eHealth Inc (EHTH) 2008 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2008 eHealth Inc. earnings conference call. My name is Fev, and I'll be your coordinator for today.

(OPERATOR INSTRUCTIONS).

I would now like to turn the presentation over to Kate Sidorovich, Director of Investor Relations. Please proceed.

Good afternoon and thank you all for joining us today either by phone or by webcast for a discussion about eHealth Inc.'s third quarter 2008 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 its remarks, we will open the line for questions. As a reminder, today's conference call is being recorded and webcast from the Investor Relations section of our website. A replay of the call will be available from the Investor Relations section of our website following the call.

We will make forward-looking statements on this call. All statements other than statements of historical fact are forward-looking statements. Forward-looking statements made on this call will include statements regarding Citigroup's plans to promote eHealth Insurance; our intention to expand marketing of the HSA platform; CareFirst's plan to make our eCommerce solution available to consumers and brokers; IHC's plan to use eApproval to gain competitive advantage and get faster traction; eApproval serving as a competitive advantage; increased care recognition over the benefits of eApproval; our intention to work closely with the government on healthcare policy; the likelihood and limitations on the scope of healthcare platform reform; the impact of any healthcare and tax reform; our ability to maximize opportunities in connection to healthcare reform; the duration of the current economic conditions and impact of our investment approach; our plan with respect to marketing messaging; our investment approach positioning us well to weather the market environment; fourth quarter interest income; our effective tax rate for 2008; our projected rate of payment of cash taxes; a data center expansion project and its impact on capital expenditures; guidance for the full year 2008; and guidance relating to stock-based compensation expense.

Forward-looking statements are based on 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. We describe these and other risks and uncertainties in our annual report on Form 10K and quarterly reports on Form 10Q filed with the Securities and Exchange Commission, which you may access through the SEC website, or from the Investor Relations section of our website.

Forward-looking statements made on this call represent the Company's views as of today. You should not rely on the statements as representing our views in the future. We undertake 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.

And at this point, I will turn the call over to Gary Lauer. Gary?

Good afternoon and thanks everyone for joining us today.

I'd like to begin by highlighting our financial results for the third quarter. Our total revenue of $28.5 million grew 24% over the third quarter a year ago. Earnings per share was $0.12. Non-GAAP operating margin, excluding the effects of stock-based compensation, was 19%. And we generated $8.3 million of operating cash flow during the quarter, bringing our overall cash and marketable securities balance to $143 million.

We believe that our financial performance, posted during a very challenging and uncertain economic environment, further illustrates eHealth's sound business model and Company-wide commitment to execution of our plans.

Of particular note during the past quarter is our submitted application growth of 20% year-over-year. We experienced healthy submitted application growth across all of our member acquisition channels. In addition to our application growth, we also made important progress in a number of key strategic areas, including additional eApproval projects, signing of a large eCommerce on-demand transaction with a significant carrier, and further expansion of our growing marketing partner network.

I'd like to make some more comments about our application growth. Throughout the third quarter, I tried to be very clear, both inside the Company and out, that we were not going to wait passively for the economy to get better. While the economy and consumer spending environment deteriorated during the third calendar quarter, we were developing and implementing a wide range of aggressive marketing initiatives that are specifically tailored to today's economic realities. In the traditional media area, and through our PR efforts, we are heavily stressing an affordability message and educating consumers that health insurance isn't a discretionary item, but rather something they need and can afford through eHealth. For example, our marketing campaign, which emphasizes that health insurance can be bought for the cost of a latte a day, has been very effective.

During the quarter, we continued to refine our paid search efforts to maintain our leadership position in this very important channel. We continue to expand our marketing partner channel by adding new Blue Chip partner names and finding new innovative approaches to co-branding and marketing campaigns. And across all of our marketing channels, we are aggressively pursuing consumers who have been recently laid off from their jobs by offering attractive, affordable alternatives to COBRA health insurance coverage.

I will expand on all of these areas, but what is important is that today, as before, our member acquisition remains highly diversified and profitable. During the third quarter, we experienced year-over-year growth in each of our member acquisition channels. For the third quarter, online advertising was 28% of our individual and family plan submitted-application volume; marketing partners were 33%; and direct accounted for 39% of our IFP submitted applications.

