eHealth, Inc. 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words “expect,” “anticipate,” “believe,” “estimate,” “target,” “goal,” “project,” “hope,” “intend,” “plan,” “seek,” “continue,” “may,” “could,” “should,” “might,” “forecast,” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements include, among other things, statements regarding our expectations relating to approved members, new paying members and estimated membership; our estimates regarding the constrained lifetime value of commissions; our expectations relating to revenue, operating costs, cash flows and profitability; our expectations regarding our strategy and investments; our expectations regarding our Medicare business, including market opportunity, consumer demand and our competitive advantage; our expectations regarding our individual and family business, including anticipated trends and our ability to enroll individuals and families into qualified health plans; the impact of future and existing healthcare laws and regulations on our business; the expected impact of the COVID-19 on our business; our expectations regarding commission rates, payment rates, conversion rates, plan termination rates and duration, membership retention rates and membership acquisition costs; our expectations regarding health insurance agents licensing and productivity; our expectations relating to the seasonality of our business; 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 and strategic partnership channels; the timing of our receipt of commission and other payments; our critical accounting policies and related estimates; liquidity and capital needs; political, legislative, regulatory and legal challenges; the merits or potential impact of any lawsuits filed against us; as well as other statements regarding our future operations, financial condition, prospects and business strategies. We have based these forward-looking statements on our current expectations about future events. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. 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, 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; the seasonality of our business and the fluctuation of our operating results; our ability to accurately estimate membership and lifetime value of commissions; changes in product offerings among carriers on our ecommerce platform and the resulting impact on our commission revenue; our ability to execute on our growth strategy in the Medicare market; 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; 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; changes in the market for private health insurance; consumer satisfaction of our service; changes in member conversion rates; changes in commission rates; our ability to sell qualified health insurance plans to subsidy-eligible individuals and to enroll subsidy-eligible individuals through government-run health insurance exchanges; our ability to maintain and enhance our brand identity; our ability to derive desired benefits from investments in our business, including membership growth and retention initiatives; reliance on marketing partners; the impact of our direct-to-consumer email, telephone and television marketing efforts; timing of receipt and accuracy of commission reports; payment practices of health insurance carriers; dependence on our operations in China; the restrictions in our debt obligations; compliance with insurance and other laws and regulations; the outcome of litigation in which we are involved; 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. Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this report are made only as of the date hereof. Except as required by applicable law, we do not undertake, and specifically decline, any obligation to update any of these statements or to publicly announce the results of any revisions to any forward-looking statements, whether as a result of new information, future events, changes in assumptions or otherwise. The following discussion should be read in conjunction with our Annual Report on Form 10-K as filed with the Securities and Exchange Commission in March 2020, and the audited consolidated financial statements and related notes contained therein. 26 Overview We are a leading private health insurance marketplace with a technology and service platform that provides consumer engagement, education and health insurance enrollment solutions. Our mission is to connect every person with the highest quality, most affordable health insurance and Medicare plans for their life circumstances. Our platform integrates proprietary and third-party developed educational content regarding health insurance plans with decision support tools to aid consumers in what has traditionally been a confusing and opaque health insurance purchasing process, and to help them obtain the health insurance products that meet their individual health and economic needs. Our omni-channel consumer engagement platform is designed to meet the consumer wherever they prefer to engage with us, and enables consumers to use our services online, through interactive chat, or by telephone with a licensed insurance agent. We have created a marketplace that offers consumers a broad choice of insurance products that include thousands of Medicare Advantage, Medicare Supplement, Medicare Part D prescription drug, individual and family, small business and other ancillary health insurance products from over 180 health insurance carriers across all fifty states and the District of Columbia. Impact from 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 We rely upon certain metrics to evaluate our business performance and facilitate strategic planning. Our business performance is influenced by a number of factors including but not limited to: • the number of individuals on applications for Medicare-related, individual and family, small business and ancillary health insurance plans that are approved by the relevant health insurance carriers; • the number of approved members for Medicare-related, individual and family, small business and ancillary health insurance plans from whom we have received an initial commission payment; and • the constrained lifetime value, or LTV, of approved members for Medicare-related, individual and family and ancillary health insurance plans we sell, as well as the estimated annual value of approved members for small business plans we sell. 