eHealth Inc (EHTH) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the eHealth, Inc. fourth-quarter and full-year 2014 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Kate Sidorovich, Vice President of Investor Relations. Please go ahead.

Thank you. Good afternoon, and thank you all for joining us today, either by phone or by webcast, for a discussion about eHealth, Inc.'s fourth-quarter and full-year 2014 financial results. On the call this afternoon, we'll have Gary Lauer, eHealth's Chief Executive Officer; and Stuart Huizinga, eHealth's Chief Financial Officer.

After management concludes its remarks, we will open the line for questions. As a reminder, today's conference call is being recorded and webcast from the IR section of our website. A replay of the call will be available on our website following the call.

We will be making forward-looking statements on this call that include statements regarding future events, beliefs and expectations, including Medicare revenue recognition expectations, first-quarter Medicare membership, the benefits of our Medicare membership and the timing of such benefits, Medicare Advantage and Medicare Supplement projected commission payments, our expectations that we will generate attractive growth rates in our Medicare business, our plans to invest more heavily in our Medicare business, future timing of our guidance, our estimated number of members, our expectations regarding current or future cash impact of the valuation allowance, our estimates relating to cash received pushed into the first quarter of 2015, potential cost reductions and adjustments to our cost structure, all stations relating to meaningful cost savings and associated impact on our financial results, the funding of future open enrollment periods and its impact on our individual and family plan application volumes, projected member profitability, our estimates of our operational metrics, our focus on returning our Company to profitability and optimizing resource allocations, and our plans to provide an update on these efforts in the next few weeks.

Forward-looking statements on this call represent eHealth's views as of today. You should not rely on this statement as representing our views in the future. We undertake no obligation or duty to update information contained in these forward-looking statements, whether as a result of new information, future events, or otherwise.

Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in our forward-looking statements. We describe these and other risks and uncertainties in our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, filed with the Securities and Exchange Commission, which you may access through the SEC website or from the Investor Relations section of our website.

We will be presenting certain financial measures on this call that will be considered non-GAAP under SEC Regulation G. For 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 in the About Us section of our corporate website under the heading Investor Relations.

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

Thanks, Kate, and thanks to all of you for joining us today as we report our fourth-quarter and full-year 2014 results. What I plan to do today is review pertinent financial and membership metrics for the fourth quarter and the year; provide an update on our individual and family plan and Medicare businesses; and outline how we are now looking at these businesses. Then I'll call -- turn the call over to Stuart Huizinga, who will discuss our financial results in greater detail.

As many of you know, on January 14, eHealth provided preliminary financial results for the fourth-quarter and the full-year of 2014. Our final results were within, to slightly above, the preliminary ranges that we provided on January 14. Specifically, revenue for the fourth-quarter was $45 million. Non-GAAP loss per share was $0.44, and EBITDA was negative $12.9 million. For the full-year 2014, eHealth generated revenue of $179.7 million and a non-GAAP loss per share of $0.01, with EBITDA of $4.8 million. Our year-end cash balance was $51 million and we remain debt-free.

Turning to our individual and family business, as previously reported, during the fourth quarter of 2014, we generated 100,000 individual and family plan applications. This included application activity for the first half of the open enrollment period. As a reminder, this most recent open enrollment period started on November 15th of 2014.

We also now have the submitted application data through the last day of the open enrollment period, which ended on February 15. During the second half of the open enrollment period, from January 1 through February 15, we generated 130,000 submitted individual and family plan applications. The number of total first-quarter individual and family plan applications will be higher than 130,000, given that on February 15, we were just halfway through the quarter. However, the daily application volume in our individual business has declined substantially, compared to the volume leading into February 15, the formal end of the 2015 open enrollment period.