The contribution from all of our channels and initiatives has allowed us to reaccelerate our application growth, and there is not a single program, I am glad to say, that was the key driver of application growth during this quarter.

It is also important to note that our marketing and advertising spend was 40% of revenue during the quarter. Although this is marginally higher than our traditional spend, we are comfortable with this increase, and believe it allowed us to bring in incremental and profitable new members during the quarter.

Turning to our marketing partner channel, we closed on several new marketing partnerships during the quarter, and recently added OptumHealth Bank, a leader in HSA assets, as part of our HSA outreach program. We are also pleased to announce a new partnership with Citigroup, an excellent brand name and a leader in several important financial verticals. Citi is planning to promote eHealth Insurance through their multiple distribution channels, including consumer, small business, and professional credit card holders, and through their affinity partner channel.

In the third quarter, we got good consumer exposure through Sears and American Airlines, both Citigroup affinity partners. Specifically, Sears launched multiple banners on their website advertising eHealth to their Citi card holders, while American Airlines conducted an email outreach program introducing eHealth to the American Airlines Advantage Citi card holders as well.

We are expanding our efforts in outreach in the COBRA alternatives market with the goal of establishing eHealth as the COBRA go-to expert in the Human Resources and Benefits community.

We also enhanced our COBRA Learning Center by adding a new interactive calculator to allow consumers to compare their COBRA premiums to more affordable individual and family products. Our COBRA Learning Center can be found at cobralearning.com, and is being used more and more by HR professionals and individuals during difficult job transitions.

We also launched a co-branded COBRA Learning Center with Willis Group for use by their agents and clients. Additionally, we added a new COBRA administrator, eflexgroup, as a COBRA marketing partner.

Our Business HSA platform continues to make progress. Our pilot program is currently available in 35 states and the District of Columbia for both eHealth direct traffic and through our partnership with the National Federation of Independent Businesses.

We also now have exposure on the US Small Business Administration HSA Resource Center website. We are encouraged by these results and intend to expand marketing of the program during the coming quarters.

In the online advertising channel, our year-over-year IFP application growth showed an increase over the second quarter of 2008. This was driven primarily by a small increase in the year-over-year growth in our click-throughs on major search engines, and the increased efficiency in converting our IFP quotes into submitted applications. Importantly, we continue to capture a dominant share of the overall search share of page, directly and through our marketing partner relationships.

The direct channel remained the largest contributor of submitted applications, at 39% of total application volume. During the quarter, we did significant media outreach, and were featured in such leading publications as Forbes, The Wall Street Journal, Chicago Sun Times, and on The Today Show, to mention a few. The eHealth message of affordable access to quality health insurance resonates well with reporters and readers.

In the third quarter, we also ran television commercials on national cable networks, and broadcast various direct response radio advertisements as well.

We are pleased with our progress in television and radio, and believe that these activities impacted all of our customer acquisition channels, especially direct. We continue to build upon our carrier relationships, adding new products to our website, achieving deeper integration through eApproval, and enjoying good traction with our licensing and sponsorship businesses.

During the third quarter, we introduced new products with Coventry Health in Tennessee, Mississippi, and Maryland, Golden Rule in West Virginia, Dean Health Plan in Wisconsin, Companion Life Health Insurance in Tennessee and Texas, and Golden Rule Dental in Alabama and Ohio. In October, we also launched two additional carriers in three states on our licensing platform that we call eCommerce On Demand, or EOD. This brings the number of carriers on EOD to 29 in more than 72 carrier states.

I would like to highlight our EOD relationship with CareFirst, which was signed during the third quarter. It's an important transaction because we add a recognized brand name with a large member base and a large broker network to our platform. CareFirst Blue Cross/Blue Shield is the market leader in Maryland, Washington, DC, and Northern Virginia, with membership of nearly 3.1 million people. CareFirst plans to make our eCommerce solution available on a direct-to-consumer basis, replacing CareFirst's internal solution, as well as to the CareFirst Broker Network in these three markets. The products available on the site will include CareFirst individual health plans and ancillary products, like dental.

