What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-10 compared with 2020-11-05 · 212 added, 255 removed, 334 unchanged (58% of the section changed)

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

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

our ability to hire, train, retain and ensure the productivity of licensed health insurance agents and other employees;

changes in the market for private health insurance;

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the restrictions in our debt obligations;

the restrictions in our investment agreement with H.I.G;

compliance with insurance and other laws and regulations;

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Except as required by applicable law, we do not undertake, and specifically decline, any obligation to update any of these statements or to publicly announce the results of any revisions to any forward-looking statements, whether as a result of new information, future events, changes in assumptions or otherwise.

The following discussion should be read in conjunction with our Annual Report on Form 10-K as filed with the Securities and Exchange Commission in March 2020, and the audited consolidated financial statements and related notes contained therein.

The following discussion should be read in conjunction with our Annual Report on Form 10-K as filed with the Securities and Exchange Commission in February 2021, and the audited consolidated financial statements and related notes contained therein.

We are a leading private health insurance marketplace with a technology and service platform that provides consumer engagement, education and health insurance enrollment solutions.

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Our platform integrates proprietary and third-party developed educational content regarding health insurance plans with decision support tools to aid consumers in what has traditionally been a confusing and opaque health insurance purchasing process, and to help them obtain the health insurance products that meet their individual health and economic needs.

Our omni-channel consumer engagement platform is designed to meet the consumer wherever they prefer to engage with us, and enables consumers to use our services online, through interactive chat, or by telephone with a licensed insurance agent.

Our omnichannel consumer engagement platform is designed to meet the consumer wherever they prefer to engage with us, and enables consumers to use our services online, through interactive chat, or by telephone with a licensed insurance agent.

We have created a marketplace that offers consumers a broad choice of insurance products that include thousands of Medicare Advantage, Medicare Supplement, Medicare Part D prescription drug, individual and family, small business and other ancillary health insurance products from over 200 health insurance carriers across all fifty states and the District of Columbia.

Impact from COVID-19

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

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

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

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

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

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

Despite the changes in the U.S.

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

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

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

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

As of March 31, 2021, some of our offices in the United States remained closed, while some locations have opened at a reduced capacity with additional safety and social distancing measures.

Based on our experience in shifting existing agents to work from home and launching a remote agent model in 2020, we expect this remote agent model to provide us with geographic hiring flexibility as we grow our telesales capacity.

We believe the COVID-19 pandemic had an impact on consumer behavior in selecting and utilizing health insurance.

We believe that the way people shop for health coverage is changing with more seniors that are now likely to shop for Medicare products online or over the phone versus a face-to-face meeting with a traditional broker.

We anticipate that this will have a positive impact on comparison Medicare platforms such as ours.

Notwithstanding the anticipated positive change in the manner in which consumers purchase health insurance, the pandemic could adversely impact our business, including as a result of changes in consumer behavior, decreased ability to afford health insurance, an increased desire to change plans, an adverse impact on our ability to recruit and onboard sales agents and decreased productivity of our employees.

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

On April 30, 2021, upon the terms and subject to the conditions set forth in our investment agreement with H.I.G., we issued and sold 2,250,000 shares of newly designated Series A convertible preferred stock to H.I.G.

in a private placement at an aggregate purchase price of $225 million, at a price of $100 per share.

Summary of Selected Metrics

We rely upon certain metrics to evaluate our business performance and facilitate strategic planning.

Our business performance is influenced by a number of factors including but not limited to:

We rely upon certain metrics to estimate and recognize commission revenue, evaluate our business performance and facilitate strategic planning.

Our commission revenue is influenced by a number of factors including but not limited to:

• the number of individuals on applications for Medicare-related, individual and family, small business and ancillary health insurance plans that are approved by the relevant health insurance carriers;

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• the constrained lifetime value, or LTV, of approved members for Medicare-related, individual and family and ancillary health insurance plans we sell, as well as the estimated annual value of approved members for small business plans we sell.

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

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

Not all approved members become paying members for various reasons.

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

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

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

Approved Members

Approved members represents the number of individuals on submitted applications that were approved by the relevant insurance carrier for the identified product during the current period.

Approved members represent the number of individuals on submitted applications that were approved by the relevant insurance carrier for the identified product during the current period.

The applications may be submitted in either the current period or prior periods.

Not all approved members ultimately become paying members.

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

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

2020 2019 2020 2019

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

Three Months Ended March 31, % Change

Medicare Advantage 106,884 64,898 65 %

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Total Approved Members 163,450 128,344 27 %

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

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

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

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

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

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

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

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

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

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

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

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

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

Medicare approved members increased 45% in the three months ended March 31, 2021 compared to the same period in 2020.

The increase in total Medicare approved members was primarily attributable to a 65% growth in Medicare Advantage plan members, partially offset by a 28% decline in Medicare Supplement plan members and an 11% decline in Medicare Part D plan members in the three months ended March 31, 2021 compared to the same period in 2020.

The increase in approved Medicare Advantage members was primarily driven by strong consumer demand and an increase in our internal agent productivity and online enrollment growth.

We expect our year-over-year Medicare enrollment growth will slow down in the second quarter of 2021, as compared to the first quarter of 2021 growth rate, due to the introduction of a COVID-related special enrollment period for the Medicare Advantage market in the second quarter of 2020 that is not in place during the second quarter of 2021.

