eHealth Inc (EHTH) 2018 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2018 eHealth, Inc. Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded for replay purposes.

It is now my pleasure to hand the conference over to Ms. Kate Sidorovich, Vice President of Investor Relations. Ma'am, you may begin.

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 First Quarter 2018 Financial Results.

On the call this afternoon, we'll have Scott Flanders, eHealth's Chief Executive Officer; and Dave Francis, eHealth's Chief Financial and Operating Officer. After management completes its remarks, we'll 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 statements relating to execution against our growth targets; the performance of our Medicare and Individual & Family Plan business; expected contributions from our strategic partner channel; our expectations regarding the consumer demand for non-ACA-compliant products; expected expiration of the ACA individual mandate penalty; our marketing efforts, including our new digital marketing initiatives; our integration efforts with respect to the GoMedigap acquisition; our expectations for submitted and approved applications; profitability of and growth in our Medicare business; the profitability of our Individual & Family Plan business and the potential for cash flow generation; our plan for subsidy-eligible consumers; the priorities of our Small Group Business; our expectations regarding approved members on Prescription Drug Plans; enhancements in our consumer-facing and technology platform; the date of new sales and operating metrics in assessing the performance of our business; our longer-term financial outlooks through 2021, including growth in Medicare and total company revenue and EBITDA margin; our expectations regarding cash flow from operations and commissions receivable balance; the sequential quarterly trends of our revenue and earnings; our expected tax rate for 2018 and our guidance for 2018, including our guidance for total revenue, segment revenue and profit, adjusted EBITDA, corporate shared service expense, GAAP net income, non-GAAP net income per share and adjusted EBITDA per share.

Forward-looking statements on this call represent eHealth's views as of today. You should not rely on the statements 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 Scott Flanders.

Thank you, Kate, and welcome, everyone. We had a great start to our year at eHealth with double-digit enrollment growth and 21% revenue growth in the Medicare segment.

Growth rate is well above the overall Medicare market. This growth generated significant segment profit as we meaningfully reduced variable marketing costs per approved member compared to a year ago and continued to improve customer conversion rates throughout the quarter.

We expanded and strengthened our approach to the Medicare Supplement market with the acquisition of GoMedigap, whose early performance and integration are on target.

Our Small Business Group also performed well with the number of approved members increasing by more than 50% year-over-year. Only the Individual & Family Plan business remained challenged for us. Though we expect that recent changes in leadership and our go-to-market approach will allow us to gain better traction in the individual market later in the year.

The company is singularly focused on executing against the growth targets we established on our year-end earnings call, and I view our first quarter performance as generating strong momentum towards achieving those objectives.

This is the first quarter in which we're reporting results according to the new ASC 606 revenue recognition standard. First quarter revenue was $43.1 million. Our adjusted EBITDA was negative $1.2 million. GAAP net loss per share was $0.26, and non-GAAP net loss per share was $0.07. Cash flow from operations was $10.7 million, bringing our cash balance as of March 31 to $34.7 million.

Of note, our balance sheet as of March 31, 2018, shows a commission receivable balance of over $272 million that represents the constrained amount of estimated commissions that we expect to collect over time from all of our existing policies.

This is the first time that this commissions receivable value has been reflected in the company's financial statements as a result of the new accounting convention, and this balance will continue to increase as our revenues grow.

In our Medicare business, submitted applications grew 12%, while variable marketing costs per approved member declined 29% compared with the first quarter of last year.

First quarter Medicare commission revenue grew 17% compared to a year ago. These results demonstrate the effectiveness of our new channel strategy that we started to implement a year ago as well as improved product mix toward more major medical insurance products and the positive impact of our acquisition of GoMedigap.

Revenue growth combined with substantially more attractive acquisition costs per approved member resulted in an improved profitability of our Medicare business with first quarter segment profit of $3.2 million compared to a loss of $900,000 in the first quarter of 2017 on a post-ASC 606 adoption basis.

