Health Insurance Innovations (HIIQ) Q3 2019 Earnings Call Transcript

Health Insurance Innovations (BFYT)
Q3 2019 Earnings Call
Nov 12, 2019, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Mike Hershberger

Thank you, and good afternoon, everyone. We're excited to have you join us today for a discussion about Health Insurance Innovations' third-quarter 2019 financial results. By now, you should have received a copy of the earnings release. If you do not have a copy and would like one, please visit our website at hiiq.com.

On the call with me, we have Paul Gabos, HIIQ's chairman of the board; Gavin Southwell, HIIQ's CEO and president; and Mike Hershberger, HIIQ's chief financial officer. As a reminder, today's conference is being recorded, and a replay of the call will be available on the Investor Relations section of our website following the call. We will be making forward-looking statements on the call. All statements, other than statements of historical facts, are forward-looking statements.

Such statements may describe future plans, objectives or goals. Forward-looking statements are subject to future risks and uncertainties, including the risks outlined in the company's Form 10-K. These results and uncertainties include, among other things, the company's ability to maintain relationships and develop new relationships with health insurance carriers and distributors, its ability to retain its members, the amount of commissions paid to the company or changes in health insurance plan pricing practices, state regulatory compliance and changes in the United States health insurance systems and laws. Actual results could differ materially from those projected or expected in these forward-looking statements.

Listeners are urged to review and consider the various disclosures made by the company in this conference call and the risk factors disclosed in the company's annual report on Form 10-K, as well as other reports we have filed with the Securities and Exchange Commission. Copies of the company's SEC reports are available on our website at hiiq.com, and the SEC's website. The company disclaims any obligation to update any forward-looking statements after this conference call. With that, I'll turn the call over to our chairman of the board, Paul Gabos.

Paul Gabos -- Chairman of the Board

Thank you, Mike, and welcome to all who have joined us for our discussion of HIIQ's third-quarter results and the significant progress the company has made toward building out and executing on our expanded product platform, that add significant end-to-end capabilities in demand generation and distribution while leveraging our core competencies in technology innovation. I would specifically like to address the company's recent announcement in late July, that its board of directors, working together with its management team and legal and financial advisors, has commenced a process to explore, review and evaluate a range of potential strategic alternatives focused on maximizing shareholder value. HIIQ is fortunate to have a highly engaged board, comprised of members with deep operational and transactional experience in healthcare and in a wide range of regulated and consumer-oriented businesses, with proven track records of delivering value to shareholders and other stakeholders. The HIIQ board is committed to maximizing shareholder value through one or more strategies that may include a sale of the company or a portion thereof; a strategic business combination; changes in the company's operations or strategy; or continuing to execute on the company's current business plan.

The HIIQ board is fully engaged in its strategic review process, and that process is advancing toward a conclusion at a reasonable and thoughtful pace. While the company's board of directors has not set a timetable for this process nor has it made any decisions related to strategic alternatives at this time, and there can be no assurance that the board's exploration of strategic alternatives will result in any change of strategy or transaction being entered into or consummated or if a transaction is undertaken as to its terms, structure or timing, the board is confident that it will conclude its strategic review and be in a position to announce the outcome of its process within the next 60 days. Management will not be discussing the process in their prepared remarks, nor answering any questions in the Q&A portion of this call with regard to the process. The company does not expect to make further public comment regarding these matters unless and until the board has approved a specific transaction or alternative or otherwise concludes its review of strategic alternatives.

I will now turn the call over to our chief executive officer, Gavin Southwell.

Gavin Southwell -- Chief Executive Officer

Thank you, Paul. And before discussing our third quarter, I wanted to first discuss the planned transition of our chief financial officer, which was also announced today, and to thank Mike Hershberger for his financial leadership and invaluable contribution in helping build HIIQ. His strategic leadership has contributed greatly to the success of our overall organization. Mike will continue to serve as chief financial officer until November 15, 2019, and will continue to be employed of HIIQ until December 31, 2019, to assist to the transition to our new CFO Erik Helding, who will take over as the chief financial officer on November 15, 2019.

We are very excited about the opportunities ahead. Erik is an outstanding executive with significant business experience and a proven track record of successfully leading financial operations in the insurance marketplace. We believe that Erik will be a catalyst for the continued development of our company well into the future, and we are confident with his strategic leadership, financial acumen and broad expertise will help us continue to scale our businesses and drive financial results. Turning now to our third quarter.

Our third-quarter operating results reflect the business that is executing a transformation of its product offering and has positioned itself for success ahead of the important fourth quarter annual enrollment period. The results of these efforts are evident in our preliminary sales volumes for our Medicare business for the annual election period that began on October 15, and that gives us confidence that we will meet or exceed our earnings forecast for the year. Our third-quarter adjusted EBITDA of $12.8 million, up 34% from the prior-year period, exceeded our expectations on revenues that were behind our forecast. In our newly formed Medicare operations, we started the Medicare AEP period, having -- the Medicare AEP, having made significant investments in building out our captive distribution capabilities, which will have a positive impact on our margins in the fourth quarter and beyond.