In our sponsorship business, 31 carriers participated during the third quarter by paying us to sponsor or highlight a specific plan for their brand in a specific geography. This represents an 11% increase over the second quarter of 2008, when 28 carriers participated in our sponsorship program.

Now I'd like to give you an update on our progress with eApproval. We are happy to announce that this week, we rolled out the eApproval platform to IHC under the Companion Life Brand in six states, including Ohio, Illinois, Texas, Michigan, North Dakota, and Tennessee. Our implementation with IHC is a good example of the carrier using eApproval to get traction in the market. IHC is a relatively new entrant into the individual and family market, and they intend to use the eApproval feature to gain competitive advantage against larger players, and get faster traction than is possible through traditional means.

We also deployed eApproval with Standard Security Life short-term health insurance, an IHC member company, in 45 states, which is the second carrier after Assurant to offer the instant approval functionality for their short-term plans on our site. We also have new data on the performance of Anthem Blue Cross plans with the eApproval feature in California. In the 180 days between its launch and the end of the third quarter, the application growth for eApproval-enabled Anthem plans exceeded 89% as compared to the 180 day period prior to the launch.

Given our shift of brand level and away from plan level sponsorship, we can't isolate the impact of Anthem's status as a sponsored carrier in the State of California. So it is important to note that some of the growth may be attributed to Anthem sponsorship programs on our website. It could also be impacted by other factors, such as seasonality, marketing activities, and Anthem's recent introduction of its Smart Sense products. However, these results are still significant.

We continue to see eApproval as a strong competitive advantage for eHealth and for our carrier partners that are deploying it. As we share our successes of eApproval-enabled plans with the market, we believe that more and more carriers will recognize the benefits of this technology for their business as well.

On the public policy front, we continue to monitor closely the presidential and congressional elections, as well as the candidates' plans for healthcare reform, and covering the uninsured. As a Company, we have a keen interest in seeing appropriate action taken to cover the more than 45 million Americans who are estimated to be uninsured, and we intend to position ourselves to work closely with the new administration and Congress on any such efforts.

We recognize that the current and expected budget realities, such as the $483 billion current deficit, and the $700 billion rescue bill will likely limit the scope of any legislative effort to reform healthcare, and that more modest or budget-neutral proposals are likely to have better traction in this challenging environment. Nevertheless, we believe that any action to reform the current inequity in the tax treatment of health benefits, which only those Americans who happen to have access to employee-sponsored health coverage currently enjoy, will necessarily enhance the role of the individual market where eHealth dominates.

Likewise, the possibility of either a mandate for coverage or the introduction of other mechanisms to achieve near universal access to private health insurance represent very important opportunities for eHealth, and we intend to maximize them.

I'm also pleased to report that John Desser has joined us as Vice President of Public Policy and Government Affairs, reporting directly to me. John was most recently Deputy Assistant Secretary for Health Policy at the US Department of Health and Human Services. Prior to HHS, John was a lobbyist and served on the staffs of members of the House and Senate. John and I will be working closely with legislators and public policy people in Washington, DC, and several states to provide them with much-needed information and knowledge about the growing individual market.

We are pleased with our results during the third quarter during what was, frankly, the most challenging business environment we've ever seen. Everything we see, read, and hear leads us to believe that current economic conditions may continue well into 2009, and we plan to be even more aggressive with our marketing messaging because we believe strongly that our product and service is uniquely positioned to help people in this very uncertain time.

And now I would like to turn the call to Stuart, who will take you through our financial results in greater detail for the third quarter; Stuart?

Thanks Gary; good afternoon everyone. I will now review our financial results for the third quarter of 2008. As Gary mentioned, we are pleased with our application growth during the quarter. We again generated solid year-over-year growth in revenue and operating cash flow, and posted operating margins reflective of our record application volume.

Starting at the top line, our revenue for the third quarter was $28.5 million, an increase of 24% over the third quarter a year ago. Commission revenue was $25.8 million, an increase of 21% over Q3 2007. Our year-over-year commission revenue growth was mainly due to growth in our membership base.

Sponsorship, licensing, and other revenue was $2.7 million in the third quarter of 2008, a 60% increase over $1.7 million in the third quarter of 2007.

