eHealth, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to the Consolidated Financial Statements Report of Independent Registered Public Accounting Firm 75 Consolidated Balance Sheets 77 Consolidated Statements of Comprehensive Income 78 Consolidated Statements of Stockholders’ Equity 79 Consolidated Statements of Cash Flows 80 Notes to Consolidated Financial Statements 81 74 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of eHealth, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of eHealth, Inc. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. 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, 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 These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 75 Revenue recognition: Estimated constrained lifetime value of commission revenue 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. 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, 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 including competitor data. /s/ Ernst & Young LLP We have served as the Company's auditor since 2000. Redwood City, California February 26, 2021 76 EHEALTH, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except per share amounts) December 31, 2020* December 31, 2019 Assets Current assets: Cash and cash equivalents $ 43,759 $ 23,466 Short-term marketable securities 49,620 — Accounts receivable 1,799 2,332 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 Contract assets – commissions receivable – non-current 573,252 414,696 Property and equipment, net 14,609 10,518 Operating lease right-of-use assets 42,558 36,621 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 Current liabilities: Accounts payable $ 36,921 $ 24,554 Accrued compensation and benefits 20,542 29,578 Accrued marketing expenses 17,788 12,041 Earnout liability – current — 37,273 Lease liabilities – current 5,192 4,759 Deferred revenue 308 2,570 Other current liabilities 3,657 2,210 Total current liabilities 84,408 112,985 Commitments and contingencies Deferred income taxes – non-current 72,317 64,130 Lease liabilities – non-current 41,369 34,305 Other non-current liabilities 4,370 3,050 Stockholders’ equity: Preferred stock, par value $ 0.001 per share; 10,000 authorized; none issued and outstanding — — Common stock, par value $ 0.001 per share; 100,000 authorized; 37,755 and 34,752 issued as of December 31, 2020 and 2019, respectively; 25,924 and 23,136 outstanding as of December 31, 2020 and 2019, respectively 38 35 Additional paid-in capital 721,013 455,159 Treasury stock, at cost: 11,831 and 11,616 shares as of December 31, 2020 and 2019, respectively ( 199,998 ) ( 199,998 ) Retained earnings 316,155 271,852 Accumulated other comprehensive income 350 116 Total stockholders’ equity 837,558 527,164 Total liabilities and stockholders’ equity $ 1,040,022 $ 741,634 _____________ * Reflects the impact from the adoption of ASC 326 on January 1, 2020. See Note 1 – Summary of Business and Significant Accounting Policies for details. The accompanying notes are an integral part of these consolidated financial statements. 77 EHEALTH, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands, except per share amounts) Year Ended December 31, 2020 2019 2018 Revenue Commission $ 508,189 $ 466,676 $ 227,211 Other 74,585 39,525 24,184 Total revenue 582,774 506,201 251,395 Operating costs and expenses Cost of revenue 4,083 2,738 1,228 Marketing and advertising 209,340 150,249 82,939 Customer care and enrollment 172,895 134,304 70,547 Technology and content 65,188 47,085 31,970 General and administrative 76,452 64,150 45,828 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 Acquisition costs — — 76 Total operating costs and expenses 529,451 424,792 248,844 Income from operations 53,323 81,409 2,551 Other income, net 666 2,090 755 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: 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 The accompanying notes are an integral part of these consolidated financial statements. 78 EHEALTH, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands) 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 equity incentive plans 688 1 2,687 — — — — 2,688 Repurchase of shares to satisfy employee tax withholding obligations — — ( 4,504 ) 188 — — — ( 4,504 ) Shares issued for GMG acquisition 295 — 5,595 — — — — 5,595 Stock-based compensation expense — — 12,540 — — — — 12,540 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 ) Shares issued in equity offering 2,760 3 126,048 — — — — 126,051 Settlement of earnout liability 295 — 17,264 — — — — 17,264 Stock-based compensation expense — — 22,570 — — — — 22,570 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. 79 EHEALTH, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) 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: Depreciation and amortization 3,694 2,983 2,479 Amortization of internally developed software 7,756 3,821 2,201 Amortization of intangible assets 1,493 2,187 2,091 Stock-based compensation expense 25,172 22,570 12,540 Deferred income taxes 8,817 16,197 2,812 Change in fair value of earnout liability — 24,079 12,300 Other non-cash items 1,091 ( 755 ) 675 Changes in operating assets and liabilities: Accounts receivable 533 1,270 ( 2,127 ) Contract assets – commissions receivable ( 205,209 ) ( 243,364 ) ( 50,967 ) Prepaid expenses and other assets ( 6,180 ) ( 466 ) 232 Accounts payable 12,294 19,694 1,414 Accrued compensation and benefits ( 9,036 ) 8,814 5,133 Accrued marketing expenses 5,747 1,028 6,320 Deferred revenue ( 2,262 ) 1,694 491 Accrued expenses and other liabilities 2,780 1,869 935 Net cash used in operating activities ( 107,860 ) ( 71,492 ) ( 3,230 ) Investing activities: Capitalized internal-use software and website development