021 AEP. We expect this year's agent headcount growth to be driven predominantly through hiring a full-time career agents who have historically been significantly more productive and generated higher retention enrollments compared to vendor agents. In addition to a major shift towards the internal agent model, we are making other changes to make our telesales organization more effective and further enhance the consumer experience. We leverage eHealth and industry data to develop a set of criteria and behaviors that make an agent successful and are taking a more scientific and targeted approach to hiring, training and career development with our customer care and enrollment specialists. As we have indicated previously, we identified the use of screeners as a best-in-class call center practice. We introduced our first team of internal screeners during the first quarter. The screener-assisted process allows us to answer more customer calls and convert them at higher rates. Screeners will be an important element of our enhanced digital lead scoring and routing process that we expect to fully launch ahead of the AEP. Finally, we have added top call center talent in the areas of sales operations, agent training, customer experience and compliance. We are making important progress, but recognize we still have work to do to prepare for a successful annual enrollment period. The major ramp-up in agent hiring is planned for June and July of this year, which is approximately 6 weeks ahead of our typical schedule, reflecting our enhanced training protocol, and a major shift in our telesales model. We believe that a combination of a longer training period and an increased percentage of internal eHealth agents will have a significant positive impact on our telesales conversion rates and customer experience. In conclusion, the Medicare market remains large and attractive. We are in a strong position to increase our market share and solidify our technology leadership. Despite significant double-digit growth in our enrollments in revenue over the past several years, eHealth Medicare membership still represents less than 2% of total consumers enrolled in Medicare in 2020. Our approved Medicare Advantage members represented only 5% of total annual opportunity in the Medicare Advantage market last year, which is comprised of seniors switching between MA plans and new to MA enrollments. And it's important to note that our penetration of the new to MA opportunity, including consumers turning 65 and those switching from traditional fee-for-service Medicare has been increasing. We believe that we have been successfully resolving the call center-related issues that negatively impacted our agent productivity and resulting enrollment volume and acquisition costs last AEP, and we'll continue building on this momentum as we scale our agent headcount. Retention improvement continues to be one of our top operational priorities, and we'll report on our progress in this area throughout the year. We expect to benefit from our recent initiatives, applying to a greater proportion of our book of business, including a larger percentage of our existing members being enrolled online, continuing retention team efforts and stronger recommendation algorithms, as well as emphasizing marketer channels that generate higher LTV enrollments, such as online advertising and strategic partner channels. With these operational enhancements in place, eHealth is well positioned to deliver on our goals for 2021. And now I will turn the call over to Derek.

