eHealth, Inc. (NASDAQ:EHTH) Q1 2015 Earnings Conference Call April 24, 2015 9:00 AM ET
Executives
Gary Lauer - Chairman and CEO
Stuart Huizinga - CFO
Kate Sidorovich - VP of IR
Analysts
Steven Halper - FBR Capital
Tobey Sommer - SunTrust Robinson Humphrey
David Francis - RBC Capital Markets
George Sutton - Craig-Hallum Capital Group LLC
Stephen Lynch - Wells Fargo Advisors
Steve Rubis - Stifel, Nicolaus & Company
Jason Mitchell - Bank of America Merrill Lynch
Scott Fidel - Deutsche Bank
Operator
Good day, ladies and gentlemen, and welcome to the eHealth, Inc., First Quarter 2015 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 be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded.
I’d now like to turn the conference over to your host, Ms. Kate Sidorovich, Vice President of Investor Relations. Ma’am you may begin.
Kate Sidorovich
Thank you. Good morning and thank you all for joining us today, either by phone or by webcast, for a discussion about eHealth Inc.'s first quarter 2015 financial results.
On the call this afternoon, we'll have Gary Lauer, eHealth's Chief Executive Officer; and Stuart Huizinga, eHealth's Chief Financial 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 Web site. A replay of the call will be available on our Web site following the call.
We will be making forward-looking statements on this call, that includes statements regarding future events, beliefs and expectations, including our expectations regarding Medicare commission revenue growth, continued expansion of our ancillary product business, expansion of our Medicare membership base, favorable retention rates for our Medicare members, growing contribution from high margin Medicare renewal commissions, the beneficial impact of the investments in our Medicare business, the importance of our Individual & Family Plan business or IFP, a source of significant annual revenue, cash flow and earnings, the profitability of our IFP business, the recent cost reduction program and the expected cost savings and impact on profitability on cash flow, member retention rates and IFP business projected commissions for member in our IFP business, our ability to take advantage of emerging opportunities in the IFP market, the timing of the recognition of Medicare revenue, our operating expense, cash flow and non-GAAP financial information, and our expectations regarding revenue during the second quarter.
Forward-looking statements on this call represent eHealth's views as of today. You should not rely on these statements as representing our views in the future. We undertake no obligation or duty to update information contained in these forward-looking statements 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 report on Form 10-K and quarterly report on Form 10-Q filed with the Securities and Exchange Commission, which you may access through the SEC Web site or from the Investor Relations section of our Web site.
We will be presenting certain financial measures on this call that will be considered non-GAAP under SEC Regulation G. For 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 Web site, under the heading, Investor Relations.
And at this point, I’ll turn the call over to Gary Lauer.
Gary Lauer
Thank you and thanks all for joining us today as we report our first quarter 2015 results. We completed a strong quarter driven by acceleration in Medicare commission revenue growth, better than expected Individual and Family Plan commission revenue, and a continued expansion of our ancillary product business.
First quarter revenue was $61.3 million, representing a 20% growth rate compared to the first quarter a year-ago. First quarter EBITDA adjusted for restructuring charges was $5.8 million. During the first quarter we reported $4.5 million in restructuring charges related to our cost reduction program. Including these charges, EBITDA was $1.3 million and the GAAP net loss per share was $0.12.
We ended the quarter with no debt and $39 million in cash. Our cash balance reflects seasonality inherent in our business model, as well as the restructuring charges that I just referenced.
I’d like to start this morning by commenting on our performance of the Medicare business, one of the highlights of the quarter. Total first quarter Medicare revenue was $29.6 million or 108% annual growth, with a decline in Medicare advertising offsetting some of the growth in commission revenues.
As we previously noted, Medicare advertising reflects discretionary spend by the carriers and tends to be more variable than commissions. First quarter Medicare commission revenue was $29.3 million, an increase of 135% compared to the first quarter a year-ago. This strong performance was driven by growth in renewal revenue on our existing book of business and increase in the number of new Medicare members added during the quarter as well as changes in timing of Medicare revenue recognition due to the impact of the new CMS regulations.
So let me elaborate. During 2014, we grew our submitted applications for major Medicare products including Medicare Advantage and Medicare Supplement plans by 51%. This momentum continued into the first quarter of 2015 with applications for major Medicare products growing 59% year-over-year.
As a result of strong application growth in 2014 and the first quarter of 2015, we had 62% more approved Medicare members in the first quarter compared to a year-ago, which helped to deliver meaningful growth in first year commission revenue.
In addition, we saw retention rates with your existing Medicare members that resulted in strong renewal commission revenue. Our first quarter Medicare renewal revenue did benefit from certain changes in timing of revenue recognition pursuant to a new CMS regulation.
Adjusting for these changes, our first quarter 2015 renewal revenue grew 56% compared to renewal revenue for the entire year of 2014. As we continue to expand our total Medicare membership base, we expect to see a growing contribution from renewal commission revenue, which by the way has little incremental expense associated with it.
