What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-02-26 compared with 2020-03-02 · 626 added, 503 removed, 637 unchanged (64% of the section changed)

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generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 2, 2020 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 26, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

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Estimated constrained lifetime value of commission revenue

Description of the Matter

The Company recognized commission revenue of approximately $466.7 million in 2019 and the related commissions receivable were approximately $589.2 million at December 31, 2019.

As described in Notes 1 and 2 to its consolidated financial statements, the Company’s commission revenue is recognized in the amount of the total estimated lifetime value of the commissions expected to be received when a member obtains a plan through the Company and is approved by the carrier (“LTV”).

Auditing management’s determination of the LTV of commission revenue was especially complex and highly judgmental due to the complexity of the models used and the subjectivity required by the Company to estimate the amount and timing of future cash flows (which can extend up to 12 years), calculate the amount of commission revenue that is probable of not being reversed (the constraint), and determine the timing and amount of any adjustment revenue that results from changes in the estimates of previously recorded LTV.

For the Medicare Advantage LTV, which comprises the substantial majority of commission revenue, the Company utilized statistical tools and methodologies to estimate member attrition, which is a key driver when estimating the amount and timing of future cash flows and can be particularly volatile during the first several years.

To determine the constraint to be applied to LTV, the Company evaluates the difference between prior estimates of LTV and actual cash received and applies judgment to determine the constraint to apply.

Description of the Matter The Company recognized commission revenue of approximately $508.2 million in 2020 and related commissions receivable were approximately $792.4 million at December 31, 2020.

As described in Notes 1 and 2 to its consolidated financial statements, the Company’s commission revenue is recognized as the amount of the total estimated lifetime value of the commissions expected to be received when a member obtains a plan through the Company and is approved by the carrier (“LTV”).

Auditing management’s determination of the LTV of commission revenue was especially complex and highly judgmental due to the complexity of the models used and the subjectivity required by the Company to estimate the amount and timing of future cash flows, calculate the amount of commission revenue that is probable of not being reversed, and determine the timing and amount of any adjustment revenue that results from changes in the estimates of previously recorded LTV.

The Company utilizes statistical tools and methodologies to estimate member attrition, which is a key driver when estimating the amount and timing of future cash flows and can be particularly volatile during the first several years.

To determine the initial constraint to be applied to LTV, the Company evaluates the difference between prior estimates of LTV and actual cash received and applies judgment to determine the constraint to apply.

For the ongoing evaluation of the constraint, the Company also analyzes whether circumstances have changed and considers any known or potential modifications to the inputs into LTV and the factors that can impact the amount of cash expected to be collected in future periods such as commission rates, carrier mix, estimated average plan duration, changes in laws and regulations, and cancellations of insurance plans offered by health insurance carriers with which the Company has a relationship.

The Company also compares actual versus expected cash collections of previously recorded LTV and assesses qualitative and quantitative factors to determine whether adjustment revenue should be recognized and, if so, the amount and timing of such.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s process to estimate the amount and timing of future cash flows and LTV.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s process to estimate the amount and timing of future cash flows and LTV.

These processes and controls include those covering the models and methods used to calculate LTV, the use of management judgment to determine the constraint applied to LTV, management’s evaluation of any required adjustments to previously recorded LTV estimates, and the completeness and accuracy of the data used in such estimates and calculations.

Our audit procedures also included, among others, evaluating the methodology used and significant assumptions discussed above, and testing the completeness and accuracy of the underlying data used by the Company.

We involved our valuation specialists to assist in our testing of the estimated average plan duration, which includes member attrition assumptions, used to develop the Medicare Advantage LTV, including performing certain corroborative calculations.

We involved our valuation specialists to assist in our testing of the estimated average plan duration, which includes member attrition assumptions, including performing certain corroborative calculations.

We inspected and compared the results of the Company’s retrospective review analysis of historical estimates for certain plan effective years to historical cash collection experience, including reperforming the calculations and validating the completeness and accuracy of the underlying data used.

In addition, we performed inquiries of key personnel regarding their evaluation of changes to LTV, the adjustments made to the constraint for current and expected future economic conditions, and any decisions on the timing and amount of adjustment revenue recognized.

We also reviewed analyst reports, press releases, and other relevant third-party and/or industry trends data for contrary evidence.

We also reviewed analyst reports, press releases, and other relevant third-party and/or industry trends data for contrary evidence including competitor data.

/s/ Ernst & Young LLP

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Redwood City, California

March 2, 2020

February 26, 2021

EHEALTH, INC.

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(In thousands, except per share amounts)

December 31, 2019*

December 31, 2018

December 31, 2020* December 31, 2019

Current assets:

Cash and cash equivalents $ 43,759 $ 23,466

Short-term marketable securities 49,620 —

Accounts receivable 1,799 2,332

Commissions receivable — current

Contract assets – commissions receivable – current 219,153 174,526

Prepaid expenses and other current assets 16,661 7,822

Total current assets 330,992 208,146

Commissions receivable — non-current

Contract assets – commissions receivable – non-current 573,252 414,696

Property and equipment, net 14,609 10,518

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Restricted cash 3,354 3,354

Other assets 26,455 18,004

Intangible assets, net 8,569 10,062

Goodwill 40,233 40,233

Total assets $ 1,040,022 $ 741,634

Liabilities and stockholders’ equity

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Total current liabilities 84,408 112,985

Earnout liability — non-current

Commitments and contingencies

Deferred income taxes – non-current 72,317 64,130

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11,831 and 11,616 shares as of December 31, 2020 and 2019, respectively

( 199,998 ) ( 199,998 )

Retained earnings 316,155 271,852

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* Reflects the impact from the adoption of ASC 326 on January 1, 2020.

See Note 11 – Leases for details.

See Note 1 – Summary of Business and Significant Accounting Policies for details.

The accompanying notes are an integral part of these consolidated financial statements.

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Year Ended December 31,

2020 2019 2018

Commission $ 508,189 $ 466,676 $ 227,211

Other 74,585 39,525 24,184

Total revenue 582,774 506,201 251,395

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General and administrative 76,452 64,150 45,828

Change in fair value of earnout liability

Amortization of intangible assets 1,493 2,187 2,091

Change in fair value of earnout liability — 24,079 12,300

Restructuring charges — — 1,865

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Total operating costs and expenses 529,451 424,792 248,844

Income (loss) from operations

Income from operations 53,323 81,409 2,551

Other income, net 666 2,090 755

Income (loss) before provision (benefit) for income taxes

Provision (benefit) for income taxes

Income before income taxes 53,989 83,499 3,306

Provision for income taxes 8,539 16,612 3,065

Net income $ 45,450 $ 66,887 $ 241

Net income per share:

Basic $ 1.75 $ 2.90 $ 0.01

Diluted $ 1.68 $ 2.73 $ 0.01

Weighted-average number of shares used in per share amounts:

Basic 26,025 23,075 19,294

Diluted 27,014 24,539 20,409

Comprehensive income:

Foreign currency translation adjustment, net of taxes

Net income $ 45,450 $ 66,887 $ 241

Unrealized holding gain for available for sale debt securities, net of tax 28 — —

Foreign currency translation adjustment 206 ( 11 ) ( 75 )

Comprehensive income $ 45,684 $ 66,876 $ 166

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(In thousands)

Additional Paid-in

Treasury Stock

Retained Earnings

Accumulated Other Comprehensive Income

Total Stockholders’ Equity

Balance at December 31, 2016

Issuance of common stock in connection with exercise of common stock options

Repurchase of shares to satisfy employee tax withholding obligations

Stock-based compensation expense

Foreign currency translation adjustment, net of taxes

Common Stock Additional Paid-in

Capital Treasury Stock Retained Earnings Accumulated Other Comprehensive Income Total Stockholders’ Equity

Shares Amount Shares Amount

Balance at December 31, 2017 29,880 $ 30 $ 281,706 11,238 $ ( 199,998 ) $ 204,724 $ 202 $ 286,664

Issuance of common stock in connection with exercise of common stock options

Issuance of common stock in connection with equity incentive plans 688 1 2,687 — — — — 2,688

Repurchase of shares to satisfy employee tax withholding obligations — — ( 4,504 ) 188 — — — ( 4,504 )

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Stock-based compensation expense — — 12,540 — — — — 12,540

Foreign currency translation adjustment, net of taxes

Balance at December 31, 2018

Issuance of common stock in connection with exercise of common stock options

Other comprehensive income, net of tax — — — — — — ( 75 ) ( 75 )

Net income — — — — — 241 — 241

Balance as of December 31, 2018 30,863 31 298,024 11,426 ( 199,998 ) 204,965 127 303,149

Issuance of common stock in connection with equity incentive plans 834 1 5,534 — — — — 5,535

Repurchase of shares to satisfy employee tax withholding obligations — — ( 14,281 ) 190 — — — ( 14,281 )

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Stock-based compensation expense — — 22,570 — — — — 22,570

Foreign currency translation adjustment, net of taxes

Balance at December 31, 2019

Other comprehensive income, net of tax — — — — — — ( 11 ) ( 11 )

Net income — — — — — 66,887 — 66,887

Balance as of December 31, 2019 34,752 35 455,159 11,616 ( 199,998 ) 271,852 116 527,164

Cumulative effect from the adoption of ASU 2016-13 — — — — — ( 1,147 ) — ( 1,147 )

Issuance of common stock in connection with equity incentive plans 638 1 1,940 — — — — 1,941

Repurchase of shares to satisfy employee tax withholding obligations — — ( 19,808 ) 215 — — — ( 19,808 )

Shares issued in equity offering 2,070 2 228,022 — — — — 228,024

Settlement of earnout liability 295 — 28,521 — — — — 28,521

Stock-based compensation — — 27,179 — — — — 27,179

Other comprehensive income, net of tax — — — — — — 234 234

Net income — — — — — 45,450 — 45,450

Balance as of December 31, 2020 37,755 $ 38 $ 721,013 11,831 $ ( 199,998 ) $ 316,155 $ 350 $ 837,558

The accompanying notes are an integral part of these consolidated financial statements.

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Year Ended December 31,

2020 2019 2018

Operating activities:

Net income $ 45,450 $ 66,887 $ 241

Adjustments to reconcile net income to net cash used in operating activities:

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Accounts receivable 533 1,270 ( 2,127 )

Commissions receivable

Contract assets – commissions receivable ( 205,209 ) ( 243,364 ) ( 50,967 )

Prepaid expenses and other assets ( 6,180 ) ( 466 ) 232

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Deferred revenue ( 2,262 ) 1,694 491

Accrued restructuring charges

Accrued expenses and other liabilities 2,780 1,869 935

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Purchases of property and equipment and other assets ( 7,751 ) ( 6,641 ) ( 4,534 )

Purchases of marketable securities ( 180,505 ) — —

Proceeds from redemption and maturities of marketable securities 130,978 — —

Payments for security deposits — ( 72 ) —

Acquisition of business, net of cash acquired — — ( 14,929 )

Cash used in investing activities

Net cash used in investing activities ( 73,283 ) ( 16,944 ) ( 25,757 )

Financing activities:

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Principal payments in connection with leases ( 157 ) ( 105 ) ( 103 )

Net cash provided by (used in) financing activities

Net cash provided by financing activities

201,249 102,141 1,860

Effect of exchange rate changes on cash, cash equivalents and restricted cash 187 26 ( 77 )

Net increase (decrease) in cash, cash equivalents and restricted cash

20,293 13,731 ( 27,204 )

Cash, cash equivalents and restricted cash at beginning of period 26,820 13,089 40,293

Cash, cash equivalents and restricted cash at end of period $ 47,113 $ 26,820 $ 13,089

Supplemental disclosure of non-cash investing and financing activities

Supplemental disclosure of cash flows

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Cash refunds from (paid for) income taxes, net

$ 882 $ 741 $ ( 139 )

The accompanying notes are an integral part of these consolidated financial statements.

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Our ecommerce technology also enables us to deliver consumers’ health insurance applications electronically to health insurance carriers.

We are licensed to market and sell health insurance in all 50 states and the District of Columbia.

We are licensed to market and sell health insurance in all fifty states and the District of Columbia.

Basis of Presentation – Our consolidated financial statements include the accounts of eHealth, Inc.

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GAAP.”) Certain prior period amounts have been reclassified to conform with our current period presentation.

Our Consolidated Balance Sheet as of December 31, 2019 reflects the impact from the adoption of ASC 842 on January 1, 2019.

See Note 11 – Leases for details.

Operating Segments – 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.

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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 customers, including but not limited to, dental and vision insurance, 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 and family and small business health insurance plans and ancillary products sold to our non-Medicare-eligible customers, including but not limited to, dental, vision, life, short term disability and long term disability 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.

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

To a lesser extent, the Individual, Family and Small Business segment includes 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.

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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 are presented as a reconciling item to our consolidated financial results.

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, depreciation and amortization expense and amortization of intangible assets.

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Use of Estimates – The preparation of consolidated financial statements and related disclosures in conformity with U.S.

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Maintenance and minor replacements are expensed as incurred.

Depreciation and amortization is computed using the straight-line method based on estimated useful lives as follows:

Computer equipment and software

Office equipment and furniture

Leasehold improvements*

Depreciation and amortization expenses are computed using the straight-line method based on estimated useful lives as follows:

Computer equipment and software 3 to 5 years

Office equipment and furniture 5 years

Leasehold improvements* 5 to 10 years

* Lesser of useful life or related lease term

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Factors that we consider in deciding when to perform an impairment test include significant negative industry or economic trends or significant changes or planned changes in our use of the intangible assets.

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our goodwill is allocated among our two segments, (1) Medicare and (2) Individual, Family and Small Business.

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We evaluated the remaining useful lives of our intangible assets with finite lives and determined no material adjustments to the remaining lives were required.

