What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-11-05 compared with 2020-08-06 · 181 added, 182 removed, 408 unchanged (47% of the section changed)

14 unchanged sentences

expected competition from government-run health insurance exchanges and other sources;

our expectations relating to marketing and advertising expense and expected contributions from our marketing channels;

our expectations relating to marketing and advertising expense and expected contributions from our marketing and strategic partnership channels;

the timing of our receipt of commission and other payments;

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Our actual results may differ materially from those suggested by these forward-looking statements for various reasons, including our ability to retain existing members and enroll new members during the annual healthcare open enrollment period, the Medicare annual enrollment period and a COVID-19-related or other special enrollment period;

changes in laws and regulations, including in connection with healthcare reform or with respect to the marketing and sale of Medicare plans;

changes in laws, regulations and guidelines, including in connection with healthcare reform or with respect to the marketing and sale of Medicare plans;

competition, including competition from government-run health insurance exchanges;

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the continued impact of the COVID-19 pandemic on our operations, business, financial condition and growth prospects, as well as on the general economy;

changes in our management and key employees;

exposure to security risks and our ability to safeguard the security and privacy of confidential data;

our relationships with health insurance carriers;

customer concentration and consolidation of the health insurance industry;

customer concentration;

our success in marketing and selling health insurance plans and our unit cost of acquisition;

our ability to hire, train and retain licensed health insurance agents and other employees;

the need for health insurance carrier and regulatory approvals in connection with the marketing of Medicare-related insurance products;

changes in the market for private health insurance;

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our ability to maintain and enhance our brand identity;

our ability to derive desired benefits from investments in our business, including membership growth initiatives;

our ability to derive desired benefits from investments in our business, including membership growth and retention initiatives;

reliance on marketing partners;

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payment practices of health insurance carriers;

our ability to successfully make and integrate acquisitions;

dependence on our operations in China;

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the outcome of litigation in which we are involved;

and the performance, reliability and availability of our ecommerce platform and underlying network infrastructure and those identified under the heading “Risk Factors” in Part II, Item 1A.

and the performance, reliability and availability of our information technology systems, ecommerce platform and underlying network infrastructure and those identified under the heading “Risk Factors” in Part II, Item 1A.

of this report and those discussed in our other Securities and Exchange Commission filings.

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Impact from COVID-19

Our results of operations for the six months ended June 30, 2020 were not materially impacted by the COVID-19 pandemic.

In response to the virus outbreak, we closed our offices in the United States and China and shifted our employees to a work-from-home model.

While our offices in the United States remain closed, we reopened our office in China given the improvements in the situation in the region where our office is located.

Despite the changes in the US economy related to COVID-19, our Medicare business experienced revenue growth of 53.7% in the second quarter of 2020 as compared to the second quarter of 2019.

During the second quarter of 2020, we experienced strong consumer demand due in part to the COVID-related special enrollment period, strong online enrollment growth, and continued productivity gains by our agent workforce.

In addition, we expanded our work-from-home capabilities and have expanded our technology investment to focus on both agent productivity and our consumer experience.

See Risk Factors in Part II, Item 1A of this Quarterly Report on Form 10-Q for additional discussion of COVID-19.

Our results of operations for the nine months ended September 30, 2020 were not materially impacted by the COVID-19 pandemic.

During the first quarter of 2020, we closed our offices in the United States and China and shifted our employees to a work-from-home model in response to the virus outbreak.

While some of our offices in the United States remain closed, we reopened our office in China in the second quarter given the improvements in the situation in the region where our office is located.

During the third quarter of 2020, we also reopened some of our U.S.

office locations at a reduced capacity with additional safety and social distancing measures.

We continue to monitor the developments related to COVID-19.

Despite the changes in the U.S.

economy related to COVID-19, our Medicare business experienced revenue growth of 23% in the third quarter of 2020 as compared to the third quarter of 2019.

During the third quarter of 2020, we continued to deliver strong growth primarily due to an increase in advertising revenue and strong online enrollment growth driven by our online marketing and strategic partner channels.

In addition, we expanded our work-from-home capabilities and launched a new technology release aimed at enhancing our agent productivity and our consumer experience.

See Risk Factors in Part II, Item 1A of this Quarterly Report on Form 10-Q for a discussion of risks related to COVID-19.

Summary of Selected Metrics

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We have included the number of new paying members in our selected metrics to provide more detail and visibility into new paying member contribution to the changes in membership.

We count an approved member as a paying member when we have received a commission payment from the carrier for the plan.

We count an approved member as a new paying member when we have received a commission payment from the carrier relating to the plan purchased by the member.

Not all approved members become paying members for various reasons.

In addition, for any given period, the rate at which approved members become new paying members is impacted by the time lag between carrier approval and our receipt of the commission payment from the carrier.

The difference in our metrics between the number of approved members and new paying members tends to vary, especially in the first and fourth quarters given this time lag and given that the plans we sell in the fourth quarter do not begin generating commissions until the first quarter when they become effective.

The difference in our metrics between the number of approved members and new paying members tends to vary, especially in the first and fourth quarters given this time lag and given that plans we sell in the fourth quarter do not begin generating commissions until the first quarter when they become effective.

We have removed submitted applications from our selected metrics given that we do not recognize revenue based on this metric, and it is not as indicative of our commission receivable collection as other metrics we do provide.

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The following table shows approved members by product for the periods presented:

Three Months Ended June 30, % Change Six Months Ended June 30, % Change

Three Months Ended September 30, % Change Nine Months Ended September 30, % Change

2020 2019 2020 2019

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Total Approved Members 94,502 92,950 2 % 333,026 299,163 11 %

Total approved members grew 19% in the three months ended June 30, 2020 compared to the same period in 2019.

Medicare total approved members grew 46% in the three months ended June 30, 2020 compared to the same period in 2019, primarily attributable to a 65% increase in approved Medicare Advantage plan members.

The increase in Medicare total approved members was primarily attributable to our direct-to-consumer marketing effort, an increase in our agent productivity, and favorable market dynamics, including the introduction of a COVID-related special enrollment period, which was in effect for a large part of the second quarter of 2020.

Three Months Ended September 30, 2020 and 2019 – Total approved members increased 2% during the three months ended September 30, 2020 compared to the same period in 2019.

The increase in total approved members was driven by a 17% increase in approved Medicare plan members, a 37% increase in approved individual and family plan members, and a 21% increase in approved small business health insurance plan members, partially offset by declines in approved ancillary plan members for the three months ended September 30, 2020 compared to the same period in 2019.

The increase in Medicare total approved members was primarily driven by a 28% increase in Medicare Advantage approved members, which was primarily attributable to strong online enrollment growth.

Individual and family plan approved members grew 37% in the three months ended September 30, 2020 compared to the same period in 2019 primarily driven by a 81% growth in approved members for qualified health plans.

Ancillary approved members declined 25% in the three months ended September 30, 2020 compared to the same period in 2019 primarily due to a decrease in short-term health insurance approved members.

Small business approved members grew 21% in the three months ended September 30, 2020 compared to the same period in 2019 mainly due to an increase in the volume of submitted applications for small group health insurance.

Nine Months Ended September 30, 2020 and 2019 – Total approved members increased 11% in the nine months ended September 30, 2020 compared to the same period in 2019.

The increase in total approved members was primarily driven by a 37% increase in Medicare approved members and an 8% increase in approved individual and family plan members, partially offset by a 25% decrease in approved ancillary plan members for the three months ended September 30, 2020 compared to the same period in 2019.

The increase in Medicare approved members was primarily attributable to a 51% increase in approved Medicare Advantage plan members and a 6% increase in approved Medicare Part D plan members for the nine months ended September 30, 2020 compared to the same period in 2019, driven by strong online enrollment growth, our marketing efforts, an increase in our agent productivity, and the COVID-19 related special enrollment period in the second quarter of 2020.

During this special enrollment period, certain individuals were permitted to enroll, disenroll or switch their Medicare Advantage and Medicare Part D prescription drug plans.

Individual and family plan approved members grew 86% in the three months ended June 30, 2020 compared to the same period in 2019 primarily driven by a 173% growth in approved members for qualified health plans.

Ancillary approved members declined 27% in the three months ended June 30, 2020 compared to the same period in 2019 primarily due to a decrease in short-term health insurance approved members.

Small business approved members declined 4% in the three months ended June 30, 2020 compared to the same period in 2019 mainly due to decreases in the volume of submitted applications for small group health insurance.

Total approved members grew 16% in the six months ended June 30, 2020 compared to the same period in 2019.

Medicare total approved members grew 46% in the six months ended June 30, 2020 compared to the same period in 2019, primarily attributable to a 62% increase in approved Medicare Advantage plan members and a 13% increase in approved Medicare Supplement plan members.