The COVID-related special enrollment period had a favorable impact on consumer demand and agent conversion rates in 2020 as more consumers were allowed to transact due that enrollment period.

Individual and Family Plan approved members grew 21% in the three months ended March 31, 2021 compared to the same period in 2020 due to a 26% increase in approved members for qualified health plans and a 16% increase in approved members in non-qualified health plans.

Recent growth in approved major medical individual and family plan members is partially a result to the current administration’s decision to extend the open enrollment period outside of the fourth quarter when it typically takes place, and to make these plans more affordable to certain consumer segments through a more extensive premium subsidy program.

Ancillary plan approved members declined 14% in the three months ended March 31, 2021 compared to the same period in 2020 primarily due to a 35% decline in approved members for short-term health plans and a 44% decrease in approved members for other ancillary plans, partially offset by an increase in approved members for dental and vision insurance.

Small business group health insurance approved members declined 18% in the three months ended March 31, 2021 compared to the same period in 2020 mainly due to the shift of our focus away from the sale of small business products.

New Paying Members

New Paying Members consist of approved members from the period presented and any periods prior to the period presented from whom we have received an initial commission payment during the period presented.

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

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

2020 2019 2020 2019

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

Three Months Ended March 31, % Change

Medicare Advantage 140,997 86,299 63 %

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Total New Paying Members 233,455 214,787 9 %

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

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

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

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

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

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

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

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

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

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

Medicare total new paying members grew 11% in the three months ended March 31, 2021 compared to the same period in 2020, primarily driven by a 63% increase Medicare Advantage plan new paying members, partially offset by a 54% decrease in Medicare Part D prescription drug plan and a 14% decrease in Medicare Supplement plan new paying members .

Individual and family plan new paying members grew 14% in the three months ended March 31, 2021 compared to the same period in 2020 due to increases in new paying members for non-qualified plans and new paying members for qualified plans.

Ancillary new paying members declined 3% in the three months ended March 31, 2021 compared to the same period in 2020 primarily due to a decline in approved members for short-term and other health plans.

Small business new paying members declined 20% in the three months ended March 31, 2021 compared to the same period in 2020 primarily due to a decrease in approved members .

Estimated Constrained Lifetime Value of Commissions Per Approved Member

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

Three Months Ended September 30, % Change

The following table shows our estimated constrained LTV of commissions per approved member by product for the periods presented below:

Three Months Ended March 31, % Change

Medicare Advantage (1)

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Non-Qualified Health Plans (1)

$ 188 $ 173 9 %

Qualified Health Plans (1)

$ 244 $ 165 48 %

Short-term (1)

$ 149 $ 112 33 %

$ 84 $ 65 29 %

$ 54 $ 45 20 %

Small Business (2)

$ 142 $ 168 (15) %

(1) Constrained LTV of commissions per approved member represents commissions estimated to be collected over the estimated life of an approved member’s policy after applying constraints in accordance with our revenue recognition policy.

The estimate is driven by multiple factors, including but not limited to, commission rates, carrier mix, estimated average plan duration, the regulatory environment, and cancellations of insurance plans offered by health insurance carriers with which we have a relationship.

The estimate is driven by multiple factors, including but not limited to, contracted commission rates, carrier mix, estimated average plan duration, the regulatory environment, and cancellations of insurance plans offered by health insurance carriers with which we have a relationship.

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

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

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

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

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

In addition, the decline in estimated plan duration also reflected

certain market related factors.

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

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

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

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

The constrained LTV of commissions per approved member for Medicare Part D prescription drug, Medicare Supplement and Medicare Advantage plans declined by 17%, 9% and 4%, respectively, during the three months ended March 31, 2021 compared to the same period in 2020.

The decline in constrained LTVs for Medicare Advantage plans was primarily due to a decrease in estimated average plan duration driven by various market factors, including the reintroduction of the open enrollment period in 2019, which provided an additional opportunity for Medicare Advantage plan members to change plans.

The negative impact of these factors was partially offset by an increase in broker commission rates and higher commission rates for new Medicare Advantage enrollments compared to the commissions for enrollments of existing members changing their plans.

The decline in constrained LTV for Medicare Part D prescription drug plans was primarily due to a shift in consumer demand away from these plans and towards Medicare Advantage plans with prescription drug coverage.

We believe that, similar to our Medicare Advantage plan members, a larger number of Medicare Part D prescription drug plan members terminated their plans due to the additional opportunities for consumers to shop and switch Medicare Part D prescription drug plans during the recently introduced open enrollment periods.

The decline in constrained LTV of commissions per approved member was driven by telephonic enrollments from our more recent member cohorts enrolled prior to the last annual enrollment period.

Our telephonic enrollments historically have had a shorter average plan duration compared to our online enrollments, which continue to have a higher average plan duration.

Individual and Family and Ancillaries

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

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

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

The constrained LTV of commissions per qualified health plan approved member increased 24% during the three months ended March 31, 2021 compared with the same period in 2020 mostly due to increased estimates of average plan duration.

The constrained LTV of commissions per short-term health insurance approved member increased 20% during the three months ended March 31, 2021 compared to the same period in 2020 primarily as a result of our selling of plans with higher premiums and resulting in increased commissions and an increase in estimated average plan duration.