See Note 4 – Supplemental Financial

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Statement Information of the Notes to Consolidated Financial Statements for additional information regarding our intangible assets.

See Note 4 – Supplemental Financial Statement Information of the Notes to Consolidated Financial Statements for additional information regarding our intangible assets.

Other Long-Lived Assets – We evaluate other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value.

Revenue Recognition – In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers (ASC 606) , requiring an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Effective January 1, 2018, we adopted the requirements of Accounting Standards ASC 606 using the full retrospective method, which permits adjusting prior periods as if ASC 606 had been in effect as of the beginning of the earliest period presented.

We are compensated by the receipt of commission payments from health insurance carriers whose health insurance policies are purchased through our ecommerce platforms or our customer care centers.

We may also receive commission bonuses based on our attaining predetermined target sales levels for Medicare, individual and family, small business and ancillary health insurance products, or other objectives, as determined by the health insurance carrier, which we recognize as commission revenue when we achieve the predetermined target sales levels or other objectives.

In addition, we also generate revenue from non-commission revenue sources, which include online sponsorship and advertising, technology licensing and lead referrals.

Payment of commissions typically commences within 60 days from the effective date.

Payment terms for non-commission revenue are typically 30 days from the invoice date .

Revenue Recognition – Our commission revenue consists of commission payments from health insurance carriers whose health insurance policies are purchased through our ecommerce platforms or telephonically via our customer care center, and bonus payments which are generally based on our attaining predetermined target sales levels or other objectives, as determined by the health insurance carriers.

In addition, we also generate revenue from non-commission sources, which include online sponsorship, advertising, lead referrals, and technology licensing.

We account for revenue under ASC 606 – Revenue from Contracts with Customers.

The core principle of ASC 606 is to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled in exchange for those goods or services.

Accordingly, we recognize revenue for our services in accordance with the following five steps outlined in ASC 606:

Accordingly, we recognize revenue for our services through the application of the following steps:

• Identification of the contract, or contracts, with a customer.

A contract with a customer exists when (i) we enter into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or services, (ii) the contract has commercial substance, and (iii) we determine that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.

• Identification of the performance obligations in the contract.

Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the goods or service either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract.

• Determination of the transaction price.

The transaction price is determined based on the consideration to which we will be entitled in exchange for transferring goods or services to the customer.

• Allocation of the transaction price to the performance obligations in the contract.

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation.

Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis.

• Recognition of revenue when, or as, we satisfy a performance obligation.

We satisfy performance obligations either over time or at a point in time, as discussed in further detail below.

Revenue is recognized at the time the related performance obligation is satisfied by transferring the promised good or service to the customer.

Commission Revenue — Our commission revenue results from approval of an application from health insurance carriers, which we define as our customers.

Commission Revenue — Our commission revenue results from approval of an application from health insurance carriers, which we define as our customers under ASC 606.

Our commission revenue is primarily comprised of commissions from health insurance carriers which is computed using the estimated constrained lifetime value of commission payments that we expect to receive.

We estimate commission revenue for each insurance product by using a portfolio approach to a group of approved members by plan type and the effective month of the relevant plan, which we refer to as “cohorts”.

We recognize revenue for plans approved during the period by applying the latest estimated constrained lifetime value (“LTV”) for that product.

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We typically enter into contractual agency relationships with health insurance carriers that are non-exclusive and terminable on short notice by either party for any reason.

In addition, health insurance carriers often have the ability to terminate or amend our agreements unilaterally on short notice, including provisions in our agreements relating to the commission rates paid to us by the health insurance carriers.

The amendment or termination of an agreement we have with a health insurance carrier may adversely impact the commissions we are paid on health insurance plans purchased from the carrier by means of our health insurance exchange services.

adjustment revenue for plans approved in prior periods when changes in assumptions for constrained LTV calculations are made and when there is sufficient evidence demonstrating a trend that is different from the estimated constrained LTV at the time of approval resulting in a change in estimate to expected cash collections.

Net adjustment revenue consists of increases in revenue for certain prior period cohorts as well as reductions in revenue for certain prior period cohorts.

We recognize positive adjustments to revenue to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur.

We assess the risk of significant revenue reversal based on statistical and qualitative analysis given historical information and current market conditions.

Our commission revenue for each product line is based on a number of assumptions, which include, but are not limited to, estimating conversion of an approved member to a paying member, forecasting average plan duration and forecasting the commission amounts likely to be received per member.

These assumptions are based on our analysis of historical trends for the different cohorts and incorporate management’s judgment in interpreting those trends and applying the constraints discussed below.

For our Medicare commission revenue, which represented 86 %, 87 % and 83 % of our total commission revenue for the years ended December 31, 2020, 2019 and 2018, respectively, the estimated average plan duration, which is the average length of time paying members are active on their plans, used to calculate Medicare health insurance plan LTVs historically has been approximately 3 years for Medicare Advantage plans, approximately 5 years for Medicare Part D prescription drug plans, and approximately 5 years for Medicare Supplement plans.

While the average plan duration has been approximately 3 years for Medicare Advantage plans, certain members may have a duration of up to approximately 13 years.

The estimated average plan duration used to calculate the LTV for major medical individual and family health insurance plans historically has been approximately 1.5 to 2 years.

For short term health insurance plan LTVs, the estimated average plan duration historically has been less than six months .

For all other ancillary health insurance plan LTVs, the estimated average plan duration has historically varied from 1 to 3 years.

Constraints are applied to LTV for revenue recognition purposes to help ensure that the total estimated lifetime commissions expected to be collected for an approved member’s plan are recognized as revenue only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with future commissions receivable from the plan is subsequently resolved.

Significant judgment can be involved in determining the constraint.

To determine the constraints to be applied to LTV, we compare prior calculations of LTV to actual cash received and review the reasons for any variations.

We then apply judgment in assessing whether the difference between historical cash collections and LTV is representative of differences that can be expected in future periods.

We also analyze whether circumstances have changed and consider any known or potential modifications to the inputs into LTV in light of the factors that can impact the amount of cash expected to be collected in future periods, including but not limited to commission rates, carrier mix, plan duration, cancellations of insurance plans offered by health insurance carriers with which we have a relationship, changes in laws and regulations, and changes in the economic environment.

We evaluate the appropriateness of our constraints on an ongoing basis, and we update our assumptions when we observe a sufficient amount of evidence that would suggest that the long-term expectation underlying the assumptions has changed.

We re-compute LTVs for all outstanding cohorts on a quarterly basis.

We continually review and monitor changes in the data used to estimate LTV and compare the cash received for each cohort to our original estimates at the time of approval.

The fluctuations of cash received for each cohort as compared to our estimates and the fluctuations in LTV can be significant and may or may not be indicative of the need to adjust revenue for prior period cohorts.

Changes in LTV may result in an increase or a decrease to revenue and a corresponding increase or decrease to contract assets – commissions receivable.

We analyze these fluctuations and, to the extent we see changes in our estimates of the cash commission collections that we believe are indicative of an increase or decrease to prior period LTVs, we adjust revenue for the affected cohorts at the time such determination is made and when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur.

As we accumulate more historical data, we continue to enhance our LTV estimation models using statistical tools to increase the accuracy of LTV estimates with an emphasis on improving member attrition forecasting.

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

enhancements to the LTV estimation model provide greater statistical certainty on expected cash collections, particularly for earlier period cohorts where there is more historical data available.

For both Medicare Advantage and Medicare Part D prescription drug plans, we receive a fixed, annual commission payment from insurance carriers once the plan is approved by the carrier and either a fixed, monthly, or annual commission payment beginning with and subsequent to the second plan year.

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We generally continue to receive the commission payment from the relevant insurance carrier until the health insurance plan is cancelled or we otherwise do not remain the agent on the policy.

Since the adoption of ASC 606, we recognize revenue at the time of plan approval by applying the latest estimated constrained LTV for that product.

We estimate commission revenue for each product by using a portfolio approach to a group of approved members by plan type and the effective month of the relevant plan, which we refer to as “cohorts”.

We estimate the cash commissions we expect to collect for each approved member cohort by evaluating various 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.

On a quarterly basis, we recompute LTV at a cohort level for all outstanding cohorts, review and monitor changes in the data used to estimate LTV as well as the cash received for each cohort as compared to our original estimates.

The fluctuations of cash received for each cohort and LTV can be significant and may or may not be indicative of the need to adjust LTVs for prior period cohorts.

Management analyzes these fluctuations and, to the extent we see changes in our estimates of the cash commission collections that we believe are indicative of an increase or decrease to prior period LTVs, we will adjust LTV for the affected cohorts at the time such determination is made.

Changes in LTV may result in an increase or a decrease to revenue and a corresponding increase or decrease to commissions receivable, accordingly.

We refer the net commission revenue from members approved in prior periods as “adjustment revenue” and our revenue can fluctuate significantly from period to period as a result of adjustment revenue.

For Medicare-related, individual and family and ancillary health insurance plans, our services are complete once a submitted application is approved by the relevant health insurance carrier.

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therefore, we recognize small business health insurance plan commission revenue at the time the plan is approved by the carrier, and when it renews each year thereafter, equal to the estimated commissions we expect to collect from the plan over the following twelve months.

Our estimate of commission revenue for each product line is based on a number of assumptions, which include, but are not limited to, estimating conversion of an approved member to a paying member, forecasting average plan duration and forecasting the commission amounts likely to be received per member.

These assumptions are based on our analysis of historical trends for the different cohorts and incorporate management’s judgment in interpreting those trends to apply the constraints discussed below.

For our Medicare commission revenue, which represented 87 % , 83 % and 76 % of our total commission revenue for the years ended December 31, 2019 , 2018 and 2017 , respectively, the estimated average plan duration used to calculate Medicare health insurance plan LTVs historically has been approximately 3 years for Medicare Advantage plans, approximately 5 years for Medicare Part D prescription drug plans, and approximately 5 years for Medicare Supplement plans.

While the average plan duration has been approximately 3 years for Medicare Advantage plans, certain members may have a duration of up to 12 years .

The estimated average plan duration used to calculate the LTV for major medical individual and family health insurance plans historically has been approximately 1.5 to 2 years .

For short term health insurance plan LTVs, the estimated average plan duration historically

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

has been less than six months.

For all other ancillary health insurance plan LTVs, the estimated average plan duration has historically varied from 1 to 3 years .

To the extent we make changes to the assumptions we use to calculate constrained LTVs, we recognize any material impact of the changes to commission revenue in the reporting period in which the change is made, including revisions of estimated lifetime commissions either below or in excess of previously estimated constrained LTV recognized as revenue.

See Note 2 – Revenue of the Notes to Consolidated Financial Statements for additional information regarding our commission revenue.

Other Revenue – Our sponsorship and advertising program allows carriers to purchase advertising space in specific markets in a sponsorship area on our website.

In return, we are typically paid a monthly fee, which is recognized over the period that advertising is displayed, and often a performance fee based on metrics such as submitted health insurance applications, which is recognized when control has been transferred.

In return, we are typically paid a fee, which is recognized over the period that advertising is displayed, and often a performance fee based on metrics such as submitted health insurance applications, which is recognized when control has been transferred.

We also offer Medicare advertising services, which include website development, hosting and maintenance.

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Our commercial technology licensing business allows carriers the use of our ecommerce platform to offer their own health insurance policies on their websites and agents to utilize our technology to power their online quoting, content and application submission processes.

Typically, we are paid a one-time implementation fee, which we recognize as control is transferred on a straight-line basis over the estimated term of the customer relationship (generally the initial term of the agreement), commencing once the technology is available for use by the third party, and a performance fee based on metrics such as submitted health insurance applications.

The metrics used to calculate performance fees for both sponsorship and advertising and technology licensing are based on performance criteria that are either measured based on data tracked by us, or based on data tracked by the third party.

Typically, we are paid a one-time implementation fee, which we recognize on a straight-line basis over the estimated term of the customer relationship, and a performance fee based on metrics such as submitted health insurance applications.

The performance fees are based on performance criteria.

In instances where the performance criteria data is tracked by us, we recognize revenue in the period of performance and when all other revenue recognition criteria has been met.

In instances where the performance criteria data is tracked by the third party, we recognize revenue as control is transferred at amounts where reversal of such amounts is not likely to occur.

Typically, this occurs through our receipt of a cash payment from the third party along with a detailed statement containing the data that is tracked by the third party.

Deferred Revenue – Deferred revenue includes deferred technology licensing implementation fees and amounts billed to or collected from sponsorship or technology licensing customers in advance of our performing our service for such customers.

It also includes the amount by which both unbilled and billed services provided under our technology licensing arrangements exceed the straight-line revenue recognized to date.

In instances where the performance criteria data is tracked by the third party, we recognize revenue when reversal of such amounts is not likely to occur.

Deferred Revenue – Deferred revenue includes deferred fees and amounts billed to or collected from advertising, sponsorship or technology licensing customers in advance of our performing our service for such

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It also includes the amount by which both unbilled and billed services provided under our technology licensing arrangements exceed the revenue recognized to date.

Incremental Costs to Obtain a Contract — Our sales compensation plans, which are directed at converting leads into approved members, represent fulfillment costs and not costs to obtain a contract with a customer.

Additionally, we reviewed compensation plans related to personnel responsible for identifying new health insurance carriers and entering into contracts with new health insurance carriers and concluded that no incremental costs are incurred to obtain such contracts.

Book-of-Business Transfers – We entered into several agreements with a broker partner, whereby the partner transferred certain of its existing Medicare plan members to us as the broker of record on the underlying policies.

The first of these book-of-business transfers occurred in November 2010 and the most recent in June 2012.

Total consideration paid by us for these books-of-business was $ 13.9 million .

The consideration we paid to the broker partner was based on the discounted commissions expected to be received over the remaining life of each transferred Medicare plan member.

As we receive commission payments from health insurance carriers for these plan members, we record the margin earned to other income , net in the Consolidated Statements of Comprehensive Income.