Thanks, Scott, and good afternoon, everyone. We delivered a strong first quarter, driving higher-than-expected growth in our Medicare and individual family and planned enrollment. First quarter enrollment outperformance was achieved while at the same time, reducing acquisition costs per approved member for Medicare and IFP major medical products. First quarter Medicare revenue of $121 million grew 26% compared to a year ago driven primarily by a 45% increase in approved Medicare members, including a 65% increase in approved Medicare Advantage members. The positive impact of strong growth in our Medicare enrollments was partially offset by lower lifetime values and residual revenue compared to Q1 a year ago. Residual or tail revenue in the Medicare segment was close to 0, in line with our expectations and compared to approximately $9 million a year ago. Our Medicare Advantage LTVs declined 4% compared to Q1 of 2020. This was favorable to our expectations helped by increased contribution from new to MA members and favorable carrier mix. Acquisition costs per approved Medicare Advantage member, which includes marketing and customer care and enrollment costs, declined 12% compared to the first quarter a year ago. The ratio of Medicare Advantage to LTV to total acquisition cost was 1.5, a 9% increase compared to Q1 2020. On an as-adjusted basis, by subtracting carrier advertising dollars from our total acquisition costs, our LTV to COA ratio was 1.7. The ratio of LTV to marketing COA was 2.7, and it was 3.2 on an adjusted basis, excluding carrier advertising dollars. Medicare noncommission revenue grew 5%, roughly in line with our expectations of flat noncommission revenues this year compared to 2020. During the first quarter of 2021, we revised the calculation of segment profit and adjusted EBITDA to exclude amortization of capitalized software development costs. This was done to enhance comparability of our financial metrics with peer public companies. Total amortization of capitalized software was $2.8 million in the first quarter of 2021, with $2.5 million allocated to the Medicare segment and $0.3 million to the IFP and small business segments. In the first quarter of 2020, total amortization of capitalized software was $1.5 million with $1.2 million allocated to the Medicare segment and $0.3 million to the IFP and small business segments. On that basis, the Medicare segment generated a profit of $24.5 million compared to $23.1 million in the first quarter of 2020. Our estimated number of commissions generating Medicare members was approximately 873,000 at the end of the first quarter or an increase of 20% with estimated Medicare Advantage members increasing 33% compared to a year ago. While we continue to manage to policy-level profitability as measured by estimated policy LTV to acquisition cost ratio, member-level profitability will be an increasingly important consideration going forward. As we build stronger relationships with our members, we will emphasize member retention throughout their experience with Medicare Advantage, which might involve multiple policies across various carriers. Our recapture rates have improved from 11% in 2019 to 14% in 2020 or rather than a 20% year-over-year increase. As we transact a larger share of our enrollments online and grow the number of members on our customer center platform, we expect the cost of recapture to trend down, providing for increasingly attractive member level economics. As Scott described, first quarter estimated trailing 12-month churn from Medicare Advantage plans declined to 42% from 43% a year ago. This estimate is a preliminary view based on our cash collections to date, data from our carrier partners and historical observations. We also report our ending membership number on an estimated basis. Historically, our membership estimates have been on average within 1% of the actual numbers. However, in Q1 of 2020, when we experienced an increase in MA member churn, we overestimated our first quarter ending membership number by approximately 20,000 and had to catch up for this in the second quarter of 2020. As a result, our Q1 2020 churn was initially reported as 38%, was actually 43% on an adjusted basis. Please consult our earnings slides posted on our Investor Relations site for membership numbers on an as-reported and as adjusted basis and accompanying commentary. This year, we're placing a high emphasis on actual cash collections for a more conservative approach to churn and membership estimates. Turning to our individual family and small business segments. First quarter revenue from this segment was $13.2 million, a 29% increase compared to a year ago. This was primarily driven by a 21% growth in approved IFP major medical plan members, combined with an increase in lifetime values of qualified health plans we sell compared to a year ago. The individual family and small business segment generated segment profit of $8.1 million compared to $2.9 million in the first quarter of 2020. Our estimated individual and family plan membership at the end of the first quarter was approximately 103,800, down 8% compared to the estimated membership we reported at the end of the first quarter a year ago. The estimated number of members on small business products was approximately 45,000, a 2% increase compared to a year ago. Our total revenue for the first quarter was $134.2 million, an increase of 26% compared to the first quarter of 2020. Our total estimated membership at the end of the quarter for all products combined was approximately 1,260,000 members. Now I would like to review our operating expenses and profitability metrics. Non-GAAP customer care enrollment costs grew 13%, well below our Medicare enrollment growth rates, reflecting increased agent productivity. Non-GAAP marketing and advertising costs grew 34%, also slower than our enrollment growth. First quarter non-GAAP tech and content and G&A expense combined grew 30% compared to a year ago. This was driven by continuing investments in our technology platform, including recent upgrades to our call center tools, a small percentage of our quarterly technology spend that was capitalized, and to a lesser extent, due to expenses related to our shareholder engagement ahead of our 2021 annual meeting. Non-GAAP operating expenses include stock-based compensation, acquisition costs, restructuring charges and amortization of intangible assets. GAAP net loss for the first quarter of 2021 was $0.8 million compared to a net income of $3.5 million for the first quarter of 2020. In the first quarter of 2021, we booked a provision for income tax of $0.3 million compared to a tax benefit of $2 million in the first quarter a year ago. The Q1 2020 tax benefit was due to stock-based compensation adjustment that did not recur in Q1 2021. Adjusted EBITDA for the first quarter of 2021 was $17.3 million compared to $12.6 million for the first quarter of 2020. As I mentioned before, in the first quarter of 2021, we revised the calculation of adjusted EBITDA to exclude the amortization of capitalized software development costs that were $2.8 million in the first quarter of this year and $1.5 million in the first quarter a year ago. Please refer to our first quarter 2021 earnings release for a full description of how we calculate adjusted EBITDA. Our first quarter cash flow from operations was $42.8 million compared to $8.9 million for the first quarter of 2020. Trailing 12-month commission cash collections in our Medicare business were over $300 million and grew 39% compared to a year ago, driven by membership base expansion, strong new enrollment growth and higher cash collections per Medicare member. Our trailing 12-month commission cash collections per Medicare equivalent member grew 11% compared to a year ago, driven by commission rate increases on new enrollments and a larger percentage of new to Medicare Advantage enrollees and favorable carrier partner mix. As of March 31, we had $130 million in cash, cash equivalents and marketable securities and we had no debt outstanding under our line of credit. Our balance sheet also reflects a significant commissions receivable balance of approximately $742 million that is comprised of $180 million that we expect to collect over the next 12 months and $562 million in longer-term commissions receivable. We are reaffirming our 2021 annual guidance aside from increasing our adjusted EBITDA and segment profit ranges to reflect the change in methodology for calculating these financial metrics to add back amortization of capitalized software costs, which is estimated at approximately $10 million for the full year 2021 compared to $7.8 million in 2020. We now expect 2021 adjusted EBITDA to be in the range of $110 million to $125 million compared to our previous guidance of $100 million to $115 million. 2021 Medicare segment profit is now expected to be in the range of $147 million to $164 million compared to our previous guidance of $138 million to $155 million. And individual, family and small business segment profit is expected to be in the range of $19 million to $20 million compared to our previous guidance of $18 million to $19 million. I would also like to highlight that this guidance excludes the potential impact from the pending $225 million strategic investment from H.I.G. Capital announced on January 29, 2021, which is subject to certain closing conditions. Finally, I would like to discuss our outlook for the rest of the year. We expect that our year-over-year Medicare enrollment growth will slow down in Q2 compared to growth rates we just posted. As a reminder, in Q2 last year, CMS introduced a COVID-related special enrollment period for the Medicare Advantage market. This had a favorable impact on consumer demand and agent conversion rates given that more seniors were allowed to transact. In addition, in Q2, we don't expect to recognize any tail revenue to compare to approximately $2.4 million that we had booked in Q2 of 2020. Second quarter Medicare Advantage LTVs are still expected to decline in low to mid-single digits compared to a year ago. These factors combined lead to a roughly flat second quarter revenue forecast relative to Q2 of 2020. At the same time, we are starting our Medicare agent hiring early in the year. We expect this will lead to much larger sequential increase in our customer care enrollment expense from Q1 into Q2 compared to historical cadence. As a result, we currently project second quarter EBITDA loss to be in excess of $20 million. We expect to see a significant payoff in the fourth quarter, stemming from a better trained, more productive telesales force that's comprised predominantly of full-time eHealth agents. Specifically, better conversion rates are expected to result in strong enrollment growth and a significant reduction in total acquisition costs per approved Medicare member this AEP compared to a year ago. I want to remind you that these comments in our guidance are based on current indications for our business and our current estimates, assumptions and judgments, which may change at any time. Our actual results may differ as a result of changes in our estimates, assumptions and judgments. We undertake no obligations to update our comments or our guidance. Before we open the line for questions, I'd like to just remind everyone that we're here today to talk about our first quarter of fiscal year 2021 and the actions we're taking to drive growth and enhancing consumer and shareholder value. With that, we won't be commenting further on any interactions with Hudson Executive or Starboard today. We appreciate you keeping your questions focused on our performance and our results.

