eHealth, Inc. (EHTH) Earnings Call Transcript & Summary

Hello, everyone. Thank you for joining us, and welcome to the Q2 2026 eHealth, Inc. Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Eli Newbrun-Mintz, Senior Manager of Investor Relations. Eli, please go ahead.

Good afternoon. 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 second 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 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. 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 reconciliation 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.

Good afternoon. Thank you for joining us today. Our second quarter results reflect the deliberate choices we made going into 2026. We entered the year with a strategy-centered on 3 priorities: building our lifetime advisory model, materially improving our cash flow profile, and making targeted investments in long-term growth opportunities such as ICHRA. Second quarter revenue was $33.6 million. GAAP net loss was $23.6 million. Adjusted EBITDA was a negative $21.8 million. Operating cash flow for the first 6 months was $30.8 million. Overall, these results were in line to slightly above our expectations. More importantly, we remain on track to achieve our key financial objectives for the year, including our cost savings targets and significant operating cash flow improvement compared to 2025. For the first 6 months of the year, non-GAAP operating expenses declined by $42 million compared to the prior year. We are creating a leaner operating model while preserving our key strategic capabilities and pursuing initiatives that we believe will drive long-term shareholder value. We continue to project annual variable cost savings of more than $60 million and fixed cost savings of approximately $30 million. Before discussing our operational progress, I'd like to spend a few minutes on the broader market environment. Despite recent disruption, the long-term opportunity in Medicare Advantage remains compelling. Medicare Advantage enrollment has now reached more than 35.5 million beneficiaries. While growth has moderated compared to prior years as carriers focus more heavily on profitability, the underlying demographic drivers supporting the market remain firmly intact. We continue to see strong demand from seniors with beneficiaries who are just turning 65, selecting Medicare Advantage at disproportionately high rates. Longer term, the Congressional Budget Office projects MA penetration to increase from approximately 55% today to 63% by 2034. After more than 2 years of disruption, we believe the industry is now gradually moving towards greater stability. We have begun discussions with our carrier partners ahead of the upcoming annual enrollment period. Several of those conversations corroborate this view. In June, CMS finalized the maximum broker commission increase at 4.5% for plan year 2027. However, carrier approaches are likely to vary by geography, product type, and specific strategic priorities. We expect to gain greater visibility into carrier plans during the third quarter as AEP preparations accelerate. One thing has become increasingly clear throughout this period of industry change. The market is rewarding high quality, retention-oriented distribution models. That trend aligns exceptionally well with our strategy. Within the tele broker channel, we continue to see consolidation and rationalization as participants adjust to a new operating environment. Against that backdrop, we believe the value eHealth provides to both consumers and carriers is as important as it has ever been. For beneficiaries, we serve as a trusted adviser with access to extensive plan inventory, which is especially critical during periods of elevated change. For carriers, we help deliver highly targeted member acquisition strategies and what we believe are among the highest quality enrollments within our distribution channel, supporting both member experience and carrier margin objectives. One of the most important milestones of the second quarter was the launch of our lifetime advisory model. The lifetime advisory approach shifts our relationship with members beyond a one-time enrollment interaction to a model of ongoing engagement throughout the year. Our advisers are equipped to help beneficiaries evaluate plan changes, address gaps in coverage, navigate healthcare decisions, and identify additional products that may improve financial security. Beyond elevating consumer experience, we believe this creates significant opportunities to increase member value through ancillary product cross-selling. As expected, second quarter enrollments and revenue declined year-over-year. Under the new model, we are concentrating our marketing spend in the first and especially fourth quarters when we see the greatest return on our investment. In the second and third quarters, we are focusing our advisers on engaging with their existing members. We have made meaningful progress in the initial months following the lifetime advisory model launch. Operationally, we have deployed adviser training programs, coaching initiatives, and new adviser tools that provide a centralized view of a member, enable personalized communications, and generate data-driven recommendations for effective member engagement. On the product side, we launched final expense in Q2 and laid the foundation for additional ancillary product offerings. Importantly, we have seen early validation of the core assumptions underpinning the strategy. First, consumers are responding positively to relationship-based