By the way, you probably have seen recent reports on open enrollment period sign-ups from government exchanges. It's important to note that they report the number of individuals who have selected exchange plans or automatic renewed, and not submitted applications, like we report. You can use a factor of 1.4 individuals on average per submitted application that we have reported to approximate the number of individuals who submitted applications through our platform. Please also note that government exchanges report their entire membership base of individuals, including automatic renewals, when they report the number of individuals who selected exchange plans.

Unlike a year ago, this open enrollment period -- during this open enrollment period, we were able to successfully enroll subsidy eligible individuals into Qualified Health Plans, or QHPs. QHPs represented roughly 25% of total individual and family plan applications submitted through our platform during the fourth quarter of 2014, and almost half of total individual and family plan applications for the period of January 1 through February 15 of 2015.

We grew the number of total QHP applications from approximately 10,000 during the first open enrollment period a year ago, to close to 90,000 during this most recent open enrollment period. Despite the strong growth in QHP sales, the total number of applications submitted through our platform during this open enrollment period fell short of our expectations. And we are taking a close look at our initiatives and performance, as well as the latest open enrollment period market data, to better understand why that happened.

Lower-than-expected individual and family plan application volume during the open enrollment period will have implications for our individual and family plan membership and commission revenues for 2015. We are in the process of reviewing all of our business initiatives in and around our individual business, and plan to rebalance where necessary to ensure the optimal monetization of this business area. In particular, we are taking a close look at our cost structure in an effort to make sure that it aligns with current estimated individual and family plan membership and projected revenue.

Our unit economics have always been and remain attractive in this business. So, we need to adjust our fixed cost structure to bring the overall business in line with the strong earnings generation inherent in our member economics. By the way, when we talk about unit economics, we refer to the expected lifetime revenue of our average individual member relative to variable costs that we spend to acquire and support that member.

So, on an individual unit basis, these members are very profitable. And if you include ancillary products, like dental or vision -- which are typically cross-sold and attached to a major medical product -- that profitability is substantial.

Now turning to Medicare. Our Medicare business continued to perform strongly, with applications for Major, Medicare Advantage, and Medicare Supplement plans, combined, growing in excess of 45% year-over-year in the fourth-quarter, and 49% for the full-year 2014. At the end of December 2014, we had approximately 143,500 revenue-generating Medicare members or 21% growth compared to the end of 2013. Please note that this year-end membership number does not reflect the full positive impact of the annual enrollment period which took place during the fourth quarter of 2014.

As we shared with you during the pre-announcement last month, several-million-dollars in Medicare commission revenues were pushed out into the first quarter of 2015, driven by recent regulatory changes that impacted how Medicare carriers compensate their broker channel. These new members will not be included in the number of total revenue-generating members until we book first commission revenues associated with these policies.

We expect to book the vast majority of this revenue by the end of March. Based on this, we are currently expecting that first-quarter membership -- Medicare membership will benefit from approximately 10,000 members that we enroll during the Medicare annual enrollment period, and that haven't yet been reflected in the fourth-quarter membership metrics.

For the full-year 2014, total Medicare revenues grew 15%, while Medicare commission revenues grew 29% versus the prior-year. Again, these growth rates were impacted by the timing of revenue recognition on some of the Medicare members that we enrolled during the Medicare annual enrollment period, which should have a positive impact on our first-quarter 2015 Medicare revenues. And Stuart will have further comments on this area.

I'd also like to highlight several positive trends that we are seeing in our Medicare business. First of all, compared to a year ago, Medicare Advantage and Medicare Supplement products combined, now represent a higher percentage of our total submitted Medicare applications. And this is important, because Medicare Advantage and Medicare Supplement products are characterized by significantly higher annual and lifetime projected commission payments relative to a stand-alone prescription drug plan product. And we are successfully emphasizing Medicare Advantage and Medicare Supplement products in our sales and marketing efforts.

Second, the unit economics in our Medicare business are improving, as we become more efficient in generating and converting demand. As a result, in the fourth quarter, we saw the variable acquisition costs improve as a percentage of expected lifetime revenue of our Medicare members, compared to the fourth quarter a year ago. One of the important drivers is decreased reliance on paid search as a customer acquisition channel, and a growing contribution from our partnership channel to our total Medicare-related health insurance applications.