I'm pleased to report that as of November 11, our Medicare volume in the fourth quarter will already more than double all of the third quarter, with volumes still accelerating, and we're only about halfway through AEP. In the third quarter, we achieved Medicare revenues of approximately $10.4 million, with significant progress occurring toward the end of the third quarter and early in the fourth quarter, as we ramped up our investments in personnel and marketing expenditures. Our consumer demand generation capabilities in both media and digital channels are exceeding our expectations and provide an exciting trajectory for our business such that Medicare Advantage and Medicare products are now expected to contribute as much as 35% of our fourth-quarter revenues. I'd now like to give a little more insight into our preparation for the Medicare AEP.

As is clear from our Medicare peer group, what is important in the third quarter is how the third quarter positions us for AEP, and what the results for AEP look like so far. Throughout 2019, and since we announced our pivot toward a focus on Medicare, investors and other stakeholders have asked quite fairly, how do they become confident about our ability to execute in the fourth quarter. Well, we are announcing our third quarter results in the fourth quarter, and about halfway through the very important Medicare annual election period, meaning, we've been able to provide actual results based on actual performance in AEP. And the results so far give us confidence we will meet or exceed our earnings forecast for the year.

There are two really important parts to our Medicare offering. The first is our demand generation capabilities, a really important measure that we track very closely internally, which simply put is how many consumers' inbound calls are we generating. In October and through the first part of AEP, our demand generation assets generated about 32% more inbound calls than they did in the prior year, which was well ahead of our plan, and this trajectory continues into November. The second important measure is how many agents were available to handle these calls.

And as we described previously, our approach has been to use both third-party BPO providers and to build our own captive agents. When we announced our second quarter results and gave our Q3 guidance, we expected our third-party BPO partners to ramp up through the third quarter. And as we tracked progress through the third quarter, our BPO partners did not ramp up as quickly as we had expected. And although we were well positioned for the AEP period with significant progress occurring toward the end of the third quarter and early fourth quarter, this slower ramp-up by our BPO partners did have an impact on the third quarter revenue versus what we expected when we gave our guidance.

Meanwhile, at our captive distribution, we are significantly ahead of what we had planned. We had planned to build the captive business in 2019, ready for full integration with our own demand generation assets in 2020. But we were successful in hiring and training agents, adding senior -- key senior hires and additional resources, putting us well ahead of our plan, and we completed this integration in October. Now we have integrated our own demand generation business.

With our captive distribution business, this creates a significant margin pickup as this is a very efficient model, the improvement being approximately a 20% upside on each policy. This is very pleasing for us as it not only benefits our fourth quarter, but it also provides a position of strength as we look toward 2020 and the longer term. Overall, as of yesterday, we have an additional 100-plus agents available than we had at the end of October, and we continue to add agents. Our product diversification investments were prescient as we have seen a shift in the market by third-party distributors but are adjusting their focus from the individual IFP market to Medicare.

We continue to deemphasize the sale of IFP plans, although we are seeing a notably positive development in the rapid consumer uptake of longer duration plans. Plans of durations longer than 12 months represented approximately 75% of our IFP policies sold in the third quarter, compared with less than 2% in the prior-year period. While we expect to continue to be a leader in the individual and family plan, or IFP markets, we plan to intensify our product diversification strategies such that Medicare products will represent more than half of our revenues by the end of next year. As we look toward our non-Medicare strategic growth initiatives, we continue to focus and invest in growth in our e-commerce and expanding our digital offerings.

We're very happy with the progress of our life insurance-focused e-commerce site based on the Agile platform, and our fully Spanish language e-commerce site focused on health and ancillary products for the Spanish language population. We also have our next-generation consumer management platform, MyBenefitsKeeper, translated into Spanish and successfully launched. And we expect both the Spanish offering and the life offering to become a pillar of our product offering and further diversify our business as we move toward 2020. We've also strengthened our senior executive team with a number of new hires.

We've added several new people to our well-established SEO team and our fast-growing digital marketing team, including senior hires with significant experience in online marketing for Medicare. We continue to recruit and add more talent as our e-commerce efforts ramp up. This is very helpful as we continue to prepare to launch our unique digital asset, which we recently acquired, and we have been enhancing prior to launch. We're expecting to launch this well ahead of schedule, and now before the end of 2019, and I look forward to providing a lot more detail about this at that time.

Before I turn the call over to Mike Hershberger to go through our financials in more detail, I wanted to take a moment to reflect on the transformation we've successfully executed. We've made great strides in enhancing our technology, including launching the next-generation of our tech platform and our app. We have diversified our product mix. We have grown our e-commerce offering meaningfully, and we've established a strong financial position.

Most importantly, our reentrance into the Medicare market is proving successful in the annual election period, and yet another significant step forward in the next-generation of HIIQ. We've established a solid base for the remainder of 2019, and the progress we've made this quarter will truly transform this business going forward. I will now hand the call over to our CFO Mike Hershberger.

Mike Hershberger

Thank you, Gavin, and good afternoon, everyone. I've truly enjoyed my time at HIIQ, and I look forward to the next personal chapter in my life. Gavin continues to be a strong strategic leader, and I'm excited to see what the future brings. Although stepping down from my role as CFO at the end of the week, I will continue at HIIQ through the end of the year to facilitate a smooth transition.

