Earnings Call Transcript - EHTH Q1 2026

Operator, Operator

Good afternoon, everyone, and welcome to eHealth, Inc.'s conference call to discuss the company's first quarter 2026 financial results. I'll 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 first quarter 2026 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 website. 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, except where such reconciliation has been omitted in reliance on the reasonable efforts exception provided under Item 10(e)(1)(i)(B) of Regulation S-K. With that, I will turn the call over to Derrick Duke.

Derrick Duke, Chief Executive Officer

Thank you, Eli. Good afternoon, and thank you for joining us today. We're pleased with our first quarter results, which came in ahead of expectations, driven by stronger-than-anticipated Medicare enrollment volume at favorable unit economics. During the quarter, we made meaningful progress towards the strategic initiatives we outlined on our last earnings call, including implementing targeted cost reductions and completing critical build and readiness work for initiatives that launched in April. Most notably, we prepared for the rollout of our lifetime advisory model and the introduction of our new final expense insurance product. We are also encouraged by recent industry developments. Last month, CMS finalized the 2027 Medicare Advantage rate, which came in above the initial proposal. While this is just one variable in the system, we believe it is an important signal that CMS leadership is responsive to industry feedback and focused on long-term program sustainability. That said, we are early in the planning cycle for the upcoming annual enrollment period. Carriers are currently developing their 2027 bids, including benefit structures and geographic market strategies. We anticipate gaining a more comprehensive understanding of the upcoming AEP cycle and individual carrier approaches once bids are submitted. While some carriers may prioritize market share capture this AEP, we believe margin will remain the primary focus for most and the Medicare Advantage reset cycle will continue. This means further adjustments to planned benefits and service areas as well as additional plan eliminations. As a result, we expect consumer demand to remain strong and carrier inventory dynamics to remain complex, similar to last year. We believe this environment underscores eHealth's value proposition as we help consumers navigate the evolving Medicare landscape. Against this backdrop, we are intentionally evolving eHealth's operating model to foster deeper, longer-lasting relationships between members and advisers. Our goal is to ensure consumers see eHealth not as a one-time enrollment platform, but as a trusted ally throughout their health care journey. Central to this evolution is our lifetime advisory model, which I will discuss shortly. From a financial standpoint, our priorities this year are achieving breakeven or better operating cash flow and positioning the company for sustainable, profitable growth once the Medicare Advantage reset cycle is complete. Our revised 3-year outlook, which we published today in our earnings slides, reflects a return to revenue growth in 2027 alongside adjusted EBITDA margin expansion, positive operating cash flow and breakeven or better free cash flow. First quarter revenue was $88 million, ahead of our expectations. GAAP net loss was $4.7 million and adjusted EBITDA was $9 million, exceeding our internal plan. Revenue performance was driven by Medicare enrollment volume as well as better-than-expected revenue outside of core MA agency sales, reflecting progress in our diversification efforts. This includes providing ancillary and post-enrollment services. During the quarter, we implemented headcount reductions and vendor consolidation initiatives. These actions are expected to reduce our fixed operating cost base by approximately $30 million in 2026 compared to 2025, representing roughly a 20% reduction. While we realized some savings in the first quarter, the full impact is expected to become more apparent as we move through the year. Quarter 1 results also reflect our strategic decision to reduce variable marketing and agent-related spend, focusing investment on our best-performing channels. First quarter MA LTV increased 3%, while total acquisition cost per MA equivalent approved member declined 10% compared to a year ago. In the first quarter, we moved with urgency to execute on our strategic plan and make the necessary preparations for the launch of our lifetime advisory model. This key initiative is supported by a set of newly released agent-facing technology tools designed to enhance the beneficiary experience. These tools leverage the data and institutional knowledge that we have built up over decades of working with a wide array of beneficiaries. Core components include a customer dashboard that provides a holistic view of the member relationship with eHealth, system-generated recommendations that prompt advisers to engage at the right moments and dynamic insight-driven scripts embedded directly into the sales and service workflow. Together, these tools are intended to ensure more personalized, proactive conversations while also driving consistency, scalability and quality across the adviser experience as the model matures. As part of this strategy, we are expanding the scope of services we provide beyond core MA coverage. eHealth already offers ancillary plan options such as dental, vision, hearing and hospital indemnity plans. Last month, we launched final expense insurance offerings. These products enrich our health-based inventory by providing beneficiaries with additional financial protection and ultimately, peace of mind. Final expense sales also offer attractive unit economics and a compelling cash flow profile. Over time, we plan to add more products and services that will benefit our members based on findings from consumer focus groups and industry research. The lifetime advisory model is expected to support consistent year-round engagement and enables more effective cross-selling. Through this strategy, we believe we will increase member lifetime value, improve retention, strengthen unit economics and build durable brand equity rooted in trust and loyalty. As part of today's earnings release, we're updating our 3-year financial targets. I would first like to stress that our decision to pull back on growth in 2026 was intentional and strategic. In this environment, we have the ability to drive higher Medicare enrollment volume but chose instead to prioritize operating cash flow by focusing on our most profitable marketing channels, building our lifetime advisory model and taking a focused and disciplined approach to our diversification initiatives. We believe this strategy positions us well to return to growth next year on a stronger foundation. Our 3-year forecast reflects mid-single-digit revenue growth on a percentage basis for 2027 as we selectively dial up member acquisition spend. We expect our revenue growth rate to increase to the mid-teens in 2028, supported by our core MA business and a greater contribution from ancillary sales driven by our new operating model. Beginning in 2028, we also expect our Employer & Individual segment to contribute to growth with a focus on expanding employer coverage through partner-driven ICHRA offerings. Adjusted EBITDA margins are expected to increase each year starting in 2027 to reach 20% by 2028. This translates to double-digit percentage adjusted EBITDA growth in 2027 and 2028, reflecting the benefits of our fixed cost reductions and favorable Medicare unit economics. We forecast achieving breakeven or better free cash flow in 2027. Our revenue growth goals could be accelerated should we observe a more rapid stabilization of the Medicare Advantage market relative to our current outlook. We're pleased with our first quarter results and the progress we've made executing against the initiatives outlined on our fourth quarter earnings call. We believe eHealth is well positioned to continue delivering superior service and value for our customers and carrier partners, and we look forward to updating you on further milestones along our path towards sustainable, profitable growth. I will now turn the call over to our CFO, John Dolan, for his remarks. John?