In the third quarter we had 144,400 new approved members. Our total estimated membership at the end of Q3 2008 was over 602,000 members, which represents 23% growth over estimated membership we reported at the end of the third quarter of 2007.

Our individual and family major medical plan estimated membership, which generates the majority of our commission revenue, grew 24% compared to the estimated membership we reported for the third quarter of 2007.

In the third quarter, we achieved 20% year-over-year growth in individual and family major medical plan submitted applications, up from 18% reported in the second quarter of 2008.

I would like to comment on member retention, but before I do, I would like to remind you that when we estimate churn, we use trailing historical data. And so our third quarter view of retention is based on data from the first quarter of 2008. Based on this information, our estimated member retention rate remained within our historical range, but declined slightly as compared to the estimated retention rate we discussed in the second quarter earnings call. We continue to estimate our revenue-weighted average product retention to be in excess of two years.

In the third quarter of 2008, our non-GAAP operating expenses, excluding stock-based compensation, as a percentage of revenue increased by approximately 350 basis points, as compared to the third quarter a year ago, driven mainly by increased marketing and advertising spend.

Our non-GAAP marketing and advertising expense, which excludes stock-based compensation expense, was 39.9% of revenue in the third quarter as compared to 31.6% in the third quarter a year ago.

As Gary mentioned earlier, we are comfortable with this increase and believe it allowed us to bring in incremental and profitable new members in this challenging environment. Another thing to keep in mind is that the third quarter is seasonally high in terms of application volumes, and, as a result, marketing costs. In fact, this quarter was our all-time highest submitted-application volume quarter.

One of the metrics that we used internally to measure the return on investment in member acquisition efforts is the length of time we estimate it will take to recover the up-front marketing and advertising costs per new member. We use our marketing and advertising expenses for the quarter from our P&L as the aggregate cost of acquiring new members. This metric continued to be very favorable for us. Based on third quarter 2008 commission revenues earned per estimated member per month, it would take approximately six-and-a-half months to recover the cost of acquiring the new members we estimate that we added in the third quarter. Assuming revenue-weighted average estimated product retention in excess of two years, this leaves us with a substantial amount of incremental profit margin on our member adds.

While marketing and advertising expense increased, we continued to achieve efficiency in other operating areas. Non-GAAP technology and content costs, which excludes stock-based compensation expense, declined from 12.9% of revenue in the third quarter of 2007 to 11.8% for the comparable period this year. General and administrative costs also declined on a non-GAAP basis from 18.2% of revenue in the third quarter of 2007 to 14.7% in the third quarter of this year.

Our non-GAAP customer care and enrollment costs remained flat as a percentage of revenue at 12.9%. And we believe it is critical in a tough economic environment to be judicious about every dollar we spend to run our Company. Our non-GAAP operating margin, excluding the effect of stock-based compensation, was 19%, or $5.4 million as compared to 23%, or $5.2 million in the third quarter a year ago. Third quarter non-GAAP operating income grew 5% as compared to the third quarter of 2007.

Our approach to how we invest and manage our cash remains conservative. About a year ago, when we saw early indications of problems in the mortgage credit markets, we decided to implement more conservative investment policies for our cash. During the most recent credit market turmoil, we have continued to carefully monitor our investment portfolio and make appropriate adjustments as necessary to carry out our current highest-priority investment objective, the safeguarding of our capital.

Currently, over 75% of our cash and marketable securities consist of cash, US Treasury Funds, US Government Agency Funds, or direct investments in US Government Agency Securities. The remaining investments are in high-grade corporate bonds, commercial paper, and CDs that we plan to hold to maturity.

With respect to the bonds, commercial paper, and CDs, more than 65% of these instruments have maturities of less than six months, and over 85% of them mature in less than one year. I believe that our conservative investment approach positions us well to weather the current market environment. Because of our approach, however, we are not earning the kind of interest rates that we would otherwise.

Interest and other income was approximately $900,000 during the quarter, down year-over-year from $1.4 million in the third quarter of 2007. Interest and other income, almost all of which reflects interest earned on our invested cash, cash equivalents, and marketable securities, continue to be impacted by further declines in interest rates, somewhat offset by increasing cash and investments on our balance sheet. We expect our interest income to decline in the fourth quarter from Q3 levels.

