Earnings Call Transcript - EHTH Q4 2025

Operator, Operator

Good afternoon, everyone, and welcome to eHealth, Inc.'s conference call to discuss the company's fourth quarter and fiscal year 2025 financial results. I will now turn the floor over to Eli Newbrun-Mintz, Senior Investor Relations Manager. Please go ahead.

Eli Newbrun-Mintz, Senior Investor Relations Manager

Good afternoon, and thank you all for joining us. On the call today, Derrick Duke, eHealth's Chief Executive Officer; and John Dolan, Chief Financial Officer, will discuss our fourth quarter and fiscal year 2025 financial results. Following these prepared remarks, we will open the line for a Q&A session with industry analysts. As a reminder, this 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 later today. Today's press release, our historical financial news releases and our filings with the SEC are also available on our Investor Relations site. We will be making forward-looking statements on this call about certain matters that are based upon management's current beliefs and expectations relating to future events impacting the company and our future financial or operating performance. Forward-looking statements on this call represent eHealth's views as of today, and actual results could differ materially. We undertake no obligation to publicly address or update any forward-looking statements, except as required by law. The forward-looking statements we will be making during this call are subject to a number of uncertainties and risks, including, but not limited to, those described in today's press release and in our most recent annual report on Form 10-K and our subsequent filings with the SEC. We will also be discussing certain non-GAAP financial measures on this call. Management's definitions of these non-GAAP measures and reconciliations to the most directly comparable GAAP financial measures are included in today's press release. With that, I will turn the call over to Derrick Duke.