The increase in Medicare total approved members was primarily driven by our direct-to-consumer marketing effort, an increase in our agent productivity and higher consumer demand resulting from the COVID-19 related special enrollment period in the second quarters of 2020.

Individual and family plan approved members grew 2% in the six months ended June 30, 2020 compared to the same period in 2019 due to a 9% increase in approved members for qualified health plans, partially offset by a 5% decrease in approved members for non-qualified health plans.

Ancillary plan approved

members declined 25% in the six months ended June 30, 2020 compared to the same period in 2019 as a result of decreases in short-term health, dental and vision insurance approved members.

Small business group health insurance approved members declined 10% in the six months ended June 30, 2020 compared to the same period in 2019 mainly due to decreases in the volume of submitted applications and group size.

Individual and family plan approved members grew 8% in the nine months ended September 30, 2020 compared to the same period in 2019 due to a 19% increase in approved members for qualified health plans.

Ancillary plan approved members declined 25% in the nine months ended September 30, 2020 compared to the same period in 2019 primarily due to decreases in short-term health, dental and vision insurance approved members.

Small business group health insurance approved members declined 2% in the nine months ended September 30, 2020 compared to the same period in 2019 mainly due to decreases in group size.

New Paying Members

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The following table shows our new paying member by product for the periods presented below:

Three Months Ended March 31, % Change Six Months Ended June 30, % Change

Three Months Ended September 30, % Change Nine Months Ended September 30, % Change

2020 2019 2020 2019

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Total New Paying Members 93,850 90,117 4 % 414,965 359,207 16 %

Medicare total new paying members grew 40% in the three months ended June 30, 2020 compared to the same period in 2019, primarily driven by a 58% increase in Medicare Advantage plan new paying members.

Individual and family plan new paying members increased 116% in the three months ended June 30, 2020 compared to the same period in 2019 due to a 204% increase in new paying members for qualified health plans and a 75% increase in new paying members for non-qualified plans.

Ancillary new paying members declined 28% in the three months ended June 30, 2020 compared to the same period in 2019 primarily due to a reduction in short-term health insurance, dental and vision insurance paying members.

Small business group health insurance new paying members declined 14% in the three months ended June 30, 2020 compared to the same period in 2019 primarily due to a decrease in the submitted application volume.

Medicare total new paying members grew 54% in the six months ended June 30, 2020 compared to the same period in 2019, primarily driven by a 68% increase Medicare Advantage plan new paying members and a 46% increase in Medicare Part D prescription drug plan new paying members.

The increases were primarily driven by an increase in enrollment volume and approved members from the recent Medicare annual enrollment period, Medicare Advantage open enrollment period and the special enrollment period introduced in the second quarter of 2020.

Individual and family plan new paying members declined 9% in the six months ended June 30, 2020 compared to the same period in 2019 due to market conditions in the individual and family plan market and the shift of our focus to invest in our Medicare business.

Ancillary new paying members declined 31% in the six months ended June 30, 2020 compared to the same period in 2019 primarily due to a reduction in short-term health

insurance, dental and vision insurance new paying members.

Small business new paying members declined 22% in the six months ended June 30, 2020 compared to the same period in 2019 primarily due to a decrease in the submitted application volume and group size.

Three Months Ended September 30, 2020 and 2019 – Medicare total new paying members grew 21% in the three months ended September 30, 2020 compared to the same period in 2019, primarily driven by a 31% increase in Medicare Advantage plan new paying members.

Individual and family plan new paying members increased 22% in the three months ended September 30, 2020 compared to the same period in 2019, driven by a 52% increase in new paying members for qualified health plans and a 9% increase in new paying members for non-qualified plans.

Ancillary plan new paying members declined 22% in the three months ended September 30, 2020 compared to the same period in 2019 primarily due to a reduction in short-term and other health insurance plan paying members.

Small business group health insurance new paying members grew 19% in the three months ended September 30, 2020 compared to the same period in 2019 primarily due to an increase in the submitted application volume.

Nine Months Ended September 30, 2020 and 2019 – Medicare total new paying members grew 46% in the nine months ended September 30, 2020 compared to the same period in 2019, primarily driven by a 57% increase Medicare

Advantage plan new paying members and a 41% increase in Medicare Part D prescription drug plan new paying members.

The increases were primarily driven by an increase in enrollment volume and approved members from the COVID-19 related special enrollment period introduced in the second quarter of 2020.

Individual and family plan new paying members declined 5% in the nine months ended September 30, 2020 compared to the same period in 2019 due to a decrease in new paying members for non-qualified plans, partially offset by an increase in new paying members for qualified plans.

Ancillary new paying members declined 29% in the nine months ended September 30, 2020 compared to the same period in 2019 primarily due to a decline in approved members across ancillary plans.

Small business new paying members declined 13% in the nine months ended September 30, 2020 compared to the same period in 2019 primarily due to a decrease in approved members.

Estimated Constrained Lifetime Value of Commissions Per Approved Member

The following table shows our estimated constrained lifetime value (“LTV”) of commissions per approved member by product for the periods presented below:

Three Months Ended June 30, % Change

Three Months Ended September 30, % Change

Medicare Advantage (1)

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These factors may result in varying values from period to period.

The constrained LTV of commissions per approved member for Medicare Advantage and Medicare part D prescription drug plans declined by 4% and 5%, respectively, during the three months ended June 30, 2020 compared to the same period in 2019 primarily due to a decline in estimated average plan duration.

The decline in estimated average plan duration was primarily caused by a combination of market-related factors as well as factors specific to our business, in particular our historical emphasis on enrollment growth and optimizing member experience during the initial enrollment process with less emphasis and resources allocated to post-transaction communications and existing member retention.

With respect to market-related factors, we believe that a larger number of Medicare Advantage and Medicare part D prescription drug plan members terminated their plans due to an increased selection of plans available to consumers for the 2020 plan year and the additional opportunities for consumers to shop and switch Medicare Advantage and Medicare part D prescription drug plans during the recent open enrollment periods.

The constrained LTV of commissions per Medicare Supplement approved member increased by 13% during the three months ended September 30, 2020 compared to the same period in 2019, primarily as a result of an increase in estimated average plan duration.

The constrained LTV of commissions per approved member for Medicare Advantage and Medicare Part D prescription drug plans declined by 3% and 8%, respectively, during the three months ended September 30, 2020 compared to the same period in 2019 primarily due to a decrease in estimated average plan duration.

The decline in estimated average plan duration was primarily driven by factors specific to our business, in particular our historical emphasis on enrollment growth and optimizing member experience during the initial enrollment process with less emphasis and resources allocated to post-transaction communications and existing member retention.

In addition, the decline in estimated plan duration also reflected

certain market related factors.

We believe that a larger number of Medicare Advantage and Medicare Part D prescription drug plan members terminated their plans due to an increased selection of plans available to consumers for the 2020 plan year and the additional opportunities for consumers to shop and switch Medicare Advantage and Medicare Part D prescription drug plans during the recent open enrollment periods.

The decline had a more pronounced impact on our newer member cohorts and on our telephonic enrollments, while our online enrollments continue to have higher average duration.

When comparing the three months ended June 30, 2020 to the same period in 2019, the constrained LTV of commissions per Medicare Supplement approved member grew by 17% primarily as a result of an increase in the average projected commission payments per member and an increase in estimated average plan duration.

The constrained LTV of commissions per qualified health plan and non-qualified health plan for approved members increased 61% and 10%, respectively, during the three months ended June 30, 2020 compared with the same period in 2019, respectively, mostly due to increased estimates of average plan duration.

The constrained LTV of commissions per short-term health insurance approved member increased 72% during the three months ended June 30, 2020 compared to the same period in 2019 primarily as a result of selling plans with higher premium and an increase in estimated average plan duration.

During the third quarter of 2020, we initiated a number of programs to improve our member retention.

For example, we have launched a customer retention team, adjusted the compensation structure of our agents to better align with our retention goals, and deployed new technologies aimed at improving member retention, including the launch of our Customer Center.

Individual and Family and Ancillaries

The constrained LTV of commissions per qualified health plan and non-qualified health plan for approved members increased 48% and 9%, respectively, during the three months ended September 30, 2020 compared with the same period in 2019 mostly due to increased estimates of average plan duration.

The constrained LTV of commissions per short-term health insurance approved member increased 33% during the three months ended September 30, 2020 compared to the same period in 2019 primarily as a result of selling plans with higher premium and an increase in estimated average plan duration.

The constrained LTV of commission per approved member for dental and vision plans increased by 29% and 20%, respectively, during the three months ended September 30, 2020 compared with the same period in 2019 primarily due to an increase in estimated average plan duration and lower constraints as a result of reduced volatility based on historical trends.