Your first question comes from the line of Jailendra Singh from Crédit Suisse.

And congratulations on a good quarter here. Maybe Derek, following up on your last few comments there. I was wondering if you can double-click a little bit more into the reasoning behind keeping full year outlook essentially unchanged despite a strong Q1 and pretty favorable trends across the board on LTV, enrollment and productivity? And I appreciate all the color on Q2, but are there any other puts and takes we should keep in mind or you just want to be prudent given the last year experience and we are still early in 2021?

Yes, Jailendra, it's a good question. So we outperform our expectations on many business performance metrics, as you saw in Q1, and we continue to see strength in many of those areas, and we expect to flow through the rest of the year. There are a lot of puts and takes. And as you heard, we still expect LTVs in Q2 to be down low to mid-single digits and tail revenue continues to be conservative. It's still too early. AEP, obviously, Q4 is the biggest quarter for us, especially in profitability. And you are right that we are looking to be prudent and make sure that we see this strength that we've seen in Q1 continue in Q2 and Q3 and therefore, keeping our guidance the same.

Okay. And one follow-up on your comments around what happened last year in Q1 and Q2 with respect to some of the membership attrition for Q1 observed after the reporting period. Just curious if there's any such risk this year? Just trying to understand what gives you better visibility. It looks like you've taken a little conservative view there. Just trying to understand how much of the sequential step-up in that member turnover ratio is driven by the fact that you are just being conservative in terms of if similar phenomena we saw last year played out again this year. Just help us understand the comfort there?

