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eHealth (EHTH) Plans Cost Cuts, Streamlining

March 11, 2015 7:10 AM EDT

eHealth (NASDAQ: EHTH) announced a strategic cost reduction program designed to rebalance the company's resources and help reduce the company's cost structure in light of its projected individual and family health insurance plan membership and revenue, while allowing eHealth to pursue growth in its business selling Medicare related health insurance. The cost reduction program aims to increase efficiencies and accelerate the company's return to profitability through a reduction of fixed costs, the majority of which comes from employee costs in the company's customer care and enrollment and technology and content groups. The strategic downsizing of the company's workforce in the United States is equal to approximately 15% of the company's worldwide workforce.

The Company expects to incur pre-tax restructuring charges of between approximately $3.7 million and $4.7 million consisting primarily of employee termination benefits and related costs, as well as facility costs and other restructuring charges. The majority of the restructuring charges are expected to be recorded in the first and second quarters of 2015, when the activities comprising the plan are expected to be substantially completed. Accordingly, eHealth expects to begin realizing the effect of these cost-saving actions beginning in the second quarter of 2015. The company's financial results for the first quarter of 2015 will reflect the company's cost structure prior to the cost reduction program taking effect.

"As we shared with our investors on our fourth quarter 2014 earnings call, we've been taking a close look at eHealth's cost structure and the allocation of resources across our company," said Gary Lauer, chief executive officer of eHealth. "While our current and projected unit economics for new sales of individual and family health insurance plans remain attractive, we recognize the need to adjust our fixed cost structure as the result of lower membership than we expected in our individual and family health insurance business."

Mr. Lauer continued, "Our Medicare business is strong, and we have continued to successfully generate and convert demand, as evidenced by our Medicare application growth in 2014. We believe that our cost-reduction actions, while difficult to take, will help create a stronger eHealth that is more focused on the expansion of our Medicare business, while preserving the flexibility to adapt quickly and capitalize on future developments in the individual and family marketplace."



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