The constraints applied to the total estimated lifetime commissions we expect to receive for selling the plan after the carrier approves an application in order to derive the constrained LTV of commissions for approved members recognized for the periods presented below are summarized as follows:

Three Months Ended June 30,

Three Months Ended September 30,

Medicare Advantage 7 % 7 %

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Vision 5 % 10 %

Other 10 % 10 %

Small Business — % — %

The constraint for qualified health plans decreased to 4% during the three months ended June 30, 2020 from 20% in the same period in the prior year due to lower volatility and enhanced LTV forecast model.

The constraint for short-term health insurance plans increased to 20% during the three months ended June 30, 2020 from 0% in the same period in the prior year due to an increase in volatility.

The constraint for qualified health plans decreased to 4% during the three months ended September 30, 2020 from 20% in the same period in the prior year due to lower volatility and enhanced LTV forecasting models.

The constraint for short-term health insurance plans increased to 20% during the three months ended September 30, 2020 from 0% in the same period in the prior year due to an increase in volatility with our short-term health insurance plans.

Estimated Membership

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The following table shows estimated membership by product for the periods presented below:

As of June 30, % Change

As of September 30, % Change

Medicare Advantage 421,237 309,180 36 %

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For example, a member who is active on both an individual and family health insurance plan and a standalone dental plan will be counted as two continuing members.

Medicare-related plan estimated membership as of June 30, 2020 grew 37% compared to estimated membership as of June 30, 2019 due to a 40% growth in Medicare Advantage estimated membership, a 43% growth in Medicare Part D prescription drug plan estimated membership, and a 17% growth in Medicare Supplement plan estimated membership.

The overall growth in Medicare estimated membership was due to our marketing investment in our Medicare business.

Individual and family plan estimated membership as of June 30, 2020 declined 13% compared to estimated membership as of June 30, 2019 due to market conditions in the individual and family plan market and our decision to shift our marketing investment to our Medicare business.

Ancillary plan estimated membership as of June 30, 2020 declined 8% compared to estimated membership as of June 30, 2019 primarily as a result of the decline in dental and vision plan members, partially offset by an increase in short-term insurance plan estimated membership.

Medicare-related plan estimated membership as of September 30, 2020 grew 33% compared to estimated membership as of September 30, 2019 due to a 39% growth in Medicare Part D prescription drug plan estimated membership, a 36% growth in Medicare Advantage estimated membership, and a 12% growth in Medicare Supplement plan estimated membership.

The overall growth in Medicare estimated membership was due to our investment in our Medicare business.

Individual and family plan estimated membership as of September 30, 2020 declined 14% compared to estimated membership as of September 30, 2019 due to market conditions in the individual and family plan market and our decision to shift our investment to our Medicare business.

Ancillary plan estimated membership as of September 30, 2020 declined 7% compared to estimated membership as of September 30, 2019 primarily as a result of the decline in dental, short-term health plans, and vision plan estimated membership.

Member Acquisition

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The following table shows the estimated variable marketing cost per approved member and the estimated customer care and enrollment expense per approved member metrics for the periods presented below.

The numerator used to calculate each metric is the portion of the respective operating expenses for marketing and advertising and customer care and enrollment that is directly related to member acquisition for our sale of Medicare Advantage, Medicare Supplement and Medicare Part D prescription drug plans (collectively, the “Medicare Plans”) and for all IFP plans including individual and family plans and short-term health insurance (collectively, the “IFP Plans”), respectively.

The numerator used to calculate each metric is the portion of the respective operating expenses for marketing and advertising and customer care and enrollment that is directly related to member acquisition for our sale of Medicare Advantage, Medicare Supplement and Medicare Part D prescription drug plans (collectively, “Medicare Plans”) and for all IFP plans including individual and family plans and short-term health insurance (collectively, “IFP Plans”), respectively.

The denominator used to calculate each metric is based on a derived metric that represents the relative value of the new members acquired.

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Since the LTV for any product fluctuates from period to period, the weight given to each product was determined based on their relative LTVs at the time of our adoption of ASC 606.

Three Months Ended June 30, % Change

Three Months Ended September 30, % Change

Estimated CC&E cost per approved MA-equivalent approved member (1)

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__________________

(1) MA-equivalent approved members is a derived metric with a Medicare Part D approved member being weighted at 25% of a Medicare Advantage member and a Medicare Supplement member based on their relative LTVs at the time of our adoption of Accounting Standards Codification 606 – Revenue from Contracts with Customers (“ASC 606”).

We calculate the number of approved MA-equivalent members by adding the total number of approved Medicare Advantage and Medicare Supplement members and 25% of the total number of approved Medicare Part D members during the period presented.

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We calculate the number of approved IFP-equivalent members by adding the total number of approved qualified and non-qualified health plan members and 33% of the total number of short-term approved members during the period presented.

Estimated CC&E costs per approved MA-equivalent member decreased 13% in the three months ended June 30, 2020 compared to the same period in 2019 reflecting increased cost effectiveness of our demand generation and fulfillment.

Estimated variable marketing costs per approved MA-equivalent member remained consistent in the three months ended June 30, 2020 compared to the same period in 2019.

Estimated CC&E cost per approved IFP-equivalent member decreased 34% in the three months ended June 30, 2020 compared to the same period in 2019 primarily driven by a decrease in personnel-related costs.

Estimated variable marketing cost per IFP-equivalent member increased 5% in the three months ended June 30, 2020 compared to the same period in 2019 due to an increase in online marketing costs.

We expect the costs per approved member for Medicare to decrease in the second half of 2020 as the result of our internal initiatives to improve agent productivity by launching a new agent performance management model, upgrading our call routing system to better account for both agent skills and call quality, and increasing the percentage of our internal agents relative to agents provided by our outsourced call center partners.

CC&E cost per MA-equivalent member for the second half of 2020 is also expected to benefit form a larger contribution from online enrollment to our total Medicare enrollments compared to a year ago.

We expect that variable marketing per approved MA-equivalent member in the third quarter 2020 to be consistent with the same period in 2019;

however, we expect it to reduce in the fourth quarter of 2020 due to reduced usage of higher-cost channels and an increase in approved members resulting from higher agent productivity.

Estimated CC&E costs per approved MA-equivalent member decreased 7% in the three months ended September 30, 2020 compared to the same period in 2019 due to an increase in online enrollments with no or reduced agent involvement.

Estimated variable marketing costs per approved MA-equivalent member increased 11% in the three months ended September 30, 2020 compared to the same period in 2019 due to a larger portion of applications originating from our online marketing channels which tend to have higher average marketing cost;

however, they also have higher propensity to convert online with no or reduced agent involvement.

Estimated CC&E cost per approved IFP-equivalent member decreased 18% in the three months ended September 30, 2020 compared to the same period in 2019 primarily driven by a decrease in personnel-related costs.

Estimated variable marketing cost per IFP-equivalent member decreased 1% in the three months ended September 30, 2020 compared to the same period in 2019 due to a decrease in marketing costs.

Critical Accounting Policies and Estimates

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To the extent there are material differences between our estimates and the actual results, our future consolidated results of operations may be affected.

An accounting policy is considered to be critical if the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to

change, and the effect of the estimates and assumptions on financial condition or operating performance.

The accounting policies we believe to reflect our more significant estimates, judgments and assumptions and are most critical to understanding and evaluating our reported financial results are as follows:

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The following table sets forth our operating results and related percentages of total revenue for the periods presented below (dollars in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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Loss from operations (20,847) (22) % (20,241) (29) % (26,070) (9) % (41,735) (20) %

Other income, net 452 1 % 699 1 % 825 1 % 1,256 1 %

Other income (expense), net (101) — % 568 1 % 724 — % 1,824 1 %

Loss before benefit from income taxes (20,948) (22) % (19,673) (28) % (25,346) (9) % (39,911) (20) %

Benefit from income taxes (6,443) (7) % (8,649) (12) % (10,923) (4) % (17,974) (9) %

Net income (loss) $ (3,370) (4) % $ (5,754) (9) % $ 82 — % $ (10,913) (8) %

Net loss $ (14,505) (15) % $ (11,024) (16) % $ (14,423) (5) % $ (21,937) (11) %

(1) Operating costs and expenses include the following amounts of stock-based compensation expense (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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Total stock-based compensation expense $ 6,332 $ 5,510 $ 21,722 $ 13,417

The following table presents our commission revenue, other revenue and total revenue for the periods presented (dollars in thousands):

Three Months Ended June 30, Change Six Months Ended June 30, Change

The following table summarizes our revenue for the periods presented (dollars in thousands):

Three Months Ended September 30, Change Nine Months Ended September 30, Change

2020 2019 $ % 2020 2019 $ %

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Total revenue $ 94,284 $ 69,913 $ 24,371 35 % $ 289,458 $ 204,453 $ 85,005 42 %

Three Months Ended June 30, 2020 and 2019 – Commission revenue increased $20.2 million, or 33%, during the three months ended June 30, 2020 compared to the same period in 2019 due to a $25.1 million increase in commission revenue from the Medicare segment, partially offset by a $4.9 million decrease in commission revenue from Individual, Family and Small Business segment.