The margin earned and recorded to other income, net for these books-of-business for the years ended December 31, 2019 , 2018 and 2017 totaled $ 0.6 million , $ 0.8 million , and $ 0.9 million , respectively.

Therefore, costs related these compensation plans are expensed as incurred.

Cost of Revenue – Included in cost of revenue are payments related to health insurance policies sold to members who were referred to our website by marketing partners with whom we have revenue-sharing arrangements.

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We recognize direct marketing expenses in our direct member acquisition channel in the period in which they are incurred.

We recognize online marketing expenses associated with search advertising in

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the period in which the consumer clicks on the advertisement.

We recognize online marketing expenses associated with search advertising in the period in which the consumer clicks on the advertisement.

Advertising costs incurred in the years ended December 31, 2020, 2019 and 2018 totaled $ 178.9 million, $ 122.6 million, and $ 64.4 million, respectively.

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Advertising costs for our marketing partner channel and our online advertising channel are expensed as incurred.

Research and Development Expenses – Research and development expenses consist primarily of compensation and related expenses incurred for employees on our engineering and technical teams.

Research and Development Expenses – Research and development expenses consist primarily of compensation and related expenses incurred for employees on our engineering and technical teams, which are expensed as incurred.

Research and development costs, which totaled $ 9.1 million, $ 8.1 million and $ 6.9 million for the years ended December 31, 2020, 2019 and 2018, respectively, are included in technology and content expense in the accompanying Consolidated Statements of Comprehensive Income.

Deferred Contract Costs – Deferred contract costs primarily represent direct costs related to professional services provided in connection with technology licensing arrangements that are accounted for as a single unit of accounting.

The direct professional services costs are deferred up until the commencement of revenue recognition of the single unit and then recognized as cost of revenue ratably over the same period as the related revenue.

Internal-Use Software and Website Development Costs – We capitalize costs of materials, consultants and compensation and benefits costs of employees who devote time to the development of internal-use software during the application development stage.

The amortization of these assets are recorded in technology and content.

Our judgment is required in determining the point at which various projects enter the phases at which costs may be capitalized, in assessing the ongoing value of the capitalized costs and in determining the estimated useful lives over which the costs are amortized, which is generally 3 years.

For the years ended December 31, 2020, 2019 and 2018, we capitalized internal-use software and website development costs of $ 18.0 million, $ 10.2 million and $ 6.3 million respectively, and recorded amortization expense of $ 7.8 million, $ 3.8 million, and $ 2.2 million respectively.

Capitalized internal-use software and website development costs are included in Other Assets on our Consolidated Balance Sheets and were $ 24.6 million and $ 14.7 million as of December 31, 2020 and 2019, respectively.

Stock-Based Compensation – We recognize stock-based compensation expense in the accompanying Consolidated Statements of Comprehensive Income based on the fair value of our stock-based awards over their respective vesting periods, which is generally 4 years.

The estimated grant date fair value of our stock options is determined using the Black-Scholes-Merton pricing model and a single option award approach.

The estimated attainment of performance-based awards and

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related expense is based on the expectations of revenue and earnings target achievement.

The estimated fair value of performance awards with market conditions is determined using the Monte-Carlo simulation model.

The assumptions used in calculating the fair value of stock-based payment awards and expected attainment of performance-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment.

We will continue to use judgment in evaluating the expected term and volatility related to our own stock-based awards on a prospective basis, and incorporating these factors into the model.

Changes in key assumptions could significantly impact the valuation of such instruments.

The estimated grant date fair value of our stock options is determined using the Black-Scholes pricing model and a single option award approach.

The weighted-average expected term for stock options granted is calculated using historical option exercise behavior.

The dividend yield is determined by dividing the expected per share dividend during the coming year by the grant date stock price.

Through December 31, 2019 , we had not declared or paid any cash dividends, and we do not expect to pay any in the foreseeable future.

Through December 31, 2020, we had not declared or paid any cash dividends to common stockholders, and we do not expect to pay any in the foreseeable future.

We base the risk-free interest rate on the implied yield currently available on U.S.

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Expected volatility is determined using a combination of the implied volatility of publicly traded options in our stock and historical volatility of our stock price.

The estimated attainment of performance-based awards and related expense is based on the expectations of revenue and earnings target achievement.

The estimated fair value of performance awards with market conditions is determined using the Monte-Carlo simulation model.

We will continue to use judgment in evaluating the expected term and volatility related to our own stock-based awards on a prospective basis, and incorporating these factors into the model.

Changes in key assumptions could significantly impact the valuation of such instruments.

401(k) Plan – In September 1998, our board of directors adopted a defined contribution retirement plan ("401(k) Plan"), which qualifies under Section 401(k) of the Internal Revenue Code of 1986.

401(k) Plan – Our board of directors adopted a defined contribution retirement plan ("401(k) Plan") in 1998, which qualifies under Section 401(k) of the Internal Revenue Code of 1986.

Participation in the 401(k) Plan is available to substantially all employees in the United States.

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Our contributions to the 401(k) Plan are discretionary and are expensed when incurred.

We also match employee contributions to our 401(k) Plan at 25 % of an employee’s contribution each pay period, up to a maximum of 3 % of the employee’s salary during such pay period for the year ended December 31, 2019, compared to a maximum of 2 % and 1 % for the years ended December 31, 2018 and 2017 , respectively.

We also match employee contributions to our 401(k) Plan at 100 % of an employee’s contribution each pay period, up to a maximum of 3 % of the employee’s salary during such pay period for the year ended December 31, 2020, compared to 25 % contribution match, with maximum of 3 % and 2 % for the years ended December 31, 2019 and 2018, respectively.

Our matching contributions are expensed as incurred and vest one-third for each of the first three years of the recipient’s service.

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We recognized expense of $ 3.5 million, $ 2.3 million and $ 1.0 million for the years ended December 31, 2020, 2019 and 2018, respectively, related to 401(k) matching contributions.

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Income Taxes – We account for income taxes using the liability method.

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As a result, our Medicare plan-related commission revenue is highest in our fourth quarter.

Any changes or additional enrollment periods may change the seasonality of our business.

For instance, due to the recent reintroduction of the Medicare Advantage open enrollment period that takes place in the first quarter of the year, our first quarter is generally the second-highest revenue generating quarter.

The majority of our individual and family health insurance plans are sold in the fourth quarter during the annual open enrollment period as defined under the federal Patient Protection and Affordable Care Act and related amendments in the Health Care and Education Reconciliation Act.

Individuals and families generally are not able to purchase individual and family health insurance outside of these open enrollment periods, unless they qualify for a special enrollment period as a result of certain qualifying events, such as losing employer-sponsored health insurance or moving to another state.

Individuals and families generally are not able to

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purchase individual and family health insurance outside of these open enrollment periods, unless they qualify for a special enrollment period as a result of certain qualifying events, such as losing employer-sponsored health insurance or moving to another state due to the recent COVID-19 pandemic.

Recently Adopted Accounting Pronouncements

Leases (Topic 842) – In February 2016, the FASB issued ASU No.

2016-02, Leases .

ASU 2016-02 requires lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months.

Recognition, measurement, and presentation of expenses will depend on classification as a finance or operating lease.

For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct finance leases.

The guidance also eliminates existing real estate-specific provisions for all entities.

The new standard was effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period.

We adopted the standard using the optional modified retrospective transition method on January 1, 2019.

As a result of adopting the ASU, on January 1, 2019, we recorded a right-of-use asset and lease liability of $ 23.3 million and $ 24.6 million , respectively.

See Note 11 – Leases for further discussion on our leases.

Financial Instruments – Credit Losses (Topic 326) – In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2016-13, Financial Instruments – Credit Losses (Topic 326), that requires companies to present certain financial assets net of the amount expected to be collected.

The guidance requires the measurement of expected credit losses to be based on relevant information from past events, including historical experiences, current conditions and reasonable and supportable forecasts that affect collectability.

Contract assets – commissions receivable were our only financial assets that were materially impacted by this guidance.

We adopted ASU 2016-13, including applicable amendments in other ASUs issued subsequent to ASU 2016-13, using a modified retrospective transition method on January 1, 2020 for all financial assets measured at amortized cost.

Results for periods after January 1, 2020 are presented under ASU 2016-13 while prior period amounts continue to be reported under the previous accounting standards.

We recorded a $ 1.1 million decrease, net of income taxes, to retained earnings as of January 1, 2020 for the cumulative effect of adopting ASU 2016-13.

See Note 4 – Supplemental Financial Statement Information for further discussion on credit losses.

T he impact from the adoption of ASU 2016-13 is summarized as follows (in thousands):

Balance Sheet Impact:

December 31, 2019 Transition Adjustments January 1, 2020

Contract assets – commissions receivable – current $ 174,526 $ ( 71 ) $ 174,455

Contract assets – commissions receivable – non-current 414,696 ( 1,442 ) 413,254

Other assets* 18,004 366 18,370

Total assets 741,634 ( 1,147 ) 740,487

Retained earnings 271,852 ( 1,147 ) 270,705

* Adjustment to Other assets is due to the increase in deferred tax assets resulting from the adoption of ASU 2016-13 .

Cloud Computing Arrangements (Topic 350) – In 2018, the FASB issued ASU No.

2018-15, which amends ASC 350-40 to address a customer's accounting for implementation costs incurred in a cloud computing arrangement (CCA) that is a service contract.

The update conforms the requirements of capitalizing costs incurred in a CCA that is a service contract with the accounting guidance on capitalizing costs associated with developing or obtaining internal-use software.

This update amends ASC 350 to include in its scope implementation costs of a CCA that is a service contract and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized.

The new guidance is effective for annual and interim reporting periods beginning after December 15, 2019.

We adopted this guidance prospectively in the first quarter of 2020.

Cloud computing implementation costs incurred in hosting arrangements are capitalized and recorded in Other assets on our Consolidated Balance Sheet, and were immaterial for the year ended December 31, 2020.

Financial Instruments (Topic 820) – In 2018, the FASB issued ASU No.

2018-13, to change the disclosure requirements for fair value measurement with the objective of improving the effectiveness of the notes to financial statements.

This new guidance removed and modified certain disclosure requirements under Topic 820.

We adopted this guidance in the first quarter of 2020 with no material impact on our consolidated financial statements.

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Intangible – Goodwill and Other (Topic 350) – In 2017, the FASB issued ASU 2017-04 to simplify the subsequent measurement of goodwill by removing the requirement to perform a hypothetical purchase price allocation to compute the implied fair value of goodwill to measure impairment.

Instead, any goodwill impairment will equal the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.

In addition, the guidance eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test.

This standard is effective for annual or any interim goodwill impairment test in fiscal years beginning after December 15, 2019.

We adopted this guidance in the first quarter of 2020 with no material impact on our consolidated financial statements.

Recent Accounting Pronouncement Not Yet Adopted

Financial Instruments – Credit Losses (Topic 326) – In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments — Credit Losses , which amends the guidance for accounting for assets that are potentially subject to credit risk.

The amendments affect contract assets, loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash.

ASU 2016-13 is effective for us beginning January 1, 2020 using a modified retrospective transition method.

We are still in the process of assessing the impact on our consolidated financial statements and disclosure from the adoption of this standard update.

Income Taxes (Topic 740) – In December 2019, the FASB issued ASU No.

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The amendments in this standard update have individually different adoption approaches.

We are still in the process of assessing the impact on our consolidated financial statements and disclosure from the adoption of this standard update.

Note 2 – Revenue

Adoption of ASC 606

As discussed in Note 1 - Summary of Business and Significant Accounting Policies , the FASB issued ASU 2014-09 in

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2014, which, as amended, created ASC 606.

The core principle of ASC 606 is that an entity shall recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The standard also contains significant new disclosure requirements regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

We adopted ASC 606 effective January 1, 2018, on a full retrospective basis.

We have applied the standard to all contracts.

Upon adoption, our retained earnings balance increased by $ 174.7 million as of December 31, 2016.

Revenue Recognition Based on Estimated Constrained LTV

We recognize revenue for plans approved during the period by applying the latest estimated constrained LTV for that product.

We recognize adjustment revenue for plans approved in prior periods when there is a change in estimate to expected cash collections as a result of sufficient evidence that demonstrates a trend that is different from the estimated constrained LTV at the time of approval.

We recognize adjustment revenue when we do not believe there is a probable significant reversal.

We assess the risk of significant revenue reversal based on statistical and qualitative analysis given historical information and current market conditions.

For Medicare-related, individual and family and ancillary health insurance plans, we apply constraints to determine the amount of commission revenue to recognize per approved plan.

The constraints are applied to help ensure that the total estimated lifetime commissions expected to be collected for an approved member’s plan are recognized as revenue only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with future commissions receivable from the plan is subsequently resolved.

The judgments that can be significant in estimating LTVs are related to the constraint.

To determine the constraints to be applied to LTV, we compare prior calculations of LTV to actual cash received and review the reasons for any differences.

We then apply judgment in assessing whether the difference between historical cash collections and LTV is representative of differences that can be expected in future periods.

We also analyze whether circumstances have changed and consider any known or potential modifications to the inputs into LTV in light of the factors that can impact the amount of cash expected to be collected in future periods including but not limited to commission rates, carrier mix, plan duration, changes in laws and regulations, and cancellations of insurance plans offered by health insurance carriers with which we have a relationship.

We evaluate the appropriateness of our constraints on a quarterly basis, and we update the assumptions when we observe a sufficient level of evidence that would suggest that the long-term expectation underlying the assumptions has changed.

We recorded adjustment revenue for plans approved in prior periods of $ 88.1 million , $ 10.8 million and $ 13.0 million , respectively, or $ 3.82 , $ 0.56 , $ 0.70 per basic share, or $ 3.59 , $ 0.53 , $ 0.68 per diluted shares, respectively, for the years ended December 31, 2019 , 2018 and 2017 .