During the quarter, we grew Medicare submitted applications from our direct channel over 200% compared to a year ago, more than offsetting the reduced volume of applications coming from the more expensive channels, paid search and lead aggregators.

Specifically, our recent investments made to bring the management of direct response TV campaigns in-house are now driving meaningful Medicare application growth at attractive acquisition costs. We are also experiencing good traction from our direct mail campaigns and have expanded their use.

In addition, a combination of improved search engine optimization and medicare.com brand equity delivered strong growth in traffic to our direct channel.

These efforts increase our profitability and enable us to gain in market share. I am also encouraged by the impact that our new marketing team is having on paid search and lead aggregator channels, which have historically been characterized by high acquisition costs.

Our new digital marketing talent that onboarded at the beginning of the year is leading a new initiative to build a more efficient, cost-effective customer acquisition program for the paid search channel that levers our core assets.

Early results from this team are encouraging. We plan to increase investment in the paid search channel as the year progresses. Our partnership team has taken steps to better manage our existing relationships with lead aggregators, reducing our expense for the leads that we received from that channel. In all, I am pleased with the production and direction of our new marketing efforts across the Medicare business.

Our performance in the Medicare Supplement market was also an important growth driver in our Medicare segment. Submitted applications increased 41% compared to the first quarter of last year, driven in part by our acquisition of GoMedigap and the investments that we are making in the GoMedigap platform.

Our integration efforts with respect to the acquisition are tracking well and are focused on scaling their demand generation activities at favorable acquisition costs. We expect to see a continuing tailwind to our Medicare performance from the initiatives I have described. I also would like to note that the contribution from our strategic partner channel is expected to be moderate in the first half of the year.

Partners typically deploy their marketing budgets around the main selling season that takes place in the fourth quarter. As a result, we expect to see an acceleration in submitted Medicare application growth in the second half of the year as our partner channel contribution increases, with the fourth quarter being the strongest quarter in terms of Medicare product application volumes and growth rates.

Our Individual & Family Plan business performed largely in line with our expectations during the first quarter, which reflected continuing turmoil in the market and a shift in the timing of the open enrollment period compared to prior years.

Submitted applications for major medical products declined 70% compared to a year ago when the open enrollment period extended into the first quarter.

Approved members declined by 40% -- only 42%, reflecting an improvement in conversion rates. Individual & Family Plan commission revenues declined 48% over the same time period. Despite these headwinds, the Individual & Family business was profitable on a segment basis and is expected to remain so in each quarter of 2018.

We have not been satisfied with the performance of our Individual & Family Plan business. And we've effected changes to management and the direction of the group in the first quarter to better pursue what we believe are sizable opportunities in that market. This includes identifying and offering the most appropriately priced health insurance products to meet the diverse needs of our customers, including those seeking alternatives to high-priced Affordable Care Act-compliant plans.

The market disruption that the Affordable Care Act has brought to the individual market has created a number of opportunities, including growing consumer demand for non-ACA products such as short-term insurance, hospital and doctor visit coverage and deductible expense protection for the increasingly large population with high deductible health plans.

We believe the demand for these products will continue to grow in the current environment, particularly as the individual mandate penalty goes away in 2019, and we are making adjustments to our product portfolio and marketing approach to more fully capitalize on this trend.

The eHealth digital engagement and enrollment platform continues to provide significant cost and ease of buying advantages that we intend to lever into these opportunities in the individual market. We are further enhancing our consumer-facing platform to make buying insurance a much simpler process in what is still a confusing market.

We also plan to continue offering major medical plans and qualified health plan for subsidy-eligible customers through our platform. And we believe that we will be in a good position to meet a broad range of consumer needs as we enter the open enrollment period.

Our financial goals of the Individual market for this year remain focused on maximizing profitability and cash flow.

Turning to the Small Business market, we are seeing robust growth in demand and approved application growth. The number of approved members grew 52% compared to the first quarter of 2017, with commission revenue growing 23% over the same period. Following management changes implemented in January, we now have dedicated small group leadership for the first time. The key priorities for the team include expansion of marketing channels with an emphasis on adding new strategic partners, technology enhancement, including extending our online enrollment capabilities to additional carriers and increasing the efficiency of our customer care and enrollment team with a goal to boost conversion and group retention.

