Full Press Release Details
eHealth, Inc. Announces Fourth Quarter 2019 and Fiscal 2019 Results
Fourth Quarter 2019 Overview
SANTA CLARA, California - February 20, 2020 - eHealth, Inc. (NASDAQ: EHTH), a leading private online health insurance exchange, announces today its financial results for the fourth quarter and fiscal year ended December 31, 2019.
Scott Flanders, chief executive officer of eHealth stated, "We ended the year on a strong note, delivering the best annual enrollment period in the company's history and generating financial results that significantly exceeded our 2019 annual guidance across multiple metrics, including revenue, GAAP net income and adjusted EBITDA. We also significantly increased our Medicare enrollment volumes and the number of major medical Medicare applications submitted online through our platform compared to a year ago - a critical element of our Medicare growth strategy. I would like to emphasize that the high level of enrollment and revenue growth that we achieved in 2019 were accompanied by meaningful adjusted EBITDA and GAAP net income margin expansion compared to 2018. Looking ahead, we anticipate the momentum we have built over the past two years to continue into 2020, and we believe we are well-positioned to continue outpacing the overall Medicare market growth as a result of our strong consumer value proposition, the depth of our technology platform and our demand generation expertise."
During the fourth quarter of 2019, eHealth worked with an external corporate valuation consultant to enhance its approach to estimating the lifetime values of plans it sold and to incorporate statistical tools to increase the accuracy of these estimates with an emphasis on improving member retention forecasting. Fourth quarter and full year 2019 financial results reflect the impact of the changes made to enhance eHealth's Medicare Advantage plan lifetime value forecasting model resulting from this project. Specifically, our fourth quarter and full year 2019 revenue each included a positive impact of $50.8 million from the change in estimate for expected cash commission collections relating to outstanding Medicare Advantage plans. Of this amount, $42.3 million is a change in estimate in expected cash commission collections for Medicare Advantage plans since we began selling such products through the third quarter of 2019.
Unless otherwise specifically indicated, the financial results discussed below include, where applicable, the $42.3 million impact (affected by tax for net income and net income per share) from the change in estimate of expected cash commission collections.
GAAP - Fourth Quarter of 2019 Results
Revenue - Revenue for the fourth quarter of 2019 was $301.7 million, a 124% increase compared to $134.9 million for the fourth quarter of 2018. Commission revenue for the fourth quarter of 2019 was $282.1 million, a 131% increase compared to $122.2 million for the fourth quarter of 2018. Other revenue for the fourth quarter of 2019 was $19.7 million, a 55% increase compared to $12.7 million for the fourth quarter of 2018.
Excluding the impact of the $42.3 million change in estimate discussed above, our total revenue and commission revenue were $259.4 million and $239.8 million, respectively, for the fourth quarter of 2019.
Revenue from our Medicare segment was $282.6 million for the fourth quarter of 2019, a 132% increase compared to $121.6 million for the fourth quarter of 2018. Excluding the impact of the $42.3 million change in estimate discussed above, our Medicare segment revenue was $240.3 million for the fourth quarter of 2019. Revenue from our Individual, Family and Small Business segment was $19.1 million for the fourth quarter of 2019, a 44% increase compared to $13.3 million for the fourth quarter of 2018.
Income from Operations - Income from operations for the fourth quarter of 2019 was $123.1 million compared to income from operations of $41.6 million for the fourth quarter of 2018. Operating margin was 41% for the fourth quarter of 2019 compared to 31% for the fourth quarter of 2018.
Pre-tax Income - Pre-tax income for the fourth quarter of 2019 was $123.4 million compared to pre-tax income of $41.6 million for the fourth quarter of 2018.
Provision for Income Taxes - Provision for income taxes for the fourth quarter of 2019 was $34.6 million compared to provision for income taxes of $15.6 million for the fourth quarter of 2018.
Net Income - Net income for the fourth quarter of 2019 was $88.8 million, or $3.58 net income per diluted share, compared to net income of $26.1 million, or $1.25 net income per diluted share, for the fourth quarter of 2018. Net income for the fourth quarter of 2019 included a non-cash charge of $9.0 million related to an increase in fair value of the earnout liability assumed in connection with eHealth's acquisition of GoMedigap compared to $6.0 million in the fourth quarter of 2018. The increase was driven primarily by eHealth's share price appreciation. The share price appreciation has increased the value of the equity-based portion of the earnout consideration owed to the former holders of GoMedigap equity interests.
Segment Profit - Profit from our Medicare segment was $149.3 million for the fourth quarter of 2019, compared to a profit of $58.7 million for the fourth quarter of 2018. Excluding the impact of the $42.3 million change in estimate discussed above, our Medicare segment profit was $107.0 million for the fourth quarter of 2019. Profit from our Individual, Family and Small Business segment was $8.3 million for the fourth quarter of 2019, compared to $3.5 million for the fourth quarter of 2018.
Non-GAAP - Fourth Quarter of 2019 Results
Non-GAAP Operating Income and Non-GAAP Net Income - Non-GAAP operating income for the fourth quarter of 2019 was $141.8 million, compared to non-GAAP operating income of $51.3 million for the fourth quarter of 2018. Non-GAAP operating margin was 47% for the fourth quarter of 2019, compared to 38% for the fourth quarter of 2018. Non-GAAP net income for the fourth quarter of 2019 was $102.5 million, or $4.13 non-GAAP net income per diluted share, compared to non-GAAP net income of $35.7 million, or $1.72 non-GAAP net income per diluted share, for the fourth quarter of 2018.
Non-GAAP operating income and non-GAAP operating margin for the fourth quarter of 2019 are calculated by excluding $9.2 million of stock-based compensation expense, a $9.0 million expense related to the change in fair value of earnout liability related to our acquisition of GoMedigap, and $0.5 million of amortization of intangible assets from GAAP net operating income and GAAP operating margin. Non-GAAP net income and non-GAAP net income per diluted share for the fourth quarter of 2019 are calculated by excluding $9.2 million of stock-based compensation expense, $9.0 million expense related to the change in fair value of earnout liability related to our acquisition of GoMedigap, $0.5 million of amortization of intangible assets and $5.0 million of the income tax effect of these non-GAAP adjustments from GAAP net income and GAAP net income per diluted share.