Finally, with just over a month left in this first quarter, we are seeing strong application activity for the Medicare products that we sell, compared to what we saw at this time last year.

As you can see, our Medicare business continues to perform well, with our Medicare Advantage membership growing in excess of the overall market. We are also very encouraged by both the level of, and the trend, in projected unit profitability of individual Medicare members. The market opportunity remains significant, with an estimated 25 million individuals on Medicare Advantage and Medicare Supplement plans.

And for the next 15 years, an average of over 10,000 people each day are projected to turn 65 years of age, which is the age of Medicare eligibility. As a result, we are looking to actually invest more heavily in our Medicare business.

Now I'd like to make some comments about guidance. We've always provided expected annual ranges for revenue, EBITDA, net income per diluted share, and stock-based compensation expense at the time we provided our fourth-quarter financial results. However, as we are taking steps to adjust our cost structure, and considering all the changes in the marketplace -- including another change to the 2016 open enrollment dates, and an introduction of the new special enrollment period this March, as well as other possible policy changes, such as the upcoming decision by the Supreme Court in the King vs. Burwell case -- we don't feel that we are now in a position to provide guidance.

We also like to obtain more data that would be helpful to us in forecasting 2015 individual and family plan membership before we provide annual guidance. As you know, key factors that drive membership growth and future commission revenues are -- our conversion rates from a submitted application to a paying member, and the retention rates in our existing individual and family plan membership base.

Given significant recent changes in our market, we are going to take additional time to analyze the open enrollment data and get better visibility into these metrics. We plan to provide guidance in the future, when we have reached better clarity on both internal and external factors. We are also planning to give you an update in the next few weeks regarding the steps we intend to take to adjust our cost structure.

And now I'd like to turn the call over to Stuart.

Thanks, Gary. And good afternoon, everyone. Today, I plan to review our financial performance for the fourth-quarter and fiscal-year 2014, and comment on some of our expectations for 2015.

Our fourth-quarter 2014 revenue was $45 million, a 17% decline compared to the fourth quarter of 2013. Revenue for the full-year 2014 was flat at $179.7 million. Commission revenue for the fourth quarter was $38.4 million, representing a 13% year-over-year decline. Fourth-quarter individual and family plan and ancillary commission revenue was down 18%, driven by a decline in the number of revenue-generating individual and family plan members compared to the fourth quarter a year ago.

In addition, due to timing of revenue recognition, fourth-quarter Medicare commission revenue grew just 1% year-over-year, despite strong annual growth in submitted Medicare applications during the fourth quarter. We currently estimate that over $3 million of Medicare commission revenue, associated with policies sold during the annual enrollment period, got pushed out into 2015.

We are still collecting our initial commission payments relating to annual enrollment period Medicare applications. As a result, this estimate is based on a number of annual enrollment period applications that have been approved, that historical commission we received per approved application, and the proportion of annual enrollment period applications and associated commissions that have historically been recognizable as revenue during the fourth quarter. As Gary mentioned earlier, we expect to book the vast majority of these revenues by the end of the first quarter.

Other revenue, which includes sponsorship, eCommerce on demand, and noncommission Medicare revenue, was $6.6 million in the fourth quarter, a 34% decline compared to Q4 of 2013. Underneath that, sponsorship revenue in our individual business declined, while eCommerce on-demand revenue grew slightly year-over-year. Medicare advertising revenue, which represents discretionary spend by carriers and is inherently lumpy, declined compared to Q4 2013.

Turning to membership metrics, our individual and family plan submitted application volume declined 41% compared to the fourth quarter of 2013. The estimated number of revenue-generating individual and family plan members as of December 31, 2014 was 566,000 or a 29% year-over-year decline.

