Kate Sidorovich - VP, IR Scott Flanders - CEO Dave Francis - CFO.

George Sutton - Craig Hallum Tobey Sommer - SunTrust.

Good day, ladies and gentlemen. And welcome to the Q3 2017 eHealth Inc. 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 is being recorded.

I would now like to turn the call over to your host, 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 third quarter 2017 financial results. On the call this afternoon, we have Scott Flanders, eHealth's Chief Executive Officer and Dave Francis, eHealth's Chief Financial and Operations Officer.

After management completes its remarks, we’ll open the lines 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 includes statements regarding future events, beliefs, and expectations, including statements regarding our mission to become the market's leading consumer health engagement company, the progress we'll continue to make in furtherance of that mission, the effectiveness of our sales organization and demand generation channel, growth in Medicare submitted application and membership, positive trends in non-Medicare business, our partnerships with hospitals, pharmacies and organizations, and marketing opportunities from such partnership, expected increased demand from the Medicare and our enrollment period, our focus on the open enrollment periods, our use of our four school center operators, our television advertising efforts, our Medicare lead conversion retention rates, accept challenges in the individual health insurance market, factors that increase our share of total new enrollment, this open enrollment period, our expectations regarding the size of the individual health insurance market, our ability to enroll such eligible customers and took health plans that will be federal exchange without leaving our Website during the upcoming '18, our health insurance benefits package ability to meet the individual consumers specific health insurance and pricing needs, our expectations regarding increased growth rates to individual submitted applications during the fourth quarter and our goals with submitted Medicare applications growth rates during the fourth quarter, our investment in the small business market and expected enrollment activity, the expected benefits of strategic alliances and custom acquisition partnerships, our anticipated marketing strategies and tactics and the expected benefits, the long term revenue profile of our Medicare customer, our expectations regarding our flex sales capabilities, positive developments in the individual market and their expected impact on our business, our membership estimates, our expectations regarding the upcoming selling season, our investment in the Medicare supplement business, our adoption of new revenue recognition guidance generally refers 2018, and its expected impact on revenues, earnings and on our balance sheet and finally our reaffirmation of our guidance for the full-year 2017, including revenue, adjusted EBITDA, segment revenue and profitability and earnings 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 this forward-looking statement, 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 Reports 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 a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure, please refer to the information included in our press release and in our SEC filings, which can be found 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. Welcome everyone. Upon becoming eHealth CEO nearly 18 months ago, our singular focus has been to meet the health insurance needs of our customers and thereby restore and reposition the company for aggressive growth in pursuit of our mission.

During the fourth quarter selling season, we interact with most of our new customers and many of our renewing customers.

During this critical timeframe, our most important goal is to carefully and thoroughly employ the talent of our people and the technology of our processes to assure that each and every customer gets a plan with benefits and cost that they regard as being an optimum match for their health insurance needs and wants.

We regard ourselves as a team that is committed to delivering customer satisfaction, not merely selling insurance. Let me be clear, doing the right thing for the customer is also doing the right thing for the business. A satisfied customer is a customer who is more likely to renew, thus enhancing the long-term value of that customer.

Today I will review our third quarter results; our financial goals and our execution milestones as we enter the important fourth quarter selling season for our Medicare and IFP businesses.

As we shared with you on our last earnings call, we observed positive trends in our Medicare business toward the end of the second quarter, driven by initiatives that enhance the effectiveness of our sales organization and better aligned our demand generation enrollment efforts.

These positive trends have continued yielding results for the third quarter that are consistent with our previously announced guidance for the year. Third quarter revenue was $26.6 million. Our adjusted EBITDA was negative $17.5 million. GAAP net loss per share was $1.11 and non-GAAP net loss per share was $0.98.

Cash flow from operations was negative $12.9 million bringing our cash balance as of September 30 to $51.4 million. As the second quarter ended, we saw a meaningful increase in our Medicare lead conversion rates occurring earlier than in the year than we had planned.