John Dolan, Chief Financial Officer

Thank you, Derrick, and good afternoon, everyone. We delivered a strong start to the year, meeting our revenue, earnings and operating cash flow expectations and achieving greater Medicare enrollment profitability compared to a year ago. Our results were driven by disciplined demand generation, strong sales execution and a favorable year-over-year trend in lifetime values of Medicare products. We also saw early benefits from the fixed cost reductions implemented earlier this year. As I walk through our first quarter financial results, you will see a consistent theme: higher quality enrollments, greater operating efficiency and a foundation that we believe will support enhanced cash flow generation over time. Please note, all comparisons will be made on a year-over-year basis unless otherwise specified. First quarter 2026 total revenue was $88 million, representing a 22% decline. Medicare segment revenue also declined 22% to $81.3 million, driven primarily by lower enrollment volume as we reduced variable marketing spend to focus on our best-performing channels. Medicare submissions declined 24%, with the revenue impact partially offset by growth in lifetime values for Medicare Advantage, Medicare Supplement and PDP products. In the first quarter, we recognized $8 million of positive net adjustment revenue, or tail revenue, compared to $10.5 million in the prior year. Tail revenue was driven by our Medicare and ancillary products and represents cash collections in excess of our original lifetime value estimates. Importantly, we continue to hold significant unrecognized positive adjustments related to our existing book of business. First quarter non-commission revenue was $8.2 million, which was ahead of our internal expectations and reflects lower carrier sponsorship revenue compared to a year ago. Turning to Medicare enrollment profitability. The first quarter Medicare LTV to CAC ratio was 1.4x, representing a 17% improvement from 1.2x. First quarter total acquisition cost per MA equivalent approved member declined 10%, driven by a 28% reduction in variable marketing cost per MA equivalent approved member, partially offset by a 9% increase in customer care and enrollment cost per MA equivalent approved member. The reduction in variable marketing cost per MA equivalent approved member reflects our more disciplined marketing spend, improved channel mix and the continued impact of branding initiatives, which have a proven record of enhancing enrollment quality. The year-over-year increase in customer care and enrollment cost per MA equivalent approved member reflects lower application volume and our decision to retain sufficient agent capacity to support the launch of our lifetime advisory model. This model requires agents to dedicate a portion of their time to member engagement and cross-selling activities. We also plan to have a telesales organization with a higher mix of tenured advisers, which we expect to benefit conversions and enrollment quality. First quarter lifetime values increased 3% for Medicare Advantage, 19% for Medicare Supplement and 78% for PDP products compared to a year ago. First quarter Medicare segment gross profit was $33 million, down 8%. At the same time, Medicare segment gross profit margin increased significantly from 34% to 41%, reflecting improvements in the first quarter Medicare LTV to CAC ratio. Turning to retention. Our most recent AEP cohorts, those enrolled in the fourth quarter of 2024 and the fourth quarter of 2025, continue to outperform each of their respective predecessor cohorts. This progress reflects targeted improvements across our sales and marketing organizations, along with continuing innovation in our customer online experience, resulting in stickier enrollments. Our overall commission receivable value continued to grow on a year-over-year basis, ending just over $1 billion compared to $923 million as of March 31, 2025, or a 12% increase. Looking ahead, the launch of our lifetime advisory model is expected to both improve retention at a client level and foster longer-term relationships with our members across multiple products. First