Commission revenue by segment is presented in the table below (in thousands):

Years Ended December 31,

Commission Revenue from Members Approved During the Period (1)

Net Commission Revenue from Members Approved in Prior Periods (2)

Total Medicare Segment Commission Revenue

Individual, Family and Small Business

Commission Revenue from Members Approved During the Period (1)

Net Commission Revenue from Members Approved in Prior Periods (2)

Total Individual, Family and Small Business Segment Commission Revenue

These amounts include commission bonus revenue.

These amounts reflect our revised estimates of cash collections for certain members approved prior to the relevant reporting period that are recognized as adjustments to revenue within the relevant reporting period.

These amounts include revenue associated with renewing small business health insurance members.

Adjustment revenue includes reductions to revenue for certain prior periods cohorts of $ 3.1 million , $ 3.2 million and $ 0.0 million for the years ended December 31, 2019, 2018 and 2017, respectively.

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Since the adoption of ASC 606, we have evaluated changes in estimated cash collections and compare these to the initial estimates of LTV at the time of approval.

We have historically recorded adjustment revenue in the period when the risk of significant reversal in not probable.

We continue to enhance our LTV estimation models to improve the accuracy and to reduce the fluctuations of our LTV estimates.

For Medicare Advantage, our principal product, the quarterly revisions to expected cash collections have generally exceeded the estimated constrained LTVs and revenue recognized at the time of approval.

At the time of ASC 606 adoption, we had been selling Medicare Advantage plans for approximately 7 years with limited volumes until the enrollment season in the fourth quarter of 2015 and volumes have continued to increase.

During the fourth quarter of 2019, with additional data on Medicare Advantage plans and the application of statistical tools we were able to enhance our Medicare Advantage LTV estimation model to increase the accuracy of LTV estimates with an emphasis on improving member attrition forecasting.

The enhancements to the Medicare Advantage LTV estimation model provide greater statistical certainty on expected cash collections, particularly for earlier period cohorts.

As we had sufficient additional information with respect to increases in LTVs and estimates of future cash collections related to earlier period cohorts, we concluded that it was probable that a significant reversal of cumulative revenue would not occur for certain prior period cohorts and, accordingly, recognized adjustment revenue related to these prior period cohorts in 2019.

For the Medicare segment, we recognized adjustment revenue of $ 55.3 million for the year ended December 31, 2019, of which $ 50.8 million was recognized for Medicare Advantage plans during the fourth quarter of 2019.

For the Individual, Family and Small Business segment, we recognized adjustment revenue of $ 32.9 million for the year ended December 31, 2019, in response to observing longer plan duration than initially anticipated at the time of enrollment for these plans.

We do not anticipate a material impact on our consolidated financial statements and disclosures from the adoption of this standard update.

Codification Improvements – In October 2020, the FASB issued ASU No.

2020-10, Codification Improvements .

ASU 2020-10 is intended to facilitate codification updates for technical corrections, such as conforming amendments, clarifications to guidance, simplifications to wording or structure of guidance, and other minor improvements.

It contains amendments that improve the consistency of the codification by including all disclosure guidance in the appropriate disclosure section and other updates that varies in nature.

ASU 2020-10 is effective for us beginning January 1, 2021.

We do not anticipate a material impact on our consolidated financial statements and disclosures from adoption of this standard update.

Debt with Conversion and Other Options (Topic 470) and Contracts in Entity's Own Equity (Topic 815) – In June 2020, the FASB issued No.

2020-06 to simplify the accounting for convertible instruments and improve the usefulness and relevance of information regarding convertible instruments.

This ASU reduce the number of accounting models for converting debt instruments and convertible preferred stock.

ASU 2020-06 is effective for us beginning January 1, 2022, with early adoption permitted.

We are currently evaluating the potential effect on our consolidated financial statements and related disclosures.

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Note 2 – Revenue

Disaggregation of Revenue – The table below depicts the disaggregation of revenue by product and is consistent with how we evaluate our financial performance (in thousands):

Year Ended December 31,

2020 2019 2018

Medicare Advantage $ 374,981 $ 339,810 $ 143,445

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Total Individual and Family 26,669 24,425 12,259

Short-term 9,494 10,524 5,583

Dental 9,354 5,238 2,717

Vision 3,896 2,002 1,467

Other 4,392 3,985 4,941

Total Ancillary 27,136 21,749 14,708

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Other Revenue

Sponsorship and Advertising Revenue 68,383 35,375 15,796

Other 6,202 4,150 8,388

Total Other Revenue 74,585 39,525 24,184

Total Revenue $ 582,774 $ 506,201 $ 251,395

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Non-qualified health plans are individual and family health insurance plans that meet the requirements of the Affordable Care Act and are not offered through the exchange in the relevant jurisdiction.

Individuals that purchase non-qualified health plans cannot receive a subsidy in connection with the purchase of those plans.

Individuals that purchase non-qualified health plans cannot receive a subsidy in connection with the purchase of non-qualified plans.

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Commission Revenue

Since the adoption of ASC 606, we have evaluated changes in estimated cash collections and compare these to the initial estimates of LTV at the time of approval.

We record adjustment revenue in the period when the risk of significant reversal in not probable and continue to enhance our LTV estimation models to improve the accuracy and to reduce the fluctuations of our LTV estimates.

Commission revenue by segment is presented in the table below (in thousands):

Years Ended December 31,

2020 2019 2018

Commission Revenue from Members Approved During the Period (1)

$ 440,722 $ 355,916 $ 192,382

Net Commission Revenue from Members Approved in Prior Periods (2)

5,665 55,292 ( 124 )

Total Medicare Segment Commission Revenue $ 446,387 $ 411,208 $ 192,258

Individual, Family and Small Business

Commission Revenue from Members Approved During the Period (1)

$ 21,971 $ 22,614 $ 24,079

Net Commission Revenue from Members Approved in Prior Periods (2)

39,831 32,854 10,874

Total Individual, Family and Small Business Segment Commission Revenue $ 61,802 $ 55,468 $ 34,953

Total Commission Revenue from Members Approved During the Period (1)

$ 462,693 $ 378,530 $ 216,461

Total Net Commission Revenue from Members Approved in Prior Periods (2)(3)

45,496 88,146 10,750

Total Commission Revenue $ 508,189 $ 466,676 $ 227,211

(1) These amounts include commission bonus revenue.

(2) These amounts reflect our revised estimates of cash collections for certain members approved prior to the relevant reporting period that are recognized as adjustments to revenue within the relevant reporting period.

The net adjustment revenue includes both increases in revenue for certain prior period cohorts as well as reductions in revenue for certain prior period cohorts.

(3) The impact of total net commission revenue from members approved in prior periods was $ 1.75 , $ 3.82 and $ 0.56 per basic share, respectively, or $ 1.68 , $ 3.59 and $ 0.53 per diluted share, respectively, for the years ended December 31, 2020, 2019 and 2018, respectively.

The total reductions to revenue from members approved in prior periods were $ 17.3 million, $ 3.1 million and $ 3.2 million for the years ended December 31, 2020, 2019 and 2018, respectively.

These reductions to revenue primarily related to the Medicare segment.

Enhancement to LTV Estimation Model and Impacts Related to COVID-19

During the fourth quarter of 2019, we enhanced our Medicare Advantage LTV estimation model to increase the accuracy of LTV estimates with an emphasis on improving member attrition forecasting by utilizing statistical tools.

During 2020, we expanded the enhanced statistical models to our remaining insurance products.

Despite the impact of COVID-19 in 2020 and uncertainties regarding the Presidential election and the U.S.

economy, we continued to observe stronger member retention rates in our LTV assessments for the majority of the earlier period cohorts of certain products in our Individual, Family and Small Business segment.

Based on our evaluation of the updated LTV models and retention trends, we recognized $ 39.8 million of net adjustment revenue for the Individual, Family and Small Business segment for the year ended December 31, 2020.

In addition, we evaluated various

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market factors related to our Medicare segment and recorded net adjustment revenue of $ 5.7 million for the year ended December 31, 2020.

We will continue to monitor our member retention rates as compared to our forecasts and other market factors and evaluate whether any addition or reduction of adjustment revenue shall be recorded as we continue to assess our LTV models in future periods.

Note 3 – Acquisition

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The acquisition consideration consisted of cash of $ 15.0 million, less $ 0.1 million of cash acquired, and 294,637 shares of our common stock.

In addition, the members of GoMedigap are entitled to receive earnout payments ("Earnout Consideration") consisting of up to $ 20.0 million in cash and 589,275 shares of our common stock.

In addition, the members of GoMedigap were entitled to receive earnout payments (“Earnout Consideration”) consisting of up to $ 20.0 million in cash and 589,275 shares of our common stock.

The Earnout Consideration became payable, subject to the terms and conditions of the purchase agreement relating to the acquisition, upon the final determination of the achievement of certain milestones in 2018 and 2019.

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The GoMedigap acquisition was accounted for using the acquisition method of accounting under ASC 805, Business Combinations.

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Acquisition Consideration

Cash paid $ 15,000

Fair value of equity awards issued to GoMedigap members (1)

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Cash and cash equivalents $ 71

Commission receivable - current

Contract assets – commissions receivable – current 4,371

Prepaid expenses and other current assets 11

Commission receivable - non-current

Contract assets – commissions receivable – non-current 11,103

Property and equipment, net 174

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Intangible assets 6,800

Goodwill 26,137

Total intangible assets acquired 32,937

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(1) The fair value of equity awards issued was determined based on the January 22, 2018 closing price of our common stock of $ 18.99 per share.

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Goodwill and Intangible Assets – Goodwill represents the excess of the purchase price of the acquired business over the acquisition date fair value of the net assets acquired.

Goodwill is primarily attributable to the assembled workforce, new product development capabilities and anticipated synergies and economies of scale expected from the operations of the combined company.

Goodwill was primarily attributable to the assembled workforce, new product development capabilities and anticipated synergies and economies of scale expected from the operations of the combined company.

The goodwill was assigned to our Medicare segment.

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Goodwill will be deductible for tax purposes over 15 years .

Earnout liability – The earnout liability represents the fair value of the Earnout Consideration payable and is adjusted to fair value at each reporting date until settled.

Goodwill is deductible for tax purposes over 15 years.

Earnout liability – The earnout liability represents the fair value of the Earnout Consideration payable and was adjusted to fair value at each reporting date until settled.

Changes in fair value were recognized in income (loss) from operations.

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See Note 5 – Fair Value Measurements for further discussion regarding the earnout liability.

Fair Value Measurements – The assets acquired and liabilities assumed of GoMedigap have been recognized at fair value in accordance with ASC 820, Fair Value Measurement.

ASC 820 defines fair value as the price that would be received to sell an asset or would be paid to transfer a liability in an orderly transaction between market participants at the measurement date.

ASC 820 requires three levels of hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value.

The hierarchy level assigned to each asset and liability is based on the assessment of the transparency and reliability of inputs used in the valuation of such items based on the lowest level of input that is significant to fair value measurement.

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and lowest priority to unobservable inputs (Level 3 measurements).

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Assets acquired and liabilities assumed measured and reported at fair value are classified in one of the following categories based on inputs:

Unadjusted quoted prices in active markets for identical assets or liabilities.

Unadjusted quoted prices in active markets for similar assets or liabilities;

or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active;

or inputs other than quoted prices that are observable for the asset or liability.

Unobservable inputs for the asset or liability.

Fair Value Measurements – The assets acquired and liabilities assumed of GoMedigap were recognized at fair value in accordance with ASC 820, Fair Value Measurement.

See Note 5 – Fair Value Measurements for the hierarchy level assigned to each asset and liability based on the assessment of the transparency and reliability of inputs used in the valuation of such items based on the lowest level of input that is significant to fair value measurement.

The fair value of prepaid expenses and other current assets, property and equipment, net, accounts payable, accrued compensation and benefits and other current liabilities approximated their carrying value at the date of acquisition.

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Fair value of trade names were determined using the profit allocation method, which is based on the estimated royalties we are relieved from paying because we own the assets.

The fair value of the Earnout Consideration payable was measured using probability-weighted analysis and is discounted using a rate that appropriately captures the risk associated with the obligation.

The fair value of the Earnout Consideration payable was measured using probability-weighted analysis and was discounted using a rate that appropriately captured the risk associated with the obligation.

Key assumptions included new enrollments and volatility for the years ended December 31, 2020 and 2019, as well as eHealth’s simulated stock price at the time of payment.

The Earnout Consideration payable was part of the acquisition consideration and was adjusted to fair value at each reporting date until settled.

The fair value adjustments to the earnout liability during the year ended December 31, 2019 and 2018 were $ 24.1 and $ 12.3 million , respectively.

The fair value adjustment to the earnout liability was $ 24.1 million during the year ended December 31, 2019.

We had no fair value adjustments to the earnout liability in 2020.

Following are the details of the acquisition consideration allocated to the intangible assets acquired (in thousands):

Technology $ 2,000

Trade names, trademarks and website addresses 4,800

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The estimated useful lives are based on the time periods during which the intangibles are expected to result in incremental cash flows.

We incurred $ 0.1 million of acquisition-related costs during the year ended December 31, 2018, which were expensed as incurred.

Acquisition-related costs incurred were immaterial during the year ended December 31, 2018.

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Prior to the acquisition date, GoMedigap recognized revenue and expenses on the cash basis of accounting.

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Note 4 – Supplemental Financial Statement Information

Cash, Cash Equivalents and Restricted Cash – As of December 31, 2019 and 2018 , our cash equivalents consisted of money market accounts that invested in U.S.

government-sponsored enterprise bonds and discount notes, U.S.

government treasury bills and notes and repurchase agreements collateralized by U.S.

government obligations.