I am pleased to report that this trend was sustained throughout the third quarter, resulting in a meaningful acceleration of our application growth. Total Medicare submitted applications in Q3 grew 20% compared to the prior year's third quarter results.

As a result of our growing Medicare enrollments over the past year, third quarter Medicare revenue grew 44% compared to the third quarter a year ago. We expect to see further increases in Medicare submitted application growth during the fourth quarter when the main selling season occurs.

For the full-year 2017, we continue to target Medicare submitted application growth rates in the high teens compared to the prior year.

During the third quarter, we achieved significant progress in further expanding our partnership channel in Medicare as part of our broader demand generation strategy to shift away from higher cost lead aggregator and paid search sources and towards more profitable channels.

We added a number of important relationships across our key partnership target areas including hospitals, pharmacies and legal organizations. I'd like to highlight AGIA as an important new relationship for eHealth. AGIA is a solution platform for outsourced business processes.

They market and manage insurance and other member benefit for over 100 affinity groups across the U.S., including some of the largest and iconic organizations in the country.

Starting in January 2018 eHealth will have exclusive access through AGIA to market and sell Medicare supplement, individual Medicare advantage and PDP plan to roughly 180,000 members of various affinity groups who are expected to turn 65 every year and the provider vertical, we added a number of hospital business development relationships across the country, including Stanford Hospital and Affinity Medical Group.

Through these provider relationships, we will gain access to a meaningful number of Medicare eligible consumers who can benefit from our robust plan comparison tool to help minimize their out-of-pocket expenses, while remaining in their network with the provider of their choice.

During this year's annual enrollment period, we will be reaching out to this target group via direct mail, email and on-site messaging. In addition, we have a number of carrier relationships where we enroll Medicare-eligible individuals referred to us by the carrier for home we are the broker of record on the plan.

These relationships have historically generated high-quality customers for our sales center agents, allow us to monetize consumer demand that would otherwise be converted through the direct to carrier channels.

Overall, I believe that going into this year's annual enrollment period, we will have access to a very significant demand generation opportunity in Medicare through this range of impactful partnerships.

As a result of our work during the third quarter, our sales team is now operating more efficiently and is better coordinated with our marketing team's demand generation efforts. We've made important changes to our sales processes, which are already yielding stronger results as evidenced by our increased conversion rates.

In addition to improving internal processes, we've contracted with two well-established outsourced call center operators to help us monetize the increased demand that our partner relationships and marketing efforts are expected to generate during the fourth quarter's annual enrollment period.

In the past, our call center capacity was inelastic, resulting in unfulfilled repeat days of the selling season.

As a result of the efforts undertaken in the third quarter, we now expect that our flex sales capabilities will allow us to meet demand more effectively while continuing to provide industry-leading tools, service and value to our customers.

Let me extend appreciation to Dave Nicholas, our Senior VP of Sales and Operations for leading these important improvements.

Switching to the individual and family plan business there continues to be significant market turmoil as consumers pay substantial premium increases and planned cancellations while awaiting much-needed legislative change to bring stability back to this large and important market.

In addition, the new administration has reduced the budgets available to the federal exchange to market its online platform to consumers.

In August, CMS announced its decision to cut Affordable Care Act advertising for the $100 million spend by the Obama Administration 2016 to about $10 million this year and just two weeks ago, the Trump Administration signed an Executive Order aimed at broadening the availability of health insurance option beyond the ACA Compliant major medical plans offered on the government exchanges.

The administration has also made statements indicating that if these cost-sharing reduction payments as unlawful. In response, Congress' proposed legislation that will continue for a two-year period those cost-sharing reduction payments that are targeted to low income buyers.

Under these circumstances, we anticipate that the overall number of customers purchasing major medical policies across the entire individual and family plan market will decline this year compared to last year's open enrollment period.

Our estimated IFP quarter end membership was down 42% year-over-year, resulting in a decline of 38% and third quarter IFP revenue compared with last year's third quarter results. Turning to the small business market, the number of approved groups almost doubled for the third consecutive quarter growing 93% compared to Q3 of 2016.