Our total estimated membership at the end of the quarter for all products combined was approximately 1.1 million members, which represents a 10% decline over estimated membership reported at the end of the fourth quarter of 2013. The estimated number of revenue-generating Medicare members was 144,000, up from 118,000 at the end of the fourth quarter of 2013, or an increase of 21%.

I'd like to stress again that 2014 end-of-year Medicare membership does not fully reflect our enrollments during the annual enrollment period, due to timing of revenue recognition. The Medicare revenue that got pushed out from the fourth quarter of 2014 into the first quarter of 2015 of over $3 million represents roughly 10,000 additional Medicare members. We expect that the majority of these will flow through our membership numbers in the first quarter.

The estimated number of members on ancillary and small business products was over 400,000 at the end of the year, compared to 330,000 at the end of 2013, reflecting 23% annual growth.

Now I'd like to review our operating expenses. Total operating costs for the fourth-quarter and full-year 2014 grow both in absolute terms and as a percentage of revenues compared to a year ago, driven primarily by higher technology and content, and customer care and enrollment expenses. Marketing and advertising costs remained relatively flat in absolute terms in the fourth quarter of 2014 compared to the fourth quarter of 2013, and even declined slightly for the full-year 2014 compared to 2013.

Let me provide more detail around our operating expenses for the quarter. Fourth-quarter 2014 non-GAAP marketing and advertising expense, which excludes stock-based compensation expense, was $28 million or 62% of revenue compared to $27.5 million or 51% in the fourth quarter of last year. Our marketing costs are largely variable and are directly tied to the application volume each quarter. Accordingly, marketing costs in our individual business declined, driven by lower submitted application volume compared to the fourth quarter of 2013.

We did see an increase in the cost of acquisition on a per-submitted individual and family plan application basis compared to a year ago, primarily as a result of higher costs in the paid search channel. So the overall individual and family plan marketing costs did not decline to the same extent as the number of submitted individual and family plan applications.

Medicare marketing costs increased in absolute dollars year-over-year, driven by strong consumer demand that we generated during the annual enrollment period, and the resulting growth in submitted applications for Medicare products. At the same time, the unit cost of acquisition for Medicare products improved year-over-year.

Fourth-quarter 2014 non-GAAP tech and content expense, which excludes stock-based compensation expense, was $10 million or 22% of revenue, up from $8.5 million or 16% of revenue in Q4 2013. This increase in technology expense was driven primarily by planned investment to enhance our technology platform, including an investment in functionality to allow eHealth to connect to government insurance exchanges, and assist subsidy-eligible individuals in enrolling into qualified health plans.

As you know, during this open enrollment period, we were successfully enrolling individuals in subsidy-eligible health insurance, something we were unable to do at scale year ago. Fourth-quarter 2014 non-GAAP customer care and enrollment expense, which excludes stock-based compensation expense, was $14.3 million or 32% of revenues compared to $11.1 million or 21% of revenue in Q4 2013.

In the fourth quarter, we saw an increase in customer care resources in the individual and Medicare businesses, as we staffed our customer care center in anticipation of strong application growth in both businesses. Fourth-quarter non-GAAP operating loss, excluding stock-based compensation and the amortization of acquired intangibles, was $14 million compared to operating income of $0.2 million in the fourth quarter a year ago. Full-year 2014 non-GAAP operating income was $0.6 million.

EBITDA for the fourth quarter of 2014 was negative $12.9 million compared to EBITDA of $1.1 million in the fourth quarter of 2013. Full-year 2014 EBITDA was $4.8 million. Fourth-quarter 2014 non-GAAP net loss per share was $0.44, and full-year 2014 non-GAAP net loss per share was a penny. GAAP net loss per share was $1.08 for the fourth quarter and $0.88 for the full-year 2014.

GAAP net loss per share reflects a non-cash charge of $11.5 million or $0.65 per share related to eHealth recording a valuation allowance against its deferred tax assets. The increase in the valuation allowance is not expected to result in any current or future cash expenditures. To the extent we are able to realize these assets on future tax returns, we will record the benefit to our P&L at that time.