costs ( 16,005 ) ( 10,231 ) ( 6,294 ) 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 ) Net cash used in investing activities ( 73,283 ) ( 16,944 ) ( 25,757 ) Financing activities: Proceeds from issuance of common stock, net of issuance costs 228,024 126,051 — Net proceeds from exercise of common stock options 1,941 5,535 2,688 Repurchase of shares to satisfy employee tax withholding obligations ( 19,808 ) ( 14,281 ) ( 4,504 ) Proceeds from line of credit — — 5,000 Debt issuance costs — ( 517 ) ( 1,221 ) Repayment of debt — ( 5,000 ) — Acquisition-related contingent payments ( 8,751 ) ( 9,542 ) — Principal payments in connection with leases ( 157 ) ( 105 ) ( 103 ) 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 cash flows Cash paid for interest $ — $ 42 $ 44 Cash refunds from (paid for) income taxes, net $ 882 $ 741 $ ( 139 ) The accompanying notes are an integral part of these consolidated financial statements. 80 EHEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 – Summary of Business and Significant Accounting Policies Description of Business – eHealth, Inc. (the “Company,” “eHealth,” “we” or “us”) is a leading private health insurance exchange for individuals, families and small businesses in the United States. Through our website addresses ( www.eHealth.com , www.eHealthInsurance.com , www.eHealthMedicare.com, www.Medicare.com, www.PlanPrescriber.com and www.GoMedigap.com) , consumers can get quotes from leading health insurance carriers, compare plans side-by-side, and apply for and purchase Medicare-related, individual and family, small business and ancillary health insurance plans. We actively market the availability of Medicare-related insurance plans and offer Medicare plan comparison tools and educational materials for Medicare-related insurance plans, including Medicare Advantage, Medicare Supplement and Medicare Part D prescription drug plans. 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 fifty states and the District of Columbia. Basis of Presentation – Our consolidated financial statements include the accounts of eHealth, Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP.”) Certain prior period amounts have been reclassified to conform with our current period presentation. 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. The performance measures of our segments include total revenue and profit (loss). Our business structure is comprised of two operating segments: • Medicare; and • Individual, Family and Small Business 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, 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. Indirect marketing and advertising, customer care and enrollment and technology and content operating expenses are allocated to each segment based on usage. Other indirect general and administrative operating expenses are managed in a corporate shared services environment and, since they are not the responsibility of segment operating management, are not allocated to the two operating segments and are presented as a reconciling item to our consolidated financial results. 81 EHEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. Use of Estimates – The preparation of consolidated financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates, including those related to, but not limited to, the useful lives of intangible assets, fair value of investments, recoverability of intangible assets, the commissions we expect to collect for each approved member cohort, valuation allowance for deferred income taxes, provision for income taxes and the assumptions used in determining stock-based compensation. We base our estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that we believe to be reasonable. Actual results may differ from these estimates. Cash Equivalents – We consider all investments with an original maturity of 90 days or less from the date of purchase to be cash equivalents. Cash and cash equivalents are stated at fair value. Property and Equipment – Property and equipment are stated at cost, less accumulated depreciation and amortization. Finance lease amortization expenses are included in depreciation expense in our Consolidated Statements of Comprehensive Income. Maintenance and minor replacements are expensed as incurred. 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 See Note 4 – Supplemental Financial Statement Information of the Notes to Consolidated Financial Statements for additional information regarding our property and equipment. Business Combinations – We allocate the fair value of the acquisition consideration transferred in exchange for our acquired businesses to the tangible assets, liabilities and intangible assets acquired based on their estimated fair values at the acquisition date. The excess of the fair value of acquisition consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Acquisition-related costs are recognized separately from the business combination and are expensed as incurred. Goodwill and Intangible Assets – Goodwill represents the excess of the consideration paid over the estimated fair value of assets acquired and liabilities assumed in a business combination. In the event that we realign our reporting units, we allocate our goodwill to the new reporting units using the relative fair value approach. We test our goodwill for impairment on an annual basis in the fourth quarter of each year or whenever events or changes in circumstances indicate that the asset may be impaired. 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. 82 EHEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Our goodwill is allocated among our two segments, (1) Medicare and (2) Individual, Family and Small Business. No goodwill impairment has been identified in any of the years presented in the accompanying Consolidated Statements of Comprehensive Income. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate a potential reduction in their fair values below their respective carrying amounts. Intangible assets with finite useful lives, which include purchased technology, pharmacy and customer relationships, trade names, and certain trademarks, are amortized over their estimated useful lives. Goodwill and intangible assets are considered non-financial assets and therefore, subsequent to their initial recognition are not revalued at fair value each reporting period unless an impairment charge is recognized. We must make subjective judgments in determining the independent cash flows that can be related to specific asset groupings. In addition, we must make subjective judgments regarding the remaining useful lives of assets with finite useful lives. When we determine that the useful life of an asset is shorter than we had originally estimated, we accelerate the rate of amortization over the assets’ new, remaining useful life. 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 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 – 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 through the application of the following steps: • Identification of the contract, or contracts, with a customer. • Identification of the performance obligations in the contract. • Determination of the transaction price. • Allocation of the transaction price to the performance obligations in the contract. • Recognition of revenue when, or as, we satisfy a performance obligation. 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. We recognize 83 EHEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. The 84 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. In the first plan year of a Medicare Advantage and Medicare Part D prescription drug plan, after the health insurance carrier approves the application but during the effective year of the plan, we are paid a fixed commission that is prorated for the number of months remaining in the calendar year. Additionally, if the plan is the first Medicare Advantage or Medicare Part D prescription drug plan issued to the member, we may receive a higher commission rate that covers a full twelve-month period, regardless of the month the plan was effective. We earn commission revenue for Medicare Advantage and Medicare Part D prescription drug plans for which we are the broker of record, typically until either the policy is cancelled or we otherwise do not remain the agent on the policy. For individual and family, Medicare Supplement, small business and ancillary plans, our commissions generally represent a flat amount per member per month or a percentage of the premium amount collected by the carrier during the period that a member maintains coverage under a plan. Premium-based commissions are reported to us after the premiums are collected by the carrier, generally on a monthly basis. 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. 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. Accordingly, we recognize commission revenue based upon the total estimated lifetime commissions we expect to receive for selling the plan after the carrier approves an application, net of an estimated constraint. We refer to these as estimated and constrained LTVs for the plan. We provide annual services in selling and renewing small business health insurance plans; 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. 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 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. In these instances, we are typically paid a fixed, up-front fee, which we recognize as revenue as control is transferred ratably over the service period. 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 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 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 85 EHEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS customers. 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. 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. In order to enter into a revenue-sharing arrangement, marketing partners must be licensed to sell health insurance in the state where the policy is sold. Costs related to revenue-sharing arrangements are expensed as the related revenue is recognized. Marketing and Advertising Expenses – Marketing and advertising expenses consist primarily of member acquisition expenses associated with our direct, marketing partner and online advertising member acquisition channels, in addition to compensation and other expenses related to marketing, business development, partner management, public relations and carrier relations personnel who support our offerings. 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 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. Our direct channel expenses primarily consist of costs for direct mail, email marketing and television and radio advertising. Advertising costs for our direct channel are expensed the first time the related advertising takes place. Our marketing partner channel expenses primarily consist of fees paid to marketing partners with which we have a relationship. Our online advertising channel expenses primarily consist of paid keyword search advertising on search engines and retargeting campaigns. 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, 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. 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 attainment of performance-based awards and 86 EHEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 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. Treasury zero-coupon issues with a remaining term equal to the expected term of our stock options. 