Total membership grew 16% year-over-year with commission revenue growing 12% over the same period. During the quarter, we continue to invest in business development, technology and marketing initiatives in the small business area. In the Medicare market, we are strongly positioned for the annual enrollment period, which began on October 15.

with a more effectively run sales organization, higher quality and lower cost demand generation channels and an expanded plan inventory, we will continue to build on the positive momentum that we created in Q3 and expect to drive strong growth in Medicare applications this selling season.

In the individual market, the open enrollment period will begin on November 1 and is expected to be challenging for consumers with continuing premium increases, limited plan selection, a much shorter enrollment period and the recent Executive Order and other pronouncements from Washington that may create further confusion.

Our focus for this open enrollment period is to be opportunistic in addressing a broad spectrum of consumer needs and income levels with planned offerings ranging from short-term to major medical policies to innovative packages of health insurance benefits.

Despite the turmoil IFP marketplace that will prevail during this year's OEP, there are two factors that may have a positive impact and that could increase our share of total new enrollments.

First this year, the new administration has provided a framework that allows web-based entities such as eHealth to enroll subsidy eligible customers into qualified health plans through the federal exchange without having consumers leave our website. This is something we were not able to do during last year's open enrollment period.

Last year we and other web-based entities were effectively excluded from the subsidy eligible market due to the highly inefficient double redirect process, mandated for web-based entities by CMS.

If we are able to use the streamlined online enrollment process it will allow eHealth to effectively reenter the subsidy eligible individual market, which we believe will represent several million consumers this OEP. We currently are going through a CMS review and approval process to be able to use the streamlined enrollment process.

Secondly, in addition to the subsidy eligible market, we see opportunities to serve an increasing population of consumers who have been negatively impacted by the sustained spikes in insurance premiums and lack of insurers selling individual and family plan.

A survey of this subset of our customers indicate that over 80% went to pick and choose among the benefits covered by their health plan and over 75% believe that their major medical plans are too expensive.

In response to increasing customer demand, we introduced a number of health insurance benefit packages last month that are specifically designed to meet a wide range of consumer health insurance and price needs.

This innovative approach to packaging health insurance benefits typically includes a combination of products such as short-term critical insurance, accident medical indemnity vision and dental that are a less expensive alternative to major medical coverage.

With some of these packages we are able to combine benefits from a single insurer and provide a far better experience for the customer by centralizing the billing, application and claims filing process.

This is an entirely new area of product development and marketing innovation for eHealth and we are still early into our launch and testing for the optimal product configuration, pricing and effective consumer messaging.

Our goal for the fourth quarter is to lever our sales into the subsidy eligible market and our innovative insurance packages into a higher volume submitted application compared with the fourth quarter a year ago.

We are optimistic that these initiatives will meet the diverse and changing needs of all participants across the individual health insurance market.

In conclusion, our efforts and initiatives during the third quarter were aimed to preparing us for the selling season across our two core markets; the Medicare market and the individual and family plan market. The marketplace dynamics in these two business units remain strikingly different.

Medicare is growing in terms of overall enrollment of the carrier participation. On the other hand, enrollments in carrier participation and the individual and family plan market remains seriously challenged. Our strategy for Medicare will be to continue to pursue annual membership growth of 20% while improving profitability.

To do so we will continue to implement a variety of programs designed to enhance the efficiency of our demand generation and to increase the rates at which we convert that demand into paying memberships.

Recognizing the challenges and uncertainties facing the individual and family plan market will impair our ability to predict how this year's OEP and the next 12 months will develop, we will continue to manage this business segment for profitability while exploring innovative ways to address and monetize consumer needs, created by the gaps in the ACA market.

It is important to note that we are maintaining 2017 financial guidance despite the shift in our growth dynamics toward a business mix that will contain a greater percentage of Medicare business. Historically increased spending in pursuit of Medicare business would result in higher near-term losses.

