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eHealth, Inc. Announces Fourth Quarter and Fiscal 2018 Results

Fourth quarter 2018 Overview

•	Revenue for the fourth quarter of 2018 was $134.9 million, an increase of 62% compared to $83.1 million for the fourth quarter of 2017.

•	Net income for the fourth quarter of 2018 was $26.1 million compared to $28.0 million for the fourth quarter of 2017.

•	Adjusted EBITDA for the fourth quarter of 2018 was $51.9 million, an increase of 107% compared to $25.1 million for the fourth quarter of 2017.

•	Net cash used in operations for the fourth quarter of 2018 was $8.7 million compared to $10.1 million net cash used in operations for the fourth quarter of 2017.

SANTA CLARA, California — February 21, 2019 — eHealth, Inc. (NASDAQ: EHTH), a leading private online health insurance exchange, announced today its financial results for the fourth quarter and fiscal year ended December 31, 2018.
Scott Flanders, chief executive officer of eHealth stated, “2018 was a defining year for eHealth in validating our vision and growth strategy for the Medicare market. We delivered the strongest Medicare Annual Enrollment Period in the company’s history, achieved a number of important executional milestones and reported financial results which significantly exceeded our expectations. I am proud of these accomplishments.”
GAAP — Fourth Quarter of 2018 Results
Revenue — Revenue for the fourth quarter of 2018 totaled $134.9 million, a 62% increase compared to $83.1 million for the fourth quarter of 2017. Commission revenue for the fourth quarter of 2018 totaled $122.2 million, a 61% increase compared to $76.1 million for the fourth quarter of 2017. Other revenue for the fourth quarter of 2018 was $12.7 million, a 79%increase compared to $7.1 million for the fourth quarter of 2017.
Revenue from our Medicare segment was $121.6 million for the fourth quarter of 2018, a 74% increase compared to $69.9 million for the fourth quarter of 2017. Revenue from our Individual, Family and Small Business segment was $13.3 million for the fourth quarter of 2018, a 1% increase compared to $13.2 million for the fourth quarter of 2017.
Income from Operations — Income from operations for the fourth quarter of 2018 was $41.6 million compared to income from operations of $20.8 million for the fourth quarter of 2017. Operating margin was 31% for the fourth quarter of 2018 compared to 25% for the fourth quarter of 2017.
Pre-tax Income — Pre-tax income for the fourth quarter of 2018 was $41.6 million compared to pre-tax income of $21.1 million for the fourth quarter of 2017.
Provision (Benefit) for Income Taxes — Provision for income taxes for the fourth quarter of 2018 was $15.6 million compared to benefit for income taxes of $6.9 million for the fourth quarter of 2017.
Net Income — Net income for the fourth quarter of 2018 was $26.1 million, or $1.25 net income per diluted share, compared to net income of $28.0 million, or $1.47 net income per diluted share, for the fourth quarter of 2017. Net income for the fourth quarter of 2018 includes a non-cash charge of $6 million related to an increase in fair value of the earnout liability assumed in connection with eHealth’s acquisition of GoMedigap. The increase is driven primarily by eHealth’s share price appreciation since the transaction closed in January of 2018. The share price appreciation has increased the value of the equity-based portion of the earnout consideration owed to the former holders of GoMedigap equity interests.
Segment Profit — Profit from our Medicare segment was $58.7 million for the fourth quarter of 2018, a 90% improvement compared to profit of $30.9 million for the fourth quarter of 2017. Profit from our Individual, Family and Small Business segment was $3.5 million for the fourth quarter of 2018, a 208% increase compared to $1.1 million for the fourth quarter of 2017.