The constrained LTV of commissions per approved member for dental and vision plans increased by 36% and 13%, respectively, during the three months ended March 31, 2021 compared with the same period in 2020 primarily due to an increase in estimated average plan duration and lower constraints as a result of reduced volatility based on historical trends.

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

Three Months Ended September 30,

Three Months Ended March 31,

Medicare Advantage 7 % 7 %

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Small Business 5 % — %

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

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

The constraints for small business plans and short-term health insurance plans increased during the three months ended March 31, 2021, as compared to the same period in the prior year, due to an increase in volatility.

Estimated Membership

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

As of September 30, % Change

As of March 31, % Change

Medicare Advantage (2)

538,716 404,262 33 %

Medicare Supplement 104,727 97,527 7 %

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__________________

(1) To estimate the number of members on Medicare-related health insurance plans, we take the sum of (i) the number of members for whom we have received or applied a commission payment for a month that may be up to three months prior to the date of estimation (after reducing that number using historical experience for assumed member cancellations over the period being estimated);

(1) To estimate the number of members on Medicare-related health insurance plans, we take the sum of (i) the number of members for whom we have applied or expected to receive a commission payment for a month that may be up to three months prior to the date of estimation (after reducing that number using historical experience for assumed member cancellations over the period being estimated);

and (ii) the number of approved members over that period (after reducing that number using historical experience for an assumed number of members who do not accept their approved policy and for estimated member cancellations through the date of the estimate).

To the extent we determine we have received substantially all of the commission payments related to a given month during the period being estimated, we will take the number of members for whom we have received or applied a commission payment during the month of estimation.

(2) As previously disclosed, we learned subsequent to reporting for the three months ended March 31, 2020 that Medicare Advantage membership as of March 31, 2020 was 384,513, a decrease of 19,749 or 4.9% relative to the previously reported estimated membership of 404,262, due to additional membership attrition during the quarter ended March 31, 2020 that was observed after the reporting period.

(3) To estimate the number of members on Individual and Family health insurance plans (“IFP”), we take the sum of (i) the number of IFP members for whom we have received or applied a commission payment for a month that may be up to three months prior to the date of estimation (after reducing that number using historical experience for assumed member cancellations over the period being estimated);

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The majority of our members who terminate their plans do so by discontinuing their premium payments to the carrier and do not inform us of the cancellation.

Also, some of our members pay

their premiums less frequently than monthly.

Also, some of our members pay their premiums less frequently than monthly.

Given the number of months required to observe non-payment of commissions in order to confirm cancellations, we estimate the number of members who are active on insurance policies as of a specified date.

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We may receive commission payments or other information that indicates that a member who was not included in our estimates for a prior period was in fact an active member at that time, or that a member who was included in our estimates was in fact not an active member of ours.

For instance, we reconcile information carriers provide to us and may determine that we were not historically paid commissions owed to us, which would cause us to have under estimated membership.

For instance, we reconcile information carriers provide to us and may determine that we were not historically paid commissions owed to us, which would cause us to have underestimated membership.

Conversely, carriers may require us to return commission payments paid in a prior period due to policy cancellations for members we previously estimated as being active.

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Instead, we reflect updated information regarding our historical membership in the membership estimate for the current period.

If we experience a significant variance in historical membership as compared to our initial estimates, we keep the prior period data consistent with previously reported amounts, while we may provide the updated information in other communications or disclosures.

As a result of the delay in our receipt of information from insurance carriers, actual trends in our membership are most discernible over periods longer than from one quarter to the next.

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

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

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

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

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

Historically, our membership estimates in a particular quarter have not been significantly different when compared to membership data received from carriers in a subsequent quarter.

However, we experienced a larger deviation in the actual Medicare Advantage membership, which was lower than our initial estimate, for the first quarter of 2020.

This deviation was primarily due to the time delay in receiving information from our carriers and a higher level of plan cancellations than expected.

Medicare-related plan estimated membership as of March 31, 2021 grew 20% compared to estimated membership as of March 31, 2020 due to a 33% growth in Medicare Advantage estimated membership, a 7% growth in Medicare Supplement plan estimated membership, and a 2% growth in Medicare Part D prescription drug plan estimated membership.

The overall growth in Medicare estimated membership was due to increased sales of Medicare-related plans and improved member retention for new members approved during the fourth quarter of 2020, as well as a higher recapture rate during the full year 2020 as compared to 2019.

Individual and family plan estimated membership as of March 31, 2021 declined 8% compared to estimated membership as of March 31, 2020 due to market conditions in the individual and family plan market and our decision to shift our investment to our Medicare business.

Ancillary plan estimated membership as of March 31, 2021 declined 5% compared to estimated membership as of March 31, 2020 primarily as a result of the decline in dental and short-term health plans estimated membership.

Member Acquisition

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

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

The numerator used to calculate

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

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

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The calculations for MA-equivalent members and for IFP-equivalent members are based on the weighted number of approved members for Medicare Plans and IFP Plans during the period, with the number of approved members adjusted based on the relative LTV of the product they are purchasing.