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 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 plans we sell in the fourth quarter do not begin generating commissions until the first quarter when they become effective. 27 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. Approved Members Approved members represents the number of individuals on submitted applications that were approved by the relevant insurance carrier for the identified product during the current period. The applications may be submitted in either the current period or prior periods. Not all approved members ultimately become paying members. The following table shows approved members by product for the periods presented: Three Months Ended September 30, % Change Nine Months Ended September 30, % Change 2020 2019 2020 2019 Medicare: Medicare Advantage 44,999 35,171 28 % 170,374 112,488 51 % Medicare Supplement 7,456 9,110 (18) % 27,088 26,510 2 % Medicare Part D 7,485 6,933 8 % 24,054 22,684 6 % Total Medicare 59,940 51,214 17 % 221,516 161,682 37 % Individual and Family: Non-Qualified Health Plans 2,665 2,245 19 % 10,283 10,250 — % Qualified Health Plans 1,707 942 81 % 8,764 7,389 19 % Total Individual and Family 4,372 3,187 37 % 19,047 17,639 8 % Ancillaries: Short-term 9,784 15,630 (37) % 31,368 44,691 (30) % Dental 10,136 9,487 7 % 27,568 32,021 (14) % Vision 3,806 4,265 (11) % 12,071 15,108 (20) % Other 2,991 6,296 (52) % 11,262 17,654 (36) % Total Ancillaries 26,717 35,678 (25) % 82,269 109,474 (25) % Small Business 3,473 2,871 21 % 10,194 10,368 (2) % Total Approved Members 94,502 92,950 2 % 333,026 299,163 11 % 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. 28 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 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 New Paying Members consist of approved members from the period presented and any periods prior to the period presented from whom we have received an initial commission payment during the period presented. The following table shows our new paying member by product for the periods presented below: Three Months Ended September 30, % Change Nine Months Ended September 30, % Change 2020 2019 2020 2019 Medicare: Medicare Advantage 44,528 33,974 31 % 188,059 119,627 57 % Medicare Supplement 6,912 7,833 (12) % 26,386 25,127 5 % Medicare Part D 7,378 6,874 7 % 78,588 55,770 41 % Total Medicare 58,818 48,681 21 % 293,033 200,524 46 % Individual and Family: Non-Qualified Health Plans 2,550 2,350 9 % 15,920 18,541 (14) % Qualified Health Plans 1,548 1,017 52 % 10,600 9,424 12 % Total Individual and Family 4,098 3,367 22 % 26,520 27,965 (5) % Ancillaries: Short-term 10,461 15,632 (33) % 32,293 49,446 (35) % Dental 9,500 9,217 3 % 26,848 32,751 (18) % Vision 3,953 4,009 (1) % 13,170 17,458 (25) % Other 3,502 6,265 (44) % 11,289 17,457 (35) % Total Ancillaries 27,416 35,123 (22) % 83,600 117,112 (29) % Small Business 3,518 2,946 19 % 11,812 13,606 (13) % Total New Paying Members 93,850 90,117 4 % 414,965 359,207 16 % 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 29 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 September 30, % Change 2020 2019 Medicare Medicare Advantage (1) $ 898 $ 923 (3) % Medicare Supplement (1) $ 1,071 $ 951 13 % Medicare Part D (1) $ 245 $ 265 (8) % Individual and Family Non-Qualified Health Plans (1) $ 188 $ 173 9 % Qualified Health Plans (1) $ 244 $ 165 48 % Ancillaries Short-term (1) $ 149 $ 112 33 % Dental (1) $ 84 $ 65 29 % Vision (1) $ 54 $ 45 20 % Small Business (2) $ 142 $ 168 (15) % __________ (1) Constrained LTV of commissions per approved member represents commissions estimated to be collected over the estimated life of an approved member’s policy after applying constraints in accordance with our revenue recognition policy. The estimate is driven by multiple factors, including but not limited to, commission rates, carrier mix, estimated average plan duration, the regulatory environment, and cancellations of insurance plans offered by health insurance carriers with which we have a relationship. These factors may result in varying values from period to period. For additional information on constrained LTV, see Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the year ended December 31, 2019. (2) For small business, the amount represents the estimated commissions we expect to collect from the plan over the following twelve months. The estimate is driven by multiple factors, including but not limited to, contracted commission rates, carrier mix, estimated average plan duration, the regulatory environment, and cancellations of insurance plans offered by health insurance carriers with which we have a relationship and applied constraints. These factors may result in varying values from period to period. Medicare 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 30 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. 