quarter revenue in our Employer and Individual segment was $6.7 million, down 29% from $9.5 million a year ago. Segment gross profit was $3.7 million compared to $6 million last year. From a consolidated profitability perspective, first quarter GAAP net loss was $4.7 million compared to GAAP net income of $2 million. The decline was primarily driven by restructuring charges related to our headcount reduction this quarter. First quarter adjusted EBITDA was $9 million, down from $12.5 million, and the adjusted EBITDA margin was 10% compared to 11% in the prior year. First quarter non-GAAP total operating expenses, which excludes stock-based compensation and restructuring charges, declined 21% to $82.3 million, reflecting organization-wide expense reductions. Non-GAAP marketing and advertising expense declined 38%, including a 44% reduction in variable marketing costs, consistent with our lower enrollment volume targets. Non-GAAP customer care and enrollment expense declined 13%, reflecting lower adviser headcount. On the fixed cost side, non-GAAP technology and content expense declined 8% and non-GAAP general and administrative expense declined 6% compared to a year ago. We expect to see the full benefit of recent fixed cost initiatives as we progress through 2026. First quarter operating cash flow was $35.8 million compared to $77.1 million and ahead of internal expectations. We remain on track to achieve our full year operating cash flow goals as reflected in our 2026 guidance. The year-over-year decline in first quarter operating cash flow primarily reflects the timing of several working capital items as well as severance and other one-time costs associated with our fixed cost reduction actions. In addition, carrier sponsorship revenue was lower year-over-year as the prior year quarter benefited from AEP-related sponsorship dollars that shifted into the first quarter. At the end of March 2026, eHealth had $110.8 million in cash, cash equivalents and short-term marketable securities. Based on our execution year-to-date and with the annual enrollment period still ahead of us, we are maintaining our 2026 guidance ranges for revenue, GAAP net income, adjusted EBITDA and operating cash flow. We are updating our outlook for 2026 net adjustment revenue, which is now expected to be in the range of $8 million to $20 million. We believe we are well positioned to achieve our financial objectives for the year. Consistent with the framework Derrick outlined, we view 2026 as an intentional bridge year, one focused on improving the quality of our revenue, enhancing the efficiency of our operating model and achieving cash flow generation rather than maximizing volume. Our actions this year, including disciplined demand generation, launching our lifetime advisory model and rationalizing our cost structure are designed to position eHealth to achieve the 3-year financial targets we published today. You can reference these targets on Slide 10 of our earnings slides posted on eHealth's Investor Relations site. Our 3-year forecast assumes a modest increase in Medicare marketing spending in our best-performing channels starting in the fourth quarter of 2027. We expect to amplify the impact of this increased marketing investment through our lifetime advisory model as growth in our core Medicare commission revenue is complemented by higher cross-sell rates of ancillary products, including hospital indemnity plans and final expense insurance. In addition, we expect to start seeing positive contributions from our ICHRA business in 2028. Given our planned revenue growth, we believe we will realize significant operating leverage from the recently implemented fixed cost reductions. Cash flow profitability remains the central objective of our long-term financial strategy, and we believe the progress we're making in 2026 establishes a strong foundation for a return to growth while delivering on our cash flow goals. Macro assumptions behind our 3-year forecast are relatively conservative. There could be upside if the Medicare Advantage market recovers faster than we currently anticipate. And with that, we would like to open the call for questions.

