What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-09 compared with 2021-05-10 · 201 added, 143 removed, 403 unchanged (46% of the section changed)

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our expectations relating to revenue, operating costs, cash flows and profitability;

our expectations regarding our strategy and investments;

our expectations regarding our strategy and investments, including investments in our e-commerce and call center capabilities, agent training and quality assurance efforts;

our expectations regarding our Medicare business, including market opportunity, consumer demand and our competitive advantage;

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These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict.

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

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

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

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

the seasonality of our business and the fluctuation of our operating results;

our ability to accurately estimate membership and lifetime value of commissions;

our ability to accurately estimate membership, lifetime value of commissions and commissions receivable;

changes in product offerings among carriers on our ecommerce platform and the resulting impact on our commission revenue;

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our relationships with health insurance carriers;

customer concentration;

customer concentration and consolidation of the health insurance industry;

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

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

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

changes in the market for private health insurance;

consumer satisfaction of our service;

consumer satisfaction of our service and actions we take to improve the quality of enrollments;

changes in member conversion rates;

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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 February 2021, 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 amended in April 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 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.

Our omnichannel consumer engagement platform 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

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.

COVID-19 Impact Updates

As of June 30, 2021, all of our offices have reopened with additional safety and social distancing measures.

eHealth currently plans to operate with a combination of remote and in-office work in the United States until the end of 2021.

All of our U.S.

offices are currently open with reduced capacity as we continue to monitor the status of COVID-19.

We currently plan to increase the number of in-office employees later this year depending upon the COVID-19 vaccination status of our employees as we intend to have only vaccinated employees in the office to promote the health and safety of our employees.

The extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments, including the duration, spread and severity of the pandemic, the availability, effectiveness and uptake of vaccines for COVID-19, the emergence of new variants of COVID-19 and whether existing vaccines are effective with respect to such variants, the actions to contain the disease or mitigate its impact, and the duration, timing and severity of the impact on consumer behavior, including any recession resulting from the pandemic, all of which are unpredictable.

The recent surge in the COVID-19 cases caused by the COVID-19 Delta variant is already having an impact as employees in our California offices are now required by county order to wear masks while in our offices regardless of vaccination status.

The emergence of Delta and other variants could cause us to alter our operations and plans for in-office and remote work.

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.

Current Business Initiatives

During the second quarter of 2021, we made progress expanding and enhancing our telesales organization and continued to scale our digital business.

With our experience in launching a remote agent model in 2020, we continued to grow our agent workforce to include remote workers, which provides us with better geographic hiring flexibility as we grow our telesales capacity.

Enrollment quality has been a focus in our organization since the launch of our retention program a year ago, and we are seeking additional ways to improve customer experience, enhance accuracy of plan recommendations and reduce rapid disenrollment.

Starting in the third quarter of 2021, we introduced mandatory additional training for our agents, added a new customer care function to verify certain Medicare enrollments prior to submission to the carrier, and are expanding other quality assurance efforts.

The recent migration of our call center technology to a cloud-based contact center is expected to provide new robust capabilities to train agents and monitor their performance in real time.

While we expect these initiatives will enhance the quality of our enrollments generally, the introduction of these efforts to date has resulted in lower conversion rates and longer average talk times for telephonic enrollments.

We also expect to incur additional expense as we expand our quality initiatives.

We believe that our ongoing investments in our telesales operations, technology and quality assurance will present a significant barrier to entry into the Medicare distribution market as carriers place an increasing value on enrollment quality and reduction in beneficiary complaints.

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

See Note 6 – Convertible Preferred Stock in our Notes to Condensed Consolidated Financial Statements for details.

Summary of Selected Metrics

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

Three Months Ended March 31, % Change

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

2021 2020 2021 2020

Medicare Advantage 78,569 60,477 30 % 185,453 125,375 48 %

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Total Approved Members 127,784 110,180 16 % 291,234 238,524 22 %

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.

Three Months Ended June 30, 2021 and 2020 – Medicare approved members increased 19% in the three months ended June 30, 2021 compared to the same period in 2020.