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 September 30, 2020 2019 Medicare Medicare Advantage 7 % 7 % Medicare Supplement 5 % 5 % Medicare Part D 5 % 5 % Individual and Family Non-Qualified Health Plans 15 % 15 % Qualified Health Plans 4 % 20 % Ancillaries Short-term 20 % — % Dental 7 % 10 % Vision 5 % 10 % Other 10 % 10 % Small Business — % — % 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. 31 Estimated Membership Estimated membership represents the estimated number of members active as of the date indicated based on the number of members for whom we have received or applied a commission payment during the period of estimation. The following table shows estimated membership by product for the periods presented below: As of September 30, % Change 2020 2019 Medicare (1) Medicare Advantage 421,237 309,180 36 % Medicare Supplement 96,525 85,821 12 % Medicare Part D 216,641 156,067 39 % Total Medicare 734,403 551,068 33 % Individual and Family (2) 112,834 131,058 (14) % Ancillaries (3) Short-term 24,105 24,167 — % Dental 116,846 131,409 (11) % Vision 67,944 72,765 (7) % Other 36,158 36,014 — % Total Ancillaries 245,053 264,355 (7) % Small Business (4) 44,424 44,723 (1) % Total Estimated Membership 1,136,714 991,204 15 % __________________ (1) To estimate the number of members on Medicare-related health insurance plans, we take the sum of (i) the number of members for whom we have received or applied a commission payment for a month that may be up to three months prior to the date of estimation (after reducing that number using historical experience for assumed member cancellations over the period being estimated); and (ii) the number of approved members over that period (after reducing that number using historical experience for an assumed number of members who do not accept their approved policy and for estimated member cancellations through the date of the estimate). To the extent we determine we have received substantially all of the commission payments related to a given month during the period being estimated, we will take the number of members for whom we have received or applied a commission payment during the month of estimation. (2) To estimate the number of members on Individual and Family health insurance plans (“IFP”), we take the sum of (i) the number of IFP members for whom we have received or applied a commission payment for a month that may be up to three months prior to the date of estimation after reducing that number using historical experience for assumed member cancellations over the period being estimated; and (ii) the number of approved members over that period (after reducing that number using historical experience for an assumed number of members who do not accept their approved policy and for estimated member cancellations through the date of the estimate). To the extent we determine we have received substantially all of the commission payments related to a given month during the period being estimated, we will take the number of members for whom we have received or applied a commission payment during the month of estimation. (3) To estimate the number of members on ancillary health insurance plans (such as short-term, dental and vision insurance), we take the sum of (i) the number of members for whom we have received or applied a commission payment for a month that may be up to three months prior to the date of estimation (after reducing that number using historical experience for assumed member cancellations over the period being estimated); and (ii) the number of approved members over that period (after reducing that number using historical experience for an assumed number of members who do not accept their approved policy and for estimated member cancellations through the date of the estimate). To the extent we determine we have received substantially all of the commission payments related to a given month during the period being estimated, we will take the number of members for whom we have received or applied a commission payment during the month of estimation. The one to three-month period varies by insurance product and is largely dependent upon the timeliness of commission payment and related reporting from the related carriers. (4) To estimate the number of members on small business health insurance plans, we use the number of initial members at the time the group was approved, and we update this number for changes in membership if such changes are reported to us by the group or carrier. However, groups generally notify the carrier directly of policy cancellations and increases or decreases in group size without informing us. Health insurance carriers often do not communicate policy cancellation information or group size changes to us. We often are made aware of policy cancellations and group size changes at the time of annual renewal and update our membership statistics accordingly in the period they are reported. Health insurance carriers bill and collect insurance premiums paid by our members. The carriers do not report to us the number of members that we have as of a given date. The majority of our members who terminate their plans do so by discontinuing their premium payments to the carrier and do not inform us of the cancellation. Also, some of our members pay 32 their premiums less frequently than monthly. Given the number of months required to observe non-payment of commissions in order to confirm cancellations, we estimate the number of members who are active on insurance policies as of a specified date. After we have estimated membership for a period, we may receive information from health insurance carriers that would have impacted the estimate if we had received the information prior to the date of estimation. We may receive commission payments or other information that indicates that a member who was not included in our estimates for a prior period was in fact an