We are pleased with our first quarter financial results and execution progress. In Medicare, our direct channel continues to drive application growth at attractive acquisition cost. And in the second half of the year, we expect application growth to accelerate with increased contribution from our strategic partner channel.

This year, we plan to scale our existing partnerships with hospital networks, pharmacies, insurance carriers and affiliate groups. And we have already signed several relationships earlier in the year than expected.

In the Individual business, we intend to continue to focus on growing enrollments in non-ACA-compliant products. We also expect to see better year-over-year submitted application performance with our major medical products as we move past the first quarter when year-over-year declines are exacerbated by the change in open enrollment period timing.

We have revised our financial plan through 2021 to reflect the new accounting convention. Consistent with our previous long-term guidance, we currently expect to grow revenues in our Medicare business at a compound annual growth rate of over 20% between 2017 and 2021, while we expect total company revenue to grow at a high teens CAGR over the same period, reflecting the impact of slower growth in our Individual & Family Plan business.

We expect to generate a 30% EBITDA margin by 2021, a higher level than previously expected due to the change in revenue recognition. We also expect cash flow from operations to be positive for the full year 2019.

With that, I now turn the call over to Dave Francis, who will review our first quarter financial results in greater detail.

Thanks, Scott, and good afternoon, everyone. This is the first time that we are reporting our financial results based on the ASC 606 revenue recognition accounting standard.

Our earnings release includes historical financial statements presented on this new basis to facilitate period comparisons.

When I refer to prior year financial results in my remarks today to address growth rates and other year-over-year trends, I will be using historical financial results as adjusted to reflect the new accounting treatment.

I would also like to note that starting with this quarter, we are providing new sales and operating metrics as part of our earnings release with the goal to increase transparency into our business and make it easier for investors to evaluate the progress that the company is making against its growth targets. These metrics include the number of approved members during the quarter, the constrained lifetime value of an approved member, both broken out by key product categories, a more granular view of the estimated quarter-end membership and commission revenue.

We are also providing variable marketing cost and customer care enrollment cost per approved Medicare equivalent and Individual & Family Plan equivalent member respectfully -- respectively, excuse me. We believe that this level of information taken together provides a clearer sense of the performance of our business and aligns with the key metrics that we as a management team are now using to manage the company.

Also, while we have historically provided the number of submitted applications by product, the relevance of this metric has diminished following our adoption of ASC 606, under which the number of approved members becomes a key revenue driver. We will continue to provide the number of submitted applications by product for another year for continuity purposes and phase that metric out starting in 2019.

First quarter revenue was $43.1 million, an increase of 4% compared to $41.6 million for the first quarter of 2017. First quarter commission revenue was $40.7 million, a 5% increase compared to the first quarter a year ago.

Under the new accounting standard, our Medicare and Individual & Family Plan commission revenue in a given quarter is driven by newly approved enrollments that we generate. At the same time, renewal commission payments that we receive on our existing Medicare and Individual & Family books of business during the quarter are no longer reflected on the income statement.

In the Medicare segment, our first quarter revenues of $30.8 million grew 21% compared to the first quarter of 2017, driven primarily by 12% growth in approved Medicare members and an increase in noncommission revenues. It is important to note the shift in the mix of our Medicare enrollments in the first quarter of the year toward higher value Medicare Advantage and Medicare Supplement members.

Approved Medicare Supplement Plan members grew 29%. Approved Medicare Advantage members grew 15%. And approved members on Prescription Drug Plans declined 16% compared to the first quarter of 2017.

The growth in Medicare Supplement Plan approved members was accelerated by our acquisition of GoMedigap, which closed in January of this year. While the decline in approved PDP members resulted from the reduced spending in the paid search channel that Scott described previously.

As our new digital marketing team continues to make progress in rebuilding a more productive and efficient customer acquisition model, we intend to spend more in the paid search channel.