The increase in total Medicare approved members was primarily attributable to a 30% growth in Medicare Advantage plan members, partially offset by a 30% decline in Medicare Supplement plan members and an 8% decline in Medicare Part D prescription drug plan members in the three months ended June 30, 2021 compared to the same period in 2020.

Medicare Advantage enrollment growth in the three months ended June 30, 2021 slowed down compared to the same period in 2020 due to the COVID-related special enrollment period which drove higher growth last year.

Individual and family plan approved members grew 78% in the three months ended June 30, 2021 compared to the same period in 2020 due to favorable market environment, which drove a 113% increase in approved members for qualified health plans and a 47% increase in approved members in non-qualified health plans.

The individual and family health insurance market is benefiting from the passage of the American Rescue Plan Act in March 2021.

This legislation expanded access to premium credits making individual and family major medical plans more affordable, which allows a larger population to get the coverage that our major medical plans offer.

Ancillary plan approved members decreased 3% in the three months ended June 30, 2021 compared to the same period in 2020 primarily due to a 32% decline in approved members for short-term health plans and a 34% decline 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 17% in the three months ended June 30, 2021 compared to the same period in 2020 mainly due to the shift of our focus away from the sale of small business products.

Six Months Ended June 30, 2021 and 2020 – Medicare approved members increased 33% in the six months ended June 30, 2021 compared to the same period in 2020.

The increase in total Medicare approved members was primarily attributable to a 48% growth in Medicare Advantage plan members, partially offset by a 29% decline in Medicare Supplement plan members and a 10% decline in Medicare Part D prescription drug plan members in the six months ended June 30, 2021 compared to the same period in 2020.

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

Individual and Family Plan approved members grew 42% in the six months ended June 30, 2021 compared to the same period in 2020 partially due to favorable market environment resulting from the recent legislation mentioned above, driven by a 57% increase in approved members for qualified health plans and a 28% increase in approved members in non-qualified health plans.

Ancillary plan approved members declined 9% in the six months ended June 30, 2021 compared to the same period in 2020 primarily due to a 34% decline in approved members for short-term health plans and a 39% 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 six months ended June 30, 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

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

Three Months Ended March 31, % Change

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

2021 2020 2021 2020

Medicare Advantage 77,710 57,232 36 % 218,707 143,531 52 %

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Total New Paying Members 124,612 106,328 17 % 358,067 321,115 12 %

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 .

Three Months Ended June 30, 2021 and 2020 – Medicare total new paying members grew 24% in the three months ended June 30, 2021 compared to the same period in 2020, primarily driven by a 36% increase in Medicare Advantage plan new paying members, partially offset by a 33% decline in Medicare Supplement plan new paying members and an 8% decline in Medicare Part D prescription drug plan new paying members .

Individual and family plan new paying members grew 33% in the three months ended June 30, 2021 compared to the same period in 2020 due to increases in new paying members for both non-qualified plans and qualified health plans.

Ancillary new paying members declined 2% in the three months ended June 30, 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 24% in the three months ended June 30, 2021 compared to the same period in 2020 primarily due to a decrease in approved members .

Six Months Ended June 30, 2021 and 2020 – Medicare total new paying members grew 15% in the six months ended June 30, 2021 compared to the same period in 2020, primarily driven by a 52% increase Medicare Advantage plan new paying members, partially offset by a 49% decrease in Medicare Part D prescription drug plan and a 21% decrease in Medicare Supplement plan new paying members .

Individual and family plan new paying members grew 20% in the six months ended June 30, 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 six months ended June 30, 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 21% in the six months ended June 30, 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 LTV of commissions per approved member by product for the periods presented below:

Three Months Ended March 31, % Change

Three Months Ended June 30, % Change

Medicare Advantage (1)

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Small Business (2)

(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.

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

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.