Non-GAAP operating income and non-GAAP operating margin for the fourth quarter of 2018 are calculated by excluding $3.1 million of stock-based compensation expense, $6.0 million expense for change in fair value of earnout liability related to our acquisition of GoMedigap, and $0.5 million of amortization of intangible assets from GAAP net operating income and GAAP operating margin. Non-GAAP net income and non-GAAP net income per diluted share for the fourth quarter of 2018 are
calculated by excluding $3.1 million of stock-based compensation expense, $6.0 million expense for change in fair value of earnout liability related to our acquisition of GoMedigap, and $0.5 million of amortization of intangible assets from GAAP net income and GAAP net income per diluted share.
Adjusted EBITDA - Adjusted EBITDA was $142.6 million for the fourth quarter of 2019 compared to $51.9 million for the fourth quarter of 2018. Excluding the impact of the $42.3 million change in estimate discussed above, our adjusted EBITDA was $100.3 million for the fourth quarter of 2019. Adjusted EBITDA is calculated by adding stock-based compensation, change in fair value of earnout liability related to our acquisition of GoMedigap, depreciation and amortization expense, acquisition costs, restructuring charges, amortization of intangible assets, other income, net, and provision for income taxes to GAAP net income.
Submitted Applications, Approved Members and Estimated Membership
Submitted Applications - The number of submitted applications for all Medicare products, which includes Medicare Advantage, Medicare Supplement and Medicare Part D Prescription Drug Plans, was 294,808 in the fourth quarter of 2019, a 82% increase compared to 162,216 in the fourth quarter of 2018. The percentage of applications for Medicare Advantage and Medicare Supplement products submitted online through our platform, which is a combination of agent unassisted and partially agent assisted online applications, increased from 22% for the fourth quarter of 2018 to 36% for the fourth quarter of 2019. The number of submitted applications for major medical Individual and Family plan products decreased by 18% in the fourth quarter of 2019 to 15,758 compared to 19,120 in the fourth quarter of 2018.
Approved Members - The number of approved members for all Medicare products, which includes Medicare Advantage, Medicare Supplement and Medicare Part D Prescription Drug Plans, was 273,244 in the fourth quarter of 2019, an 88% increase compared to 145,689 in the fourth quarter of 2018. The number of approved members for major medical individual and family plan products increased by 1% in the fourth quarter of 2019 to 14,547 compared to 14,452 in the fourth quarter of 2018.
Estimated Membership - Total estimated membership as of December 31, 2019 was 1,146,115, a 20% increase compared to the 952,926 estimated members we reported as of December 31, 2018. Estimated Medicare membership as of December 31, 2019 was 710,649, a 46% increase compared to the 486,690 estimated members we reported as of December 31, 2018. Estimated major medical individual and family plan membership as of December 31, 2019 was 128,487, a 15% decrease compared to the 151,904 estimated members we reported as of December 31, 2018.
Cash - Fourth Quarter of 2019
Cash Flows - Net cash used in operating activities was $56.8 million for the fourth quarter of 2019, compared to net cash used in operating activities of $8.7 million for the fourth quarter of 2018.
GAAP - Full Year Results
Revenue - Revenue for the year ended December 31, 2019 was $506.2 million, a 101% increase compared to $251.4 million for the year ended December 31, 2018. Commission revenue for the year ended December 31, 2019 was $466.7 million, a 105% increase compared to $227.2 million for the year ended December 31, 2018. Other revenue for the year ended December 31, 2019 was $39.5 million, a 63% increase compared to $24.2 million for the year ended December 31, 2018.
Excluding the impact of the $42.3 million change in estimate discussed above, our total revenue and commission revenue were $463.9 million and $424.4 million, respectively, for the year ended December 31, 2019.
Revenue from our Medicare segment was $447.0 million for the year ended December 31, 2019, a 112% increase compared to $210.6 million for the year ended December 31, 2018. Excluding the impact from the change in estimate discussed above, our Medicare segment revenue was $404.7 million for the year ended December 31, 2019. Revenue from our Individual, Family and Small Business segment was $59.2 million for the year ended December 31, 2019, a 45% increase compared to $40.8 million for the year ended December 31, 2018.
Income from Operations - Income from operations for the year ended December 31, 2019 was $81.4 million compared to income from operations of $2.6 million for the year ended December 31, 2018. Operating margin was 16% for the year ended December 31, 2019 compared to 1% for the year ended December 31, 2018.
Pre-tax Income - Pre-tax income for the year ended December 31, 2019 was $83.5 million compared to pre-tax income of $3.3 million for the year ended December 31, 2018.
Provision for Income Taxes - Provision for income taxes for the year ended December 31, 2019 was $16.6 million compared to provision for income taxes of $3.1 million for the year ended December 31, 2018.
Net Income - Net income for the year ended December 31, 2019 was $66.9 million, or $2.73 net income per diluted share, compared to net income of $0.2 million, or $0.01 net income per diluted share, for the year ended December 31, 2018. Net income for the year ended December 31, 2019 included a non-cash charge of $24.1 million related to an increase in fair value of the earnout liability assumed in connection with eHealth's acquisition of GoMedigap compared to $12.3 million for the year ended December 31, 2018. The increase was driven primarily by eHealth's share price appreciation. The share price appreciation has increased the value of the equity-based portion of the earnout consideration owed to the former holders of GoMedigap equity interests.
Segment Profit - Profit from our Medicare segment was $155.2 million for the year ended December 31, 2019, a 155% increase compared to profit of $60.8 million for the year ended December 31, 2018. Excluding the impact of the $42.3 million change in estimate discussed above, our Medicare segment profit was $112.9 million for the year ended December 31, 2019. Profit from our Individual, Family and Small Business segment was $23.4 million for the year ended December 31, 2019, a 303% increase compared to profit of $5.8 million for the year ended December 31, 2018.
