eHealth Inc (EHTH) 2006 Q4 法說會逐字稿

Good afternoon, everyone and welcome to the eHealth Inc. conference call to discuss the company's results for the fourth quarter and full year 2006. At this time all participants have been placed on listen-only mode. The floor will open to your questions following the presentation. It is now my pleasure to turn the floor over to Ms. Trisha Dill of Ashton Partners, the company's Investor Relations consultant. Please go ahead.

Thank you. Good afternoon, thank you all for joining us today either by phone or by webcast for a discussion about eHealth Inc. 2006 fourth quarter and full year financial results. On the call this afternoon we will have Gary Lauer, eHealth's President and Chief Executive Officer and Stuart Huizinga, eHealth's Chief Financial Officer. After management completes their remarks we will open the lines for questions. As a reminder, today's conference call is being recorded.

Before we begin I want to read a forward-looking advisory statement. Matters discussed during this conference call include forward-looking statements. All statements other than statements of historical fact are forward-looking statements. Forward-looking statements are based upon assumptions and assessments made by the company's management based on factors they believe to be appropriate. Forward-looking statements are subject to risks and uncertainties that could cause actual results, developments and business decisions to differ materially from those contemplated by these statements. Including risks and uncertainties associated with acceptance of the Internet as a medium for the purchase of health insurance, retention of the company's members, changes in the company's relationships with insurance carriers, system failures or capacity constraints, dependence upon Internet search engines to attract consumers to visit the company's website, reliance on marketing partners for the sale of health insurance, competition, protection of intellectual property and intellectual property rights claims, regulatory penalties and negative publicity, compliance with insurance and other laws and regulations and changes in laws and regulations. We describe these and other risks and uncertainties in our most recent quarterly report on form 10-Q filed with the Securities and Exchange Commission.

Please see the section entitled "risk factors." The company undertakes no duty to update or revise any forward-looking statements made during this call, whether as a result of new information, future events or otherwise. We will be presenting certain financial measures on this call that will be considered non-GAAP under SEC Regulation G. For a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure, please refer to the information included in our press release and in our SEC filings which can be found on our corporate website under the heading Investor Relations. At this point I will turn the call over to Mr. Lauer.

Thanks, Trisha, and I want to welcome everyone to the eHealth 2006 fourth quarter and full year earnings call and webcast. Our fourth quarter revenue of $17.4 million, operating income of $2.8 million, net income of $11 million which by the way includes a tax benefit of $7.4 million that Stewart will describe, and operating cash flow of $4.9 million, represent contingent and significant financial progress for our company.

Stewart will review our results in detail, but I want to emphasize that our fourth quarter operating margin and revenue growth illustrate the power and leverage of our financial model. Additionally 2006 was a year we experienced continued and uninterrupted revenue and earnings growth during every quarter. Demand for our health insurance products during the fourth quarter as measured by submitted applications was strong surpassing our expectations in building a strong revenue backlog for future quarters in 2007. As we have stated previously, our strongest demand quarters as measured by submitted applications for individual and family health insurance products have typically been the first and third calendar quarters, while the second and fourth calendar quarters are typically not as strong.

However, our fourth quarter 2006 submitted application volume was only 2% less than the third quarter of 2006, which was the largest, single largest application quarter we've have ever had. We source demand from three major channel categories; online advertising, which is primarily paid search, marketing partners, which is comprised of hundreds of pay for performance partners like Wells Fargo Bank, the National Federation of Independent Businesses, Paychex and many online affiliates and thirdly, Direct. And Direct is consumers who key in our URL, or access our e-commerce platform through unpaid search listings otherwise known as natural search.

Contributions from all three channels in the fourth quarter were balanced and strong. Online advertising represented 27% of submitted applications. Marketing partners, 33%, and Direct accounted for 40% of our fourth quarter submitted applications. I am especially pleased to see such a strong contribution from our Direct channel which we believe further illustrates the growing recognition of our brand, and in particular our brand recognition among Internet users. Our branding strategy, by the way, is to make eHealth the known and recognized Internet brand name leader for health insurance needs and solutions.