Operator, Operator

Your first question comes from the line of Ben Hendrix of RBC Capital Markets.

Michael Murray, Analyst (RBC Capital Markets, on behalf of Ben Hendrix)

Michael Murray, on for Ben. I appreciate your commentary on your revenue growth expectations for the next few years. I'm curious if you have any tail revenue embedded in these targets? And if you do realize tail revenue this year, would that alter your targeted growth rate?

Derrick Duke, Chief Executive Officer

John, do you want to take that?

John Dolan, Chief Financial Officer

Yes, sure. Let me take that question. I appreciate the question. Yes, in our long-range plan, we have assumed effectively flat tail revenue growth. So similar to what we've put in the 2026 guidance, similar assumptions into the outer years.

Michael Murray, Analyst (RBC Capital Markets, on behalf of Ben Hendrix)

Okay. So if you did realize tail revenue this year, that would lower your growth rate targets for 2027, for instance?

John Dolan, Chief Financial Officer

Not necessarily. If you're looking at the tail, growth will be flat, but it would obviously be offset by other growth.

Michael Murray, Analyst (RBC Capital Markets, on behalf of Ben Hendrix)

Okay.

Derrick Duke, Chief Executive Officer

Yes. So let's try again. The assumed tail revenue in our 2026 plan is consistent in the 3-year LRP. So the revenue growth in the out years is not coming from increased tail, if that's what you're asking.

Michelle Barbeau, Head of Marketing and Customer Strategy

Yes. So we're already expecting this year, correct? So we are expecting to recognize tail this year. You can look at our guidance of $8 million to $20 million. So if you can think about somewhere at the midpoint of that guidance, you can assume that a tail for '25, and we are assuming flattish tail revenue for the forecast periods in the outer years as well. So are you saying if we were to recognize tail above and beyond current guidance in '26?

Michael Murray, Analyst (RBC Capital Markets, on behalf of Ben Hendrix)

Yes. Say, if you recognized it at the high end of your guidance range, would that lower your expected EBITDA growth in 2027?

Michelle Barbeau, Head of Marketing and Customer Strategy

I think if we were within the guidance range, no. If we saw a significant positive development above and beyond our current guidance, then yes, because you would be looking at 2027 off a higher base in 2026. But if we are somewhere within our guidance range, no; that would imply a similar growth rate and similar EBITDA growth rate.

