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eHealth, Inc.: eHealth, Inc. Announces Fourth Quarter and Fiscal 2008 Results

^{Published on 2009-02-12 14:36:31, Last Modified on 2009-02-12 14:45:25 - Market Wire}
 

MOUNTAIN VIEW, CA--(Marketwire - February 12, 2009) - eHealth, Inc. (NASDAQ: [ EHTH ]), the leading online source of health insurance for individuals, families and small businesses, today announced its financial results for the fourth quarter and fiscal year ended December 31, 2008.

Gary Lauer, chief executive officer of eHealth, stated, "Our financial results illustrate that we continue to execute on our operating plans and grow our business in the midst of an extraordinary macroeconomic environment. Fourth quarter performance is reflective of our disciplined approach to managing our company and growing our membership base profitably. In this economy we are focused on continued operating efficiency and aggressive marketing, and most importantly helping people find quality health insurance options online."

Fourth Quarter Results

Revenue - Revenue totaled $29.5 million for the fourth quarter of 2008, a 22% increase compared to revenue of $24.2 million for the fourth quarter of 2007.

Submitted Applications - Submitted applications for individual and family products increased 18% in the fourth quarter of 2008 to 115,600 applications, compared to 97,900 applications in the fourth quarter of 2007.

Membership - Estimated membership at December 31, 2008 totaled 621,100 members, a 20% increase over estimated membership of 518,400 at December 31, 2007.

Operating Income - Operating income increased 31% to $5.7 million for the fourth quarter of 2008, compared to operating income of $4.3 million for the fourth quarter of 2007. Operating margins were 19% in the fourth quarter of 2008, compared to 18% in the fourth quarter of 2007. Non-GAAP operating income increased 35% to $6.5 million for the fourth quarter of 2008, compared to non-GAAP operating income of $4.9 million for the fourth quarter of 2007. Non-GAAP operating margins were 22% in the fourth quarter of 2008, compared to 20% in the fourth quarter of 2007. Non-GAAP operating income and margins in the fourth quarters of 2008 and 2007 exclude $885,000 and $544,000 of stock-based compensation expense, respectively.

Pre-tax Income - Pre-tax income for the fourth quarter of 2008 was $6.3 million, a 9% increase compared to pre-tax income of $5.7 million for the fourth quarter of 2007. Non-GAAP pre-tax income was $7.2 million for the fourth quarter of 2008, a 14% increase compared to non-GAAP pre-tax income of $6.3 million for the fourth quarter of 2007. Non-GAAP pre-tax income in the fourth quarters of 2008 and 2007 exclude $885,000 and $544,000 of stock-based compensation expense, respectively.

Net Income - Net income for the fourth quarter of 2008 was $3.6 million, or $0.14 per diluted share. Net income for the fourth quarter of 2007, which included a benefit for income taxes of $18.9 million due to the reduction of the valuation allowance against deferred tax assets, was $22.4 million, or $0.86 per diluted share. Non-GAAP net income for the fourth quarter of 2008 was $4.2 million, or $0.16 per diluted share compared to non-GAAP net income for the fourth quarter of 2007 of $3.7 million, or $0.14 per diluted share. Non-GAAP net income and non-GAAP net income per diluted share in the fourth quarter of 2008 exclude $885,000 of stock-based compensation expense, adjusted by $355,000 for estimated income tax benefit related to stock-based compensation expense. Non-GAAP net income and non-GAAP net income per diluted share in the fourth quarter of 2007 exclude $544,000 of stock-based compensation expense, adjusted by $262,000 for estimated income tax benefit related to stock-based compensation expense, and an $18.9 million income tax benefit from the reduction of the valuation allowance against deferred tax assets.

Cash Flow and Cash Balance - Cash flow from operations for the fourth quarter of 2008 was $7.4 million, compared to $7.9 million for the fourth quarter of 2007, representing a decrease of 6%. Cash, cash equivalents and short-term marketable securities as of December 31, 2008 totaled $150.6 million, compared to $121.5 million as of December 31, 2007. During the fourth quarter of 2008, our Board of Directors authorized a stock repurchase program of up to $30 million, or ten percent of our outstanding common stock, whichever is less. We established a 10b5-1 trading plan and began repurchasing our outstanding common stock in late December 2008. As of December 31, 2008, we had repurchased approximately 51,000 shares at an average price of $12.59 per share for a total cost of $0.6 million.