Stewart will describe our cost of acquisition for the past quarter but notably it declined on a per unit basis compared to the third quarter of 2006. The reasons for this expense decline are many but clearly our continued technology enhancements are making eHealth site experience easier for consumers resulting in better conversion rates across our business. It is possible that in any future quarter the total spend to acquire new members may be more than we had planned due to strong demand, thus having some impact on current quarter profitability.

If this is the case, please remember that strong application demand simply increases our revenue backlog for future quarters. We believe that our member cost of acquisition is low, allowing us room for cost increases while still generating high incremental unit profitability. We also made progress during the fourth quarter with additions to our product supply. Twenty-seven carriers were launched into new markets including United in North Carolina, Humana in Indiana and Utah and for Premera Blue Cross Blue Shield in Alaska. These are all new individual and family products for consumers to choose from in each of these respective markets and all are major, trusted brand names.

In the fourth quarter we also expanded our product offering within the short-term, small-business vision and dental product lines, as well. We continue to make substantial progress executing on our strategy of extending eHealth's technology platform and leadership. More health insurance carriers are recognizing the leverage and power of using the Internet to market and sell their products. This is something we have encouraged for several years. I believe strongly that the more the sale of health insurance on the Internet is embraced by carriers, the better it is for consumers, businesses and eHealth.

We have had several carriers in recent quarters license our technology to market and see their products online and emerging an exciting new business area for us. Our company's mission from day when is to be the online distribution standard through which individuals, families and businesses find, purchase and retain the right health insurance and related products. That does not mean that all consumers buy from us directly, but that all consumers are able to utilize our technology to comparison shop and buy on line. We want to monetize the online transaction no matter where it occurs.

By the way, Revolution Health's website was launched recently and this is Steve Case's new venture, and we are pleased to be part of the underlying technology and content powering Revolution Health's insurance coverage capability. Another example of the broader use and licensure of eHealth technology with another new partner.

Our online advertising business launched during 2006 where carriers are able to purchase space on a sponsorship area much like the Google or Yahoo page search landscape is also progressing nicely. During the fourth quarter 84 new sponsorship positions were contracted for by carriers like Aetna, Coventry and several Blue Cross Blue Shield plans. These sponsorships allow one or more plans to be prominently positioned at the top of our first quote page in a specific market allowing a carriers to advertise their product to prospective eHealth consumers. The sponsorship area is clearly described as such and all other plans are displayed in the normal eHealth unbiased and objective fashion.

Stewart will describe our revenue progress and sponsorship in technology licensing areas. For years eHealth has been very interested and active in the plight of the uninsured and in helping to frame a national healthcare discussion through our unique knowledge and industry position. We have published many reports and surveys drawing on our extensive experience in this area which have been widely referenced and reported on by the media, independent research groups and legislators.

During the fourth quarter of last year and the beginning of this year there has been renewed attention paid to healthcare in the public policy area. For example, President Bush in his State of the Union address proposed significant tax incentives and changes to help more people access health insurance. Also in early January Gov. Schwarzenegger proposed a plan to cover the uninsured in California, along with several other market changing ideas. We support ideas that help reduce the ranks of the uninsured and that make health insurance coverage more accessible and affordable to more people.

We feel very strongly that any public policy initiatives in the health insurance area must allow individuals to have choices about the coverage that they want to purchase. I believe that many of the recent proposals, such as tax incentives to purchase individual products, certain guaranteed issue requirements and mandates requiring people to have health insurance would, if ever enacted, benefit our business. As the presidential election season heats up over the next two years we'll hear much more about healthcare which we believe draws strong, positive attention to the growing individual market and our business.

On the competitive front we see little change in our marketplace. At eHealth we continue to see a growing Internet user base seeking health information and solutions, increasing brand awareness of our company name, a continually expanding product base, increasing consumer awareness of individual health insurance solutions and aggressive technology development of our platform to make the purchase of health insurance products online more efficient and common.

Lastly, Stewart will be giving financial guidance today for 2007. Needless to say, we are very optimistic about the year, our position in the market and the many opportunities that are emerging in front of us. Now Stuart will review our fourth quarter and full-year 2006 financial performance.