However, we anticipate that our high-value customer acquisition partnerships, together with our improved sales conversion programs will mitigate the near-term impact of this increased spend.

Let me point out that these Medicare customers have a long-term revenue profile that is significantly higher than our current individual and family plan customers.

Accordingly, the shift in our business mix toward a greater percentage of higher, long-term value Medicare customers will create future cash flow streams that are significantly more visible and durable.

With that I'll now turn the call over to Dave Francis who will review our third quarter financial results in greater detail and also talk about our communication plans for the fourth quarter of 2017 when we will be unveiling our financials under the new accounting guidelines providing guidance for 2018..

Thanks Scott, Good afternoon, everybody. Now I'll walk through our third quarter financial results in greater detail. Our third quarter revenue was $26.6 million, a decrease of 17% compared to $32.1 million for the third quarter of 2016. Third quarter commission revenue was $24.7 million an 18% decline compared to the third quarter a year ago.

During the quarter, we continued to grow our Medicare membership and commission revenue at a strong pace, while the individual and family plan business remain challenged by the unfavorable market conditions that Scott described earlier.

Third quarter Medicare commission revenue was $9.8 million, an increase of 46% compared to the third quarter of 2016, driven primarily by new Medicare enrollments during the quarter and renewal commissions on existing Medicare supplement plan members, which are booked throughout the year.

Third quarter Medicare revenue also benefited from favorable trends and retention rates on our Medicare book of business as well as the rate at which submitted Medicare application convert into paying members. Submitted applications for all Medicare products grew 20% year-over-year with Med submitted applications growing in excess of 50%.

The number of estimated Medicare members that we had at the end of the quarter grew to 315,000, up 30% compared to Q3 of 2016. Third quarter individual and family plan commission revenue was $13.2 million, a decline of 39% compared to the third quarter a year ago.

Our estimated IFP membership at the end of the second quarter was 227,300 down 42% compared to the estimated membership we reported for the third quarter a year ago. The estimated number of members on small business products was approximately 33,000, a 16% increase compared to a year ago.

Our total estimated membership at the end of the quarter for all products combined was approximately 874,000 members. During the quarter, we invested to prepare for the annual enrollment periods in each of the Medicare and the individual markets, which take place in Q4 with a significant overlap between the two.

As a reminder, the Medicare annual enrollment period runs from October, I am sorry October 15 through December 7 and the open enrollment period in the IFP market runs from November 1 through December 15.

Our goal for this important selling season is to further accelerate our enrollment growth in the Medicare business and to stabilize our membership in the individual business, while achieving attractive unit economics across both markets.

In Medicare, under the leadership of our new Chief Marketing Officer, Tim Hannon, we made a number of investments ahead of the annual enrollment period to refine our marketing programs, including further testing of our own direct television advertising to optimize for the fourth quarter selling season.

In addition, we increased our call center staffing in anticipation of what we believe will be a very strong selling season and invested further in business development efforts with significant success as evidenced by partnerships that we recently announced and that are expected to contribute meaningfully to fourth quarter Medicare application volumes.

We continue to invest in our Med Sup business, which grew at a faster pace in the past few quarters compared to our overall Medicare application and enrollment growth. These Medicare investments are reflected in our third quarter marketing and customer care and enrollment expenses which grew compared to the third quarter a year ago.

At the same time, our marketing costs per submitted Medicare member declined, both sequentially and on a year-over-year basis, driven primarily by increased efficiencies in our sales organization and resulting improvement in lead conversion rates.

All of our investments and planning activities in marketing -- I'm sorry, planning activities in marketing and in customer care initiatives this year have been made with the intention to optimize for growth at an acceptable cost.

In the individual market, we plan to once again focus our efforts this OEP on the subsidized portion of the ACA market as well as on short-term and our new packaged insurance products aimed at consumers who can no longer afford a major medical policy or who live in areas where these policies are not available.