As of December 31, 2019 and 2018 , our cash equivalents carried no unrealized gains or losses and we did not realize any significant gains or losses on sales of cash equivalents during the years ended December 31, 2019 and 2018 .

As of December 31, 2019, we had $ 3.4 million restricted cash to collateralize letters of credit related to certain lease commitments.

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash, Cash Equivalents, and Restricted Cash

Our cash, cash equivalent, and restricted cash balances are summarized as follows (in thousands):

December 31, 2019

December 31, 2018

Money market funds

December 31, 2020 December 31, 2019

Cash $ 39,552 $ 16,205

Cash equivalents 4,207 7,261

Cash and cash equivalents $ 43,759 $ 23,466

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Total cash, cash equivalents and restricted cash $ 47,113 $ 26,820

Concentration of Credit Risk – Our financial instruments that are exposed to concentrations of credit risk principally consist of cash, cash equivalents and total accounts receivable (which includes commissions receivable).

We invest our cash and cash equivalents with major banks and financial institutions and, at times, such investments are in excess of federally insured limits.

We also have deposits with major banks in China that are denominated in both U.S.

dollars and Chinese Yuan Renminbi and are not insured by the U.S.

federal government.

We do not require collateral or other security for our total accounts receivable.

As of December 31, 2019 , three customers represented 22 % , 20 % , and 20 % , respectively, for a combined total of 62 % of our $ 591.6 million total outstanding accounts receivable balance.

As of December 31, 2018 , three customers represented 19 % , 19 % , and 19 % , respectively, or a combined total of 57 % , of our $ 349.5 million total outstanding accounts receivable balance.

No other customers represented 10% or more of our total accounts receivable at either December 31, 2019 or 2018 .

As of December 31, 2020 and 2019, we had $ 3.4 million of restricted cash which was classified as a non-current asset on our Consolidated Balance Sheets.

This amount collateralizes letters of credit related to certain lease commitments.

Contract Assets and Accounts Receivable

We do not require collateral or other security for our contract assets and accounts receivable.

We believe the potential for collection issues with any of our customers was minimal as of December 31, 2020.

Accordingly, our estimate for uncollectible amounts as of December 31, 2019 was immaterial.

Accounts Receivable – Our total accounts receivable are summarized as of the periods presented below (in thousands):

December 31, 2019

December 31, 2018

Commissions receivable - current

Commissions receivable - non-current

Our contract assets and accounts receivable consisted of the following for the periods presented below (in thousands):

December 31, 2020 December 31, 2019

Contract assets – commissions receivable – current $ 219,153 $ 174,526

Contract assets – commissions receivable – non-current 573,252 414,696

Accounts receivable 1,799 2,332

Total accounts receivable

Commission Receivable – Our commission receivable activities are summarized as follows (in thousands):

For the year ended December 31,

Total contract assets and accounts receivable $ 794,204 $ 591,554

We estimate the allowance for credit loss balance using relevant available information from internal and external sources, related to past events, current conditions, and reasonable and supportable forecasts.

Specifically, for the purpose of measuring the probability of default parameters, we utilize Capital IQ’s, Standard & Poor’s and Moody’s analytics.

Our estimates of loss given default are determined by using our historical collections data as well as historical information obtained through our research and review of other insurance related companies.

Our estimated exposure at default is determined by applying these internal and external data sources to our commission receivable balances.

As such, we apply an immediate reversion method and revert to historical loss information when computing our credit loss exposure.

Credit loss expenses are assessed quarterly and included in general and administrative expense on our Consolidated Statement of Comprehensive Loss.

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Subsequent to the adoption of ASC 326, we considered the impact of recent events and global economic conditions when evaluating the appropriate adjustments to our allowance for credit losses as of December 31, 2020.

Determining the extent of these adjustments in the twelve months ended December 31, 2020 was especially challenging because we do not have any historical loss information for a period of similar economic decline.

We considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic.

There were no allowance for doubtful accounts or credit losses for the years ended December 31, 2019 and 2018.

The changes in the allowance for credit losses for the year ended December 31, 2020 are summarized as follows (in thousands):

December 31, 2020

Beginning balance $ —

Impact from the adoption of ASU 2016-13 1,513

Current period provision for expected credit losses 513

Ending balance $ 2,026

Our contract assets – commission receivable activities, net of credit loss allowances are summarized as follows (in thousands):

Year Ended December 31, 2020

Medicare Segment IFP/SMB Segment Total

Beginning balance $ 550,922 $ 38,300 $ 589,222

Commission revenue from members approved during the period 440,722 21,971 462,693

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Cash receipts ( 255,781 ) ( 47,199 ) ( 302,980 )

Net change in credit loss allowance* ( 1,891 ) ( 135 ) ( 2,026 )

Ending balance $ 739,637 $ 52,768 $ 792,405

These amounts include commission bonus revenue.

These amounts include revenue associated with renewing small business health insurance members.

The commissions receivable balance at the end of each year primarily relates to Medicare Advantage and Medicare Part D plans sold during the fourth quarter with effective dates in the following year.

Year Ended December 31, 2019

Medicare Segment IFP Segment Total

Beginning balance $ 311,977 $ 33,881 $ 345,858

Commission revenue from members approved during the period 355,916 22,614 378,530

Net commission revenue adjustments from members approved in prior period 55,292 32,854 88,146

Cash receipts ( 172,263 ) ( 51,049 ) ( 223,312 )

Ending balance $ 550,922 $ 38,300 $ 589,222

_____________

* Amount consists of transition adjustment of $ 1.5 million related to the adoption of ASC 326 as of January 1, 2020 and the subsequent credit loss adjustment of $ 0.5 million during the year ended December 31, 2020 .

See Note 1 – Summary of Business and Significant Accounting Policies for details regarding the adoption impact.

Our financial instruments that are exposed to concentrations of credit risk principally consist of cash, cash equivalents, contract assets – commissions receivable, and accounts receivable.

We invest our cash and cash

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

equivalents with major banks and financial institutions and, at times, such investments are in excess of federally insured limits.

We also have deposits with major banks in China that are denominated in both U.S.

dollars and Chinese Yuan Renminbi and are not insured by the U.S.

federal government.

The deposits in China were $ 3.5 million as of December 31, 2020.

We do not require collateral or other security for either our contract assets or accounts receivable.

Carriers that represented 10% or more of our total contract assets and accounts receivable balance are summarized as of the dates presented below:

December 31, 2020 December 31, 2019

Humana 21 % 22 %

UnitedHealthCare (1)

_____________

(1) UnitedHealthcare also includes other carriers owned by UnitedHealthcare.

(2) Aetna also includes other carriers owned by Aetna.

Prepaid Expenses and Other Current Assets – Our prepaid expenses and other current assets are summarized as of the periods presented below (in thousands):

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

Prepaid maintenance contracts $ 7,715 $ 3,853

Equity issuance costs

Prepaid expenses 6,628 2,207

Prepaid insurance 1,672 918

Income tax receivable 51 584

Other current assets

Other 595 260

Prepaid expenses and other current assets $ 16,661 $ 7,822

Property and Equipment – Our property and equipment are summarized as of the periods presented below (in thousands):

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

Computer equipment and software $ 20,121 $ 17,893

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Depreciation and amortization expense related to property and equipment totaled $ 3.7 million, $ 3.0 million, and $ 2.5 million in the years ended December 31, 2020, 2019 and 2018, respectively.

Other Assets – Other assets are summarized as of the periods presented below (in thousands):

December 31, 2019

December 31, 2018

Capitalized software project costs

Debt issuance costs - non-current

Security deposits

Deferred tax assets

Income tax receivable

EHEALTH, INC.

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Intangible Assets – The carrying amounts, accumulated amortization, net carrying value and weighted average remaining life of our definite-lived amortizable intangible assets, as well as our indefinite-lived intangible trademarks, are presented in the tables below (dollars in thousands, useful life in years):

December 31, 2019

December 31, 2018

Gross Carrying Amount

Accumulated Amortization

Net Carrying Amount

Weighted-average remaining useful life

Gross Carrying Amount

Accumulated Amortization

Net Carrying Amount

Weighted-average remaining useful life

December 31, 2020 December 31, 2019

Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted-average remaining useful life Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted-average remaining useful life

Technology $ 2,000 $ ( 1,945 ) $ 55 0.1 $ 2,000 $ ( 1,278 ) $ 722 1.1

Pharmacy and customer relationships 9,500 ( 9,500 ) — 0.0 9,500 ( 9,183 ) 317 0.3

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Total intangible assets subject to amortization $ 17,200 $ ( 13,745 ) 3,455 $ 17,200 $ ( 12,252 ) $ 4,948

Indefinite-lived trademarks and domain names

Indefinite-lived trademarks and domain names 5,114 Indefinite 5,114 Indefinite

Intangible assets $ 8,569 $ 10,062

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As of December 31, 2020, our expected amortization expense in future periods were as follows (in thousands):

Years Ending December 31,

Pharmacy and Customer Relationships

Trade Names, Trademarks and Website Addresses

Years Ending December 31, Technology Trade Names, Trademarks and Website Addresses Total

2021 $ 55 $ 480 $ 535

2022 — 480 480

2023 — 480 480

2024 — 480 480

2025 — 480 480

Thereafter — 1,000 1,000

Total $ 55 $ 3,400 $ 3,455

Note 5 – Fair Value Measurements

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We classify the inputs used to measure fair value into the following hierarchy:

Unadjusted quoted prices in active markets for identical assets or liabilities.

Unadjusted quoted prices in active markets for similar assets or liabilities;

Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 Unadjusted quoted prices in active markets for similar assets or liabilities;

unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active;

inputs other than quoted prices that are observable for the asset or liability.

Unobservable inputs for the asset or liability.

Level 3 Unobservable inputs for the asset or liability.

EHEALTH, INC.

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December 31, 2020

December 31, 2018

Carrying Value

Carrying Value Level 1 Level 2 Level 3 Total

Cash equivalents

Money market funds $ 4,207 $ 4,207 $ — $ — $ 4,207

Short-term marketable securities

Commercial paper 14,197 — 14,197 — 14,197

Agency bonds 35,423 — 35,423 — 35,423

Total assets measured at fair value $ 53,827 $ 4,207 $ 49,620 $ — $ 53,827

As of December 31, 2019

Carrying Value Level 1 Level 2 Level 3 Total

Cash equivalents

Money market funds $ 7,261 $ 7,261 $ — $ — $ 7,261

Earnout liability - current $ 37,273 $ — $ — $ 37,273 $ 37,273

Earnout liability - non-current

Total liabilities measured and recorded at fair value

Our cash equivalents were invested in money market funds and were classified as Level 1.

Our cash equivalents were invested in money market funds and commercial paper with original maturity of 90 days or less were classified as Level 1.

We endeavor to utilize the best available information in measuring fair value.

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There were no transfers between the hierarchy levels during the years ended December 31, 2020 and 2019.

As of December 31, 2020, our Level 2 assets included our available for sale marketable securities, which consisted of commercial paper and agency bonds with maturity less than one year.

We classify our marketable debt securities within Level 2 in the fair value hierarchy, because we use quoted market prices to the extent available or alternative pricing sources and models utilizing market observable inputs to determine fair value.

Our portfolio primarily consisted of financial instruments with credit rating of AA+ or equivalent by S&P Rating and Moody's Investor Services.

There were no transfers between the hierarchy levels during the years ended December 31, 2020 and 2019.

The following table summarizes our cash equivalents and available-for-sale debt securities by contractual maturity (in thousands):

As of December 31, 2020 As of December 31, 2019

Amortized Cost Fair Value Amortized Cost Fair Value

Due in 1 year $ 53,788 $ 53,827 $ 7,261 $ 7,261

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unrealized gains and losses on available-for-sale debt securities that are not credit related are included in accumulated other comprehensive income and summarized as follows as of December 31, 2020:

Amortized Cost Unrealized Gain Unrealized Loss Fair Value

Cash equivalents

Money market funds $ 4,207 $ — $ — $ 4,207

Short-term marketable securities

Commercial paper 14,197 — — 14,197

Agency bonds 35,384 40 ( 1 ) 35,423

Total $ 53,788 $ 40 $ ( 1 ) $ 53,827

As of December 31, 2020, there were six securities in net loss positions and their unrealized losses were immaterial.

We did not record any credit losses regarding our available-for-sales debt securities during the year ended December 31, 2020.

We do not intend to sell these securities and it is more likely than not that we will not be required to sell these securities before the recovery of their amortized cost basis.

Earnout Liabilities

Earnout liabilities in connection with our GoMedigap acquisition in 2018 were recognized at fair value.

We measure the earnout liability using internally developed assumptions;

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Balance as of December 31, 2018 $ 40,000

Recognition of earnout liability upon acquisition of GoMedigap on January 22, 2018

Change in fair value 24,079

Settlements ( 26,806 )

Balance as of December 31, 2019 37,273

Change in fair value

Settlements ( 37,273 )

Balance as of December 31, 2020 $ —

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In January 2020, we made the second payment, which consisted of $ 8.8 million in cash and 294,608 shares of our common stock with a value of $ 28.5 million.

The $ 28.5 million and $ 17.3 million of the earnout payments in 2020 and 2019, respectively, were non-cash financing activities since common stock was used to settle these liabilities.

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 – Equity

Our board of directors has the authority, without any further action by our stockholders, to issue up to 110.0 million shares, par value $ 0.001 per share, of which 10.0 million shares are designated as preferred stock.

As of December 31, 2019 and 2018 , there were no shares of preferred stock outstanding.

Public Offering of Common Stock – Pursuant to an effective registration statement which 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 2.1 million shares of common stock, which included the exercise in full of the underwriters’ option to purchase 0.3 million additional shares of common stock, at a price to the public of $ 115.00 per share in March 2020.

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.