Thanks, Gary. Good afternoon, everyone. I am pleased to announce our financial results for our fourth quarter and full-year 2006. Starting at the top line our revenue for the fourth quarter was $17.4 million an increase of 49% over the fourth quarter a year ago. Our revenue for all of 2006 was $61.3 million resulting in a 47% growth rate over our 2005 revenue. This compares to a 38% growth rate in 2005 over 2004. Our total estimated membership base has grown 42% over our membership at the end of Q4 a year ago. Membership growth during the fourth quarter of 2006 continued the uninterrupted history of growth we've experienced every quarter since the beginning of our company. As of the end of 2006 our product retention was consistent with our historical trends and continues to exceed two years. By the way, we estimate product retention as a weighted average of all of our product lines, including short-term products which are held for less than 6 months on average.

EHealth member retention is longer than product retention because we often recapture terminating members into new products. We significantly grew our revenue from carrier sponsorship and technology licensing activities during 2006. Revenue from these sources grew from $515,000 in 2005 to $2.4 million in 2006, a 360% increase. Our operating expenses for the fourth quarter increased by 27% compared to the same quarter a year ago from $11.6 million to $14.7 million. Our operating expenses for the year increased by 26% over the prior year as compared to the 47% revenue growth that we saw this year. A significant contributor toward this increasing operating leverage was continued improvement in our acquisition costs which we measure as total marketing and advertising expenses for a period, divided by the total number of individuals included on all submitted applications for individual and family products submitted during the period.

This measure of acquisition costs declined by 6% from $50 in the fourth quarter a year ago to $47 in the latest quarter and by 8% for all of 2006 compared to 2005. We continued to see growth in submitted health insurance applications from all channels this year. Submitted applications from our Direct channel where acquisition costs during 2006 was nominal grew 33% over 2005. This compares to 43% year-over-year growth in our marketing partner channel and 30% in our online advertising channel.

For 2006 we continued to achieve economies of scale across our expense categories as measured by costs as a percentage of revenues. The largest improvement year-over-year was in our marketing and advertising expenses, which decreased from 43% of revenue in 2005 to 35% in 2006. Customer care and enrollment expenses represented 18% of revenue in 2006 while technology and content expenses were 17% and general administrative expenses 15% of revenue for the year. All of these represent an improvement over the corresponding percentages for the prior year.

Our operating margins in the fourth quarter improved to 16% of revenue, up from 12% in the third quarter of 2006 computed on a non-GAAP basis by excluding from the third quarter a $720,000 revenue item that had previously been deferred and was recognized in a lump sum in the third quarter. This also compares to a 1% operating margin in the fourth quarter of 2005.

Stock-based compensation expense in 2006 which is included in the operating expense numbers that I've discussed was $454,000 as compared to $191,000 in 2005. With our implementation of FAS 123(R) at the beginning of 2006 these non-cash expenses will continue to grow as we grant stock options or other stock awards in the future. On a GAAP basis net income in the fourth quarter was $11 million or $0.45 per diluted share compared to net income of $223,000 or $0.01 per diluted share in the same quarter of the prior year.

GAAP net income for the full-year 2006 was $16.5 million or $0.80 per diluted share compared to a net loss of $414,000 or a loss of $0.09 per diluted share in 2005. Excluding a $7.4 million tax benefit, non-GAAP net income in the fourth quarter of 2006 was $3.6 million or $0.15 per diluted share compared to $223,000 or $0.01 in the fourth quarter a year ago. The tax benefit that we recognized in the fourth quarter relates primarily to net operating losses which we incurred in previous years which are now reflected in our P&L. Previously we had a full reserve against our deferred tax assets. Coming into 2006 we had almost $29 million of such items.

In Q4 we met certain accounting criteria triggering a partial release of our reserves and resulting in a tax benefit of $7.4 million. This item was an accounting benefit and did not generate cash flow during 2006.

Moving on to cash flows, we continue to see very positive trends here. Our cash flow from operations increased to $4.9 million in the fourth quarter of 2006, up from $2.8 million in the third quarter and $1.1 million in the same quarter a year ago. This was our seventh consecutive quarter of positive operating cash flow. Cash flows from operations for all of 2006 increased to $11.4 million, up from $2.6 million in 2005. EHealth is not a capital intensive business as evidenced by capital expenditures of only $2.6 million in 2006, bringing our average annual capital spend for the past three years to $1.9 million per year.