Finally as a result of new CMS regulations, and as a result of our not receiving commission information from certain carriers in the fourth quarter of last year, both the first-quarter Medicare renewal revenue and the revenue our new Medicare sales benefited from revenue which historically had been recognized in other periods. This includes an estimated push out of just over $3 million in new sales commission revenue from the fourth quarter of 2014 into the first quarter of 2015 and the fact that 2015 is the first year when we are recognizing all of Medicare renewal revenues during the first quarter.
Historically, the first quarter has been the largest renewal revenue quarter for Medicare, but we also recognized some renewal revenues in Q2, Q3, and Q4. This is why in my earlier statement I compared our first quarter 2015 renewal revenue to the renewal revenue for the entire year of 2014 to reflect the impact of this timing.
Our total estimated Medicare membership at the end of the quarter was 155,600 members or 39% growth compared to the Medicare membership we estimated at the end of first quarter 2014. The estimated number of members holding major Medicare products including Medicare Advantage and Medicare Supplement plans grew 51% during the same period.
The investment that we’ve made in our Medicare business is working. And our first quarter financial results demonstrate the beneficial impact that this business can have on our top and bottom line. I’d like to point out again that as our Medicare membership expands, we stand to benefit from the larger potential contribution of high margin renewal revenues. This is especially important given the favorable retention rates we are experiencing with our Medicare members.
Our strategy is to continue growing our Medicare business and to focus our new and innovative ways to expand our presence in this very important market. We also continue to expand our inventory of quality Medicare plans from leading insurers. In the last six months, for example, we added 11 additional states for our Medicare Supplement plans and the product -- which is a product written by the -- underwritten, by the way, by United Healthcare and we also added Express Scripts prescription drug plans nationwide.
Turning to our Individual and Family Plan business, first quarter submitted Individual and Family health insurance applications were down 17% year-over-year. As a reminder, this year's open enrollment period ended on February 15, while the prior open enrollment period ran through the end of March of 2014. In addition, the number of new enrollees in the individual market was meaningfully lower during the second enrollment period compared to the first one.
Our estimated Individual and Family Plan membership at the end of first quarter was up 3% sequentially and down 27% compared to the first quarter of 2014. First quarter Individual and Family plan commission revenue including commissions from ancillary and small business products grew 4% sequentially compared to the fourth quarter of 2014 and was down 14% on a year-over-year basis.
I want to emphasize that although we’ve seen lower Individual and Family Plan application volume over the past several quarters than we had expected, the individual business remains a very important part of the eHealth as it generates significant annual revenues. In 2014, for example, the Individual and Family Plan business contributed approximately $108 million or 60% of total company revenue.
The contribution was even higher at 72%, if you include commission revenues from ancillary products. The majority of which are cross sold into our Individual and Family Plan member base. By the way, we saw continued growth in our ancillary product business with first quarter 2015 revenues up 25% compared to the same quarter a year-ago.
Our individual business can also serve as an important source of cash flow and earnings, some of which we plan to invest or reinvest in our Medicare business. I’d like to point out that our individual business was profitable in 2014 despite all of the challenges surrounding the Affordable Care Act and its implementation during the year.
As you may know during the first quarter of 2015, we announced the start of implementing a cost reduction program aimed at aligning our cost structure with our revenue. The majority of expense cuts came from employee costs and our customer care enrollment and technology and content groups, with an overall reduction in our total company workforce of 15%.
It is important to note that our first quarter results reflect minimal cost savings associated with the cost reduction program given that we started to implement it during the last month of the quarter.
Commission rates in our individual business remain stable. And we actually observed higher commissions on new sales for many of the plans for which we received payments from the carriers during the first quarter of 2015 compared to previous quarters. Contributing to these commission were qualified health plans, which represented roughly 47% of total Individual and Family Plan applications submitted through our platform during the first quarter of 2015.
At this point, we continue to assess the post-open enrollment period data in our individual business to get more clarity into our membership retention rates. As a reminder, members typically do not pay us directly or report their intent to cancel a policy. Rather carriers collect premium payments and in turn make commission payments to their broker channel.
These payments provide us with an insight into active membership on our books for a given period, but this process can take several months. We like what we have seen so far this year in terms of commission payments. And we expect to get even more clarity into payment rates in churn over the next several months.
As you know, retention rates are an important driver of our membership numbers and therefore of the Individual and Family Plan commission revenue that we earn. Given all that we have experienced over the past several quarters, we are pleased with our first quarter results.
As I stated earlier, the momentum and contribution we are seeing from our Medicare business is a direct result, I believe, of the focused investment we’ve made in this exciting opportunity over the past several years. While we were disappointed with the application activity during the open enrollment period and our Individual and Family Plan business, we did see better Individual and Family Plan commission revenue than we expected during the first quarter.