Pursuant to the effective registration statement which was filed on December 17, 2018, and amended on January 22, 2019, we entered into an underwriting agreement to issue 2.4 million shares of common stock, which included the exercise in full of the underwriters’ option to purchase 0.4 million additional shares of common stock, at a price to the public of $ 48.50 per share in January 2019, for a total of 2.8 million shares issued in connection with the offering.

Net proceeds from the offering were approximately $ 126.1 million after deducting underwriting discounts, commissions and estimated expenses of the offering.

We used the net proceeds of the offering for general corporate purposes, including working capital.

Common Stock – On all matters submitted to our stockholders for vote, our common stockholders are entitled to one vote per share, voting together as a single class, and do not have cumulative voting rights.

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Holders of common stock have no preemptive or conversion rights or other subscription rights and there are no redemption or sinking funds provisions applicable to the common stock.

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Net proceeds from the offering were approximately $ 126.1 million after deducting underwriting discounts, commissions and estimated expenses of the offering.

We intend to use the net proceeds of the offering for general corporate purposes, including working capital.

Shares Reserved – We generally issue previously unissued common stock upon the exercise of stock options, the vesting of restricted stock units and upon granting of restricted common stock awards;

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Shares of authorized but unissued common stock reserved for future issuance were as follows (in thousands):

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

Stock options issued and outstanding 527 649

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Total shares reserved 4,406 5,047

Stock Plans – On June 12, 2014, upon approval at the Annual Meeting of Stockholders, we adopted the 2014 Equity Incentive Plan (the “2014 Plan”).

The 2014 Plan replaced the 2006 Equity Incentive Plan and 4.5 million shares were authorized for issuance under the 2014 Plan.

Stock Plans – On June 12, 2014, upon approval at the Annual Meeting of Stockholders, we adopted the 2014 Equity Incentive Plan (the “2014 Plan”) with 4.5 million shares authorized for issuance.

The 2014 Plan does not include an evergreen provision to automatically increase the number of shares available under it and increases in the number of shares authorized for issuance under the 2014 Plan require stockholder approval.

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and (ii) the gross number of shares subject to stock appreciation rights that are exercised.

Furthermore, the 2014 Plan included a provision that prohibits repricing of outstanding stock options or stock appreciation rights and formalized and updated procedures to qualify awards as “performance-based” compensation under Section 162(m) of the Internal Revenue Code in order to preserve full tax deductibility of such awards.

We previously granted options to purchase shares of our common stock and restricted stock units under our 2006 Equity Incentive Plan and 2005 Stock Plan.

The 2006 Equity Incentive Plan was terminated with respect to the grant of additional awards on June 12, 2014, upon adoption of our 2014 Plan.

The 2005 Stock Plan was terminated with respect to the grant of additional awards upon the effectiveness of the 2006 Equity Incentive Plan.

Our stock options granted under the 2014 Plan generally vest over four years at a rate of 25 % after one year and 1/48th per month thereafter.

Stock options granted under the 2014 Plan generally expire after seven years from the date of grant.

On December 31, 2018, no shares were subject to repurchase.

Our restricted stock unit awards granted under the 2014 Plan, 2006 Plan and 2005 Stock Plan generally vest over four years at a rate of 25 % after one year and 25 % annually thereafter.

We have granted market-based restricted stock units to our executive officers and certain members of our senior management team.

Each market-based stock unit represents a contingent right to receive certain shares of our common stock upon the attainment of certain stock prices over a four -year performance period.

Once a stock price threshold is achieved, the portion of the award related to that threshold will vest on the one-year anniversary of the date of achievement, subject to the employee's continued service through each vesting date.

Compensation expense related to these awards is recognized on an accelerated basis over the requisite service period.

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes activity under our 2014 Equity Incentive Plan (the “2014 Plan”) for the year ended December 31, 2019 (in thousands):

of such awards.

In 2019, our stockholders approved an amendment to the 2014 Equity Incentive Plan to increase the maximum number of shares that may be issued by 2.5 million shares.

Our stock options granted under the 2014 Plan generally vest over four years at a rate of 25 % after one year and 1/48th per month thereafter.

Stock options granted under the 2014 Plan generally expire after seven years from the date of grant.

We have granted market-based and performance-based restricted stock units to our executive officers and certain members of our senior management team.

For market-based restricted stock units, each represents a contingent right to receive a share of our common stock upon the attainment of certain stock prices generally over a four-year performance period.

These awards generally vest on the one-year anniversary of the date of achievement, subject to the employee's continued service through the vesting date.

Compensation expense related to these awards is recognized over the requisite service period.

For performance-based restricted stock units, each represents a contingent right to receive a share of our common stock upon the attainment of certain financial targets over a trailing twelve month performance period.

These awards would vest in the middle of 2022, subject to achievement of performance targets and continued service through the vesting date.

Compensation expense related to these awards is recognized over the requisite service period if the performance criteria is probable of being achieved.

The following table summarizes activity under our 2014 Plan for the year ended December 31, 2020 (in thousands):

Beginning balance (1)

Additional shares authorized

Restricted stock units granted (2)

Options granted (3)

Restricted stock units cancelled (3)

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(2) Includes grants of restricted stock units with service, performance-based or market-based vesting criteria.

Includes grants of stock options with service, performance-based or market-based vesting criteria.

(3) Includes cancelled restricted stock units with service, performance-based or market-based vesting criteria.

The following table summarizes stock option activity under the Stock Plans (in thousands, except weighted-average exercise price and weighted-average remaining contractual life data):

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes stock option activity (in thousands, except weighted-average exercise price and weighted-average remaining contractual life data):

Number of Stock Options (1)

Weighted Average Exercise Price

Weighted-Average Remaining Contractual Life (years)

Aggregate Intrinsic Value (2)

Weighted Average Exercise Price Weighted-Average Remaining Contractual Life (years) Aggregate Intrinsic Value (2)

Outstanding as of December 31, 2019 649 $ 19.57 4.4 $ 49,661

Granted — $ —

Exercised ( 92 ) $ 21.20

Cancelled ( 30 ) $ 26.67

Outstanding balance as of December 31, 2020 527 $ 18.88 3.3 $ 29,582

Vested and expected to vest at December 31, 2019

Exercisable at December 31, 2019

Vested and expected to vest as of December 31, 2020 520 $ 18.71 3.3 $ 29,281

Exercisable as of December 31, 2020 450 $ 17.18 3.1 $ 26,026

(1) Includes certain stock options with service, performance-based or market-based vesting criteria.

The aggregate intrinsic value is calculated as the product between eHealth’s closing stock price as of December 31, 2019 and 2018 at the exercise price of in-the-money options as of those dates.

(2) The aggregate intrinsic value is calculated as the product between eHealth’s closing stock price as of December 31, 2020 and 2019 and the exercise price of in-the-money options as of those dates.

The following table provides information pertaining to our stock options for the years presented below (in thousands, except weighted-average fair values):

Year Ended December 31,

Weighted average fair value of options granted

2020 2019 2018

Weighted average fair value of options granted n/a $ 33.19 $ 12.78

Total fair value of options vested $ 1,367 $ 2,924 $ 2,263

Intrinsic value of options exercised $ 8,127 $ 19,890 $ 1,461

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes restricted stock unit activity under the Stock Plans (in thousands, except weighted-average grant date fair value and weighted-average remaining contractual life data):

The following table summarizes restricted stock unit activity (in thousands, except weighted-average grant date fair value and weighted-average remaining contractual life data):

Number of Restricted Stock Units (1)

Weighted-Average Grant Date Fair Value

Weighted-Average Remaining Service Period

Aggregate Intrinsic Value (2)

Unvested as of December 31, 2018

Unvested as of December 31, 2019

Weighted-Average Grant Date Fair Value Weighted-Average Remaining Service Period Aggregate Intrinsic Value (2)

Outstanding as of December 31, 2019 2,201 $ 39.08 1.6 $ 211,443

Granted 1,038 $ 94.10

Vested ( 547 ) $ 42.28

Cancelled ( 322 ) $ 54.81

Outstanding as of December 31, 2020 2,370 $ 60.44 1.8 $ 177,746

(1) Includes certain restricted stock units with service, performance-based or market-based vesting criteria.

(2) The aggregate intrinsic value is calculated as the difference of our closing stock price as of December 31, 2020 and 2019 multiplied by the number of restricted stock units outstanding as of December 31, 2020 and 2019, respectively.

Stock Repurchase Programs – We had no stock repurchase activity during the years ended December 31, 2019 , 2018 or 2017 .

In addition to 10.7 million shares repurchased under our past repurchase programs as of December 31, 2019 , we had in treasury 1.0 million shares that were previously surrendered by employees to satisfy tax withholdings due in connection with the vesting of certain restricted stock units.

As of December 31, 2019 and 2018 , we had a total of 11.6 million shares and 11.4 million , respectively, held in treasury.

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock Repurchase Programs – We had no stock repurchase activity during the year ended December 31, 2020.

In addition to 10.7 million shares repurchased under our previous repurchase programs, we have in treasury 1.1 million shares as of December 31, 2020 that were previously surrendered by employees to satisfy tax withholding due in connection with the vesting of certain restricted stock units.

As of December 31, 2020 and 2019, we had a total of 11.8 million shares and 11.6 million shares, respectively, held in treasury.

For accounting purposes, common stock repurchased under our stock repurchase programs is recorded based upon the settlement date of the applicable trade.

Such repurchased shares are held in treasury and are presented using the cost method.

Stock-Based Compensation Expense – The fair value of stock options granted to employees was estimated using the following weighted average assumptions for the years presented below:

Stock-Based Compensation Expense – The fair value of stock options granted to employees was estimated using the Black-Scholes option-pricing model and with the following weighted average assumptions for the years presented below, except for 2020 in which we did not have any options granted:

Year Ended December 31,

Expected term

Expected volatility

Expected dividend yield

Risk-free interest rate

The weighted-average fair value of the market-based options and restricted stock units was determined using the Monte Carlo simulation model using the following weighted average assumptions:

2020 2019 2018

Expected term (years) n/a 4.3 4.3

Expected volatility n/a 65.3 % 68.3 %

Expected dividend yield n/a — % — %

Risk-free interest rate n/a 2.1 % 2.7 %

The weighted-average fair value of the market-based restricted stock units was determined using the Monte Carlo simulation model using the following weighted average assumptions:

Year Ended December 31,

Expected term

2020 2019 2018

Expected term (years) 3.5 1.4 1.6

Expected volatility 64.4 % 57.8 % 69.8 %

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Weighted-average grant date fair value $ 93.85 $ 58.16 $ 13.48

We estimate a forfeiture rate to calculate the stock-based compensation for our awards.

We evaluate the

appropriateness of the forfeiture rate based on historical forfeiture, analysis of employee turnover, and other factors.

Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

2020 Employee Share Purchase Plan – Our board of directors adopted in March 2020 and our stockholders approved in June 2020 the 2020 Employee Stock Purchase Plan (“ESPP”).

A total of 500,000 shares of our common stock are available for sale under the ESPP.

Eligible employees can purchase shares of our common stock based on a percentage of their compensation subject to certain limits.

The purchase price per share is equal to the lower of 85% of the fair market value of our common stock on the offering date or the purchase date.

As of December 31, 2020, no shares of common stock have been purchased under our ESPP.

During the year ended December 31, 2020, we recognized $ 0.3 million in compensation cost related to our ESPP in our consolidated statement of operations.

As of December 31, 2020, the unrecognized compensation cost related to our ESPP is $ 0.9 million, which is expected to be recognized over a weighted average period of 0.4 years.

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes stock-based compensation expense recorded for the years presented below (in thousands):

We estimated the fair value of ESPP purchase rights for our first offering period using a Black-Scholes option-pricing model with the following assumptions:

Year Ended December 31, 2020

Expected term (years) 0.5

Expected volatility 77.4 %

Expected dividend yield — %

Risk-free interest rate 0.1 %

The following table summarizes stock-based compensation expense recognized for the years presented below (in thousands):

Year Ended December 31,

2020 2019 2018

Common stock options $ 1,097 $ 2,215 $ 1,991

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Total stock-based compensation expense $ 25,172 $ 22,570 $ 12,540

* Amounts include market-based and performance-based RSUs .

The following table summarizes stock-based compensation expense by operating function for the years presented below (in thousands):

Year Ended December 31,

2020 2019 2018

Marketing and advertising $ 5,102 $ 4,230 $ 1,974

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Total stock-based compensation expense 25,172 22,570 12,540

Amount capitalized for internal-use software 2,007 — —

Total stock-based compensation $ 27,179 $ 22,570 $ 12,540

During the three months ended December 31, 2020, we made an adjustment to reduce stock-based compensation expense by $ 5.9 million related to our performance-based restricted stock awards due to attainment of certain performance goals deemed not probable based on our latest estimates.

The impact of this adjustment was $ 0.23 and $ 0.22 per basic and diluted share, respectively, for the year ended December 31, 2020.

For the year ended December 31, 2020, there was a total of $ 2.0 million stock-based compensation expense capitalized in the internal-use software and website development costs classified under Other assets, which represents a noncash investing activity.

As of December 31, 2020, there was $ 1.0 million of total unamortized compensation cost, net of estimated forfeitures, related to stock options, expected to be recognized over a weighted average period of 1.4 years.

As of December 31, 2019 , there was $ 65.5 million of total unamortized compensation cost, net of estimated forfeitures, related to restricted stock units, expected to be recognized over a weighted average period of 2.8 years .

Accelerated Vesting

During the year ended December 31, 2018, due to changes in our senior management, we accelerated the vesting dates of certain stock options and restricted stock units granted to two former employees.

We recorded a $ 0.5 million incremental stock-based compensation expense in connection with this modification.

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020, there was $ 83.2 million of total unamortized compensation cost, net of estimated forfeitures, related to restricted stock units, expected to be recognized over a weighted average period of 2.7 years.