In the second half of this year, we are expecting the reduction in PDP volumes to reverse through marketing activities in both the paid search channel and the strategic partner channel.

The estimated number of revenue-generating Medicare members was 381,787 at the end of the first quarter, up from 284,865 at the end of the first quarter of 2017, an increase of 34%.

First quarter profit from our Medicare segment was $3.2 million. First quarter 2018 revenue from our IFP and Small Business segment was $12.3 million, a decline of 24% compared to a year ago, driven by a 42% decline in approved Individual & Family Plan members, which was partially offset by 23% growth in commission revenue generated by our Small Business Group.

The Individual, Family and Small Business segment remained profitable on a stand-alone basis, generating segment profit of $3.5 million for the first quarter 2018, despite the reductions in revenue.

Our estimated IFP membership at the end of the first quarter was approximately 182,700, down 31% compared to the estimated membership we reported at the end of the first quarter a year ago.

The estimated number of members on Small Business products was approximately 35,400 at the end of the quarter, a 15% increase compared to the first quarter a year ago.

First quarter non-GAAP operating cost of $44.9 million, which excludes stock-based compensation, amortization of intangibles, restructuring charges and acquisition costs, grew 4% or roughly $1.6 million compared to the first quarter a year ago.

Adjusted EBITDA for the first quarter 2018 was negative $1.2 million compared to negative $1 million for the first quarter of 2017.

We calculate adjusted EBITDA by adding stock-based compensation, depreciation and amortization, including the amortization of acquired intangibles, restructuring charges, acquisition costs, other income or expense and provision for income taxes to our GAAP net operating income.

First quarter 2018 GAAP net loss per diluted share was $0.26 compared to net income per diluted share of $0.06 for the first quarter of 2017.

Non-GAAP net loss per diluted share was $0.07 compared to net income of $0.13 per diluted share for the first quarter of 2017.

Our first quarter 2018 cash flow from operations was $10.7 million. Capital expenditures for the first quarter of 2018 were approximately $1.2 million.

Our first quarter cash flow statement also reflects a cash payment of $15 million in connection with our acquisition of GoMedigap.

Our quarter-end cash balance was $34.7 million. As Scott mentioned earlier, our balance sheet also reflects a significant commissions receivable balance of $272.5 million that we booked pursuant to ASC 606, and it is comprised of $98.8 million that we expect to collect over the next 12 months and $173.7 million in long-term commissions receivable.

And now I would like to address our 2018 financial guidance. Our operational outlook for the year remains unchanged, and we are reaffirming our revenue, adjusted EBITDA, segment revenue and profitability and GAAP net income guidance for the full year 2018 that we initially provided on our fourth quarter 2017 earnings call.

We remain highly focused on executing against our growth and profitability targets for the year. At the same time, the guidance we have received from our auditors and tax consultants relating to the reporting of tax obligations under ASC 606 for GAAP purposes changed recently. While this change does not affect our cash tax expectations for this year, the reporting nature of our tax obligation has changed, with the net effects being that we expect to report an effective full rate -- full tax rate of approximately 27.5% for 2018 as opposed to minimum taxes we had anticipated previously.

As a result, we are adjusting our financial guidance only as it relates to reported non-GAAP net income for 2018. Non-GAAP net income per share for 2018 is expected to be in the range of $0.69 to $0.95 per share. This compares to our prior expectations of $0.92 to $1.18 per share.

To emphasize, the rest of our operating guidance for 2018 remains unchanged. We continue to expect consolidated revenue for 2018 to be in the range of $217.5 million to $227.5 million, with Medicare segment revenues in the range of $178.5 million to $183.5 million and Individual, Family and Small Business segment revenues in the range of $39 million to $44 million.

We continue to expect GAAP net income for 2018 to be in the range of $1.6 million to $6.6 million. We continue to expect 2018 adjusted EBITDA to be in the range of $21.9 million to $26.9 million. We also continue to expect 2018 adjusted EBITDA per share to be in the range of $1.13 to $1.39. We continue to expect 2018 Medicare segment profit to be in the range of $45.5 million to $49.5 million. And Individual & Family and Small Business segment profit to be in the range of $6 million to $7 million.