Our fourth-quarter 2014 cash flow from operations was negative $4.1 million. Fourth-quarter cash flow was negatively impacted by the new CMS regulations, which, among other things, prohibit carriers from making commission payments before January 1 for Medicare Advantage and prescription drug plans that are sold during the annual enrollment period.

We estimate that approximately $8 million in cash receipts were pushed out from the fourth quarter and into the first quarter of 2015. The impact of this regulation on our cash flows is more pronounced compared to the revenue impact, given that we were able to book some of the revenues arising from the annual enrollment period enrollments during the fourth quarter, based on receipt of commission statements from carriers.

For the year, our cash flow was positive $1.8 million. Capital expenditures for the fourth quarter of 2014 were approximately $300,000 and were approximately $3.6 million for the full-year. Our cash balance was approximately $51 million at December 31, 2014.

And now I'd like to make some comments about 2015. As Gary mentioned, we are in the process of redoing the cost structure across our entire business. The lower-than-expected application growth that we saw during the open enrollment period will impact our 2015 forecast for individual and family plan membership and commission revenues.

My near-term priority as CFO is to achieve a better alignment between individual and family plan membership, and forecasted commission revenues on one hand, and expense levels in the Company on the other. We've already identified several areas for potential cost reductions and are working through additional efficiencies. I believe that we can achieve meaningful savings, which will have a positive impact on our future financial results.

In addition, two important drivers of our 2015 financial forecast are the rate at which the individuals on applications submitted during the open enrollment period will convert into paying members, and the attrition within our existing individual member base during the open enrollment period. Given the significant changes in our industry as a result of the Affordable Care Act, we've seen pronounced deviations from historical averages in these previously stable metrics.

This year, we'll be taking additional time to digest all the relevant data points around our open enrollment period performance and membership trends before we finalize our 2015 forecast. Furthermore, we just learned last Friday that the dates for the 2016 open enrollment period were changed by the federal government. The next open enrollment period was expected to take place between October 1 and December 15 of 2015. The end date has now been shifted to January 31 of 2016. This change will impact the expected timing of our individual and family plan application volumes.

I'd also like to comment on the outlook for our Medicare business, which is more predictable and has not been impacted by the Affordable Care Act to the same degree as our individual and family plan business. Our projected return on investment on a Medicare member remains very attractive, and in fact, has been improving over time. So we plan to continue investing for growth in Medicare, and we expect to continue generating attractive growth rates in this business.

In conclusion, we are currently focused on returning our company to profitability and optimizing resource allocations across our key business areas and projects. We plan to update you on these efforts in the near future.

Operator?

(Operator Instructions). George Sutton, Craig-Hallum.

I wondered if you could explain, when you mentioned short of expectations relative to the second-half of the season and the season in total for IST, can you give us a sense of why you think that's the case? Is it stronger exchanges? Is it macro demand? Is it execution? That would be helpful. Thanks.

Yes, George, this is Gary. I think it's a combination of all of those things. When we look at what's been reported by the Exchanges recently, you know it looks like they've added some place between 4.5 million and 4.7 million new enrollments -- individuals, that is.

We have a little over 300,000. So, 6%-plus -- which, frankly, is the same share we had a year ago. We had expected to see more share this time because we had the QHP capability. And although we did well with QHPs, I would say that the volume on the QHP side of the business, as well as the non-subsidy side, was not as great as we wanted. I think some of that is probably internal execution and some of that is the market as well. And we are looking very hard at that right now.

Now, just to be clear, as you are talking about rebalancing the spend, as you look at the cost to acquire in the IFP business, you've talked about it historically as multiples of your cost to acquire. Can you give us a sense of -- is that not the case? And is therefore -- I'm trying to understand the variable versus fixed piece of this, and what you can do to return that to normal multiples.