The bulk of our initiatives in this space are online based and do not have a meaningful call center expense associated with enrollments. We remain committed to maximizing the profitability in the individual business while looking to stabilize membership and reposition the business for growth should the market environment prove to be more receptive.

We expect strong enrollment activity in the small business area in Q4 and have increased headcount and related spend across multiple areas including marketing, business development and customer care and enrollment compared to a year ago as we continue to grow our presence in this market.

Now I'll turn to a review of operating expenses; the third quarter non-GAAP operating cost of $44.8 million, which excludes stock-based compensation, amortization of intangibles and the restructuring benefit grew 19% or roughly $7 million compared to the third quarter year ago, driven largely by the investments that I just described.

Third quarter 2017 non-GAAP marketing and advertising expense, which excludes stock-based compensation grew by approximately $2.9 million year-over-year reflecting primarily Medicare-related marketing as we prepared for the AEP and to a much smaller extent an increase in our spend in the small business market.

Third quarter 2017 non-GAAP customer care and enrollment expense, which excludes stock-based compensation, grew by approximately $4.3 million year-over-year driven primarily by an increase in Medicare agent headcount and support personnel and to a lesser degree by an increase in customer care personnel dedicated to the small business initiatives, all in anticipation of enrollment activity in the fourth quarter.

Third quarter non-GAAP technology and content costs, which excludes stock-based compensation and non-GAAP general and administrative expense, which also excludes stock-based compensation expense or each roughly flat compared to Q3 of 2016.

Adjusted EBITDA for the third quarter of 2017 was negative $17.5 million compared to negative $4.6 million for the third quarter of 2016.

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

Our individual family and small business segment remained profitable, generating segment profit of $6.8 million despite significant reductions in revenue. Our Medicare segment generated a loss of $18.1 million.

Third quarter corporate shared services expenses, which exclude depreciation and amortization expense and stock-based compensation expense were $6.3 million. Third quarter 2017 GAAP net loss per diluted share was $1.11 compared to a net loss per diluted share of $0.31 for the third quarter of 2016.

Non-GAAP net loss per diluted share was $0.98 compared to a net loss of $0.23 per diluted share for the third quarter of 2016. Our third quarter 2017 cash flow from operations was negative $12.9 million reflecting cash investments and personnel and infrastructure to support the Q4 selling season efforts.

Capital expenditures for the third quarter of 2017 were approximately $1.2 million. Our cash balance was $51.4 million as of September 30, of 2017 and we remain debt-free.

With respect to guidance and based on information currently available, we are reaffirming the revenue, adjusted EBITDA, segment revenue and profitability and earnings per share guidance for the full year 2017 that we provided on our second quarter 2017 earnings call.

I want to remind you that these comments are based on current indications for our business, which are subject to change at any time and we undertake no obligation to further update our guidance.

Finally, I'd like to make some comments regarding our investor communication plans around the upcoming adoption of the new ASC 606 Revenue Recognition Accounting Standard. As we previously disclosed, we are required to adopt the new standard on January 1 of 2018, which will have a material impact on our reported revenues, earnings and balance sheet.

We plan to provide extensive information related to this adoption during our fourth quarter earnings call in mid-to-late February. This will include pro forma balance sheets and income statements for fiscal '15, '16 and '17 and pro forma quarterly income statements for both the fiscal '16 and '17.

We will also provide our 2018 annual guidance based on the new accounting standard and go over the key metrics that we plan to disclose starting with the first quarter of 2018 to help the investment community better understand eHealth's business and to track our progress. And with that, we'll open up the call for questions.

Operator?.

[Operator instructions] And our first question comes from the line of George Sutton from Craig Hallum. Your line is open..

Thank you very much. So, I wanted to see if we could walk through an update on some of your larger opportunities in terms of partnerships for Medicare going into this period and Dave you used the term meaningfully when you mentioned the growth in Q4 Medicare volume. I wondered if we could get more granular around that word, thanks..

I'll take the second part, then you can take the first.