Fiscal 2008 Results

Revenue - Revenue totaled $111.7 million for the year ended December 31, 2008, a 27% increase compared to revenue of $87.8 million for the year ended December 31, 2007.

Operating Income - Operating income increased 33% to $21.3 million for the year ended December 31, 2008, compared to operating income of $16.0 million for the year ended December 31, 2007. Operating margins were 19% in the year ended December 31, 2008, up from 18% in the year ended December 31, 2007.

Pre-tax Income - Pre-tax income for the year ended December 31, 2008 was $25.0 million, a 17% increase compared to pre-tax income of $21.3 million for the year ended December 31, 2007.

Net Income - Net income for the year ended December 31, 2008 was $14.2 million, or $0.55 per diluted share. Net income for the year ended December 31, 2007, which included $18.9 million of income tax benefit recorded in the fourth quarter of 2007, was $31.6 million, or $1.22 per diluted share.

Cash Flow and Cash Balance - Cash flow from operations for the year ended December 31, 2008 was $30.2 million, a 15% increase compared to $26.2 million for the year ended December 31, 2007.

2009 Guidance

eHealth is providing guidance for the full year ending December 31, 2009 based on information currently available:

 -- Total revenue is expected to be in the range of $131 million to $136 million -- Stock-based compensation expense is expected to be in the range of $5 million to $6 million -- GAAP income tax rate expected to be in the range of 43% to 45% -- GAAP net income per diluted share is expected to be in the range of $0.51 to $0.61 per share 

"I would like to provide some additional comments on our 2009 guidance," said Stuart Huizinga, chief financial officer of eHealth. "We expect our 2009 non-GAAP operating margin percentage, which excludes stock-based compensation, to be at least equal to what we reported for 2008, and our 2009 operating income to increase as compared to the 2008 operating income. At the same time, we expect our 2009 net income to be impacted by a decline in interest income, a non-operating item. Our 2009 interest income is expected to decline from the run-rate we observed in the fourth quarter of 2008 as a result of current interest rates and our plan to continue to manage our cash conservatively."

Webcast and Conference Call Information

A Webcast and conference call will be held today, Thursday, February 12, 2009 at 5:00 p.m. EST / 2:00 p.m. PST. 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 800-597-1967 for domestic callers and 617-597-5526 for international callers. The participant passcode is #95786385. A telephone replay will be available two hours following the conclusion of the call for a period of 30 days and can be accessed by dialing 888-286-8010 for domestic callers and 617-801-6888 for international callers. The call ID for the replay is #20135984. The live and archived webcast of the call will also be available on eHealth's website at [ www.ehealthinsurance.com ] under the Investor Relations section.

About eHealth, Inc.

eHealth, Inc. is the parent company of eHealthInsurance, the leading online source of health insurance for individuals, families and small businesses. eHealthInsurance presents complex health insurance information in an objective, user-friendly format, enabling the research, analysis, comparison and purchase of health insurance products that best meet consumers' needs. eHealth and eHealthInsurance are registered trademarks of eHealthInsurance Services, Inc.

eHealth, Inc. was founded in 1997 and its technology was responsible for the nation's first Internet-based sale of a health insurance policy. eHealth is headquartered in Mountain View, California. Additional information can be found on eHealth's website, [ www.ehealthinsurance.com ].