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Non-GAAP — Fourth Quarter of 2018 Results
Non-GAAP Operating Income & Non-GAAP Net Income — Non-GAAP operating income for the fourth quarter of 2018 was $51.3 million compared to non-GAAP operating income of $24.4 million for the fourth quarter of 2017. Non-GAAP operating margin for the fourth quarter of 2018 was 38% compared to 29% for the fourth quarter of 2017. Non-GAAP net income for the fourth quarter of 2018 was $33.6 million, or $1.61 non-GAAP net income per diluted share, compared to non-GAAP net income of $30.2 million, or $1.57non-GAAP net income per diluted share, for the fourth quarter of 2017.
Non-GAAP operating income, non-GAAP net income and non-GAAP net income per diluted share for the fourth quarter of 2018 exclude $3.1 million of stock-based compensation expense, a $6.0 million charge related to an increase in the fair value of our earnout liability, and $0.5 million of amortization of intangible assets. Non-GAAP operating net income, non-GAAP net income and non-GAAP net income per diluted share for the fourth quarter of 2017 exclude $2.7 million of stock-based compensation expense, $0.6 million of acquisition costs related to our acquisition of GoMedigap, and $0.3 million of amortization of intangible assets.
Adjusted EBITDA — Adjusted EBITDA for the fourth quarter of 2018 was $51.9 million compared to $25.1 million for the fourth quarter of 2017. Adjusted EBITDA is calculated by adding stock-based compensation, depreciation and amortization expense, acquisition costs related to our acquisition of GoMedigap, restructuring charge, amortization of intangible assets, change in fair value of earnout liability, other income (expense), net, and provision (benefit) for income taxes to GAAP net income.
Membership, Submitted Applications & Approved Members
Membership — Total estimated membership as of December 31, 2018 was 952,926 members, a 2% increase compared to 936,900 members we reported as of December 31, 2017. Estimated Medicare membership as of December 31, 2018 was 486,690, a 26% increase compared to 384,854 we reported as of December 31, 2017. Estimated individual and family plan membership as of December 31, 2018 was 151,904 members, a 32% decrease compared to 224,396 we reported as of December 31, 2017.
Submitted Applications — Submitted applications for all Medicare products, which includes Medicare Advantage, Medicare Supplement and Prescription Drug Plans were 162,216applications in the fourth quarter of 2018, a 64% increase compared to 98,826 applications in the fourth quarter of 2017. Submitted applications for individual and family plan products decreased 45% in the fourth quarter of 2018 to 19,120 applications compared to 34,865 applications in the fourth quarter of 2017.
Approved Members — Approved members for all Medicare products, which includes Medicare Advantage, Medicare Supplement and Prescription Drug Plans were 145,689 members in the fourth quarter of 2018, a 63% increase compared to 89,247 members in the fourth quarter of 2017. Approved members for individual and family plan products decreased 41% in the fourth quarter of 2018 to 14,452 members compared to 24,384 members in the year ended December 31, 2017.
Cash — Fourth Quarter of 2018
Cash Flows — Net cash used in operating activities was $8.7 million for the fourth quarter of 2018 compared to net cash used in operating activities of $10.1 million for the fourth quarter of 2017.
GAAP — Full Year Results
Revenue — Revenue for the year ended December 31, 2018 totaled $251.4 million, a 32% increase compared to $190.7 million for the year ended December 31, 2017. Commission revenue for the year ended December 31, 2018 totaled $227.2 million, a 28% increase compared to $176.9 million for the year ended December 31, 2017. Other revenue for the year ended December 31, 2018 was $24.2 million, a 75% increase compared to $13.8 million for the year ended December 31, 2017.
Revenue from our Medicare segment was $210.6 million for the year ended December 31, 2018, a 48% increase compared to $142.4 million for the year ended December 31, 2017. Revenue from our Individual, Family and Small Business segment was $40.8 million for the year ended December 31, 2018, a 15% decrease compared to $48.3 million for the year ended December 31, 2017.
Income from Operations — Income from operations for the year ended December 31, 2018 was $2.6 million compared to loss from operations of $9.5 million for the year endedDecember 31, 2017. Operating margin was 1% for the year ended December 31, 2018 compared to (5)% for the year ended December 31, 2017.