active member at that time, or that a member who was included in our estimates was in fact not an active member of ours. For instance, we reconcile information carriers provide to us and may determine that we were not historically paid commissions owed to us, which would cause us to have under estimated membership. Conversely, carriers may require us to return commission payments paid in a prior period due to policy cancellations for members we previously estimated as being active. We do not update our estimated membership numbers reported in previous periods. Instead, we reflect updated information regarding our historical membership in the membership estimate for the current period. As a result of the delay in our receipt of information from insurance carriers, actual trends in our membership are most discernible over periods longer than from one quarter to the next. As a result of the delay we experience in receiving information about our membership, it is difficult for us to determine with any certainty the impact of current conditions on our membership retention. Various circumstances could cause the assumptions and estimates that we make in connection with estimating our membership to be inaccurate, which would cause our membership estimates to be inaccurate. A member who purchases and is active on multiple standalone insurance plans will be counted as a member more than once. 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 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 Marketing initiatives are an important component of our strategy to increase revenue and are primarily designed to encourage consumers to complete an application for health insurance. Variable marketing cost represents direct costs incurred in member acquisition from our direct, marketing partners and online advertising channels. In addition, we incur customer care and enrollment expenses (“CC&E”) in assisting applicants during the enrollment process. Variable marketing costs exclude fixed overhead costs, such as personnel related costs, consulting expenses, facilities and other operating costs allocated to the marketing and advertising department. 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, “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. For Medicare Plans, we call this derived metric Medicare Advantage (“MA”)-equivalent members, and for IFP Plans, we call this derived metric IFP-equivalent members. The calculations for MA-equivalent members and for IFP-equivalent members are based on the weighted number of approved members for Medicare Plans and IFP Plans during the period, with the number of approved members adjusted based on the relative LTV of the product they are purchasing. 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. 33 Three Months Ended September 30, % Change 2020 2019 Medicare: Estimated CC&E cost per approved MA-equivalent approved member (1) $ 759 $ 819 (7) % Estimated variable marketing cost per MA-equivalent approved member (1) 422 381 11 % Total Medicare estimated cost per approved member $ 1,181 $ 1,200 (2) % Individual and Family Plan: Estimated CC&E cost per IFP-equivalent approved member (2) $ 137 $ 167 (18) % Estimated variable marketing cost per IFP-equivalent approved member (2) 79 80 (1) % Total IFP estimated cost per approved member $ 216 $ 247 (13) % __________________ (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 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. (2) IFP-equivalent approved members is a derived metric with a short-term approved member being weighted at 33% of a major medical individual and family health insurance plan member based on their relative LTVs at the time of our adoption of ASC 606. 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 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 The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles, or U.S. GAAP, requires us to make judgments, assumptions, and estimates that affect the amounts reported in the consolidated financial statements and the accompanying notes. These estimates and assumptions are based on current facts, historical experience, and various other factors that we believe are reasonable under the circumstances to determine reported amounts of assets, liabilities, revenue and expenses that are not readily apparent from other sources. 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: • Revenue Recognition; • Stock-Based Compensation; • Business Combinations; 34 • Realizability of Long-Lived Assets; and • Accounting for Income Taxes. There have been no changes to our significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 2, 2020, that have had a material impact on our condensed consolidated financial statements and related notes. Please refer to Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019, for a complete discussion of our other critical accounting policies and estimates. Results of Operations 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 September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Revenue: Commission $ 73,544 78 % $ 59,762 85 % $ 253,986 88 % $ 184,595 90 % Other 20,740 22 % 10,151 15 % 35,472 12 % 19,858 10 % Total revenue 94,284 100 % 69,913 100 % 289,458 100 % 204,453 100 % Operating costs and expenses: Cost of revenue 482 1 % 410 1 % 2,160 1 % 782 — % Marketing and advertising 33,405 35 % 25,812 37 % 104,042 36 % 72,857 36 % Customer care and enrollment 43,342 46 % 40,144 57 % 101,025 35 % 81,567 40 % Technology and content 17,673 19 % 12,033 17 % 46,786 16 % 31,487 15 % General and administrative 19,942 21 % 16,608 24 % 60,308 21 % 42,748 21 % Amortization of intangible assets 287 — % 547 1 % 1,207 — % 1,641 1 % Change in fair value of earnout liability — — % (5,400) (8) % — — % 15,106 7 % Total operating costs and expenses 115,131 122 % 90,154 129 % 315,528 109 % 246,188 120 % Loss from operations (20,847) (22) % (20,241) (29) % (26,070) (9) % (41,735) (20) % 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 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 September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Marketing and advertising $ 1,869 $ 872 $ 5,138 $ 2,212 Customer care and enrollment 527 369 1,762 927 Technology and content 1,430 729 2,965 1,946 General and administrative 2,506 3,540 11,857 8,332 Total stock-based compensation expense $ 6,332 $ 5,510 $ 21,722 $ 13,417 35 Revenue 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 $ % Commission $ 73,544 $ 59,762 $ 13,782 23 % $ 253,986 $ 184,595 $ 69,391 38 % % of total revenue 78 % 85 % 88 % 90 % Other 20,740 10,151 10,589 104 % 35,472 19,858 15,614 79 % % of total revenue 22 % 15 % 12 % 10 % Total revenue $ 94,284 $ 69,913 $ 24,371 35 % $ 289,458 $ 204,453 $ 85,005 42 % 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 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. 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. 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. 36 Cost of Revenue Included in cost of revenue are payments related to health insurance plans sold to members who were referred to our website by marketing partners with whom we have revenue-sharing arrangements. In order to enter into a revenue-sharing arrangement, marketing partners must be licensed to sell health insurance in the state where the policy is sold. Costs related to revenue-sharing arrangements are expensed as the related revenue is recognized. Additionally, cost of revenue includes the amortization of consideration we paid to certain broker partners in connection with the transfer of their health insurance members to us as the new broker of record on the underlying plans. These transfers include primarily Medicare plan members. Consideration for all book-of-business transfers is being amortized to cost of revenue as we recognize commission revenue related to the transferred members. Our cost of revenue is summarized as follows (dollars in thousands): Three Months Ended September 30, Change Nine Months Ended September 30, Change 2020 2019 $ % 2020 2019 $ % Cost of revenue $ 482 $ 410 $ 72 18 % $ 2,160 $ 782 $ 1,378 176 % % of total revenue 1 % — % 1 % — % 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 Marketing and advertising expenses consist primarily of member acquisition expenses associated with our direct, marketing partner and online advertising member acquisition channels, in addition to compensation and other expenses related to marketing, business development, partner management, public relations and carrier relations personnel who support our offerings. Our marketing and advertising expenses are summarized as follows (dollars in thousands): Three Months Ended September 30, Change Nine Months Ended September 30, Change 2020 2019 $ % 2020 2019 $ % Marketing and advertising $ 33,405 $ 25,812 $ 7,593 29 % $ 104,042 $ 72,857 $ 31,185 43 % % of total revenue 35 % 37 % 36 % 36 % 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. 37 Customer Care and Enrollment Customer care and enrollment expenses primarily consist of compensation and benefits costs for personnel engaged in assistance to applicants who call our customer care center and for enrollment personnel who assist applicants during the enrollment process. Our customer care and enrollment expenses are summarized as follows (dollars in thousands): Three Months Ended September 30, Change Nine Months Ended September 30, Change 2020 2019 $ % 2020 2019 $ % Customer care and enrollment $ 43,342 $ 40,144 $ 3,198 8 % $ 101,025 $ 81,567 $ 19,458 24 % % of total revenue 46 % 57 % 35 % 40 % 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, 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 September 30, Change Nine Months Ended September 30, Change 2020 2019 $ % 2020 2019 $ % Technology and content $ 17,673 $ 12,033 $ 5,640 47 % $ 46,786 $ 31,487 $ 15,299 49 % % of total revenue 19 % 17 % 16 % 15 % 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. 38 General and Administrative General and administrative expenses include compensation and benefits costs for staff working in our executive, finance, investor relations, government affairs, legal, human resources, facilities, and internal information technology departments. These expenses also include fees paid for outside professional services, including audit, tax, legal, government affairs and information technology fees. Our general and administrative expenses are summarized as follows (dollars in thousands): Three Months Ended September 30, Change Nine Months Ended September 30, Change 2020 2019 $ % 2020 2019 $ % General and administrative $ 19,942 $ 16,608 $ 3,334 20 % $ 60,308 $ 42,748 $ 17,560 41 % % of total revenue 21 % 24 % 21 % 21 % 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 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 September 30, Change Nine Months Ended September 30, Change 2020 2019 $ % 2020 2019 $ % Amortization of intangible assets $ 287 $ 547 $ (260) (48) % $ 1,207 $ 1,641 $ (434) (26) % % of total revenue — % 1 % — % 1 % Amortization expense related to intangible assets was primarily related to intangible assets purchased through our acquisitions. 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. 39 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 (expense), net $ (101) $ 568 $ (669) (118) % $ 724 $ 1,824 $ (1,100) (60) % % of total revenue — % 1 % — % 1 % 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 September 30, Change Nine Months Ended September 30, Change 2020 2019 $ % 2020 2019 $ % Benefit from income taxes $ (6,443) $ (8,649) $ 2,206 (26) % $ (10,923) $ (17,974) $ 7,051 (39) % Effective tax rate 30.8 % 44.0 % 43.1 % 45.0 % 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 nine months ended September 30, 2020. 