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

Three Months Ended September 30, % Change

Since the LTV for any product fluctuates from period to period, the weight given to each product was determined based on their relative LTVs at the time of our adoption of Accounting Standards Codification 606 – Revenue from Contracts with Customers ("ASC 606").

Three Months Ended March 31, % Change

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

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

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

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

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

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

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

Estimated CC&E costs per approved MA-equivalent member decreased 24% in the three months ended March 31, 2021 compared to the same period in 2020 due to an increase in productivity of our internal agents, and an increase in the percentage of online enrollments, as well as our operational and technology enhancements.

Estimated variable marketing cost per MA-equivalent member remained flat due to a higher conversion rate being offset by a shift towards online marketing channels that have a higher cost per lead.

Estimated CC&E cost per approved IFP-equivalent member decreased 20% in the three months ended March 31, 2021 compared to the same period in 2020 due primarily to an increase in agent productivity.

Estimated variable marketing cost per IFP-equivalent member increased 22% in the three months ended March 31, 2021 compared to the same period in 2020 due to an increase in marketing costs.

Critical Accounting Policies and Estimates

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These estimates and assumptions are based on current facts, historical experience, and various other factors that we believe are reasonable under the circumstances to determine reported amounts of assets, liabilities, revenue and expenses that are not readily apparent from other sources.

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

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

An accounting policy is considered to be critical if the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and the effect of the estimates and assumptions on financial condition or operating performance.

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

• Revenue Recognition;

• Revenue Recognition and contract assets - commission receivable;

• Stock-Based Compensation;

• Business Combinations;

• Realizability of Long-Lived Assets;

• Accounting for Income Taxes.

There have been no changes to our significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 2, 2020, that have had a material impact on our condensed consolidated financial statements and related notes.

There have been no changes to our critical accounting policies and estimates described in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 26, 2021, that have had a significant impact on our condensed consolidated financial statements and related notes.

Please refer to Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020, for a complete discussion of our other critical accounting policies and estimates.

Results of Operations

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

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

2020 2019 2020 2019

Our operating results and related percentage of total revenue are summarized below for the periods presented (dollars in thousands):

Three Months Ended March 31,

Commission $ 127,052 95 % $ 99,669 94 %

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Amortization of intangible assets 176 — % 547 1 %

Change in fair value of earnout liability — — % (5,400) (8) % — — % 15,106 7 %

Restructuring charges 2,431 2 % — — %

Total operating costs and expenses 134,856 100 % 105,377 99 %

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

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

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

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

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

Income (loss) from operations (642) — % 1,031 1 %

Other income, net 150 — % 373 — %

Income (loss) before provision for (benefit from) income taxes (492) — % 1,404 1 %

Provision for (benefit from) income taxes 308 — % (2,048) (2) %

Net income (loss) $ (800) — % $ 3,452 3 %

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

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

2020 2019 2020 2019

Three Months Ended March 31,

Marketing and advertising $ 2,485 $ 1,730

3 unchanged sentences

Total stock-based compensation expense $ 11,402 $ 8,714

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

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

Our commission revenue, other revenue and total revenue are summarized as (dollars in thousands):

Three Months Ended March 31, Change

2021 2020 $ %

4 unchanged sentences

Total revenue $ 134,214 $ 106,408 $ 27,806 26 %

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

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

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

See Segment Information below for further discussion.

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

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

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

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

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

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

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

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

Commission revenue increased $27.4 million, or 27%, during the three months ended March 31, 2021 compared to the same period in 2020 due to a $24.6 million increase in commission revenue from the Medicare segment and a $2.8 million increase in commission revenue from Individual, Family and Small Business segment.

The increase in commission revenue from the Medicare segment was driven by a 45% increase in Medicare plan approved members, primarily attributable to a 65% growth in Medicare Advantage plan approved members compared to 2020, partially offset by lower LTVs and a decrease in net commission revenue from Medicare members approved in prior periods.

The increase in commission revenue from Individual, Family and Small Business segment was primarily driven by a $1.9 million increase in net adjustment revenue, 21% increase in individual and family major medical plan approved members, 15% increase in dental plan approved members and 12% increase in vision plan approved members.

See Segment Information below for further discussion.

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

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

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

Other revenue increased $0.4 million, or 6%, during the three months ended March 31, 2021 compared to the same period in 2020 due to an increase in sponsorship and advertising revenue.

Cost of Revenue

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

Cost of revenue consists of payments related to health insurance plans sold to members who were referred to our website by marketing partners with whom we have revenue-sharing arrangements.

In order to enter into a revenue-sharing arrangement, marketing partners must be licensed to sell health insurance in the state where the policy is sold.

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

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

Three Months Ended March 31, Change

2021 2020 $ %

1 unchanged sentence

% of total revenue 1 % 1 %

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

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

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

Cost of revenue decreased by $0.1 million during the three months ended March 31, 2021, compared to the same period in 2020, primarily due to decreased activity from our revenue sharing arrangements.

Marketing and Advertising

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

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

Three Months Ended March 31, Change

2021 2020 $ %

1 unchanged sentence

% of total revenue 38 % 35 %

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

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

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

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

Marketing and advertising expenses increased $13.1 million, or 35%, during the three months ended March 31, 2021 compared to the same period in 2020, primarily driven by a $14.0 million increase in Medicare plan related variable advertising and $0.8 million in stock-based compensation expenses, partially offset by decreases of $1.0 million in consulting expenses and $0.7 million in personnel and compensation costs.

