eHealth(US:EHTH)2023-08-07 16:00PART I: Financial Information This section presents unaudited financial statements, management's discussion, and market risk disclosures Item 1. Financial Statements (Unaudited) This section presents eHealth, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, income statements, and cash flows, with detailed accounting notes Condensed Consolidated Balance Sheets Total assets decreased to $1.05 billion from $1.11 billion, driven by lower contract assets; liabilities and equity also declined Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $153,185 | $144,401 | | Contract assets – commissions receivable (Total) | $789,589 | $884,304 | | Total Assets | $1,053,435 | $1,112,611 | | Liabilities & Equity | | | | Total current liabilities | $44,745 | $60,565 | | Total Liabilities | $172,531 | $198,372 | | Convertible preferred stock | $279,995 | $263,284 | | Total Stockholders' Equity | $600,909 | $650,955 | Condensed Consolidated Statements of Comprehensive Loss Q2 2023 net loss improved to $23.5 million on $66.8 million revenue, driven by higher revenue and lower operating costs Financial Performance Summary (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $66,768 | $50,409 | $140,491 | $155,659 | | Loss from Operations | $(26,152) | $(45,473) | $(49,046) | $(85,187) | | Net Loss | $(23,501) | $(37,502) | $(43,379) | $(70,244) | | Net Loss per Share (Basic & Diluted) | $(1.18) | $(1.65) | $(2.20) | $(3.12) | Condensed Consolidated Statements of Cash Flows Net cash from operations significantly increased to $51.4 million, primarily due to a decrease in commissions receivable Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $51,375 | $21,346 | | Net cash provided by (used in) investing activities | $(40,777) | $28,264 | | Net cash provided by (used in) financing activities | $(1,687) | $63,418 | | Net increase in cash, cash equivalents and restricted cash | $8,784 | $112,815 | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, revenue recognition, commission receivables, preferred stock, debt, and legal contingencies - The company's revenue is disaggregated by product, with Medicare Advantage being the largest contributor to commission revenue40 - A significant portion of commission receivables and revenue is concentrated with a few major carriers: Humana (27% of receivables, 27% of H1 revenue) and UnitedHealthCare (25% of receivables, 22% of H1 revenue)4997 - The company has a $70.0 million secured term loan maturing in February 2025 and Series A Convertible Preferred Stock with a redemption value of $280.0 million as of June 30, 202377107 - The company is involved in a securities class action lawsuit and related derivative actions alleging false and misleading statements regarding accounting, member churn, and profitability8891 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses financial performance, key metrics, and strategic transformation, focusing on enrollment quality and cost rationalization - The company is executing a multi-year transformation plan focused on enrollment quality, member experience, and scaling marketing channels while reducing reliance on lead aggregators119 - Positive retention dynamics and a favorable commission environment led to a $18.7 million positive net adjustment to revenue in Q2 2023 from prior period enrollments119 - The company is scaling its agent headcount and increasing marketing investment in preparation for expected Medicare enrollment growth during the 2024 annual enrollment period120 Summary of Selected Metrics Key operating metrics show a 28% decrease in total approved members, while constrained LTV per MA member increased 1% Approved Members by Product (Q2 2023 vs Q2 2022) | Product | Q2 2023 | Q2 2022 | % Change | | :--- | :--- | :--- | :--- | | Medicare Advantage | 35,597 | 51,506 | (31)% | | Medicare Supplement | 2,923 | 3,092 | (5)% | | Total Medicare | 41,468 | 59,443 | (30)% | | Total Approved Members | 60,768 | 84,135 | (28)% | Constrained LTV per Approved Member (Q2 2023 vs Q2 2022) | Product | Q2 2023 | Q2 2022 | % Change | | :--- | :--- | :--- | :--- | | Medicare Advantage | $891 | $886 | 1% | | Medicare Supplement | $875 | $913 | (4)% | | Medicare Part D | $231 | $207 | 12% | Acquisition Cost per MA-Equivalent Approved Member (Q2 2023 vs Q2 2022) | Metric | Q2 2023 | Q2 2022 | % Change | | :--- | :--- | :--- | :--- | | CC&E cost | $774 | $486 | 59% | | Variable marketing cost | $396 | $410 | (3)% | | Total acquisition cost | $1,170 | $896 | 31% | Results of Operations Q2 2023 total revenue increased 32% to $66.8 million, driven by commission revenue and reduced operating expenses - Q2 2023 commission revenue increased 