Yes, that's a good question. Last year, we relied on a mix of cash collections and historical data to estimate our ending membership, which turned out to be higher than expected in the first and second quarters. This year, we are being more conservative and focusing more on our cash collections. We've also expedited our reconciliation with carriers regarding membership status compared to last year. We believe this approach is prudent, considering last year's experience. Additionally, this is the third year of the open enrollment period occurring in the first quarter, which has created a different pattern of member switching between the first and second quarters. We have taken that into account, and we feel more confident that our estimates will align closely with the actual outcomes, showing only a small variance.

Your next question comes from the line of Daniel Grosslight from Citi.

Congrats on a strong quarter. You gave some new metrics on new to MA members. What did that look like in the year ago period? And what are your expectations on a go-forward basis? And can you describe the delta in first year commissions for those folks?

Yes. Just a reminder that for the January 2021 effective policy, primarily from the AEP enrollments, the percentage of new to Medicare enrollments was 47%, as mentioned in the prepared remarks. This represents an improvement over last year, and we've observed a positive trend in this metric during the latter half of the year, continuing into AEP. The difference in administrative fees between new to Medicare and renewal enrollments could be about $200, which is quite significant compared to renewals. The new to Medicare category includes two groups: individuals turning 65 enrolling in Medicare Advantage, and those already in original Medicare or fee-for-service Medicare transitioning to Medicare Advantage for the first time. In our Investor Relations materials, we outline the overall market size and highlight that the new to Medicare, particularly the agent segment, is a considerable portion of those eligible for Medicare Advantage, contributing to our improved rates and enhanced lifetime values. Tim, do you have any additional comments from a business perspective?

No, I think you've summed it up well.

And then on a go-forward basis, do you expect that proportion to grow?

We do...

I'll jump in and take that one, Derek. So it is something that we are working to address that audience more and more aggressively. And we know that, that audience engages online at higher rates than older members do. And so as we see more and more adoption of our online enrollment, we think it will help us with that market segment, in particular, and so we're designing more features on the website, marketing materials, et cetera, to address that market segment. So we don't have a specific forecast for it, but it is something we're working on.

Got it. Okay. Okay. So LTVs they are impacted by higher commissions and higher persistency because it's coming through the online channel?

Yes.

Okay. And then as a follow-up, are there any updates regarding your internal versus external agent accounts for this year? I know you mentioned hiring earlier, but do you still anticipate a 90-10 split for this year?

Yes. I think that's a fair estimate. There's been nothing that we've seen in our early hiring and recruiting that would change our outlook at this point.

Your next question is from Frank Morgan from RBC Capital Markets.

I’d like to stay on the topic of customer retention and your efforts in that area. It appears you've made some good progress with the recapture rate reaching around 14%. Is there a specific level you aim to achieve? Could you share any target level with us today?

So I'll take that one. This is Tim. There is no target that we're trying to get to. I think what we realized a year ago when we started down this path on retention was that there were definite opportunities for us to better serve our customers. And we see that recapture rate being one sign of that. And we're still just basically less than 1 year into that exploration. And so we've learned a lot from the AEP on ways that we could be more effective serving our customers. And so we think it will continue to go up. But there isn't a level at which we would stop or that we think we are approaching sort of diminishing returns. So far, the more effort we put in here, we see clear progress as we do so.

Got you. And I'm just curious in the guidance, any changes with regard to cash flow or cash burn in light of the fact that you are going to be hiring sooner and you'll bring these people more people on and bringing them on sooner. Any change in your outlook with regard to cash use and cash burn?

No change on a full year outlook for cash use and cash burn, Frank. But given our pivot to more internal agent staffing and early staffing, we do expect operating cash flow to be more unfavorable relative to a year ago and likely Q3 as well.

Okay. But there's no change from what you previously considered. Is it because you believe it will only benefit you in the fourth quarter, or would that actually help you more in the first quarter of next year?

It will help in the fourth quarter because the agents will be more productive, so we wouldn't be staffing agents later than compared to a year ago. So on a full-year basis, our cash use is still consistent with our full year guidance.

Okay. Lastly, go ahead.

We are at after the first quarter, it significantly exceeded our plan, the cash flow from Q1.

Got you. And just one final question about entering Medicare. Are there any other indirect benefits aside from the better commission? Is it a better growth market or could it affect churn or anything like that? I'll hop off after this.