Remember that the individual business is a significant part of our revenue and profitability, and we believe we can take advantage of emerging opportunities in this market. And most importantly, we generated positive EBITDA in the first quarter even in light of the restructuring costs that we’ve incurred.
Now I’d like to turn the call over to Stuart.
Stuart Huizinga
Thanks, Gary, and good morning, everyone. During the first quarter we generated strong revenue growth and made an important step towards the Company's return to profitability by implementing an aggressive cost reduction program. Our first quarter 2015 revenue was $61.3 million, a 20% increase compared to the first quarter of 2014.
Commission revenue for the first quarter was $57.8 million representing 27% year-over-year growth. Commissions from Individual and Family plan and ancillary products combined declined by 14% compared to the first quarter of 2014 due to a decline in the estimated number of revenue generating individual and family plan numbers over the same time period, partially offset by continuing growth in our ancillary product membership.
First quarter Medicare commission revenue grew by 135% year-over-year, driven primarily by strong renewal revenue on our existing book of business, as well as growth in new member additions.
Other revenue, which includes sponsorship, ecommerce on-demand, and non-commission Medicare revenue was $3.5 million in the first quarter, a decline of 35% compared to Q1 2014 driven primarily by a reduction of approximately $1.5 million in our Medicare advertising revenue.
I now would like to address our commission revenue dynamics in greater detail, starting with the individual and family plan business. The annual decline in the first quarter individual and family plan commission revenue excluding ancillary and small business products was approximately 20%, which is less than the 27% year-over-year decline in our estimated individual and family plan membership.
We believe that some of the difference is attributable to favorable commission mix. In addition, the commissions reported to us in Q1 imply that we may be benefiting from higher quarter end estimated membership than we reported, which can be driven by either more favorable retention rates or payment rates on approved numbers compared to our assumptions, which are based on prior year metrics for retention rates and for payment rates.
Given the normal lags that we experience in receiving all of the data necessary to fully quantify these metrics; it will be several months before we can understand them more definitively.
Turning to Medicare, as Gary discussed earlier on the call, our first quarter Medicare commission growth was driven by a combination of stronger first-year commission revenue, as well as favorable renewal revenue on our existing book of business which continues to expand. In addition, first quarter 2015 revenue benefited from a shift in timing of revenue recognition.
As we stated in our fourth quarter earnings call, commission revenues were pushed out into the first quarter of 2015 from Q4 of 2014 as a result of a new regulation that requires commissions on Medicare advantage and PDP products sold during the annual enrollment period not to be paid to brokers until January 1, which is the effective date of these policies, as a result of us not receiving commission information from certain carriers in the fourth quarter.
The estimated benefit to our first quarter revenue was just over $3 million. In addition, another new CMS regulation dictates that all renewals for Medicare Advantage and PDP products now occur on January 1 rather than the historical practice of renewing on the anniversary of the policy’s effective date. As a result, we now recognized all of the annual renewal revenue on Medicare Advantage and PDP products in the first quarter.
Historically in the first quarter, we recognized renewal revenues on the existing policies that were previously sold during the annual enrollment period, which made it the biggest renewal revenue quarter of the year, given that the vast majority of Medicare Advantage and PDP plans are sold during the annual enrollment period.
However, we also used to recognize some of the renewal revenues in Q2, Q3 and even Q4 for members who aged into Medicare during the year and enrolled into these products outside of the annual enrollment period. 2015 is the first-year when these renewal revenues were instead booked in Q1.
If we take into account these changes and timing of revenue recognition, and compare first quarter 2015 renewal revenue to renewal revenue for the entire year of 2014, we grew revenue -- renewal revenues by 56% on that basis.
Our ancillary products also continued to perform strongly during the quarter with total commission revenues growing 25% compared to Q1 of last year. Our total estimated membership at the end of the quarter for all products combined was approximately 1.16 million members, which represents a 10% decline over estimated membership reported at the end of the first quarter of 2014.
First quarter 2015 estimated individual and family plan membership was approximately 584,900 members and estimated Medicare membership was approximately 155,600.
Now I'll review our operating expenses for the quarter. It’s important to note that first quarter operating expenses reflect minimal cost reductions pursuant to the restructuring program that we announced in early March of 2015. We will start seeing the impact of the program in the second quarter net of the investments we are making in our Medicare business.
The cost reductions primarily impact customer care enrollment resources in our individual and family plan business and technology and content resources across the Company. At the same time, customer care and marketing expenses related specifically to Medicare are expected to increase in 2015 compared to last year as we invest in growth opportunities that we see in front of us in this important market.
Our first quarter operating expenses declined as a percentage of revenues from the first quarter of last year. Strong top line growth including significant contribution from Medicare revenues drove this decline.
In absolute terms, non-GAAP operating expense excluding restructuring charges, stock-based compensation, and the amortization of acquired intangibles increased 10% year-over-year, driven primarily by an increase in marketing and advertising and customer care expenses, while tech and content and G&A remained relatively flat.