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. 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. Employees can contribute up to 25 % of their salary, up to the federal maximum allowable limit, on a before-tax basis to the 401(k) Plan. Employee contributions are fully vested when contributed. 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 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. The recipient is fully vested in all 401(k) Plan matching contributions after three years of service. 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. Income Taxes – We account for income taxes using the liability method. Deferred income taxes are determined based on the differences between the financial reporting and tax bases of assets and liabilities, using enacted statutory tax rates in effect for the year in which the differences are expected to reverse. We utilize a two-step approach for evaluating uncertain tax positions. Step one, Recognition , requires a company to determine if the weight of available evidence indicates that a tax position is more likely than not to be sustained upon audit, including resolution of related appeals or litigation processes, if any. Step two, Measurement , is based on the largest amount of benefit, which is more likely than not to be realized on ultimate settlement. We record interest and penalties related to uncertain tax positions as income tax expense in the consolidated financial statements. Seasonality – A greater number of our Medicare-related health insurance plans are sold in our fourth quarter during the Medicare annual enrollment period when Medicare-eligible individuals are permitted to change their Medicare Advantage and Medicare Part D prescription drug coverage for the following year. 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 87 EHEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 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. 88 EHEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 Income Taxes (Topic 740) – In December 2019, the FASB issued ASU No. 2019-12, Income Tax, Simplifying the Accounting for Income Taxes , which aims to simplify the accounting by removing certain exceptions to the general principles in Topic 740 and improve consistent application of and simplify GAAP for other areas under this Topic by clarifying existing guidance. ASU 2019-12 is effective for us beginning January 1, 2021. The amendments in this standard update have individually different adoption approaches. 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. 89 EHEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 Medicare Advantage $ 374,981 $ 339,810 $ 143,445 Medicare Supplement 48,526 40,345 31,166 Medicare Part D 12,909 26,824 14,609 Total Medicare 436,416 406,979 189,220 Individual and Family (1) Non-Qualified Health Plans 20,813 17,559 6,470 Qualified Health Plans 5,856 6,866 5,789 Total Individual and Family 26,669 24,425 12,259 Ancillary 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 Small Business 9,568 9,922 8,595 Commission Bonus 8,400 3,601 2,429 Total Commission Revenue 508,189 466,676 227,211 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 _______ (1) We define our individual and family plan offerings as major medical individual and family health insurance plans, which does not include Medicare-related, small business or ancillary plans. Individual and family health insurance plans include both qualified and non-qualified plans. Qualified health plans are individual and family health insurance plans that meet the requirements of the Affordable Care Act and are offered through the government-run health insurance exchange in the relevant jurisdiction. 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 non-qualified plans. 90 EHEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 Medicare 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. 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 due to enhancements made to the Medicare Advantage LTV estimation model. 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. 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 91 EHEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 On January 22, 2018, we completed our acquisition of all outstanding membership interests of Wealth, Health and Life Advisors, LLC, more commonly known as GoMedigap, a technology-enabled provider of Medicare Supplement enrollment services. 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 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. The GoMedigap acquisition was accounted for using the acquisition method of accounting under ASC 805, Business Combinations. The acquisition method of accounting requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The major classes of assets and liabilities to which we have allocated the acquisition consideration were as follows (in thousands): Acquisition Consideration Cash paid $ 15,000 Fair value of equity awards issued to GoMedigap members (1) 5,595 Estimated fair value of earnout liability 27,700 $ 48,295 Allocation Cash and cash equivalents $ 71 Contract assets – commissions receivable – current 4,371 Prepaid expenses and other current assets 11 Contract assets – commissions receivable – non-current 11,103 Property and equipment, net 174 Accounts payable ( 110 ) Accrued compensation and benefits ( 132 ) Other current liabilities ( 130 ) Net tangible assets acquired 15,358 Intangible assets 6,800 Goodwill 26,137 Total intangible assets acquired 32,937 Total net assets acquired $ 48,295 _______ (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. 