Third-quarter financial results reflect our investment in and preparation for the open enrollment periods for both Medicare and individual and family plans, or IFPs. We have positioned ourselves for success ahead of the important fourth quarter health insurance enrollment periods. Our revenue for the third quarter was $75.3 million, representing a 5.3% year-over-year increase. IFP and supplemental revenue accounted for $63.8 million or 85% of our revenue for the quarter.

Medicare and consumer engagement accounted for $10.2 million or 14% of our revenue while services and other revenue rounded out the balance. Our revenues came in approximately $15 million below forecast while contributing higher-than-expected adjusted EBITDA, with approximately $5 million of the unfavorable revenue impact attributable to IFP plans, specifically health benefit insurance plans, and about $10 million attributable to our Medicare business. In our IFP business, we have been deemphasizing the sales of these health benefit insurance plans this year while seeing increasing consumer demand for longer duration, short-term major medical plans, with policy periods greater than one year. This contributes to longer lifetime values and expected duration units, and therefore, higher margins and reduced policy churn in our IFP business.

This shift in our IFP product mix improves our product profile and underlying economics while we expect these consumer preferences to continue as we approach the seasonally heavy open enrollment period for these products. With respect to our Medicare revenue, our business processing -- business process outsourcing, or BPO partners, did not ramp up as quickly in the third quarter as we had anticipated, resulting in lower-than-expected revenue for this channel during the quarter. However, we're pleased to report that we were resourced to our forecasted expectations in both our BPO and captive distribution operations by the start of the Medicare open enrollment, open election period, which began on October 15. I'd like to take this opportunity to walk through our revenue recognition process.

We recognize revenue based on the constrained lifetime value, or LTV, of each application that is approved by our carrier partners. For our IFPs, we recognized approximately 95% of the constrained revenue at a point in time and about 5% over time. For Medicare, we recognized 100% of the constrained revenue at a point in time. We determine our LTV based on a variety of factors, including detailed historical analysis of several inputs, including our past experience with policy duration per paying member and using expected value models.

These estimated lifetime values are then reduced by applying constraining factors, effectively discounting the revenue we recognize compared to what we expect to collect. We recognize that our revenue recognition approach using constrained LTVs is appropriately conservative. As I mentioned, we utilized a BPO arrangement for a component of our Medicare sales. For one of our BPO relationships, who is also a customer, the BPO labor costs are classified as a reduction from revenue under ASC 606.

These BPO labor costs accounted for approximately $2.8 million in the third quarter. The netting of these expenses reduced our revenues but did not impact earnings. As Gavin previously mentioned, we plan to intensify our product diversification strategies such that Medicare products will represent more than half of our revenues by the end of next year. We anticipate that in the fourth quarter of this year, Medicare Products will already have contributed up to 35% of our revenues.

A significant driver of our revenue is expected duration units, or EDUs, submitted during the period. Total EDUs for the quarter were approximately 798,400, up 56% over the same period in 2018. Total IFP EDU submitted were 496,700, lower by 3% year over year, and excluding our IFP products, where we outsourced our sales and marketing obligations. Total Medicare EDUs were 301,700 for the quarter.

In the quarter, we recognized $35.2 million of third-party commission expenses, 46.7% of revenues, compared to $48.7 million or 68.1% of net revenues in the same period of 2018. Third-party commission expense continues to benefit from changes in the company's product mix and distribution channels, as well as structural changes in our third-party distribution arrangements between prepaid and advanced commissions. We expect continued expense leverage going forward as we execute on our product diversification toward Medicare, where we do not pay third-party commissions. Total selling, general and administrative expense, or SG&A, was $30.8 million or 40.9% of revenues in Q3 2019, compared to $18.3 million or 25.6% of revenues in Q3 2018.

The increase in SG&A for the third quarter was primarily attributable to enhancing our infrastructure, including increased spending on staffing, training and professional fees to build out capacity for fourth quarter enrollment activity and the inclusion of TogetherHealth and other recently acquired businesses in our Q3 2019 figures. Our SG&A expenses as a percentage of net revenues in the fourth quarter are expected to decline sequentially as we leverage our new business start-up expenditures during our seasonally higher revenue period. Net income was $4.8 million in the third quarter of 2019, compared to net income of $1.5 million in the same period in 2018. The increase in net income was primarily the result of a $3 million increase in income tax benefit related to the reversal of the IRC Section 481(a) adjustment and the release of the deferred tax valuation allowance, both attributable to the adoption of IRS Section 451(b) proposed regulations.

EBITDA was $8.1 million in the third quarter of 2019, compared to $2.2 million in the same period of 2018. GAAP diluted net earnings per share for the third quarter in 2019 was $0.40, compared to GAAP diluted net income per share of $0.08 in the same period 2018. Adjusted EBITDA was $12.8 million or 17% of net revenues in the third quarter of 2019, compared to $9.5 million or 13.3% of net revenues in the same period 2018, an increase of 34.3% year over year. Adjusted EBITDA is calculated by taking EBITDA and adjusting for items that are not part of our regular operating activities, including stock-based compensation and related costs, transaction costs, tax receivable adjustments, indemnity and other related legal costs, severance, restructuring and other charges.