During the first quarter, we reported $4.5 million in restructuring charges including $2.6 million paid out during the first quarter related to the cost reduction program that we announced on March 11, 2015.
First quarter non-GAAP operating income excluding restructuring charges, stock-based compensation and the amortization of acquired intangibles, was $4.7 million compared to a non-GAAP operating loss of $0.3 million in the first quarter a year-ago.
First quarter EBITDA adjusted for restructuring charges was $5.8 million compared to EBITDA of $0.7 million for the first quarter of 2014. First quarter 2015 non-GAAP earnings per diluted share which also excludes the restructuring charges, stock-based compensation, and the amortization of acquired intangibles was $0.26 compared to non-GAAP earnings per diluted share of $0.01 in the first quarter a year-ago.
First quarter 2015 GAAP net loss per diluted share which reflects the restructuring charges was $0.12 compared to GAAP net loss per diluted share of $0.08 in Q1 of 2014.
Our cash flow from operations during the first quarter of 2015 was negative $11.2 million compared to negative $5.4 million in the first quarter of 2014. The negative cash flow was partially driven by seasonal patterns in our business; specifically we incurred increased marketing expenses during the Medicare annual enrollment period and the open enrollment period in the fourth and first quarters. A large portion of the fourth quarter marketing expenses are paid out to our marketing partners in the first quarter.
Additionally, the open enrollment period ended on February 15 this year as opposed to March 31 in 2014, resulting in a greater portion of first quarter marketing expense being paid during the first quarter compared to last year. As a result, in Q1 we reduced our accrued marketing expenses by over $7 million.
Also for Medicare Advantage products, we recognized a full-year of renewal revenues upfront during the first quarter and then collect commission payments from carriers on a monthly basis throughout the year. During the first quarter of 2015, our accounts receivable increased by over $6 million driven primarily by this dynamic.
Capital expenditures for the first quarter of 2015 were $0.4 million. Our cash balance was approximately $39.4 million as of March 31, 2015.
Now I'd like to address some of the sequential trends for the year and how they can impact our second quarter performance. Starting with the top line, we expect that Q1 will be the strongest quarter this year in terms of total revenues.
As I discussed earlier, during the first quarter we recognized all of the renewal Medicare commission revenues that we expect to have this year on Medicare Advantage and PDP products or approximately $19 million.
During the second through fourth quarters this year, we'll have no Medicare renewal revenues on those products for the first time as a result of the new CMS regulation. In addition, Q1 is characterized by strong first-year Medicare commission revenues. This is because during the first quarter we booked commissions not only associated with the new members who we enrolled during Q1, but also some of the new enrollments that occurred during the tail end of the annual enrollment period in the fourth quarter.
As previously discussed, starting in 2015 and even larger portion of commissions coming from the annual enrollment period enrollments were recognized in the first quarter as a result of the impact from CMS regulations. By comparison, first-year Medicare commissions that we received in Q2 and Q3 will be seasonally lower as they are driven by new enrollments outside of the annual enrollment period.
Based on these factors, we expect a material sequential decline in revenue in the second quarter compared to the first quarter this year. I want to remind you that these comments are based on current indications for our business which are subject to change at any time. We undertake no obligation to further update these statements.
And now we’d like to open-up the call for questions. Operator?
Question-and-Answer Session
Operator
[Operator Instructions] Our first question comes from the line of Steve Halper of FBR. Your line is open. Please go ahead.
Steven Halper
So just to confirm the shift in the revenue recognition on the renewal to January 1 that accounted for $19 million and subsequently that $19 million won't be recognized in subsequent periods in the year, correct?
Stuart Huizinga
No, the $19 million is the total amount of renewal that we recognize in Q1. And Q1 is typically our largest renewable quarter anyway, because it does represent all of the accumulated sales we’ve made during the annual enrollment period over the history of the company that are still paying at this point in time, and also the Q1 renewals from Q1 sales. So it's always been our largest quarter. So the majority of that $19 million is in the first quarter as it always has been. So that's just the total amount that I'm stating there at $19 million. But you are correct as we move forward into Q2, Q3, and Q4 we won't have any renewals related to MA or PDP plans.
Steven Halper
Right. Can you size that impact out of the $19 million?
Stuart Huizinga
I don't have that number for you here today. I'll say that the majority is Q1 as it always has been.
Steven Halper
So it would have been in there anyway given the strong renewal trends that you saw?
Stuart Huizinga
That’s correct. And that’s why we gave the figure that the Q1 renewal amount compared to all of last year was up 56%. So we had strong renewal revenue growth and we are comparing basically year-to-year at this point.
Steven Halper
Right.
Gary Lauer
And Steve -- hey Steve, the other point that we’d make is that over the past several years as we have been building this business, there has been a lot of discussion about Medicare, especially Medicare Advantage retention rates and what we’re seeing especially in this past quarter is that the Medicare retention is developing as we had always hoped.