On December 31, 2006 our cash and cash equivalents balance was $90.3 million, up from $9.4 million at the end of December 31, 2005 primarily due to the proceeds received from our October IPO and our 2006 operating cash flow of $11.4 million. Our working capital at December 31, 2006 totaled $86.5 million.

Finally I would like to comment on our expectations for 2007. Before I do that I want to remind you that these comments are based on current indications for our business which may change at any time. We undertake no obligation to update these comments. We are currently forecasting revenues for 2007 to be in the range of approximately $81 million to approximately $84 million. We expect non-GAAP net income excluding the effects of stock-based compensation to be in the range of approximately $10.5 million to approximately $12 million. Non-GAAP earnings per diluted share excluding the effects of stock-based compensation are expected to be in the range of approximately $0.40 to $0.45 per share.

Now that we have released some of the reserves against our deferred tax assets, we expect to be presenting our P&L next year on a fully taxed basis. With an anticipated non-GAAP effective tax rate that is our tax rate based on pretax earnings excluding stock-based compensation, of approximately 39% to 40%. However, from a cash flow standpoint due to the large amount of NOLs we have available to offset taxable income, we expect to continue to pay federal and state taxes at an AMT rate in 2007 which currently is a rate of less than 3% similar to our tax payments in 2006.

As a result we believe the cash flow will be one of the most meaningful metrics with which to judge our performance next year. That being said, we expect cash flow from operations to be in the range of approximately $19 million to $21 million in 2007. It is important to note that we've always been thoughtful and conservative in our Company's planning and projections. Our recurring revenue model, member base and demand make us confident that these are achievable targets. We also see opportunities that may allow us to exceed these targets.

With that, we'll open the call for questions.

(OPERATOR INSTRUCTIONS) Justin Post, Merrill Lynch.

First question on the marketing costs. It looks like they were down, like you said 6% year-over-year. Did you get any extra efficiencies in any of your channels Direct -- I'm sorry -- with the marketing partners or the online advertising or was it just a mix improvement?

We did have some mix improvement. Our Direct mix improved from 39% to 40% in the fourth quarter over the third quarter. We had efficiencies across the board, really. We continued to improve our site yields. Our marketing partners continue to be strong, and it's a combination of both, really.

If you look at conversion rate I calculate about 57% of your applications convert into new members. Could you talk about a little bit about the improvements of conversion rates once you get an application submitted?

We don't talk about specific percentages, but over the latter half of the year our conversions have been improving. Can't give you any trends or any specific percentages though.

We do have influence over that. We are processing more and more of these applications completely electronically. We've got more carriers looking at them electronically. We are being able to do things to help consumers in terms of products that are a better match for their needs and so on. So a number of activities on the conversion side and that back end conversion is one of the conversions we measure very closely and watch as well, is important to us.

Can you talk a little bit about the license and other revenues? Was that mostly ad driven like you said in your prepared remarks, and how is the carrier action to having more advertising for those carriers that are choosing not to participate in that?

We don't breakout those numbers between our advertising and licensing. I can say that both of those categories are growing for us, and I guess on the carrier front, Gary?

Yes, on the carrier side that is a business that is fast-growing for us. It is still early. We've got a number of carriers that are in some ways in the backlog right now that we are working through that we will be launching, we will be making announcements about them, but we are quite enthused about that. Our financial model there is an interesting one; although we refer to it as a licensing business we are really not selling a software license in the traditional sense. It is really more of a pay for performance business model, much like our business. And I think it's very attractive to the carriers because their implementation cost is nominal. They get to use the technology that we use, which we believe by far and away is best of breed, and they simply pay a transaction fee. So every time something is transacted they pay us. The more they transact the better this works for them. The more profit ostensively they are going to make, the more we are, as well. This seems to be a model that benefits both parties, and we believe that there is fast-growing interest in this.

Last question for me. When you look at the other members, the churn was lower than we had in our model. It looked like it was kind of stabilizing and a lower rate than we are expecting. Is there a positive mix in the products you're offering there that has lower churn? Can you talk a little bit about that?

I don't know if I can talk about mix, but you're going to see little fluctuations from quarter to quarter when you look at that. If you look over a longer period of time you should see those trends stay pretty smooth. We've seen those over time stay within a fairly narrow range.