Adjusted net income per share for the third quarter in 2019 was $0.66, compared to adjusted net income per share of $0.40 in the same period 2018. Total weighted average diluted shares using the calculation of adjusted net income per share were approximately 2.8 million shares lower than the prior year period, reflective of share repurchase activity over the past year. We believe that our non-GAAP metrics of adjusted EBITDA and adjusted net income per share provide a meaningful measure of our financial performance. We provided a reconciliation of our GAAP metrics to our non-GAAP metrics in our earnings press release that was published earlier today.

We ended the quarter with cash and cash equivalents totaling $9.2 million and had $148 million outstanding on our term loan facility and had drawn $12 million against our revolving line of credit as of September 30, 2019. During the quarter, we used $5.7 million in operating activities, consistent with our expectations to build out capacity in our Medicare business as we ramped up for the fourth quarter open enrollment activity. We reaffirm our 2019 annual guidance of adjusted EBITDA in the range of $82 million to $87 million, and we are raising our adjusted net income per share in the range of $4.10 to $4.35 due to the reduced number of shares outstanding. We now expect our annual -- our 2019 annual revenues to range between $400 million and $410 million, compared to our previous forecast of $450 million to $460 million, which reflects our changing product sales mix away from health benefit insurance plans and toward a longer duration, short-term major medical policies and our accelerating Medicare business, which we now expect to contribute approximately 35% of fourth quarter revenues.

The sales mix shift, along with changes in the company's underlying distribution channels from third-party to captive and BPO arrangements, are expected to result in higher-than-expected adjusted EBITDA margins for the business. Thank you for your time today. With that, I'd like to hand the call back to Gavin for concluding remarks before Q&A. Gavin?

Gavin Southwell -- Chief Executive Officer

Thank you, Mike. The third quarter and the start of the fourth quarter has all been focused on completing our preparations for the Medicare AEP period. And now, as we report our third quarter results and can provide some initial insight into our trading performance in this important AEP period, we're very happy to be able to share some positive trading commentary and are optimistic about how we've positioned ourselves for the rest of AEP and looking ahead to 2020. So with that, we will now open the lines for Q&A.

Operator?

Questions & Answers:

Operator

Thank you. [Operator instructions] Thank you. The first question is coming from the line of Randy Binner with B. Riley FBR.

Please proceed with your question.

Randy Binner -- B. Riley FBR -- Analyst

Hey, good evening. I have a couple ones just on the model and then ones on TogetherHealth. So just with the third-party commission line being better than expected and understanding what you've shared with guidance, can you kind of help us get to what that normalized third-party commission margin should be? I mean, I think we had talked about it being more like in the mid-50s last quarter. I understand there's some one-time items this quarter, but is closer to 50% the right level to plan on longer term? Or is this quarter more of an anomaly?

Gavin Southwell -- Chief Executive Officer

So we have a changing shift in the business with the Medicare growing at a faster rate than we initially anticipated. So the commission rate, we see it to keep falling. So I think now, in the fourth quarter, we're looking normalized somewhere between kind of at 40 to 45 rate. But obviously, as Medicare continues to accelerate, that will continue to have a positive impact.

It's been a focus of ours each quarter, so we're really pleased with how that is developing out.

Randy Binner -- B. Riley FBR -- Analyst

OK. And then on TogetherHealth, could you maybe share some detail on how that lead gen product or effort is supporting what you've done so far with Medicare sales? And kind of how you see it ramping over the next several months and for this open enrollment period?

Gavin Southwell -- Chief Executive Officer

Yeah, absolutely. It's a great question. We're really pleased with progress with that asset. We expected it to grow year over year in terms of demand generation from last year to this year.

We said in our prepared comments, they generated about 32% more inbound calls than they did over the prior year, which is well ahead of our plan, and this increase for trajectory continues into November. So that's very pleasing for us, and it's a really important metric because the other side is how many agents can we put in place to be able to take that demand and be able to convert it into policies. And so the demand generation is key, and it outperformed our expectations in an environment we're seeing more competition, I think, than last year. So it's been very resilient, and it outperformed what we had in the plan.

So we're happy with that.

Randy Binner -- B. Riley FBR -- Analyst

OK. Great. Thanks.

Gavin Southwell -- Chief Executive Officer

Thank you. Yeah.

Operator

The next question is from the line of Mike Grondahl with Northland Capital Markets. Please proceed with your question.

Mike Grondahl -- Northland Capital Markets -- Analyst

Yes. Thanks, guys. Congratulations on the progress.

Gavin Southwell -- Chief Executive Officer

Thanks.

Mike Grondahl -- Northland Capital Markets -- Analyst

In a very -- at a very high level, what do you see the adjusted EBITDA margins on the Medicare product versus kind of your legacy products?

Gavin Southwell -- Chief Executive Officer

Well, it's significantly higher and we can see it improving over time as we utilize this combination of owned demand generation and owned captive distribution. So generally, in our core business, around about 20% is something that we're always in. In Medicare, it's significantly greater and vast. As we have greater progress with Medicare, it accelerates through the fourth quarter.