Derrick Duke, CEO

Good afternoon, everyone. In 2025, eHealth delivered strong results, achieving meaningful earnings growth in a complex and rapidly evolving environment. We consistently exceeded expectations, raising annual guidance three times. We closed the year with another highly successful annual enrollment period, helping hundreds of thousands of seniors navigate one of the most disruptive Medicare Advantage cycles in recent memory, an outcome that speaks to the differentiated value of our platform, brand and the trust that we've built with consumers and carrier partners. We've also strengthened our balance sheet entering 2026 with enhanced financial flexibility and a longer-term commitment of capital to execute our strategic priorities. The Medicare Advantage market is in the midst of a structural reset. Carriers continue to experience elevated medical cost trends and regulatory pressure, which has resulted in meaningful benefit changes, plan eliminations, carrier market exits and a more targeted approach to growth. Millions of Medicare customers were impacted by these changes in '24 and again last year. eHealth has provided crucial help to these populations as they've been forced to reassess their coverage options. On the distribution side, these trends have introduced pockets of commission suppression and reshaped carriers' marketing sponsorship programs, among other changes. At the same time, carriers have been narrowing their distribution relationships, placing greater emphasis on quality, retention and other key measures of consumer experience. They are severing ties with brokers not performing to their standards and deepening relationships with distributors that provide the most value. eHealth has consistently ranked high on key quality metrics that are important to our carrier partners. These shifts have challenged the industry, but they also affirmed an important theme. When consumers face complexity, they seek trusted guidance. And when carriers need targeted high-quality growth, they value partners that can support their objectives. eHealth operates uniquely at that intersection. Now let me turn to our 2025 operational review. In 2025, annual revenue grew 4%. GAAP net income was almost four times 2024 net income and adjusted EBITDA increased by 40%. These strong results were driven by focused execution throughout the year, but especially during AEP. We were exceptionally well-positioned to enter the 2025 annual enrollment period. This included a more tenured adviser force, stronger branded channels and an expanded member retention program. Our AI screener piloted earlier in the year was scaled during AEP, bringing additional efficiency to our model and helping to reduce customer wait times. This technology was well-received by our consumers and performed on par or better than human screeners in terms of transfer rates and conversions. We believe this technology further differentiates eHealth in the marketplace and opens the door for further consumer-facing AI applications in health insurance distribution. As anticipated, this AEP generated substantial consumer activity on par with the prior year. Demand on our platform was strong as our Medicare Matchmaker value proposition resonated with consumers. eHealth also successfully navigated changes in carrier inventory that resulted from plan eliminations, commission suppression and other key factors impacting product selection. We continue to offer quality, affordable plans in our key markets. During AEP, our direct branded channels exceeded enrollment expectations. In response, we strategically reduced spend on third-party affiliate leads. Direct channels typically deliver higher enrollment margins and stronger retention. Their increased share of our marketing mix positively impacted in-period earnings, and we expect that they will continue to strengthen financial performance beyond '25 by increasing book persistency and supporting LTV growth. We delivered on our 2025 annual plan for enrollment volume and revenue while significantly exceeding earnings expectations, driven by favorable LTV to CAC dynamics in our Medicare business and disciplined fixed cost management. We also demonstrated continued strength in our commissions receivable, which ended the year at a record high. Beyond Medicare Advantage, we made progress towards diversifying our revenue base. Our hospital indemnity plan, or HIP sales achieved exceptional growth with approved application volume surging over 400% year-over-year in the fourth quarter of 2025. Medicare Supplement also performed well during AEP, delivering 39% approved application growth in the fourth quarter. While carrier dedicated revenue and sponsorships declined year-over-year in the fourth quarter, reflecting broader market pressures, our core agency platform more than absorbed this impact through strong operational execution. As planned, after AEP completion, I initiated a comprehensive strategic review of the organization. Our macro outlook suggests that many of the conditions that shaped the past 2 years will persist into 2026. While we anticipate growth mandates reemerging in 2027, we believe that this year, carriers will continue pursuing targeted strategies and emphasizing margin protection. We expect to see further exits on the distribution side, consolidating sector leadership with platforms that have scale and strong carrier relationships that are able to deliver high-quality books of business. Additionally, it is our belief that brokers who can deliver consumer value beyond one-time enrollment support will be at a material advantage. We continue to hold conviction in the longer-term growth potential of the Medicare Advantage market. The number of Americans turning 65 will be peaking at over 4 million per year, with the Medicare eligible population reaching over 80 million by 2034. MA penetration is also expected to increase, reaching over 60% by 2030 compared to approximately 54% in 2025. We believe eHealth is well-positioned to lead this growth on the distribution side by leveraging the strength of our brand, deep carrier partnerships and our differentiated omnichannel platform. Seniors are becoming increasingly tech-savvy, and this administration is placing a particular emphasis on the role of technology in modernizing and improving Medicare. We believe eHealth already has a lead as an industry technology innovator, which will provide us with a competitive advantage in this environment for years to come. With that, we view 2026 as a bridge year, a year to become more focused in