26% YoY, primarily due to $13.4 million in positive net adjustment revenue from prior period Medicare enrollments, compared to a $(10.8) million negative adjustment in Q2 2022148149 - Marketing and advertising expenses decreased 22% in Q2 2023 YoY, reflecting a deliberate reduction in member acquisition spend161 - Customer care and enrollment expenses increased 13% in Q2 2023 YoY, driven by costs for hiring and training new agents164 - General and administrative expenses increased 28% in Q2 2023 YoY, primarily due to higher professional fees and personnel costs171 Segment Information Medicare segment revenue increased 35% to $55.4 million, narrowing its loss, while other segments also showed growth Segment Performance (Q2 2023 vs Q2 2022, in thousands) | Segment | Revenue (Q2 2023) | Revenue (Q2 2022) | Segment Profit/(Loss) (Q2 2023) | Segment Profit/(Loss) (Q2 2022) | | :--- | :--- | :--- | :--- | :--- | | Medicare | $55,430 | $41,062 | $(4,695) | $(25,271) | | Individual, Family and Small Business | $11,338 | $9,347 | $6,693 | $4,343 | Liquidity and Capital Resources The company had $189.8 million in liquidity, but anticipates not meeting a preferred stock covenant in Q3 2023 - The company had $189.8 million in cash, cash equivalents, and short-term marketable securities as of June 30, 2023195196 - The company anticipates it will not meet the increased Minimum Asset Coverage Ratio of 2.5x required by the H.I.G. Investment Agreement at the end of Q3 2023, potentially granting H.I.G. additional rights200352 - The company has a $70.0 million secured term loan with an interest rate of 13.03% as of June 30, 2023, and was in compliance with its loan covenants201202 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks include credit risk from concentrated receivables and interest rate risk on marketable securities - Credit risk is concentrated in contract assets (commissions receivable), with a net balance of $789.6 million as of June 30, 2023224 - The company has exposure to foreign currency exchange risk through its subsidiary in China, but it has not been material to date226 Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures are effective at a reasonable assurance level229 - No material changes were made to internal controls over financial reporting during the quarter ended June 30, 2023230 PART II: Other Information This section details legal proceedings, risk factors, other information, and exhibits Item 1. Legal Proceedings The company faces legal proceedings, including a securities class action and derivative suits alleging false statements on accounting and profitability - The company is defending against a consolidated securities class action lawsuit (In re eHealth Securities Litig.) and related derivative actions (Chernet, Lincolnshire, Badwal matters)889192 - The lawsuits allege violations of the Securities Exchange Act related to materially false and misleading statements about the company's accounting, member churn, and profitability between March 2018 and April 202088 Item 1A. Risk Factors Key risks include intense competition, regulatory changes, financial estimation uncertainties, and potential covenant breaches - Business Risks: The company faces intense competition, derives a significant portion of revenue from a few carriers (Humana, UnitedHealthcare), and its success depends on attracting and retaining members, which has been impacted by its strategic shift235243244 - Regulatory Risks: The marketing and sale of Medicare plans are subject to complex and frequently changing CMS regulations. Recent rule changes have added disclaimers, complicated marketing material review, and increased compliance costs, which could harm business operations286293294 - Financial & Accounting Risks: Operating results are highly dependent on estimates of constrained lifetime value (LTV) of commissions, which are subject to changes in member retention and commission rates. Covenants in debt and preferred stock agreements impose restrictions, and the company anticipates not meeting an increased asset coverage ratio covenant in Q3 2023311317352 - Technology & Operational Risks: The business relies on its ecommerce platform and call center technology, which are vulnerable to failures. Operations in China expose the company to geopolitical risks and differing legal standards281327 Item 5. Other Information No director or executive officer adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading plan in the last fiscal quarter366 Item 6. Exhibits This section lists exhibits filed with the 10-Q, including CEO/CFO certifications and XBRL data files - The report includes CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act369