We continue to expect corporate shared services expenses, excluding stock-based compensation and depreciation and amortization expense, to be approximately $29.5 million for the year.

Finally, with respect to sequential quarterly trends, it is important to note that our second and third quarters are seasonally weakest in terms of new enrollment volume. As a result, we expect our revenue and earnings to decline at the margin in the second quarter of the year as compared to the first quarter. We expect third quarter revenues and earnings to be similar to the second quarter before a significant expected increase in the fourth quarter. 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 will open the call for questions. Operator?

(Operator Instructions) And our first question will come from the line of George Sutton with Craig-Hallum.

So I wanted to walk through the commission receivables. So if I look at the combination of your short and your long-term receivables, even relative to your enterprise value, it's basically equivalent. So effectively that represents receivables that you will be ultimately -- you will be receiving cash for under that constrained assumption. Are there any other real costs associated against that?

No. Thanks, George, for the question. No, the costs attached to each of the receivable balances have essentially been absorbed as we generate the revenue in any particular quarter. So as the cash comes in, there is no additional cost attached to that. And the reason that those receivables are there is because there is no meaningful service component attached to them either. So according to our contracts with the carriers, these are all cash collection expectations that we have, both in the short term and long term.

Interesting. Great. And then relative to these -- the new partnerships that you have already signed year-to-date, I believe those were Medicare partnerships. Can you just give us a sense of some of the opportunities you see from those new partnerships? And then, also, as we look at the Q1 results, how significant were some of these larger partnerships you signed in 2017 that you were somewhat behind your expectations there? It looks like you actually performed ahead in Q1, just curious how that shifted.

So I'll answer it this way. And if I need to do more, tell me. We're really pleased with where we sit right now from the partner perspective. We talked about a specific partner last year that did underachieve relative to our contracted expectations there. But conversations with that partner for this coming year are going very, very well. We're encouraged by where we sit with those folks. Our performance against our partner business last year has also set us up for significant sales activity in the first part of this year to be able to set up the volume expectations for the back half of the year as well. Our -- it's our expectation to be in more of a portfolio-driven approach relative to partners this year, particularly in the fourth quarter rather than relying on just a single partner for the lion's share of business. But either way, we're encouraged by where things stand at the moment. And as Scott mentioned, we've had a couple of partners sign contracts ahead of our expectations relative to what we're going to be doing in the fourth quarter. Did that answer what you were asking?

Again, if I looked at who you've signed year-to-date, can you just give us a relative level of significance in your view? Are these just kind of down the middle normal type of partnerships?

Yes. So the partnerships that we had in place last year continue into this year. As Scott mentioned on his prepared comments, the partner activity typically ramps up in the fourth quarter as you go into the AEP selling season for Medicare. That's where the -- just the largest volume of activity is. We do have as part of these partnerships age-in activity and other programs that we do outside of the AEP period. But the reality is that -- and I think we talked about this late last year that the first half of this year is working on getting these partnerships either expanded for those that are existing or signed for those that are new determining the scope of how we're going to work with those folks and then implementing those in the second half of the year. So it's our expectation that we'll be talking a lot more about -- if we can't say who, certainly more the nature of some of those partnerships as we get into the Q2 and the Q3 reporting period. But right now, it's just way too early to give a lot more information relative to what those are going to mean relative to the fourth quarter other than to say we're very encouraged by the activity at the moment.

Okay. Simple last question, if I could. In your other -- on the ancillary side of your business, there was another line that grew 213%. I'm just curious, what is that?

I mean, that's primarily dental, but other products that we're selling in that area. It's -- the construct of the products being sold in the IFP business right now are continuing to change as we continue to work to find the right mix of product and engagement strategies to, as Scott said, turnaround our, what we would characterize as, disappointing results in the individual business. And we're working on finding that right mix of product and benefit at the right price for the right customers that we're engaging with.