our execution, maximize the return on our platform and improve operating cash flow generation to ensure that when the market shifts back to growth, we are in a strong position to accelerate. More specifically, our 2026 focus will include developing our lifetime advisory engagement model, concentrating Medicare enrollment efforts on our highest margin and persistency marketing channels, broadening our non-MA portfolio, including ancillaries and ICHRA and continued cost discipline, including the optimization initiatives we implemented last month. Let me expand on the lifetime advisory model, which is a major element of our strategy going forward. We are providing our licensed advisers with additional opportunities to solve consumer needs through an ongoing trusted relationship. This model blends the relationship-driven approach of local field agents with the scale, breadth and technology advantage of an omnichannel model. Based on consumer focus groups we conducted, beneficiaries place high value on engagement-based models that combine choice with access to a trusted adviser, someone who understands their personal situation and coverage needs. This model leverages eHealth's brand proposition and valuable beneficiary base and aligns with exactly where carriers are placing value, high-quality enrollments that persist. The seasonal nature of our business provides meaningful opportunities for advisers to deepen member engagement throughout the year, conducting need assessments, identifying gaps in coverage, managing plan changes proactively and offering relevant ancillary products. As part of this strategy, eHealth will be expanding the portfolio of ancillary products and services we offer to our beneficiaries, building on meaningful growth we achieved with hospital indemnity plans last year. In '26, we expect to add critical illness, final expense and similar products while driving greater attach rates with our existing ancillaries such as dental, vision and hearing. We plan to build on this effort in 2027 and '28 by adding additional adjacent services that leverage eHealth's core competencies and help Medicare beneficiaries maximize the value of their coverage. This strategy is expected to drive increased member lifetime value, improved retention and most importantly, build on eHealth's brand equity and member loyalty. Furthermore, the favorable cash flow dynamics of these ancillary products make them an important element of our diversification and overall financial goals. What does this mean for this year's financial outlook? Because we're prioritizing operating cash flow and quality, we expect Medicare enrollment volumes and non-commission revenue to decline relative to 2025. Despite lower revenue and enrollment volume, earnings, excluding net adjustment or tail revenue are expected to remain roughly flat and EBITDA margin excluding tail is expected to improve year-over-year. This reflects the positive impact of our cost reduction efforts as well as focusing member acquisition spend in the highest margin marketing channels. On cost savings, we enacted headcount and vendor consolidation in January of this year. We expect these actions to lower our 2026 fixed operating cost by approximately $30 million compared to 2025, a decrease of roughly 20%. We also plan to reduce our variable spend by over $60 million for an overall year-over-year spend reduction greater than $90 million. As a result of strategic changes and significant cost measures we have implemented, we believe we can drive meaningful improvement in operating cash flow in 2026. Cash flow is our North Star, and we are committed to reaching breakeven operating cash flow this year, a $25 million year-over-year improvement with positive operating cash flow targeted for 2027. John will share our guidance ranges and key drivers in his prepared remarks. In diversification, our approach will be similarly focused and disciplined. We are prioritizing ICHRA, including a partner-driven SaaS model, which allows us to extend our platform to brokers with strong employer relationships. This strategy is capital efficient, leverages our core capabilities and positions us in a growing market where employers are increasingly looking for greater control over benefit expenses and a personalized approach to coverage selection. During 2026, we are taking important steps to position us for success once the reset cycle has been completed in Medicare Advantage and as ICHRA continues to gain adoption with employers. We expect to continue to invest strategically and in a focused way in key capabilities required to grow profitably in these areas. Our technology remains an important differentiator and growth enabler. We see significant potential to improve our operational and financial performance by further scaling our AI screening and introducing additional AI applications in both our back and front office. The goal is to prioritize revenue growth in 2027 on a profitable and operating cash flow positive basis. It's important to note that while we are taking a more measured approach to demand generation this year, we expect our commissions receivable to remain around current levels at the beginning of 2027, driven by favorable retention trends and our relationship-driven approach to managing our book of business. We have also taken a measured approach to our capital structure by first augmenting our liquidity, extending maturities and lowering our cost of capital with the revolving credit facility that we entered into at the end of 2025. Our next priority is to unlock value for all of our stakeholders by addressing our convertible preferred equity. Further, as we have discussed in the past, our industry is dynamic, and there have been significant developments over the past several quarters. We regularly evaluate these developments and the strategic opportunities that may present themselves to us. To that end, we have had discussions with others in our industry, and we expect to continue to have discussions. Those discussions may not result in any meaningful developments, but we think it is important for us to be active in this regard. To summarize, our 2026 strategy will be focused on three priorities: reset Medicare into a cash flow generative relationship-driven business, deliver a broader set of products to customers and the advisers who serve them, and pursue measured partner-driven ICHRA growth, including a SaaS-based model. And now I'll turn the call over to John, who will discuss our '25 results in greater detail and provide our 2026 annual guidance.