Steven Halper
Thanks. And then, the other comment -- the other question I have is as the visibility improves both on the IFP trends as well as Medicare and as you think about the restructuring effort, when are you -- when will the Company be in a position to provide more formal guidance for this year?
Stuart Huizinga
I don’t think we are in a position to answer that as to a specific time at this point. I think we are going to need to see how things develop at this point and make a decision as we go.
Gary Lauer
But clearly the -- the most important thing as we have said previously is, retention or attrition or churn in the individual book of business and because of the lag that both Stuart and I described, it takes several months so we can see what really occurred near the end of this open enrollment period. I think important to note again that we did -- we think we are seeing higher commission rates, we may be seeing earlier commission payments and we actually may have better retention than we had estimated, but we don't know that yet.
Steven Halper
Right. And then, I'm sure its hard to answer the question is one of the different scenarios that you're looking at in case the Supreme Court strikes down subsidies at healthcare.gov? I know you can spend an hour talking about that.
Gary Lauer
Yes, yes. Obviously we think a lot about it and who the heck knows which way this is going to go. It's -- it may take -- if the Supreme Court rules in favor of king, the plaintiff, it may take some legislation to fix this. Obviously, we are talking to a number of legislators about that. So yes, we’re thinking a lot about it and we think about different scenarios here.
Steven Halper
Thanks.
Operator
Thank you. Our next question comes from the line of Tobey Sommer of SunTrust. Your line is open. Please go ahead.
Tobey Sommer
Thank you. I wanted to get into that kind of retention in the IFP, if you will. Over -- could you describe the process in the length of period, of time that it will take for you to have a firmer grip on whether that retention is a little bit better? Thanks.
Stuart Huizinga
Well, that would typically take us somewhere between three to five months probably from now to have a full view going back to Q1 of how that retention fully developed.
Tobey Sommer
So we’re probably talking about a 2Q call in August and having a firm grip or even beyond that?
Stuart Huizinga
It could be at that point or little bit after that.
Tobey Sommer
Okay.
Stuart Huizinga
Yes.
Tobey Sommer
I’m curious what is left to develop on the Medicare side that you would require to actually give us a dollar figure for the impact of the accounting change? Thanks.
Stuart Huizinga
Can you say that again? What would happen …?
Tobey Sommer
Yes, what you have to learn in order to understand just numerically in dollars what the change is to recording all the Medicare renewal revenue in 1Q versus spreading it out for the year? Because we’ve been given lots of numbers and percentages, but not just kind of the net effect of that equation. Thanks.
Stuart Huizinga
Yes, there is really not much more to develop on that number, because we have given a lot of percentages, as you stated, and I think the pertinent number is the 56% year-over-year growth in retention revenue. And so that's the focus there.
Tobey Sommer
Okay. I guess, is it possible to express that in dollars?
Stuart Huizinga
It is possible to express, yes.
Tobey Sommer
Could you do it on the call?
Stuart Huizinga
I'm not giving that number today. I don’t have it handy here.
Tobey Sommer
Okay. I am curious -- its kind of shifting gears a little bit, outside of the Medicare enrollment period, what sort of opportunity do you think there is to enroll people in kind of this off cycle enrollment and how should we generally think about the spending required to do that? Thanks.
Stuart Huizinga
Well, we’re really enthused about the opportunity outside of the annual enrollment period. For example, in this first quarter that we just completed, we grew applications for Medicare Advantage Medicare Supplement. And primarily Medicare Advantage, I should add by 59%. That's very significant. We have got a lot of agents that are recurring. We have got more product inventory; we have got more visibility in the marketplace. So we’re enthused about that. And there is an important -- couple of important things here. It obviously increases our member base, but it'll also generate revenue in Q2 and Q3 and Q4 as we are paid for these new members as they come on. We do spend some money here. We spend money on marketing to acquire these. We have got a partner channel that works closely with us, we do work in search. So there is all of that and we’ve actually are upping our investment around that, because of the opportunity that we are seeing to go get it. But I’d just say it again; we are really pleased with what we are seeing so far outside of the annual enrollment period.
Tobey Sommer
Okay. And my last question is, do you have an expectation or any kind of even broad expectation, it doesn’t have to be specific for cash flow or cash burn at this point of 1Q was pretty significant. And I know there were some puts and takes that you described amply in the call?
Stuart Huizinga
No specific numbers on it, but I do expect a positive cash flow from operations in total for the remainder of the year. From this point forward, to the end of the year I’d expect that to generate positive cash flow.
Tobey Sommer
Okay. Thank you very much.
Operator
Thank you. Our next question comes from the line of Dave Francis of RBC Capital Markets. Your line is open. Please go ahead.
David Francis
Hey, good morning guys. I guess, I want to try and ask the question a little differently on kind of how the revenue flows and waterfall from here going forward. It's -- as you can gather we're having a hard time getting our hands around the cadence of revenue flows relative to the accounting changes and just the changes in your business plan and business model related to the ACA. Can you give us a little bit better sense as to how you guys look at the business today given all of the changes that have come in and understanding the Q1 is clearly going to be a -- the big revenue quarter for you guys? How does that flow from here? I mean, can you give us a better sense as we try and get our hands around the business model as I imagine you guys are doing the same?