And our next question will come from line of Dave Styblo with Jefferies.

Want to just get a better sense of all these efforts that you're doing to move things in-house from a referral basis and lead generation side and get a sense of the cost of acquisition and staff and improving conversion rates. How far are you into that process at this point? Because I feel like we've been hearing about it for a good 18 months and change, but are we kind of in the 3rd inning, the 6th inning, just how much further do we have to go in terms of improvement there?

Well, I would say a highlight of Q1 was the 29% cost of acquisition improvement year-over-year in Medicare. So we feel very good about that efficiency where we are -- we've had improvement is in the direct response TV and direct mail. We've been able to be less reliant on third-party lead aggregators, and we've been less reliant upon the most expensive lead source, which is paid search. So I'd say, we've picked the easy fruit from that, Dave. But having said that, those trends should continue through the second quarter. Where I see huge opportunity for us both to improve efficiency, but also capture market share is as we continue to improve our digital marketing efforts. And so that -- contributions from that team, which I noted literally, they just -- human capital just joined us in January. We are just beginning to experience the improved digital marketing from their talent. So we're really bullish on how we can improve the profitability per member, but also outgrow the market substantially by strong digital marketing. Dave?

Yes. That's absolutely right. The 2 areas that I would pile on there is to reemphasize that investment in marketing talent, particularly on the digital side as, Dave, you know, we brought onboard a very talented new Chief Marketing Officer in June of last year and it's -- as all things that you rebuild, it's taken some time for him to build the bench strength and the capabilities there. And this digital marketing piece is a very important part. We had been doing it badly as a company for quite some time, causing us to dial back the spending there. As we re-energize those muscles and do that better, we will be investing more aggressively there. The other is to keep in mind that last year we essentially took our Medicare acquisition channel strategy and turned it on its head, insourcing a lot more work and then looking to this partner channel. That had very good early results, and you're seeing some of those results still coming through in the first quarter here. And I would say, the year is really broken into 2 areas, and it's the first 3 quarters of the year where we have to go out and market much more aggressively on a paid basis to generate the new customer acquisition volume, and then the fourth quarter, where all of this partner volume comes in, getting those partnerships in place and then implementing and executing against them. We believe that there are opportunities for us to continue to grow the business while reducing the incremental cost of acquisition in each of those periods. But candidly, the more pronounced impact is going to be in the fourth quarter when more of the volume comes in generally and more of those lower cost partner relationships kick in and implement at scale. So we're -- if you want an inning, I'd say, we are in the fourth or fifth right now, but this one could go into a day-night doubleheader too. So we're excited about where we sit.

Right. Okay. So that -- yes, that actually parlays into questions about growth and where you are -- how you guys see the low-hanging fruit from application growth from here? And so it sounds like in the first 3 quarters, as you said, that's more internal and perhaps more paid search still, but the fourth quarter leaning on those channels. I guess, since the fourth quarter is so seasonal now and important to you guys hitting your numbers, what are you doing with the partners, right now, to prepare for that? What is -- kind of what does the strategy look like when you go into a Union Plus or AGIA? Are you having to go into multiple different agencies within there to talk about what you guys want to do and what the demands and needs of the clients are? Sort of just walk us through how that workflow goes as you build up and get ready to market to those folks.

Right. Just a bit of a retrospective on the last year's AEP. We are -- have developed strength in business development that outpaced our operational competencies. And so we were not well positioned to process all the partnerships that we signed. And so our recently -- last year, recruited SVP of Sales Operations actually has reorganized and is now structured in a way where we are much better positioned to support these partnerships -- each of which are unique. What we were good at doing was high-volume lead segmentation and prioritization and conversion of large volumes of inbound calls, driven by direct response TV and third-party lead aggregators. So as we created more complexity and made us less reliant upon those high-cost channels, we're ahead of ourselves in terms of building the tools, the systems and the processes in our sales ops. Dave manages that directly, but that's my perspective.

