Newsroom > Press Releases > eHealth, Inc. Announces Third Quarter 2010 Results

eHealth, Inc. Announces Third Quarter 2010 Results

Third Quarter 2010 Overview
 
-- Revenue Of $37.5 Million, up 7% Over the Third Quarter Of 2009
-- Operating Income of $4.8 Million, Down 25% From the Third Quarter of 2009
-- Submitted Applications for IFP Products Increased 9% From the Third Quarter of 2009
-- GAAP Operating Margins of 13% and Non-GAAP Operating Margins of 18% for the Third Quarter of 2010
-- GAAP Net Income of $2.6 Million, or $0.11 per Diluted Share, and Non-GAAP Net Income of $3.8 Million, or $0.16 per Diluted Share, for the Third Quarter of 2010
-- Cash Flow From Operations of $5.6 Million, Down 27% From the Third Quarter of 2009
 
MOUNTAIN VIEW, CA--(Marketwire - October 26, 2010) - eHealth, Inc. (NASDAQ: EHTH), the leading online source of health insurance for individuals and families, today announced its financial results for the third quarter ended September 30, 2010.
Gary Lauer, chief executive officer of eHealth, stated, "We are pleased with our third quarter performance. Submitted individual and family application volume growth exceeded 9% year-over-year reflecting growth across all member acquisition channels. We also continued to make progress in our emerging businesses -- Medicare and government systems -- including an important launch of the enhanced Health Insurance Web Portal for the Department of Health and Human Services. We believe that the changing landscape of the health insurance industry makes our technology and platform more relevant and needed than ever."
 
Third Quarter Results
 
Revenue -- Revenue totaled $37.5 million for the third quarter of 2010, a 7% increase compared to revenue of $35.1 million for the third quarter of 2009.
 
Submitted Applications -- Submitted applications for individual and family products increased 9% in the third quarter of 2010 to 143,200 applications, compared to 131,200 applications in the third quarter of 2009.
 
Membership -- Estimated membership at September 30, 2010 totaled 778,800 members, a 7% increase over estimated membership of 726,600 at September 30, 2009.
 
Operating Income -- Operating income decreased 25% to $4.8 million for the third quarter of 2010, compared to operating income of $6.5 million for the third quarter of 2009. Operating margins were 13% and 18% in the third quarters of 2010 and 2009, respectively. Non-GAAP operating income decreased 12% to $6.8 million for the third quarter of 2010, compared to non-GAAP operating income of $7.8 million for the third quarter of 2009. Non-GAAP operating margins were 18% and 22% in the third quarters of 2010 and 2009, respectively. Non-GAAP operating income and margins in the third quarter of 2010 excludes $1.6 million of stock-based compensation expense and $0.4 million of intangible asset amortization expense associated with the acquisition of PlanPrescriber, Inc. Non-GAAP operating income and margins in the third quarter of 2009 excludes $1.3 million of stock-based compensation expense.
 
Stuart Huizinga, chief financial officer of eHealth, stated, "In the third quarter we generated the largest individual and family health insurance submitted application volume in the history of eHealth. At the same time, third quarter operating margin declined both sequentially and on a year-over-year basis, which was significantly impacted by our record submitted application volume. The vast majority of marketing and advertising spend to generate individual and family plan applications is expensed when it is incurred, while the revenue stream resulting from that spend comes in over future periods, resulting in lower margins in high application volume quarters. Third quarter operating margin also reflected continued investment in our Medicare business."
 
Pre-tax Income -- Pre-tax income for the third quarter of 2010 was $4.8 million, a 27% decrease compared to pre-tax income of $6.6 million for the third quarter of 2009.
 