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 statements regarding eHealth's cash management and eHealth's guidance for total revenue, stock-based compensation expense, GAAP income tax rate, GAAP net income per diluted share, non-GAAP operating margins, interest income, operating income and net income for the year ending December 31, 2009. These forward-looking statements are inherently subject to various risks and uncertainties that could cause actual results to differ materially from the statements made, including risks associated with eHealth's rate of growth, continued acceptance of the Internet as a medium for the purchase of health insurance, consumer awareness of the availability and accessibility of affordable health insurance, eHealth's ability to continue to increase its membership base and retain its members, and maintain or expand its relationships with health insurance carriers and marketing partners, negative publicity experienced by eHealth's carrier partners, changes in products offered on eHealth's ecommerce platform, changes in commission payments or carrier underwriting practices, maintaining and enhancing eHealth's brand identity, changes in member conversion rates and factors affecting conversion, system failures, capacity constraints or data loss, the performance, reliability and availability of eHealth's ecommerce platform and underlying network infrastructure, exposure to online commerce security risks, dependence upon Internet search engines to attract consumers who visit eHealth's website, the effectiveness of eHealth's marketing and public relations efforts, reliance on marketing partners for the sale of health insurance, changes in the economy and weak economic conditions, pursuing new strategies and opportunities in new segments of the health insurance market, timing of receipt of commission reports and related impact on estimating membership, payment practices of health insurance carriers, competition, eHealth's operations in China and any foreign expansion, success in the sale of sponsorship advertising and the licensing of the use of eHealth's ecommerce platform, success of the health savings account (HSA) platform, protection of intellectual property and intellectual property rights claims, regulatory penalties and negative publicity, costs of obtaining insurance and the health of companies providing such insurance, ability to attract and retain qualified personnel, management of future growth, seasonality, impact of future acquisitions, implementation of internal enterprise systems and maintenance of proper and effective internal controls, impact of employee stock-based compensation expense and provisions for income taxes, compliance with insurance and other laws and regulations, changes in laws and regulations, and changes in the structure of the health insurance system in the United States. 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 [ www.ehealthinsurance.com ] and on the Securities and Exchange Commission's website at [ www.sec.gov ]. eHealth does not undertake any obligation to update any forward-looking statement to conform the statement to actual results or changes in expectations.

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"). To supplement eHealth's condensed consolidated financial statements presented in accordance with GAAP, eHealth presents investors with certain non-GAAP financial measures, including non-GAAP operating income, non-GAAP operating margins, non-GAAP pre-tax income, non-GAAP net income and non-GAAP net income per diluted share.

 -- Non-GAAP operating income consists of GAAP operating income excluding the effects of expensing stock-based compensation related to stock options, restricted stock and restricted stock units in accordance with SFAS 123R beginning in 2006 and amortization of deferred stock-based compensation expense in accordance with APB 25 for grants made prior to 2006. -- Non-GAAP operating margins are calculated by dividing non-GAAP operating income by GAAP total revenue. -- Non-GAAP pre-tax income consists of GAAP pre-tax income excluding the effects of expensing stock-based compensation. -- Non-GAAP net income consists of GAAP net income excluding the effects of expensing stock-based compensation adjusted for estimated income tax benefit related to stock-based compensation expense. Additionally, non-GAAP net income for the three months and fiscal year ended December 31, 2007 excludes $18.9 million of non-cash benefits for income taxes related to the reduction of the valuation allowance against deferred tax assets. -- Non-GAAP net income per diluted share is calculated by dividing non- GAAP net income by GAAP weighted average diluted shares outstanding. 

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 the company's financial condition and results of operations. Management believes that the use of these non-GAAP financial measures provides consistency and comparability with the company's past financial reports. Management also believes that the exclusion of the items described above provides an additional measure of the company's operating results and facilitates comparisons of the company'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 the company's ongoing operations. Externally, the company believes that these non-GAAP financial measures continue to be useful to investors in their assessment of the company's operating performance.

Non-GAAP operating income, non-GAAP operating margins, non-GAAP pre-tax income, non-GAAP net income and non-GAAP net income per diluted share are 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 costs associated with the operations of the company's business and do not reflect all of the 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. The company expects to continue to incur stock-based compensation costs described above, and exclusion of these costs, and their related income tax impact, from non-GAAP financial measures should not be construed as an inference that these costs are unusual or infrequent. The company compensates for these limitations by prominently disclosing GAAP operating income, GAAP pre-tax income, GAAP net income and GAAP net income per diluted share and providing investors with reconciliations from the company's GAAP operating results to the non-GAAP financial measures for the relevant periods.

The accompanying tables provide more details on the GAAP financial measures that are most directly comparable to the non-GAAP financial measures and the related reconciliations between these financial measures.