Overall, the overall margin of our business on a blended rate should improve as well. And we mentioned in the prepared comments, to give you an illustration, where we use our demand generation and our captive distribution together, that's about a 20% upside on each policy compared to using a third-party BPO. So that obviously will be helpful as well. So positive movement on that side.

Mike Grondahl -- Northland Capital Markets -- Analyst

Got it. Then just a follow-up to that, Gavin. Can you talk a little bit about your mix, not the exact number, but the mix of BPO agents today versus captive agents? And where you think that goes over time?

Gavin Southwell -- Chief Executive Officer

Yes. So we prepared for this important AEP period assuming that our third-party BPOs would provide the vast majority of agents and our captive, we would integrate with our owned demand generation next year. They find other sources this year. Because the captive was well ahead, we were able to integrate those assets far sooner than we'd initially planned, which is really pleasing.

But the majority of agents in place today are still through BPOs, and we have some successful agreements there. What I'd say is, we're still adding agents. We gave a statistic. But as of today, we have about 100 more agents, more than 100 agents than we had at the end of October.

So although we're in that AEP period, we're continuing to see a nice trajectory. And as we go through 2020, and our captive continues to build, next year, we'd anticipate a greater share of captive agents versus BPO. But I think if we -- what we've learned from this period is it's very valuable to have the ability to ramp up our own captive piece, and it's something we'll continue to build and invest in.

Mike Grondahl -- Northland Capital Markets -- Analyst

Great. Thank you.

Operator

The next question is from the line of Mark Argento with Lake Street Capital. Please proceed with your question.

Mark Argento -- Lake Street Capital Markets -- Analyst

First off, Mike, good luck in your future endeavors. It's been good working with you. Thanks for the help over the years. In terms of -- just a couple of quick questions about the business.

Gavin, I think you mentioned in your prepared remarks something about some digital assets. So I was just seeing if maybe you could elaborate some digital assets maybe that you acquired? Is that related to the distribution assets?

Gavin Southwell -- Chief Executive Officer

Yes. So we -- when we invested in demand generation or consumer acquisition, we bought our traditional assets, but we also thought it was very important to have a digital asset. We were very fortunate to acquire a unique digital asset in our space, and we've been very busy investing in enhancing that, ready for launch. Initially, the plan was to launch it in the first quarter of 2020, but we're ahead of schedule.

We expect to be able to launch it before the end of the year. And when we do that, and it's fully up and running and transactional, we'll provide more details there. So it is -- it's something we're very excited about. We've been investing in resource and strengthening the team.

I mentioned from an SEO side and from a digital marketing side, we've been able to pick up some senior hires who have great experience with Medicare, which would be very helpful. So we look forward to talking about that, we expect, before the end of the year, which will be ahead of schedule. But a lot of excitement on our side to be able to share that with stakeholders.

Mark Argento -- Lake Street Capital Markets -- Analyst

And then I'm assuming the whole -- all this Medicare business is running all on the original technology platform that you've tuned out for this offering. Is that accurate?

Gavin Southwell -- Chief Executive Officer

So for Medicare Advantage, there's a variety of platforms depending on the carriers that are there. So for this period, we're using a number of different solutions depending on the offering, whether it's at a BPO or wherever it's captive. Where our technology becomes really valuable is really around the med sup piece. And as this market develops, if you kind of look a little ahead in the future, there's a lot of opportunity in the Med Advantage, med sup and other ancillary type products.

That's where our technology will really become extremely valuable. And I should mention one of the hires that we've made quite recently has a vast experience, specifically in platforms for Medicare, which will be helpful for us as we build out our various digital assets. So I hope I gave you some good insight. Yes, lots of activity.

Mark Argento -- Lake Street Capital Markets -- Analyst

Last question for me. So when you talk about captive agents, are you guys -- are these owned call centers? Or how do you manage that relative to some news you guys have had historically running internal call centers?

Gavin Southwell -- Chief Executive Officer

Yes, for our Medicare offering, we thought it was important to have our own captive agents. It's a successful approach used by peers who had great success in Medicare. So one of the investments we made, which we talked about at the end of Q2, was within captive distribution. They've done a great job.

Well ahead of schedule in terms of hiring and training, which means we were able to integrate them significantly faster with our own demand generation than we'd initially planned, meaning, that a portion of our Medicare business is significantly higher margins than it would have been otherwise. So for us, we only made some of these investments pretty recently, so the captive has a solid number of agents. This period by next year, it will have a significantly greater number of agents. So -- but we -- I don't want to diminish the achievements.

A lot of effort, a lot of hard work to be ahead of schedule and to have our own demand generation going across to our own captive in this period is really, really satisfying for us. It creates a great trajectory for the rest of the fourth quarter and it gives us confidence in how our Medicare is going to end the fourth quarter.

Mark Argento -- Lake Street Capital Markets -- Analyst

Thank you.

Operator

Our next question is from the line of Richard Close with Canaccord Genuity. Please proceed with your question.

Richard Close -- Canaccord Genuity -- Analyst

Yeah. Thanks for the questions. First, I just wanted to clarify something that Paul said with respect to the strategic review. I know we're not supposed to ask questions, but just wanted to clarify, did he say you're expecting to finalize some sort of decision within the next 60 days?