Well, George, this is Stuart. The cost of our acquisition piece has gone up some in this open enrollment period. We are seeing some very early indications that we may be seeing higher commissions coming from those new members. But it's very early. We still need a lot of data as these convert into paying members. Need a lot more data on that. But that's one piece that we feel may mitigate some of the increase from the cost of acquisition increasing.

But -- George, this is Gary. I would add to that. The comments I made earlier about the unit economics being highly favorable. You know, for example, an individual policy, relative to the cost of acquisition, yields us a margin in excess of 40%. When you attach to that an ancillary product -- which we do in many of these cases -- you get a substantially higher margin.

So, the margin profile is still very, very attractive. In fact, with the progress we've made with ancillary products, you actually could argue that it's improved. Our issue is a fixed cost one right now. We've got too much fixed cost as a base of this business. And that's what we're looking at long and hard right now. And we'll be getting back to you soon on this.

Okay. That helps clarify. Thanks, guys.

Dave Styblo, Jefferies.

Thanks for the questions. So, maybe staying on the IFP book here. How far are you guys into your assessment of looking at these fixed costs? And are you at a situation where you feel like you can take enough out, such that the business is sustainable? Or is this something where, over the next couple of years, it might be something where you just have to exit it, because the margins and the financial economics are just not sustainable the way that it's going?

Well, David, we are deep into this. And we have been for several weeks. We, again, see the unit economics as being attractive and favorable. The aggregate volume isn't as high as we had expected or as we had planned for. We are very, very confident and optimistic that we can align this so that it's a very profitable business, given these volume levels that we see right now, with the anticipation and the hope that we are going to see greater volumes moving forward.

Okay. And when you're looking at some of these reviews, you've talked about some of that might be -- as far as the shortfall in applications, some of it is market, some of it is perhaps internal execution. Can you elaborate on that internal execution point?

Is there certain folks that you just need to bring in at this point? Or is there just been maybe not a holding of accountability to some standards? Or are you guys just not maybe operating in the right veins in terms of paid search at the right times? What are you seeing as the shortfall right now internally?

Well, we saw paid search to be a bit more expensive. We saw our partner channel give us a more of a contribution. We probably didn't see as much -- in fact, not probably -- we didn't see as much direct as we would like. What we have -- the data that we've collected across the market indicates that the market wasn't as robust as certainly we had anticipated.

As you know, the Congressional Budget Office a few years ago had estimated there would be about 13 million enrollees. CMS, before the open enrollment period several months before, took that estimate down from 9 million to 9.9 million. And it seems that they've fallen right inside of that. So we think there wasn't as much market. But -- but -- I don't want to use that as a reason why we didn't, more.

You know, you could certainly question some of our approaches here being more aggressive against government exchanges, generating more visibility about the fact, and awareness about the fact, that there's some really good choices out there. So, we are looking at all of those things. And we probably could have been more effective there, quite frankly.

Okay. And if you just -- as I look at the fourth-quarter IFP, how it shook out, I guess -- is there still a big churn issue going on? I guess the way I -- when I plug this into my model here, it looks like there's the churn from the 3Q to the 4Q was about 25%. Is that what you guys -- is that roughly consistent with what you guys are seeing?

I think the thing that's impacting that number for you is, that there is a change in the seasonality between years. One thing that helped Q4 a year ago versus Q4 this year is, we haven't got into the new cycle of OEP, and then the special enrollment period after that yet, this time last year.

This time last year, we were still benefiting from a lot of members coming in from the higher Q3 application volumes. And then also, this time last year, you may recall some of our comments that over 50% of our applications in the fourth quarter last year were for 2013 plan, many of which converted during the quarter and became revenue-generating during the fourth quarter last year.

This year, very, very few of the new applicants in the fourth quarter converted. So they show up in our approved member metric, but they don't show up in our revenue-generating. And they won't until they become paying members in Q1.

Okay. And then last, if I could --

So a lot of the fall-off you may be seeing is due to those seasonality factors.