Non-GAAP - Full Year Results
Non-GAAP Operating Income and Non-GAAP Net Income - Non-GAAP operating income for the year ended December 31, 2019 was $130.2 million compared to non-GAAP operating income of $31.2 million for the year ended December 31, 2018. Non-GAAP operating margin was 26% for the year ended December 31, 2019, compared to 12% for the year ended December 31, 2018. Non-GAAP net income for the year ended December 31, 2019 was $102.0 million, or $4.16 non-GAAP net income per diluted share, compared to non-GAAP net income of $22.6 million, or $1.11 non-GAAP net income per diluted share, for the year ended December 31, 2018.
Non-GAAP operating income and non-GAAP operating margin for the year ended December 31, 2019 are calculated by excluding $22.6 million of stock-based compensation expense, $24.1 million expense for the change in fair value of earnout liability related to our acquisition of GoMedigap, and $2.2 million of amortization of intangible assets from GAAP operating income and GAAP operating margin. Non-GAAP net income and non-GAAP net income per diluted share for the year ended December 31, 2019 are calculated by excluding $22.6 million of stock-based compensation expense, $24.1 million of expense for the change in fair value of earnout liability related to our acquisition of GoMedigap, $2.2 million of amortization of intangible assets and $13.7 million of the income tax effect of these non-GAAP adjustments from GAAP net income and GAAP net income per share.
Non-GAAP operating income and non-GAAP operating margin for the year ended December 31, 2018 are calculated by excluding $12.3 million of stock-based compensation expense, $12.3 million of expense for change in fair value of earnout liability, $1.9 million of restructuring charges, $2.1 million of amortization of intangible assets and $0.1 million of acquisition costs related to our acquisition of GoMedigap from GAAP net operating income and GAAP operating margin. Non-GAAP net income and non-GAAP net income per diluted share for the year ended December 31, 2018 are calculated by excluding $12.3 million of stock-based compensation expense, $12.3 million of expense for change in fair value of earnout liability, $1.9 million of restructuring charges, $2.1 million of amortization of intangible assets, $0.1 million of acquisition costs related to our acquisition of GoMedigap, and $6.2 million of the income tax effect of these non-GAAP adjustments from GAAP net income and GAAP net income per diluted share.
Adjusted EBITDA - Adjusted EBITDA was $133.2 million for the year ended December 31, 2019 compared to $33.7 million for the year ended December 31, 2018. Excluding the impact of the $42.3 million change in estimate discussed above, our adjusted EBITDA was $90.9 million for the year ended December 31, 2019. Adjusted EBITDA is calculated by adding stock-based compensation, change in fair value of earnout liability related to our acquisition of GoMedigap, depreciation and amortization expense, acquisition costs, restructuring charges, amortization of intangible assets, other income, net and provision for income taxes to GAAP net income.
Submitted Applications and Approved Members
Submitted Applications - The number of submitted applications for all Medicare products, which includes Medicare Advantage, Medicare Supplement and Medicare Part D Prescription Drug Plans was 471,578 applications for the year ended
December 31, 2019, a 78% increase compared to 264,903 for the year ended December 31, 2018. The percentage of applications for Medicare Advantage and Medicare Supplement products submitted online through our platform, which include a combination of agent unassisted and partially agent assisted applications, increased from 16% for the year ended December 31, 2018 to 27% for the year ended December 31, 2019. The number of submitted applications for major medical individual and family plan products decreased by 7% for the year ended December 31, 2019 to 27,635 compared to 29,698 for the year ended December 31, 2018.
Approved Members - The number of approved members for all Medicare products, which includes Medicare Advantage, Medicare Supplement and Medicare Part D Prescription Drug Plans, was 434,926 for the year ended December 31, 2019, an 81% increase compared to 239,688 for the year ended December 31, 2018. The number of approved members for major medical individual and family plan products declined by 25% for the year ended December 31, 2019 to 32,186 compared to 42,650 for the year ended December 31, 2018.
Cash - Full Year Results
Cash Flows - Net cash used in operating activities was $71.5 million for the year ended December 31, 2019 compared to net cash used in operating activities of $3.2 million for the year ended December 31, 2018.
Based on information available as of February 20, 2020, eHealth is providing its guidance for the full year ending December 31, 2020. These expectations are forward-looking statements and eHealth assumes no obligation to update these statements. Actual results may be materially different and are affected by the risk factors and uncertainties identified in this press release and in eHealth's annual and quarterly filings with the Securities and Exchange Commission.
The following guidance is for the full year ending December 31, 2020:
| (a) | Adjusted EBITDA is calculated by adding stock-based compensation, change in fair value of earnout liability, depreciation and amortization expense, amortization of intangible assets, other income, net, and provision for income taxes to GAAP net income. |
| (b) | Segment profit is calculated as revenue for the applicable segment less Marketing and Advertising, Customer Care and Enrollment, Technology and Content and General and Administrative operating expenses, excluding stock-based compensation, change in fair value of earnout liability, depreciation and amortization expense and amortization of intangible assets, that are directly attributable to the applicable segment and other indirect Marketing and Advertising, Customer Care and Enrollment and Technology and Content operating expenses, excluding stock-based compensation, depreciation and amortization expense and amortization of intangible assets, allocated to the applicable segment based on usage. |
| (c) | Corporate consists of other indirect General and Administrative operating expenses, excluding stock-based compensation and depreciation and amortization expense, which are managed in a corporate shared services environment and, since they are not the responsibility of segment operating management, are not allocated to the reportable segments. |
| (d) | Non-GAAP net income per diluted share is calculated by adding stock-based compensation expense per diluted share, change in fair value of earnout liability per diluted share, intangible asset amortization expense per diluted share and the income tax effect of these non-GAAP adjustments to GAAP net income per diluted share. |
Webcast and Conference Call Information
A Webcast and conference call will be held today, Thursday, February 20, 2020 at 5:00 p.m. Eastern / 2:00 p.m. Pacific Time. The Webcast will be available live on the Investor Relations section on eHealth's website at http://ir.ehealthinsurance.com. Individuals interested in listening to the conference call may do so by dialing (877) 930-8066 for domestic callers and (253) 336-8042 for international callers. The participant passcode is 1180328. A telephone replay will be available two hours following the conclusion of the call for a period of seven days and can be accessed by dialing (855) 859-2056 for domestic callers and (404) 537-3406 for international callers. The call ID for the replay is 1180328. The live and archived webcast of the call will also be available on eHealth's website at http://www.ehealthinsurance.com under the Investor Relations section.