Accelerated Vesting – During the year ended December 31, 2018, due to changes in our senior management, we accelerated the vesting dates of certain stock options and restricted stock units granted to two former employees.

We recognized a $ 0.5 million incremental stock-based compensation expense in connection with this modification.

Note 7 – Net Income Per Share

3 unchanged sentences

The dilutive effect of outstanding awards is reflected in diluted net income per share by application of the treasury stock method.

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share amounts):

Year Ended December 31,

2020 2019 2018

Net income $ 45,450 $ 66,887 $ 241

Shares used in per share calculation – basic 26,025 23,075 19,294

Net income per share – basic $ 1.75 $ 2.90 $ 0.01

Net income $ 45,450 $ 66,887 $ 241

Shares used in per share calculation – basic 26,025 23,075 19,294

5 unchanged sentences

Year Ended December 31,

2020 2019 2018

Common stock options — 11 291

Restricted stock units 151 41 13

Total 151 52 304

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 – Commitments and Contingencies

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.

As the benefits of these agreements are experienced uniformly over the applicable contractual periods, we record the related service and licensing expenses on a straight-line basis, although actual cash payment obligations under certain of these agreements fluctuate over the terms of the agreements.

Our future minimum payments under non-cancellable contractual service and licensing obligations as of December 31, 2020 (in thousands):

For the Years Ending December 31,

Thereafter 1,353

Total $ 16,690

Operating Leases

Refer to Note 10 – Leases for commitments related to our operating leases.

Contingencies

2 unchanged sentences

An estimated loss contingency is accrued in the consolidated financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

We accrued approximately $ 1.2 million as of December 31, 2019 for amounts we believe will be payable for certain current legal proceedings, including the matters discussed below.

We accrued approximately $ 1.2 million as of December 31, 2019 for amounts we believed to be payable for certain legal proceedings.

The accrued amount was settled and paid in January 2021.

There was no material additional litigation-related accrual during the year ended December 31, 2020.

Legal proceedings or other contingencies could result in material costs, even if we ultimately prevail.

Legal Proceedings

The Gonzalez and Le'Vita Complaints – On April 6, 2018, a former employee, Lupita Gonzalez, filed a complaint against us in the Superior Court of the State of California for the County of Sacramento (the “Gonzalez Complaint”).

Securities Class Action – On April 8, 2020 and April 30, 2020, two purported class action lawsuits were filed against us, our chief executive officer, Scott N.

Flanders, our chief financial officer, Derek N.

Yung, and our then-chief operating officer, David K.

Francis, in the United States District Court for the Northern District of California.

The cases are captioned Patel v.

eHealth, Inc., et al ., Case No.

5:20-cv-02395 (N.D.

Cal.) and Bertrand v.

eHealth, Inc.

4:20-cv-02967 (N.D.

The complaints allege, among other things, that we and Messrs.

Flanders, Yung and Francis made materially false and misleading statements and/or failed to disclose material information regarding our accounting and modeling assumptions, rate of member churn and our profitability during the alleged class period of March 19, 2018 to April 7, 2020.

The complaints allege that we and Messrs.

Flanders, Yung and Francis violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.

The complaints seek compensatory and (in the Patel lawsuit) punitive damages,

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

attorneys’ fees and costs, and such other relief as the court deems proper.

On June 24, 2020, the Court consolidated the above-referenced matters under the caption In re eHealth Securities Litig.

, Master File No.

4:20-cv-02395-JST (N.D.

The Court also appointed a lead plaintiff and lead counsel for the consolidated matter.

The lead plaintiff filed an amended complaint on August 25, 2020, which Defendants moved to dismiss.

The motion to dismiss has been fully briefed and is currently set to be heard by the court on April 1, 2021.

Derivative Actions – On July 7, 2020 and October 13, 2020, two derivative lawsuits were filed against our chief executive officer, Mr.

Flanders, our chief financial officer, Mr.

Yung, our then-chief operating officer, Mr.

Francis, and the members of our Board of Directors (collectively, the “Individual Defendants”), in the United States District Court for the Northern District of California and the Superior Court of California, County of Santa Clara.

The cases are captioned Chernet v.

Flanders et al ., Case No.

3:20-cv-04477-SK (N.D.

Cal.), and Lincolnshire Police Pension Fund v.

Flanders et al.

20CV371555 (Cal.

Ct.), and also name the Company as a nominal defendant.

The complaints allege, among other things, that beginning on March 19, 2018, the Individual Defendants made or caused the Company to make materially false and misleading statements and/or failed to disclose material information regarding our accounting and modeling assumptions, rate of member churn, profitability, and internal controls.

Both complaints purport to assert claims for breach of fiduciary duty, unjust enrichment and waste of corporate assets.

The Chernet lawsuit also alleges that the Individual Defendants violated Sections 14(a), 10(b), and 20(a) of the Securities Exchange Act of 1934, and asserts claims for abuse of control and gross mismanagement.

The complaints seek damages, restitution, attorneys’ fees and costs, and certain measures with respect to the Company’s corporate governance and internal procedures, and (in the Lincolnshire lawsuit) equitable and/or injunctive relief.

The Chernet and Lincolnshire lawsuits have both been stayed pending the resolution of the motion to dismiss in the Securities Class Action, In re eHealth Securities Litig ., Master File No.

4:20-cv-02395-JST (N.D.

The Gonzalez and Le ’ Vias Complaints – On April 6, 2018, a former employee, Lupita Gonzalez, filed a complaint against us in the Superior Court of the State of California for the County of Sacramento (the “Gonzalez Complaint”).

The Gonzalez Complaint is brought under the California Private Attorney General Act (“PAGA”) on behalf of all current and former hourly-paid or non-exempt employees who work or have worked for us in California.

5 unchanged sentences

The Gonzalez Complaint seeks penalties and costs, expenses and attorneys’ fees.

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On July 1, 2019, two other current or former employees, Michael Le’Vias and Ramona Meadows, filed a related complaint against us and eHealth Ins.

8 unchanged sentences

The Le’Vias Complaint seeks unpaid wages, penalties and costs, expenses and attorneys’ fees.

The parties have agreed to resolve both the Le’Vias and Gonzalez Complaints, which settlement will require court approval.

In the interim, the parties have stipulated to vacate or, in the alternative, stay proceedings, including all discovery , with the exception of any deadlines or proceedings necessary to effectuate the settlement.

The parties are seeking a court order vacating or, in the alternative, continuing the April 13, 2020 trial date for the Gonzalez matter.

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 .

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 December 31, 2019 (in thousands):

For the Years Ending December 31,

Operating Lease Obligations

Service and Licensing Obligations

Total Obligations

The parties have entered into a court-approved settlement agreement that resolves both matters related to the Gonzalez and Le'Vias Complaints, which settlement agreement, as required by law, has been approved by the Superior Court of the State of California.

Plaintiffs Michael Le’Vias and Ramona Meadows have sought dismissal with prejudice of the Le’Vias Complaint and, upon the completion of the distribution of the settlement funds in

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

accordance with the settlement agreement and the court order approving the settlement agreement, the parties will seek a dismissal with prejudice of the Gonzalez Complaint.

Note 9 – Segment and Geographic Information

2 unchanged sentences

Year Ended December 31,

2020 2019 2018

Medicare $ 516,762 $ 446,961 $ 210,570

Individual, Family and Small Business 66,012 59,240 40,825

4 unchanged sentences

Total segment profit 141,346 178,602 66,647

Corporate ( 57,664 ) ( 45,374 ) ( 32,996 )

Stock-based compensation expense ( 25,172 ) ( 22,570 ) ( 12,289 )

1 unchanged sentence

Change in fair value of earnout liability — ( 24,079 ) ( 12,300 )

Restructuring charge

Restructuring charges — — ( 1,865 )

Acquisition costs — — ( 76 )

Amortization of intangible assets ( 1,493 ) ( 2,187 ) ( 2,091 )

Other income (expense), net

Income (loss) before provision (benefit) for income taxes

There are no internal revenue transactions between our operating segments.

Our CODM does not separately evaluate assets by segment, and therefore assets by segment are not presented.

Other income, net 666 2,090 $ 755

Income before income taxes $ 53,989 $ 83,499 $ 3,306

There were no inter-segment revenue transactions for the periods presented.

With the exception of contract assets – commissions receivable, which is presented by segment in Note 4 – Supplemental Financial Statement Information, our CODM does not separately evaluate assets by segment, and therefore assets by segment are not presented.

Geographic Information

Our long-lived assets consist primarily of property and equipment and internally-developed software.

All of our intangible assets are located in the United States.

Our long-lived assets are attributed to the geographic location in which they are located.

Long-lived assets (excluding intangible assets and goodwill) by geographical area are summarized as follows (in thousands):

December 31, 2019

December 31, 2018

Long-lived assets by geographical area are summarized as follows (in thousands):

December 31, 2020 December 31, 2019

United States $ 40,500 $ 64,408

China 565 471

Total $ 41,065 $ 64,879

EHEALTH, INC.

4 unchanged sentences

Year Ended December 31,

2020 2019 2018

Humana 22 % 26 % 22 %

UnitedHealthcare (1)

21 % 19 % 19 %

15 % 17 % 14 %

(1) UnitedHealthcare also includes other carriers owned by UnitedHealthcare.

(2) Aetna includes other carriers owned by Aetna.

Note 10 – Restructuring

In February 2018, our Board of Directors approved a plan to close our sales call center in Massachusetts and to terminate the employment of other employees in certain other locations.

As part of this plan, we eliminated approximately 110 full-time positions, representing approximately 10 % of our workforce, primarily within customer care and enrollment, and to a lesser extent, in our marketing and advertising and general and administrative groups.

We recognized $ 1.9 million in pre-tax restructuring charges, which included approximately $ 1.6 million for employee termination benefits and $ 0.3 million in non-cash accelerated stock-based compensation in the year ended December 31, 2018.

The restructuring activities comprising the plan were completed in June 2018.

The following table summarizes the total cash and non-cash restructuring charges recognized during the periods presented below (in thousands):

December 31, 2018

Employee termination costs

Non-cash employee termination costs - stock-based compensation

Other restructuring related costs

Total restructuring charges

The following table summarizes the accrued restructuring charges activity during the periods presented below (in thousands):

Year Ended December 31, 2018

Beginning balance

Ending balance

Employee termination costs

Accrued restructuring charges - current

There were no restructuring charges and payments during the year ended December 31, 2019 .

Accrued restructuring charges balance remained zero as of December 31, 2019 .

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10 – Leases

Adoption of ASC 842

On January 1, 2019, we adopted ASC 842 – Leases , using the optional modified retrospective transition method.

We have operating and finance leases for our corporate offices and certain equipment.

We account our leases in accordance with Accounting Standards Codification Topic 842, Leases.

We determine if an arrangement is a lease at inception.

Our lease portfolio is primarily composed of operating leases for corporate offices and as of January 1, 2019 with the adoption of the new guidance for leasing arrangements, are included in operating lease right-of-use (“ROU”) assets and lease liabilities on our consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

As the Company's leases generally do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date.

In determining the present value of lease payments, we utilized the assistance of third-party specialists to assist us in determining our yield curve based upon our credit rating, lease term and adjustment for security.

The operating lease ROU asset also includes any lease payments made and excludes lease incentives.

Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Our leases have remaining lease terms of 3 to 9 years.

Our operating lease expense recognized under ASC 842 was $ 6.4 million for the year ended December 31, 2019 , and our cash outflows related to operating leases were $ 5.4 million for the year ended December 31, 2019 .

As a result of adopting the ASC, on January 1, 2019, we recorded a right-of-use asset and lease liability of $ 23.3 million and $ 24.6 million , respectively.

During 2019, we recorded an additional lease liability of $ 10.8 million related to newly leased office space in Indianapolis, Indiana, which is described further below, and $ 1.1 million and $ 0.8 million related to an expansion and lease extension, respectively, of our office space in Gold River, California.

We recorded additional lease liabilities totaling $ 4.9 million related to amendments made to our Salt Lake City office lease agreement during 2019.

During the year ended December 31, 2019 , we had non-cash investing activities of $ 40.6 million relating to right-of-use assets in the Consolidated Statements of Cash Flows.

Supplemental information as of December 31, 2019 related to leases is as follows (in thousands):

Certain of these leases have free or escalating rent payment provisions.

We recognize lease expense on a straight-line basis over the terms of the leases, although actual cash payment obligations under certain of these agreements fluctuate over the terms of the agreements.

Most leases include options to renew, and the exercise of these options is at our discretion.

Total operating lease expenses were $ 7.8 million, $ 6.4 million, and $ 5.3 million for the years ended December 31, 2020, 2019 and 2018, respectively.

We have a sublease agreement for our office space in Mountain View, California to sublease to a third party, which commenced in December 2018 and will expire in July 2023.

We recorded $ 1.2 million and $ 1.1 million of sublease income during the years ended December 31, 2020 and 2019, respectively.

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the lease-related assets and liabilities recorded on the Consolidated Balance Sheet for the periods presented below (in thousands):

December 31, 2020 December 31, 2019

Operating lease right-of-use assets $ 42,558 $ 36,621

Operating lease liabilities

Weighted-average remaining lease term of operating leases

Lease liabilities – current $ 5,192 $ 4,759

Lease liabilities – non-current 41,369 34,305

Total operating lease liabilities $ 46,561 $ 39,064

Supplemental information related to leases are as follows (in thousands):

December 31, 2020 December 31, 2019

Operating cash outflows from operating leases $ 7,090 $ 5,464

Non-cash investing activities relating to operating lease right-of-use assets $ 10,919 $ 40,646

Weighted-average remaining lease term of operating leases 7.2 years 7.6 years

Weighted-average discount rate used to recognize operating lease right-of-use-assets 5.4 % 5.9 %

* As our leases do not provide an implicit rate of interest, we use our incremental borrowing rate based on the information available at commencement date or remeasurement date in determining the present value of lease payments.