engagement. Second, cross-selling opportunities appear significant. We are shifting the KPIs for measuring the success of this model in the same direction towards more holistic member-driven metrics. It starts with member retention. The core objective of the model is to deepen our relationship with members and remain engaged throughout the year. We believe improving retention over time will be one of our most important measures of success. We also plan to track ancillary product cross-sell rates and member-based lifetime value across multiple products. Early indicators have been encouraging, with second-quarter ancillary cross-sell rates doubling compared to a year ago. This represents the number of advisor-assisted ancillary product applications submitted by customers aged 65 and older in relation to the number of advisor-assisted applications for major medical Medicare products, including Medicare Advantage and Medicare Supplement plans. While we will continue to measure and report policy-based lifetime value under ASC 606, our internal focus is increasingly shifting towards member-driven metrics that better reflect the broader value of long-term relationships. As the lifetime advisory model matures, we also expect unit margins to improve, driven in part by referrals becoming a larger contributor to total enrollments. Because advisers are central to the success of this strategy, adviser retention and productivity will be important indicators that we track closely. Another area where we continue to make progress is artificial intelligence. Our approach to AI is straightforward. We believe technology can improve efficiency, scalability, and customer experience while still recognizing the critical role licensed insurance professionals play in providing personalized guidance and peace of mind for consumers. Today, AI is already supporting several of our customer-facing functions, including after-hours interactions, call screening, and certain customer service inquiries. For the upcoming AEP, we plan for AI-enabled call screening to replace the majority of manual screening processes. We are also exploring opportunities to expand our AI deployments into more complex customer service inquiries. Beyond consumer engagement, AI plays an important role across our back-office functions. We have expanded its use within product management, software development, and UX design. These capabilities helped us accelerate development of technology supporting the lifetime advisory model in about half the time we would have needed in the past. Another important application involves carrier plan content ingestion, historically one of our most data and labor-intensive activities. Through AI-enabled automation, we believe we can reduce manual effort substantially while improving accuracy. Looking ahead, we see numerous opportunities across customer-facing workflows, adviser enablement, and internal operations. Collectively, we believe our AI initiatives have the potential to enhance scalability, improve service levels, and reduce costs over time. In addition to Medicare, the second pillar of our 3-year strategy is achieving measured, profitable growth within the under 65 consumer market. ICHRA is a key component of that effort. The long-term trend toward ICHRA adoption continues to strengthen as employers seek more flexible and cost-effective healthcare solutions. Industry forecasts suggest ICHRA could cover approximately 5 million lives by 2029. Our strategy is to build a scalable platform that connects employers, employees, brokers, and benefit administrators through a seamless experience. While ICHRA is not expected to be a significant contributor to our 2026 financial results, with revenue forecasted to remain below $5 million this year, our focus today is on establishing the foundation for future growth. That means developing our pipeline, expanding strategic partnerships, strengthening broker relationships, and continuing to refine our operating model. We believe the market opportunity is attractive, and we are pursuing it with the same disciplined, capital-efficient approach that we are applying across the broader organization. To conclude, our priorities for 2026 remain unchanged. First, build and scale the lifetime advisory model to deepen member relationships, improve retention, and increase long-term member value. Second, continue improving our cash flow profile with a goal of achieving break even or better operating cash flow at the midpoint of our guidance. Third, advance diversification initiatives, including ancillary products and ICHRA. Looking ahead, we continue to expect a return to sustainable revenue growth on a streamlined cost foundation beginning in 2027. We believe that growth will be driven by 3 primary factors. The transition from acquisition-based economics or recurring relationship economics, growth within ICHRA, and selective expansion of our carrier-dedicated business Amplify. We are encouraged by signs of improving stability across the Medicare Advantage ecosystem. While work remains, carrier sentiment and industry fundamentals appear increasingly constructive compared to where they stood a year ago. As we enter the second half of the year, preparations for AEP are underway. We plan to meet with carrier partners, scale our demand generation engine, and begin the operational work necessary to support another successful enrollment season. We believe we are well-positioned to execute against our goals. Thank you for your continued support. I'll now turn the call over to our CFO, John Dolan.