 EHEALTH, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) December 31, December 31, 2007 2008 -------------- -------------- Assets (1) (unaudited) Current assets: Cash and cash equivalents $ 81,395 $ 94,136 Marketable securities 40,119 56,499 Accounts receivable 1,300 2,005 Deferred income taxes 13,240 7,580 Prepaid expenses and other current assets 2,098 1,874 -------------- -------------- Total current assets 138,152 162,094 Property and equipment, net 3,791 4,567 Deferred income taxes 4,535 1,314 Other assets 975 780 -------------- -------------- Total assets $ 147,453 $ 168,755 ============== ============== Liabilities and stockholders' equity Current liabilities: Accounts payable $ 1,495 $ 2,190 Accrued compensation and benefits 4,849 4,662 Accrued marketing expenses 2,454 3,162 Deferred revenue 436 427 Other current liabilities 2,073 2,707 -------------- -------------- Total current liabilities 11,307 13,148 Other non-current liabilities 252 628 Stockholders' equity: Common stock 25 25 Additional paid-in capital 167,847 172,456 Deferred stock-based compensation (104) (22) Accumulated deficit (32,060) (17,892) Accumulated other comprehensive income 186 412 -------------- -------------- Total stockholders' equity 135,894 154,979 -------------- -------------- Total liabilities and stockholders' equity $ 147,453 $ 168,755 ============== ============== (1) The condensed consolidated balance sheet at December 31, 2007 has been derived from the audited consolidated financial statements at that date. EHEALTH, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) Three Months Ended Year Ended December 31, December 31, ----------------------- ----------------------- 2007 2008 2007 2008 ----------- ----------- ----------- ----------- (unaudited) (unaudited) (2) (unaudited) Revenue: Commission $ 22,016 $ 26,176 $ 81,502 $ 100,839 Sponsorship, licensing and other 2,217 3,279 6,289 10,872 ----------- ----------- ----------- ----------- Total revenue 24,233 29,455 87,791 111,711 Operating costs and expenses: Cost of revenue-sharing 457 408 1,702 1,746 Marketing and advertising (1) 8,476 11,528 29,497 42,161 Customer care and enrollment (1) 3,278 3,724 12,137 14,379 Technology and content (1) 3,368 3,634 12,393 14,182 General and administrative (1) 4,348 4,508 16,046 17,983 ----------- ----------- ----------- ----------- Total operating costs and expenses 19,927 23,802 71,775 90,451 ----------- ----------- ----------- ----------- Income from operations 4,306 5,653 16,016 21,260 Interest and other income, net 1,438 629 5,287 3,714 ----------- ----------- ----------- ----------- Income before income taxes 5,744 6,282 21,303 24,974 Provision (benefit) for income taxes (16,616) 2,633 (10,292) 10,806 ----------- ----------- ----------- ----------- Net income $ 22,360 $ 3,649 $ 31,595 $ 14,168 =========== =========== =========== =========== Net income per share: Basic $ 0.92 $ 0.15 $ 1.37 $ 0.57 Diluted $ 0.86 $ 0.14 $ 1.22 $ 0.55 Weighted-average number of shares used in per share amounts: Basic 24,424 25,076 23,092 24,963 Diluted 25,929 25,826 25,797 25,954 __________ (1) Includes stock-based compensation expense as follows: Marketing and advertising $ 105 $ 160 $ 218 $ 644 Customer care and enrollment 52 66 138 266 Technology and content 195 245 611 898 General and administrative 192 414 539 1,686 ----------- ----------- ----------- ----------- Total $ 544 $ 885 $ 1,506 $ 3,494 =========== =========== =========== =========== (2) The condensed consolidated statement of operations for the year ended December 31, 2007 has been derived from the audited consolidated financial statements for that year. EHEALTH, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Three Months Ended Year Ended December 31, December 31, ---------------------- ---------------------- 2007 2008 2007 2008 ---------- ---------- ---------- ---------- (unaudited) (unaudited) (1) (unaudited) Operating activities Net income $ 22,360 $ 3,649 $ 31,595 $ 14,168 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income taxes (16,412) 2,305 (10,303) 9,451 Depreciation and amortization 434 591 1,709 1,863 Stock-based compensation expense 544 885 1,506 3,494 Excess tax benefits from stock-based compensation (50) (82) (50) (298) Deferred rent (18) (8) (40) (51) Loss on disposal of property and equipment 12 7 30 45 Changes in operating assets and liabilities: Accounts receivable (252) (445) (583) (705) Prepaid expenses and