We are standing by our guidance for the year George, in terms of high teens enrollment growth for the Medicare business and given the performance of the front half of the year as we were going through the process of transitioning the whole business model toward a more efficient customer acquisition process as well as getting the issues that we had talked at length about with regard to the sales organization fixed, we continue to stand by that yearly guidance of high teens enrollment growth in the Medicare business and I'll let you do the math on what that might mean relative to a level of fourth quarter performance to get to that level given the performance of the first three quarters, but we're excited about where we sit at the moment given early stages of AEP..

I'll just add to that, that in terms of the first few days, we feel very good about the pharmacy partnership that we signed and were seeing good volumes from the overall partnership channel and so we're optimistic that we're going to deliver against all of our guidance..

Now I am curious as we look at -- as I am on your site now, and I go -- I don't really get drawn into a specific product, nothing is really emphasized today and I'm curious as we get past November 1, is there going to be a little more of an emphasis in terms of driving a customer based on income for example or based on something to one of the different products? For example, if I'm a low-income person, perhaps I will be driven more towards the short-term medical option.

I am just curious if this is going to look different in November?.

Well we're going to continue to add additional products to the site. So, there will be more variety. We've taken a fairly conservative and cautious approach to ensure that no consumer is confused that these non-ACA compliant plans are anything but what they are.

So, we're sensitive to not creating confusion among consumers that were selling major medical at prices well below major medical.

So that's what you're seeing and as I indicated in my script, that we are in the early stage of this type of innovation George and we're not certain that we've got the exact equation between the product offering, the pricing and the consumer messaging completely optimized, but we'll be doing real time on the fly AB testing throughout the entire open enrollment period to try to optimize that consumer who cannot afford an ACA plan.

Dave, what would you add to that?.

Yeah, I know that I guess the two things that I would add are number one, we are being very cautious given the confusion among consumers in the marketplace, the meaningful changes to the structure of OEP this year versus the last four to five years and as remind everyone, OEP is a completely different market every single year because of the supply, the premiums, lack thereof on the supply side.

And now this year the fact that we expect to be back in the subsidy eligible market from what CMS is allowing us to do, we expect as well as these new products that we're bringing to market.

So, we're excited about the potential for this marketplace and what it could mean for our business over the long term, but as Scott said, we're cautiously optimistic because there's just so much unknown as we enter that selling season next Wednesday on November 1.

The last thought that I'd leave you with is a we're going to be one of the few companies in the marketplace that has a solution from a health insurance perspective for every potential consumer in that marketplace whether they're fully subsidy eligible at one end of the spectrum all the way to folks that aren’t subsidy eligible or need something different than a major medical plan if they want to buy a package or an à la carte set of coverage options.

We will have a solution for them and the decision-support and content tool for them to make a fully informed and intelligent purchasing decision..

Great. Thank you for that. One other question if I could, I'm just curious of your thought CVS is apparently in talks to buy Aetna.

I am curious what implications you would see that having for you?.

Yeah, I don't see it as a negative in any respect. Just in general we believe that consumers are benefited from choice and selection and so consolidation is not something we regard as a positive for the consumer if it's one large health insurer emerging with another although it can end up being in the consumer's interest.

CVS this is not a horizontal but will be a vertical integration and so I don't see any positive or negative impact on our business..

Yeah, and I would add the we like to see as many carriers in the marketplace as possible as Scott said from a consumer choice perspective.

It's also good for our business to the extent to which there is disruption in the marketplace which gives us an opportunity to reach out and engage further with our customers to tell them what has or hasn't changed relative to their benefit and coverage profile and to the extent that this transaction happens and creates more of that disruption that just gives us more opportunities to engage with and potentially transact with a larger set of existing and new customers..

Perfect. Thanks guys. Appreciate it..

Thanks George..

[Operator instructions] Our next question comes from the line of Tobey Sommer from SunTrust. Your line is open..

Thank you. With respect to the IFP market, you said you have an application to see if you can use a better connection method.

When we find out about that and when will you let us know externally and investment community if and when that happens?.