eHealth, Inc. (NASDAQ: EHTH) operates eHealth.com, a leading private online health insurance exchange where individuals, families and small businesses can compare health insurance products from leading insurers side by side and purchase and enroll in coverage online. eHealth offers thousands of individual, family and small business health plans underwritten by many of the nation's leading health insurance companies. eHealth (through its subsidiaries) is licensed to sell health insurance in all 50 states and the District of Columbia. eHealth also offers educational resources and powerful online and pharmacy-based tools to help Medicare beneficiaries navigate Medicare health insurance options, choose the right plan and enroll in select plans online through PlanPrescriber.com (www.PlanPrescriber.com), eHealthMedicare.com (www.eHealthMedicare.com), Medicare.com (www.Medicare.com) and GoMedigap.com (www.GoMedigap.com).
Forward-Looking Statements
This press release contains statements that are forward-looking statements as defined within the Private Securities Litigation Reform Act of 1995. These include statements regarding our expected growth in 2020, the acceleration of our online enrollments, our ability to outpace overall Medicare market growth, our estimates regarding total membership, Medicare membership, Individual and Family plan membership and ancillary and small business membership, our estimates regarding constrained lifetime values of commissions per member and constraints on lifetime value by product category, and our guidance for the full year ending December 31, 2020, including our guidance for total revenue and revenue from our Medicare segment and our Individual, Family and Small Business segment, GAAP net income per diluted share and Non-GAAP net income per diluted share, GAAP net income, Adjusted EBITDA, profit from our Medicare segment and our Individual, Family and Small Business segment, Corporate shared service expense, cash used in operations and cash used for capital expenditures.
These forward-looking statements are inherently subject to various risks and uncertainties that could cause actual results to differ materially from the statements made. In particular, we are required by the revenue recognition standard to make numerous assumptions that are based on historical trends and our management's judgment. These assumptions may change over time and have a material impact on our revenue recognition, guidance, and results of operations. Please review the assumptions stated in this press release carefully.
The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include our ability to retain existing members and enroll new members during the annual healthcare open enrollment period and Medicare annual enrollment period; changes in laws and regulations, including in connection with healthcare reform or with respect to the marketing and sale of Medicare plans; competition, including competition from
government-run health insurance exchanges; the seasonality of our business and the fluctuation of our operating results; our ability to accurately estimate membership and lifetime value of commissions; changes in product offerings among carriers on our ecommerce platform and the resulting impact on our commission revenue; our ability to execute on our growth strategy in the Medicare market; exposure to security risks and our ability to safeguard the security and privacy of confidential data; our relationships with health insurance carriers; customer concentration and consolidation of the health insurance industry; our success in marketing and selling health insurance plans and our unit cost of acquisition; our ability to hire, train and retain licensed health insurance agents and other employees; the need for health insurance carrier and regulatory approvals in connection with the marketing of Medicare-related insurance products; consumer satisfaction of our service; changes in member conversion rates; changes in commission rates; our ability to sell qualified health insurance plans to subsidy-eligible individuals and to enroll subsidy-eligible individuals through government-run health insurance exchanges; our ability to maintain and enhance our brand identity; our ability to derive desired benefits from investments in our business, including membership growth initiatives; reliance on marketing partners; the impact of our direct-to-consumer email, telephone and television marketing efforts; timing of receipt and accuracy of commission reports; payment practices of health insurance carriers; our ability to successfully make and integrate acquisitions; dependence on our operations in China; the restrictions in our debt obligations; compliance with insurance and other laws and regulations; and the performance, reliability and availability of our ecommerce platform and underlying network infrastructure. Other factors that could cause operating, financial and other results to differ are described in eHealth's most recent Quarterly Report on Form 10-Q or Annual Report on Form 10-K filed with the Securities and Exchange Commission and available on the investor relations page of eHealth's website at http://www.ehealthinsurance.com and on the Securities and Exchange Commission's website at www.sec.gov.
All forward-looking statements in this press release are based on information available to eHealth as of the date hereof, and eHealth does not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made, except as required by law.
Non-GAAP Financial Information
This press release includes financial measures that are not calculated in accordance with U.S. generally accepted accounting principles (GAAP). To supplement eHealth's condensed consolidated financial statements presented in accordance with GAAP, eHealth presents investors with certain non-GAAP financial measures, including non-GAAP operating income (loss); non-GAAP operating margins; non-GAAP net income (loss); non-GAAP net income (loss) per diluted share; and adjusted EBITDA.
eHealth believes that the presentation of these non-GAAP financial measures provides important supplemental information to management and investors regarding financial and business trends relating to eHealth's financial condition and results of operations. Management believes that the use of these non-GAAP financial measures provides consistency and comparability with eHealth's past financial reports. Management also believes that the items described above provides an additional measure of eHealth's operating results and facilitates comparisons of eHealth's core operating performance against prior periods and business model objectives. This information is provided to investors in order to facilitate additional analyses of past, present and future operating performance and as a supplemental means to evaluate eHealth's ongoing operations. eHealth believes that these non-GAAP financial measures are useful to investors in their assessment of eHealth's operating performance.
Non-GAAP operating income (loss), non-GAAP operating margins, non-GAAP net income (loss), non-GAAP net income (loss) per diluted share and Adjusted EBITDA are not calculated in accordance with GAAP, and should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. Non-GAAP financial measures used in this press release have limitations in that they do not reflect all of the revenue and costs associated with the operations of eHealth's business and do not reflect income tax as determined in accordance with GAAP. As a result, you should not consider these measures in isolation or as a substitute for analysis of eHealth's results as reported under GAAP. eHealth expects to continue to incur the stock-based compensation costs and purchased intangible asset amortization costs described above, and exclusion of these costs, and their related income tax benefits, from non-GAAP financial measures should not be construed as an inference that these costs are unusual or infrequent. eHealth compensates for these limitations by prominently disclosing GAAP operating income (loss), GAAP operating margins, GAAP net income (loss) and GAAP net income (loss) per diluted share and providing investors with reconciliations from eHealth's GAAP operating results to the non-GAAP financial measures for the relevant periods.