other current assets (195) (392) (11) 64 Other assets (1) 175 (524) 196 Accounts payable 610 336 308 693 Accrued compensation and benefits 1,025 659 958 (41) Accrued marketing expenses 31 (780) 807 708 Deferred revenue 159 76 374 (9) Other current liabilities (337) 378 416 526 Other long-term liabilities -- 90 -- 90 ---------- ---------- ---------- ---------- Net cash provided by operating activities 7,910 7,444 26,192 30,194 ---------- ---------- ---------- ---------- Investing activities Purchases of property and equipment (724) (240) (1,777) (2,482) Proceeds from the sale of property and equipment -- -- 14 -- Purchases of marketable securities (17,823) (24,088) (54,343) (85,653) Sales of marketable securities 6,796 -- 8,952 10,120 Maturities of marketable securities 4,895 20,930 5,483 59,309 ---------- ---------- ---------- ---------- Net cash used in investing activities (6,856) (3,398) (41,671) (18,706) ---------- ---------- ---------- ---------- Financing activities Net proceeds from exercise of common stock options 1,525 121 6,868 1,547 Excess tax benefits from stock-based compensation 50 82 50 298 Repurchase of common stock -- (639) -- (639) Principal payments in connection with capital leases (2) -- (214) -- Costs incurred in connection with initial public offering -- -- (252) -- ---------- ---------- ---------- ---------- Net cash provided by (used in) financing activities 1,573 (436) 6,452 1,206 ---------- ---------- ---------- ---------- Effect of exchange rate changes on cash and cash equivalents 42 1 106 47 ---------- ---------- ---------- ---------- Net (decrease) increase in cash and cash equivalents 2,669 3,611 (8,921) 12,741 Cash and cash equivalents at beginning of period 78,726 90,525 90,316 81,395 ---------- ---------- ---------- ---------- Cash and cash equivalents at end of period $ 81,395 $ 94,136 $ 81,395 $ 94,136 ========== ========== ========== ========== (1) The condensed consolidated statement of cash flows for the year ended December 31, 2007 has been derived from the audited consolidated financial statements for that year. EHEALTH, INC. SUMMARY OF SELECTED METRICS (Unaudited) Three Months Ended Three Months Ended December 31, 2007 December 31, 2008 Key Metrics: ----------------- ----------------- Operating cash flows (1) $ 7,910,000 $ 7,444,000 IFP submitted applications (2) 97,900 115,600 IFP approved members (3) 83,800 97,700 Total approved members (4) 118,800 131,200 Total revenue (5) $ 24,233,000 $ 29,455,000 Total revenue per estimated member for the period (6) $ 48.00 $ 48.16 As of As of December 31, 2007 December 31, 2008 ----------------- ----------------- IFP estimated membership (7) 432,700 528,500 Total estimated membership (8) 518,400 621,100 Three Months Ended Three Months Ended December 31, 2007 December 31, 2008 ----------------- ----------------- Marketing and advertising expenses (9) $ 8,476,000 $ 11,528,000 Marketing and advertising expenses as a percentage of total revenue (10) 35% 39% Marketing and advertising expenses excluding stock-based compensation (11) $ 8,371,000 $ 11,368,000 Marketing and advertising expenses excluding stock-based compensation as a percentage of total revenue (12) 35% 39% Other Metrics: Source of IFP submitted applications (as a percentage of total IFP applications for the period): Direct (13) 38% 40% Marketing partners (14) 34% 32% Online advertising (15) 28% 28% ----------------- ----------------- Total 100% 100% ================= ================= Acquisition cost per individual on IFP submitted applications (16) $ 56.73 $ 65.35 Acquisition cost (excluding stock-based compensation) per individual on IFP submitted applications (17) $ 56.03 $ 64.44 Notes: (1) Net cash provided by operating activities for the period from the condensed consolidated statements of cash flows. (2) IFP applications submitted on eHealth's website during the period. Applications are counted as submitted when the applicant completes the application, provides a method for payment and clicks the submit button on our website and submits the application to us. The applicant generally has additional actions to take before the application will be reviewed by the insurance carrier, such as providing additional information and providing an electronic signature. In addition, an applicant may submit more than one application. We include applications for IFP products for which we receive commissions as well as other forms of payment. We