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Pre-tax Income — Pre-tax income for the year ended December 31, 2018 was $3.3 million compared to pre-tax loss of $8.3 million for the year ended December 31, 2017.
Provision for Income Taxes — Provision for income taxes for the year ended December 31, 2018 was $3.1 million compared to $33.7 million benefit from income taxes for the year ended December 31, 2017. The change in tax provision year over year is due to the introduction of federal tax reform, the impact of ASC 606, and the expiration of net operating loss carryforwards.
Net Income — Net income for the year ended December 31, 2018 was $0.2 million, or $0.01 earnings per diluted share, compared to net income of $25.4 million, or $1.33 earnings per diluted share, for the year ended December 31, 2017. Net income for the year ended December 31, 2018 includes a non-cash charge of $12.3 million related to an increase in fair value of the earnout liability assumed in connection with eHealth’s acquisition of GoMedigap. The increase is driven primarily by eHealth’s share price appreciation since the transaction closed in January of 2018. The share price appreciation has increased the value of the equity-based portion of the earnout consideration owed to the former holders of GoMedigap equity interests.
Segment Profit — Profit from our Medicare segment was $60.8 million for the year ended December 31, 2018, a 175% improvement compared to $22.1 million profit from Medicare segment for the year ended December 31, 2017. Profit from our Individual, Family and Small Business segment was $5.8 million for the year ended December 31, 2018, a 39%decrease compared to $9.6 million for the year ended December 31, 2017.
Non-GAAP — Full Year Results
Non-GAAP Operating Income & Non-GAAP Net Income — Non-GAAP operating income for the year ended December 31, 2018 was $31.2 million compared to $1.9 million non-GAAP operating income for the year ended December 31, 2017. Non-GAAP operating margin for the year ended December 31, 2018 was 12% compared to 1% for the year endedDecember 31, 2017. Non-GAAP net income for the year ended December 31, 2018 was $22.6 million, or $1.11 net income per diluted share, compared to $32.2 million non-GAAP net income, or $1.69 non-GAAP net income per diluted share, for the year ended December 31, 2017.    
Non-GAAP operating income, non-GAAP net income and non-GAAP net income per diluted share for the year ended December 31, 2018 exclude $12.3 million of stock-based compensation expense, a $1.9 million restructuring charge, $2.0 million of amortization of intangible assets, and a $12.3 million charge from the change in the fair value of the earnout liability related to the acquisition of GoMedigap, which was completed in January 2018. Non-GAAP operating income, non-GAAP net income and non-GAAP net income per diluted share for the year ended December 31, 2017 exclude $9.7 million of stock-based compensation expense, $0.6 million of acquisition costs related to our acquisition of GoMedigap, and $1.0 million of amortization of intangible assets.
Adjusted EBITDA — Adjusted EBITDA for the year ended December 31, 2018 was $33.7 million compared to $4.7 million for the year ended December 31, 2017. Adjusted EBITDA is calculated by adding stock-based compensation, depreciation and amortization expense, acquisition costs related to our acquisition of GoMedigap, restructuring charge, amortization of intangible assets, change in the fair value of the earnout liability related to the acquisition of GoMedigap, other income, net and provision (benefit) for income taxes to GAAP net income.
Submitted Applications and Approved Members
Submitted Applications — Submitted applications for all Medicare products, which includes Medicare Advantage, Medicare Supplement and Prescription Drug Plans were 264,903 applications in the year ended December 31, 2018, a 39% increase compared to 190,195 applications in the year ended December 31, 2017. Submitted applications for individual and family plan products decreased 56% in the year ended December 31, 2018 to 29,698 applications compared to 67,428 applications in the year ended December 31, 2017.
Approved Members — Approved members for all Medicare products, which includes Medicare Advantage, Medicare Supplement and Prescription Drug Plans were 239,688 members in the year ended December 31, 2018, a 36% increase compared to 175,665 members in the year ended December 31, 2017. Approved members for individual and family plan products decreased 46% in the year ended December 31, 2018 to 42,650 members compared to 78,553 members in the year ended December 31, 2017.

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2019 Guidance
eHealth’s guidance for the full year ending December 31, 2019 is based on information available as of February 21, 2019. These expectations are forward-looking statements, and eHealth assumes no obligation to update these statements. Actual results may be materially different and are affected by the risk factors and uncertainties identified in this release and in eHealth’s annual and quarterly filings with the Securities and Exchange Commission.
The following guidance is for the full year ending December 31, 2019.

•	Total revenue is expected to be in the range of $290 million to $310 million. Revenue from the Medicare segment is expected to be in the range of $256 million to $272 million. Revenue from the Individual, Family and Small Business segment is expected to be in the range of $34 million to $38 million.

•	GAAP net income per diluted share for 2019 is expected to be in the range of $0.60 to $0.79 per share.

•	Non-GAAP net income per diluted share(a) is expected to be in the range of $1.22 to $1.33 per share.

•	GAAP net income is expected to be in the range of $16.3 million to $21.3 million.

•	Adjusted EBITDA(b) is expected to be in the range of $45 million to $50 million.

•	2019 Medicare segment profit(c) is expected to be in the range of $80 million to $84 million and Individual, Family and Small Business segment profit is expected to be breakeven to $1 million.

•	Corporate(d) shared service expenses, excluding stock-based compensation and depreciation and amortization expense, is expected to be approximately $35 million.

•	Cash used in operations is expected to be in the range of $17 million to $20 million and cash used for capital expenditures is expected to be $13 million to $14 million.