The accompanying tables provide more details on the GAAP financial measures that are most directly comparable to the non-GAAP financial measures described above and the related reconciliations between these financial measures.
Investor Relations Contact
Kate Sidorovich, CFA
Vice President, Investor Relations
2625 Augustine Drive, Second Floor
Santa Clara, CA, 95054
CONDENSED CONSOLIDATED BALANCE SHEETS
| December 31, 2019 | December 31, 2018 | ||||||
| Assets | (Unaudited) | ||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 23,466 | $ | 13,089 | |||
| Accounts receivable | 2,332 | 3,601 | |||||
| Commissions receivable - current | 174,526 | 134,190 | |||||
| Prepaid expenses and other current assets | 7,822 | 5,288 | |||||
| Total current assets | 208,146 | 156,168 | |||||
| Commissions receivable - non-current | 414,696 | 211,668 | |||||
| Property and equipment, net | 10,518 | 7,684 | |||||
| Operating lease right-of-use assets | 36,621 | - | |||||
| Restricted cash | 3,354 | - | |||||
| Other assets | 18,004 | 11,276 | |||||
| Intangible assets, net | 10,062 | 12,249 | |||||
| Goodwill | 40,233 | 40,233 | |||||
| Total assets | $ | 741,634 | $ | 439,278 | |||
| Liabilities and stockholders' equity | |||||||
| Current liabilities: | |||||||
| Accounts payable | $ | 24,554 | $ | 5,688 | |||
| Accrued compensation and benefits | 29,578 | 20,763 | |||||
| Accrued marketing expenses | 12,041 | 11,013 | |||||
| Earnout liability - current | 37,273 | 20,730 | |||||
| Lease liabilities - current | 4,759 | - | |||||
| Deferred revenue | 2,570 | 876 | |||||
| Other current liabilities | 2,210 | 1,549 | |||||
| Total current liabilities | 112,985 | 60,619 | |||||
| Debt | - | 5,000 | |||||
| Earnout liability - non-current | - | 19,270 | |||||
| Deferred income taxes - non-current | 64,130 | 47,901 | |||||
| Lease liabilities - non-current | 34,305 | - | |||||
| Other non-current liabilities | 3,050 | 3,339 | |||||
| Stockholders' equity: | |||||||
| Preferred stock | - | - | |||||
| Common stock | 35 | 31 | |||||
| Additional paid-in capital | 455,159 | 298,024 | |||||
| Treasury stock, at cost | (199,998 | ) | (199,998 | ) | |||
| Retained earnings | 271,852 | 204,965 | |||||
| Accumulated other comprehensive income | 116 | 127 | |||||
| Total stockholders' equity | $ | 527,164 | $ | 303,149 | |||
| Total liabilities and stockholders' equity | $ | 741,634 | $ | 439,278 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts, unaudited)
| Three Months Ended December 31, | Year ended December 31, | ||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||
| Revenue | |||||||||||||||
| Commission | $ | 282,081 | $ | 122,244 | $ | 466,676 | $ | 227,211 | |||||||
| Other | 19,667 | 12,673 | 39,525 | 24,184 | |||||||||||
| Total revenue | 301,748 | 134,917 | 506,201 | 251,395 | |||||||||||
| Operating costs and expenses* | |||||||||||||||
| Cost of revenue | 1,956 | 755 | 2,738 | 1,228 | |||||||||||
| Marketing and advertising | 77,392 | 37,184 | 150,249 | 82,939 | |||||||||||
| Customer care and enrollment | 52,737 | 26,818 | 134,304 | 70,547 | |||||||||||
| Technology and content | 15,598 | 8,600 | 47,085 | 31,970 | |||||||||||
| General and administrative | 21,402 | 13,367 | 64,150 | 45,828 | |||||||||||
| Change in fair value of earnout liability | 8,973 | 6,000 | 24,079 | 12,300 | |||||||||||
| Amortization of intangible assets | 546 | 547 | 2,187 | 2,091 | |||||||||||
| Restructuring charges | - | - | - | 1,865 | |||||||||||
| Acquisition costs | - | - | - | 76 | |||||||||||
| Total operating costs and expenses | 178,604 | 93,271 | 424,792 | 248,844 | |||||||||||
| Income from operations | 123,144 | 41,646 | 81,409 | 2,551 | |||||||||||
| Other income, net | 266 | (21 | ) | 2,090 | 755 | ||||||||||
| Income before income taxes | 123,410 | 41,625 | 83,499 | 3,306 | |||||||||||
| Provision for income taxes | 34,586 | 15,554 | 16,612 | 3,065 | |||||||||||
| Net income | $ | 88,824 | $ | 26,071 | $ | 66,887 | $ | 241 | |||||||
| Net income per share: | |||||||||||||||
| Basic | $ | 3.74 | $ | 1.32 | $ | 2.90 | $ | 0.01 | |||||||
| Diluted | $ | 3.58 | $ | 1.25 | $ | 2.73 | $ | 0.01 | |||||||
| Weighted-average number of shares used in per share: | |||||||||||||||
| Basic | 23,772 | 19,680 | 23,075 | 19,294 | |||||||||||
| Diluted | 24,836 | 20,897 | 24,539 | 20,409 | |||||||||||
| (1) Includes stock-based compensation as follows: | |||||||||||||||
| Marketing and advertising | $ | 2,018 | $ | 496 | $ | 4,230 | $ | 1,974 | |||||||
| Customer care and enrollment | 524 | 251 | 1,451 | 816 | |||||||||||
| Technology and content | 1,665 | 560 | 3,611 | 1,675 | |||||||||||
| General and administrative | 4,946 | 1,757 | 13,278 | 7,824 | |||||||||||
| Restructuring charges | - | - | - | 251 | |||||||||||
| Total stock-based compensation expense | $ | 9,153 | $ | 3,064 | $ | 22,570 | $ | 12,540 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
| Three Months Ended December 31, | Year ended December 31, | ||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||
| Operating activities | |||||||||||||||
| Net Income | $ | 88,824 | $ | 26,071 | $ | 66,887 | $ | 241 | |||||||
| Adjustments to reconcile net income to net cash used in operating activities: | |||||||||||||||