Gavin Southwell -- Chief Executive Officer

Yes. I think that's accurate, yeah.

Richard Close -- Canaccord Genuity -- Analyst

OK. And second question is, I guess, if you look at the implied -- the 35% on the Medicare for the fourth quarter on the implied fourth quarter revenue, I think that puts you a little ahead of the $70 million that you expected for Medicare for the year. Just want to double check that. Is that what you're seeing based on these trends?

Gavin Southwell -- Chief Executive Officer

It is, yes. The Medicare piece, it's really gratifying for us to be able to announce results today and be able to give some insight into actual trading performance during this very important period. So we have a nice trajectory. The demand generation is strong.

We have an advantage of being able to get some higher-margin business, integrating with the captive. So yes, that's right.

Richard Close -- Canaccord Genuity -- Analyst

OK. Great. And then just to go back to one of the earlier questions. I think, Gavin, you were asked in terms of how many BPO agents you guys have working your stuff versus captive.

I know you threw out 100 number there, but can you give us specifically, like how many BPO agents you have at your disposable? And then how many agents are currently in the captive?

Gavin Southwell -- Chief Executive Officer

We -- we're trying to give some good direction, so we're saying that the majority of agents are BPOs. So about three-quarters of the agents are at BPOs, and about one-quarters at the captive would be a good guide. And then between the end of October and where we are today, we've been able to add about an additional 100 agents. But we're not going more granular than that at this point.

We're working with a number of partners who we're selling demand to. We've got a number of different BPO partners. So we're giving some really good insight into the trajectory and things like that. But that's about as detailed as we're providing.

But I think I get really good insight.

Richard Close -- Canaccord Genuity -- Analyst

OK. And my final question, I guess, is for Mike. And first, I would like to say, Mike, it was good working with you and good luck in the future. But with respect to the fourth quarter, and as we think about the legacy business, well, the third quarter and the fourth quarter in terms of the legacy business, I guess, if you look at the Medicare, 35%, that implies your legacy business is down 7% to 12%.

And I just want to see what you think in terms of how much of it is deemphasizing the health benefit plans. Or is there anything else maybe long with that legacy business? Or is it just that deemphasizing?

Gavin Southwell -- Chief Executive Officer

So we work with a large number of third-party -- I'll take the first shot, and Mike can come in. And as we've gone through the year, we forecast out how people are approaching. What we're able to do quite recently is look at how people have ramped up kind of from the third quarter into the first part of the fourth quarter. And for the IFP business, most stuff happens in December.

So at this point, you can get some good direction, but really, until December, there's a lot left to play for. So simply what we picked up on is some of our large trading partners tilting their attention to be more focused on the Medicare side. So we thought it seemed prudent to take a more conservative approach on what would happen in IFP for Q4 based on kind of how the ramp-up happened in Q3 and how we kind of see it in the fourth quarter. Now there remains a great opportunity in that IFP market.

We've had great success. We've consistently outperformed people in that market over the last couple of years. But us, like others, are focused on success in the Medicare space. For us, the third quarter was really about building our position for this trading period that's happening right now.

So we're going to focus on the Medicare piece until that finishes. And then pretty much the IFP piece will pick up. So that would be kind of my color. But Hersh, anything else to add?

Mike Hershberger

Absolutely. Thank you, Richard. I appreciate the kind words. So we look at the IFP business is still a significant priority for us as a company.

So we are still focused on this piece, and we think it's a really good value for consumers. So I would echo Gavin's answer.

Richard Close -- Canaccord Genuity -- Analyst

OK. Thank you.

Operator

The next question is from the line of George Sutton with Craig-Hallum. Please proceed with your question.

George Sutton -- Craig-Hallum Capital Group LP -- Analyst

Thank you. I just wanted to better understand the inability of the third-party agents to ramp up as fast as expected. Can you explain why you think that is?

Gavin Southwell -- Chief Executive Officer

It's a great question. I mean, we saw a -- there was a comment today from one of our peers who said something similar. We work very closely with our BPO partners, and we have agreements. We track the ramp-up.

We -- our understanding was that the ramp-up would catch up over time. And what we saw is that it didn't, but at the same time, our captive was ahead of schedule. So this is -- I think that in our market, there's a focus on the Medicare space. And for us, we knew going into this period that we'd have a healthy amount of count of captive agents but we'd have a reliance on the third-party BPO providers.

And our plan has always been next year to keep investing and grow it to be a much larger size, and that remains the plan. So it was interesting to see some comments today from one of our peers, who you know is very well-seasoned in this space, who echoed something similar. It is the nature. But we have great relationships with our BPO partners.

But yes, the ramp up wasn't as fast as we'd anticipated or planned for or we would have simply planned for it differently. The important thing, really, is how prepared where we on the 15th of October? How are we doing today? How did we do yesterday? And how we're going to do over the next few weeks? And the answer is, that trajectory is very pleasing. So I think Q3 is interesting, but really, Q3 is how did Q3 prepare you for Q4? And I think we sit here in Q4 very satisfied, being able to give some insight into how that trading is going, not the build up to it but the actual trading.