Stuart Huizinga
Sure. Yes. A couple of numbers I gave were intended to help with that. One is that the total renewal revenue for Q1 was $19 million and so that's the number for Q1 that you can reduce and get to more …
David Francis
No, Stuart I -- I mean we got the numbers and we can play with the numbers in which way, but I guess again trying to get your sense as to how you guys are looking at the business, you got a better sense of it than we do, its clearly from where the revenues came in this quarter versus where not just us, but I think a lot of my peers were, it's pretty clear that the cadence of the -- of how the revenues come in is changing pretty considerably and what can you tell us to help us get a better handle around the mechanics around that, so that we can have a better handle on putting numbers together on our end.
Gary Lauer
Well, clearly this is a more seasonal business. The majority of the applications flow in the individual business happens on a short period of time. The same in the Medicare business, but and so you're going to see a -- you saw a larger Q1; you are probably going to see the same thing next year in the first quarter. But let me add to that, this isn't just all about timing, this is about momentum and it's about a lot of volume that we generated. The growth rates that we got in this Medicare business, we think are quite substantial. We continue to be disappointed in the entire marketplace in the individual business as we look out at it, but as we indicated we don't yet have a good hand on -- we don’t feel confident that we know enough about churn, but we like what we’ve seen with the commission rates. We made -- it maybe a better retention and we thought so. You put all that into the mix and at some point we’d like to be able to provide guidance, but we don’t want to do it and so we’re confident that we got a good handle on all of this. But sure the first quarter is a bigger quarter as Stuart said; sequentially the second quarter is going to be less. But he also said we’re going to be -- expect to be positive cash flow from operations for the year. So we are looking all of this right now. All I can tell you at this point absent giving guidance is that we’re really pleased not just with what we have seen in the quarter, but more importantly the momentum behind that supports all of this.
David Francis
So let me ask you an operational question along those lines. And again, trying to get a handle on -- I understand you guys are trying to get a hand on the churn rates and what have you. Is there something that you guys can be doing differently from an engagement perspective? Either engagement with your customers or an engagement level with your insurance company partners to be getting better data such that you’re not necessarily managing the numbers from a rear view mirror perspective, but more in real time to understand what's going on in real time with the business rather than waiting for data to come in from your partners, which sounds like six to nine months down the road.
Stuart Huizinga
Well, we’ve worked with them over time to improve that, but it’s really a function of the fact that they collect the cash and pass it on to us and we are always going to be rear view mirror somewhat to the extent that we are not collecting the cash. So that's one. I’d say another piece of this those that have not all of the consumers paid monthly. Some paid quarterly, some pay every six months and so even if we had a tighter flow from the carriers, we're still not going to fully be able to understand who is churning every three months, that they’re paying every three months or who is churning every six months or they are paying every six months. That piece of it is that a little bit of a hurdle for us.
Gary Lauer
It's a hard one. And we try to get more insight and visibility and get the data sooner. One of the large carriers recently commented that that they have the same issue. In fact the comment and I’m paraphrasing went something along the lines that we just wish that these members would call us up and thank us for the health insurance and tell us that they are going to terminate, but they don't. We don't find out for a few months when they stop paying and that’s how the carriers do with it, then we get in those arrears as well. So it’s a difficult one. Its one we’ve not been able to solve and it's a carrier issue as well as it is for us. So we're somewhat down the tail on all of this. And it is frustrating for us.
David Francis
Thank you.
Gary Lauer
But it’s the characteristic of this part of the business.
Operator
Thank you. Our next question comes from the line of George Sutton of Craig Hallum. Your line is open. Please go ahead.
George Sutton
Thank you. I wonder if you could talk about the IFP revenues per member which were much better than expected. And in your prepared comments you suggested part of that was mix and then part of that was your estimation of the numbers, which may have been conservative. I’m just trying to see if we can get a break down of how much might have been in each of those buckets. In particular, can you talk more about the mix which you saw?
Stuart Huizinga
Yes. So that was what I commented on that. It’s still going to take us a few months of getting the commissions off of Q1 before we can parse out how much of this is related to churn versus how much of it’s related to the rate of payment on members. We’re still collecting cash off of Q4 even now. Q4, not Q1, but back to Q4, we’re still collecting cash from that. And so I’d say that in a couple of months we will be able to break out those different buckets.
George Sutton
No, I understand you’re still collecting off Q4 but you therefore are getting a sense of what that mix looks like and I think the suggestion you're making is that that mix has improved and I am trying to understand how significant that mix change has been? Or commission rates or however you want to define the -- what you are learning.