Thank you, Derrick, good afternoon, everyone. Our second quarter results reflect the launch of our lifetime advisory operating model and the benefit of the cost reduction initiatives we implemented earlier this year. Consistent with our strategic priorities, we reduced lead generation spending outside of the key enrollment periods and focused our advisers on member engagement. We also continued making targeted investments in the under 65 opportunity, particularly within ICHRA. These actions result in lower Medicare enrollment volume during the second and third quarters. They are aligned with our longer-term objectives of improving return on marketing spend and increasing member lifetime value through stronger retention and ancillary product cross-selling. Importantly, we believe we are still on track to achieve our financial objectives for the year, including significant improvement in operating cash flow compared to 2025. Turning now to our second quarter results, please note that unless otherwise specified, all comparisons are on a year-over-year basis. Second quarter revenue was $33.6 million, down 45%. Total commission revenue was $29.8 million, including $7.6 million of net adjustment or tail revenue, which represents the ongoing value generated from previously acquired members. This compares to $17.8 million in tail revenue a year ago. Non-commission revenue was $3.8 million, down 38% from the prior year period. The decline was primarily driven by lower sponsorship revenue as carriers continued to prioritize margin recovery over enrollment growth. This was consistent with our expectations and reflects a broader trend we see across the Medicare landscape. As industry growth normalizes over time, sponsorship revenue could become a meaningful source of upside. Medicare segment revenue was $31.8 million, down 45%, primarily reflecting lower Medicare Advantage approved member volume and lower tail revenue. Medicare submissions declined 44% during the quarter, in line with our expectations. Moving to Medicare profitability and operating metrics. Within our Medicare segment, variable marketing and advertising expense declined 58%, reflecting our lower enrollment volume targets. The Medicare customer care and enrollment expense declined 21%. On a per approved member basis, total acquisition cost per MA equivalent approved member increased 16% during the quarter. Underneath that figure, customer care and enrollment cost per MA equivalent approved member increased 42%, while variable marketing cost per MA equivalent approved member declined 23%. We have significantly reduced marketing spend outside of the primary enrollment seasons while retaining our core adviser workforce. During the second and third quarters, those advisers are increasingly focused on member engagement activities and can rapidly pivot to inbound calls once AEP begins. Variable marketing costs and customer care and enrollment costs per member have moved in opposite directions, in line with expectations. Second quarter lifetime value, or LTV, for Medicare Advantage declined 1%. Medicare Supplement LTV increased 16%, and Medicare Part D LTV increased 52% compared to a year ago. It's important to remember that our unit economics remain largely policy-level metrics. They do not yet fully capture the value being created through higher ancillary product penetration, referrals, and broader member engagement. The increased ancillary product cross-sell rates are expected to become especially impactful as we return to growth and scale. In addition to increasing overall lifetime value, ancillary products generally produce a more favorable cash flow profile because a significant portion of the ancillary commission revenue is received earlier in the member life cycle relative to a Medicare Advantage sale. Medicare segment gross profit was $6 million, compared to $19.1 million in the prior year period, reflecting primarily lower enrollment volume and tail revenue. The second quarter is also an important quarter from an actuarial perspective because it provides greater visibility into the retention performance of their Medicare cohort enrolled during the most recent AEP. Based on our latest review, retention trends are in line with the AEP cohort enrolled in the prior year and ahead of the cohort enrolled 2 years ago. We continue to monitor retention closely, given the significant benefit changes and product adjustments implemented by carriers across the industry over the last 2 years. Our prudent approach to booking initial revenue allowed us to continue recognizing positive adjustment revenue again this quarter for a cumulative tail revenue of $284 million since 2018. Turning to the employer and individual segment. Revenue in this segment was $1.8 million, compared to $2.7 million. As we continue reducing investment in our traditional direct-to-consumer under 65 business, we expect that decline to eventually be offset and over time exceeded by growth in our emerging ICHRA platform. As Derrick highlighted earlier, our focus this year remains on building the employer relationships, partner ecosystem, and operational capabilities necessary to support scalable growth in the years ahead. Segment gross loss was $0.8 million, compared to a loss of approximately $0.3 million. Turning to overall profitability metrics. Second quarter GAAP net loss was $23.6 million, compared to $17.4 million, while adjusted EBITDA loss was $21.8 million compared to $14.1 million. Non-GAAP operating expenses declined 25% to $58.6 million, reflecting broad-based reductions across both fixed and variable cost categories. Non-GAAP marketing and advertising expense declined 45%, including a 56% reduction in variable marketing costs. Non-GAAP customer care and enrollment expense declined 20%. On the fixed cost side, non-GAAP general and administrative expense declined 26%, while non-GAAP technology and content expense remained relatively stable as we continued to support key strategic initiatives. Second quarter operating cash flow was negative $5 million, compared to negative $41.2 million, representing a substantial year-over-year improvement. We currently expect year-over-year operating cash flow improvement in each of the remaining 2 quarters of the year. We ended the quarter with $101 million of cash equivalents, and short-term marketable securities and remain comfortable with our liquidity position to support both operating requirements and strategic investments. We ended the quarter with $1 billion of commission receivables, including both current and long-term balances. That compares to $917 million as of June 30, 2025, representing an increase of 10%. As we look ahead, we are encouraged by the progress we have made under our new strategy. We have successfully launched the lifetime advisory model and are seeing encouraging early indicators around member engagement and ancillary product adoption. We remain on track to achieve our financial objectives for 2026, including meaningful cash flow improvement and our fixed and variable cost savings targets. 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 $16 million to $20 million to reflect the second quarter 2026 net adjustment revenue we recognized. Perhaps most importantly, we believe we are building the operating and financial foundation necessary to return the business to sustainable growth beginning in 2027. In the third quarter, we plan to reduce our marketing spend to an even greater degree year-over-year compared to the 45% reduction in the second quarter. As a result, we also expect a greater year-over-year decline in third quarter enrollment volume and revenue. We plan to deploy the majority of our marketing budget for the year in the fourth quarter across our highest performing direct channels. With that, operator, please open the line for Q&A.