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

The constrained LTV of commissions per approved member for Medicare 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 constrained LTV of commissions per approved member for Medicare Supplement, Medicare Part D prescription drug, and Medicare Advantage plans declined by 17%, 11%, and 4%, respectively, during the three months ended June 30, 2021 compared to the same period in 2020.

The decline in constrained LTV of commissions per approved member for Medicare Advantage and Medicare Supplement plans was partially driven by a shorter average plan duration for telephonic enrollments.

The shorter estimated average plan duration was partially attributable to additional opportunities for Medicare Advantage plan members to switch plans during the Medicare Advantage open enrollment period and the COVID-19 related special enrollment period in 2020.

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.

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

Individual and Family and Ancillaries

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 constrained LTV of commissions per non-qualified health plan approved member and qualified health plan approved member increased 32% and 11%, respectively, during the three months ended June 30, 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 remained relatively flat during the three months ended June 30, 2021 compared to the same period in 2020.

The constrained LTV of commissions per approved member for dental and vision plans increased by 47% and 27%, respectively, during the three months ended June 30, 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 March 31,

Three Months Ended June 30,

Medicare Advantage 7 % 7 %

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Small Business 5 % — %

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.

The constraints for Medicare Supplement and Medicare Part D prescription drug plans increased during the three months ended June 30, 2021, as compared to the same period in the prior year, due to an increase in volatility and the observed declining LTV trends.

The constraints for non-qualified health plans decreased during the three months ended June 30, 2021, as compared to the same period in the prior year, due to stabilization of market conditions and reduced volatility.

The constraints for dental and vision plans decreased during the three months ended June 30, 2021, as compared to the same period in the prior year, due to reduced volatility and improved LTV trends.

The constraints for small business plans increased during the three months ended June 30, 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 March 31, % Change

As of June 30, % Change

Medicare Advantage 562,905 407,243 38 %

538,716 404,262 33 %

Medicare Supplement 99,306 94,838 5 %

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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.

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

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We often are made aware of policy cancellations and group size changes at the time of annual renewal and update our membership statistics accordingly in the period they are reported.

A member who purchases and is active on multiple standalone insurance plans will be counted as a member more than once.

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

Health insurance carriers bill and collect insurance premiums paid by our members.

The carriers do not report to us the number of members that we have as of a given date.

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

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

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

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Various circumstances could cause the assumptions and estimates that we make in connection with estimating our membership to be inaccurate, which would cause our membership estimates to be inaccurate.

A member who purchases and is active on multiple standalone insurance plans will be counted as a member more than once.

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

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.

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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.

Medicare-related plan estimated membership as of June 30, 2021 grew 22% compared to estimated membership as of June 30, 2020 due to a 38% growth in Medicare Advantage estimated membership and a 5% growth in Medicare Supplement plan estimated membership.

The overall growth in Medicare estimated membership was due to increased sales of Medicare Advantage plans.

Individual and family plan estimated membership as of June 30, 2021 declined 7% compared to estimated membership as of June 30, 2020 due to overall market conditions in the individual and family plan market, despite the recent stabilization and improvement, and the shift of our investment towards Medicare.

Ancillary plan estimated membership as of June 30, 2021 declined 4% compared to estimated membership as of June 30, 2020 primarily as a result of the decline in dental and short-term health plans estimated membership.

Member Acquisition

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Variable marketing cost represents direct costs incurred in member acquisition from our direct, marketing partners and online advertising channels.

In addition, we incur customer care and enrollment expenses (“CC&E”) in assisting applicants during the enrollment process.

In addition, we incur customer care and enrollment (“CC&E”) expenses in assisting applicants during the enrollment process.

Variable marketing costs exclude fixed overhead costs, such as personnel related costs, consulting expenses, facilities and other operating costs allocated to the marketing and advertising department.

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

The numerator used to calculate

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

Three Months Ended June 30, % 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 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.

Estimated CC&E cost per approved MA-equivalent member increased 18% in the three months ended June 30, 2021 compared to the same period in 2020 due to an earlier start in our increase in internal agent headcount with the goal of staffing our telesales capacity with at least 90% of internal agents for the Medicare annual enrollment period this year.