Yes. I think that's all correct. And we also are working hard to engage at different levels, Dave, kind of to your point. And Scott mentioned, each of these partnerships is different. And better understanding with the year under our belt for some of those existing partnerships that we expect more performance out of, understanding both how they work and how they interface and engage with their customers and being able to lever that engagement point more effectively to drive more traffic that has an intention to transact with us is what we are working on with those folks right now. Again, for age-in campaigns where we're able to get some of that volume going right now, we are working there to both take advantage of that volume, but also use that volume as testing to be able to optimize when we get into the fourth quarter. A lot of engagement and work with each of those partners to make sure that we're taking advantage of the unique needs and touch points that they bring to what we're trying to achieve with them.

Okay. That's helpful. And then just the last one. I know you guys aren't pleased with the IFP business and just the challenges in the market, obviously, a lot of the ACA complexities are challenged with that one. I guess, every time I kind of step forward, it seems like there's a strategy and it's just a tough market to work in and I mean, I guess, that's reflected in the numbers where sequentially growth has been down for, I mean, 11 out of past 12 quarters, and it's down another 19% in the first quarter here. That's still your biggest profitable business. And I'm just curious how -- what else can you do to stem the losses and just help stabilize that business? And maybe helping us understand how much of that 183,000 lives is ACA-compliant business versus non-ACA-compliant?

Right. Well we only signed up in terms of subsidy-eligible ACA plan, 17,500 enrollments in the open enrollment period in '17. And so we underperformed our expectation even though we had the double redirect constraint eliminated and direct proxy enrollment enabled. The reality is that the far bigger market opportunity for us is in the non-ACA-compliant. And that's what I was signaling in my prepared remarks today, that we are more singularly focused. And you can go to our website now and see that we are directing our flow to short-term insurance. It converts at a higher rate. It's much more affordable to a much broader audience. And so we do believe we can stabilize the membership through these moves that we've made, but we're too early to give you assurance of that.

Yes. The other thing, Dave, that I would add is, we as a company have been too focused on the ACA-compliant side of the business and realizing the bifurcation of that marketplace and that more and more people are finding themselves in an economic position where an ACA-compliant plan, because of the lack of subsidy, just doesn't match for them, combined with the fact that the regulatory environment is creating more opportunities to sell more attractive right price point non-ACA-compliant products and that includes the expected extension of short term to a 364-day maximum. We believe that we -- our engine remains very well positioned to help a large portion of that market out, and that we are -- we have essentially cleared the cultural hurdles and are getting out of the way of the ACA side of things. Doing that where we can and have the ability to do it and we'll take all that business we can, but we're focused on meeting the needs of the market with the right set of benefits at the right price point and engaging patients or customers where they want to meet.

And is that really where you're seeing those numbers go that fall off the books, many of the them are going to that -- those shorter-term plans. Is your assumption there?

Yes. There's still a lot of confusion among consumers in the marketplace. So we're helping them -- helping to get them educated as to the -- what's best for them. Some of them have been buying packages from us, which include short term. Some of them have been putting together their own portfolio of products. But where -- as Scott said, where we see the opportunity right now is taking advantage of where the short-term market exists today and where we think it's going in the middle part of this year with extended lifetimes of those products and be positioned when all of the volume starts to hit again in the fourth quarter to be much better prepared to capture significantly more volume than we have in each of the last 2 years.

And our next question will come from the line of Steven Halper with Cantor Fitzgerald.

Just a housekeeping item. Dave, I know you talked about the noncash tax rate of 27.5%. I'm assuming that's for the full year. What should we assume as a benefit in the second and third quarter assuming that you're going to be in a loss position?

Yes. From a reporting perspective, Steve, the GAAP net income line is going to be hit with that 27.5% effective rate.

Even though you will be in a loss position?

Correct.

Okay. So it won't be a benefit, it will still -- it will be an expense?

No. It will be a benefit. It will report as a benefit.

And our next question will come from line of Tobey Sommer with SunTrust.