Net Income -- Net income for the third quarter of 2010 was $2.6 million, or $0.11 per diluted share. Net income for the third quarter of 2009 was $3.5 million, or $0.14 per diluted share. Non-GAAP net income for the third quarter of 2010 was $3.8 million, or $0.16 per diluted share, compared to non-GAAP net income for the third quarter of 2009 of $4.3 million, or $0.17 per diluted share. Non-GAAP net income and non-GAAP net income per diluted share in the third quarter of 2010 exclude $1.6 million of stock-based compensation expense and $0.4 million of intangible asset amortization expense associated with the acquisition of PlanPrescriber, Inc., less $0.8 million for related income tax benefit. Non-GAAP net income and non-GAAP net income per diluted share in the third quarter of 2009 exclude $1.3 million of stock-based compensation expense, less $0.4 million for related income tax benefit.
 
Cash Flow and Cash Balance -- Cash flow from operations for the third quarter of 2010 was $5.6 million, compared to $7.6 million for the third quarter of 2009, representing a decrease of 27%. During the third quarters of 2010 and 2009, we utilized $2.1 million and $1.4 million, respectively, of previously unrecognized excess tax benefits related to share-based payments to reduce our federal and state income taxes payable. These excess tax benefits are shown in the cash flow statement as an increase in cash flow from financing activities and a decrease in cash flow from operating activities.
 
Cash, cash equivalents and short-term marketable securities as of September 30, 2010 totaled $139.1 million, compared to $153.5 million as of December 31, 2009. The change in cash, cash equivalents and short-term marketable securities for the nine months ended September 30, 2010 reflects $27.2 million of net cash used for the acquisition of PlanPrescriber, Inc. in April 2010 and $8.7 million used to repurchase 751,238 shares of the Company's common stock during September 2010.
 
Year-to-Date Results
 
Revenue -- Revenue totaled $109.7 million for the nine months ended September 30, 2010, a 9% increase compared to revenue of $100.5 million for the nine months ended September 30, 2009.
 
Operating Income -- Operating income decreased 13% to $16.5 million for the nine months ended September 30, 2010, compared to operating income of $19.0 million for the nine months ended September 30, 2009. Operating margins were 15% and 19% in the nine-month periods ended September 30, 2010 and 2009, respectively.
 
Pre-tax Income -- Pre-tax income for the nine months ended September 30, 2010 was $16.5 million, a 16% decrease compared to pre-tax income of $19.8 million for the nine months ended September 30, 2009.
 
Net Income -- Net income for the nine months ended September 30, 2010 was $8.9 million, or $0.37 per diluted share, compared to net income for the nine months ended September 30, 2009 of $10.6 million, or $0.41 per diluted share.
 
Cash Flow -- Cash flow from operations for the nine months ended September 30, 2010 was $16.9 million, compared to $20.7 million for the nine months ended September 30, 2009, representing a decrease of 18%.
 