92 EHEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 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. Goodwill is tested for impairment on an annual basis in the fourth quarter of each year or whenever events or changes in circumstances indicate that the asset may be impaired. 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. 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. The first and second earnout liability payments were made in February 2019 and January 2020, respectively. See Note 5 – Fair Value Measurements for further discussion regarding the earnout 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. The fair value of commissions receivable was determined using a discounted rate of interest, which is a Level 2 input. Intangible assets and the earnout liability were valued using Level 3 inputs. The fair values of the acquired technology were determined by using income and cost methods. 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 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 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 Total intangible assets $ 6,800 We are amortizing the existing technology, trade names, trademarks, and website addresses using the straight-line method over an estimated life of 3 and 10 years, respectively. The estimated useful lives are based on the time periods during which the intangibles are expected to result in incremental cash flows. Acquisition-related costs incurred were immaterial during the year ended December 31, 2018. 93 EHEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Prior to the acquisition date, GoMedigap recognized revenue and expenses on the cash basis of accounting. GoMedigap's historical books and records did not contain the information required to recognize revenue or prepare financial statements on a basis that would be comparable to us. Thus, the required pro-forma financial disclosures are not presented herein. GoMedigap generated revenue of $ 15.2 million for the period from the acquisition date of January 22, 2018 through December 31, 2018. Note 4 – Supplemental Financial Statement Information Cash, Cash Equivalents, and Restricted Cash Our cash, cash equivalent, and restricted cash balances are summarized as follows (in thousands): 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 Restricted cash 3,354 3,354 Total cash, cash equivalents and restricted cash $ 47,113 $ 26,820 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. 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 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. 94 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 Net commission revenue adjustments from members approved in prior period 5,665 39,831 45,496 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 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. Credit Risk 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 95 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) 21 % 20 % Aetna (2) 20 % 20 % _____________ (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, 2020 December 31, 2019 Prepaid maintenance contracts $ 7,715 $ 3,853 Prepaid expenses 6,628 2,207 Prepaid insurance 1,672 918 Income tax receivable 51 584 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, 2020 December 31, 2019 Computer equipment and software $ 20,121 $ 17,893 Office equipment and furniture 6,292 4,995 Leasehold improvements 7,458 6,051 Property and equipment, gross 33,871 28,939 Less accumulated depreciation and amortization ( 19,262 ) ( 18,421 ) Property and equipment, net $ 14,609 $ 10,518 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. 96 EHEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 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 Trade names, trademarks and website addresses 5,700 ( 2,300 ) 3,400 7.1 5,700 ( 1,791 ) 3,909 8.0 Total intangible assets subject to amortization $ 17,200 $ ( 13,745 ) 3,455 $ 17,200 $ ( 12,252 ) $ 4,948 Indefinite-lived trademarks and domain names 5,114 Indefinite 5,114 Indefinite Intangible assets $ 8,569 $ 10,062 During the years ended December 31, 2020, 2019, and 2018, amortization expense related to intangible assets totaled $ 1.5 million, $ 2.2 million, and $ 2.1 million, respectively. As of December 31, 2020, our expected amortization expense in future periods were as follows (in thousands): 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 We define fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques we use to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. We classify the inputs used to measure fair value into the following hierarchy: 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. Level 3 Unobservable inputs for the asset or liability. 97 EHEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table is a summary of financial assets measured at fair value on a recurring basis and their classification within the fair value hierarchy (in thousands): December 31, 2020 Carrying Value Level 1 Level 2 Level 3 Total Assets 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 Assets Cash equivalents Money market funds $ 7,261 $ 7,261 $ — $ — $ 7,261 Liabilities Earnout liability - current $ 37,273 $ — $ — $ 37,273 $ 37,273 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. We used observable prices in active markets in determining the classification of our money market funds as Level 1. 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 98 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; therefore, it is classified as Level 3. The fair value of the earnout liability 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 liability as of December 31, 2019 was adjusted to the amount that we settled in January 2020. Key assumptions included new enrollments and volatility for the years ended December 31, 2019 and 2018 and our stock price at the time of payment. Our earnout liability activities are summarized as follows (in thousands): Balance as of December 31, 2018 $ 40,000 Change in fair value 24,079 Settlements ( 26,806 ) Balance as of December 31, 2019 37,273 Settlements ( 37,273 ) Balance as of December 31, 2020 $ — In February 2019, we made the first earnout payment to GoMedigap consisting of $ 9.5 million in cash and 294,608 shares of our common stock with a value of $ 17.3 million. 