Our GAAP pretax income of $5.4 million in the third quarter of 2008 was lower than the $6.2 million generated in the third quarter of 2007. On a non-GAAP basis, excluding the effect of stock-based compensation in both years, our pretax income was slightly lower, at $6.4 million as compared to $6.6 million in Q3 of last year because of our record application volumes and aggressive approach to growth in a challenging environment this quarter.

As a reminder, the majority of our marketing and advertising spend is driven by submitted-application volumes, and is expensed up front as incurred, while our revenue is recognized later over the life of the member. Therefore, in periods of increased application growth, seasonal or otherwise, marketing and advertising expenses can grow at a faster rate than revenue.

It is important to note that we estimate that our 2008 effective tax rate for GAAP purposes will be over 40%, even though we expect to pay cash taxes of 4.5% or less for the year. This is mainly due to significant net operating loss carry-forwards that reduced the cash taxes we pay.

Our federal NOLs coming into 2008 were approximately $100 million. This includes NOLs related to stock option deductions that are available to offset future corporate income taxes, but are not considered an asset for accounting purposes. The NOLs resulting from such stock option activity, which totaled more than $58 million for federal purposes coming into this year, will not reduce our future GAAP income tax expense, but to the extent that we can realize these deductions, we will obtain a cash flow benefit from them.

Our expected cash taxes for 2008 have increased from what we estimated last quarter due to recent changes in California's tax code. The majority of our state taxes are in California, where our headquarters are located. As you may know, the State of California is experiencing very significant budget deficits, and in the budget that was just passed, the State suspended the use of net operating losses to offset corporate taxes due in 2008 and 2009, and also limited the use of tax credits to offset tax payments in those years as well. These changes do not affect the amount of NOLs and credits that we expect to ultimately use to offset future California taxes, but it will result in paying more cash taxes in 2008 and 2009 than we anticipated.

Third quarter GAAP net income was $3 million as compared to $3.7 million in the third quarter of last year. Non-GAAP net income, excluding the effect of stock-based compensation in both years, declined from $4.1 million in the third quarter of last year to $3.7 million in the third quarter of 2008. This decline reflects primarily our increased investment in marketing and advertising during the quarter.

We remain highly profitable, and continue to generate strong cash flows. Our cash flow from operations grew 7% to $8.3 million from $7.7 million in the third quarter of 2007, primarily driven by our income for the quarter. Year-to-date, our operating cash flow was $22.8 million, reflecting 24% growth over year-to-date cash flow for the same period in 2007.

Capital expenditures for the third quarter of 2008 were approximately $900,000. As we mentioned in our second quarter earnings call, capital expenditures this quarter, as well as in Q4 of this year, will reflect a one-time project aimed at expanding our data center operations and capabilities.

Primarily driven by our cash flow from operations, our cash and marketable securities balances increased to $143 million at September 30, 2008. Our cash and marketable securities constituted more than 94% of our total assets, excluding deferred tax assets at the end of Q3. Given this, and the fact that we have no debt, we continue to believe we have a very strong balance sheet.

Finally, based on information currently available, we are reaffirming the guidance for the full year 2008 that we updated in our last earnings call, with the exception of our guidance relating to stock-based compensation expense, which we project will be slightly less than the range of $3.8 million to $4.3 million that we previously provided. I want to remind you that these comments are based on current indications for our business, which are subject to change at any time. We undertake no obligation to further update our guidance.

And now, we'd like to open up the call for questions; Operator?

(OPERATOR INSTRUCTIONS).

Steve Halper, Thomas Weisel.

Hi, good afternoon. So if you're looking at the third quarter submitted-application growth, and clearly I'll draw the assumption, say the marketing spend worked, outside of that, did you look at the second quarter performance and say, "What did we learn from that?"

Steve, hey it's Gary. Yes, and I think what we learned in the second quarter was that we're in an economic environment that was much different that any of us anticipated coming into the year. And as a result of that, we looked at a number of things from a marketing standpoint. One is simply the message that we're communicating to consumers, eAccess is one, but affordability really has become key. Secondly, that these products shouldn't be viewed as something that is discretionary, rather it's something that people really need, and in fact, probably need even more in an environment like this.