Three Months Ended September 30, 2020 and 2019 – Commission revenue increased $13.8 million, or 23%, during the three months ended September 30, 2020 compared to the same period in 2019 due to a $3.6 million increase in commission revenue from the Medicare segment and a $10.1 million increase in commission revenue from Individual, Family and Small Business segment.

The increase in commission revenue from the Medicare segment was driven by a 17% increase in Medicare plan approved members, primarily attributable to a 28% growth in Medicare Advantage plan approved members.

The decrease in commission revenue from Individual, Family and Small Business segment was primarily driven by a decrease in adjustment revenue, partially offset by an 86% increase in individual and family plan approved members.

The increase in commission revenue from Individual, Family and Small Business segment was primarily driven by a $10.5 million increase in adjustment revenue and a 37% increase in individual and family plan approved members.

See Segment Information below for further discussion.

Adjustment revenue for our Medicare segment during the three months ended June 30, 2020 and 2019 was $0.7 million and $0.3 million, respectively.

For our Individual, Family and Small Business segment adjustment revenue during the three months ended June 30, 2020 and 2019 was $3.6 million and $9.0 million, respectively.

Other revenue increased $2.8 million, or 55%, during the three months ended June 30, 2020 compared to the same period in 2019 due to an increase in Medicare advertising revenue.

Six Months Ended June 30, 2020 and 2019 – Commission revenue increased $55.6 million, or 45%, during the six months ended June 30, 2020 compared to the same period in 2019 due to a $63.5 million increase in commission revenue from the Medicare segment, partially offset by a $7.9 million decrease in commission revenue from Individual, Family and Small Business segment.

The increase in commission revenue from the Medicare segment was driven by a 46% increase in Medicare plan approved members, primarily attributable to a 62% growth in Medicare Advantage plan approved members due to the recent enrollment periods and an increase in adjustment revenue during the six months ended June 30, 2020 compared to 2019.

The decrease in commission revenue from Individual, Family and Small Business segment was primarily driven by a decrease in adjustment revenue.

Net adjustment revenue for our Medicare segment during the three months ended September 30, 2020 and 2019 was $(0.7) million and $3.8 million, respectively.

For our Individual, Family and Small Business segment net adjustment revenue during the three months ended September 30, 2020 and 2019 was $18.2 million and $7.7 million, respectively.

The $18.2 million adjustment revenue recorded in the third quarter of 2020 primarily relates to certain earlier period cohorts in the Individual, Family and Small Business segment.

See Note 2 – Revenue in our Notes to Condensed Consolidated Financial Statements for additional information related to this item.

Other revenue increased $10.6 million, or 104%, during the three months ended September 30, 2020 compared to the same period in 2019 due to an increase in Medicare advertising revenue driven by larger and a greater number of marketing agreements.

Nine Months Ended September 30, 2020 and 2019 – Commission revenue increased $69.4 million, or 38%, during the nine months ended September 30, 2020 compared to the same period in 2019 due to a $67.2 million increase in commission revenue from the Medicare segment and a $2.2 million increase in commission revenue from Individual, Family and Small Business segment.

The increase in commission revenue from the Medicare segment was driven by a 37% increase in Medicare plan approved members, primarily attributable to a 51% growth in Medicare Advantage plan approved members due to the recent enrollment periods and an increase in adjustment revenue during the nine months ended September 30, 2020 compared to 2019.

The increase in commission revenue from Individual, Family and Small Business segment was primarily driven by a 11% increase in adjustment revenue and an 8% increase in individual and family plan approved members.

See Segment Information below for further discussion.

Adjustment revenue for our Medicare segment for the six months ended June 30, 2020 and 2019 was $9.7 million and $1.4 million, respectively.

For our Individual, Family and Small Business segment adjustment revenue for the six months ended June 30, 2020 and 2019 was $7.3 million and $15.4 million, respectively.

Other revenue increased $5.0 million, or 52%, during the six months ended June 30, 2020 compared to the same period in 2019 due to an increase in Medicare advertising revenue.

Our LTV estimation models for the three and six months ended June 30, 2020 indicated increases in LTVs and estimates of future cash collections for earlier period cohorts of certain products within our Individual, Family and Small Business segment.

However, after considering various market factors and recent changes due to the impact of COVID-19 on the U.S.

economy, such as increases in unemployment rate, potential delays in insurance premium payments and/or health insurance carrier commission payments, potential changes to enrollment periods, and potential changes to qualified health plan subsidies, we limited the adjustment revenue recognized during the three and six months ended June 30, 2020 to actual cash collected in excess of previously recognized revenue for certain individual and family and ancillary plan cohorts.

These prevailing market conditions did not have an impact on the amount of adjustment revenue recognized for any other products we sell.

Net adjustment revenue for our Medicare segment for the nine months ended September 30, 2020 and 2019 was $9.0 million and $5.2 million, respectively.

For our Individual, Family and Small Business segment net adjustment revenue for the nine months ended September 30, 2020 and 2019 was $25.5 million and $23.1 million, respectively.

Other revenue increased $15.6 million, or 79%, during the nine months ended September 30, 2020 compared to the same period in 2019 due to an increase in Medicare advertising revenue.

Cost of Revenue

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Our cost of revenue is summarized as follows (dollars in thousands):

Three Months Ended June 30, Change Six Months Ended June 30, Change

Three Months Ended September 30, Change Nine Months Ended September 30, Change

2020 2019 $ % 2020 2019 $ %

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% of total revenue 1 % — % 1 % — %

Cost of revenue increased by $0.1 million and $1.3 million during the three and six months ended June 30, 2020, respectively, compared to the same periods in 2019, mostly due to increased activity from our revenue sharing arrangements.

Cost of revenue increased by $0.1 million during the three months ended September 30, 2020, compared to the same period in 2019.

Cost of revenue increased by $1.4 million during the nine months ended September 30, 2020, compared to the same period in 2019.

The increases were primarily due to increased activity from our revenue sharing arrangements.

Marketing and Advertising

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Our marketing and advertising expenses are summarized as follows (dollars in thousands):

Three Months Ended June 30, Change Six Months Ended June 30, Change

Three Months Ended September 30, Change Nine Months Ended September 30, Change

2020 2019 $ % 2020 2019 $ %

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% of total revenue 35 % 37 % 36 % 36 %

Three Months Ended June 30, 2020 and 2019 – Marketing and advertising expenses increased $9.8 million, or 42%, during the three months ended June 30, 2020 compared to the same period in 2019, primarily due to increases of $8.1 million in variable advertising expenses, $0.8 million personnel and compensation costs, and $0.8 million in stock-based compensation expenses.

The increase in Medicare-related variable advertising expenses was due to an increase in our investment in marketing to drive volume growth.

Six Months Ended June 30, 2020 and 2019 – Marketing and advertising expenses increased $23.6 million, or 50%, during the six months ended June 30, 2020 compared to the same period in 2019, primarily due to increases of $18.4 million in variable advertising expenses, $2.1 million in personnel and compensation costs, and $1.9 million in stock-based compensation expense.

The increase in Medicare-related variable advertising expenses was due to an increase in our investment in marketing to drive volume growth.

Three Months Ended September 30, 2020 and 2019 – Marketing and advertising expenses increased $7.6 million, or 29%, during the three months ended September 30, 2020 compared to the same period in 2019, primarily due to increases of $5.2 million in variable advertising expenses, $1.0 million in consulting, and $1.0 million in stock-based compensation expenses.

The increase in variable advertising expenses was due to an increase in our investment for Medicare enrollment growth.

Nine Months Ended September 30, 2020 and 2019 – Marketing and advertising expenses increased $31.2 million, or 43%, during the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to increases of $23.6 million in variable advertising expenses, $2.9 million in stock-based compensation expense, $2.7 million in personnel and compensation costs, and $2.1 million in consulting expenses.

The increase in variable advertising expenses was due to an increase in our investment for Medicare enrollment growth.

Customer Care and Enrollment

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Our customer care and enrollment expenses are summarized as follows (dollars in thousands):

Three Months Ended June 30, Change Six Months Ended June 30, Change

Three Months Ended September 30, Change Nine Months Ended September 30, Change

2020 2019 $ % 2020 2019 $ %

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% of total revenue 46 % 57 % 35 % 40 %

Three Months Ended June 30, 2020 and 2019 – Customer care and enrollment expenses increased $5.7 million, or 26%, during the three months ended June 30, 2020 compared to the same period in 2019, primarily due to increases of $5.1 million in personnel costs associated with an increase in customer care and enrollment headcount and $0.7 million in facilities and other operating costs.

