eHealth, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unaudited results are for the online health insurance marketplace and related enrollment services; dollar amounts below are in millions except per-share data.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $64.7 | $53.4 | $205.2 | $209.0 |
| Operating loss | $(39.4) | $(48.3) | $(88.4) | $(133.5) |
| Net loss | $(37.0) | $(39.1) | $(80.4) | $(109.4) |
| Net loss attributable to common stockholders | $(47.2) | $(47.0) | $(108.2) | $(132.0) |
| Basic and diluted loss per share | $(1.68) | $(1.72) | $(3.88) | $(4.83) |
| Operating cash flow | Not separately presented for Q3 | $26.7 | $(8.3) |
Q3 operating and net loss margins were approximately 61% and 57% of revenue, respectively, compared with 90% and 73% in Q3 2022. For the nine-month periods, operating and net loss margins were approximately 43% and 39%, versus 64% and 52%.
- Revenue mix: Q3 commission revenue was $57.2 million, up 17%; other revenue was $7.5 million, up 70%, primarily from advertising. Nine-month commission revenue fell 3% to $185.4 million; total revenue fell 2%.
- Balance sheet and liquidity: At September 30, cash and cash equivalents were $152.1 million and short-term marketable securities were $8.5 million, totaling $160.6 million. Current assets were $396.7 million and current liabilities $53.2 million. Net contract assets—commissions receivable were $780.6 million.
- Cash flow: Nine-month operating cash flow improved to $26.7 million from use of $8.3 million. The company attributed the 2023 inflow largely to working-capital changes, including a $104.2 million decrease in commission receivables; it should not be read as operating profitability. Investing used $16.5 million and financing used $2.6 million.
- Debt: Long-term debt carrying value was $67.3 million. The secured term loan carried a 13.18% variable interest rate at quarter-end and matures in February 2025. The company reported compliance with its loan covenants.
- Preferred stock: Series A convertible preferred stock was recorded at $288.9 million. It accrues dividends at 8% annually, with 6% paid in kind and 2% payable in cash after the second anniversary. The company paid $0.9 million of cash dividends in Q2 and had accrued $1.3 million of cash dividends at quarter-end.
Changes versus the prior comparable period
- Q3 revenue rose 21%, while nine-month revenue declined 2%. The Q3 increase reflected higher Medicare and other revenue, including $12.2 million of net commission revenue adjustments relating to members approved in prior periods. The nine-month comparable adjustment was $32.5 million, versus negative $4.7 million in total across prior-period cohorts in 2022.
- These adjustments reflect updated estimates of commissions expected to be collected, not solely new-period enrollments. The filing also reports reductions to revenue from prior-period members of $0.8 million in Q3 and $3.7 million year to date.
- Approved members declined 16% in Q3 and 23% over nine months. Medicare approved members declined 10% and 25%, respectively. Estimated total membership at September 30 was 1.18 million, down 7% year over year.
- Marketing and advertising expense declined 5% in Q3 and 28% year to date, while customer care and enrollment expense increased 38% in Q3, mainly due to hiring, training and licensing benefit advisors ahead of the annual enrollment period. Technology and content expense fell 29% in Q3. No impairment, restructuring or other charges were recorded in 2023, compared with $4.5 million in Q3 2022 and $10.7 million for the prior-year nine-month period.
- Medicare segment revenue grew 23% in Q3 but declined 5% year to date. Individual, Family and Small Business revenue grew 12% in Q3 and 17% year to date. Both segments’ losses/profits improved versus the prior year, though the Medicare segment remained loss-making in both periods.
Outlook, commentary, risks and unusual items
- Management said it continued a multi-year transformation focused on enrollment quality, retention, consumer experience, more targeted marketing and reduced reliance on lead aggregators. It temporarily reduced acquisition spending and said it expected to resume Medicare enrollment growth year over year in Q4 2023; this is management’s expectation, not a guarantee.
- The company launched a rebrand in October 2023 and said it expected the refreshed marketing plan and omnichannel experience to increase brand recognition. It also expanded advisor headcount ahead of the Q4 annual enrollment period.
- Management stated that available cash, cash equivalents, short-term investments and expected collections should fund operations for at least 12 months after the filing date. Future capital needs depend on enrollment, retention, spending and other factors; additional financing may not be available on acceptable terms.
- Preferred-stock covenant shortfall: The required asset coverage ratio increased to 2.5x in August 2023. At the first measurement date, September 30, the company’s ratio was 2.3x, so it did not meet the requirement, although it met the minimum liquidity amount. The filing says the shortfall does not accelerate preferred-stock redemption and was not expected to materially impair cash availability; H.I.G. may have additional governance and approval rights subject to the agreement’s terms.
- Concentration and estimation risks: Humana and UnitedHealthcare represented 28% and 22% of nine-month revenue, respectively. Commission revenue and membership rely on estimates and carrier reports; actual collections, cancellations and membership may differ. The business is seasonal, with enrollment periods concentrated in Q4 and, for Medicare Advantage, Q1.
- Other material risks include complex and changing Medicare marketing rules, competition, carrier relationships, cybersecurity and privacy, China operations, and the variable-rate secured loan. The company reported no material litigation-related accrual. A securities class action was dismissed without leave to amend on October 25, 2023, after quarter-end; derivative actions remained stayed pending resolution of that case, with no subsequent follow-up reported.
- Management concluded disclosure controls were effective as of September 30, 2023; no material change in internal control over financial reporting was reported during Q3. The filing provides no clear new numerical earnings or revenue guidance.
Important facts for investors to verify
- Whether Q4 enrollment growth materialized and whether added advisor capacity translated into productive, cost-effective enrollments.
- How much reported revenue and cash generation depend on prior-period commission estimate adjustments, and whether subsequent carrier collections support those estimates.
- Changes in approved members, estimated membership, retention, conversion rates, and commission LTVs, particularly for Medicare Advantage.
- The company’s asset coverage ratio and liquidity compliance under the H.I.G. agreement, including any resulting governance or approval rights.
- Ability to service and refinance the $67.3 million variable-rate loan before its February 2025 maturity, alongside preferred-stock dividends and other commitments.
- Carrier concentration, Medicare regulatory developments, and the status of the stayed derivative litigation following the class action’s dismissal.