Could you speak to the improvements you've seen in the variable marketing costs? Can you -- is there any way that you could quantify those for us and talk about the path to profitability? Seeing as how the Medicare business is where you're getting the growth and seems to be the principal driver of the long-term prospects of the company.

Sure. I'll see how I can do, and then we'll go where ever you want to, Tobey. So the -- as Scott described earlier, the fact that we have retaken control essentially of our direct marketing channels, we used to use the term where when we came into the business, we had essentially outsourced all of our marketing to third parties for whom we were simply paying a bounty for customers that we were able to enroll, and therefore not getting any kind of leverage out of our enrollment engine. Taking that all back in-house and improving our sales conversion rates inside of the sales center has resulted in that overall decline in variable marketing costs in this non-AEP, nonselling season part of the year. When you look at the opportunities in the fourth quarter. In the fourth quarter, because of both the volume of business being done over the fixed infrastructure and the fact that we can bring down, if we execute appropriately, the variable marketing expense on a blended basis for every new customer because of the mix of business coming from the lower cost partner channel, the opportunity to significantly impact -- have a positive impact on profitability in the fourth quarter relative to the first 3 is -- it becomes very apparent. So I would tell you, as we said earlier, that the opportunities as we continue to refine our direct retail marketing efforts in the first 3 quarters of the year to continue to reduce costs at the margin on an incremental basis is still there and has meaningful upside for us. But the real profits come in the fourth quarter when the volume comes and the volume comes with a significantly more attractive mix of business relative to channels.

Okay. With respect to the IFP business, how much of your future strategy hinges on changes to the ACA or government action as opposed to forecasts in new processes and selling that are internally controlled in, assume, kind of, the current operating environment.

So we provided updated guidance on our 2021 long-range plan, where we indicated that Medicare will continue to grow at a 20% rate, but that our overall revenues would be in the 15% range. And the reason for that is we're taking a very conservative perspective on the IFP business, very little growth at all in that segment. So we are discounting any legislative fix to expand assessability of ACA insurance. Now I personally believe that there will be a legislative fix. Tobey, that's one of the reasons I am loathe to completely exit the sale of QHPs because we do believe in the plan period, it will come back. But for purposes of our guidance and the commitments we're making, we're taking a cautious outlook.

Okay. How would you characterize pricing both from the selling season and enrollments as you headed into this year as well as any kind of conversations you're having headed into the end of this year?

When you say pricing, do you mean commission rates?

I do.

Sorry?

I do.

So in the Medicare business, no meaningful change. There were some, at the margin, beneficial rules coming out of CMS relative to what carriers were unable to pay relative to administrative fees and other commissions. And as you know, the Medicare advantage basis is regulated to a large degree. The MedSup market, the [CMPM] rates have continued to be attractive for us. And you see that in the LTVs that we published as well. We're not seeing any meaningful change to those trends positive or negative. We're encouraged by where things stand on the Medicare side of things. In the IFP business, it gets very difficult to get paid any commissions on subsidy-eligible business, ACA business right now. And we are working with the carriers with whom we work in the non-ACA space to get us as strong a commission trend as possible, where we expect that those trends will continue to go up, again, particularly on the short-term products as you get higher price products based on a longer-term lifetime value of the short-term products as they come into the market in the back half of the year. We expect to see improvements there. But generally speaking, commission trends are not a concern for us right now. Things are stable to improving at the margin.

One last question for me. What is the cash flow or burn associated with this year's guidance?

We mentioned that on -- yes, we mentioned that on the Q4 call that we expect to have operating cash flow in the negative $8.5 million to negative $9.5 million range. Do you have the exact -- I think we've said we are just under $10 million from a CapEx perspective?

Yes. And the first quarter was a little better than we anticipated from a cash standpoint.

And I'm showing no further questions in the queue. So now at this time, I'd like to hand the conference back over to Mr. Scott Flanders, Chief Executive Officer, for some closing comments and remarks.

Thank you, everyone, for participating, and we are available for follow-up calls to schedule through Kate. Thank you.

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude our program, and you may all disconnect. Everybody, have a wonderful day.