George Sutton -- Craig-Hallum Capital Group LP -- Analyst

So Gavin, we've been doing a lot of secret shopping, actually, to the point we're inundated by mail and calls with Medicare Advantage offers. But we have been consistently directed to BPOs, not the captive brokers. So I'm curious if you could just give us a sense of how you've been shifting folks to the captive brokers. And I'm curious, what kind of carriers you're working with on the Medicare side.

Gavin Southwell -- Chief Executive Officer

In terms of carriers, we're working with the full offering. We've got great coverage nationally. A lot of the big established names are there, both on the captive and on the BPO side. So that's really, really pleasing, considering it's our first year kind of reentering into the market.

And the ramp-up of the captive, it's still a minority in terms of the agents available this year, and it will be when we finish the AEP period this year. But we -- that's how we positioned it. It was -- we're fortunate that it's ahead of schedule and we're able to benefit from those agents in 2019 in that integration. So in 2020, it will be a bigger part.

We'll work with BPO partners. It's a very healthy thing to have. But we'll be more -- we'll be in a stronger position with our captive for sure. So I think it's a minority of agents.

But if you call tomorrow, and hopefully, you'll get straight to one of them, you'll have a great experience.

Richard Close -- Canaccord Genuity -- Analyst

And lastly, in terms of carriers, I mean, so we're talking the Humanas and UnitedHealthcares of the world? Or are we talking other brands?

Gavin Southwell -- Chief Executive Officer

Yes. I mean, look, every carrier is our favorite. But yes, we're working with all the major brands, both the guys you mentioned, and many of us. So yes, we're really happy with our relationships on that side, yes.

George Sutton -- Craig-Hallum Capital Group LP -- Analyst

OK. Thank you.

Operator

Our next question is from the line of Frank Sparacino with First Analysis. Please proceed with your question.

Frank Sparacino -- First Analysis -- Analyst

Hi, guys. Just two for me. Maybe to start, Gavin, first, on the demand generation side of things. Can you talk about what percentage of the leads you're keeping in-house for your agents versus kind of the traditional TogetherHealth model, those being sold in the market? And maybe what you're seeing from a kind of price per lead in the marketplace relative to historical standards?

Gavin Southwell -- Chief Executive Officer

Yes. So we -- so in terms of lead that are being sold, because we've been able to get several hundred agents in place in this period, the TogetherHealth is selling less leads than it was last year. And actually, between the end of October and where we are today, between both first two weeks of AEP in October and today, the number of leads it has sold has slightly decreased as we've been able to ramp up the number of agents. What we've seen in terms of selling leads is we've been able to charge higher costs because there is a lot of demand out there, which is a very pleasing thing to have.

So we're in a situation where we have -- we've created more demand than we're able to handle with the agents we have in place. But we're still in a -- that's a nice position to be in. It puts us in a real position of strength. So the demand generation bid has been a big success for us so far, and we're optimistic.

But that trajectory continues through the rest of AEP.

Frank Sparacino -- First Analysis -- Analyst

And you made a comment earlier, Gavin, I think it was you, I don't think it was Hersh, around the volumes through November 11. So I guess, one, can you clarify exactly what you're talking about? And then secondly, is -- we're halfway through the AEP period, but obviously, it's a back-end weighted enrollment period. So we're not 50% of the way there. I don't know what percent of the way there we are relative to your expectations.

But related to that, can you just talk about the level of confidence given we're still very early on, I'm sure, from a percentage of enrollment perspective, what gives you confidence in Q4 given the year-to-date performance, right, has fallen short every quarter thus far. So I guess, multiple parts in that question.

Gavin Southwell -- Chief Executive Officer

Sure. Well, so in the fourth quarter, we have two annual enrollment periods, there's one for Medicare, which started in mid-October and runs through kind of the beginning of December. And then there's the IFP piece starting in November, running through December. And so we're already in the AEP period for Medicare so we can see the performance so far, we can see the trajectory.

And we said, that gives us the result so far, give us confidence we'll meet or exceed our earnings forecast for the year. And we talked a little about our demand generation and how it's exceeding our expectations. So I think that giving those real-life results throughout the year, we've been asked quite fairly, this is quite Q4 loaded. We're fortunate to be able to talk about actual Q4 results for the Medicare piece.

For the IFP piece, we've got very good directionally what's been happening in our business. And while a lot of the sales will happen in December, I think we took a prudent approach. We're very fortunate in that we're in a business where margins are improving and earnings are very, very strong. A lot of people building out Medicare businesses.

I don't have that in the second and third quarters. We've had very strong earnings in the second and third quarters despite building out this Medicare offerings. I think that's very, very pleasing. So I think people can take confidence in what we're able to share on that Medicare side, and I think the fact that we're being prudent and we're taking a conservative approach to the IFP business, again, I think gives people a level of confidence.

I mean, we're very focused here on earnings and earnings per share. And we've said, the Medicare trajectory and performance in the enrollment period so far gives us confidence to meet or exceed our earnings forecast for the year. So I tried to cover a few different pieces there. I know there's a few different parts to your questions.

Let me know anything we didn't cover. I hope that's helpful.

Frank Sparacino -- First Analysis -- Analyst

Yes. Just clarify the 2x volumes comment you made through November 11.