2010 Guidance
 
eHealth is reaffirming its guidance for the full year ending December 31, 2010:
  • Total revenue is expected to be in the range of $152 million to $157 million
  • Stock-based compensation expense is expected to be in the range of $6.0 million to $7.5 million
  • GAAP income tax rate is expected to be in the range of 43% to 45%
  • GAAP net income per diluted share is expected to be in the range of $0.55 to $0.65 per share
Webcast and Conference Call Information
A Webcast and conference call will be held today, Tuesday, October 26, 2010 at 5:00 p.m. EDT / 2:00 p.m. PDT. 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 866-700-7441 for domestic callers and 617-213-8839 for international callers. The participant passcode is 53498897. 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 29039667. 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:
eHealth, Inc. (NASDAQ: EHTH) is the parent company of eHealthInsurance, the nation's leading online source of health insurance for individuals, families and small businesses. Through the company's website, www.eHealthInsurance.com, consumers can get quotes from leading health insurance carriers, compare plans side by side, and apply for and purchase health insurance. eHealthInsurance offers thousands of health plans underwritten by more than 180 of the nation's leading health insurance companies. eHealthInsurance is licensed to sell health insurance in all 50 states and the District of Columbia, making it the ideal model of a successful, high-functioning health insurance exchange. Through its eCommerce On-Demand solution (www.eHealth.com/eOD), eHealth is also a leading provider of on-demand e-commerce software. eHealth's eOD platform provides a suite of hosted solutions that enable health plan providers and resellers to market and distribute products online. eHealth, Inc. also provides powerful online and pharmacy-based tools to help seniors navigate Medicare health insurance options and choose the right plan through its wholly-owned subsidiary, PlanPrescriber.com (http://www.planprescriber.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 the increased relevance and importance of eHealth's technology platform as a result of changes in the health insurance industry and eHealth's guidance for total revenue, stock-based compensation expense, GAAP income tax rate, and GAAP net income per diluted share for the year ending December 31, 2010. 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 the impact of healthcare reform and medical loss ratio requirements; eHealth's rate of growth; eHealth's success in marketing and selling Medicare-related health insurance products and leads for such products; the need for health insurance carrier and regulatory approvals in connection with the marketing of Medicare related insurance products; costs of acquiring new members; weak economic conditions and legislative reaction to economic conditions; consumer awareness of the availability and accessibility of affordable health insurance; changes in member conversion rates and factors affecting conversion; eHealth's ability to continue to increase its membership base and retain its members; eHealth's ability to maintain or expand its relationships with health insurance carriers; negative publicity experienced by eHealth's carrier partners; changes in products offered on eHealth's ecommerce platform; changes in commission rates or carrier underwriting practices; maintaining and enhancing eHealth's brand identity and the effectiveness of eHealth's marketing and public relations efforts; system failures, capacity constraints, data loss or online commerce security risks; dependence on acceptance of the Internet as a marketplace for the purchase and sale of health insurance; dependence upon Internet search engines; reliance on marketing partners; timing of receipt and accuracy of commission reports; payment practices of health insurance carriers; competition; eHealth's operations in China; success in the sale of sponsorship advertising and the licensing of the use of eHealth's ecommerce platform; protection of intellectual property and defense of intellectual property rights claims; legal liability, regulatory penalties and negative publicity; ability to attract and retain qualified personnel; management of future growth and diversification; seasonality; impact of future acquisitions; the PlanPrescriber, Inc. acquisition disrupting plans and operations; not realizing anticipated synergies and opportunities with respect to PlanPrescriber, Inc.; difficulty or unanticipated expenses in connection with integrating PlanPrescriber, Inc.; underperformance by PlanPrescriber, Inc.; PlanPrescriber's maintenance of its relationships with its pharmacy and other partners that serve as a source of Medicare related leads; reliance upon a small number of purchasers for our sale of Medicare related insurance leads; implementation of internal enterprise systems and maintenance of proper and effective internal controls; impact of provisions for income taxes; changes in laws and regulations; compliance with insurance and other laws and regulations; exposure to online commerce security risks; the performance, reliability and availability of eHealth's ecommerce platform and underlying network infrastructure; and stock market conditions and the trading price of shares of eHealth's common stock. 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 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 for the third quarter of 2010 consists of GAAP operating income excluding purchased intangible asset amortization expense and the effects of expensing stock-based compensation related to stock options, restricted stock and restricted stock units in accordance with FASB ASC Topic 718 beginning in 2006. Non-GAAP operating income for the third quarter of 2009 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 FASB ASC Topic 718 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 net income for the third quarter of 2010 consists of GAAP net income excluding purchased intangible asset amortization expense and stock-based compensation expense recorded during the quarter (less related income tax benefit). Non-GAAP net income for the third quarter of 2009 consists of GAAP net income excluding stock-based compensation expense recorded during the quarter (less related income tax benefit).
  • 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 are useful to investors in their assessment of the Company's operating performance.
 