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. 99 EHEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 6 – Equity 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. Accordingly, the holders of a majority of the shares of common stock entitled to vote in any election of directors can elect all of the directors standing for election, if they so choose. Subject to preferences that may apply to any shares of preferred stock outstanding, the holders of common stock are entitled to share equally in any dividends, when and if declared by our board of directors. Upon the occurrence of a liquidation, dissolution or winding-up, the holders of common stock are entitled to share equally in all assets remaining after the payment of any liabilities and the liquidation preferences on any outstanding preferred stock. 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. 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; however we may reissue previously acquired treasury shares to satisfy these future issuances. Shares of authorized but unissued common stock reserved for future issuance were as follows (in thousands): December 31, 2020 December 31, 2019 Stock options issued and outstanding 527 649 Restricted stock units issued and outstanding 2,370 2,201 Shares available for grant 1,509 2,197 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”) 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. Also, under the 2014 Plan the following shares are not recycled for future grant under the 2014 Plan: (i) shares used in connection with the exercise of an option and/or stock appreciation right to pay the exercise price or purchase price of such award or satisfy applicable tax withholding obligations; 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 100 EHEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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) 2,197 Restricted stock units granted (2) ( 1,038 ) Restricted stock units cancelled (3) 322 Options cancelled 28 Ending balance 1,509 _______ (1) Shares available for grant do not include treasury stock shares that could be granted if we determined to do so. (2) Includes grants of restricted stock units with service, performance-based or market-based vesting criteria. (3) Includes cancelled restricted stock units with service, performance-based or market-based vesting criteria. 101 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) 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 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. (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, 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 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) 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. 102 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 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, 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, 2020 2019 2018 Expected term (years) 3.5 1.4 1.6 Expected volatility 64.4 % 57.8 % 69.8 % Expected dividend yield — % — % — % Risk-free interest rate 0.3 % 2.4 % 2.5 % 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. 103 EHEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 Restricted stock units* 23,729 20,355 10,549 ESPP 346 — — 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 Customer care and enrollment 2,723 1,451 816 Technology and content 5,460 3,611 1,675 General and administrative 11,887 13,278 7,824 Restructuring charges — — 251 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 104 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 Basic net income per share is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted net income per share is computed by dividing the net income for the period by the weighted average number of common and common equivalent shares outstanding during the period. Diluted net income per share is computed giving effect to all potential dilutive common stock equivalent shares, including options and restricted stock units. The dilutive effect of outstanding awards is reflected in diluted net income per share by application of the treasury stock method. 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 Basic 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 Diluted: Net income $ 45,450 $ 66,887 $ 241 Shares used in per share calculation – basic 26,025 23,075 19,294 Dilutive effect of common stock 989 1,464 1,115 Total common stock shares used in diluted share calculation 27,014 24,539 20,409 Net income per share – diluted $ 1.68 $ 2.73 $ 0.01 For each of the years ended December 31, 2020, 2019 and 2018, we had securities outstanding that could potentially dilute net income per share, but the shares from the assumed conversion or exercise of these securities were excluded in the computation of diluted net income per share as their effect would have been anti-dilutive. The number of outstanding anti-dilutive shares that were excluded from the computation of diluted net income per share consisted of the following (in thousands): Year Ended December 31, 2020 2019 2018 Common stock options — 11 291 Restricted stock units 151 41 13 Total 151 52 304 105 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, 2021 $ 5,775 2022 3,408 2023 2,745 2024 2,056 2025 1,353 Thereafter 1,353 Total $ 16,690 Operating Leases Refer to Note 10 – Leases for commitments related to our operating leases. Contingencies From time to time, we receive inquiries from governmental bodies and also may be subject to various legal proceedings and claims arising in the ordinary course of business. We assess contingencies to determine the degree of probability and range of possible loss for potential accrual in our consolidated financial statements. 