define our "IFP" offerings as major medical individual and family health insurance plans, which does not include small business, short-term major medical, stand-alone dental, life or student health insurance product offerings. (3) New IFP members reported to eHealth as approved during the period. Some members that are approved by a carrier do not accept the approval and therefore do not become paying members. (4) New members for all products reported to eHealth as approved during the period. Some members that are approved by a carrier do not accept the approval and therefore do not become paying members. (5) Total revenue (from all sources) recognized during the period from the condensed consolidated statements of income. (6) Calculated as total revenue recognized during the period (see note (5) above) divided by average estimated membership for the period (calculated as beginning and ending estimated membership for all products for the period, divided by two). (7) Estimated number of members active on IFP insurance policies as of the date indicated. See our 2007 Annual Report on Form 10-K - Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Summary of Selected Metrics for additional information regarding our calculation of estimated membership. (8) Estimated number of members active on all insurance policies as of the date indicated. See our 2007 Annual Report on Form 10-K - Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Summary of Selected Metrics for additional information regarding our calculation of estimated membership. (9) Marketing and advertising expenses for the period from the condensed consolidated statements of income. (10) Calculated as marketing and advertising expenses for the period (see note (9) above) divided by total revenue for the period (see note (5) above). (11) Non-GAAP marketing and advertising expenses excluding stock-based compensation for the period. See Non-GAAP Financial Information above and the reconciliation of GAAP to Non-GAAP marketing and advertising expenses below. (12) Calculated as non-GAAP marketing and advertising expenses for the period (see note (11) above) divided by total revenue for the period (see note (5) above). See Non-GAAP Financial Information above and the reconciliation of GAAP to Non-GAAP marketing and advertising expenses below. (13) Percentage of IFP submitted applications from applicants who came directly to the eHealth website through algorithmic search engine results or otherwise. See note (2) above for further information as to what constitutes a submitted application. (14) Percentage of IFP submitted applications from applicants sourced through eHealth's network of marketing partners. See note (2) above for further information as to what constitutes a submitted application. (15) Percentage of IFP submitted applications from applicants sourced through paid search and other online advertising activities. See note (2) above for further information as to what constitutes a submitted application. (16) Calculated as marketing and advertising expenses for the period (see note (9) above) divided by the number of individuals on IFP applications submitted on eHealth's website during the period. This metric may not reflect the true acquisition cost. (17) Calculated as non-GAAP marketing and advertising expenses for the period (see note (11) above) divided by the number of individuals on IFP applications submitted on eHealth's website during the period. This metric may not reflect the true acquisition cost exclusive of the impact of stock-based compensation allocated to marketing and advertising expenses. EHEALTH, INC. GAAP TO NON-GAAP RECONCILIATION FOR THE THREE MONTHS ENDED DECEMBER 31, 2008 (In thousands, except per share amounts, unaudited) Statement of Income Reconciliation Three Months Ended December 31, 2008 ------------------------------------------------------ GAAP Non-GAAP Percent Percent GAAP of Total Non-GAAP of Total Reported Revenue Adjustments Results Revenue ---------- --------- ---------- ---------- --------- Revenue: Commission $ 26,176 89% $ -- $ 26,176 89% Sponsorship, licensing and other 3,279 11 -- 3,279 11 ---------- --------- ---------- ---------- --------- Total revenue 29,455 100 -- 29,455 100 Operating costs and expenses: Cost of revenue-sharing 408 1 -- 408 1 Marketing and advertising (1) 11,528 39 (160) 11,368 39 Customer care and enrollment (1) 3,724 13 (66) 3,658 12 Technology and