Non-GAAP operating income, non-GAAP operating margins, 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 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 the stock-based compensation costs and purchased intangible asset amortization 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 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 described above and the related reconciliations between these financial measures.
(Tables to Follow)
                              EHEALTH, INC.
                  CONDENSED CONSOLIDATED BALANCE SHEETS
                             (In thousands)
 
 
                                                December 31,  September 30,
                                                    2009          2010
                                                ------------  ------------
                   Assets                           (1)       (unaudited)
Current assets:
  Cash and cash equivalents                     $    131,339  $    139,113
  Marketable securities                               22,184             -
  Accounts receivable                                  2,295         3,218
  Deferred income taxes                                6,009         6,956
  Prepaid expenses and other current assets            2,324         4,255
                                                ------------  ------------
Total current assets                                 164,151       153,542
Property and equipment, net                            3,775         4,684
Deferred income taxes                                    919           261
Other assets                                             863           839
Goodwill                                                   -        14,546
Purchased intangible assets, net                           -        12,689
                                                ------------  ------------
Total assets                                    $    169,708  $    186,561
                                                ============  ============
 
 
     Liabilities and stockholders' equity
 
Current liabilities:
  Accounts payable                              $      3,252  $      6,129
  Accrued compensation and benefits                    5,051         6,790
  Accrued marketing expenses                           3,879         4,244
  Deferred revenue                                       401           519
  Other current liabilities                            2,677         1,926
                                                ------------  ------------
Total current liabilities                             15,260        19,608
Other non-current liabilities                          2,997         3,291
 
Stockholders' equity:
  Common stock                                            25            25
  Additional paid-in capital                         183,747       195,826
  Treasury stock, at cost                            (29,999)      (38,723)
  Retained earnings (accumulated deficit)             (2,545)        6,327
  Accumulated other comprehensive income                 223           207
                                                ------------  ------------
Total stockholders' equity                           151,451       163,662
                                                ------------  ------------
Total liabilities and stockholders' equity      $    169,708  $    186,561
                                                ============  ============
 
(1) The condensed consolidated balance sheet at December 31, 2009 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, unaudited)
 
 
                                     Three Months Ended  Nine Months Ended
                                        September 30,      September 30,
                                      -----------------  -----------------
                                        2009     2010      2009     2010
                                      -------- --------  -------- --------
 
Revenue:
  Commission                          $ 31,086 $ 32,040  $ 89,229 $ 95,685
  Sponsorship, licensing and other       4,037    5,411    11,250   14,011
                                      -------- --------  -------- --------
Total revenue                           35,123   37,451   100,479  109,696
Operating costs and expenses:
  Cost of revenue                        1,470      900     3,588    2,759
  Marketing and advertising (1)         14,266   16,094    40,631   44,795
  Customer care and enrollment (1)       3,651    4,691    11,100   12,539
  Technology and content (1)             4,126    4,619    11,539   14,199
  General and administrative (1)         5,119    5,879    14,671   18,200
    Amortization of acquired intangible
     assets                                 --      426        --      711
                                      -------- --------  -------- --------
Total operating costs and expenses      28,632   32,609    81,529   93,203
                                      -------- --------  -------- --------
Income from operations                   6,491    4,842    18,950   16,493
Interest and other income (loss), net      143       (3)      800       13
                                      -------- --------  -------- --------
Income before income taxes               6,634    4,839    19,750   16,506
Provision for income taxes               3,182    2,241     9,161    7,634
                                      -------- --------  -------- --------
Net income                            $  3,452 $  2,598  $ 10,589 $  8,872
                                      ======== ========  ======== ========
 
Net income per share:
  Basic                               $   0.14 $   0.11  $   0.43 $   0.38
  Diluted                             $   0.14 $   0.11  $   0.41 $   0.37
 
Weighted-average number of shares
 used in per share amounts:
  Basic                                 24,240   23,437    24,627   23,474
  Diluted                               25,152   24,079    25,529   24,227
 
(1) Includes stock-based compensation
 expense as follows:
  Marketing and advertising           $    184 $    199  $    580 $    607
  Customer care and enrollment              92      101       240      282
  Technology and content                   312      383       814    1,239
  General and administrative               702      885     1,794    2,689
                                      -------- --------  -------- --------
    Total                             $  1,290 $  1,568  $  3,428 $  4,817
                                      ======== ========  ======== ========
 
 
 
 
 