| Depreciation and amortization | 830 | 609 | 2,983 | 2,479 | |||||||||||
| Amortization of internally developed software | 1,378 | 618 | 3,821 | 2,201 | |||||||||||
| Amortization of intangible assets | 546 | 547 | 2,187 | 2,091 | |||||||||||
| Stock-based compensation expense | 9,153 | 3,064 | 22,570 | 12,540 | |||||||||||
| Deferred income taxes | 34,363 | 15,491 | 16,197 | 2,812 | |||||||||||
| Change in fair value of earnout liability | 8,973 | 6,000 | 24,079 | 12,300 | |||||||||||
| Other non-cash items | 181 | 289 | (755 | ) | 675 | ||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||
| Accounts receivable | (1,650 | ) | (1,462 | ) | 1,270 | (2,127 | ) | ||||||||
| Commissions receivable | (231,486 | ) | (80,123 | ) | (243,364 | ) | (50,967 | ) | |||||||
| Prepaid expenses and other assets | 8,880 | 8,441 | (466 | ) | 232 | ||||||||||
| Accounts payable | 6,539 | (99 | ) | 19,694 | 1,414 | ||||||||||
| Accrued compensation and benefits | 11,438 | 7,214 | 8,814 | 5,133 | |||||||||||
| Accrued marketing expenses | 7,955 | 7,955 | 1,028 | 6,320 | |||||||||||
| Deferred revenue | (6,513 | ) | (4,863 | ) | 1,694 | 491 | |||||||||
| Accrued expenses and other liabilities | 3,811 | 1,530 | 1,869 | 935 | |||||||||||
| Net cash used in operating activities | (56,778 | ) | (8,718 | ) | (71,492 | ) | (3,230 | ) | |||||||
| Investing activities | |||||||||||||||
| Capitalized internal-use software and website development costs | (3,875 | ) | (1,950 | ) | (10,231 | ) | (6,294 | ) | |||||||
| Purchases of property and equipment and other assets | (1,025 | ) | (1,063 | ) | (6,641 | ) | (4,534 | ) | |||||||
| Payments for security deposits | - | - | (72 | ) | - | ||||||||||
| Acquisition of business, net of cash acquired | - | - | - | (14,929 | ) | ||||||||||
| Cash used in investing activities | (4,900 | ) | (3,013 | ) | (16,944 | ) | (25,757 | ) | |||||||
| Financing activities | |||||||||||||||
| Proceeds from issuance of common stock, net of issuance costs | - | - | 126,051 | - | |||||||||||
| Net proceeds from exercise of common stock options | 367 | 658 | 5,535 | 2,688 | |||||||||||
| Repurchase of shares to satisfy employee tax withholding obligations | (2,770 | ) | (1,106 | ) | (14,281 | ) | (4,504 | ) | |||||||
| Proceeds from line of credit | - | 5,000 | - | 5,000 | |||||||||||
| Debt issuance costs | (517 | ) | (49 | ) | (517 | ) | (1,221 | ) | |||||||
| Repayment of debt | - | - | (5,000 | ) | - | ||||||||||
| Acquisition-related contingent payments | - | - | (9,542 | ) | - | ||||||||||
| Principal payments in connection with leases | (24 | ) | (25 | ) | (105 | ) | (103 | ) | |||||||
| Net cash provided by (used in) financing activities | (2,944 | ) | 4,478 | 102,141 | 1,860 | ||||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | 18 | (6 | ) | 26 | (77 | ) | |||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | $ | (64,604 | ) | $ | (7,259 | ) | $ | 13,731 | $ | (27,204 | ) | ||||
| Cash, cash equivalents and restricted cash at beginning of period | 91,424 | 20,348 | 13,089 | 40,293 | |||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 26,820 | $ | 13,089 | $ | 26,820 | $ | 13,089 |
(1) The ending balance of cash, cash equivalents and restricted cash included $3.4 million of restricted cash as of December 31, 2019. There was no restricted cash as of December 31, 2018.
(In thousands, unaudited)
| Three Months Ended December 31, | % Change | Year ended December 31, | % Change | ||||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||
| Revenue | |||||||||||||||||||||
| Medicare (1) | $ | 282,604 | $ | 121,606 | 132 | % | $ | 446,961 | $ | 210,570 | 112 | % | |||||||||
| Individual, Family and Small Business (2) | 19,144 | 13,311 | 44 | % | 59,240 | 40,825 | 45 | % | |||||||||||||
| Total revenue | $ | 301,748 | $ | 134,917 | 124 | % | $ | 506,201 | $ | 251,395 | 101 | % | |||||||||
| Segment profit | |||||||||||||||||||||
| Medicare segment profit (3) | $ | 149,317 | $ | 58,671 | 154 | % | $ | 155,234 | $ | 60,844 | 155 | % | |||||||||
| Individual, Family and Small Business segment profit (3) | 8,323 | 3,512 | 137 | % | 23,368 | 5,803 | 303 | % | |||||||||||||
| Total segment profit | 157,640 | 62,183 | 154 | % | 178,602 | 66,647 | 168 | % | |||||||||||||
| Corporate (4) | (14,994 | ) | (10,317 | ) | 45 | % | (45,374 | ) | (32,996 | ) | 38 | % | |||||||||
| Stock-based compensation expense | (9,153 | ) | (3,064 | ) | 199 | % | (22,570 | ) | (12,289 | ) | 84 | % | |||||||||
| Change in fair value of earnout liability | (8,973 | ) | (6,000 | ) | 50 | % | (24,079 | ) | (12,300 | ) | 96 | % | |||||||||
| Depreciation and amortization | (830 | ) | (609 | ) | 36 | % | (2,983 | ) | (2,479 | ) | 20 | % | |||||||||
| Amortization of intangible assets | (546 | ) | (547 | ) | - | % | (2,187 | ) | (2,091 | ) | 5 | % | |||||||||
| Acquisition costs | - | - | * | - | (76 | ) | (100 | )% | |||||||||||||
| Restructuring charges | - | - | * | - | (1,865 | ) | (100 | )% | |||||||||||||
| Other income, net | 266 | (21 | ) | * | 2,090 | 755 | 177 | % | |||||||||||||
| Income before income taxes | $ | 123,410 | $ | 41,625 | 196 | % | $ | 83,499 | $ | 3,306 | 2,426 | % |
* Percentage not meaningful.