John Dolan, CFO

Thank you, Derrick, and good afternoon, everyone. In fiscal 2025, we significantly improved profitability, driven by greater enrollment margins in our Medicare business, the continued strength of our commissions receivable and cost savings across all expense categories. We leaned into elevated consumer demand during the first and fourth quarter enrollment periods and pulled back in the seasonally low middle quarters, deploying a more flexible operating structure in our telesales organization. I will now walk through our 2025 financials, followed by a discussion of our 2026 guidance and underlying assumptions. Please note that all comparisons I make will be on a year-over-year basis unless otherwise specified. Fourth quarter revenue was a company record $326.2 million, up 4%, driven by Medicare and ancillary product commissions, partially offset by lower non-commission revenue and individual and family product commissions. For the full year, total revenue of $554 million also increased 4%. Within our Medicare segment, we achieved fourth quarter revenue of $319.6 million or an increase of 5%. Underneath that, fourth quarter Medicare Advantage submissions in our agency model declined slightly at 3%, but were more than offset by a meaningful increase in the LTVs for all Medicare products. An 11% increase in our Medicare Advantage LTV was especially impactful, reflecting favorable retention, particularly the performance of the prior year's fourth quarter cohort, an indicator of the quality of our book. The 3% decline in fourth quarter Medicare Advantage agency submissions is reflective of our strategic decision to concentrate demand generation in our direct branded channels and decreasing marketing spend in channels with lower underlying margins. We're seeing encouraging early signs on retention. Based on current data, our January 2026 Medicare Advantage cohort is performing significantly better in year-to-date retention compared to last year's cohort. This continues the strong pattern of year-over-year improvement we've seen in early-stage retention. Over the past 2 years, retention in the key early weeks of the January Medicare Advantage cohort has improved by a cumulative 700 basis points. On the ancillary product side, hospital indemnity plans, which are typically cross-sold as part of the Medicare sales process, grew significantly in the fourth quarter and full year. 2025 annual approved members exceeded 30,000 and were up more than 5x compared to 2024. For the full year, Medicare segment revenue of $531.2 million grew 6%. Fourth quarter positive net adjustment revenue or tail revenue was $3.9 million, almost all of which came from our Medicare segment. This compares to $7.6 million in total fourth quarter tail revenue last year, $5.9 million of which came from the Medicare segment. For the full year 2025, total tail revenue was $44.4 million compared to $22.7 million a year ago. The tail revenue we recognize reflects cash collections in excess of our original LTV estimates. There continues to be a significant unrecognized positive adjustments related to our Medicare book of business beyond our initial constraint. Turning to Medicare profitability. Fourth quarter LTV to CAC ratio was 2.2x, improving meaningfully from 2x in the fourth quarter of last year. We believe this is a clear indication that the marketplace is rewarding quality and that our multiyear investments in brand building, consumer experience and retention are delivering tangible returns. Fourth quarter Medicare gross profit of $178.3 million grew 12%, while for the full year, Medicare gross profit grew 21%. Our Employer and Individual segment revenue and profit decreased for both the fourth quarter and full year 2025. This segment is undergoing a transition from being primarily driven by individual and family plan sales to being focused on the employer market and specifically the ICHRA solution. On a consolidated basis, total fourth quarter operating expenses were $200 million, a decrease of 1%. Fourth quarter marketing and advertising and customer care and enrollment costs decreased 3%, while general and administrative and technology and content combined increased 6%. As I mentioned before, for the full year, our total operating expenses were down 4% with every category of fixed and variable spend declining compared to 2024. Fourth quarter GAAP net income was $87.2 million, a decrease from $97.5 million in the fourth quarter of 2024. This year-over-year reduction was primarily due to a higher effective tax rate during Q4 2025, partially offset by higher total revenue in the quarter. Full year 2025 GAAP net income was $40 million, an increase of almost 300% compared to $10.1 million a year ago. Fourth quarter adjusted EBITDA was $132.9 million, an increase of 10% and full year adjusted EBITDA was $97.3 million, an increase of 40%. We ended the year with $77.2 million in cash, cash equivalents and marketable securities compared to $82.2 million at the same point last year. This includes the net impact of the $125 million credit facility we announced in January after transaction costs and $70.7 million used to repay our existing term loan. As a reminder, the first quarter is our seasonally highest cash collection quarter as commission payments related to AEP enrollment cohorts mostly begin in January. Total commissions receivable as of December 31, 2025 were $1.1 billion, up 12% compared to December 31, 2024. Moving to our 2026 guidance. As Derrick outlined, this year, we are intentionally prioritizing operating cash flow and margin over enrollment volume in line with our carrier partner strategies. We plan to continue concentrating our marketing spend on our highest quality channels, those with the strongest expected persistency and LTV to CAC profiles. Our demand generation strategy will also focus on the periods with the highest returns, the first quarter and most significantly, the fourth quarter. In the middle quarters, we plan for our licensed advisers to combine new enrollment activity with work towards deepening relationships with our existing members and ensuring member needs are fully met by offering ancillary products and services. On the cost side, in January, we implemented fixed cost reductions expected to generate approximately $30 million of fixed cost savings, combined with over $60 million of planned reductions in variable spend in 2026 versus 2025. As a result, the midpoint of our guidance reflects a year-over-year improvement in earnings margins, excluding tail revenue in both periods, even as revenue moderates. Importantly, our guidance also reflects our objective to achieve breakeven operating cash flow in 2026, representing roughly a $25 million year-over-year improvement at the midpoint. We expect to achieve this despite anticipated declines in BPO and sponsorship revenue in the current environment, which are fully baked into our 2026 guidance. As a reminder, the cash inflows of our business are largely driven by incoming commission payments from carrier partners, the timing of which can be difficult to control, which is reflected in the guidance range. We believe achieving operating cash flow breakeven this year will establish a critical foundation for positive operating cash flow in 2027 and positive free cash flow over the next 2 years. With that, we expect total revenue to be in the range of $405 million to $445 million. We expect GAAP net income to be in the range of $8 million to $25 million. We expect adjusted EBITDA to be in the range of $55 million to $75 million, and operating cash flow is expected to be in the range of negative $10 million to positive $12 million. These ranges include the assumption of positive net adjustment revenue in the range of $0 to $20 million. Taking a long-term view, the underlying goal of our financial strategy this year is to become increasingly targeted with our capital deployment. We plan to lean into the most profitable business opportunities and quarters, maximizing the return on our industry-leading omnichannel platform. We appreciate your continued support, and I'll now turn over the call for your questions.