content (1) 3,634 13 (245) 3,389 12 General and administrative (1) 4,508 15 (414) 4,094 14 ---------- --------- ---------- ---------- --------- Total operating costs and expenses 23,802 81 (885) 22,917 78 ---------- --------- ---------- ---------- --------- Income from operations 5,653 19 885 6,538 22 Interest and other income, net 629 2 -- 629 2 ---------- --------- ---------- ---------- --------- Income before income taxes 6,282 21 885 7,167 24 Provision for income taxes (2) 2,633 9 355 2,988 10 ---------- --------- ---------- ---------- --------- Net income $ 3,649 12% $ 530 $ 4,179 14% ========== ========= ========== ========== ========= Net income per share: Basic $ 0.15 $ 0.02 $ 0.17 Diluted $ 0.14 $ 0.02 $ 0.16 Weighted-average number of shares used in per share amounts: Basic 25,076 25,076 25,076 Diluted 25,826 25,826 25,826 Explanation of adjustments (1) Non-GAAP results exclude the effect of expensing stock-based compensation related to stock options, restricted stock and restricted stock units in accordance with SFAS 123R beginning in 2006, in addition to the amortization of deferred stock-based compensation expense in accordance with APB 25 for grants made prior to 2006. (2) Non-GAAP net income and non-GAAP net income per share exclude stock- based compensation expense listed in note (1) above, adjusted for estimated income tax benefit related to stock-based compensation expense. EHEALTH, INC. GAAP TO NON-GAAP RECONCILIATION FOR THE THREE MONTHS ENDED DECEMBER 31, 2007 (In thousands, except per share amounts, unaudited) Statement of Income Reconciliation Three Months Ended December 31, 2007 ----------------------------------------------------------- GAAP Non-GAAP Percent Percent GAAP of Total Non-GAAP of Total Reported Revenue Adjustments Results Revenue ----------- ---------- ----------- ----------- ---------- Revenue: Commission $ 22,016 91% $ -- $ 22,016 91% Sponsorship, licensing and other 2,217 9 -- 2,217 9 ----------- ---------- ----------- ----------- ---------- Total revenue 24,233 100 -- 24,233 100 Operating costs and expenses: Cost of revenue-sharing 457 2 -- 457 2 Marketing and advertising (1) 8,476 35 (105) 8,371 35 Customer care and enrollment (1) 3,278 13 (52) 3,226 13 Technology and content (1) 3,368 14 (195) 3,173 13 General and administrative (1) 4,348 18 (192) 4,156 17 ----------- ---------- ----------- ----------- ---------- Total operating costs and expenses 19,927 82 (544) 19,383 80 ----------- ---------- ----------- ----------- ---------- Income from operations 4,306 18 544 4,850 20 Interest and other income, net 1,438 6 -- 1,438 6 ----------- ---------- ----------- ----------- ---------- Income before income taxes 5,744 24 544 6,288 26 Provision for income taxes (2) (16,616) (68) 19,194 2,578 11 ----------- ---------- ----------- ----------- ---------- Net income $ 22,360 92% $ (18,650)$ 3,710 15% =========== ========== =========== =========== ========== Net income per share: Basic $ 0.92 $ (0.77)$ 0.15 Diluted $ 0.86 $ (0.72)$ 0.14 Weighted-average number of shares used in per share amounts: Basic 24,424 24,424 24,424 Diluted 25,929 25,929 25,929 Explanation of adjustments (1) Non-GAAP results exclude the effect of expensing stock-based compensation related to stock options, restricted stock and restricted stock units in accordance with SFAS 123R beginning in 2006, in addition to the amortization of deferred stock-based compensation expense in accordance with APB 25 for grants made prior to 2006. (2) In the fourth quarter of 2007, management concluded that it was more likely than not that eHealth would realize sufficient future earnings to utilize its remaining deferred tax assets. Accordingly, eHealth reduced the valuation allowance by $18.9 million against deferred tax assets resulting in a tax benefit in the fourth quarter of 2007. Additionally, non-GAAP net income and non-GAAP net income per share exclude the income tax impact of $262,000 from the stock-based compensation expense listed in item (1) above. EHEALTH, INC. GAAP TO NON-GAAP RECONCILIATION FOR THE YEAR ENDED DECEMBER 31, 2008 (In thousands, except per share amounts, unaudited) Statement of Income Reconciliation Year Ended December 31, 2008 ----------------------------------------------------------- GAAP Non-GAAP Percent Percent GAAP of Total Non-GAAP of Total Reported Revenue Adjustments Results Revenue ----------- ---------- ----------- ----------- ---------- Revenue: Commission $ 100,839 90% $ -- $ 100,839 90% Sponsorship, licensing and other 10,872 10 -- 10,872 10 ----------- ---------- ----------- ----------- ---------- Total revenue 111,711 100 -- 111,711 100 Operating costs and expenses: Cost of revenue- sharing 1,746 2 -- 1,746 2 Marketing and advertising (1) 42,161 38 (644) 41,517 37 Customer care and enrollment (1) 14,379 12 (266) 14,113 13 Technology and content (1) 14,182 13 (898) 13,284 12 General and administrative (1) 17,983 16 (1,686) 16,297 14 ----------- ---------- ----------- ----------- ---------- Total operating costs and expenses 90,451 81 (3,494) 86,957 78 ----------- ---------- ----------- ----------- ---------- Income from operations 21,260 19 3,494 24,754 22 Interest and other income, net 3,714 3 -- 3,714 3 ----------- ---------- ----------- ----------- ---------- Income before income taxes 24,974 22 3,494 28,468 25 Provision for income taxes (2) 10,806 9 1,142 11,948 10 ----------- ---------- ----------- ----------- ---------- Net income $ 14,168 13% $ 2,352 $ 16,520 15% =========== ========== =========== =========== ========== Net income per share: Basic $ 0.57 $ 0.09 $ 0.66 Diluted $ 0.55 $ 0.09 $ 0.64 Weighted-average number of shares used in per share amounts: Basic 24,963 24,963 24,963 Diluted 25,954 25,954 25,954 Explanation of adjustments (1) Non-GAAP results exclude the effect of expensing stock-based compensation related to stock options, restricted stock and restricted stock units in accordance with SFAS 123R beginning in 2006, in addition to the amortization of deferred stock-based compensation expense in accordance with APB 25 for grants made prior to 2006. (2) Non-GAAP net income and non-GAAP net income per share exclude stock- based compensation expense listed in note (1) above, adjusted for estimated income tax benefit related to stock-based compensation expense. EHEALTH, INC. GAAP TO NON-GAAP RECONCILIATION FOR THE YEAR ENDED DECEMBER 31, 2007 (In thousands, except per share amounts, unaudited) Statement of Income Reconciliation Year Ended December 31, 2007 ----------------------------------------------------------- GAAP Non-GAAP Percent Percent GAAP of Total Non-GAAP of Total Reported Revenue Adjustments Results Revenue ----------- ---------- ----------- ----------- ---------- Revenue: Commission $ 81,502 93% $ -- $ 81,502 93% Sponsorship, licensing and other 6,289 7 -- 6,289 7 ----------- ---------- ----------- ----------- ---------- Total revenue 87,791 100 -- 87,791 100 Operating costs and expenses: Cost of revenue-sharing 1,702 2 -- 1,702 2 Marketing and advertising (1) 29,497 34 (218) 29,279 33 Customer care and enrollment (1) 12,137 14 (138) 11,999 14 Technology and content (1) 12,393 14 (611) 11,782 13 General and administrative (1) 16,046 18 (539) 15,507 18 ----------- ---------- ----------- ----------- ---------- Total operating costs and expenses 71,775 82 (1,506) 70,269 80 ----------- ---------- ----------- ----------- ---------- Income from operations 16,016 18 1,506 17,522 20 Interest and other income, net 5,287 6 -- 5,287 6 ----------- ---------- ----------- ----------- ---------- Income before income taxes 21,303 24 1,506 22,809 26 Provision for income taxes (2) (10,292) (12) 19,256 8,964 10 ----------- ---------- ----------- ----------- ---------- Net income $ 31,595 36% $ (17,750)$ 13,845 16% =========== ========== =========== =========== ========== Net income per share: Basic $ 1.37 $ (0.77)$ 0.60 Diluted $ 1.22 $ (0.68)$ 0.54 Weighted-average number of shares used in per share amounts: Basic 23,092 23,092 23,092 Diluted 25,797 25,797 25,797 Explanation of adjustments (1) Non-GAAP results exclude the effect of expensing stock-based compensation related to stock options, restricted stock and restricted stock units in accordance with SFAS 123R beginning in 2006, in addition to the amortization of deferred stock-based compensation expense in accordance with APB 25 for grants made prior to 2006. (2) In the fourth quarter of 2007, management concluded that it was more likely than not that eHealth would realize sufficient future earnings to utilize its remaining deferred tax assets. Accordingly, eHealth reduced the valuation allowance by $18.9 million against deferred tax assets resulting in a tax benefit for 2007. Additionally, non-GAAP net income and non-GAAP net income per share exclude the income tax impact of $324,000 from the stock-based compensation expense listed in item (1) above.