John Dolan, Chief Financial Officer

Yes. If you look at our three-year financial targets that we provided, we're assuming zero growth on tail, but other revenue streams will be generating that growth. As we said, 2027 is a single-digit percentage growth rate and 2028 is mid-teens. So tail is not contributing to that.

Michael Murray, Analyst (RBC Capital Markets, on behalf of Ben Hendrix)

Okay. I got you. That's helpful. Just shifting gears to cash flow. First quarter is typically pretty strong cash collection quarter for you guys. It came in a little bit below last year's number. Obviously, you maintained your cash flow guidance. I wanted to see if there's any timing-related items in there and why you have conviction just hitting that full year guidance?

Derrick Duke, Chief Executive Officer

Yes, sure. So I'd say about 80% of the decline year-over-year is really driven by a couple of things: lower carrier sponsorship timing. We had some timing and one-time items in the quarter, such as severance related to our fixed cost reductions. And then there was some lower commission collections because of our lower volume. So those are the main drivers in the decline. The cash flow did exceed our expectations, and we are definitely on track for achieving our 2026 guidance ranges.

Michelle Barbeau, Head of Marketing and Customer Strategy

Just to reiterate, the bulk of it is timing and the one-time costs related to severance. That accounts for about 80% of that.

Operator, Operator

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

George Sutton, Analyst (Craig-Hallum)

You mentioned 2026 would be a bridge year and you were not going to necessarily chase growth. It sounded very similar to how 2025 came out for you. So I just want to make sure I understood the deltas year-over-year in terms of how you're going to market?

Derrick Duke, Chief Executive Officer

The deltas in revenue expectations and marketing spend, like just maybe give me a little bit more, George.

George Sutton, Analyst (Craig-Hallum)

Actually, both. You sort of characterized it as we didn't chase growth in '25, try to be responsible about going after the right customers and using the right channels. It sounds like you're doing the same thing in 2026. I'm just trying to understand what's different.

Derrick Duke, Chief Executive Officer

Well, the difference is the commitment that we've made and the focus that we have on generating positive operating cash flow. We did not achieve that in 2025, and we believe it was important for us to focus on that in 2026 as we strengthen, again, as we've characterized, strengthening the foundation of the company. There's multiple ways that we've gone about that, George, including the Q4 refinancing that we were able to secure to help strengthen the balance sheet. And so the next evolution of that is to be disciplined again in our approach in '26 and, again, not chase growth at all costs. We think that's the responsible thing to do in light of the continued market disruption. Again, I think we've been pretty clear in our communicating our view that what's happening in the market is sort of one event that's occurring over multiple years as carriers make the important decisions that they're making to improve their own financial statements and their margin. And we're respectful of that. And we want to position eHealth to be ready to take advantage of a return to growth in the future once the market stabilizes.

Michelle Barbeau, Head of Marketing and Customer Strategy

And just very quickly, George, I think that it is correct that a lot of what you are seeing in '26 is continuation of what we started doing in '25. So for example, the marketing channels and the focus on brand and direct channels, you will see it being even more pronounced in the fourth quarter AEP as we're pulling back from the less profitable channels. And that will continue for the 3-year outlook as well. And that's why you see that pretty significant EBITDA growth that we're projecting. But what is also different this year is the lifetime advisory model that we're implementing, and that will mean that in Q2 and Q3, we're really pulling back on what we're spending into the market. Those enrollments are not very high profit enrollments in the first place. So we're going to use the time of agents to engage with our existing members, and that will have downstream implications for retention and for ancillary sales. The ancillary sales this year will start contributing, but you will really start seeing much bigger impact in '27 and '28 in terms of the cross-sell rate impact. So that's layering on what you started seeing in '25 layering on top of that in '26.

George Sutton, Analyst (Craig-Hallum)

Could you just help me understand what the Lifetime Advisory model will look like from an engagement perspective? Obviously, we've had ancillary offerings before, and those were available to customers. Is it just simply more proactively marketing those to them? Or how does the engagement change?