Operator, Operator

Your first question comes from Ben Hendrix from RBC Capital Markets.

Michael Murray, Analyst

This is Michael Murray on for Ben. There's obviously a major MA payer that's trying to limit membership growth this year, and that's impacted some of your peers. Is this what is causing your softer top line outlook? Or is it also related to your reduced investment in lower-margin third-party marketing channels? Any color would be helpful.

Derrick Duke, CEO

Yes. Thanks for the question. This is Derrick. I think you are correct about our reduced revenue outlook for 2026. We are focusing on our higher-margin branded marketing channels, which provide better quality and retention as shown by our book's performance. This also takes into account the challenging macro environment and the tough decisions carriers are making to improve their own margins. Therefore, we are prioritizing our margins in 2026, considering it a bridge year.

Michael Murray, Analyst

Okay. That's helpful. And then your MA LTV saw a nice increase in 4Q on improved quality and retention. Were there any changes to your constraints or persistency assumptions there? And should we expect similar rates in 2026?

John Dolan, CFO

Michael, it's John Dolan. Thanks for the question. Yes, could you please ask the question one more time?

Michael Murray, Analyst

Yes. Were there any changes to your constraints or persistency assumptions in your MA LTV? And should we expect similar rates in 2026?

John Dolan, CFO

Thanks for repeating the question. No, there's no change in our constraints for MA product or any products this quarter. We did make a change earlier in the year on product, but that was the only change that was made during the year. And as we look forward into 2026, we're expecting slightly improved LTVs.

Operator, Operator

Your next question comes from Jonathan Yong from UBS.

Jonathan Yong, Analyst

Just thinking about kind of what's embedded in your outlook, are you assuming that payers will continue to suppress commissions for the bulk of the year as you kind of move forward and as we get into the next AEP cycle? Or is this really just kind of the pullback that you are proactively taking because you're assuming that the payers will be focused more on margin and try not to grow their book?

Derrick Duke, CEO

Yes, it's a great question. Thank you. The way we view year-over-year commission suppression is that we believe this year will be disruptive, similar to previous years. At this point, we have no indication that it will be any more disruptive than what we've already experienced. This does not suggest that we think the situation is worsening. Our pullback is primarily related to actions we are taking to improve our own margins. As we consider where to allocate capital, we will continue to focus on the branded channels that have consistently demonstrated higher quality, better persistency, and a more meaningful relationship with our members.

Jonathan Yong, Analyst

Okay. And kind of on this pullback that you're doing, I guess it is a little surprising given over the last couple of years, you have successfully navigated kind of this dynamic environment. and now we seem to be downshifting in terms of the growth profile. I guess what's the reasoning for that, just given that you have successfully navigated the environment for why make this change now? And then is there any disruption that will occur from this in terms of members perhaps not utilizing eHealth kind of moving forward or some of your payer partners thinking that the pullback is a negative aspect from that perspective?