 
                              EHEALTH, INC.
             CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                        (In thousands, unaudited)
 
 
                                 Three Months Ended     Nine Months Ended
                                   September 30,         September 30,
                                --------------------  --------------------
                                  2009       2010       2009       2010
                                ---------  ---------  ---------  ---------
 
Operating activities
Net income                      $   3,452  $   2,598  $  10,589  $   8,872
Adjustments to reconcile net
 income to net cash provided by
 operating activities:
  Deferred income taxes             1,837      1,874      5,074      6,810
  Depreciation and amortization       554        963      1,673      2,291
  Amortization and accretion on
   marketable securities, net         206          -        607         50
  Stock-based compensation
   expense                          1,290      1,568      3,428      4,817
  Excess tax benefits from
   stock-based compensation        (1,351)    (2,123)    (3,986)    (7,360)
  Deferred rent                        (7)        (7)       (57)        (5)
  Loss on disposal of property
   and equipment                        4          3         16          9
  Changes in operating assets
   and liabilities:
    Accounts receivable               (93)      (655)      (199)      (554)
    Prepaid expenses and other
     current assets                   982     (2,532)       386     (1,845)
    Other assets                      182        (66)       473         25
    Accounts payable                 (195)     2,862       (628)     2,863
    Accrued compensation and
     benefits                         244        909        319      1,585
    Accrued marketing expenses        267        107      1,077        365
    Deferred revenue                 (147)        67        (96)        90
    Other current liabilities         424         43      2,006     (1,145)
                                ---------  ---------  ---------  ---------
Net cash provided by operating
 activities                         7,649      5,611     20,682     16,868
                                ---------  ---------  ---------  ---------
 
Investing activities
Purchases of property and
 equipment                           (588)    (1,139)    (1,122)    (2,483)
Acquisition of PlanPrescriber,
 net of cash acquired                   -          -          -    (27,203)
Purchase of other assets                -          -     (1,280)         -
Purchases of marketable
 securities                        (2,026)         -    (40,550)         -
Sales of marketable securities      3,000          -      4,006          -
Maturities of marketable
 securities                        13,500          -     48,900     22,100
                                ---------  ---------  ---------  ---------
Net cash provided by (used in)
 investing activities              13,886     (1,139)     9,954     (7,586)
                                ---------  ---------  ---------  ---------
 
Financing activities
Net proceeds from exercise of
 common stock options                 308          4        775        468
Cash used to net share settle
 equity awards                        (23)       (18)      (130)      (575)
Excess tax benefits from
 stock-based compensation           1,351      2,123      3,986      7,360
Repurchase of common stock        (24,767)    (8,724)   (29,360)    (8,724)
Principal payments in
 connection with capital lease        (11)       (12)       (30)       (33)
                                ---------  ---------  ---------  ---------
Net cash used in financing
 activities                       (23,142)    (6,627)   (24,759)    (1,504)
                                ---------  ---------  ---------  ---------
 
Effect of exchange rate changes
 on cash and cash equivalents           1        (10)         2         (4)
                                ---------  ---------  ---------  ---------
 
Net increase (decrease) in cash
 and cash equivalents              (1,606)    (2,165)     5,879      7,774
Cash and cash equivalents at
 beginning of period              101,621    141,278     94,136    131,339
                                ---------  ---------  ---------  ---------
Cash and cash equivalents at
 end of period                  $ 100,015  $ 139,113  $ 100,015  $ 139,113
                                =========  =========  =========  =========
 
 
 
 
 
 
                              EHEALTH, INC.
                       SUMMARY OF SELECTED METRICS
                               (Unaudited)
 
                                    Three Months Ended  Three Months Ended
Key Metrics:                        September 30, 2009  September 30, 2010
                                    ------------------  ------------------
Operating cash flows (1)            $        7,649,000  $        5,611,000
 
IFP submitted applications (2)                 131,200             143,200
 
IFP approved members (3)                       111,100             117,300
Total approved members (4)                     146,900             152,800
 