	(a) Non-GAAP net income per diluted share is calculated by adding stock-based compensation expense, change in fair value of earnout liability, acquisition costs, restructuring charges, intangible asset amortization expense and the income tax effect of these adjustments to GAAP net income.
	(b) Adjusted EBITDA is calculated by adding stock-based compensation, depreciation and amortization expense, restructuring charges, acquisition costs, amortization of intangible assets, other income (expense), net and provision for income taxes to GAAP net income.
	(c) Segment profit is calculated as revenue for the applicable segment less Marketing and Advertising, Customer Care and Enrollment, Technology and Content and General and Administrative operating expenses, excluding stock-based compensation, depreciation and amortization expense and amortization of intangible assets, that are directly attributable to the applicable segment and other indirect Marketing and Advertising, Customer Care and Enrollment and Technology and Content operating expenses, excluding stock-based compensation, depreciation and amortization expense and amortization of intangible assets, allocated to the applicable segment based on usage.
	(d) Corporate consists of other indirect General and Administrative operating expenses, excluding stock-based compensation and depreciation and amortization expense, which are managed in a corporate shared services environment and, since they are not the responsibility of segment operating management, are not allocated to the reportable segments.

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Webcast and Conference Call Information
A Webcast and conference call will be held today, Thursday, February 21, 2019 at 5:00 p.m. Eastern / 2:00 p.m. Pacific Time.  The Webcast will be available live on the Investor Relations section on eHealth’s website at http://ir.ehealthinsurance.com. Individuals interested in listening to the conference call may do so by dialing (877) 930-8066 for domestic callers and (253) 336-8042 for international callers. The participant passcode is 9573983. A telephone replay will be available two hours following the conclusion of the call for a period of seven days and can be accessed by dialing (855) 859-2056 for domestic callers and (404) 537-3406 for international callers. The call ID for the replay is 1988118. The live and archived webcast of the call will also be available on eHealth’s website at http://www.ehealthinsurance.com under the Investor Relations section.
About eHealth, Inc.
eHealth, Inc. (NASDAQ: EHTH) operates eHealth.com, a leading private online health insurance exchange where individuals, families and small businesses can compare health insurance products from leading insurers side by side and purchase and enroll in coverage online. eHealth offers thousands of individual, family and small business health plans underwritten by many of the nation’s leading health insurance companies. eHealth (through its subsidiaries) is licensed to sell health insurance in all 50 states and the District of Columbia. eHealth also offers educational resources and powerful online and pharmacy-based tools to help Medicare beneficiaries navigate Medicare health insurance options, choose the right plan and enroll in select plans online through PlanPrescriber.com (www.PlanPrescriber.com), eHealthMedicare.com (www.eHealthMedicare.com) and Medicare.com (www.Medicare.com) and GoMedigap.com (www.GoMedigap.com).
For more health insurance news and information, visit the eHealth consumer blog: Get Smart – Get Covered or visit eHealth’s Consumer Resource Center.
Forward-Looking Statements
This press release contains statements that are forward-looking statements as defined within the Private Securities Litigation Reform Act of 1995. These include statement regarding our vision and growth strategy for the Medicare market, our estimates regarding total membership, Medicare membership, Individual and Family plan membership, ancillary and small business membership, our estimates regarding constrained lifetime values of commissions per member and constraints on lifetime value by product category, and our guidance for the full year ending December 31, 2019, including our guidance for total revenue, revenue from the Medicare segment, revenue from the Individual, Family and Small Business segment, GAAP net income, Adjusted EBITDA, profit from the Medicare segment, profit from the Individual, Family and Small Business segment, Corporate shared service expense, GAAP net income per share, Non-GAAP net income per share, cash used in operations and cash used for capital expenditures.
These forward-looking statements are inherently subject to various risks and uncertainties that could cause actual results to differ materially from the statements made. In particular, we are required by the revenue recognition standard to make numerous assumptions that are based upon historical trends and management judgment. These assumptions may change over time and have a material impact on our revenue recognition, guidance, and results of operations. Please review the assumptions stated in this section carefully as well as the disclosures about our implementation of the revenue recognition standard in our Form 10-Q for the fiscal quarters ended March 31, 2018, June 30, 2018 and September 30, 2018, as well as the recast consolidated financial statements for each of the three years in the period ended December 31, 2017 reflecting the adoption of the new revenue recognition standard in our Form 8-K filed on December 17, 2018.
The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include risks associated with the impact of healthcare reform; our ability to retain existing members and enroll a large number of new members during the annual healthcare reform open enrollment period and Medicare annual enrollment period; the impact of annual enrollment period for the purchase of individual and family health insurance and its timing on our recognition of revenue; our ability to sell qualified health insurance plans to subsidy-eligible individuals and to enroll subsidy eligible individuals through government-run health insurance exchanges; changes in laws and regulations, including in connection with healthcare reform; our ability to successfully make and integrate acquisitions; our health insurance benefits and packages’ ability to meet individual customer’s specific health insurance and price needs; the success of our sale of short-term health insurance and benefit packages; our ability to comply with CMS guidance and impact on conversion rates as a result of the federal exchange changes to enrollment; competition, including competition from government-run health insurance exchanges; seasonality of our business and the fluctuation of our operating results; our ability to retain existing members and limit member turnover; changes in consumer behaviors and their selection of individual and family health insurance products, including the selection of products for which we receive lower commissions; a reduction of product