Third, we've been trying to take advantage of the growing unemployment numbers that we see, and doing a lot of work in the COBRA area. We'll be doing a lot more work in that area as the next several months unfold for us.

But fourthly, we've been doing more offline work than we've ever done before, and here, we think of offline as TV, radio, and print media, but specifically TV and radio. We've been doing remnant cable TV advertising. We've also been doing some very interesting experimentation in the direct response radio area as well. We have stepped up our PR outreach very significantly, once again, in order to get this messaging out and about. And in fact, I was, last night at midnight I was looking at the New York Times online, an article about what women versus men pay for individual health insurance, and we were prominently featured in that.

So those are just some examples, but I think in total, what we learned is that it's a different environment than any of us -- maybe all of us -- anticipated, and we've really been sharpening the pencil and really getting much more aggressive about the message and so on, and it's working.

So when -- I was watching CNN on this past weekend on Sunday in the morning, and the health show gave, mentioned eHealth where consumers can go to get affordable health insurance. So is that something that you go to CNN and you lobby for to build awareness, or does that just happen?

Well, I wasn't aware of that CNN reference. I'm pleased to hear it. That one may have just happened. We, to my knowledge, we have not gone to CNN, specifically, and we didn't anticipate that program, but rather, we're out and about and talking to a lot of different media and so on and being referenced in a number of different places. And I like to think through a lot of work, we're really becoming the de facto standard in this individual market, and that's very important for us.

In addition to that, Steve, from a policy standpoint we publish something called a "Cost and Benefit" survey every year which ascertains what are people really paying for health insurance, and really what are they getting for benefit. We'll actually be releasing our latest version of that report in the next few weeks. That would get CNN's attention, for example, as well.

And finally, yes, so CNN did give you a nice plug there, so that was good. And finally, I know that there's a lag on retention rates. Do you have any -- let's say, so you reaffirmed your guidance, but what does that assume in terms of retention?

Yes Steve, in terms of retention, it basically takes what we saw, what we estimated for Q3, and we took that as kind of the mid-point of what we're looking at, and then we built an upside and a downside case for either less churn or more churn than that around that third quarter number.

And there's no way for you to really shorten that lag.

There's really no way for us to shorten the lag because of the lag in information. We don't do the billing and collecting and so forth, so there's really nothing we can do there, but we do monitor the cash receipts that we get each month from the carriers, and those are up-to-date customers that are coming to us from our carriers and we didn't see anything significant that would lead us to believe that anything major was happening there in churn currently.

Right, and then as you roll out your '09 guidance at some point, you're going to base your assumption based on the lag metric, plus these cash receipts, the reports of the cash receipts of the carriers?

Absolutely, yes.

And when will you provide '09 guidance?

We expect to do that on our next call.

In late January?

Some time in February, most likely.

Okay, great, thank you.

William Morrison, Think Equity Company.

Good afternoon gentlemen; it's actually [Rob Culberth] on the line for Bill. It look, despite the growth -- which I congratulate you on -- in the applications, it looks as though the conversion of applications into members may have come down a bit quarter-over-quarter. We were looking at maybe 60% last quarter, and now it's something closer to 57%. Could you maybe speak a little bit about some of the dynamics there, and maybe what, is it just a blip or do you have any commentary on that?

Yes, actually -- this is Stuart -- we actually don't see much change from the prior quarter in terms of what we call our "close ratio." I think where you're probably getting those numbers that you're getting is by lining up the approved members and deriving approved applications for this quarter and comparing that to the submitted applications for this quarter.

Yes, that's right.

That ignores the time lags that happen here. A lot of our, some of the applications this quarter are going to get approved next quarter, and this is a seasonally high submitted-application quarter as well, so a lot of those are going into next quarter, whereas last quarter was a seasonally lower submitted-application quarter, and that's where a lot of the fruits come from this quarter.