We evaluate our business performance and manage our operations as two distinct reporting segments:
| (1) | The Medicare segment consists primarily of amounts earned from our sale of Medicare-related health insurance plans, including Medicare Advantage, Medicare Supplement and Medicare Part D prescription drug plans, and to a lesser extent, ancillary products sold to our Medicare-eligible customers, including but not limited to, dental and vision, our advertising program that allows Medicare-related carriers to purchase advertising on a separate website developed, hosted and maintained by us, and our delivery and sale to third parties of Medicare-related health insurance leads generated by our ecommerce platforms and our marketing activities. |
| (2) | The Individual, Family and Small Business segment consists primarily of amounts earned from our sale of individual, family and small business health insurance plans and ancillary products sold to our non-Medicare-eligible customers, including but not limited to, dental, vision, and short-term insurance. To a lesser extent, the Individual, Family and Small Business segment consists of amounts earned from our online sponsorship program that allows carriers to purchase advertising space in specific markets in a sponsorship area on our website, our licensing to third parties the use of our health insurance ecommerce technology, and our delivery and sale to third parties of individual and family health insurance leads generated by our ecommerce platforms and our marketing activities. |
| (3) | Segment profit is calculated as revenue for the applicable segment less marketing and advertising, customer care and enrollment, technology and content and general and administrative operating expenses, excluding stock-based compensation, depreciation and amortization expense, acquisition costs, change in fair value of earnout liability, restructuring charges and amortization of intangible assets, that are directly attributable to the applicable segment and other indirect marketing and advertising, customer care and enrollment and technology and content operating expenses, excluding stock-based compensation, depreciation and amortization expense and amortization of intangible assets, allocated to the applicable segment based on usage. |
| (4) | Corporate consists of other indirect general and administrative operating expenses, excluding stock-based compensation, depreciation and amortization expense, which are managed in a corporate shared services environment and, because they are not the responsibility of segment operating management, are not allocated to the reportable segments. |
SUMMARY OF SELECTED METRICS
COMMISSION REVENUE BY PRODUCT
(In thousands, unaudited)
| Three Months Ended December 31, | % Change | Year ended December 31, | % Change | ||||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||
| Medicare | |||||||||||||||||||||
| Medicare Advantage | $ | 226,625 | $ | 85,797 | 164 | % | $ | 339,810 | $ | 143,445 | 137 | % | |||||||||
| Medicare Supplement | 15,263 | 12,860 | 19 | % | 40,345 | 31,166 | 29 | % | |||||||||||||
| Medicare Part D | 20,918 | 11,730 | 78 | % | 26,824 | 14,609 | 84 | % | |||||||||||||
| Total Medicare | 262,806 | 110,387 | 138 | % | 406,979 | 189,220 | 115 | % | |||||||||||||
| Individual and Family (1) | |||||||||||||||||||||
| Non-Qualified Health Plans | 5,967 | 3,084 | 93 | % | 17,559 | 6,470 | 171 | % | |||||||||||||
| Qualified Health Plans | 1,966 | 783 | 151 | % | 6,866 | 5,789 | 19 | % | |||||||||||||
| Total Individual and Family | 7,933 | 3,867 | 105 | % | 24,425 | 12,259 | 99 | % | |||||||||||||
| Ancillaries | |||||||||||||||||||||
| Short-term | 3,362 | 1,340 | 151 | % | 10,524 | 5,583 | 89 | % | |||||||||||||
| Dental | 2,100 | 1,106 | 90 | % | 5,238 | 2,717 | 93 | % | |||||||||||||
| Vision | 708 | 610 | 16 | % | 2,002 | 1,467 | 36 | % | |||||||||||||
| Other | 1,207 | 1,282 | (6 | )% | 3,985 | 4,941 | (19 | )% | |||||||||||||
| Total Ancillaries | 7,377 | 4,338 | 70 | % | 21,749 | 14,708 | 48 | % | |||||||||||||
| Small Business | 3,346 | 2,768 | 21 | % | 9,922 | 8,595 | 15 | % | |||||||||||||
| Commission Bonus | 619 | 884 | (30 | )% | 3,601 | 2,429 | 48 | % | |||||||||||||
| Total Commission Revenue | $ | 282,081 | $ | 122,244 | 131 | % | $ | 466,676 | $ | 227,211 | 105 | % |
SUMMARY OF SELECTED METRICS
COMMISSION REVENUE SUMMARY
| Three Months Ended December 31, | Year ended December 31, | ||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||
| Medicare | |||||||||||||||
| Commission Revenue from Members Approved During the Period (1) | $ | 214,018 | $ | 111,781 | $ | 355,916 | $ | 192,382 | |||||||
| Net Commission Revenue from Members Approved in Prior Periods (2) (3) | 50,066 | (62 | ) | 55,292 | (124 | ) | |||||||||
| Total Medicare Segment Commission Revenue | 264,084 | 111,719 | 411,208 | 192,258 | |||||||||||
| Individual, Family and Small Business | |||||||||||||||
| Commission Revenue from Members Approved During the Period (1) | 8,211 | 7,746 | 22,614 | 24,079 | |||||||||||
| Net Commission Revenue from Members Approved in Prior Periods (3) | 9,786 | 2,779 | 32,854 | 10,874 | |||||||||||
| Total Individual, Family and Small Business Segment Commission Revenue | 17,997 | 10,525 | 55,468 | 34,953 | |||||||||||