We believe this investment in internal telesales capacity will better position us for enrollment growth in the fourth quarter annual enrollment period and to improve enrollment quality.

Estimated variable marketing cost per MA-equivalent member increased 23% partially due to the COVID-related special enrollment period that occurred primarily in 2020 benefiting our conversion rates both online and in our call centers, as a significantly higher proportion of inbound website visitors and callers were eligible to switch plans.

The increase in marketing cost per MA-equivalent member was also driven by an ongoing shift away from the traditional channels and focus more on our online advertising channel which carries higher per enrollment marketing costs but lower customer care and enrollment costs.

Estimated CC&E cost per approved IFP-equivalent member decreased 2% in the three months ended June 30, 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 8% in the three months ended June 30, 2021 compared to the same period in 2020 due to an increase in marketing costs to drive enrollment growth.

Critical Accounting Policies and Estimates

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• Accounting for Income Taxes.

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.

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 and amended on April 29, 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.

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

Three Months Ended March 31,

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

2021 2020 2021 2020

Commission $ 89,823 93 % $ 80,773 91 % $ 216,875 94 % $ 180,442 92 %

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Total operating costs and expenses 121,890 126 % 95,020 107 % 256,746 111 % 200,397 103 %

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

Loss from operations (25,333) (26) % (6,254) (7) % (25,975) (11) % (5,223) (3) %

Other income, net 172 — % 452 1 % 322 — % 825 — %

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

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

Loss before benefit from income taxes (25,161) (26) % (5,802) (7) % (25,653) (11) % (4,398) (2) %

Benefit from income taxes (6,752) (7) % (2,432) (3) % (6,444) (3) % (4,480) (2) %

Net income (loss) $ (18,409) (19) % $ (3,370) (4) % $ (19,209) (8) % $ 82 — %

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

Three Months Ended March 31,

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

2021 2020 2021 2020

Marketing and advertising $ 2,140 $ 1,539 $ 4,625 $ 3,269

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

Three Months Ended March 31, Change

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

2021 2020 $ % 2021 2020 $ %

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Total revenue $ 96,557 $ 88,766 $ 7,791 9 % $ 230,771 $ 195,174 $ 35,597 18 %

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.

Three Months Ended June 30, 2021 and 2020 – Commission revenue increased $9.1 million, or 11%, during the three months ended June 30, 2021 compared to the same period in 2020 due to a $14.9 million increase in commission revenue from the Individual, Family and Small Business segment, partially offset by a $5.8 million decrease in commission revenue from the Medicare segment.

The decrease in commission revenue from the Medicare segment was primarily due to lower LTVs and a decrease in net commission revenue from Medicare members approved in prior periods, or negative adjustment revenue, which was primarily attributable due to Medicare Part D prescription drug plans.

The increase in commission revenue from the Individual, Family and Small Business segment was primarily driven by a $13.8 million increase in net adjustment revenue, 78% increase in individual and family major medical plan approved members, 35% increase in dental plan approved members and 21% increase in vision plan approved members.

The increase in net adjustment revenue from the Individual, Family and Small Business segment was attributable to increase in LTV and higher demand of individual and family plans, dental and vision products.

See Segment Information below for further discussion.

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.

Other revenue declined $1.3 million, or 16%, during the three months ended June 30, 2021 compared to the same period in 2020 due to a decrease in sponsorship and advertising revenue.

Six Months Ended June 30, 2021 and 2020 – Commission revenue increased $36.4 million, or 20%, during the six months ended June 30, 2021 compared to the same period in 2020 due to a $18.8 million increase in commission revenue from the Medicare segment and a $17.6 million increase in commission revenue from the Individual, Family and Small Business segment.

The increase in commission revenue from the Medicare segment was driven by a 33% increase in Medicare plan approved members, primarily attributable to a 48% 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 which was primarily attributable to Medicare Part D prescription drug plans.

The increase in commission revenue from the Individual, Family and Small Business segment was primarily driven by a $15.7 million increase in net adjustment revenue, 42% increase in individual and family major medical plan approved members, 24% increase in dental plan approved members and 16% increase in vision plan approved members.

See Segment Information below for further discussion.

Other revenue decreased $0.8 million, or 6%, during the six months ended June 30, 2021 compared to the same period in 2020 due to a decrease in sponsorship and advertising revenue.

Cost of Revenue

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

Three Months Ended March 31, Change

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

2021 2020 $ % 2021 2020 $ %

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% of total revenue 1 % — % 1 % 1 %

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.

Three Months Ended June 30, 2021 and 2020 – Cost of revenue decreased by $0.3 million during the three months ended June 30, 2021, compared to the same period in 2020, primarily due to decreased activity from our revenue sharing arrangements.

Six Months Ended June 30, 2021 and 2020 – Cost of revenue decreased by $0.4 million during the three months ended June 30, 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 March 31, Change

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

2021 2020 $ % 2021 2020 $ %

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% of total revenue 46 % 37 % 41 % 36 %

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.

Three Months Ended June 30, 2021 and 2020 – Marketing and advertising expenses increased $11.7 million, or 36%, during the three months ended June 30, 2021 compared to the same period in 2020, primarily driven by an $11.9 million increase in Medicare plan related variable advertising and $0.6 million in stock-based compensation expenses, partially offset by decreases of $0.5 million in consulting expenses and $0.5 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.

Six Months Ended June 30, 2021 and 2020 – Marketing and advertising expenses increased $24.8 million, or 35%, during the six months ended June 30, 2021 compared to the same period in 2020, primarily driven by a $25.9 million increase in Medicare plan related variable advertising and $1.3 million in stock-based compensation expenses, partially offset by decreases of $1.6 million in consulting expenses and $1.2 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

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

Three Months Ended March 31, Change

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

2021 2020 $ % 2021 2020 $ %

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% of total revenue 40 % 31 % 31 % 30 %

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.

Three Months Ended June 30, 2021 and 2020 – Customer care and enrollment expenses increased $11.2 million, or 41%, during the three months ended June 30, 2021 compared to the same period in 2020, primarily due to increases of $7.5 million in personnel costs associated with an increase in customer care and enrollment headcount as we focus on the expansion of our internal telesales team to strengthen our resources in advance of the AEP as noted below, $2.4 million in consulting expenses, and $0.6 million in licensing costs.

Six Months Ended June 30, 2021 and 2020 – Customer care and enrollment expenses increased $14.8 million, or 26%, during the six months ended June 30, 2021 compared to the same period in 2020, primarily due to an increase of $13.6 million in personnel costs associated with an increase in customer care and enrollment headcount as noted below, $1.4 million in consulting expenses, and $0.6 in facilities and other costs, partially offset by decreases of $1.1 million in licensing costs.

The decrease in licensing costs was primarily due to previously over-recognized licensing costs that were adjusted during the first quarter of 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.

In 2021, we started internal agent hiring and training earlier in the year compared to 2020, with the largest headcount increase planned for the second and third quarters.

During the three months ended June 30, 2021, we made progress expanding and enhancing our telesales organization and continued to scale our digital business.

We anticipate additional spend on agent training and the expansion of our customer service team in the third and fourth quarters, including the addition of a new customer care role to verify Medicare enrollments prior to submission and expanding our quality assurance efforts.

Over time, we expect for these initiatives to result in improved agent efficiency, higher LTVs, as well as stronger consumer awareness of our choice platform.

Technology and Content

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

Three Months Ended March 31, Change

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

2021 2020 $ % 2021 2020 $ %

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% of total revenue 21 % 15 % 19 % 15 %

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.

Three Months Ended June 30, 2021 and 2020 – Technology and content expenses increased $7.1 million, or 53%, during the three months ended June 30, 2021 compared to the same period in 2020 primarily driven by increases of $2.6 million in personnel and compensation costs due to higher headcount, $2.4 million in stock-based compensation expense, and $1.2 million in amortization of internal software development costs.

Six Months Ended June 30, 2021 and 2020 – Technology and content expenses increased $14.5 million, or 50%, during the six months ended June 30, 2021 compared to the same period in 2020 primarily driven by increases of $5.8 million in personnel and compensation costs due to higher headcount, $3.6 million in stock-based compensation expense, $2.5 million in amortization of internal software development costs, $1.8 million in facilities and other operating costs.

General and Administrative

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

Three Months Ended March 31, Change

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

2021 2020 $ % 2021 2020 $ %

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% of total revenue 19 % 23 % 18 % 21 %

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.

Three Months Ended June 30, 2021 and 2020 – General and administrative expenses decreased $2.6 million, or 13%, during the three months ended June 30, 2021 compared to the same period in 2020, primarily driven by decreases of $1.6 million stock-based compensation expenses, $1.5 million in personnel and compensation costs, and $1.1 million in consulting expenses, partially offset by an increase of $1.0 million in shareholder engagement costs.

Six Months Ended June 30, 2021 and 2020 – General and administrative expenses increased $0.8 million, or 2%, during the six months ended June 30, 2021 compared to the same period in 2020, primarily driven by increases of $0.7 million in consulting expenses, $0.6 million stock-based compensation expenses, and $0.6 million in personnel and compensation costs, partially offset by an increase of $1.0 million in shareholder engagement costs.

Amortization of Intangible Assets

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

Three Months Ended March 31, Change

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

2021 2020 $ % 2021 2020 $ %

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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.

Amortization expense decreased during the three and six months ended June 30, 2021 compared to the same periods in 2020 due to certain intangible assets being fully amortized during the three and six months ended June 30, 2021.

Restructuring Charges

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

Three Months Ended March 31, Change

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

2021 2020 $ % 2021 2020 $ %

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

Three Months Ended March 31, Change

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

2021 2020 $ % 2021 2020 $ %

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% of total revenue — % 1 % — % — %

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

Three Months Ended June 30, 2021 and 2020 – Other income, net decreased $0.3 million during the three months ended June 30, 2021 compared to the same period in 2020 due primarily to a decrease in interest income.

Six Months Ended June 30, 2021 and 2020 – Other income, net decreased $0.5 million during the six months ended June 30, 2021 compared to the same period in 2020 due primarily to a decrease in interest income.

Benefit from Income Taxes

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

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

2021 2020 $ % 2021 2020 $ %

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

Benefit from income taxes $ (6,752) $ (2,432) $ (4,320) 178 % $ (6,444) $ (4,480) $ (1,964) 44 %

Effective tax rate 26.8 % 41.9 % 25.1 % 101.9 %

* 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.

Three Months Ended June 30, 2021 and 2020 – Our effective tax rate of 26.8% for the three months ended June 30, 2021 was lower compared to 41.9% for the three months ended June 30, 2020 primarily due to a decrease in excess tax benefits associated with stock-based compensation.

Our effective tax rate for the three months ended June 30, 2021 and 2020 were higher than the statutory federal tax rate due primarily to stock-based compensation adjustments, and non-deductible lobbying expenses and state taxes, partially offset by research and development credits.

Six Months Ended June 30, 2021 and 2020 – Our effective tax rate of 25.1% for the six months ended June 30, 2021 was lower compared to 101.9% for the six months ended June 30, 2020 primarily due to a decrease in excess tax benefits associated with stock-based compensation.

Our effective tax rate for the six months ended June 30, 2021 and 2020 were higher than the statutory federal tax rate due primarily to stock-based compensation adjustments, and non-deductible lobbying expenses and state taxes, partially offset by research and development credits.

Segment Information

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.

We report segment information based on how our chief executive officer, who is our 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.

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

Three Months Ended March 31, Change

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

2021 2020 $ % 2021 2020 $ %

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Segment profit:

Medicare segment profit (1)

Medicare segment profit (loss) (1)

$ (17,804) $ 14,996 $ (32,800) (219) % $ 6,741 $ 38,132 $ (31,391) (82) %

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Other income, net 172 452 (280) (62) % 322 825 (503) (61) %

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

Loss before benefit from income taxes $ (25,161) $ (5,802) $ (19,359) 334 % $ (25,653) $ (4,398) $ (21,255) 483 %

* 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.

The amortization of capitalized software development costs were $2.9 million and $1.7 million for the three months ended June 30, 2021 and 2020, respectively, and were $5.7 million and $3.2 million for the six months ended June 30, 2021 and 2020.

(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.

Three Months Ended June 30, 2021 and 2020 – Revenue from our Medicare segment declined $7.1 million, or 9%, during the three months ended June 30, 2021 compared to the same period in 2020, primary attributable to a decrease in net adjustment revenue, partially offset by an increase in commission revenue from members approved during the period.

The decrease in net adjustment revenue was largely attributable to our Medicare Part D prescription drug plans.

Revenue from our Individual, Family and Small Business segment grew $14.9 million, or 178%, during the three months ended June 30, 2021 compared to the same period in 2020, primarily attributable to a $13.8 million increase in net adjustment revenue.

Despite the extension of the special 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 $15.8 million in net adjustment revenue during the three months ended June 30, 2021.

Six Months Ended June 30, 2021 and 2020 – Revenue from our Medicare segment grew $17.7 million, or 10%, during the six months ended June 30, 2021 compared to the same period in 2020, primary attributable to an increase in Medicare Advantage plan related commission revenue of $45.7 million, partially offset by lower LTVs and a $21.2 million decrease in net adjustment revenue which was largely attributable to our Medicare Part D prescription drug plans.

The increase in Medicare Advantage commission revenue was driven by 48% 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.

Revenue from our Individual, Family and Small Business segment grew $17.9 million, or 96%, during the six months ended June 30, 2021 compared to the same period in 2020, primarily attributable to a $17.6 million increase in commission revenue.

Based on our evaluation of the updated LTV models and retention trends, we recognized $19.1 million in net adjustment revenue, an increase of $15.7 million during the six months ended June 30, 2021 compared to the same period in 2020.

Our Individual, Family and Small Business segment is benefiting from the passage of the American Rescue Plan Act in March 2021.

This legislation expanded access to premium credits making individual and family health plans more affordable, which allows a larger population to get quality coverage that our major medical plans offer.

Segment Profit

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.

Three Months Ended June 30, 2021 and 2020 – Our Medicare segment loss was $17.8 million during the three months ended June 30, 2021, a decrease of $32.8 million, or 219%, compared to segment profit of $15.0 million for the same period in 2020.

This was primarily due to a $7.1 million decrease in revenue and a $25.7 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 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.

Our Individual, Family and Small Business segment profit was $17.9 million during the three months ended June 30, 2021, an increase of $15.2 million, or 555% compared to the same period in 2020.

The increase was primarily driven by a $14.9 million increase in revenue and a $0.2 million decrease in operating expenses, excluding stock-based compensation expense, depreciation and amortization expenses, and amortization of intangible assets.

Six Months Ended June 30, 2021 and 2020 – Our Medicare segment profit was $6.7 million during the six months ended June 30, 2021, a decrease of $31.4 million, or 82%, compared to the same period in 2020.

This was primarily due to a $49.1 million increase in operating expenses, excluding stock-based compensation expense, depreciation and amortization expenses, and amortization of intangible assets, partially offset by a $17.7 million increase in revenue.

Our Individual, Family and Small Business segment profit was $26.0 million during the six months ended June 30, 2021, an increase of $20.3 million, or 358% compared to the same period in 2020.

The increase was primarily driven by a $17.9 million increase in revenue and a $2.4 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

June 30, 2021 December 31, 2020

Cash and cash equivalents $ 229,260 $ 43,759

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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.

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

As of June 30, 2021, our cash and cash equivalents totaled $229.3 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 and commercial paper.

The increase in cash and cash equivalents reflects $10.7 million of net cash provided by operating activities and $211.1 million of net cash provided by financing activities, partially offset by $36.3 million of net cash used in investing activities.

We also maintained $3.4 million in restricted cash as of June 30, 2021 and December 31, 2020.

The following table presents a summary of our cash flows for the six months ended June 30, 2021 (in thousands):

Six Months Ended June 30,

Net cash provided by (used in) operating activities $ 10,726 $ (12,398)

Net cash used in investing activities (36,344) (146,569)

Net cash provided by financing activities

211,093 212,344

Operating 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.

Net cash provided by (used in) 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.

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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 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.

During the Medicare annual enrollment period that 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, 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.

Six Months Ended June 30, 2021 – Net cash provided by operating activities was $10.7 million during the six months ended June 30, 2021, primarily driven by changes in net operating assets and liabilities of $8.7 million and adjustments for non-cash items of $21.3 million, partially offset by a net loss of $19.2 million.

Adjustments for non-cash items primarily consisted of $19.6 million of stock-based compensation expense, $6.0 million of amortization of intangible assets and internally-developed software, and $2.2 million of depreciation and amortization, partially offset by a $7.4 million decrease due to the change in deferred income taxes.

Cash used from changes in net operating assets and liabilities during the six months ended June 30, 2021 primarily consisted of decreases of $37.0 million in contract assets – commissions receivable and $4.3 million in prepaid expenses and other current asset, partially offset by decreases of $21.4 million in accounts payable, $7.6 million in accrued marketing expense, and $3.7 million in accrued compensation and benefits.

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

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

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

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.

Six Months Ended June 30, 2021 – Net cash used in investing activities of $36.3 million for the six months ended June 30, 2021 mainly consisted $67.8 million used to purchase marketable securities, $7.3 million in capitalized internal-use software and website development costs and $2.7 million used to purchase property and equipment and other assets, partially offset by $41.5 million proceeds from the maturities and redemptions of marketable securities.

Six Months Ended June 30, 2020 – Net cash used in investing activities of $146.6 million for the six months ended June 30, 2020 was due to $147.5 million in purchases of marketable securities, $7.6 million in capitalized internal-use software and website development costs and $4.7 million used to purchase property and equipment and other assets, partially offset by $13.3 million proceeds from the maturities and redemptions of marketable securities.

Financing Activities

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.

Six Months Ended June 30, 2021 – Net cash provided by financing activities of $211.1 million for the six months ended June 30, 2021 was primarily due to $214.0 million net proceeds from issuance of convertible preferred stock and $3.1 million net proceeds from exercise of common stock options, partially offset by $5.9 million repurchase of shares to satisfy employee tax withholding obligation.

Six Months Ended June 30, 2020 – Net cash provided by financing activities of $212.3 million for the six months ended June 30, 2020 was primarily due to $228.0 million net proceeds from the issuance of common stock in a public equity offering and $1.3 million of net proceeds from the exercise of common stock options, partially offset by $8.8 million of

acquisition-related contingent payments and $8.2 million repurchase of shares to 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.

On April 30, 2021 (the “Closing Date”), 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 $214.0 million net 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”).

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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.

As of June 30, 2021, no shares of the Series A preferred stock have been converted and the balance of our Series A preferred stock was $218.5 million, including a change in the redemption value of $1.4 million and the accrued paid-in-kind dividends of $3.1 million, which was equivalent to 2.9 million shares of common stock on an as-converted basis.

See Note 6 – Convertible Preferred Stock in our Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional information.

Credit Agreement

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At closing of the Credit Agreement, we paid a one-time facility fee of 1.75% of the total commitments of $40 million.

We also paid a one-time closing fee of 0.5% of the new commitment of $75.0 million in connection with the Amendment.

We also paid a one-time closing

fee of 0.5% of the new commitment of $75.0 million in connection with the Amendment.

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

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

As of June 30, 2021, we had no outstanding principal amount under our revolving credit facility.

See Note 12 – 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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Off-Balance Sheet Arrangements

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.

As of June 30, 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