The increase in variable advertising expenses was due to an increase in our advertising expense through our partner and online channels.

Customer Care and Enrollment

Customer care and enrollment expenses primarily consist of compensation and benefits costs for personnel engaged in assistance to applicants who call our customer care center and for enrollment personnel who assist applicants during the enrollment process.

Customer care and enrollment expenses primarily consist of compensation, benefits, and licensing costs for personnel engaged in assistance to applicants who call our customer care center and for enrollment personnel who assist applicants during the enrollment process.

Our customer care and enrollment expenses also include third-party call center costs.

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

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

Three Months Ended March 31, Change

2021 2020 $ %

1 unchanged sentence

% of total revenue 25 % 29 %

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

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

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

Customer care and enrollment expenses increased $3.6 million, or 12%, during the three months ended March 31, 2021 compared to the same period in 2020, primarily due to an increase of $6.1 million in personnel costs associated with an increase in customer care and enrollment headcount, partially offset by decreases of $1.7 million in licensing costs and $1.0 million in consulting expenses.

The decrease in licensing costs was primarily due to previously over-recognized licensing costs that were adjusted during the three months ended March 31, 2021.

We have shifted to a predominantly internal agent model and intend to employ and maintain the majority of our health insurance agent force year-round.

In 2021, we are starting internal agent hiring and training earlier in the year compared to prior years, with the largest headcount increase planned for the second and third quarters.

As a result, our customer care and enrollment costs will increase accordingly during the second and third quarters of 2021.

We believe that a combination of a longer training period and an increased percentage of internal agents will have a significant positive impact on agent productivity, enrollment volumes and acquisition cost per approved member during the annual enrollment period in the fourth quarter.

Technology and Content

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

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

A portion of our technology and content group is located at our wholly-owned subsidiary in China, where technology development costs are generally lower than in the United States.

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

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

Three Months Ended March 31, Change

2021 2020 $ %

1 unchanged sentence

% of total revenue 17 % 15 %

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

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

Technology and content expenses increased $7.4 million, or 47%, during the three months ended March 31, 2021 compared to the same period in 2020 primarily driven by increases of $3.2 million in personnel and compensation costs due to higher headcount, $1.3 million in amortization of internal software development costs, $1.3 million in facilities, and $1.1 million in stock-based compensation expenses.

General and Administrative

General and administrative expenses include compensation and benefits costs for staff working in our executive, finance, investor relations, government affairs, legal, human resources, facilities, and internal information technology departments.

General and administrative expenses include compensation and benefits costs for personnel working in our executive, finance, investor relations, government affairs, legal, human resources, internal audit, facilities and internal information technology departments.

These expenses also include fees paid for outside professional services, including audit, tax, legal, government affairs and information technology fees.

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

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

Three Months Ended March 31, Change

2021 2020 $ %

1 unchanged sentence

% of total revenue 17 % 18 %

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

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

Change in Fair Value of Earnout Liability

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

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

General and administrative expenses increased $3.4 million, or 17%, during the three months ended March 31, 2021 compared to the same period in 2020, primarily driven by increases of $1.0 million stock-based compensation expenses, $0.9 million in personnel and compensation costs, $0.7 million in shareholder engagement costs, $0.4 million in consulting expenses, and $0.4 million in facilities and other operating costs.

Amortization of Intangible Assets

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

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

Three Months Ended March 31, Change

2021 2020 $ %

1 unchanged sentence

% of total revenue — % 1 %

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

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

Other Income (Expense), Net

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

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

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

Amortization expense decreased during the three months ended March 31, 2021 compared to the same periods in 2020 due to certain intangible assets being fully amortized during the three months ended March 31, 2021.

Restructuring Charges

In February 2021, our Board of Directors approved a plan to terminate the employment of certain employees in certain locations.

As part of this plan, we eliminated approximately 89 full-time positions, primarily in the United States, representing approximately 5% of our workforce primarily within customer care and enrollment groups, and to a lesser extent, in our marketing and advertising and general and administrative groups.

Our restructuring charges is summarized as follows (dollars in thousands):

Three Months Ended March 31, Change

2021 2020 $ %

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

Restructuring charges $ 2,431 $ — $ 2,431 *

% of total revenue 2 % — %

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

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

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

Benefit from Income Taxes

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

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

Our restructuring charges primarily consist of severance and other termination benefits provided to employees as part of the restructuring plan.

* Percentage calculated is not meaningful.

Other Income, Net

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

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

Three Months Ended March 31, Change

2021 2020 $ %

Benefit from income taxes $ (6,443) $ (8,649) $ 2,206 (26) % $ (10,923) $ (17,974) $ 7,051 (39) %

Other income, net $ 150 $ 373 $ (223) (60) %

% of total revenue — % — %

Other income, net decreased $0.2 million during the three months ended March 31, 2021 compared to the same period in 2020 due primarily to a decrease in interest income.

Provision for (Benefit from) Income Taxes

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

Three Months Ended March 31, Change

2021 2020 $ %

Provision for (benefit from) income taxes $ 308 $ (2,048) $ 2,356 *

Effective tax rate (62.6) % (145.9) %

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

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

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

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

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

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

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

* Percentage calculated is not meaningful.