Gavin Southwell -- Chief Executive Officer

Oh, yes, this is -- so we were trying to show the -- really the difference between what happens in the fourth quarter, in these annual enrollment period versus prior quarters like the third quarter. So if we're only partway through the fourth quarter, and we've already done double all of the third quarter combined, I think that gives a good insight. And if the trajectory continues through November and onwards, it puts us into a great place to hit, meet or exceed our earnings forecast for the year. So we try to pick apart a few different parts from demand generation through to -- we've given some insight into buildup and what's happened to captive versus BPO.

We've talked a little about margin improvements. There's lots of bits of information there people can look at and get some good insight into what's moving in our business. We're always very transparent. We want people to understand what we're achieving here and this successful execution of what is really a transformation of our business.

Frank Sparacino -- First Analysis -- Analyst

Thank you.

Operator

Our next question is from the line of Brian Hoffman with Canaccord. Please proceed with your question.

Brian Hoffman -- Canaccord Genuity -- Analyst

Hey, guys. Thanks for the question. Do you need to add any more agents at the BPOs in order to achieve your guidance for 4Q? Or do you have everything you need in place already?

Gavin Southwell -- Chief Executive Officer

Everything we need is in place already. The more agents we're able to add, the greater chance we'd have of exceeding performance. So we sit here certainly optimistic we'll be able to add more agents. But we have enough agents in place as of now.

Brian Hoffman -- Canaccord Genuity -- Analyst

OK. And then it looks like you're not breaking out applications or EDUs for the e-commerce segment anymore -- or the e-commerce part of the business. Can you give us any color as to how the e-commerce segment performed in the quarter?

Gavin Southwell -- Chief Executive Officer

So we -- it's really interesting. We've seen a great growth in e-commerce throughout the year. And the way that we've looked at it, we've always had a view that everything has to be entirely end-to-end transacted to be included as e-commerce. And really, we're looking at that measure to see if there's -- how can we provide as much insight to people as possible.

So the move away -- sorry, the move of giving additional measures like EDUs has been very helpful. We can give some good narrative around e-commerce, which is actually becoming a bigger and bigger piece of our business. But what's happening with a lot of e-commerce is a lot of businesses are originating on e-commerce, but it may transact fully online or it may -- the transaction may complete with the help of a digital navigator or, put another way, a sales agent. So I think for us, as we see a much greater share of our business being e-commerce, and we deal with larger and larger partners, we want that measure to be as meaningful as possible.

So we're just looking at it as what's the best way to express the measures? So we're always trying to improve our disclosures and give more and more disclosures. And I think it was the right time to look at that one.

Brian Hoffman -- Canaccord Genuity -- Analyst

OK. And then last one for me. When we think about some of the growth areas that you've talked about, life insurance, ACA, end-products for Spanish speakers, how much revenue came from those buckets in the third quarter? And then when you think about those growth areas, how would you rank them? Or which would you say that you're most excited about in terms of offering the greatest growth opportunities?

Gavin Southwell -- Chief Executive Officer

Yes. In the -- each of those initiatives, we've been building up through the year to allow themselves an opportunity in the fourth quarter, which we really allow as an upside. The Spanish initiative is something that there's a lot of excitement about in our market because it's a very, very underserved population that will really benefit from the offering that we've put together. The first time has really been a fully end-to-end solution.

And so whatever we do with that is upside for us, a little impact in the third quarter because we're still broadening out our product mix, finishing translations and things like that. But as we move through the fourth quarter and certainly into 2020, there's a significant opportunity for each of those initiatives but I think, specifically, the Spanish-speaking piece. Look at some of the biggest states in America, Florida, Texas, California, we've got a lot of commonality in terms of population and a number of people who are Spanish speaking. So I would highlight that.

We own a fantastic digital asset in the space, and we have a unique offering. But it's not something that moved the dial forward in Q3. It will be a nice upside in Q4. But as we move into 2020, we'll be ramping that up, yeah.

Brian Hoffman -- Canaccord Genuity -- Analyst

Great. Thank you.

Operator

Thank you. At this time, we've reached the end of our question-and-answer session. And I'll turn the floor back to management for closing remarks.

Gavin Southwell -- Chief Executive Officer

Well, thank you, everybody, for the questions and for your interest in the company. Now we're finally in the fourth quarter, something we've been building toward all year. It's really satisfying for us to be able to update you on our progress with Medicare and the successful start to be important AEP. We are confident in our trajectory, and we look forward to being able to provide updates on this as able.

So with that, thank you, everybody. Good night.

Operator

[Operator signoff]

Duration: 58 minutes

Call participants:

Mike Hershberger

Paul Gabos -- Chairman of the Board

Gavin Southwell -- Chief Executive Officer

Randy Binner -- B. Riley FBR -- Analyst

Mike Grondahl -- Northland Capital Markets -- Analyst

Mark Argento -- Lake Street Capital Markets -- Analyst

Richard Close -- Canaccord Genuity -- Analyst

George Sutton -- Craig-Hallum Capital Group LP -- Analyst

Frank Sparacino -- First Analysis -- Analyst

Brian Hoffman -- Canaccord Genuity -- Analyst

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