[Operator Instructions] Your first question comes from the line of George Hill with Deutsche Bank.

Hi. This is Maxi on for George. Could you talk about your expectations for the MA broker commission environment for 2027? Are you anticipating any meaningful changes in carrier commission strategies and potentially a further increase in non-commissionable plans? Thank you.

Thanks, Maxi. It's good to hear from you. Thanks for joining the call. Let me make sure I heard the question appropriately. As it relates to agent commissions from carriers in the upcoming AEP, as you know, CMS printed the maximum rate, which was roughly 4.5%. Not unlike a year ago, our expectation is that each carrier will deploy a different strategy, and that likely commission rates will differ by plan type, geography type, as carriers finalize their plans for when, where, and how they want to grow their Medicare Advantage book. As it relates to non-commissionable revenue, that was the second part of your question. As we discussed, in Q1, we still don't see any material change in non-commissionable revenue opportunities as we prepare for AEP. Clearly our conversations with carriers are ongoing and we're evaluating those opportunities. I think maybe another question that you asked was about non-commissionable plans. Again, we don't expect a material change year-over-year. We certainly still think carriers will potentially deploy that as a way to manage growth, again, specifically in plan type and geography type. As we've said in prior calls, size and scale matter as we navigate this market, both for our carrier partners as well as for our members. We're comfortable with our plan supply that we'll be able to navigate that well.

Got it. You just talked about deeper cuts in marketing spend in Q3. As you prepare for the upcoming AEP, could you talk about how you're thinking about the level and mix of marketing spend relative to last year?

Yes. Thanks. I'll start, and then I'll let John and or Michelle add. Again, we've been very deliberate in our marketing demand generation spend over the last few years as we have navigated away from affiliate spend in those channels, more into our branded marketing channels. There's an important reason why we've done that, and it's linked directly to the quality of Medicare Advantage enrollments, the retention of members that are acquired through those branded channels. We continue to see positive outcomes. As John mentioned, our most recent cohort, in the first quarter of this year, the retention looks very similar to last year where we had similar mixes of branded and affiliate marketing spend. Again, we're continuing to see improvement over years where there was a higher percentage of spend into the affiliate channels. That's how we're continuing to think about the marketing mix heading into Q4. Again, we're deploying those dollars in the highest LTV to CAC ratio periods.