I can address that, Scott. There are several advantages to acquiring customers who are new to Medicare or to our product. Firstly, these customers typically stay with the product longer. This can be attributed to factors such as being younger and healthier, and having less familiarity with switching plans. As a result, they often have a longer duration with us. Additionally, as we improve our retention strategies, whether through online or phone support, bringing in a customer early gives us the opportunity to retain them later on. This is beneficial initially, and if we succeed in securing these customers once, we believe we have a strong chance of retaining them in the future.

Your next question comes from the line of George Sutton from Craig-Hallum.

I was impressed with the agent cost per member improvement, and I wanted to focus there, if I could. And first, your online submissions, which continue to improve. I'm just curious if you could talk to that trend and how that is operating relative to your expectations? And any sense on where we could go there? And then secondly, the use of screeners. I wanted to better understand how you're planning to use screeners. Honestly, in our secret shopping in the past, we've assumed there were screeners. So I wanted to just better understand how they're being utilized?

Let me discuss the online aspect first, and then I'll turn it over to Tim for the screener question, George. Our full year target for online submissions is set at 43%, compared to last year's 37%. We are currently ahead of that goal as we exit Q1, as you have heard. This positive trend is mainly due to improved performance in our unassisted online enrollments, which have higher lifetime values and lower acquisition costs since they don't involve any cost interactions. This segment is crucial from a financial perspective. However, we are not adjusting our full year target because we want to remain cautious, especially since it is still early in the year. Online enrollments typically peaked in Q4, but we are optimistic about our current trajectory. Tim, would you like to address the screener question?

Sure. Well, first, on the agent productivity, we saw in Q4 last year that what was dragging down our performance was these vendor agents. And the actions we took then really put us in a position for our internal agents to thrive during Q1. And we got off to a very fast start, and then that continued through the quarter. And we overhauled the leadership of our sales organization in the last 3 months. And those leaders have really made a big impact. And so it's not just the agents, it's the leadership of the sales organization and the tools that we're giving them, the training that we're giving them, there's a real momentum within our sales organization as we look to go forward, which is why we're so optimistic. On the screener question, in particular, we have periodically used screeners. So we use them in a very limited fashion during AEP, and we did see benefit to doing so. And the benefit was primarily that we kept our licensed agents off of calls that were customer service calls or low probability prospect calls. And so we rolled out the first two classes of our screeners in the last 2 months. And we are seeing that they can help us get more and more leverage out of our licensed agent population. And we're investing early there so that we can test and learn our way into how to use them, how to train them, but I'd say it's still early days, and everything we've seen so far is very encouraging.

Got you. And just a quick question on the H.I.G. timing, you mentioned closing conditions, is there anything unusual in the closing conditions that we should be aware of?

No.

No, nothing unusual. We expect the transaction to close, George.

Okay. Great. And then finally, a comment, if I could, Scott, it's been a long, hard battle, but IFPs turned into a sort of under the radar, nice little growth business, and it's nice to see.

Thank you for that observation, George. The Biden proposal to make the elimination of the 400% of poverty cap on subsidies permanent really enhances the long-term potential for our business. Carriers are indicating that it's becoming profitable and they expect it to grow at double-digit rates. We're not altering our guidance on it, but it does represent a modest upside in our plan for this year.

Your last question comes from the line of Jonathan Yong from Barclays.

Can you hear me now?

Yes.

Yes.

Okay, great. Just going back to new MA again. You've mentioned they are more driven by being online, better retention, and similar factors. You plan to target them a bit more. However, what’s different in how you plan to approach the market for acquiring these new MA members compared to targeting switchers and the strategies you have already been using?

Yes. I'll let Tim get into the depths of that. But I think it's important to note that we have 130,000 seniors that have registered with 2 factor authentication to our customer center. And we're already seeing longer retention even though we just launched that site in October. So we are stepping up our engagement with members across the board, but obviously, the cheapest and easiest engagement comes digitally and having the customer centers members enrolled is a big advantage to us. But Tim, you could elaborate, please.

Yes. What I would say is the way a new to Medicare Advantage customer shops is different than a way a switcher shops. And as we've delved into deeper and deeper consumer research, we can see that if you presume that somebody understands all the different elements of a plan, and is just looking to transact, then you may confuse them and underserve them. And so when we talk about building experiences for them, it's updating the content on the website to make sure things are easily explained. It's making sure our agents can educate consumers through the sales process. And so I think our experience historically was more geared for somebody who understood Medicare Advantage well and could choose the right plan effectively. And the bar for a new to Medicare customer, new to Medicare Advantage customer is a little bit higher.