Derrick Duke, Chief Executive Officer

That's a great question, George. I'm going to start, and then I'll ask Michelle to contribute as well. So it's important to understand that historically, inside of the eHealth operating model that as new products were put into the platform, the expectation from an operating model perspective was that that would need its own set of advisers. It would need its own demand generation or budget effectively in order to drive growth. The lifetime advisory model doesn't rely on additional marketing spend, doesn't rely on additional agents to sell the product. It's really encouraging and supporting our current advisers to develop a holistic relationship with the member once they engage with a member. So it's not about more product versus what we've had in the past, although our future expectation is that we'll continue to add products and services as we see needs that beneficiaries have. But the real change here is that we're supporting the adviser to engage with their member and to effectively be a one-stop shop that that adviser is equipped to engage and meet the holistic needs of the member. Michelle?

Michelle Barbeau, Head of Marketing and Customer Strategy

Sure. I'll add on. We really think about this; it's about putting the consumer first. It's not just that we've done a lot to improve our brand and marketing, which will continue, but the focus is on the over-65 segment. As we bring that member in, we work to cultivate the relationship—not just to drive immediate enrollment, which is absolutely needed in the current Medicare environment, but to do right by the consumer by using our time and capacity. We link the beneficiary to the adviser, and through that relationship we build engagement, follow-up, and planned check-ins. Do they have a PCP? Can we help with an annual wellness visit? Cross-selling will come as well. Are there referrals? Are there other people who are really satisfied with our service that we can also sell to? So it's not just relying on marketing, but setting this up for a long-term relationship.

Operator, Operator

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

Maxi, Analyst (Deutsche Bank, on behalf of George Hill)

This is Maxi on for George. I want to ask about the shift toward higher-margin branded marketing channels. Could you give us an update on how much of your Medicare enrollment mix in Q1 came from these branded channels? And how does it compare to last year?

Derrick Duke, Chief Executive Officer

Michelle, do you want to take that? So I think the question is what percentage of our enrollment volume is coming from our branded channels? And how does that compare to a year ago?

Michelle Barbeau, Head of Marketing and Customer Strategy

Yes. I will tell you that we continue. First off, when we look at how to maximize marketing spend, it is really guided by quality and return, like LTV to CAC, which is our North Star. So you then focus on the best performing channels. Even within channels, you look at the top-performing campaigns and continually optimize. We continue to lean into our branded channels with the right mix throughout Q1, Q2, and Q3, and, as we said earlier, you will see that continue to improve into Q4.

Maxi, Analyst (Deutsche Bank, on behalf of George Hill)

Got it. Just a quick follow-up. Could you give us some color on the unit economics of cross-selling ancillary products through the lifetime advisory model and ICHRA versus MA? How should we think about the company's overall margin profile as these products scale? And how much of the mid-teens revenue growth in 2028 is expected to be driven by ICHRA and ancillary products through this model?

Derrick Duke, Chief Executive Officer

Yes. I'll start, and John, Michelle, or others can chime in. We think about the ancillary opportunity within the lifetime advisory model as not requiring any additional marketing spend to generate the expected ancillary revenue. The ancillary bucket includes a wide array of products, and each has its own LTV profile based on its unit economics. Generally, for each cross-sell we have the opportunity to add roughly 15% to 20% of LTV to the MA sale when we sell an ancillary plan. That's how we think about the ancillary economics. For ICHRA, we have it modeled, but it's probably still too early to detail the unit economics. It represents a small portion of the revenue growth in our three-year LRP today and is not material to the 2028 revenue growth in the plan.

John Dolan, Chief Financial Officer

One of the other things I'd probably add to it is some of the ancillary products have a much more favorable cash flow profile, which is something that we've built into our plan.

Operator, Operator

There are no further questions at this time. We have reached the end of the Q&A session. This also concludes today's call. Thank you for attending. You may now disconnect.