That's helpful, thank you. I also wanted to ask, on the new Anthem numbers that your put out for the eApproval in California, is there any way for you to sort of see if that's having a broader impact on the marketplace, whether it's sort of been a rising tide, not just for Anthem, but for the California market in general? Or is it possible that they're just sort of stealing share based upon being an eApproval carrier?

Yes that's a good question. Clearly, they've taken, I think they're taking some share because 89% is a very significant growth number, far outpacing, obviously, our total growth, total average growth. But we also think that it's attracting some new incremental business as well because people come to the Internet and come online expecting to be able to do things quickly, and that's exactly what eApproval delivers for them.

And, as I commented, we've got two new carriers we've just launched with, and we've got several others in the backlog as well. So we're starting now to see the traction and the adoption that frankly, we hoped for, but also expected.

Then just finally, a quick question on public policy. Reviewing some of the proposals, it seems as though there may be a component of guaranteed issue in the Obama plan, but it seems a little vague to me from reading the materials, so I was wondering if you have a better perspective on the guaranteed issue, and whether or not it's accompanied by a mandate in that plan were it to come to pass?

Well, you've asked a really good question. John Desser and I were in Washington last week meeting with several very prominent Democrats, several of whom may be very much involved in the new administration, if it is Obama. And we had some discussions about guaranteed issue and mandates and so on. There's a lot of different opinions and viewpoints. There's certainly not any plan today that's hard-set.

I think if you talk to the health insurance carriers, what you hear from them is that the guaranteed issue for them is acceptable and quite workable so long as there's a mandate, because they've got to have a pool that's representative of the entire population. They can't have one that's imbalanced. And I think what we learned last week is that people in Washington in the Democratic Party recognize that something like that would have to be. So if there is guaranteed issue, we would certainly be pushing hard for some kind of a mandate there as well.

And by the way, I would also add that I think whether it's a Republican or a Democratic president, we think this individual market is going to get a lot of attention, a lot of support and should be, we think, good for the marketplace, good for a lot of consumers, and very good for us.

All right, great. Thank you very much.

Jim Friedland, Cowen and Company.

Thanks; first a question on marketing. Assuming that we stay in a tough economic environment for a while, is it safe to assume that you'll stay at the upper boundary of that marketing expense range that you've given us?

And then the second question relates to the average, the average commissions that you're generating from your members. Assuming that the growth rate slows, shouldn't -- just given the mix -- shouldn't we see a -- and I think we saw it this quarter -- a very slight year-over-year decrease in the average commissions that you're generating, and, again, I just wanted to confirm if you still expect 5% year-over-year increase in price plans for IFPs. Thanks.

Yes, on the commissions per member question, that's correct. The more the mix, if it were to shift more towards individuals that are in their second year or beyond, we do earn a lower commission in those years, and were it to shift in that direction, that would result in lower commissions per member.

On the flip side of that, we generally see lower churn rates on people that move into that second year and beyond as well, on the flip side of that equation.

And you still see about 5% year-over-year increases in IFP plans from the carriers on average?

Yes, somewhere in that range. I'd say low to mid single digits on premium inflation is what you'll see.

Great, and sort of your marketing thoughts?

Yes, our marketing thoughts, obviously, our marketing expenses are very closely tied to application volumes. So that's the biggest driver of where those costs go, and I think as you saw in this quarter, our tendency is towards growth, and we're not going to limit that growth to keep it in a percentage range, the 35% to 39% range that we talked about earlier. We wouldn't necessarily keep it strictly within that range if saw growth opportunities like we saw this quarter.

I would expect to at least, in the short term here, in the next quarter, to be towards the higher end of the range there.

Hey, Jim, this is Gary. I'd like to add to that, that 20% to 25% if you look back over the history of our Company is kind of what we feel is the really good application growth range. We've gotten ourselves back into the low end of that range, but we're really happy to be there. We spent a little bit more, certainly, than we typically do in this past quarter, but we saw some good opportunities, and we pursued them.

And I think the other point I would make that Stuart had mentioned is that if you put just the growth percentage aside, the sheer volume of applications was really big this past quarter, the biggest ever in the history of our Company.

Okay great, thank you.

Carl McDonald, Oppenheimer.