And I would just like to give a little bit of color here on retention because we've had discussions with several people about this since the offering. The retention or the churn, the other word that is used that we report is product retention or product churn. That includes all of our products, by the way as Stuart described in his prepared remarks; it is our individual and family products, it is our small-business products, our dental products, our vision products and our short-term products. And short-term by definition is less than six months, and frankly it is closer to three months in duration.

So on a weighted average basis we calculate all of that into the retention. Now having said that, we do recapture many of these members who exit products for various reasons and we recapture them into other products. So there is a difference between product retention which we report and actual eHealth member retention.

Great and one more. Any onetime items on the top line? In the quarter you mentioned one last quarter, but was there anything special this quarter?

I would say similar to last quarter there is probably 250,000 to 300,000 of what I guess I would consider to be kind of a onetime item. It is a nominal amount.

Great, congratulation on the margins in the quarter.

Christine Arnold, Morgan Stanley.

Good evening. Could you update us on some of your new product initiatives, the EPI 3 pilot timing and where we stand on Internet only products?

Yes, we are working with several carriers on EPI 3, and for everyone's benefit or information EPI is the electronic process interchange, something that we developed here several years ago. That allows us entire transaction to be done electronically, the application taken electronically, the signature communicated or transmitted electronically and the payment submitted electronically as well. The next version of this which we are quite enthused about is the ability to actually be able to underwrite very, very quickly. Talking about turnaround times here in the beginning of a few hours and then getting to the point where it's actually an instant underwriting, if you will as compared to days, weeks and in a few cases sometimes months today. That is all in development, and certainly in the next six months you should look for some announcements from us in terms of pilot work that we're doing and so on there. We are quite enthused about that; we think this is really the promise of the Internet and we think those carriers early on who participate with us here will certainly be competitively advantaged. And Christine, the second thing you asked about was --.

Internet only product.

Thank you, Internet only products, yes; we've had discussions with several carriers about Internet only products. In some ways EPI 3 really makes the Internet only product a very simple thing for a carrier to do because everything on the distribution side at that point is all electronic, and I think as the year progresses we -- I would hope, that we would start to see some products from carriers that are much more Internet like and Internet based.

Another reason, by the way, that we encourage carriers to embrace the Internet and to sell their products online it gets them thinking that way and seeing not just the distinct cost advantages, but the efficiencies for consumers and higher close rates and all of those things that we benefit from.

And then final question I am wrestling with California and the uninsured initiative there. How do you think about that with respect to the financial implication to you? It doesn't seem there is a lot of room in the proposal for commissions.

In the California proposal there is a -- let me emphasize proposal -- the governor is saying more and more this is one set of ideas and they are looking for more ideas. And there has been a lot of discussion here; we've met with the staff and I have met with him personally on this. There is really three items here that are probably of most relevance to us. The first is this idea of guaranteed issuer where no one can be denied. The second is the mandate that every resident in the state has to have health insurance. So if you just take those two things, that is clearly a benefit to our business that will drive people to us. We are the only resource where all of these products exist.

The third one which is interesting is this idea of in some ways dictating the profitability or what the loss ratio can be for insurers. And simply what the governor's proposal says today is that insurers on average have got to spend $0.85 of every premium dollar on health care. That leaves them $0.15 to administer. So that is $0.15 for claims. That is $0.15 for moving paper around. That is $0.15 for commissions, everything, and profit as well.

These carriers today run in the -- many of the carriers we work with as you know, Christine, run into the high 70s and into the low 80s. However, it is our clear understanding that this requirement is not a product by product requirement, it is a requirement across all products in the entire base that the insurer may have. My feeling about that -- this is just one person's opinion but I think that -- although I pretty close to it -- I think the likelihood of that occurring is less and less every day. And I know there has been some very strong opposition from the industry here, as well. And it could get to the point where it's too expensive for carriers to be able to operate here if they are so far constrained and they could move a lot of their operations out of the state which would be a job loss and I think that is another issue that the administration in Sacramento is going to have to think long and hard about.

That's really helpful. Thank you.

Steve Halper, Thomas Weisel Partners.

Relative to your submitted applications is it still around 1.5 members per submitted application?

Yes. That is pretty close approximation, yes.

Okay, and Stuart, could you help us understand the operating cash flow guidance for the year? It looks extremely strong. Are there any other cash flow items that we need to be aware of?