Great. Could you provide some insight into the recent agent hires? How are the new cohorts performing? Were they mostly in training alongside your more experienced agents? Any information on that would be appreciated.

Yes. We are on track with our hiring. We focused our earliest classes on the screeners, as I mentioned before, because we really see that as an opportunity to create leverage in our licensed agent workforce, and it's not something we've used a lot of before. So a lot of the early classes where we have more performance data is focused on the screeners. But of the licensed agents who are coming on to the floor, we are seeing them come on at a higher level of productivity than maybe some of the classes in previous years. Very early, we're encouraged that we're doing a better job in how we're recruiting and targeting. But the large classes are still to come. So we're not sort of inferring too much from that.

Your next question comes from the line of George Hill from Deutsche Bank.

I guess, Derek, kind of first, an accounting question a little bit. You talked about kind of how much the increase in revenue the new to Medicare beneficiaries can contribute to result. I guess, did they have a meaningful impact on LTVs in the quarter? And if that segment continues to grow, like how big would it have to be before we would expect it to drive LTVs up?

So George, it did have a positive impact to LTVs for the quarter. Because our expectations for Q1 was Medicare Advantage LTV could still be down up to 10% year-over-year, and we end up being down only 4%. And the new to Medicare increase in our enrollment kind of AEP did contribute as the biggest driver of that. And as we continue to make more progress, obviously, that will also further potentially drive LTVs.

That's helpful. Scott, you touched on my question earlier regarding the outlook for the IFP business and the Biden plan. You mentioned some partnerships with carriers. Looking ahead one or two years, if the proposed changes become permanent in the Biden infrastructure plan, do you have any estimates on how significant that segment of the business could be? Also, it would be helpful to hear how your approach to executing this business differs from the Medicare Advantage business.

Yes. And we are thinking about it, and it could definitely be a $100-plus million revenue business, and it's highly profitable. One of the reasons it merits additional attention, though Medicare is still, by far, the biggest business for us is because the cash flow dynamics are very attractive. We have faster than a 1-year payback on the customer acquisition costs. So it does merit additional attention, and it will get it.

Your last question comes from the line of Tobey Sommer from Truist Securities.

I was wondering if you could elaborate a little bit on the strategies you have to drive more growth in the customer care center and also touch on your partnership strategies to try to increase exposure to age-ins, which would kind of really be the Creme de la Creme in terms of member characteristics, I think.

Tim?

So on the first question, the growth in the customer care center. Are you talking about how we're scaling up our agents?

And how you plan to drive more members participating in it?

For the online customer center, there are several ways to increase engagement. We are very pleased that enrollments so far have greatly surpassed our expectations. We plan to improve the online enrollment experience to make it more user-friendly and accessible, allowing people to easily check the status of their applications or obtain additional information. So far, we've seen a significant uptake from consumers despite limited integration. We're now seeking specific avenues to accelerate this growth. Regarding agent partnerships, you're correct that partner traffic tends to be the most valuable for us. We collaborate closely with our partners because how we support their customers is crucial to them. The presence of unbiased agents working with their consumers has a significant impact. We've established effective marketing strategies to reach and assist their customers, and our long-standing relationships with these partners highlight the quality of our collaboration. We anticipate growth with our existing partners and see numerous opportunities ahead. Although it's a smaller part of our membership historically, it is expanding, and we are optimistic about strong performance in Q4.

Okay. My last question. How would the addition of $200 million in cash available resources impact your growth and strategy implementation?

We previously mentioned that we would require additional cash to achieve positive cash flow by the end of 2022. Securing this funding eliminates uncertainty around when we might need to raise those funds. Additionally, if our growth continues, we are seeing stronger cash flows and increased cash flow per member, supported by higher administrative fees related to Medicare. However, if we maintain this growth rate for the remainder of the year, we will consume more cash than initially planned. As you know, we do not break even within the first 12 months of cash from Medicare Advantage enrollments. Closing the H.I.G. deal will allow us to pursue growth without limitations this year, and with our current momentum, we could utilize some of that cash.

All right. That concludes our question-and-answer session. I will turn the call over back to Mr. Scott Flanders.

Thank you, everyone. Terrific questions this quarter, particularly. It's great to have finished Q1 on a strong note. We're starting out Q2 equally strong, and we look forward to having calls with our analysts and major shareholders over the balance of this week and into next week. Thank you, everyone, for all of your support. Bye now.

This concludes today's conference call. Thank you all for participating. You may now all disconnect.