Thank you. The application number looked pretty good this quarter. The new membership number wasn't as good as the last quarter. And as you point out, the approval rate is fairly consistent, so it doesn't appear as though like the underwriting standards have changed all that much. So do you have any color in terms of, is it just approved members that just are choosing not to take the product, or is it a greater amount of attrition; any insight there?

Yes, no it really goes back to my earlier comments on the time lags that come into play here. We don't have all the results yet from the submitted applications that came in, in Q3. We're still getting notified of members even today that come from those applications, and so when you look at approveds for Q3, you're really looking at a mix of submitted applications that came in Q2, and came in the earlier part of Q3. And now that we've got higher submitted application volumes in Q3, you're going to see a lot of that lag over into Q4.

Okay, but even if I look for, I mean more than just the third quarter. If I looked year-to-date or projection for this year versus what you've done in prior years, it looks like that trend still holds.

It looks like that, the trend meaning, I'm sorry.

The trend towards less new members approved per application received. Or actually, I'm sorry, let me rephrase; less new members added to the eHealth plan relative to the applications received.

Well, our -- I guess all I can say is that our conversion rates that we expect, when we're finally done with the numbers for this quarter, we expect those to be basically equivalent to what we saw a quarter ago.

Okay, and the second question; you had mentioned at the Investor Day at least beginning the thought process around a share repurchase program. Any updated thoughts there?

Only that we're looking at it presently, evaluating it. It's been such a tenuous market and we've seen so much turbulence in the market that that's part of the mix of different factors we're evaluating right now. This may be a little bit different than it was 90 days ago, but yes, we're looking at it actively right now.

Thank you.

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George Sutton, Craig-Hallum.

Good afternoon; this is Ryan Bergen in for George. Aetna mentioned a clear move by small employers to reduce healthcare costs by shifting it to the employees, which rather fits you well. Anything new that you're working on with Aetna or others to specifically take advantage of this?

Nothing specific with Aetna, but with all the carriers, we continue to add more products. We've got more carriers coming to market. I noted yesterday that CIGNA in their earnings release talked about the importance of the individual market, that it's new to them, and how they're very aggressively pursuing it. You saw the comments from Aetna. We're hearing it and seeing it from others as well, and it seems to reinforce the things that we've been seeing and saying for the last year, year-and-a-half, which is this is the growth part of the business for these carriers, and for a lot of reasons, good, bad, whatever, employers exiting the market in terms of providing it to employees, employees opting out, there are more people coming to this individual market.

So I think you'll continue to see more products from carriers. That's all good for us because we are the marketplace essentially. And I think it's also getting more attention of policy makers in DC, and one of the things that we're getting very vocal about is the tax treatment of these products. As you know, you've heard me say this many times, employers can deduct 100% of the cost of health insurance from their taxes; individuals can't deduct a penny, and that's an inequity that both Democrats and Republicans that we have talked to agree needs to be addressed.

If it is, and how it is, I don't know. But if it is, that's really important for this marketplace and for us as well. So I think we're going to see a lot of really interesting positive activity for us in this marketplace over the next couple of years from the carriers and from legislators.

Okay, and then on your last call, you mentioned the dual forces of higher gas prices and higher food costs being negatives to your customer base. Is it logical to suggest you should see the opposite impact now?

Well, perhaps -- I just put gas in my car today for $3 a gallon. So it's been a month ago when it was $4, and I think that, yes I think that may help.

On the other hand, you've got more people who are losing their jobs, so we've got to convince them that they've got to extend their health benefit either through COBRA, or through an alternative, which can be more affordable. There's so much media attention right now on how bad the economy is and how people aren't spending and so on, you would guess as good as I, but I read a lot of people saying that that's affecting consumer behavior as well.

So I think you've got a lot of pressures kind of coming and going that are changing almost on a daily basis. It's a very uncertain time. But again, I just want to emphasize that we think the message that we have is very important, it's resonating. People react to it. Many people understand how important it is to have health coverage for themselves and their family members and their children. And we're able to get many people covered very affordably.

Okay, thank you.

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Okay, it sounds like there are no more questions, so I'd like to thank everybody for participating today, and look forward to talking with you over the next several weeks as well. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.