No, there really aren't. The gap that you see between that and our net income guidance is really the fact that we are still going to pay cash taxes next year. We're still paying 3% whereas for GAAP purposes we are going to need to book a full tax provision even though we are not paying that out in cash.

So the primary item is the tax rate?

That is exactly right.

Okay, but no other changes on receivables or payables?

Really nothing there. The other item I guess I should mention is stock-based compensation is another item.

What is the estimate for that for '07?

I haven't given any guidance there. It is not a number that we are putting out. It is going to range considerably depending on what the price of our stock does, volatility of that and then the number of options we grant this year.

Your option granting policies, any material change since the offering?

No.

Thank you.

(OPERATOR INSTRUCTIONS) William Morrison, JMP Securities.

Gary, I was wondering if you could elaborate a little bit -- I guess I am surprised to hear that you think guarantee issue mandate would be positive. My understanding was in other states that have guarantee issue that there aren't many insurance carriers operating IFP businesses in those states. Am I wrong about that, or is there something that has changed with guarantee issue that would make it positive in California and other states that don't currently have universal coverage?

You asked an important question. The state of New York, for example, is a guaranteed issue state and there is very little product available. It is very expensive, because it has to be to mitigate all the risk that the carriers are forced to take on and because of that most of the carriers don't participate. The difference between New York, for example and California and they are both high-density population states, is that in California there's a very mature established individual business that has been here for years. Blue Cross Blue Shield, Health Net, PacifiCare, (indiscernible) has come in recently, as you know Kaiser. And in our discussions we've had with carriers and our view of the market it is very difficult for us to see those carriers exiting the market and reducing the number of products.

The reason we think that it would be good for us is that I have used this analogy before -- it is probably not a great one, but it is a little bit like being a car dealer. If you have a mandate that everyone in the state has got to buy a car and everyone can buy a car which is what guaranteed issue says, that you're going to see an awful lot of business coming in. Having said that I don't think it is good public policy for several reasons. One, we is certainly could see over time a reduction in the number of products that is available and that wouldn't be good. Secondly and more importantly I think we're going to see an increase in prices.

So while you may through guaranteed issue be able to include people who are unhealthy or who are precluded today what you will be doing is perhaps at the bottom dropping out many people who are on the cusp of affordability because prices increase to cover that risk of the unhealthy people coming in. And this is something we're talking with the Governor's staff about; we think there are other ways, creative ways to address the uninsured in the state without doing things like this in the marketplace.

And by the way we are very supportive of the Governor's objective to get people covered in California. We think that is a great one. It's one we want to participate in. We've got some views and ideas, constructive ideas by the way about some other ways to get at this that I think could work better for the state, for people who don't have health insurance and for business, as well.

Thank you. A couple other quick questions. One, I was wondering if you could comment -- you said in the past that Yahoo's new Panama platform could in theory make your marketing spend, your search spend on Yahoo more efficient now that they've got -- now that you can bid on a state by state basis. I am just wondering it has been up for a couple weeks if you've seen any impact or if you can comment on that.

Well, Yahoo is a very important partner of ours, has been for years. We've had the opportunity to work very closely with them on Panama. We've been really kind of a preferred partner there and Panama has been up for a short period of time. It is too early to tell yet really what the impact or the results are going to be. Clearly Google is the leader in paid search. I mean that name Google is almost become a verb. And I think that's one of the things that Yahoo is going to be challenged with, but having said that, the more competition we have in the paid search area, the more good competition we have. Obviously we think that is going to be good for pricing in terms of putting some pressure on pricing in a downward way.

Secondly and more importantly, I am not so sure that Panama, if successful necessarily takes away from Google. I think it may be additive for someone like us it would just be more people consumers coming through search, and we would see that as a potential big positive.

And two quick ones. One, I was wondering if you could give us CapEx guidance for '07 and lastly, could you let us know what the customer concentration was in the quarter?

On CapEx we're not giving guidance, specific guidance on that. I can just tell you last year we spent $2.6 million on it, and we expect moderate increases next year in that area.

On customer concentration our two largest customers are WellPoint and United as you see in our filings. We have seen steady declines in our percentages as a mix. We still have strong growth with those carriers, but we are starting to see diversification toward some of the other carriers, as well, and that has diminished the concentrations with those over the course of the year.