Hi, Maxi. This is John Dolan. I just want to add one thing. Obviously in the third quarter, we'll be in the second quarter of our new lifetime advisory model. In order to create space for our advisers, obviously we're going to bring down marketing spend, which will give them the capacity to work under that advisory model. With that lower spend, we'll see some lower commission revenue in third and fourth.

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

Logan on for George. Derrick, as you guys launched the lifetime advisory model here, I'm curious what you think is realistic in terms of attach rates over time, and when do you really start to measure your success on that front? I mean, how long do you think it should take for the motion to mature?

Yes. Logan, great to hear from you, and it's a really good question. Again, as we reported in the script, we're really pleased with sort of this first quarter and the cross-sell rate that we've experienced in Q2 of this year versus Q2 of a year ago. I do think it's realistic to expect that cross-sell rates will vary by quarter. As it relates to how we think about measuring it as it relates to maybe declaring victory, if that's the right way to think about it, I'd personally like to get through a full cycle, sort of through a full year, sort of through four full quarters, just to see and understand how members respond, how our advisers engage in those types of conversations. Over time, I don't think it's unrealistic to expect a cross-sell rate in a mature model, and it's hard to, at least at this point, just one quarter in, to define how long that we think it takes to get to full maturity. I don't think it's unrealistic in the Medicare space to assume a cross-sell rate of 0.5 That's the way I personally think about sort of a mature model in the Medicare Advantage space. We're excited to continue deploying the model and learning both how our advisers and how our members respond.

Understood. One other for me. Last year, plan terminations were quite high, especially relative to previous years. I'm curious how you see plan terminations shaping up this year, and on top of that, with the smaller team, the focus on branded channels, how targeted are you able to be in terms of knowing those areas where you're going to have shoppers and conversion might be pretty good?

Again, really good questions. I'll take the first part, and then I'll let Michelle take the second part of that question. As it relates to plan terminations versus a year ago, I would say, again, it's really early in the cycle. I think we have more to learn as we continuing having conversations with our carrier partners. I am encouraged by some of the early conversations with carriers. Again, it's not the same across the board, so to speak. In some of our conversations, we're hearing our carrier partners seeing stability in their portfolios, and I think that's being reflected as we see our carrier partners that are public at least report their Q1 and Q2 earnings. We're seeing margin improvement inside of their Medicare Advantage space. We're encouraged that there are places and pockets where it appears as though some stability is returning to the market. We also know that with some carriers, that there's some expectations that have been set that plan terminations will be similar year-over-year to slightly higher. I think that's really more of a reflection maybe of just market share gain in any one AEP, again, as the market sort of settles down and carriers navigate and manage their full portfolio. Michelle?

Sure. Hi, Logan, it's Michelle. Nice to chat with you. I'll answer a bit of the marketing piece, as well as just termed members in general. I might think about it in 2 different components. You know very well we've now had multiple years of success with our brand and our marketing channel performance, it does perform very well in these years of high plan disruption. We know that we have this very broad carrier mix, we can assist consumers, right, in a very unbiased way in helping them navigate through those changes. We know the strength of that branded messaging and the channels that we leverage to deploy that, always guided by our LTV to CAC and strong return. That will help in sort of the broad marketplace channel and broad consumers that are switching, shopping, and needing help. Though, right, we even are very acutely aware and surgically keyed in on our own members that are impacted, especially by term plans, right? We really need to make sure that we are reaching them, we do that through our advisers will help through that, right? That email, calls, making sure that we are proactively reaching out, making sure that they are aware that they are on a plan that no longer, and how can we help them navigate through that change.

Your next question comes from the line of Jonathan Yong with UBS.

Just kind of building on the term plan commentary. I guess at least one of the larger public carriers has talked about retaining a fair amount of their term plan members. I guess how much of that retention that they're aiming for falls to you directly? Is there a way to kind of parse that in terms of how that would fall to you in terms of additional commission over and above what you would normally get within the bands of the CMS commissions, obviously? Do they give you additional advertising spend? Just any color around that.