Stuart Huizinga
Yes. Well, we’re seeing improved commission rates. I think it's a little bit -- it's still little bit early on this, but we could be seeing in excess of 5% possibly even 10% improvement in commission rates and we will have to see how that further develops. But that may give you at least a general sense of what we maybe seeing there. We also might be seeing earlier payments of commissions from a timing standpoint, that they maybe coming faster. There are some indications that that’s happening, but we will see if that continues. And then finally just it may be better retention and that's the one that takes a lot longer for us to understand. And that’s what makes me reluctant to really break out a pie chart basically at how much is coming from what place because it maybe that churn is better than we estimated.
George Sutton
Understand. Okay. And Gary on the ancillary product side, can you just give us a general sense of where you’re seeing success there and where your marketing focus has been?
Gary Lauer
Yes, George. We just had -- we continue to have really good attach rates to the major medical products that we sell, dental, vision, accident as well. And of course we’ve always done well with short-term, but these dental and vision, in particular, are just attaching in a new way. We’ve done some work over the past year or so to improve the consumer flow. So it’s easier to do that and to see those. And as we commented previously, we’ve already spent the acquisition costs on getting the major medical product here and sold. So in many ways these ancillary products almost flow as pure margin on top of that, because there is no direct acquisition costs associated, so just a combination of things. The products are better; we’ve got a better line up of those products. I think we are probably doing a better job, presenting them. They’re not expensive. And as a result of all that we continue to see really good attach rates.
George Sutton
I appreciate it. Thanks, guys.
Gary Lauer
Thanks, George.
Operator
Thank you. Our next question comes from the line of Stephen Lynch of Wells Fargo. Your line is open. Please go ahead.
Stephen Lynch
Hey, guys. Thanks for taking my questions. Most of mine has been addressed at this point, but maybe if you could give us a little bit of an update on what you're seeing in terms of the competition for key words in the paid search advertising space for the IFP business? And then, maybe also how your client acquisition costs are trending in the Medicare business, that would be great.
Stuart Huizinga
Yes, I’d say on the individual family side, we continue to see strong competition in Q1. We mentioned it in Q4 that we saw strong competition there and I would say that the heaviest competition is from the carriers at this point and they continue to drive that in Q1. From a Medicare standpoint, we are seeing good improvement in our cost of acquisition year-over-year. We saw improvement in Q4 and we saw improvement again in Q1. And that's one of the reasons we’re able to generate the growth in Medicare that these rates that we are talking about with new application we are seeing good cost of acquisition that allows us to spend into that.
Stephen Lynch
Is that improvement in the client acquisition costs there in the Medicare business is that being driven primarily by a shift towards direct leads or is it marketing partners or can give us a sense for what’s driving that?
Stuart Huizinga
Yes, it’s a combination of things. Our paid search has been going well. We have been expanding our partners and I’d say more of a shift probably from the paid search channel to the marketing partner channel as we grow that out.
Gary Lauer
We are also seeing an interesting dynamic there as well which we absorbed our individual business several years ago. And this is more anecdotal, but there is more and more word of mouth. And that impacts the acquisition costs, because it's essentially nominal or free. So it's a combination of all of those things. And we have also got more product supply. And with more product supply, there is more choices and the consumer is more likely to choose something. And so, what's really key -- the fact what’s most important element in cost of acquisition is conversion.
Stephen Lynch
Got you. And then, I guess, just finally may be more of a housekeeping question. I may have missed it, but are you guys expecting to incur any amount of material restructuring costs in Q2 or is pretty much all that behind us?
Stuart Huizinga
I’d say pretty much all that’s behind us. There may be a little bit trickling in from what we have already done in Q1, but its normal at this point.
Stephen Lynch
Okay. Thanks, guys.
Operator
Thank you. Our next question comes from the line of Steve Rubis of Stifel. Your line is open. Please go ahead.
Steve Rubis
Hey, guys. I actually try to take myself out of the queue. I don’t have any questions at this time. Thanks.
Operator
Thank you. Our next question comes from the line of Jason Mitchell of Bank of America. Your line is open. Please go ahead.
Jason Mitchell
Hi, guys. This is Jason here for Nat Schindler. I just wonder if you could maybe talk about churn on the IFP plans during the quarter. Did you have any sense of some of that churn was people switching from subsidy plans to non- subsidy plans or vice versa that were maybe already members? And then, I guess, overall churn was kind of a new high this quarter. How do you kind of see the IFP business moving forward? It sounds like you’re emphasizing more of the Medicare and refocusing your spending there. So just could you talk about how you think about the IFP plan business maybe some of the takeaways you got from this enrollment season? Thank you.