Six Months Ended June 30, 2020 and 2019 – Customer care and enrollment expenses increased $16.3 million, or 39%, during the six months ended June 30, 2020 compared to the same period in 2019, primarily due to increases of $11.7 million in personnel costs associated with an increase in customer care and enrollment headcount, $2.2 million in consulting expenses, and $1.7 million in facilities and other operating costs.

Three Months Ended September 30, 2020 and 2019 – Customer care and enrollment expenses increased $3.2 million, or 8%, during the three months ended September 30, 2020 compared to the same period in 2019, primarily due to increases of $4.7 million in personnel costs associated with an increase in customer care and enrollment headcount, $0.7 million in licensing costs, and $0.4 million in facilities and other operating costs, partially offset by a decrease of $2.9 million in consulting expenses.

Nine Months Ended September 30, 2020 and 2019 – Customer care and enrollment expenses increased $19.5 million, or 24%, during the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to increases of $16.4 million in personnel costs associated with an increase in customer care and enrollment headcount, $2.1 million in facilities and other operating costs, $0.8 million in stock-based compensation expense, and $0.4 million in licensing cost, partially offset by $0.7 million in consulting expenses.

Overall, the higher personnel costs was a result of staffing of our telesales organization ahead of the upcoming annual enrollment period and the shift towards in-house sales capacity.

Technology and Content

Technology and content expenses consist primarily of compensation and benefits costs for personnel associated with developing and enhancing our website technology as well as maintaining our websites.

Technology and content expenses consist primarily of compensation and benefits costs for personnel associated with developing, enhancing, and maintaining our websites, as well as software maintenance.

Our technology and content expenses are summarized as follows (dollars in thousands):

Three Months Ended June 30, Change Six Months Ended June 30, Change

Three Months Ended September 30, Change Nine Months Ended September 30, Change

2020 2019 $ % 2020 2019 $ %

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% of total revenue 19 % 17 % 16 % 15 %

Three Months Ended June 30, 2020 and 2019 – Technology and content expenses increased $2.9 million, or 28%, during the three months ended June 30, 2020 compared to the same period in 2019 primarily due to increases of $2.0 million in personnel and compensation costs due to higher headcount, $1.3 million in facilities and other operating costs, and $0.9 million in amortization of internal developed software, partially offset by decreases of $0.7 million in stock-based compensation expense and $0.7 million of consulting fees.

Six Months Ended June 30, 2020 and 2019 – Technology and content expenses increased $9.7 million, or 50%, during the six months ended June 30, 2020 compared to the same period in 2019 primarily due to increases of $5.0 million in personnel and compensation costs due to higher headcount, $2.7 million in facilities and other operating costs, and $1.7 million in amortization of internal developed software.

Three Months Ended September 30, 2020 and 2019 – Technology and content expenses increased $5.6 million, or 47%, during the three months ended September 30, 2020 compared to the same period in 2019 primarily due to increases of $2.5 million in personnel and compensation costs due to higher headcount, $2.1 million in facilities and other operating costs, $1.1 million in amortization of internal developed software, and $0.7 million in stock-based compensation expense, partially offset by a decrease of $0.7 million in consulting fees.

Nine Months Ended September 30, 2020 and 2019 – Technology and content expenses increased $15.3 million, or 49%, during the nine months ended September 30, 2020 compared to the same period in 2019 primarily due to increases of $7.5 million in personnel and compensation costs due to higher headcount, $4.8 million in facilities and other operating costs, $2.9 million in amortization of internal developed software and $1.0 million in stock-based compensation expense, partially offset by a decrease of $1.1 million in consulting expenses.

General and Administrative

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Our general and administrative expenses are summarized as follows (dollars in thousands):

Three Months Ended June 30, Change Six Months Ended June 30, Change

Three Months Ended September 30, Change Nine Months Ended September 30, Change

2020 2019 $ % 2020 2019 $ %

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% of total revenue 21 % 24 % 21 % 21 %

Three Months Ended June 30, 2020 and 2019 – General and administrative expenses increased $5.9 million, or 39%, during the three months ended June 30, 2020 compared to the same period in 2019, primarily due to increases of $2.6 million in personnel and compensation costs, $1.6 million in stock-based compensation expense, $1.3 million in consulting expenses, and $0.7 million in facilities and other operating costs driven by the expansion of our facilities.

Six Months Ended June 30, 2020 and 2019 – General and administrative expenses increased $14.2 million, or 54%, during the six months ended June 30, 2020 compared to the same period in 2019, primarily due to increases of $5.7 million in personnel and compensation costs, $4.6 million in stock-based compensation expense, $2.0 million in consulting expenses, and $1.4 million in facilities and other operating costs driven by the expansion of our facilities.

Three Months Ended September 30, 2020 and 2019 – General and administrative expenses increased $3.3 million, or 20%, during the three months ended September 30, 2020 compared to the same period in 2019, primarily due to increases of $1.7 million in personnel and compensation costs, $0.9 million in consulting expenses, $0.7 in legal and other professional fees, and $0.4 million in facilities and other operating costs, partially offset by a decrease of $1.0 million in stock-based compensation expense.

Nine Months Ended September 30, 2020 and 2019 – General and administrative expenses increased $17.6 million, or 41%, during the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to increases of $7.4 million in personnel and compensation costs, $3.5 million in stock-based compensation expense, $3.0 million in consulting expenses, $1.8 million in facilities and other operating costs, and $0.5 million in legal fees.

Change in Fair Value of Earnout Liability

During the three and six months ended June 30, 2019, we recorded $7.2 million and $20.5 million, respectively, of additional earnout consideration expense due to an adjustment in the estimated fair value of the earnout liability related to our acquisition of GoMedigap, which was completed on January 2018.

During the three and six months ended June 30, 2020, there were no changes in fair value of earnout liability as the earnout consideration was settled in January 2020.

During the three and nine months ended September 30, 2019, we recorded a $5.4 million gain and a $15.1 million expense, respectively, due to adjustments in the estimated fair value of the earnout liability related to our acquisition of GoMedigap, which was completed on January 2018.

During the three and nine months ended September 30, 2020, there were no changes in fair value of earnout liability as the earnout consideration was settled in January 2020.

Amortization of Intangible Assets

Our intangible asset amortization expense is summarized as follows (dollars in thousands):

Three Months Ended June 30, Change Six Months Ended June 30, Change

Three Months Ended September 30, Change Nine Months Ended September 30, Change

2020 2019 $ % 2020 2019 $ %

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Amortization expense related to intangible assets was primarily related to intangible assets purchased through our acquisitions.

Amortization expense decreased during the three and six months ended June 30, 2020 compared to the same periods in 2019 due to certain intangible assets being fully amortized in 2020.

Other Income, Net

Our other income, net is summarized as follows (dollars in thousands):

Three Months Ended June 30, Change Six Months Ended June 30, Change

Amortization expense decreased during the three and nine months ended September 30, 2020 compared to the same periods in 2019 due to certain intangible assets being fully amortized in 2020.

Other Income (Expense), Net

Our other income (expense), net is summarized as follows (dollars in thousands):

Three Months Ended September 30, Change Nine Months Ended September 30, Change

2020 2019 $ % 2020 2019 $ %

Other income, net $ 452 $ 699 $ (247) (35) % $ 825 $ 1,256 $ (431) (34) %

Other income (expense), net $ (101) $ 568 $ (669) (118) % $ 724 $ 1,824 $ (1,100) (60) %

% of total revenue — % 1 % — % 1 %

Other income, net, for the six months ended June 30, 2020 and 2019 primarily consisted of interest income, sublease income, and margin earned on commissions received from Medicare plan members transferred to us in 2010 through 2012 by a broker partner, partially offset by interest expense on finance leases and debt and other bank fees.

Three Months Ended June 30, 2020 and 2019 – Other income, net decreased $0.2 million during the three months ended June 30, 2020 compared to the same period in 2019, primarily due to a decrease in interest income.

Six Months Ended June 30, 2020 and 2019 – Other income, net decreased $0.4 million during the six months ended June 30, 2020 compared to the same period in 2019, primarily due to a decrease in interest income.

Other income (expense), net for the nine months ended September 30, 2020 and 2019 primarily consisted of interest income, sublease income, and margin earned on commissions received from Medicare plan members transferred to us in 2010 through 2012 by a broker partner, partially offset by interest expense on finance leases and debt and other bank fees.

Three Months Ended September 30, 2020 and 2019 – Other income (expense), net decreased $0.7 million during the three months ended September 30, 2020 compared to the same period in 2019, primarily due to a decrease in interest income.

Nine Months Ended September 30, 2020 and 2019 – Other income (expense), net decreased $1.1 million during the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to a decrease in interest income.