Our effective tax rate increased for the three months ended March 31, 2021, as compared to the three months ended March 31, 2020, primarily due to a decrease in stock-based compensation windfalls partially offset by a one-time state tax adjustment in the first quarter of 2021.

During the three months ended March 31, 2021, we recorded a provision for income taxes of $0.3 million representing an effective tax rate of (62.6)% which was lower than the statutory federal tax rate due primarily to one-time state tax adjustments.

During the three months ended March 31, 2020, we recorded a benefit from income taxes of $2.0 million representing an effective tax rate of (145.9)% which was lower than the statutory federal tax rate primarily due to stock-based compensation windfalls.

Segment Information

We report segment information based on how our chief executive officer, who is our chief operating decision maker ("CODM"), regularly reviews our operating results, allocates resources and makes decisions regarding our business operations.

We report segment information based on how our chief executive officer, who is our chief operating decision maker, or 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.

1 unchanged sentence

• Individual, Family and Small Business.

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

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

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

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

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

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Indirect marketing and advertising, customer care and enrollment, and technology and content operating expenses are allocated to each segment based on usage.

Other indirect general and administrative operating expenses are managed in a corporate shared services environment and, since they are not the responsibility of segment operating management, are not allocated to the two operating segments and instead reported within Corporate.

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 operating segments and instead reported within Corporate.

Segment profit is calculated as total revenue for the applicable segment less direct and allocated marketing and advertising, customer care and enrollment, technology and content, and general and administrative operating expenses, excluding stock-based compensation expense, change in fair value of earnout liability, depreciation and amortization expense, and amortization of intangible assets.

During the first quarter of 2021, we modified the calculation of segment profit to exclude the amortization of capitalized software development cost to enhance comparability of our financial metrics with peer companies.

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

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

Three Months Ended March 31, Change

2021 2020 $ %

2 unchanged sentences

Total revenue $ 134,214 $ 106,408 $ 27,806 26 %

Segment profit (loss):

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

Segment profit:

Medicare segment profit (1)

$ 24,545 $ 23,136 $ 1,409 6 %

Individual, Family and Small Business segment profit (1)

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

8,052 2,928 5,124 175 %

Total segment profit 32,597 26,064 6,533 25 %

Corporate (15,286) (13,448) (1,838) 14 %

Stock-based compensation expense (11,402) (8,714) (2,688) 31 %

Change in fair value of earnout liability — 5,400 (5,400) (100) % — (15,106) 15,106 (100) %

Depreciation and amortization (2)

(3,944) (2,324) (1,620) 70 %

Amortization of intangible assets (176) (547) 371 (68) %

Acquisition costs — — — * — — — *

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

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

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

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

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

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

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

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

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

The overall growth of our Medicare business was a result of our investment and marketing efforts in this segment and the increases in approved application volume due to the open enrollment period in the first quarter and the COVID-19 related special enrollment period introduced in the second quarter.

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

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

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

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

Restructuring charges (2,431) — (2,431) *

Other income, net 150 373 (223) (60) %

Income (loss) before provision for (benefit from) income taxes $ (492) $ 1,404 $ (1,896) *

* Percentage calculated is not meaningful.

(1) During the first quarter of 2021, we revised the calculation of segment profit by excluding amortization of capitalized software development costs to enhance comparability of our financial metrics with peer companies.

The amortization of capitalized software development costs were $2.8 million and $1.5 million for the first quarter of 2021 and 2020, respectively.

(2) Depreciation and amortization has been adjusted to include amortization of software development costs.

Revenue from our Medicare segment grew $24.9 million, or 26%, during the three months ended March 31, 2021 compared to the same period in 2020, primary attributable to an increase in Medicare Advantage plan related commission revenue of $35.2 million, partially offset by lower LTVs and a decrease in net adjustment revenue.

The increase in Medicare Advantage commission revenue was driven by 65% growth in Medicare Advantage plan approved members.

The overall growth of our Medicare business was a result of an increase in our agent productivity and strong consumer demand.

Revenue from our Individual, Family and Small Business segment grew $2.9 million, or 29%, during the three months ended March 31, 2021 compared to the same period in 2020, primarily attributable to a $2.8 million increase in commission revenue.

Despite the uncertainties with respect to the extension of the open enrollment period through August 15, 2021 combined with greater government incentives, 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 $3.3 million in net adjustment revenue, an increase $1.9 million during the three months ended March 31, 2021 compared to the same period in 2020.

Segment Profit

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

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

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

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

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

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

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

Our Medicare segment profit was $24.5 million during the three months ended March 31, 2021, an increase of $1.4 million, or 6%, compared to the same period in 2020.

This was primarily due to a $24.9 million increase in revenue, partially offset by a $23.5 million increase in operating expenses, excluding stock-based compensation expense, depreciation and amortization expenses, and amortization of intangible assets.

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

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

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

Our Individual, Family and Small Business segment profit was $8.1 million during the three months ended March 31, 2021, an increase of $5.1 million, or 175% compared to the same period in 2020.

The increase was primarily driven by a $2.9 million increase in revenue and a $2.2 million decrease in operating expenses, excluding stock-based compensation expense, depreciation and amortization expenses, and amortization of intangible assets.