Gary Lauer
Well, I will let Stuart handle part of that, but just on the individual business, I want to emphasize this is a key business for us, its core to the Company. We are invested in it. We certainly rebalanced our -- the expense structure around that business as we needed to do. But we continue to push on that business when new opportunities represent themselves, we will evaluate them and go after them, and I give you an example of that. Right now as we speak, we're marketing and selling qualified health plans to subsidy eligible individuals. We were hardly able to do that at all during the open enrollment period a year-ago and outside the open enrollment period a year-ago we didn't do any of it, now we are. And that's a really unique opportunity that we are very, very enthused about. The Medicare business, I think the number speak for themselves. We’ve invested in that, its worth. We are going to invest more, because we think we’ve the opportunity to grow, that these rates are even higher rates. It’s a huge marketplace. It’s incredibly exciting to us.
Stuart Huizinga
And I just say on the churn, I will point out that again it is an estimate. We -- our process is to use the historical numbers from year-ago to make those estimates. And so we're looking back to last Q1 and OEP and -- when you look back at Q1 a year-ago, we actually thought higher churn than we originally estimated and reported for Q1. As we went into Q2 and Q3, we found that there was higher churn that related back to Q1. And so we’re using that updated number to inform this year’s calculation. So and lets get back to my comment that that the commissions that are being reported back in Q1 would indicate that we may be understating our membership number which would increase the churn that you're seeing.
Gary Lauer
But we will know that for several months.
Jason Mitchell
Okay, great. Thanks guys.
Operator
Thank you. Our next question comes from the line of Scott Fidel of Deutsche Bank. Your line is open. Please go ahead.
Scott Fidel
Thanks. So just going back to the higher commissions and the IFP business and then just thinking about the potential impact of mix on that, how do your average commission rates or on a dollar basis compare and the QHPs, in the qualified health plans as compared to non-QHP products?
Stuart Huizinga
The QHPs appear to be giving as higher commissions than the off exchange plans. The premiums appear to be higher that that consumers are selecting with those QHPs. I will likely give more data on this when we fully develop the -- more numbers across OEP, probably next quarter. But directionally that is overseeing.
Scott Fidel
And do you think that the variance between the two is significant enough that that could explain the higher commission rates? I’m just interested if you’re actually seeing when you think about 5% to 10% higher commissions, the base rates actually going up or could it just be that -- now you have almost half of the IFP business and QHP’s that really just drove that -- those increased revenue yields?
Stuart Huizinga
That could be a factor. There is a differential there that could be a good part of that.
Scott Fidel
Okay. And then just I had a follow-up question, just on the Medicare side. With the application growth that you saw in the first quarter, did you see that pretty well balanced across for the numerous carrier partners or did it seem like there were one or two carriers out there that keeps driving in order the amount of the growth in the first quarter of this year?
Stuart Huizinga
We saw good growth across the spectrum of our carrier partners.
Scott Fidel
Yes, okay. Thanks.
Operator
Thank you. [Operator Instructions] Our next question comes from the line of Tobey Sommer of SunTrust. Your line is open. Please go ahead.
Tobey Sommer
Thank you. Just had a question to see if you have any plans and opportunity you think to sign up any new partnerships that could drive more traffic and help out the profitability side? We haven’t really talked about that kind of thing a while on one of these calls and I’d just wanted to get an update. Thank you.
Gary Lauer
Yes, we got a very active business development and partnering group. That's one of the things, one of the areas that is contributing to our Medicare momentum. We think about that in the individual business. We got a number of partners there that are been good ones, we expect them to continue to be. We’re always looking for new ones. So yes, very, very active and maybe -- and probably in this next quarter we will provide an update on a few of those new partners that we brought on.
Tobey Sommer
Thank you.
Operator
Our next question comes from the line of Steve Halper of FBR. Your line is open. Please go ahead.
Steven Halper
So we understand the -- you have the cost coming out based on the cost reduction program and a certain percentage of that is going to go to building Medicare business as you stated previously. But as we think about the rest of the year, do you -- what sort of magnitude of decline in marketing and advertising expense do you expect? Last year you had a very -- steep drop off, but then the enrollment periods change for individuals. So just give us some flavor of that and we assume a big -- and should we assume another big pick up around fourth quarter?
Stuart Huizinga
Yes, we’d expect a fairly significant drop off in that, particularly, in off season for individual and family. Last year you saw much lower volumes for individual and family and we could use the range around numbers from a year-ago to estimate the spending in that. It’s very closely linked to those volumes, but I guess I’d just look at those kind of volumes. And then, on Medicare, I’d likely see that dial up from a year-ago, but with our cost acquisition coming down that will mitigate at some.
Steven Halper
Right. And then that -- and then the spike up again in fourth quarter, given Medicare and IFP open enrollment?
Stuart Huizinga
Right. Definitely, that spike up in the fourth quarter.
Steven Halper
Right. Got it. Thank you.
Stuart Huizinga
Yes.
Operator
Thank you. And that does conclude our Q&A session. I’d like to turn the conference back over to Mr. Gary Lauer for any closing remarks.
End of Q&A
Gary Lauer
Well, thanks everyone for taking the time this morning, and we look forward to speaking with many of you individually as well. Thank you.
Operator
Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program and you may all disconnect. Have a great rest of your day.
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