Okay. And then lastly, just on the Medicare business. It seems if I add back the adjustments that are pushed out from 4Q to 1Q, bring them back into this year -- or into 2014, I should say -- the growth in terms of membership sequentially from 3Q to 4Q was about the same, about 32,000 to 33,000 lives.

Revenue actually looks like it declined for 2014 year-over-year a little bit. I guess, given that your share was small and it's something that you're working on, I would've expected that perhaps you could have performed a little bit better there. Is there some sort of rebasing going on or churn going on that you could help elaborate on? I mean, certainly, 20%-plus revenue growth is solid, but I guess I would've expected that to accelerate a little bit.

No, when you add that back, you would've seen very solid commission revenue growth. The other piece of Medicare revenue that we saw in Q4 was the other revenue declined year-over-year in the fourth quarter. And that somewhat offset the strong commission revenue growth that we would see if you adjusted for the amount of revenue that got pushed out.

I guess, said another way, the application growth, the adjusted commission revenue growth, we are very satisfied with. The other component is marketing fees and some sponsorship that we've been paid, and there wasn't as much of that in that quarter.

Got it, okay.

Tobey Sommer, SunTrust.

I just want to start by maybe asking -- what's the timeframe or specific elements of the variables you're looking at that you may need more clarity on, in order to provide guidance? Is this waiting for the expense situation to kind of be more solid? Or are there other elements?

Well, I think we also pointed to the fact that there is metrics that we would like to wait to see how those develop here after the open enrollment period ends, to see the churn, to see the submitted application to pay conversions, something that changed significantly a year ago. We want to see those numbers this year.

And then, as Gary indicated in his comments, there's a lot of externalities going on right now. We've got a lot of changes coming down from the government, which are changing things like the open enrollment period dates. And the one they announced last Friday was very significant. Moving all of -- moving the applications from what would have been all Q4 this year to now spread it out between Q4 and Q1, was fairly significant.

And they continue to make changes constantly. And so, it's an environment that's changing under our feet very -- it's very volatile and it's continuous change.

Yes, as another example, on Friday, there was a special enrollment period announced for people who, when they file their income taxes, suddenly discover that they've got to pay a penalty because they haven't bought Obamacare-compliant health insurance. This could be 6 million to 8 million people. Frankly it's not clear whether agents or brokers are going to be able to participate in enrolling any of these people. So we've got a number of uncertainties like that, that just make us want to be very, very careful and thoughtful about putting this together.

Right. Okay. That makes sense. What is the best and worse outcome from the Supreme Court ruling from your perspective? So kind of in other words, what do you root for?

(laughter) That's a great question. Oh, my gosh. You know, there is -- again, you've got all these pundits weighing in and all the politics involved. The general wisdom seems to be that if the Supreme Court rules in favor of the plaintiffs, King and Company, that in 36 states, subsidies are no longer valid. The question then is, can the Administration and HHS somehow maneuver around that with regulations to provide some kind of an exchange capability? Or does it have to be legislated?

If it has to be legislated, you've got Republicans versus Democrats versus the President. You know, and probably the most -- I think the most interesting thing -- and I've been asked to weigh in on this -- is, if you get Republicans, if they have to legislate, maybe release the mandate in exchange for letting the subsidies flow, and letting the private sector participate in that. That's one outcome.

We just don't know. I think the one thing that -- the only thing that's probably predictable is it's going to be chaotic if the Supreme Court rules in favor of King.

Okay. Just a couple more questions from me. Do you have enough cash to address the range of outcomes that you are evaluating from a rightsizing perspective and an increased investments in Medicare?

Yes, we are comfortable we have plenty of cash to deal with that.

Okay. Are you seeing or do you anticipate any changes in customer life in the IFP or Medicare businesses?

Well, you know, last year, we didn't have that many QHPs that we had brought in, and this year, we have substantially higher percentage of our applications from QHPs.

Could be better.