Benefit from Income Taxes

Our benefit from income taxes are summarized as follows (dollars in thousands):

Three Months Ended June 30, Change Six Months Ended June 30, Change

Three Months Ended September 30, Change Nine Months Ended September 30, Change

2020 2019 $ % 2020 2019 $ %

1 unchanged sentence

Effective tax rate 30.8 % 44.0 % 43.1 % 45.0 %

Three Months Ended June 30, 2020 and 2019 – During the three months ended June 30, 2020, we recognized a benefit from income taxes of $2.4 million representing an effective tax rate of 41.9% which was higher than the statutory federal tax rate due primarily to stock-based compensation adjustments, non-deductible lobbying expenses and state taxes, partially offset by research and development credits.

During the three months ended June 30, 2019, we recognized a benefit from income taxes of $5.9 million, representing an effective tax rate of 50.4% which was higher than the statutory federal tax rate due primarily to stock-based compensation adjustments and lobbying and other non-deductible expenses, partially offset by research and development credits.

Six Months Ended June 30, 2020 and 2019 – During the six months ended June 30, 2020, we recognized a benefit from income taxes of $4.5 million representing an effective tax rate of 101.9% which was higher than the statutory federal tax rate due primarily to stock-based compensation adjustments, non-deductible lobbying expenses and state taxes, partially offset by research and development credits.

During the six months ended June 30, 2019, we recognized a benefit from income taxes of $9.3 million, representing an effective tax rate of 46.1% which was higher than the statutory federal tax rate due primarily to stock-based compensation adjustments and lobbying and other non-deductible expenses, partially offset by research and development credits.

Three Months Ended September 30, 2020 and 2019 – During the three months ended September 30, 2020, we recognized a benefit from income taxes of $6.4 million representing an effective tax rate of 30.8% which was higher than the statutory federal tax rate due primarily to stock-based compensation adjustments, lobbying expenses and state taxes, partially offset by research and development credits.

During the three months ended September 30, 2019, we recognized a benefit from income taxes of $8.6 million, representing an effective tax rate of 44.0% which was higher than the statutory federal tax rate due primarily to stock-based compensation adjustments, lobbying expenses and state taxes, partially offset by research and development credits.

Nine Months Ended September 30, 2020 and 2019 – During the nine months ended September 30, 2020, we recognized a benefit from income taxes of $10.9 million representing an effective tax rate of 43.1% which was higher than the statutory federal tax rate due primarily to stock-based compensation adjustments, lobbying expenses and state taxes, partially offset by research and development credits.

During the nine months ended September 30, 2019, we recognized a benefit from income taxes of $18.0 million, representing an effective tax rate of 45.0% which was higher than the statutory federal tax rate due primarily to stock-based compensation adjustments, lobbying expenses and state taxes, partially offset by research and development credits.

The Coronavirus Aid, Relief and Economic Security ("CARES") Act was signed into law on March 27, 2020.

The business tax provisions of the CARES Act include temporary changes to income based tax laws, including the ability to utilize net operating losses, interest expense deductions, alternative minimum tax credit refunds, charitable contributions, and depreciation of qualified improvement property.

The income tax provisions of the CARES Act did not have a material impact on our Condensed Consolidated Financial Statements for the three and six months ended June 30, 2020.

The income tax provisions of the CARES Act did not have a material impact on our Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2020.

Segment Information

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Our CODM does not separately evaluate assets, with the exception of commissions receivable, by segment, and therefore assets by segment are not presented.

extent, ancillary products sold to our Medicare-eligible applicants, including but not limited to, dental and vision plans, as well as our advertising program that allows Medicare-related carriers to purchase advertising on a separate website developed, hosted and maintained by us and our delivery and sale to third parties of Medicare-related health insurance leads generated by our ecommerce platforms and our marketing activities.

The Medicare segment consists primarily of commissions earned from our sale of Medicare-related health insurance plans, including Medicare Advantage, Medicare Supplement and Medicare Part D prescription drug plans, and to a lesser extent, ancillary products sold to our Medicare-eligible applicants, including but not limited to, dental and vision plans, as well as our advertising program that allows Medicare-related carriers to purchase advertising on a separate website developed, hosted and maintained by us and our delivery and sale to third parties of Medicare-related health insurance leads generated by our ecommerce platforms and our marketing activities.

The Individual, Family and Small Business segment consists primarily of commissions earned from our sale of individual, family and small business health insurance plans and ancillary products sold to our non-Medicare-eligible applicants, including but not limited to, dental, vision, and short-term health insurance.

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Our operating segment revenue and profit are summarized as follows (in thousands):

Three Months Ended June 30, Change Six Months Ended June 30, Change

Three Months Ended September 30, Change Nine Months Ended September 30, Change

2020 2019 $ % 2020 2019 $ %

2 unchanged sentences

Total revenue $ 94,284 $ 69,913 $ 24,371 35 % $ 289,458 $ 204,453 $ 85,005 42 %

Segment profit:

Medicare segment profit $ 13,430 $ 6,095 $ 7,335 120 % $ 35,390 $ 16,921 $ 18,469 109 %

Segment profit (loss):

Medicare segment profit (loss) $ (16,010) $ (11,004) $ (5,006) 45 % $ 19,380 $ 5,917 $ 13,463 228 %

Individual, Family and Small Business segment profit 18,286 3,753 14,533 387 % 23,459 15,045 8,414 56 %

Total segment profit 16,000 11,363 4,637 41 % 40,563 28,213 12,350 44 %

Total segment profit (loss) 2,276 (7,251) 9,527 (131) % 42,839 20,962 21,877 104 %

Corporate (15,581) (11,568) (4,013) 35 % (43,376) (30,380) (12,996) 43 %

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Amortization of intangible assets (287) (547) 260 (48) % (1,207) (1,641) 434 (26) %

Other income, net 452 699 (247) (35) % 825 1,256 (431) (34) %

Acquisition costs — — — * — — — *

Other (income) expense, net (101) 568 (669) (118) % 724 1,824 (1,100) (60) %

Loss before benefit from income taxes $ (20,948) $ (19,673) $ (1,275) 6 % $ (25,346) $ (39,911) $ 14,565 (36) %

Three Months Ended June 30, 2020 and 2019 – Revenue from our Medicare segment increased $28.1 million, or 54%, during the three months ended June 30, 2020 compared to the same period in 2019 due to a $25.1 million increase in Medicare commission revenue and a $3.0 million increase in other revenue.

The increase in Medicare segment commission revenue was primarily attributable to a 65% growth in Medicare Advantage plan approved members during the three months ended June 30, 2020 compared to the same period in 2019.

The overall growth of our Medicare business was a result of our investment in this segment and marketing efforts, and the increase in approved application volume due to the open enrollment period and recently introduced special enrollment period.

The increase in other revenue was mostly due to an increase in advertising revenue.

Revenue from our Individual, Family and Small Business segment decreased $5.1 million, or 38%, during the three months ended June 30, 2020 compared to the same period in 2019 primarily attributable to a $4.9 million decrease in commission revenue and a $0.2 million decrease in other revenue.

The decrease in commission revenue from the Individual, Family and Small Business segment was primarily due to a decrease in commission revenue adjustments of $5.5 million during the three months ended June 30, 2020 compared to the same period in 2019.

Due to various market factors and recent changes in the U.S.

economy, we limited the adjustment revenue recognized during the three months ended June 30, 2020 to actual cash collected in excess of previously recognized revenue for certain cohorts related to individual and family as well as ancillary plans.

These prevailing market conditions did not have an impact on the amount of adjustment revenue recognized for any other products we sell.

Six Months Ended June 30, 2020 and 2019 – Revenue from our Medicare segment increased $69.4 million, or 65%, during the six months ended June 30, 2020 compared to the same period in 2019 due to a $63.5 million increase in Medicare commission revenue and a $5.8 million increase in other revenue.

The increase in Medicare segment commission revenue was primarily attributable to a 62% growth in Medicare Advantage plan approved members and a $8.3 million increase in adjustment revenue during the six months ended June 30, 2020 compared to the same period in 2019.

The overall growth of our Medicare business was a result of our investment and marketing efforts in this segment and the increases in approved application volume due to the open enrollment period and recently introduced special enrollment period.

Three Months Ended September 30, 2020 and 2019 – Revenue from our Medicare segment increased $13.2 million, or 23%, during the three months ended September 30, 2020 compared to the same period in 2019 due to a $3.6 million increase in Medicare commission revenue and a $9.5 million increase in other revenue.

The increase in Medicare segment commission revenue was primarily attributable to a 28% growth in Medicare Advantage plan approved members during the three months ended September 30, 2020 compared to the same period in 2019.

The increase in other revenue was mostly due to an increase in our carrier advertising revenue.

Revenue from our Individual, Family and Small Business segment increased $11.2 million, or 88%, during the three months ended September 30, 2020 compared to the same period in 2019 primarily attributable to a $10.1 million increase in commission revenue and a $1.1 million increase in other revenue.

The increase in commission revenue from the Individual, Family and Small Business segment was primarily due to an increase in commission adjustment revenue of $10.5 million during the three months ended September 30, 2020 compared to the same period in 2019.

Nine Months Ended September 30, 2020 and 2019 – Revenue from our Medicare segment increased $82.5 million, or 50%, during the nine months ended September 30, 2020 compared to the same period in 2019 due to a $67.2 million increase in Medicare commission revenue and a $15.4 million increase in other revenue.

The increase in Medicare segment commission revenue was primarily attributable to a 51% growth in Medicare Advantage plan approved members and a $3.7 million increase in adjustment revenue during the nine months ended September 30, 2020 compared to the same period in 2019.

The increase in other revenue was mostly due to an increase in advertising revenue.

Revenue from our Individual, Family and Small Business segment decreased $8.7 million, or 32%, during the six months ended June 30, 2020 compared to the same period in 2019 primarily attributable to a $7.9 million decrease in commission revenue and a $0.8 million decrease in other revenue.

The decrease in commission revenue from the Individual, Family and Small Business segment was primarily due to a decrease in adjustment revenue of $8.1 million during the six months ended June 30, 2020 compared to the same period in 2019.

Due to various market factors and recent changes in the U.S.

economy, we limited the adjustment revenue recognized during the six months ended June 30, 2020 to actual cash collected in excess of previously recognized revenue for certain cohorts related to individual and family as well as ancillary plans.

These prevailing market conditions did not have an impact on the amount of adjustment revenue recognized for any other products we sell.

Revenue from our Individual, Family and Small Business segment increased $2.5 million, or 6%, during the nine months ended September 30, 2020 compared to the same period in 2019 primarily attributable to a $2.2 million increase in commission revenue.

The increase in commission revenue from the Individual, Family and Small Business segment was primarily due to an increase in adjustment revenue of $2.5 million during the nine months ended September 30, 2020 compared to the same period in 2019.

We recognized $25.5 million adjustment revenue during the nine months ended September 30, 2020 of which $18.2 million was recognized during the three months ended September 30, 2020 due to stronger member retention rates for earlier period cohorts of certain products based on our latest LTV assessment.

Segment Profit

Three Months Ended June 30, 2020 and 2019 – Our Medicare segment profit increased $7.3 million, or 120%, during the three months ended June 30, 2020 compared to the same period in 2019.

The increase was primarily due to a $28.1 million increase in Medicare segment revenue, partially offset by a $20.8 million increase in operating expenses, excluding stock-based compensation expense, change in earnout liability, depreciation and amortization expenses and amortization of intangible assets.

The increase in operating expenses was mostly attributable to an increase in marketing costs and customer care and enrollment costs.

Our Individual, Family and Small Business segment profit decreased $2.7 million, or 51%, during the three months ended June 30, 2020 compared to the same period in 2019.

The decrease in profit from the Individual, Family and Small Business segment was primarily due to a $5.1 million decrease in Individual, Family and Small Business segment revenue, partially offset by a $2.4 million decrease in operating expenses, excluding stock-based compensation expense, change in earnout liability, depreciation and amortization expenses and amortization of intangible assets.

Six Months Ended June 30, 2020 and 2019 – Our Medicare segment profit increased $18.5 million, or 109%, during the six months ended June 30, 2020 compared to the same period in 2019.

Three Months Ended September 30, 2020 and 2019 – Our Medicare segment profit decreased $5.0 million, or 45%, during the three months ended September 30, 2020 compared to the same period in 2019.

The decrease was primarily due to an $18.2 million increase in operating expenses, excluding stock-based compensation expense, change in earnout liability, depreciation and amortization expenses and amortization of intangible assets, partially offset by $13.2 million increase in Medicare segment revenue.

The increase in operating expenses was mostly attributable to increases in marketing costs and customer care and enrollment costs.

Our Individual, Family and Small Business segment profit increased $14.5 million, or 387%, during the three months ended September 30, 2020 compared to the same period in 2019.

The increase in profit from the Individual, Family and Small Business segment was primarily due to a $11.2 million increase in Individual, Family and Small Business segment revenue, and a $3.3 million decrease in operating expenses, excluding stock-based compensation expense, change in earnout liability, depreciation and amortization expenses and amortization of intangible assets.

Nine Months Ended September 30, 2020 and 2019 – Our Medicare segment profit increased $13.5 million, or 228%, during the nine months ended September 30, 2020 compared to the same period in 2019.

The increase was primarily due to a $82.5 million increase in Medicare segment revenue, partially offset by a $69.1 million increase in operating expenses, excluding stock-based compensation expense, change in earnout liability, depreciation and amortization expenses, and amortization of intangible assets.

The increase in operating expenses was mostly attributable to an increase in marketing costs and customer care and enrollment costs as we continued to invest in improving our technology platform to enhance the personalized consumer experience on our platform.

Our Individual, Family and Small Business segment profit decreased $6.1 million, or 54%, during the six months ended June 30, 2020 compared to the same period in 2019.

The decrease in profit from the Individual, Family and Small Business segment was primarily due to a $8.7 million decrease in Individual, Family and Small Business segment revenue, partially offset by a $2.6 million decrease in operating expenses, excluding stock-based compensation expense, change in earnout liability, depreciation and amortization expenses and amortization of intangible assets.

We expect our profit margins to improve in the coming quarters as we plan to implement initiatives to increase our agent productivity and online enrollment penetration, with increased reliance on data analytics and a growing contribution from our strategic partner channel.

The increase in operating expenses was mostly attributable to increases in marketing costs and customer care and enrollment costs as we continued to invest in telesales capacity, internal agent counts, agent productivity tools and incentives, customer engagement and retention initiatives, and enhancements to our technology platform.

Our Individual, Family and Small Business segment profit increased $8.4 million, or 56%, during the nine months ended September 30, 2020 compared to the same period in 2019.

The increase in profit from the Individual, Family and Small Business segment was primarily due to a $5.9 million decrease in operating expenses and a $2.5 million increase in Individual, Family and Small Business segment revenue, excluding stock-based compensation expense, change in earnout liability, depreciation and amortization expenses, and amortization of intangible assets.

Liquidity and Capital Resources

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We expect a reduction in cash and cash equivalents in the future resulting from our continued investments to grow our business.

To the extent that available funds are insufficient to fund our future activities or to execute our financial strategy, we may raise additional capital through bank debt, or public or private equity or debt financing to the extent such funding sources are available.

As of June 30, 2020, our cash and cash equivalents totaled $76.8 million.

To the extent that available funds are insufficient to fund our future

activities or to execute our financial strategy, we may raise additional capital through bank debt, or public or private equity or debt financing to the extent such funding sources are available.

As of September 30, 2020, our cash and cash equivalents totaled $87.8 million.

Cash equivalents, which are comprised of financial instruments with an original maturity of 90 days or less from the date of purchase, primarily consist of money market funds.

As of December 31, 2019, our cash and cash equivalents totaled $23.5 million.

The increase in cash and cash equivalents reflects $212.3 million of net cash provided by financing activities, partially offset by $12.4 million of net cash used in operating activities and $146.6 million of net cash used in investing activities.

The increase in cash and cash equivalents reflects $203.6 million of net cash provided by financing activities, partially offset by $128.3 million of net cash used in investing activities and $11.0 million of net cash used in operating activities.

See Note 5 — Equity in our Notes to Condensed Consolidated Financial Statements for information regarding our equity offering in March 2020 .

We also had $3.4 million in restricted cash as of June 30, 2020 and December 31, 2019.

As of June 30, 2020, we had 1.0 million shares held in treasury stock that were previously surrendered by employees to satisfy tax withholding in connection with the vesting of certain restricted stock units.

As of June 30, 2020 and December 31, 2019, we had a total of 11.7 million shares held in treasury, including 10.7 million shares previously repurchased.

The following table presents a summary of our cash flows for the six months ended June 30, 2020 (in thousands):

Six Months Ended June 30,

Net cash provided by (used in) operating activities $ (12,398) $ 1,225

We also had $3.4 million in restricted cash as of September 30, 2020 and December 31, 2019.

As of September 30, 2020, we had 1.1 million shares held in treasury stock that were previously surrendered by employees to satisfy tax withholding in connection with the vesting of certain restricted stock units.

As of September 30, 2020 and December 31, 2019, we had a total of 11.8 million and 11.6 million shares held in treasury, respectively, including 10.7 million shares previously repurchased.