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 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 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. et al. , Case No. 4:20-cv-02967 (N.D. Cal.). 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, 106 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. Cal.). 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. , Case No. 20CV371555 (Cal. Super. 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. Cal.). 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. The claim alleges that we violated wage and hour laws with respect to these non-exempt employees, including, among other things, the failure to comply with California law as to (i) the payment of overtime wages; (ii) the payment of minimum wages; (iii) providing compliant meal and rest periods, (iv) the payment of wages earned during employment and owed upon the termination of employment; (v) providing complete and accurate wage statements, (vi) keeping of accurate payroll records; and (vii) the proper reimbursement for necessary business-related expenses and costs. The Gonzalez Complaint seeks penalties and costs, expenses and attorneys’ fees. 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. Serv. Co., in the Superior Court of the State of California for the County of Santa Clara (the “Le’Vias Complaint”). A substantial overlap exists between the facts and circumstances alleged in the Gonzalez Complaint and the Le’Vias Complaint. Specifically, the Le’Vias Complaint is also brought under PAGA on behalf of all current and former hourly-paid or non-exempt employees who work or have worked for us in California. The claim alleges that we violated wage and hour laws with respect to these non-exempt employees, including, among other things, the failure to comply with California law as to (i) the payment of overtime wages; (ii) the payment of minimum wages; (iii) providing compliant meal and rest periods, (iv) the payment of wages earned during employment and owed upon the termination of employment; (v) providing complete and accurate wage statements, (vi) keeping of accurate payroll records; and (vii) the proper reimbursement for necessary business-related expenses and costs. The Le’Vias Complaint seeks unpaid wages, penalties and costs, expenses and attorneys’ fees. 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 107 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 Operating Segments The results of our operating segments are summarized for the periods presented below (in thousands): Year Ended December 31, 2020 2019 2018 Revenue: Medicare $ 516,762 $ 446,961 $ 210,570 Individual, Family and Small Business 66,012 59,240 40,825 Total revenue $ 582,774 $ 506,201 $ 251,395 Segment profit: Medicare segment profit $ 101,963 $ 155,234 $ 60,844 Individual, Family and Small Business segment profit 39,383 23,368 5,803 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 ) Depreciation and amortization ( 3,694 ) ( 2,983 ) ( 2,479 ) Change in fair value of earnout liability — ( 24,079 ) ( 12,300 ) Restructuring charges — — ( 1,865 ) Acquisition costs — — ( 76 ) Amortization of intangible assets ( 1,493 ) ( 2,187 ) ( 2,091 ) 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. Our long-lived assets are attributed to the geographic location in which they are located. 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 $ 64,879 108 EHEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Significant Customers Substantially all revenue for the years ended December 31, 2020, 2019 and 2018 was generated from customers located in the United States. Carriers representing 10% or more of our total revenue are summarized as follows: Year Ended December 31, 2020 2019 2018 Humana 22 % 26 % 22 % UnitedHealthcare (1) 21 % 19 % 19 % Aetna (2) 15 % 17 % 14 % ____________ (1) UnitedHealthcare also includes other carriers owned by UnitedHealthcare. (2) Aetna includes other carriers owned by Aetna. Note 10 – Leases 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. 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. 109 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 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 of December 31, 2020, maturities of operating lease liabilities are as follows (in thousands): Year ending December 31, 2021 $ 7,644 2022 7,701 2023 8,033 2024 7,832 2025 8,009 Thereafter 19,408 Total lease payments (1) 58,627 Less imputed interest ( 12,066 ) 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 On September 17, 2018, we entered into a Credit Agreement with Royal Bank of Canada (“RBC”), as administrative agent and collateral agent (the “Credit Agreement”). The Credit Agreement provides for a $ 40.0 million secured asset-backed revolving credit facility with a $ 5.0 million letter of credit sub-facility. On December 20, 2019, we amended our revolving credit facility agreement with RBC (the “Amendment”) and increased the borrowing amount from $ 40.0 to $ 75.0 million. The maturity date has been extended to December 20, 2022. 