We've heard from carriers that they are seeing better retention with QHPs. On our small sample from a year ago, we saw indications that those made -- at least during the first year -- outside of the open enrollment period, churn at a lower rate. So, we are hopeful that we would see that trend, now that we've got more QHPs this year.

Steve Rubis, Stifel.

Thanks for taking my questions. I know -- I think I heard you discuss sort of your thoughts around the QHPs that you saw in the fourth quarter and the open enrollment period. Can you get -- and I may have missed this -- did you give any color about the total number of submitted apps, or where you think you are going to fall, either above or below for the entire 2015 OEP?

Well, we gave a figure of 90,000 -- approximately 90,000 submitted applications for OEP for QHPs.

Yes, and did you say anything about the aggregate, not just QHPs but in total submitted apps for the --?

Oh, correct. Yes, so, 130,000 to date through February 15 for the first quarter. And -- so 100,000 applications roughly in the fourth quarter and 130,000 through the 15th of February in the first quarter -- sorry.

And then we also said that to compare that to government, because they report individuals who have applied, you'd uplift our submitted application numbers conservatively by about 1.4.

Okay, thank you. And then given that you haven't provided guidance and there's a lot of moving parts, should investors be concerned that you could face another issue around commission conversion, like you did in the second quarter of last year? Or have you largely been able to fix whatever issue was driving that?

Well, I think the main issue for us was a conversion from submitted application to a paying member. We took a lot of steps to improve that. It's way too early for us to be able to see the impact of that. But I don't want to steer you towards we've improved it at this point, but we definitely took steps to do that.

And I guess my last question will be -- have you given any thought to like going private or a transaction or being acquired or -- you know, is that even on the table?

Well, you know, I mean, being realistic here, I think alternatives, no matter what the state of the business, are always on the table and possibilities. And what we are doing right now is we're focused on business internal execution, what's gone right, what hasn't; addressing those things, addressing the cost structure, and doing everything we can to ensure that, for our shareholders, that we can maximize the value.

All right, thanks. If I have any more, I'll hop in the queue. Thank you.

Kevin Kopelman, Cowen and Company.

Could you give us any more color on the dynamics around the non-subsidy eligible -- the decline in non-subsidy eligible that you saw in this open enrollment period? And I think you talked about direct traffic. How important was organic search rankings in that? And how are you ranking inorganic compared to where you were? Thanks.

Well, with -- there's several questions there. We were frankly disappointed that we didn't see more non-subsidized volume. And that's always been a sweet spot for us. My gosh, a year ago, we did some place in excess of 450,000 non-subsidies at that time.

But remember, a year ago, we had a lot of these grandmother plans as well, which we didn't have this year. But clearly, we expected to see more contribution from the non-subsidized population. We're still trying to understand why that's the case.

I mean, clearly, this is becoming more and more of a subsidized market. I mean, if you look at the volume that goes through these government exchanges, the vast majority are people who are there for subsidies. And we've got 90,000 of them. Frankly, we should've gotten more, in our view.

Regarding search, with paid search, I think as Stuart had indicated, we saw some of the costs go up. So, we were a little bit more judicious and careful about where we were participating there. And in organic or natural search, we've continued to index and rank very high. And that's served us well.

Okay. So, when you look at the non-subsidy eligible, is it really about -- are most of the type of customers that you were getting through non-subsidy, are they now migrating to subsidy?

Well, that's a -- we don't have an update on that yet, and that gets back to this whole -- you know, this area of guidance, and having the information and the data that we need.

You know, assumedly, some of them may have, and through us, and some may not have. And there simply may not have been -- I mean, it appears, though, there just weren't as many non-subsidy eligibles participating in the market this time around, when you look at the government data and you look at ours as well, at least as two data points.

Okay, thank you.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Gary Lauer for closing remarks.

Well, thank you all for your time today. And we look forward to talking with many of you individually over the next coming days and weeks. Thanks again.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a good day.