Well, we are in active discussions and real time addressing of all issues with CMS as our peer companies and we believe the CMS is operating in good faith with every intention to enable a web-based entities to programmatically enroll this season by next Wednesday. So, we don't see a hick along that app, but it's not done as yet.

Dave, I don't know -- I'd let you address whether this is something we will give notice on..

Tobey this it's a great question. I don't anticipate that we would be making any kind of special announcement.

You'll be able to go to our website and see that we're offering plans on a subsidy eligible basis to folks and walking them through all of those decision trees and providing them with the shopping and decision-support tools to make those decisions and to do that all on our website, which they weren’t able to last year.

But in terms of making some kind of special announcement in that regard, it's our expectations that we'll be in the marketplace. So, we were operating under that basis..

Okay. With respect to the revenue recognition rules, I am not asking for guidance, can you conceptually explain what the new rules mean even if without numbers? Thanks..

Bulk of it Tobey are that today we essentially recognize revenue and report the business on what is as close to a cash basis as possible. So, we're only recognizing as revenue commissions received in the period that those commissions are received.

The new 606 standard requires businesses like ours to in circumstances where there is virtually no service requirement beyond that which we provide at the point of transaction to estimate the lifetime value of that transaction and to recognize all that revenue at the time of the transaction.

So what it means is for a Medicare customer as where it will have the biggest impact on our business, we will be aligning the long-term revenue of each customer as we on a highly analytical basis estimate it and recognize that as revenue and all of the expenses, which we already absorb upfront from a P&L perspective will remain the same and it will show the true from our perspective, longer term or full earnings power of each customer as they come into our platform and become part of the eHealth family.

So, the impact on the P&L from a revenue perspective and an earnings perspective is going to be meaningful..

Okay. Thank you.

The pickup that you had in the Medicare business in the quarter, was that a reflection of the internal-only investments of were anything of the partnerships that you discussed throughout the year or some combination of both?.

That was all internal process improvements from both a marketing and a sales center perspective. The partnerships that we've been talking about while they had a marginal impact on new business generated, the vast majority of the new business that we expect to come from those partnerships will be during the annual enrollment period.

We did as we mentioned in the prepared remarks absorb some meaningful costs, particularly on ramping up the flex sales agent capacity, which is new for us this year as well as fine-tuning some of our marketing campaigns to get them optimized for the fourth quarter.

Those are costs that we incurred in the third quarter, but the new enrollment benefits should virtually all be seen in the fourth quarter results..

All right. Last question for me, given the balance sheet effect that you're kind of in the midst of the cash burn for the selling season but you've got a chunk of it behind you.

Is there any acquisitions that you could do to capitalize and what seems like a better growth outlook for both of your businesses that you could get some leverage on the corporate expense side, thanks?.

So, what you're saying it could we accelerate our growth with M&A that will have operating leverage given our fixed cost base?.

Yeah, given the fact that you've already kind of written out part of the seasonal cash burn unless we have a better estimate for what it may entail.

It seems like you would have better visibility to actually think about spending your incremental excess cash above and beyond that?.

Right. Well I would agree with the premise that we do not need all of that $51 million for our current projected internal growth projections..

I guess Tobey the other thing that I'd just call out is that as we called out at the beginning of this year, this is a transition year for eHealth.

There were a lot of operational changes and clean-up for lack of a better term that we needed to make as an operating team to get this company positioned to fully take advantage of all the opportunities that we see in the marketplace.

We are still in the midst of that, but feeling a lot better about where we sit today than we did this time last year and as a result we were always opportunistic looking for things that we can do to add value to shareholders..

Okay. Thank you..

[Operator instructions] And we have no further questions at this time. I would like to turn the call back over to CEO, Scott Flanders for closing comments..

Thank you, everyone for sitting on our call and if you have any further questions, please reach out to Kate and we'll be happy to schedule time with you. Thank you..

And this concludes today's conference call. Thank you for your participation. You may now disconnect..