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offerings among carriers and the resulting impact on our commission revenue; carriers exiting the market of selling individual and family health insurance and the resulting impact on our supply and commission revenue; our ability to execute on our growth strategy in the Medicare and small business health insurance markets; the impact of increased health insurance costs on demand; our ability to timely receive and accurately predict the amount of commission payments from health insurance carriers; timing of commission payments from health insurance carriers; medical loss ratio requirements; delays in our receipt of items required to recognize Medicare revenue; changes in member conversion rates; our ability to accurately estimate membership and lifetime value of commissions; our relationships with health insurance carriers; customer concentration and consolidation of the health insurance industry; our success in marketing and selling health insurance plans and our unit cost of acquisition; our ability to hire, train and retain licensed health insurance agents and other employees; the need for health insurance carrier and regulatory approvals in connection with the marketing of Medicare-related insurance products; costs of acquiring new members; scalability of the Medicare business; lack of membership growth and retention rates; consumer satisfaction of our service; changes in competitive landscape; our ability to attract and to convert online visitors into paying members; changes in products offered on our ecommerce platform; changes and reductions in commission rates; our ability to maintain and enhance our brand identity; our ability to derive desired benefits from investments in our business, including membership growth initiatives; dependence on acceptance of the Internet as a marketplace for the purchase and sale of health insurance; reliance on marketing partners; the impact of our direct-to-consumer email, telephone and television marketing efforts; timing of receipt and accuracy of commission reports; payment practices of health insurance carriers; dependence on our operations in China; the restrictions in our debt obligations; compliance with insurance and other laws and regulations; exposure to security risks and our ability to safeguard sensitive data; and the performance, reliability and availability of our ecommerce platform and underlying network infrastructure.  Other factors that could cause operating, financial and other results to differ are described in eHealth’s most recent Quarterly Report on Form 10-Q or Annual Report on Form 10-K filed with the Securities and Exchange Commission and available on the investor relations page of eHealth’s website at http://www.ehealthinsurance.com and on the Securities and Exchange Commission’s website at sec.report.
All forward-looking statements in this press release are based on information available to eHealth as of the date hereof, and eHealth does not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made, except as required by law.
Non-GAAP Financial Information
This press release includes financial measures that are not in accordance with generally accepted accounting principles in the United States (GAAP), including Adjusted EBITDA. Adjusted EBITDA is calculated by adding stock-based compensation expense, depreciation and amortization expense, acquisition costs, amortization/impairment of intangible assets, other income (expense), net and provision (benefit) for income taxes to GAAP net income (loss).
eHealth believes that the presentation of these non-GAAP financial measures provide important supplemental information to management and investors regarding financial and business trends relating to eHealth’s financial condition and results of operations. Management believes that the use of these non-GAAP financial measures provides consistency and comparability with eHealth’s past financial reports. Management also believes that the items described above provides an additional measure of eHealth’s operating results and facilitates comparisons of eHealth’s core operating performance against prior periods and business model objectives. This information is provided to investors in order to facilitate additional analyses of past, present and future operating performance and as a supplemental means to evaluate eHealth’s ongoing operations. eHealth believes that these non-GAAP financial measures are useful to investors in their assessment of eHealth’s operating performance.
Adjusted EBITDA is not calculated in accordance with GAAP, and should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. Non-GAAP financial measures used in this press release have limitations in that they do not reflect all of the revenue and costs associated with the operations of eHealth’s business and do not reflect income tax as determined in accordance with GAAP. As a result, you should not consider these measures in isolation or as a substitute for analysis of eHealth’s results as reported under GAAP. eHealth expects to continue to incur the stock-based compensation costs and purchased intangible asset amortization costs described above, and exclusion of these costs, and their related income tax benefits, from non-GAAP financial measures should not be construed as an inference that these costs are unusual or infrequent. Finance to confirm this sentence. eHealth compensates for these limitations by prominently disclosing GAAP net income (loss) and providing investors with reconciliations from eHealth’s GAAP operating results to the related non-GAAP financial measures for the relevant periods.

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Investor Relations Contact:Kate Sidorovich, CFAVice President Investor Relations2625 Augustine Drive, Second FloorSanta Clara, CA, 95054(650) 584-2700kate.sidorovich@ehealth.comhttp://ir.ehealthinsurance.com