Derrick Duke, CEO

Thank you for your question. I'll start with the second part. We do not believe there will be any negative impacts for our members or our carrier partners. We see the current pullback as an opportunity. Our carrier partners have been making challenging decisions to improve their margins for the past two years, and we anticipate this will continue for a third year. It’s time for us to take similar actions. I appreciate your acknowledgment of our ability to navigate previous periods, but it hasn't been without challenges. The journey has been tough. I've mentioned before that size and scale are crucial, and our results indicate that these factors have helped us successfully manage those changes. Moving forward, given the historical headwinds we've discussed, we believe now is the right time to increase our investment in our branded channels. This is part of a strategy to expand our spending in these areas compared to previous years for valid reasons. We are intentionally doing this as we aim to transition to a lifetime advisory model for our members, which will help us improve attachment rates for ancillary products and services that meet their needs. It's also worth noting that, at this time, we think carriers, in their efforts to manage their margins, may reduce benefits. This situation will create additional opportunities for us to introduce new products and services to fill any gaps created by changes in Medicare Advantage product benefits.

Operator, Operator

Your next question comes from George Hill from Deutsche Bank.

Unknown Analyst, Analyst

It's Maxi on for George. The CMS enrollment data in February indicated a continued slowdown in the growth of the MA market, but SNP enrollment growth remained very strong and even accelerated significantly this year. Can you discuss the extent to which you serve SNP compared to the regular plan population? Are you currently over or under-invested in this area to seize the growth in this segment? Additionally, please remind us if there is any different commission structure for the SNP population.

Derrick Duke, CEO

We don't disclose specific information about the number of SNP versus non-SNP members. Generally, we consider our broad platform, our extensive carrier relationships, and the number of Medicare Advantage plans available. We have about 50 different payers on our platform, offering thousands of individual plans across many geographic locations. This includes SNP plans, which will continue to be available as we aim to align consumers with the right plan that meets their needs.

Operator, Operator

Your next question comes from George Sutton from Craig-Hallum.

George Sutton, Analyst

I wondered if you could give us a little bit more granularity on the $30 million of fixed cost savings. What areas are being affected by that move? And then also any additional details on the $60 million reduction in variable spend? Is that purely the lower margin channel spend? Or is there more to it?

John Dolan, CFO

Sure. George, it's John Dolan. Thanks for the question. The $30 million in cost savings is coming from various areas of our fixed costs, including marketing and advertising, technology and content, and general and administrative functions. I wouldn't point out any specific area. Regarding the variable spend, we focused on reducing the lower margin areas first. As Derrick mentioned in his prepared remarks, our goal is to invest in areas that offer the best persistency in lifetime value to customer acquisition cost.

George Sutton, Analyst

So Derrick, there was a suggestion that you had that you would look for 2027 to become another growth period. I'm just kind of curious, obviously, it sounds somewhat hopeful sitting here today. I'm curious what drives that thought process?

Derrick Duke, CEO

Yes. I think it's, George, based on demographics as agents continue to hit their annual peak over the next couple of years in the range of 4 million to 4.1 million. We know from McKinsey data that roughly 70% of those new agents are choosing Medicare Advantage plans. CMS themselves believe the penetration rate for MA products will get to 60% by 2030. So we believe that, right? We believe that the value proposition is strong for consumers. And we believe that carriers will get their margins corrected, if you will, if that's the right way to think about it. And once they stabilize that, they'll be in a position to return to sort of a growth mode. And when they do, we'll be prepared to return to that growth mode with them.

George Sutton, Analyst

Got you. You mentioned having active discussions with others in the space. I'm curious, and many of whom are in a similar boat, what are you looking for? Are you looking for more capabilities through M&A/combinations? Are you looking to buy books of business? Just curious what the general plan would be there in terms of how you would benefit?

Derrick Duke, CEO

Thank you for your question. At a high level, I believe that in the current period of market volatility and disruption, it’s important for us to carefully consider the opportunities that may arise. This includes being open to various possibilities as you mentioned. We are focused on being strategic and ready to take advantage of opportunities as they come our way.

Operator, Operator

There are no further questions at this time. I will now turn the call over to management for closing remarks. Please go ahead.

Derrick Duke, CEO

Thank you for joining us. We appreciate the time that you spent with us today and that you invest in the coverage of eHealth. We're proud of the results for the fourth quarter of 2025 and the full year of 2025, and we're excited about the future. We're excited about where we're going to increase our capabilities to meet the needs of our members and to also meet the needs of our carrier partners. Look forward to speaking to you in the future. Have a great evening.

Operator, Operator

Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.