As of December 31, 2020, maturities of operating lease liabilities are as follows (in thousands):

Year ending December 31,

Thereafter 19,408

Total lease payments (1)

Less imputed interest ( 12,066 )

Operating Lease Obligations

We lease our operating facilities and certain of our equipment, furniture and fixtures under various operating leases, the latest of which expires in January 2030.

Certain of these leases have free or escalating rent payment provisions.

We recognize rent expense on our operating leases on a straight-line basis over the terms of the leases, although actual cash payment obligations under certain of these agreements fluctuate over the terms of the agreements.

In June 2019 , we entered into a sublease agreement for 56,276 square feet and a lease agreement for 81,515 square feet as a sublessee and lessee, respectively, of office space in Indianapolis, Indiana.

The sublease consists of two suites (Suite 200 and Suite 300).

The lease term of Suite 300 commenced on June 3, 2019, and the lease term of Suite 200 commenced on July 1, 2019.

The term of the sublease will terminate on October 31, 2022.

The term of the lease, which will commence after the sublease, extends from November 1, 2022 to January 31, 2030, which, in addition to Suite 200 and Suite 300, includes an additional 25,239 square feet of office space in Suite 100.

As of December 31, 2019 , future minimum payments related to the Indiana office space are expected to be $ 17.6 million over the remaining term of the lease, plus our proportionate share of certain operating expenses, insurance costs and taxes for each calendar year during the lease.

The landlord also agreed to

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

contribute up to $ 1.9 million toward the cost of leasehold improvements.

In connection with the Indianapolis, Indiana lease agreement, we entered into a financial guarantee consisting of a standby letter of credit for $ 0.8 million .

In April 2019 , we entered into an amendment to the lease agreement for our Gold River, California, office to expand our office space to a total of 63,206 square feet from 44,738 square feet.

The lease term for the expanded office space commenced on May 1, 2019.

The term of the expanded office space will terminate on September 30, 2021.

As of December 31, 2019 , future minimum payments are expected to be $ 2.9 million over the remaining term of the lease plus our proportionate share of certain operating expenses, insurance costs and taxes for each calendar year during the lease.

In addition, we have an option to extend the lease for one additional period of five years at the end of the term of the lease and will receive a one-time refurbishment allowance from the landlord if the option to renew is exercised.

In March 2019 , we entered into an amendment to the lease agreement for our Salt Lake City, Utah, office to expand our office space to a total of 41,813 square feet from 28,915 square feet.

The lease term for the expanded office space commenced on May 1, 2019.

The term of the lease for the original and expanded office space was also extended to terminate on the last day of the month that is 84 months after the commencement date of the expanded space.

As of December 31, 2019 , future minimum payments are expected to be $ 8.7 million over the remaining term of the lease plus our proportionate share of certain operating expenses, insurance costs and taxes for each calendar year during the lease.

In April 2018 , we entered into a lease agreement to lease approximately 32,492 square feet of office space located in Santa Clara, California.

We entered into this lease agreement as a result of the expiration of one of our leases in Mountain View, California on December 31, 2018.

The term of the lease is approximately 10.3 years , commencing on October 1, 2018 and ending on an estimated date of February 28, 2029.

In August 2019 , we entered into an amendment to the lease agreement for our Santa Clara, California, office to expand our office space to a total of 45,657 square feet from 32,492 square feet.

In connection with this lease agreement, we entered into a financial guarantee consisting of a standby letter of credit for $ 0.3 million .

As of December 31, 2019 , future minimum payments are expected to be $ 16.1 million over the remaining term of 9 years plus our proportionate share of certain operating expenses, insurance costs and taxes for each calendar year during the lease.

In connection with the Santa Clara, California lease agreement, we entered into a financial guarantee consisting of a standby letter of credit for $ 1.5 million , which may be reduced in increments of 20 % of the original amount thereof on the second, third, fourth and fifth anniversaries of the commencement date, and may be reduced by an additional 8 % of the original amount on the sixth anniversary of the commencement date, subject to our compliance with the applicable conditions to such reductions set forth in the lease.

In March 2018, we entered into an agreement to lease 26,878 square feet of office space in Austin, Texas.

The term of this lease agreement is 90 months , commencing in September 2018 and ending in May 2026.

As of December 31, 2019 , future minimum payments are expected to be $ 4.1 million over the remaining term of the lease plus our proportionate share of certain operating expenses, insurance costs and taxes for each calendar year during the lease.

In connection with the Austin, Texas office lease agreement, we entered into a financial guarantee consisting of a standby letter of credit for $ 0.6 million , which may be reduced on the third and subsequent anniversaries of the commencement date, subject to our compliance with the applicable conditions to such reductions set forth in the lease.

In March 2012, we entered into an agreement to lease 18,272 square feet of office space in Mountain View, California.

In connection with this lease agreement, we entered into a financial guarantee consisting of a standby letter of credit for $ 0.1 million .

As of December 31, 2019 , our future minimum payments are expected to be $ 2.8 million over the remaining term of 3.6 years .

We entered into an agreement to sublease this office space to a third party, which commenced in late December 2018.

We recorded $ 1.1 million sublease income during the year ended December 31, 2019.

In March 2018, we renewed our agreement to lease approximately 1,413 square feet of office space in Washington, DC.

The lease commenced in November 2018 and is for a term of 5.4 years .

As of December 31, 2019 , future minimum payments are $ 0.3 million .

Total rent expense under all operating leases was approximately $ 7.3 million , $ 5.3 million , and $ 4.6 million for the years ended December 31, 2019 , 2018 and 2017 , respectively.

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Total $ 46,561

(1) Noncancellable sublease income for the years ending December 31, 2021, 2022 and 2023 of $ 1.2 million, $ 0.4 million and $ 0.4 million, respectively, are not included in the table above.

Note 11 – Debt

3 unchanged sentences

The maturity date has been extended 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 by 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 (the “Borrowing Base”).

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 (the “Borrowing Base”).

The proceeds of the loans under the Credit Agreement may be used for working capital and general corporate purposes.

11 unchanged sentences

The Amendment also stated the seasonal amount thresholds used in connection with the cash dominion and field examination covenants in the Credit Agreement.

We incurred $ 1.2 million of issuance costs in connection with the Credit Agreement, which were capitalized as part of Other assets on our Consolidated Balance Sheet as of December 31, 2018 and 2019.

We incurred $ 1.2 million of issuance costs in connection with the Credit Agreement, which were capitalized as part of Other assets on our Consolidated Balance Sheet in the period we entered into the Credit Agreement.

The Amendment did not change the interest rate.

In connection with this Amendment, we incurred closing costs totaling $ 0.5 million , which was capitalized and recorded as Other assets on our Consolidated Balance Sheet as of December 31, 2019 .

The remaining balance of unamortized issuance costs was $ 1.1 million as of December 31, 2019 .

As of December 31, 2018, we had $ 5.0 million outstanding principal amount under our revolving credit facility, which was repaid in full in January 2019.

As of December 31, 2019 , there were no outstanding amounts under this revolving credit facility and we were in compliance with all covenant requirements.

In connection with this Amendment, we incurred closing costs totaling $ 0.5 million, which were capitalized and recorded as Other assets on our Consolidated Balance Sheet as of December 31, 2020.

The remaining balance of unamortized issuance costs was $ 0.7 million and $ 1.1 million as of December 31, 2020 and 2019, respectively.

As of December 31, 2020, we had no outstanding borrowings under our revolving credit facility.

EHEALTH, INC.

1 unchanged sentence

Note 12 – Income Taxes

The components of our income (loss) before provision (benefit) for income taxes were as follows (in thousands):

The components of our income before provision for income taxes were as follows (in thousands):

Year Ended December 31,

2020 2019 2018

United States $ 53,078 $ 82,391 $ 2,458

Income (loss) before provision (benefit) for income taxes

The federal and state income tax provision (benefit) is summarized as follows (in thousands):

Foreign 911 1,108 848

Income before provision for income taxes $ 53,989 $ 83,499 $ 3,306

The federal and state income tax provision is summarized as follows (in thousands):

Year Ended December 31,

2020 2019 2018

Federal $ — $ — $ 5

State 88 75 48

Foreign ( 361 ) 326 213

Total current ( 273 ) 401 266

Federal 7,303 13,594 165

State 1,245 2,635 2,648

Foreign 264 ( 18 ) ( 14 )

Total deferred 8,812 16,211 2,799

Provision (benefit) for income taxes

Provision for income taxes $ 8,539 $ 16,612 $ 3,065

In 2020, we had worldwide consolidated income before tax of $ 54.0 million, and tax expense of $ 8.5 million, with an annual effective tax rate of 15.8 %.

The effective tax rate of our provision (benefit) for income taxes differs from the federal statutory rate as follows:

The effective tax rate of our provision for income taxes differs from the federal statutory rate as follows:

Year Ended December 31,

2020 2019 2018

Statutory rate 21.0 % 21.0 % 21.0 %

5 unchanged sentences

Changes in valuation allowance 0.1 — 72.8

Tax reform - tax rate change

Foreign income tax and income inclusion ( 0.7 ) 0.1 6.8

2 unchanged sentences

Effective tax rate 15.8 % 19.9 % 92.7 %

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, together with operating losses and tax credit carryforwards.

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The tax effects of significant items comprising our deferred taxes as of December 31, 2020 and 2019 were as follows (in thousands):

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

Deferred tax assets:

3 unchanged sentences

Intangible assets 2,592 6,306

Tax credits 7,805 5,818

Stock-based compensation 4,500 2,835

Fixed assets 111 203

Other 176 187

Total deferred tax assets 133,969 88,986

10 unchanged sentences

As a result, the amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income change.

During the year ended December 31, 2018, a partial valuation allowance of $ 2.4 million was recorded against certain state net operating losses expected to expire unutilized.

The valuation allowance was recorded as a result of increased uncertainty regarding our future taxable income and a lack of sources of other taxable income to realize those net operating losses.

The changes of our valuation allowance is summarized as follows (in thousands):

Deferred Tax Assets - Valuation Allowance

Balance at beginning of year

Provision for income taxes

The valuation allowance was recorded as a result of increased uncertainty regarding our future taxable income and a lack of sources of other taxable income to realize certain net operating losses and credits prior to expiration.

The change in our valuation allowance is summarized as follows (in thousands):

Deferred Tax Assets - Valuation Allowance Balance at beginning of year Provision for income taxes Balance at

Year Ended December 31, 2020 $ 2,407 $ 72 $ 2,479

1 unchanged sentence

Year Ended December 31, 2018 — 2,407 2,407

We had net operating loss carryforwards as of December 31, 2019 of approximately $ 238.3 million and $ 168.1 million for federal income tax and state income tax purposes, respectively.

Federal and state net operating loss carry forwards begin expiring in 2034 and 2021 , respectively.

As of December 31, 2019 , we had tax credit carry forwards of approximately $ 5.2 million and $ 6.1 million for federal income tax and state income tax purposes, respectively.

The federal tax credit carryforwards begin expiring in 2021.

The state tax credits carry forward indefinitely.

Utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to ownership changes that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code and similar state provisions.

These ownership change limitations may limit the amount of net operating loss carryforwards and other tax attributes that can be utilized annually to offset future taxable income and tax, respectively.

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The net operating loss and tax credit carryforwards as of December 31, 2020 are summarized as follows (in thousands):

Amount Expires

Net operating losses, federal (with expiration) $ 39,194 2034

Net operating losses, federal (without expiration) 381,001 Indefinite

Net operating losses, state 283,700 2021

Tax credits, federal 7,373 2021

Tax credits, state 7,754 n/a

A reconciliation of the beginning and ending amount of our unrecognized tax benefits is as follows (in thousands):

Unrecognized Tax Benefits

Balance as of December 31, 2016

Decrease based on tax positions related to the prior year

Lapse of statute of limitations

Additions based on tax positions related to the current year

Balance as of December 31, 2017

Year Ended December 31,

2020 2019 2018

Beginning balance

$ 4,709 $ 3,740 $ 3,096

Increase based on tax positions related to the prior year — — 70

1 unchanged sentence

Additions based on tax positions related to the current year 1,629 969 579

Balance as of December 31, 2018

Additions based on tax positions related to the current year

Balance as of December 31, 2019

Ending balance

$ 6,330 $ 4,709 $ 3,740

As of December 31, 2020, the total amount of gross unrecognized tax benefits was $ 6.3 million, of which $ 5.7 million, if recognized, would affect our effective tax rate.

5 unchanged sentences

We are subject to taxation in various jurisdictions, including federal, state and foreign.

Our federal and state income tax returns are generally not subject to examination by taxing authorities for fiscal years before 2007 due to our net operating losses.

Our federal and state income tax returns are generally not subject to examination by taxing authorities for fiscal years before 2001 due to our net operating losses and credits carryforward.

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

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 14 – Selected Quarterly Financial Data (Unaudited)

Selected summarized quarterly financial information for 2019 and 2018 is as follows (in thousands, except per share amounts):

For the Year Ended December 31, 2019

Income (loss) from operations

Net income (loss)

Net income (loss) per share:

For the Year Ended December 31, 2018

Income (loss) from operations

Net income (loss)

Net income (loss) per share:

* See Note 2 – Revenue for details regarding the change in estimate in the fourth quarter of 2019.

the CARES Act did not have a material impact on our Consolidated Financial Statements for the year ended December 31, 2020.

Note 13 – Subsequent Event

On February 17, 2021,we entered into an investment agreement with an affiliate of H.I.G.

Capital (together with its affiliated funds, “H.I.G.”), pursuant to which we have agreed to issue and sell to affiliated entities of H.I.G., 2,250,000 shares of the Company’s newly designated Series A preferred stock for an aggregate purchase price of $ 225.0 million.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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-K

Item 8. Financial Statements and Supplementary Data