110 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. The Borrowers have the right to prepay the loans under the Credit Agreement in whole or in part at any time without penalty. Subject to availability under the Borrowing Base, amounts repaid may be reborrowed. Amounts not borrowed under the Credit Agreement will be subject to a commitment fee of 0.5 % per annum on the daily unused portion of the credit facility, to be paid in arrears on the first business day of each calendar quarter. At the closing of the Credit Agreement, we paid a one-time facility fee of 1.75 % of the total commitments of $ 40.0 million. We also paid a one-time closing fee of 0.5 % of the new commitment of $ 75.0 million in connection with the Amendment. The Company is also obligated to pay other customary administration fees for a credit facility of this size and type. The availability under the credit facility was up to the lesser of $ 40.0 million or the Borrowing Base in the original credit agreement. The Amendment increased the availability up to the lesser of $ 75.0 million or the Borrowing Base, which may be reduced from time to time pursuant to the Credit Agreement. Financial covenants in the original Credit Agreement required that we maintain Excess Availability (as defined in the Credit Agreement) at or above $ 6.0 million at any time. The Amendment also changed the financial covenants to require us to maintain at least $ 6.0 million of Excess Availability at all times or, if greater, up to $ 11.3 million depending on our borrowing base as determined by eligible past and future commission receivables. In addition, the Amendment also included changes in the payment conditions to, among other things, require us to have at least $ 10.0 million of liquidity or, if greater, up to $ 18.8 million depending on our borrowing base as determined by eligible past and future commission receivables, in order for us to make certain permitted acquisitions, investments, distributions and payments of indebtedness. 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 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 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. 111 EHEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 12 – Income Taxes 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 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 Current: Federal $ — $ — $ 5 State 88 75 48 Foreign ( 361 ) 326 213 Total current ( 273 ) 401 266 Deferred: 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 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 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 % State income taxes, net of federal benefit 2.2 2.6 ( 7.2 ) Stock-based compensation shortfalls (windfalls), net ( 7.9 ) ( 7.0 ) ( 29.4 ) Non-deductible stock-based compensation 2.2 2.5 21.6 Non-deductible lobbying expenses 0.8 1.0 15.2 Research and development credits ( 2.2 ) ( 0.9 ) ( 17.1 ) Changes in valuation allowance 0.1 — 72.8 Foreign income tax and income inclusion ( 0.7 ) 0.1 6.8 Non-deductible parking expense — 0.2 3.1 Other permanent differences 0.3 0.4 5.9 Effective tax rate 15.8 % 19.9 % 92.7 % 112 EHEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. The tax effects of significant items comprising our deferred taxes as of December 31, 2020 and 2019 were as follows (in thousands): December 31, 2020 December 31, 2019 Deferred tax assets: Net operating losses $ 104,860 $ 60,023 Accruals and reserves 2,557 4,143 Operating lease liabilities 11,368 9,471 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 Valuation allowance ( 2,479 ) ( 2,407 ) Total deferred tax assets net of valuation allowance 131,490 86,579 Deferred tax liabilities: Commissions receivable ( 193,416 ) ( 141,566 ) Right-of-use assets ( 10,391 ) ( 8,879 ) Total deferred tax liabilities ( 203,807 ) ( 150,445 ) Net deferred tax liabilities $ ( 72,317 ) $ ( 63,866 ) Assessing the realizability of our deferred tax assets is dependent upon several factors, including the likelihood and amount, if any, of future taxable income in relevant jurisdictions during the periods in which those temporary differences become deductible. We forecast taxable income by considering all available positive and negative evidence, including our history of operating income and losses and our financial plans and estimates that we use to manage the business. These assumptions require significant judgment about future taxable income. 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. 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 end of year Year Ended December 31, 2020 $ 2,407 $ 72 $ 2,479 Year Ended December 31, 2019 2,407 — 2,407 Year Ended December 31, 2018 — 2,407 2,407 113 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 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. A reconciliation of the beginning and ending amount of our unrecognized tax benefits is as follows (in thousands): 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 Lapse of statute of limitations ( 8 ) — ( 5 ) Additions based on tax positions related to the current year 1,629 969 579 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. As of December 31, 2019, the total amount of gross unrecognized tax benefits was $ 4.7 million, of which $ 4.2 million, if recognized, would affect our effective tax rate. We record interest and penalties related to unrecognized tax benefits in income tax expense. As of December 31, 2020, the amount accrued for estimated interest related to uncertain tax positions was immaterial. We did not record an accrual for penalties. Included in the balance of income tax liabilities and accrued interest as of December 31, 2020 is an immaterial amount related to tax positions for which it is reasonably possible that the statute of limitations will expire in various jurisdictions and income tax exams will close within the next twelve months. 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 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 114 EHEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. 115 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.