eHealth (NASDAQ: EHTH), the leading provider of Internet-based insurance agency services to individuals, families, and small businesses primarily in the United States, announced solid Q4 and full year 2008 earnings after the market closed tonight.

Everything from customer acquisition costs, to cash flow generation, to forward guidance was solid and only strengthened my investment thesis in the company going forward.

What follows is a summary of eHealth’s earnings announcement, conference call highlights, and my take on the company’s latest quarter and results, and what you should do if you do or don’t own eHealth’s shares.

New to the eHealth story? 

eHealth, Inc. (NASDAQ: EHTH) offers Internet-based insurance agency services to individuals, families, and small businesses primarily in the United States. The company’s e-commerce platform, which is accessed directly via ehealth.com and ehealthinsurance.com, enable individuals and families to research, analyze, compare, and purchase health insurance products online.

For anyone that is self-employed, runs a small business, or as more and more companies stop paying for employee health insurance, needs to purchase their own health insurance, it is becoming increasingly crucial that individuals find affordable health insurance and eHealth gives them the power of choice.

eHealth offers various health insurance products Incorporatedluding medical health insurance coverage, such as preferred provider organization; health maintenance organization and indemnity plans; short-term medical insurance; student health insurance; health savings account eligible health insurance plans; and ancillary products, such as dental, vision, and life insurance.

Because of the fixed-cost nature of health insurance (there is no discounting online or otherwise in this highly regulated industry), eHealth is probably one of the only ways that most individuals will ever see what different health insurance offerings they could purchase from up to 180 different companies.

Want More?

• Start: with my initial company write up here.

I’ll break down this report into 4 parts:

• Hit Me With The Numbers: Q4 and 2008 in-line with estimates, margins up
• Other Business Highlights: Strong 2009 guidance despite economy
• Conference Call Highlights: Tough economy, might benefit eHealth
• Bottom Line: eHealth a solid addition to your portfolio

Hit Me With Some Numbers

eHealth in line with estimates, margins increase

Here are some of eHealth’s earnings highlights (growth from previous year’s Q4 or full year 2008/analyst’s estimates where applicable):

• Q4 sales of $29.5 million (up 21.7% from prior year/vs. $29.5 million projected by analysts)
• Q4 operating income of $5.7 million (up 31% from prior year)
• Q4 GAAP net income of $3.6 million, or $.14 per share (down 84% from $22.4 million, or $.86 per share in the prior year (due to a one-time tax gain)/vs. $.12 per share projected by analysts)
• Q4 GAAP operating margin of 19.2% (up from 17.8% from prior year)
• Q4 Submitted applications: 115,600 (up 18% from prior year, down from 117,300 in Q3/2008)
• Q4 Estimated membership: 621,100 (up 20% from prior year)
• Q4 Cash Flow: $7.44 million (down 6% from $7.91 million prior year)
• Q4 Free Cash Flow: $7.2 million (flat from $7.19 million prior year)
• 2008 sales of $111.7 million (up 27% from $87.8 million prior year/vs. $111.7 million projected by analysts)
• 2008 operating income of $21.3 million (up 33% from $16.0 million prior year)
• 2008 GAAP net income of $15.2 million, or $.55 per share (down 84% from $31.6 million, or $1.22 per share in the prior year (due to a one-time tax gain)/vs. $.53 per share projected by analysts)
• 2008 GAAP operating margin of 19.0% (up from 18.2% from prior year)
• 2008 Cash Flow: $30.2 million (up 15.2% from $26.2 million prior year)
• 2008 Free Cash Flow: $27.7 million (up 13.5% from $24.4 million prior year)

My Take: eHealth came through with stellar numbers right on the mark, in fact eerily so.

Previously the company had lowered guidance mid-2008 as things started to deteriorate in their business and the overall economy.

Ever since that time, they have managed their business well, and come in exactly as they had projected.

In fact, the numbers are so dead on, it’s a little disconcerting.

28% growth year over year is phenomenal, and even if we take the Q4 year over year growth of 21.7% from 2007, that’s still amazing considering all that is going on.

In addition, submitted applications and membership growth both grew at 18% or higher in the 4th quarter showing that even in one of the most challenging economic climates we have seen, eHealth was still able to deliver stunning top line growth, GROW their margins, and manage their bottom line to the tune of some serious cash flow and free cash flow.

I’ll talk about guidance in the coming section, but suffice it to say, eHealth is definitely the place to be in a recessionary marketplace.

Other Business Highlights

eHealth gives solid forward guidance, steady outlook

• As of December 31, 2008, eHealth had repurchased approximately 51,000 of their shares at an average price of $12.59 per share for a total cost of $0.6 million.
• For 2009, total revenue is expected to be in the range of $131 million to $136 million, which would represent about a 19.5% growth rate if we take the mid-line. Wall Street was expecting $132.1 million
• GAAP income tax rate expected to be in the range of 43% to 45%
• GAAP net income per diluted share is expected to be in the range of $0.51 to $0.61 per share, $.55 midline vs. analyst’s projections of $.61 per share

My Take: eHealth provided guidance that should sooth Wall Street.

The apparent shortfall in their EPS numbers is a direct result of lower interest income on eHealth’s increasing cash hoard because of lower interest rates and the conservative nature of their investment strategies.

Otherwise, everything looks great, with some upside potential likely as a result of their previously initiated share buyback program (for up to 10% of their shares outstanding) as well as increases in submitted and accepted applications due to further job losses, higher unemployment and those looking to cut costs over current health care coverage plans.

In addition, management stated on the call that they have begun to buy back shares of their stock at the end of December, and they continue to believe that buying back their stock is a good use of their cash.

Now let’s take a look at the analyst conference call highlights and management’s discussion of the business.

View original at: PeakStocks.com

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