40 Segment Information We report segment information based on how our chief executive officer, who is our chief operating decision maker ("CODM"), regularly reviews our operating results, allocates resources and makes decisions regarding our business operations. The performance measures of our segments include total revenue and profit. Our business structure is comprised of two operating segments: • Medicare; and • Individual, Family and Small Business. Our CODM does not separately evaluate assets, with the exception of commissions receivable, by segment, and therefore assets by segment are not presented. 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. To a lesser extent, the Individual, Family and Small Business segment consists of amounts earned from our online sponsorship program that allows carriers to purchase advertising space in specific markets in a sponsorship area on our website, our licensing to third parties the use of our health insurance ecommerce technology, and our delivery and sale to third parties of individual and family health insurance leads generated by our ecommerce platforms and our marketing activities. Marketing and advertising, customer care and enrollment, technology and content, and general and administrative operating expenses that are directly attributable to a segment are reported within the applicable segment. Indirect marketing and advertising, customer care and enrollment, and technology and content operating expenses are allocated to each segment based on usage. Other indirect general and administrative operating expenses are managed in a corporate shared services environment and, since they are not the responsibility of segment operating management, are not allocated to the two operating segments and instead reported within Corporate. Segment profit is calculated as total revenue for the applicable segment less direct and allocated marketing and advertising, customer care and enrollment, technology and content, and general and administrative operating expenses, excluding stock-based compensation expense, change in fair value of earnout liability, depreciation and amortization expense, and amortization of intangible assets. 41 Our operating segment revenue and profit are summarized as follows (in thousands): Three Months Ended September 30, Change Nine Months Ended September 30, Change 2020 2019 $ % 2020 2019 $ % Revenue: Medicare $ 70,361 $ 57,189 $ 13,172 23 % $ 246,891 $ 164,357 $ 82,534 50 % Individual, Family and Small Business 23,923 12,724 11,199 88 % 42,567 40,096 2,471 6 % Total revenue $ 94,284 $ 69,913 $ 24,371 35 % $ 289,458 $ 204,453 $ 85,005 42 % 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 (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 % Stock-based compensation expense (6,332) (5,510) (822) 15 % (21,722) (13,417) (8,305) 62 % Change in fair value of earnout liability — 5,400 (5,400) (100) % — (15,106) 15,106 (100) % Depreciation and amortization (923) (765) (158) 21 % (2,604) (2,153) (451) 21 % Amortization of intangible assets (287) (547) 260 (48) % (1,207) (1,641) 434 (26) % 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) % Revenue 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 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 in the first quarter and the COVID-19 related special enrollment period introduced in the second quarter. The increase in other revenue was mostly due to an increase in advertising revenue. 42 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 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 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 We believe our current cash and cash equivalents, credit facility and expected cash collections will be sufficient to fund our operations for at least twelve months after the filing date of this Quarterly Report on Form 10-Q. Our future capital requirements will depend on many factors, including our expected membership and retention rates and our level of investment in technology, marketing and advertising and our customer care initiatives. In addition, our cash position could be impacted by further acquisitions and investments we make to pursue our growth strategy. While we recognize constrained LTV as revenue at the time applications are approved, our collection of the cash commissions resulting from approved applications generally occurs over a number of years. The expense associated with approved applications, however, is generally incurred at the time of enrollment. As a result, the net cash flow resulting from approved applications is generally negative in the period of revenue recognition and generally becomes positive over the lifetime of the member. In periods of membership growth, cash receipts associated with new and continuing members may be less than the cash outlays to acquire new members. 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 43 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 $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 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, 2020 2019 Net cash used in operating activities $ (10,959) $ (14,714) Net cash used in investing activities (128,291) (12,044) Net cash provided by financing activities 203,555 105,085 Operating 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. If we were to experience a delay in receiving a commission payment from a health insurance carrier within a quarter, our operating cash flows for that quarter could be adversely impacted. A significant portion of our marketing and advertising expenses is driven by the number of health insurance applications submitted on our ecommerce platforms. Since our marketing and advertising costs are expensed and generally paid as incurred, and since commission revenue is recognized upon approval of a member but commission payments are paid to us over time, our operating cash flows could be adversely impacted by a substantial increase in the volume of applications submitted during a quarter or positively impacted by a substantial decline in the volume of applications submitted during a quarter. During the Medicare annual enrollment period which takes place during the last quarter of each year, we experience an increase in the number of submitted Medicare-related health insurance applications and marketing and advertising expenses compared to outside of Medicare annual enrollment periods. Similarly, during open enrollment periods for individual and family health insurance plans which takes place during the first quarter of each year, we experience an increase in the number of submitted individual and family plan health insurance applications and marketing and advertising expenses compared to outside of open enrollment periods. 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. 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 44 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 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. 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 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. 45 Credit Agreement We entered into a credit agreement with Royal Bank of Canada, or RBC, as administrative agent and collateral agent, (the “Credit Agreement”) in September 2018. The Credit Agreement provides for a $40.0 million secured asset-backed revolving credit facility with a $5 million letter of credit sub-facility. On December 20, 2019, we amended our revolving credit facility agreement with RBC (the “Amendment”) and increased the maximum borrowing amount to $75.0 million and extended the expiration to December 20, 2022. The borrowing base under the Credit Agreement is comprised of an amount equal to (a) the lesser of (i) eighty percent (80%) of Eligible Commissions Receivables (as defined in the Credit Agreement) we actually collected during the immediately preceding period of three months or (ii) eighty percent (80%) of our Eligible Commission Receivables for the immediately succeeding period of three months, plus (b) fifty percent (50%) of our Eligible Commission Receivables for the immediately succeeding period of six months (excluding the immediately succeeding period of three months), in each case subject to reserves established by RBC, or the Borrowing Base. The proceeds of the loans under the Credit Agreement may be used for working capital and general corporate purposes. We have the right to prepay the loans under the Credit Agreement in whole or in part at any time without penalty. Subject to availability under the Borrowing Base, amounts repaid may be reborrowed. Amounts not borrowed under the Credit Agreement are subject to a commitment fee of 0.5% per annum on the daily unused portion of the credit facility, to be paid in arrears on the first business day of each calendar quarter. At closing of the Credit Agreement, we paid a one-time facility fee of 1.75% of the total commitments of $40 million. We also paid a one-time closing fee of 0.5% of the new commitment of $75.0 million in connection with the Amendment. We are also obligated to pay other customary administration fees for a credit facility of this size and type. 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. Common Stock Issuance Pursuant to an effective registration statement that was filed on December 17, 2018, and amended on January 22, 2019 and March 2, 2020, we entered into an underwriting agreement in March 2020 to issue a total of 2,070,000 shares of common stock, which included the exercise in full of the underwriters’ option to purchase 270,000 additional shares of common stock, at a price to the public of $115.00 per share. Net proceeds from the offering were approximately $228.0 million after deducting underwriting discounts, commissions and expenses of the offering. We intend to use the net proceeds of the offering for general corporate purposes, including working capital. 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 September 30, 2020 (in thousands): For the Years Ending December 31, Operating Lease Obligations Service and Licensing Obligations Total Obligations Reminder of 2020 $ 1,915 $ 2,593 $ 4,508 2021 7,644 4,538 12,182 2022 7,701 2,484 10,185 2023 8,033 1,797 9,830 2024 7,832 1,582 9,414 Thereafter 27,416 2,706 30,122 Total $ 60,541 $ 15,700 $ 76,241 _______ * See Note 9 – Leases of our Notes to Condensed Consolidated Financial Statements for details of our operating lease obligations. 46 Service and Licensing Obligations We have entered into service and licensing agreements with third party vendors to provide various services, including network access, equipment maintenance and software licensing. The terms of these services and licensing agreements are generally up to three years. We record the related service and licensing expenses on a straight-line basis over the terms of the agreements, although actual cash payment obligations under certain of these agreements fluctuate over the terms of the agreements. Off-Balance Sheet Arrangements 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 See Note 1 – Summary of Business and Significant Accounting Policies in the Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for recently issued accounting standards that could have an effect on us.