Total revenue (5)                   $       35,123,000  $       37,451,000
Total revenue per estimated member
 for the period (6)                 $            49.00  $            48.84
 
 
                                          As of               As of
                                    September 30, 2009  September 30, 2010
                                    ------------------  ------------------
IFP estimated membership (7)                   630,900             679,500
Total estimated membership (8)                 726,600             778,800
 
 
                                    Three Months Ended  Three Months Ended
                                    September 30, 2009  September 30, 2010
                                    ------------------  ------------------
Marketing and advertising
 expenses (9)                       $       14,266,000  $       16,094,000
Marketing and advertising expenses
 as a percentage of total
 revenue (10)                                       41%                 43%
 
Marketing and advertising expenses
 excluding stock-based
 compensation (11)                  $       14,082,000  $       15,895,000
Marketing and advertising expenses
 excluding stock based compensation
 as a percentage of total
 revenue (12)                                       40%                 42%
 
Other Metrics:
 
Source of IFP submitted applications
 (as a percentage of total IFP
 applications for the period):
    Direct (13)                                     43%                 43%
    Marketing partners (14)                         31%                 30%
    Online advertising (15)                         26%                 27%
                                    ------------------  ------------------
      Total                                        100%                100%
                                    ==================  ==================
 
Acquisition cost per individual on
 IFP submitted applications (16)    $            74.73  $            75.38
Acquisition cost (excluding
 stock-based compensation) per
 individual on IFP submitted
 applications (17)                  $            73.77  $            74.45
 
 
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. Does not include members
     transferred from Health Benefits Direct Corporation during 2009.
(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. Does not
     include members transferred from Health Benefits Direct Corporation
     during 2009.
(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). Ending membership as of
     September 30, 2009 and 2010 include an estimated 25,000 and 15,000
     members, respectively, transferred from Health Benefits Direct
     Corporation as of each date, net of estimated cancelations since their
     transfer. See our Form 10-K for the year ended December 31, 2009 -
     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.
(7)  Estimated number of members active on IFP insurance policies as of the
     date indicated. Amounts as of September 30, 2009 and 2010 include an
     estimated 25,000 and  15,000 members, respectively, transferred from
     Health Benefits Direct Corporation as of each date, net of estimated
     cancelations since their transfer. See our Form 10-K for the year
     ended December 31, 2009 - 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. Amounts as of September 30, 2009 and 2010 include an
     estimated 25,000 and 15,000 members, respectively, transferred from
     Health Benefits Direct Corporation as of each date, net of estimated
     cancelations since their transfer. See our Form 10-K for the year
     ended December 31, 2009 - 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 SEPTEMBER 30, 2010
         (In thousands, except per share amounts, unaudited)
 
Statement of Income Reconciliation
 
 
                              Three Months Ended September 30, 2010
                      ----------------------------------------------------
                                   GAAP                           Non-GAAP
                                Percent of                      Percent of
                        GAAP       Total                Non-GAAP   Total
                      Reported    Revenue  Adjustments  Results   Revenue
                      ---------  ---------  ---------  ---------  --------
 
Revenue:
  Commission          $  32,040         86% $      --  $  32,040        86%
  Sponsorship,
   licensing and
   other                  5,411         14         --      5,411        14
                      ---------  ---------  ---------  ---------  --------
Total revenue            37,451        100         --     37,451       100
Operating costs and
 expenses:
  Cost of revenue           900          2         --        900         2
  Marketing and
   advertising (1)       16,094         43       (199)    15,895        42
  Customer care and
   enrollment (1)         4,691         13       (101)     4,590        12
  Technology and
   content (1)            4,619         12       (383)     4,236        11
  General and
   administrative (1)     5,879         16       (885)     4,994        13
  Amortization of
   acquired
   intangible assets
   (2)                      426          1       (426)        --        --
                      ---------  ---------  ---------  ---------  --------
Total operating costs
 and expenses            32,609         87     (1,994)    30,615        82
                      ---------  ---------  ---------  ---------  --------
Income from
 operations               4,842         13      1,994      6,836        18
Interest and other
 income (loss), net          (3)        (0)        --         (3)       (0)
                      ---------  ---------  ---------  ---------  --------
Income before income
 taxes                    4,839         13      1,994      6,833        18
Provision for income
 taxes (3)                2,241          6        757      2,998         8
                      ---------  ---------  ---------  ---------  --------
Net income (4)        $   2,598          7% $   1,237  $   3,835        10%
                      =========  =========  =========  =========  ========
 
Net income per share:
 (4)
   Basic              $    0.11             $    0.05  $    0.16
   Diluted            $    0.11             $    0.05  $    0.16
 
Weighted-average
 number of shares
 used in per share
 amounts:
    Basic                23,437                23,437     23,437
    Diluted              24,079                24,079     24,079
 
 
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 FASB ASC Topic 718.
(2)  Non-GAAP results exclude amortization expense related to acquired
     intangible assets.
(3)  Non-GAAP provision for income taxes excludes estimated income
     tax benefit related to stock-based compensation expense and
     amortization of purchased intangible assets listed in notes
     (1) and (2) above.
(4)  Non-GAAP net income and non-GAAP net income per share exclude
     stock-based compensation expense and amortization of purchased
     intangible assets listed in notes (1) and (2) above, adjusted
     for estimated income tax benefit related to stock-based compensation
     expense and amortization of purchased intangible assets.
 
 
 
 
 
 
                            EHEALTH, INC.
                 GAAP TO NON-GAAP RECONCILIATION
          FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2009
       (In thousands, except per share amounts, unaudited)
 
Statement of Income Reconciliation
 
 
                             Three Months Ended September 30, 2009
                     -----------------------------------------------------
                                   GAAP                           Non-GAAP
                                Percent of                      Percent of
                        GAAP       Total                Non-GAAP   Total
                      Reported    Revenue  Adjustments  Results   Revenue
                     ---------  ---------  ---------  ---------  ---------
 
Revenue:
  Commission         $  31,086         89% $      --  $  31,086         89%
  Sponsorship,
   licensing and
   other                 4,037         11         --      4,037         11
                     ---------  ---------  ---------  ---------  ---------
Total revenue           35,123        100         --     35,123        100
Operating costs and
 expenses:
  Cost of revenue        1,470          4         --      1,470          4
  Marketing and
   advertising (1)      14,266         41       (184)    14,082         40
  Customer care and
   enrollment (1)        3,651         10        (92)     3,559         10
  Technology and
   content (1)           4,126         12       (312)     3,814         11
  General and
   administrative
   (1)                   5,119         15       (702)     4,417         13
                     ---------  ---------  ---------  ---------  ---------
Total operating
 costs and expenses     28,632         82     (1,290)    27,342         78
                     ---------  ---------  ---------  ---------  ---------
Income from
 operations              6,491         18      1,290      7,781         22
Interest and other
 income, net               143          0         --        143          0
                     ---------  ---------  ---------  ---------  ---------
Income before income
 taxes                   6,634         19      1,290      7,924         23
Provision for income
 taxes (2)               3,182          9        398      3,580         10
                     ---------  ---------  ---------  ---------  ---------
Net income (3)       $   3,452         10% $     892  $   4,344         12%
                     =========  =========  =========  =========  =========
 
Net income per
 share: (3)
   Basic             $    0.14             $    0.04  $    0.18
   Diluted           $    0.14             $    0.03  $    0.17
 
Weighted-average
 number of shares
 used in per share
 amounts:
    Basic               24,240                24,240     24,240
    Diluted             25,152                25,152     25,152
 
 
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 FASB ASC Topic 718
     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 provision for income taxes excludes estimated income tax
     benefit related to stock-based compensation expense listed in note
     (1) above.
(3)  Non-GAAP net income and non-GAAP net income per share exclude
     stock-based compensation expense listed in note (1) above and
     estimated income tax benefit listed in note (2) above.