| Total Commission revenue | $ | 282,081 | $ | 122,244 | $ | 466,676 | $ | 227,211 |
SUMMARY OF SELECTED METRICS
SUBMITTED APPLICATIONS
| Three Months Ended December 31, | % Change | Year ended December 31, | % Change | ||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||||
| Medicare (1) | |||||||||||||||||
| Medicare Advantage (2) | 178,560 | 90,693 | 97 | % | 299,415 | 159,753 | 87 | % | |||||||||
| Medicare Supplement (2) | 22,392 | 18,072 | 24 | % | 54,328 | 40,252 | 35 | % | |||||||||
| Medicare Part D | 93,856 | 53,451 | 76 | % | 117,835 | 64,898 | 82 | % | |||||||||
| Total Medicare | 294,808 | 162,216 | 82 | % | 471,578 | 264,903 | 78 | % | |||||||||
| Individual and Family (3) | |||||||||||||||||
| Non-Qualified Health Plans | 9,982 | 12,161 | (18 | )% | 18,325 | 18,580 | (1 | )% | |||||||||
| Qualified Health Plans | 5,776 | 6,959 | (17 | )% | 9,310 | 11,118 | (16 | )% | |||||||||
| Total Individual and Family | 15,758 | 19,120 | (18 | )% | 27,635 | 29,698 | (7 | )% | |||||||||
| Ancillaries (4) | |||||||||||||||||
| Short-term | 12,635 | 26,969 | (53 | )% | 55,077 | 102,608 | (46 | )% | |||||||||
| Dental | 9,678 | 14,645 | (34 | )% | 38,650 | 46,073 | (16 | )% | |||||||||
| Vision | 5,056 | 8,288 | (39 | )% | 18,301 | 22,399 | (18 | )% | |||||||||
| Other | 4,856 | 9,656 | (50 | )% | 23,468 | 42,415 | (45 | )% | |||||||||
| Total Ancillaries | 32,225 | 59,558 | (46 | )% | 135,496 | 213,495 | (37 | )% | |||||||||
| Small Business (5) | 2,747 | 3,458 | (21 | )% | 8,095 | 8,693 | (7 | )% | |||||||||
| Total Submitted Applications | 345,538 | 244,352 | 41 | % | 642,804 | 516,789 | 24 | % |
Submitted Applications
Applications are counted as submitted when the applicant completes the application and either clicks the submit button on our website or provides verbal authorization to submit the application. The applicant may have additional actions to take before the application will be reviewed by the insurance carrier, such as providing additional information. In addition, an applicant may submit more than one application.
| (1) | Medicare-related health insurance applications submitted on our website or through our customer care center during the period, including Medicare Advantage, Medicare Supplement and Medicare Part D prescription drug plans. |
| (2) | The percentage of applications for Medicare Advantage and Medicare Supplement products submitted online through our platform, which is a combination of agent unassisted and partially agent assisted online applications, increased from 22% for the three months ended December 31, 2018 to 36% for the three months ended December 31, 2019. The percentage of applications for Medicare Advantage and Medicare Supplement products submitted online through our platform, which is a combination of agent unassisted and partially agent assisted online applications, increased from 16% for the twelve months ended December 31, 2018 to 27% for the twelve months ended December 31, 2019. |
| (3) | Major medical individual and family plan ("IFP") health insurance applications submitted on our website during the period. An applicant may submit more than one application. We define our IFP offerings as major medical individual and family health insurance plans, which does not include Medicare-related, small business or ancillary plans. |
| (4) | Ancillaries consists primarily of short-term, dental and vision insurance plans submitted on our website during the period. |
| (5) | Applications for small business health insurance are counted as submitted when the applicant completes the application, the employees complete their applications, the applicant submits the application to us and we submit the application to the carrier. |
SUMMARY OF SELECTED METRICS
| Three Months Ended December 31, | % Change | Year ended December 31, | % Change | ||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||||
| Medicare | |||||||||||||||||
| Medicare Advantage | 167,073 | 83,376 | 100 | % | 279,561 | 148,478 | 88 | % | |||||||||
| Medicare Supplement | 16,178 | 12,170 | 33 | % | 42,688 | 29,837 | 43 | % | |||||||||
| Medicare Part D | 89,993 | 50,143 | 79 | % | 112,677 | 61,373 | 84 | % | |||||||||
| Total Medicare | 273,244 | 145,689 | 88 | % | 434,926 | 239,688 | 81 | % | |||||||||
| Individual and Family | |||||||||||||||||
| Non-Qualified Health Plans | 9,937 | 11,360 | (13 | )% | 20,187 | 23,075 | (13 | )% | |||||||||
| Qualified Health Plans | 4,610 | 3,092 | 49 | % | 11,999 | 19,575 | (39 | )% | |||||||||
| Total Individual and Family | 14,547 | 14,452 | 1 | % | 32,186 | 42,650 | (25 | )% | |||||||||
| Ancillaries | |||||||||||||||||
| Short-term | 13,996 | 28,163 | (50 | )% | 58,687 | 107,846 | (46 | )% | |||||||||
| Dental | 11,619 | 14,623 | (21 | )% | 43,640 | 47,343 | (8 | )% | |||||||||
| Vision | 6,283 | 9,060 | (31 | )% | 21,391 | 24,638 | (13 | )% | |||||||||
| Other | 5,326 | 8,053 | (34 | )% | 22,980 | 33,500 | (31 | )% | |||||||||
| Total Ancillaries | 37,224 | 59,899 | (38 | )% | 146,698 | 213,327 | (31 | )% | |||||||||
| Small Business | 6,317 | 7,537 | (16 | )% | 16,685 | 19,550 | (15 | )% | |||||||||
| Total Approved Members | 331,332 | 227,577 | 46 | % | 630,495 | 515,215 | 22 | % |