I would like to make a comment there as well not just on those two, but just on growth from carriers. What we saw in the fourth quarter was we thought a very good trend, which was that an awful lot of our growth, a majority of our growth came from carriers who have been with us for more than 12 months. Many of these carriers have been with us for years and years, which again I think illustrates the fact that we are helping them to gain market share in a number of different places and a number of different ways. And it just isn't -- this isn't a business about bringing new carriers on; rather we really are getting into market space for them and with them that is quite substantial.

I assume you will be reporting on your filings exact percentages with WellPoint and United?

Yes.

Thanks a lot.

Carl McDonald, CIBC.

I just had a follow-up question on California, which is could you give us a sense of what percentage of your revenue is derived from the state of California?

We do not breakout revenues that way. California is a big state. It is the largest population state in the country. It is where we started our company. It is a vibrant market. We've got some very, very good well-established carriers here that we have outstanding relationships with, so it is obviously an important business to us. But having said that, the percentage of business that we do in California overall has been in decline over the last several years as other states and markets have come on and come on quite strongly. That is not to say we are not growing in California. We are.

So the best thing to do then would be to take the Blue Cross to California and adjust for all those factors you just mentioned to get to a rough estimate?

I am sure there would be a lot of ways to do it. But again I just want to emphasize that as a percentage of our business it is on a decline, and it is a much lesser percentage of our business than it was a few years ago.

Okay. If you can give us a sense for what percentage of the policies you sell that are rated up; so in other words what percentage of people receive the initially quoted price versus a higher rate after the underwriting because of something like a pre-existing condition?

That's a question I actually don't have the data on right now; we would have to go back and do some research on that. I wouldn't want to gestimate it sitting here but I can tell you this, that we do an awful lot through what we've built into our software and our capabilities as people go through the selection process to help with decision support tools and so on to help them get to the product that best matches their needs and so on.

For example, we know that some carriers won't approve someone because they take Claritin which is over-the-counter now for allergies. Others will. Some carriers will or won't take someone for having a history of cancer. Some will. Some will rate that up, some won't. So we do a lot of navigating in and around that through our software. But I don't know -- I don't know the percentage of rate up. I want to say it's not high but I wouldn't take that -- I would take that only at face value. We have to do some research on that.

I know you don't want to give a specific expectation around stock comp expense, but could you give a rough range relative to the $400,000 in '06 and should we be thinking $1 million, $5 million, $10 million?

No, it is not a range that we decided to put out and I'm not comfortable giving that number.

Okay. And last question is just on capital deployment with the $90 million or so in cash, just where you are thinking that could be deployed to.

Well, it is a question I am asked quite a bit these days, and we don't have any specific objectives for it right now. We generate cash in our business. We don't need it for anything like that. We don't have any big projects either underway or on the horizon that would require that cash. In fact, we've got several significant projects underway in our company's technology products that you'll be hearing more about this year that we think are really important.

But we are funding all of that through everything that we've already told you about in the guidance we have given you and so on. Having said that, there is obviously the opportunity for acquisitions. We've never seen anything that we thought could be highly accretive to our business. We've grown everything organically. As you know, that growth has been accelerating for us. And some of the new businesses that we are in like the technology licensing business to carriers, maybe the advertising business, there could be some things out there that would be of interest to us. But I am not so sure -- I don't know where those are specifically today.

So we are just beginning to think about these kinds of things. But I can tell you that anything we did that way would have to be very additive and accretive to our business. It would have to be very strategic and make a real difference for us here and with the kind of growth rates we have that certainly limits the opportunities.

Thank you very much.

Steve Halper, Thomas Weisel Partners.

Stewart, what is the expectations to become a full cash payor of taxes?

As in what year we think that will happen?

Around what timeframe.

Our long-term estimates put us out in sometime in 2009.

Sometime in 2009.

Correct.

Okay, thank you.

There are currently no further questions in the queue. I would like to turn the call back over to Investor Relations for closing remarks.

Thank you for participating in our earnings call this afternoon. We look forward to updating you next quarter.

Thank you.

Thanks.

Thank you for your participation in today's conference; this concludes the presentation. You may now disconnect. Good day.