The following table presents a summary of our cash flows for the nine months ended September 30, 2020 (in thousands):

Nine Months Ended September 30,

Net cash used in operating activities $ (10,959) $ (14,714)

Net cash used in investing activities (128,291) (12,044)

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Operating Activities

Net cash provided by (used in) operating activities primarily consists of net income (loss), adjusted for certain non-cash items, including change in fair value of earnout liability, deferred income taxes, stock-based compensation expense, depreciation and amortization, amortization of intangible assets and internally developed software, other non-cash items, and the effect of changes in working capital and other activities.

Net cash used in operating activities primarily consists of net loss, adjusted for certain non-cash items, including change in fair value of earnout liability, deferred income taxes, stock-based compensation expense, depreciation and amortization, amortization of intangible assets and internally developed software, other non-cash items, and the effect of changes in working capital and other activities.

Collection of commissions receivable depends upon the timing of our receipt of commission payments and associated commission reports from health insurance carriers.

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The timing of open enrollment periods for individual and family health insurance and the Medicare annual and open enrollment period for Medicare-related health insurance can positively or negatively affect our cash flows during each quarter.

Six Months Ended June 30, 2020 – Net cash used in operating activities was $12.4 million during the six months ended June 30, 2020, primarily driven by changes in net operating assets and liabilities of $29.4 million, partially offset by a net income of $0.1 million and adjustments for non-cash items of $17.0 million.

Adjustments for non-cash items primarily consisted of $15.4 million of stock-based compensation expense, $4.2 million of amortization of intangible assets and internally-developed software, and $1.7 million of depreciation and amortization, partially offset by a $4.5 million decrease due to the change in deferred income taxes.

Cash used from changes in net operating assets and liabilities during the six months ended June 30, 2020 primarily consisted of decreases of $17.5 million in accounts payable, $7.8 million in accrued compensation and benefits, $7.3 million in accrued marketing expense, a reduction of $2.5 million in deferred revenue, an increase of $1.0 million in prepaid expenses and other current assets and $0.4 million in accounts receivable, partially offset by decreases of $4.8 million in contract assets – commissions receivable and an increase in $2.2 million in accrued expenses and other liabilities.

Six Months Ended June 30, 2019 – Net cash provided by operating activities was $1.2 million during the six months ended June 30, 2019, primarily consisting of adjustments for non-cash items of $21.8 million, partially offset by cash provided by changes in net operating assets and liabilities of $9.7 million and a net loss of $10.9 million.

Nine Months Ended September 30, 2020 – Net cash used in operating activities was $11.0 million during the nine months ended September 30, 2020, primarily driven by changes in net operating assets and liabilities of $16.8 million and a net loss of $14.4 million, partially offset by adjustments for non-cash items of $20.3 million.

Adjustments for non-cash items primarily consisted of $21.7 million of stock-based compensation expense, $6.5 million of amortization of intangible assets and

internally-developed software, and $2.6 million of depreciation and amortization, partially offset by a $11.0 million change in deferred income taxes.

Cash used from changes in net operating assets and liabilities during the nine months ended September 30, 2020 primarily consisted of increases of $16.8 million in contract assets – commissions receivable, $9.4 million in prepaid expenses and other current assets and $1.5 million in accounts receivable, decreases of $7.4 million in accrued compensation and benefits, $5.4 million in accrued marketing expense, $5.4 million in accrued marketing expense, and $3.2 million in accounts payable, partially offset by increases of $23.9 million in deferred revenue and $3.1 million in accrued expenses and other liabilities.

Nine Months Ended September 30, 2019 – Net cash used in operating activities was $14.7 million during the nine months ended September 30, 2019, primarily consisting of a net loss of $21.9 million and cash provided by changes in net operating assets and liabilities of $8.4 million, partially offset by adjustments for non-cash items of $15.7 million.

Adjustments for non-cash items primarily consisted of $15.1 million of expense related to the fair value adjustment of our earnout liability, $13.4 million of stock-based compensation expense, $4.1 million of amortization of intangible assets and internally developed software, and $2.2 million of depreciation and amortization, partially offset by a $18.2 million decrease in deferred income taxes and a $0.9 million decrease in other non-cash items.

Cash used from changes in net operating assets and liabilities during the six months ended June 30, 2019 primarily consisted of decreases of $7.3 million in accrued marketing expenses, $5.5 million in accrued compensation and benefits, $1.2 million in accrued expenses and other liabilities and a $2.7 million increase in prepaid

expenses and other current assets, partially offset by decreases of $4.4 million in contract assets – commissions receivable and $2.5 million in accounts receivable.

Cash used from changes in net operating assets and liabilities during the nine months ended September 30, 2019 primarily consisted of an increase of $11.9 million in commissions receivable, an increase of $9.3 million in prepaid expenses and other current assets, a decrease of $6.9 million in accrued marketing expenses, a decrease of $2.6 million in accrued compensation and benefits, and a decrease of $1.9 million in accrued expenses and other liabilities, partially offset by increases of $13.2 million in accounts payable and $8.2 million in deferred revenue, and a decrease of $2.9 million in accounts receivable.

Investing Activities

Our investing activities primarily consist of purchases, maturities, and redemptions of marketable securities as well as purchases of computer hardware and software to enhance our website and customer care operations, leasehold improvements related to facilities expansion, capitalized internal-use software and website development costs and security deposit payments.

Six Months Ended June 30, 2020 – Net cash used in investing activities of $146.6 million for the six months ended June 30, 2020 was due to $147.5 million in purchases of marketable securities, $7.6 million in capitalized internal-use software and website development costs and $4.7 million in cash used to purchase property and equipment and other assets, partially offset by proceeds from the maturities and redemptions of marketable securities.

Six Months Ended June 30, 2019 – Net cash used in investing activities of $8.1 million for the six months ended June 30, 2019 was due to $3.8 million used to purchase property and equipment and other assets and $3.4 million in capitalized internal-use software and website development costs.

Nine Months Ended September 30, 2020 – Net cash used in investing activities of $128.3 million for the nine months ended September 30, 2020 was due to $180.5 million in purchases of marketable securities, $12.1 million in capitalized internal-use software and website development costs and $6.5 million in cash used to purchase property and equipment and other assets, partially offset by $70.8 million proceeds from the maturities and redemptions of marketable securities.

Nine Months Ended September 30, 2019 – Net cash used in investing activities of $12.0 million for the nine months ended September 30, 2019 was due to $6.4 million in capitalized internal-use software and website development costs and $5.6 million used to purchase property and equipment and other assets.

Financing Activities

Six Months Ended June 30, 2020 – Net cash provided by financing activities of $212.3 million for the six months ended June 30, 2020 was primarily due to $228.0 million net proceeds from the issuance of common stock in a public equity offering and $1.3 million of net proceeds from the exercise of common stock options, partially offset by $8.8 million of acquisition-related contingent payments and $8.2 million repurchase of shares to satisfy employee tax withholding obligations.

Six Months Ended June 30, 2019 – Net cash provided by financing activities of $111.3 million for the six months ended June 30, 2019 was primarily due to $126.1 million net proceeds from the issuance of common stock in a public equity offering and $3.3 million of proceeds from the exercise of common stock options, partially offset by $9.5 million of acquisition-related contingent payments, a $5.0 million debt repayment, and $3.5 million used to net-share settle equity awards.

Nine Months Ended September 30, 2020 – Net cash provided by financing activities of $203.6 million for the nine months ended September 30, 2020 was primarily due to $228.0 million net proceeds from the issuance of common stock in a public equity offering and $1.6 million of net proceeds from the exercise of common stock options, partially offset by $17.2 million repurchase of shares to satisfy employee tax withholding obligation and $8.8 million of acquisition-related contingent payments.

Nine Months Ended September 30, 2019 – Net cash provided by financing activities of $105.1 million for the nine months ended September 30, 2019 was primarily due to $126.1 million net proceeds from the issuance of common stock in a public equity offering and $5.2 million of proceeds from the exercise of common stock options, partially offset by $11.5 million used to net-share settle equity awards, $9.5 million of acquisition-related contingent payments, and $5.0 million of debt repayment.

Credit Agreement

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We are also obligated to pay other customary administration fees for a credit facility of this size and type.

As of June 30, 2020, we had no outstanding principal amount under our revolving credit facility.

As of September 30, 2020, we had no outstanding principal under our revolving credit facility.

See Note 10 – Debt of Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional information regarding this credit agreement and subsequent amendment.

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Contractual Obligations and Commitments

The following table presents a summary of our future minimum payments under non-cancellable operating lease agreements and contractual service and licensing obligations as of June 30, 2020 (in thousands):

For the Years Ending December 31, Operating Lease Obligations Service and Licensing Obligations Total Obligations

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Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, investments in special purpose entities, undisclosed borrowings or debt.

Additionally, we are not a party to any derivative contracts or synthetic leases.

As of September 30, 2020, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues, or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.

Recent Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis