- NO IFP MEMBERSHIP GROWTH: Despite 145K approved members, EHTH only gained 4K net new members off a base of 796K. The variance is attrition; EHTH lost 141K accounts (18% of its 4Q13 IFP Customers). We believed attrition would be worse, but then again, EHTH’s reported membership metrics are purely a management estimate, so we have to take it for what it is.
- STRONG 1Q13 APPLICATIONS, BUT WILL DECLINE: 1Q14 Applications are comparable to 4Q13 (both very strong). However, management suggested that IFP application volume will decline in both 2Q13 & 3Q13, consistent with our thesis, but may have taken some by surprise. This also means EHTH’s 2014 prospects are tied to the flow-through of its 1Q14 applications to net IFP membership growth in 2Q14.
- 2Q14 IS A MIXED BAG. We have to assume the attrition headwind will mitigate into 2Q14 since much of that was tied to forced plan cancellations that terminated at year end 2013. Now the debate is whether EHTH lost members to the public exchanges from its limited ability to sell subsidized plans. Given the size of the HHS enrollment figures, particularly toward the end of Open Enrollment, attrition is likely, but the magnitude is tougher to measure.
- EVALUATING THE SHORT POSITION: A 2014 Guidance cut seems more likely following the 1Q print, but we’re not sure that matters much at this point. Sentiment around 2015-and-beyond growth could drive the stock higher, and we won’t have a catalyst to refute that till 3Q13 at the very earliest. The closer we get to 2015, the less a 2014 guidance cut will matter.
If you have any questions, or would like to discuss further, let us know
Hesham Shaaban, CFA