Liquidity and Capital Resources

Our cash, cash equivalents, and short-term marketable securities are summarized as follows (in thousands):

March 31, 2021 December 31, 2020

Cash and cash equivalents $ 92,250 $ 43,759

Short-term marketable securities 33,922 49,620

Total cash, cash equivalents, and short-term marketable securities $ 126,172 $ 93,379

We believe our current cash and cash equivalents, credit facility and expected cash collections will be sufficient to fund our operations for at least twelve months after the filing date of this Quarterly Report on Form 10-Q.

Our future capital requirements will depend on many factors, including our expected membership and retention rates and our level of investment in technology, marketing and advertising and our customer care initiatives.

Our future capital requirements will depend on many factors, including our expected membership, retention rates and our level of investment in technology, marketing and advertising and our customer care initiatives.

In addition, our cash position could be impacted by further acquisitions and investments we make to pursue our growth strategy.

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

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

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

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

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

As of March 31, 2021, our cash and cash equivalents totaled $92.3 million.

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

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

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

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

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

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

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

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

Nine Months Ended September 30,

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

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

Net cash provided by financing activities

203,555 105,085

The increase in cash and cash equivalents reflects $42.8 million of net cash provided by operating activities and $10.5 million of net cash provided by investing activities, partially offset by $4.8 million of net cash used in financing activities.

We also maintained $3.4 million in restricted cash as of March 31, 2021 and December 31, 2020.

The following table presents a summary of our cash flows for the three months ended March 31, 2021 (in thousands):

Three Months Ended March 31,

Net cash provided by operating activities $ 42,809 $ 8,907

Net cash provided by (used in) investing activities 10,497 (64,136)

Net cash provided by (used in) financing activities (4,790) 215,931

Operating Activities

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

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

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

If we were to experience a delay in receiving a commission payment from a health insurance carrier within a quarter, our operating cash flows for that quarter could be adversely impacted.

A significant portion of our marketing and advertising expenses is driven by the number of health insurance applications submitted on our ecommerce platforms.

A significant portion of our marketing and advertising expense is driven by the number of health insurance applications submitted on our ecommerce platforms.

Since our marketing and advertising costs are expensed and generally paid as incurred, and since commission revenue is recognized upon approval of a member but commission payments are paid to us over time, our operating cash flows could be adversely impacted by a substantial increase in the volume of applications submitted during a quarter or positively impacted by a substantial decline in the volume of applications submitted during a quarter.

During the Medicare annual enrollment period which takes place during the last quarter of each year, we experience an increase in the number of submitted Medicare-related health insurance applications and marketing and advertising expenses compared to outside of Medicare annual enrollment periods.

Similarly, during open enrollment periods for individual and family health insurance plans which takes place during the first quarter of each year, we experience an increase in the number of submitted individual and family plan health insurance applications and marketing and advertising expenses compared to outside of open enrollment periods.

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

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

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

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

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

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

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

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

During the Medicare annual enrollment period which takes place during the last quarter of each year and the reintroduced Medicare Advantage open enrollment period in the first quarter of the year, we experience an increase in the number of submitted Medicare-related health insurance applications and marketing and advertising expenses compared to outside of these enrollment periods.

Similarly, during the open enrollment period for individual and family health insurance plans which typically takes place during the fourth quarter of each year, with the exception of a special enrollment period that runs through May 15, 2021 due to the pandemic, we experience an increase in the number of submitted individual and family plan health insurance applications and marketing and advertising expenses compared to outside of open enrollment periods.

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

Three Months Ended March 31, 2021 – Net cash provided by operating activities was $42.8 million during the three months ended March 31, 2021, primarily driven by changes in net operating assets and liabilities of $28.2 million and a net loss of $0.8 million, partially offset by adjustments for non-cash items of $15.4 million.

Adjustments for non-cash items primarily consisted of $11.4 million of stock-based compensation expense, $3.0 million of amortization of intangible assets and internally-developed software, and $1.1 million of depreciation and amortization.

Cash used from changes in net operating assets and liabilities during the three months ended March 31, 2021 primarily consisted of decreases of $50.6 million in contract assets – commissions receivable and $4.2 million in prepaid expenses and other current asset, increases of $4.1 million in accrued compensation and benefits and $1.3 million in accrued expenses and other liabilities, partially offset by decreases of $25.8 million in accounts payable and $6.7 million in accrued marketing expense.

Cash collection during the three months ended March 31, 2021 increased primarily driven by enrollment growth and increases in commission rates for new enrollments, as compared to the three months ended March 31, 2020.

Three Months Ended March 31, 2020 – Net cash provided by operating activities was $8.9 million during the three months ended March 31, 2020, primarily driven by net income of $3.5 million and adjustments for non-cash items of $9.7 million, partially offset by changes in net operating assets and liabilities of $4.2 million.

Adjustments for non-cash items primarily consisted of $8.7 million of stock-based compensation expense, $2.0 million of amortization of intangible assets and internally developed software, $0.8 million of depreciation and amortization, partially offset by a $2.1 million decrease due to the change in deferred income taxes.

Cash used from changes in net operating assets and liabilities during the three months ended March 31, 2020 primarily consisted of decreases of $16.3 million in accounts payable, $11.1 million in accrued compensation and benefits, and $7.3 million in accrued marketing expenses, partially offset by decreases of $26.9 million in contract assets – commissions receivable and $1.7 million in accounts receivable and an increase of $2.0 million in accrued expenses and other liabilities.

Investing Activities

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

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

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

Three Months Ended March 31, 2021 – Net cash provided by investing activities of $10.5 million for the three months ended March 31, 2021 mainly consisted $23.4 million proceeds from the maturities and redemptions of marketable securities, partially offset by $7.8 million used to purchase marketable securities, $3.2 million in capitalized internal-use software and website development costs and $1.9 million used to purchase property and equipment and other assets.

Three Months Ended March 31, 2020 – Net cash used in investing activities of $64.1 million for the three months ended March 31, 2020 was due to $58.1 million in purchases of marketable securities, $3.6 million in capitalized internal-use software and website development costs and $2.5 million used to purchase property and equipment and other assets.

Financing Activities

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

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

Three Months Ended March 31, 2021 – Net cash used in financing activities of $4.8 million for the three months ended March 31, 2021 was primarily due to repurchase of shares to satisfy employee tax withholding obligation.

Three Months Ended March 31, 2020 – Net cash provided by financing activities of $215.9 million for the three months ended March 31, 2020 was primarily due to $228.0 million net proceeds from the issuance of common stock in a public equity offering and $1.1 million of net proceeds from the exercise of common stock options, partially offset by $8.8 million of acquisition-related contingent payments and $4.4 million repurchase of shares to satisfying employee tax withholding obligations.

Convertible Preferred Stock

On April 30, 2021, upon the terms and subject to the conditions set forth in our investment agreement with H.I.G., we issued and sold 2,250,000 shares of our newly designated Series A convertible preferred stock at an aggregate purchase price of $225.0 million, at a price of $100 (the “Stated Value” per share of Series A preferred stock) per share.

We received $216.2 million in proceeds from the private placement with H.I.G., net of sales commissions and certain transaction fees.

Dividends on our outstanding shares of Series A preferred stock accrue daily at 8% per annum on the Stated Value per share and compound semiannually, payable in kind until April 30, 2023, which is the second anniversary of the closing date of the Private Placement, on June 30 and December 31 of each year, beginning on June 30, 2021, and will thereafter become 6% payable in kind and 2% payable in cash in arrears on June 30 and December 31 of each year, beginning on June 30, 2023 (each, a “Cash Dividend Payment Date”).

Dividends payable in kind will be cumulative.

The Series A preferred stock also participates, on an as-converted basis (without regard to conversion limitations) in all dividends paid to the holders of our common stock.

If we fail to declare and pay full cash dividend payments as required by the certificate of designations for the Series A preferred stock for two consecutive Cash Dividend Payment Dates, the cash dividend rate then in effect shall increase one time by 2%, retroactive to the first day of the semiannual period immediately preceding the first Cash Dividend Payment Date at which we failed to pay such accrued cash dividends, until such failure to pay full cash dividends is cured (at which time the dividend rate shall return to the rate prior to such increase).

The dividend rights of the Series A preferred stock are senior to all of our other equity securities.

Beginning on April 30, 2027, which is the sixth anniversary of the closing date of the Private Placement, each holder of Series A preferred stock will have the right to require us to redeem all or any portion of the Series A preferred stock for cash at a price calculated as set forth in the certificate of designations.

In addition, upon certain change of control events, holders of Series A preferred stock can require us, subject to certain exceptions, to repurchase any or all of their Series A preferred stock.

Credit Agreement

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

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

As of March 31, 2021, we had no outstanding principal amount under our revolving credit facility.

See Note 11 – Debt of Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional information regarding this credit agreement and subsequent amendment.

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Net proceeds from the offering were approximately $228.0 million after deducting underwriting discounts, commissions and expenses of the offering.

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

Contractual Obligations and Commitments

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

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

Reminder of 2020 $ 1,915 $ 2,593 $ 4,508

2021 7,644 4,538 12,182

2022 7,701 2,484 10,185

2023 8,033 1,797 9,830

2024 7,832 1,582 9,414

Thereafter 27,416 2,706 30,122

Total $ 60,541 $ 15,700 $ 76,241

* See Note 9 – Leases of our Notes to Condensed Consolidated Financial Statements for details of our operating lease obligations.

Service and Licensing Obligations

We have entered into service and licensing agreements with third party vendors to provide various services, including network access, equipment maintenance and software licensing.

The terms of these services and licensing agreements are generally up to three years.

We record the related service and licensing expenses on a straight-line basis over the terms of the agreements, although actual cash payment obligations under certain of these agreements fluctuate over the terms of the agreements.

Our material contractual obligation generally include operating lease liabilities and non-cancellable contractual service and licensing obligations.

See Note 9 – Leases in the Notes to Condensed Consolidated Financial Statements for information about our operating lease obligations.

See Note 7 – Commitments and Contingencies in the Notes to Condensed Consolidated Financial Statements for the information about our non-cancellable contractual service and licensing obligations .

Off-Balance Sheet Arrangements

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

As of March 31, 2021, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues, or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.

Recent Accounting Pronouncements

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis