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Item 8. Financial Statements and Supplementary Data

2022-03-01 compared with 2021-02-26 · 397 added, 363 removed, 900 unchanged (46% of the section changed)

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Index to the Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets

Consolidated Statements of Comprehensive Income

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Stockholders’ Equity

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of eHealth, Inc.

To the Stockholders and Board of Directors of eHealth, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of eHealth, Inc.

(the Company) as of December 31, 2020 and 2019, the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”).

(the Company) as of December 31, 2021 and 2020, the related consolidated statements of comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S.

generally accepted accounting principles.

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

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 1, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

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Redwood City, California

February 26, 2021

March 1, 2022

EHEALTH, INC.

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Total assets $ 1,149,292 $ 1,040,022

Liabilities and stockholders’ equity

Liabilities, convertible preferred stock, and stockholders’ equity

Current liabilities:

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Accrued marketing expenses 36,384 17,788

Earnout liability – current — 37,273

Lease liabilities – current 5,543 5,192

Deferred revenue 308 2,570

Other current liabilities 3,330 3,965

Total current liabilities 75,465 84,408

Commitments and contingencies

Deferred income taxes – non-current 50,796 72,317

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Other non-current liabilities 5,094 4,370

Total liabilities 167,181 202,464

Commitments and contingencies

Convertible preferred stock, par value $ 0.001 per share;

2,250 issued and outstanding as of December 31, 2021;

none issued and outstanding as of December 31, 2020

Stockholders’ equity:

Preferred stock, par value $ 0.001 per share;

Preferred stock, par value $ 0.001 per share, other than convertible preferred stock;

7,750 authorized;

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Total stockholders’ equity 749,519 837,558

Total liabilities and stockholders’ equity $ 1,040,022 $ 741,634

_____________

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

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

Total liabilities, convertible preferred stock, and stockholders’ equity $ 1,149,292 $ 1,040,022

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

EHEALTH, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share amounts)

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

Restructuring charges — — 1,865

Acquisition costs — — 76

Restructuring and reorganization charges 4,878 — —

Impairment charges 46,344 — —

Total operating costs and expenses 663,844 529,451 424,792

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

Income (loss) from operations ( 125,645 ) 53,323 81,409

Other income, net 755 666 2,090

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

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

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

Net income per share:

Income (loss) before income taxes ( 124,890 ) 53,989 83,499

Provision for (benefit from) income taxes ( 20,515 ) 8,539 16,612

Net income (loss) $ ( 104,375 ) $ 45,450 $ 66,887

Paid-in-kind dividends for preferred stock ( 12,206 ) — —

Change in preferred stock redemption value ( 6,361 ) — —

Net income (loss) per share attributable to common stockholders:

$ ( 122,942 ) $ 45,450 $ 66,887

Net income (loss) per share attributable to common stockholders:

Basic $ ( 4.59 ) $ 1.75 $ 2.90

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Diluted 26,781 27,014 24,539

Comprehensive income:

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

Comprehensive income (loss):

Net income (loss) $ ( 104,375 ) $ 45,450 $ 66,887

Unrealized holding gain for available for sale debt securities, net of tax ( 49 ) 28 —

Foreign currency translation adjustment 89 206 ( 11 )

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

Comprehensive income (loss) $ ( 104,335 ) $ 45,684 $ 66,876

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

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Shares Amount Shares Amount

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

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

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

Shares issued for GMG acquisition 295 — 5,595 — — — — 5,595

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

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

Net income — — — — — 241 — 241

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

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

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

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

Net income — — — — — 66,887 — 66,887

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

Issuance of common stock in connection with equity incentive plans 849 1 4,904 — — — — 4,905

Repurchase of shares to satisfy employee tax withholding obligations — — ( 9,333 ) 185 — — — ( 9,333 )

Paid-in-kind dividend and accretion related to convertible preferred stock — — — — — ( 18,567 ) — ( 18,567 )

Issuance of common stock for employee stock purchase program 100 — 3,813 — — — — 3,813

Stock-based compensation — — 35,478 — — — — 35,478

Other comprehensive income, net of tax — — — — — — 40 40

Net loss — — — — — ( 104,375 ) — ( 104,375 )

Balance as of December 31, 2021 38,704 $ 39 $ 755,875 12,016 $ ( 199,998 ) $ 193,213 $ 390 $ 749,519

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

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Operating activities:

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

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

Net income (loss) $ ( 104,375 ) $ 45,450 $ 66,887

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Depreciation and amortization 5,430 3,694 2,983

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

Impairment charges 46,344 — —

Other non-cash items 1,466 1,091 ( 755 )

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Payments for security deposits — — ( 72 )

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

Net cash used in investing activities ( 12,631 ) ( 73,283 ) ( 16,944 )

Financing activities:

Proceeds from issuance of preferred stock, net of issuance costs 214,025 — —

Proceeds from issuance of common stock, net of issuance costs — 228,024 126,051

Net proceeds from exercise of common stock options 1,941 5,535 2,688

Net proceeds from exercise of common stock options and employee stock purchases 8,699 1,941 5,535

Repurchase of shares to satisfy employee tax withholding obligations ( 9,333 ) ( 19,808 ) ( 14,281 )

Proceeds from line of credit — — 5,000

Debt issuance costs — — ( 517 )

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Net cash provided by financing activities 213,241 201,249 102,141

201,249 102,141 1,860

Effect of exchange rate changes on cash, cash equivalents and restricted cash 64 187 26

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

20,293 13,731 ( 27,204 )

Net increase in cash, cash equivalents and restricted cash 38,052 20,293 13,731

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

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Cash paid for interest $ — $ — $ 42

Cash refunds from (paid for) income taxes, net

Cash refunds from income taxes, net

$ 103 $ 882 $ 741

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Description of Business – eHealth, Inc.

(the “Company,” “eHealth,” “we” or “us”) is a leading private health insurance exchange for individuals, families and small businesses in the United States.

Through our website addresses ( www.eHealth.com , www.eHealthInsurance.com , www.eHealthMedicare.com, www.Medicare.com, www.PlanPrescriber.com and www.GoMedigap.com) , consumers can get quotes from leading health insurance carriers, compare plans side-by-side, and apply for and purchase Medicare-related, individual and family, small business and ancillary health insurance plans.

We actively market the availability of Medicare-related insurance plans and offer Medicare plan comparison tools and educational materials for Medicare-related insurance plans, including Medicare Advantage, Medicare Supplement and Medicare Part D prescription drug plans.

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

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

(the “Company,” “eHealth,” “we” or “us”) is a leading health insurance marketplace with a technology and service platform that provides consumer engagement, education and health insurance enrollment solutions.

Our mission is to connect every person with the highest quality, most affordable health insurance and Medicare plans for their life circumstances.

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

Our 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 includes 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.

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

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

Subsequent to the issuance of our consolidated financial statements for the year ended December 31, 2020, we identified certain errors, including a $ 3.0 million under-recognition of stock-based compensation expense and a $ 1.5 million over-recognition of licensing costs for the year ended December 31, 2020.

We adjusted for these items in the first quarter of 2021 and the adjustments reduced our net loss by approximately $ 1.5 million, or $ 0.06 per basic and diluted share in our Condensed Consolidated Statement of Comprehensive Loss for the three months ended March 31, 2021.

These items also reduced our net loss by approximately $ 1.5 million, or $ 0.05 per basic and diluted share, on our Consolidated Statement of Comprehensive Loss for the year ended December 31, 2021.

We evaluated the effects of these out-of-period adjustments, both qualitatively and quantitatively, and concluded that the errors and the correction thereof were immaterial both individually and in the aggregate to the current reporting period and the periods in which they originated, including quarterly reporting.

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

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• Individual, Family and Small Business

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

The Medicare segment consists primarily of commissions earned from our sale of Medicare-related health insurance plans, including Medicare Advantage, Medicare Supplement and Medicare Part D prescription drug plans, and to a lesser extent, ancillary products sold to our Medicare-eligible customers, including but not limited to, dental and vision insurance, as well as our advertising program that allows Medicare-related carriers to purchase advertising on a separate website developed, hosted and maintained by us or pursuant to which we perform other services as marketing and our delivery and

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

sale to third parties of Medicare-related health insurance leads generated by our ecommerce platforms and our marketing activities.

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

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Other indirect general and administrative operating expenses are managed in a corporate shared services environment and, since they are not the responsibility of segment operating management, are not allocated to the two operating segments and are presented as a reconciling item to our consolidated financial results.

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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Cash and cash equivalents are stated at fair value.

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Property and Equipment – Property and equipment are stated at cost, less accumulated depreciation and amortization.

Finance lease amortization expenses are included in depreciation expense in our Consolidated Statements of Comprehensive Income.

Finance lease amortization expenses are included in depreciation expense in our Consolidated Statements of Comprehensive Income (Loss).

Maintenance and minor replacements are expensed as incurred.

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Goodwill and Intangible Assets – Goodwill represents the excess of the consideration paid over the estimated fair value of assets acquired and liabilities assumed in a business combination.

In the event that we realign our reporting units, we allocate our goodwill to the new reporting units using the relative fair value approach.

We test our goodwill for impairment on an annual basis in the fourth quarter of each year or whenever events or changes in circumstances indicate that the asset may be impaired.

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

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

All of our goodwill resulting from our prior business combinations was allocated to the Medicare segment.

Goodwill and intangible assets are considered non-financial assets and therefore, subsequent to their initial recognition are not revalued at fair value each reporting period unless an impairment charge is recognized.

For the years ended December 31, 2020 and 2019, there was no goodwill impairment identified, and therefore, there were no changes in carrying value of goodwill in the accompanying Consolidated Statements of Comprehensive Income.

We performed a goodwill impairment assessment as of December 31, 2021, which included both qualitative and quantitative assessments.

Our assessment included a comparison of carrying value to an estimated fair value using a market approach based on our market capitalization.

Based on this assessment, we concluded the fair value of our Medicare segment was below the carrying value primarily due to the recent change in our market valuation and financial performance and recorded a $ 40.2 million

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

No goodwill impairment has been identified in any of the years presented in the accompanying Consolidated Statements of Comprehensive Income.

impairment of our goodwill.

The change in the carrying amount of goodwill is summarized as follows (in thousands):

Balance as of December 31, 2020 $ 40,233

Impairment charges ( 40,233 )

Balance as of December 31, 2021 $ —

Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate a potential reduction in their fair values below their respective carrying amounts.

Intangible assets with finite useful lives, which include purchased technology, pharmacy and customer relationships, trade names, and certain trademarks, are amortized over their estimated useful lives.

We must make subjective judgments in determining the independent cash flows that can be related to specific asset groupings.

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

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

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

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

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

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

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

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

Included in commissions are regular administrative payments we receive with respect to administrative services.

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

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

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

For our Medicare commission revenue, which represented 86 %, 86 % and 87 % of our total commission revenue for the years ended December 31, 2021, 2020 and 2019, respectively, the estimated average plan duration, which is the average length of time paying members are active on their plans, used to calculate Medicare health insurance plan LTVs historically has been approximately 3 years for Medicare Advantage plans, and approximately 4 to 5 years for both Medicare Supplement and Medicare Part D prescription drug plans.

While the average plan duration has been approximately 3 years for Medicare Advantage plans, certain members may have a duration of up to approximately 14 years.

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

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

We evaluate the appropriateness of our constraints on an ongoing basis, and we update our assumptions

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

when we observe a sufficient amount of evidence that would suggest that the long-term expectation underlying the assumptions has changed.

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

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

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

In the first plan year of a Medicare Advantage and Medicare Part D prescription drug plan, after the health insurance carrier approves the application but during the effective year of the plan, we are paid a fixed commission that is prorated for the number of months remaining in the calendar year.

Additionally, if the plan is the first Medicare Advantage or Medicare Part D prescription drug plan issued to the member, we may receive a higher commission rate that covers a full twelve-month period, regardless of the month the plan was effective.

Additionally, if the plan is the first Medicare Advantage or Medicare Part D prescription drug plan issued to the member, we may receive a higher commission rate that covers a full 12-month period, regardless of the month the plan was effective.

We earn commission revenue for Medicare Advantage and Medicare Part D prescription drug plans for which we are the broker of record, typically until either the policy is cancelled or we otherwise do not remain the agent on the policy.

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We provide annual services in selling and renewing small business health insurance plans;

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

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

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

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

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

In these instances, we are typically paid a fixed, up-front fee, which we recognize as revenue as control is transferred ratably over the service period.

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

We also offer Medicare advertising and other services, which include, among other things, marketing and website development, hosting and maintenance.

In these instances, we are typically paid a fixed, up-front fee, which we recognize as revenue ratably over the service period as service is performed.

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

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

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

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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Advertising costs incurred in the years ended December 31, 2021, 2020 and 2019 totaled $ 240.4 million, $ 178.9 million, and $ 122.6 million, respectively.

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our direct channel expenses primarily consist of costs for direct mail, email marketing and television and radio advertising.

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

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

Research and development costs, which totaled $ 10.4 million, $ 9.1 million and $ 8.1 million for the years ended December 31, 2021, 2020 and 2019, respectively, are included in technology and content expense in the accompanying Consolidated Statements of Comprehensive Income (Loss).

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

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Capitalized internal-use software and website development costs are included in Other Assets on our Consolidated Balance Sheets and were $ 31.3 million and $ 24.6 million as of December 31, 2021 and 2020, respectively.

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

The estimated attainment of performance-based awards and

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

See Note 5 - Equity of the Notes to Consolidated Financial Statements for the amount of stock-based compensation capitalized for internal-use software.

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

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

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

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

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

Through December 31, 2021, we had not declared or paid any cash dividends to common stockholders.

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

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

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

We also match employee contributions to our 401(k) Plan at 100 % of an employee’s contribution each pay period, up to a maximum of 3 % of the employee’s salary during such pay period for the years ended December 31, 2021 and 2020, compared to 25 % contribution match, with maximum of 3 % for the year ended December 31, 2019, respectively.

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

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We record interest and penalties related to uncertain tax positions as income tax expense in the consolidated financial statements.

Seasonality – A greater number of our Medicare-related health insurance plans are sold in our fourth quarter during the Medicare annual enrollment period when Medicare-eligible individuals are permitted to change their Medicare Advantage and Medicare Part D prescription drug coverage for the following year.

Seasonality – Open enrollment periods drive the seasonality of our business.

A greater number of our Medicare-related health insurance plans are sold in our fourth quarter during the Medicare annual enrollment period when Medicare-eligible individuals are permitted to change their Medicare Advantage and Medicare Part D prescription drug coverage for the following year.

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

Our Medicare plan-related commission revenue is also elevated in the first quarter compared to the second and third quarters as a result of the reintroduction of the Medicare Advantage open enrollment period in the first quarter of 2019.

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

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

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

Individuals and families generally are not able to

In states where the Federally Facilitated market place operates as the state health insurance exchanges, individuals and families generally are not able to purchase individual and family health insurance outside of the annual enrollment period, unless they qualify for a special enrollment period as a result of certain qualifying events, such as losing employer-sponsored health insurance or moving to another state.

Extended open enrollment or special enrollment periods may change the seasonality of our individual and family health insurance business.

For example, the COVID-related special enrollment period which ended on August 15, 2021 has caused increased commission revenue from the sale of individual and family health insurance plans outside of the open enrollment period.

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Recently Adopted Accounting Pronouncements

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

Codification Improvements – In October 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2020-10, Codification Improvements .

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

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

We adopted this guidance in the first quarter of 2021 with no material impact on our condensed consolidated financial statements and disclosures.

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

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

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

2020-06 is effective for us in 2022, with early adoption permitted.

We early adopted this guidance in the first quarter of 2021, and it did not have a material impact on our condensed consolidated financial statements.

Income Taxes (Topic 740) – In December 2019, the Financial Accounting Standard Board (“FASB”) issued ASU No.

2019-12, Income Tax, Simplifying the Accounting for Income Taxe s, which aims to simplify the accounting for income taxes.

We adopted this guidance in the first quarter of 2021, and it did not have a material impact on our condensed consolidated financial statements.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

Recent Accounting Pronouncement Not Yet Adopted

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

2019-12, Income Tax, Simplifying the Accounting for Income Taxes , which aims to simplify the accounting by removing certain exceptions to the general principles in Topic 740 and improve consistent application of and simplify GAAP for other areas under this Topic by clarifying existing guidance.

ASU 2019-12 is effective for us beginning January 1, 2021.

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

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

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

2020-10, Codification Improvements .

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

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

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

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

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

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

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

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

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 – Revenue

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Small Business 10,720 9,568 9,922

Commission Bonus 8,400 3,601 2,429

Commission Bonus and Other 2,670 8,400 3,601

Total Commission Revenue 493,119 508,189 466,676

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Commission Revenue from Members Approved During the Period $ 437,738 $ 440,722 $ 355,916

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

Net Commission Revenue from Members Approved in Prior Periods (1)

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Commission Revenue from Members Approved During the Period $ 25,078 $ 21,971 $ 22,614

Commission Revenue from Renewals of Small Business Members during the Period (3)

8,564 6,727 6,851

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$ 462,816 $ 462,693 $ 378,530

Commission Revenue from Renewals of Small Business Members During the Period (2)

8,564 6,727 6,851

Total Net Commission Revenue from Members Approved in Prior Periods (1)(3)

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Total Commission Revenue $ 493,119 $ 508,189 $ 466,676

(1) These amounts include commission bonus revenue.

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

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

(2) Commission revenue from renewals of small business members during the period was previously included in net commission revenue from members approved in prior periods.

However, beginning in the first quarter of 2021, we enhanced our reporting by separately disclosing commission revenue from renewals of small business members during the period in a separate line item.

(3) The impact of total net commission revenue from members approved in prior periods was $ 0.81 , $ 1.49 and $ 3.52 per basic share, respectively, or $ 0.81 , $ 1.44 and $ 3.31 per diluted share, respectively, for the years ended December 31, 2021, 2020 and 2019, respectively.

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These reductions to revenue primarily related to the Medicare segment.

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

For the Individual, Family and Small Business segment, we recognized net adjustment revenue of $ 26.0 million for the year ended December 31, 2019, in response to observing longer plan duration than initially anticipated at the time of enrollment for these plans.

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

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

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

In addition, we evaluated various

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Based on our evaluation of the updated LTV models and retention trends, we recognized a $ 33.1 million net adjustment for the Individual, Family and Small Business segment and a net adjustment of $ 5.7 million related to our Medicare segment for the year ended December 31, 2020.

During 2021, despite the extension of the COVID-related special enrollment period through August 15, 2021 and an increase in subsidies to certain individuals who purchase qualified health plans, 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.

We recognized $ 30.2 million of net adjustment revenue for the Individual, Family and Small Business segment for the year ended December 31, 2021.

In addition, we evaluated various market factors related to our Medicare segment and recorded a negative net adjustment of $ 8.4 million for the year ended December 31, 2021, primarily due to decline in LTV of Medicare Supplement and Medicare Part D prescription drug plans.

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

Note 3 – Acquisition

On January 22, 2018, we completed our acquisition of all outstanding membership interests of Wealth, Health and Life Advisors, LLC, more commonly known as GoMedigap, a technology-enabled provider of Medicare Supplement enrollment services.

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

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

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

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

The acquisition method of accounting requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date.

The major classes of assets and liabilities to which we have allocated the acquisition consideration were as follows (in thousands):

Acquisition Consideration

Cash paid $ 15,000

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

Estimated fair value of earnout liability 27,700

Cash and cash equivalents $ 71

Contract assets – commissions receivable – current 4,371

Prepaid expenses and other current assets 11

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

Property and equipment, net 174

Accounts payable ( 110 )

Accrued compensation and benefits ( 132 )

Other current liabilities ( 130 )

Net tangible assets acquired 15,358

Intangible assets 6,800

Goodwill 26,137

Total intangible assets acquired 32,937

Total net assets acquired $ 48,295

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

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

The goodwill was assigned to our Medicare segment.

Goodwill is tested for impairment on an annual basis in the fourth quarter of each year or whenever events or changes in circumstances indicate that the asset may be impaired.

Goodwill is deductible for tax purposes over 15 years.

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

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

The first and second earnout liability payments were made in February 2019 and January 2020, respectively.

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

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

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

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

The fair value of commissions receivable was determined using a discounted rate of interest, which is a Level 2 input.

Intangible assets and the earnout liability were valued using Level 3 inputs.

The fair values of the acquired technology were determined by using income and cost methods.

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

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

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

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

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

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

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

Technology $ 2,000

Trade names, trademarks and website addresses 4,800

Total intangible assets $ 6,800

We are amortizing the existing technology, trade names, trademarks, and website addresses using the straight-line method over an estimated life of 3 and 10 years, respectively.

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

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

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

GoMedigap's historical books and records did not contain the information required to recognize revenue or prepare financial statements on a basis that would be comparable to us.

Thus, the required pro-forma financial disclosures are not presented herein.

GoMedigap generated revenue of $ 15.2 million for the period from the acquisition date of January 22, 2018 through December 31, 2018.

Note 3 – Supplemental Financial Statement Information

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Total cash, cash equivalents and restricted cash $ 85,165 $ 47,113

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

As of December 31, 2021 and 2020, we had $ 3.2 million and $ 3.4 million, respectively, of restricted cash which was classified as a non-current asset on our Consolidated Balance Sheets.

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

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Contract Assets and Accounts Receivable

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

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Subsequent to the adoption of ASC 326, we considered the impact of recent events and global economic conditions when evaluating the appropriate adjustments to our allowance for credit losses as of December 31, 2021.

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

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

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

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

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

The changes in the allowance for credit losses for the year ended December 31, 2021 are summarized as follows (in thousands):

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Beginning balance $ 2,026

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

Current period provision for expected credit losses 513

Net current period provision for expected credit losses 172

Ending balance $ 2,198

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

3 unchanged sentences

Commission revenue from members approved during the period 437,738 25,078 462,816

Net commission revenue adjustments from members approved in prior period 5,665 39,831 45,496

Commission revenue from renewals of small business members during the period (1)

— 8,564 8,564

Net commission revenue from members approved in prior periods ( 8,414 ) 30,153 21,739

Cash receipts ( 331,328 ) ( 45,762 ) ( 377,090 )

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

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

Commission revenue from renewals of small business members during the period (1)

— 6,727 6,727

Net commission revenue from members approved in prior periods 5,665 33,104 38,769

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

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

Net change in credit loss allowance (2)

( 1,891 ) ( 135 ) ( 2,026 )

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

(1) Commission revenue from renewals of small business members during the period was previously included in net commission revenue from members approved in prior periods.

However, starting in the first quarter of 2021, we enhanced our reporting by separately disclosing commission revenue from renewals of small business members during the period in a separate line item.

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

1 unchanged sentence

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

We invest our cash and cash

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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The deposits in China were $ 0.9 million as of December 31, 2021.

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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UnitedHealthCare (1)

_____________

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

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

Centene (1)(2)

(1) Percentages include the carriers' subsidiaries.

(2) Centene Corporation acquired WellCare Health Plans, Inc.

in 2020, and the contract assets and accounts receivable of WellCare are included in the percentage calculation for December 31, 2021 and 2020.

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

December 31, 2021 December 31, 2020

Prepaid maintenance contracts $ 7,715 $ 3,853

Prepaid expenses $ 11,379 $ 6,628

Prepaid maintenance contracts 6,246 7,715

Prepaid licenses 3,076 —

Prepaid insurance 2,161 1,672

Income tax receivable 51 584

Other 595 260

Others 922 646

Prepaid expenses and other current assets $ 23,784 $ 16,661

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December 31, 2021 December 31, 2020

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

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

Technology $ 2,000 $ ( 2,000 ) $ — $ — 0.0 $ 2,000 $ ( 1,945 ) $ 55 0.1

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Total intangible assets subject to amortization $ 17,200 $ ( 14,280 ) $ ( 2,920 ) — $ 17,200 $ ( 13,745 ) $ 3,455

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

Indefinite-lived trademarks and domain names 5,114 n/a ( 3,191 ) 1,923 Indefinite 5,114 n/a 5,114 Indefinite

Intangible assets $ 1,923 $ 8,569

During the years ended December 31, 2021, 2020, and 2019, amortization expense related to intangible assets totaled $ 0.5 million, $ 1.5 million, and $ 2.2 million, respectively.

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

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

2021 $ 55 $ 480 $ 535

2022 — 480 480

2023 — 480 480

2024 — 480 480

2025 — 480 480

Thereafter — 1,000 1,000

Total $ 55 $ 3,400 $ 3,455

We performed an annual assessment of impairment over our intangible assets, both definite-lived and indefinite-lived.

Prior to our annual impairment assessment as of December 31, 2021, the carrying amount of our intangible assets was $ 8.0 million, primarily consisted of trade names, trade marks, and website address.

Our assessment included a recoverability test for definite-lived intangible assets and a comparison of carrying value to the estimated fair value.

The fair value of our intangible assets as of December 31, 2021 was estimated using a market approach for certain indefinite-lived intangible assets as well as using the expected future cash flow approach for our definite-lived intangible assets.

Based our assessment, we determined that the fair value of our Medicare segment was below the carrying value as of December 31, 2021 primarily due to the recent change in our market valuation and financial performance.

Therefore, we recorded a $ 6.1 million impairment charges on our Consolidated Statements of Comprehensive Income (Loss) related to our intangible assets.

No intangible asset impairment was identified during the years ended either December 31, 2020 or 2019.

Note 4 – Fair Value Measurements

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Money market funds $ 9,217 $ 9,217 $ — $ — $ 9,217

Commercial paper 39,456 — 39,456 — 39,456

Short-term marketable securities

Commercial paper 38,801 — 38,801 — 38,801

Agency bonds 35,423 — 35,423 — 35,423

Corporate bond 2,505 — 2,505 — 2,505

Total assets measured at fair value $ 89,979 $ 9,217 $ 80,762 $ — $ 89,979

As of December 31, 2019

December 31, 2020

Carrying Value Level 1 Level 2 Level 3 Total

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

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

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

Short-term marketable securities

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

Agency bonds 35,423 — 35,423 — 35,423

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

Our cash equivalents were invested in money market funds and commercial paper with original maturity of 90 days or less were classified as Level 1 and Level 2, respectively.

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

We used observable prices in active markets in determining the classification of our money market funds as Level 1.

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

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

Our Level 2 assets included our available for sale marketable securities, which consisted of commercial paper and corporate bonds with maturity less than one year.

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

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

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

There were no transfers between the hierarchy levels in either of the years ended December 31, 2021 or 2020.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Unrealized gains and losses on available-for-sale debt securities that are not credit related are included in accumulated other comprehensive income (loss) and summarized as follows as of December 31, 2021:

Amortized Cost Unrealized Gain Unrealized Loss Fair Value

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Money market funds $ 9,217 $ — $ — $ 9,217

Commercial paper 39,458 — ( 2 ) 39,456

Short-term marketable securities

Commercial paper 38,808 — ( 7 ) 38,801

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

Corporate bond 2,505 — — 2,505

Total $ 89,988 $ — $ ( 9 ) $ 89,979

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

As of December 31, 2021, there were thirty-six securities in net loss positions and their unrealized losses were immaterial.

We did not record any credit losses regarding our available-for-sales debt securities during the year ended December 31, 2021.

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Balance as of December 31, 2019 $ 37,273

Change in fair value 24,079

Settlements ( 37,273 )

Balance as of December 31, 2020 $ —

Settlements ( 37,273 )

Balance as of December 31, 2020 $ —

In February 2019, we made the first earnout payment to GoMedigap consisting of $ 9.5 million in cash and 294,608 shares of our common stock with a value of $ 17.3 million.

1 unchanged sentence

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

There was no activity related to earnout liabilities in 2021.

EHEALTH, INC.

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Also, under the 2014 Plan the following shares are not recycled for future grant under the 2014 Plan:

(i) shares used in connection with the exercise of an option and/or stock appreciation right to pay the exercise price or purchase price of such award or satisfy applicable tax withholding obligations;

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

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

(i) shares used in connection with the exercise of an option and/or stock appreciation right to pay the exercise price or purchase price of such award or satisfy applicable tax

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

of such awards.

withholding obligations;

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

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

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

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

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

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

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

Achievement of these performance conditions was not probable as of December 31, 2021 and no expense has been recognized for these awards.

However, such determination is subject to the discretion of the Company's compensation committee and these awards remain outstanding as of December 31, 2021.

2021 Inducement Plan - On September 22, 2021, the Company adopted an inducement plan (the “2021 Inducement Plan”), pursuant to which the Company reserved 410,000 shares of its common stock (subject to customary adjustments in the event of a change in capital structure of the Company) to be used exclusively for grants of awards to individuals who were not previously employees or directors of the Company, other than following a bona fide period of non-employment, as an inducement material to the individual's entry into employment with the Company within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules (“Nasdaq Rules”).

The Inducement Plan was approved by our board of directors without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Rules, and the terms and conditions of the Inducement Plan and awards to be granted thereunder are substantially similar to our stockholder-approved Amended and Restated 2014 Equity Incentive Plan.

As of December 31, 2021, 390,584 shares were issued under the 2021 Inducement Plan.

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes activity under our 2014 Plan and 2021 Inducement Plans for the year ended December 31, 2021 (in thousands):

Beginning balance (1)

Additional shares authorized 410

Restricted stock units granted (2)

Options granted ( 200 )

Restricted stock units cancelled (3)

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

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

16 unchanged sentences

Intrinsic value of options exercised $ 5,182 $ 8,127 $ 19,890

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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(2) The aggregate intrinsic value is calculated as the difference of our closing stock price as of December 31, 2021 and 2020 multiplied by the number of restricted stock units outstanding as of December 31, 2021 and 2020, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock Repurchase Programs – We had no stock repurchase activity during the year ended December 31, 2021.

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Risk-free interest rate 1.3 % n/a 2.1 %

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

We evaluate the

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

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

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

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

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

Employees purchased 99,801 shares of common stock under our ESPP in 2021.

No shares of common stock were purchased under our ESPP in 2020.

There were 400,199 shares remaining for purchase under our ESPP as of December 31, 2021.

During the year ended December 31, 2021, we recognized $ 1.6 million in compensation cost related to our ESPP in our consolidated statement of operations.

As of December 31, 2021, the unrecognized compensation cost related to our ESPP is $ 0.6 million, which is expected to be recognized over a weighted average period of 0.4 years.

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Year Ended December 31, 2020

Expected term (years) 0.5

Expected volatility 77.4 %

Expected dividend yield — %

Risk-free interest rate 0.1 %

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

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Restricted stock units* 30,512 23,729 20,355

Employee stock purchase plan 1,638 346 —

Total stock-based compensation expense $ 32,857 $ 25,172 $ 22,570

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

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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General and administrative 11,348 11,887 13,278

Restructuring charges — — 251

Total stock-based compensation expense 32,857 25,172 22,570

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As of December 31, 2021, there was $ 1.0 million of total unamortized compensation cost, net of estimated forfeitures, related to stock options, expected to be recognized over a weighted average period of 3.2 years.

As of December 31, 2021, there was $ 51.7 million of total unamortized compensation cost, net of estimated forfeitures, related to restricted stock units, expected to be recognized over a weighted average period of 2.7 years.

Note 6 — Convertible Preferred Stock

On April 30, 2021 (the “Closing Date”), we issued and sold to Echelon Health SPV, LP (“H.I.G.”), an investment vehicle of H.I.G.

Capital, in a private placement, 2,250,000 shares of our newly designated Series A convertible preferred stock (the “Series A preferred stock”), par value $ 0.001 per share, at an aggregate purchase price of $ 225.0 million.

We received $ 214.0 million in net proceeds from the private placement with H.I.G., net of sales commissions and certain transaction fees totaling $ 11.0 million.

The Series A preferred stock ranks senior to all other equity securities of the Company with respect to dividend rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company.

Dividends – Dividends initially accrue on the Series A preferred stock daily at 8 % per annum on the stated value of $ 100 per share (“Stated Value”) and compound semiannually, payable in kind (“PIK”) until the second anniversary of the Closing Date on June 30 and December 31 of each year (each, a “Dividend Payment Date”), beginning on June 30, 2021, and thereafter 6 % PIK and 2 % payable in cash in arrears on June 30 and December 31 of each year, beginning on June 30, 2023.

PIK dividends are cumulative and are added to the Accrued Value (as defined below).

“Accrued Value” means, as of any date, with respect to any share of Series A preferred stock, the sum of the Stated Value per share plus, on each Dividend Payment Date, on a cumulative basis, all accrued PIK dividends on such shares that have

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

Note 7 – Net Income Per Share

Basic net income per share is computed by dividing net income by the weighted-average number of common shares outstanding for the period.

Diluted net income per share is computed by dividing the net income for the period by the weighted average number of common and common equivalent shares outstanding during the period.

Diluted net income per share is computed giving effect to all potential dilutive common stock equivalent shares, including options and restricted stock units.

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

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

not previously compounded and been added to the Accrued Value.

The Series A preferred stock participates, on an as-converted basis in all dividends paid to the holders of our common stock.

Conversion Rights – The Series A preferred stock is convertible at any time into common stock at a conversion rate equal to (i) the Accrued Value plus accrued PIK dividends that have not yet been added to the Accrued Value, (ii) divided by the conversion price as of the applicable conversion date (the “Conversion Price”).

As of the date of this report, the Conversion Price is equal to $ 79.5861 per share.

This Conversion Price is subject to further adjustment and the number of shares of common stock issuable upon conversion of the Series A preferred stock is subject to certain limitations, each as set forth in the Certificate of Designations of Series A preferred stock, as filed with the Secretary of State of the State of Delaware on April 30, 2021 (the “Certificate of Designations”).

Redemption Put Right – At any time on or after the sixth anniversary of the Closing Date, holders of the Series A preferred stock will have the right to cause the Company to redeem all or any portion of the Series A preferred stock in cash at an amount equal to the greater of (i) 135 % of the Accrued Value per share as of the redemption date, plus accrued PIK dividends that have not yet been added to the Accrued Value and (ii) the amount per share that would be payable on an as-converted basis on such Series A preferred stock at the then-current Accrued Value, plus accrued PIK dividends that have not yet been added to the Accrued Value, and in either case of (i) or (ii) plus any unpaid cash dividends that would have otherwise been settled in cash in connection with such conversion (the greater of (i) and (ii), the “Redemption Price”).

Redemption Call Right – At any time on or after the sixth anniversary of the Closing Date, the Company will have the right (but not the obligation) to redeem out of legally available funds and for cash consideration all (but not less than all) of the Series A preferred stock upon at least 30 days prior written notice at an amount equal to the Redemption Price.

Board Nomination Rights – H.I.G.

is entitled to nominate one individual for election to our board of directors so long as it continues to own at least 30 % of the common stock issuable or issued upon conversion of the Series A preferred stock originally issued to it in the private placement.

also has the right to nominate an additional individual to our board of directors if we fail to maintain certain levels of commissions receivable and liquidity as further discussed below.

Voting Rights – The Series A preferred stock will vote together with the common stock as a single class on all matters submitted to a vote of the holders of the common stock (subject to certain voting limitations set forth in, and the terms and conditions of, the Certificate of Designations).

Each holder of Series A preferred stock shall be entitled to the number of votes, rounded down to the nearest whole number, equal to the product of (i) the aggregate Accrued Value of the issued and outstanding shares of Series A preferred stock divided by the Minimum Price (as defined below), multiplied by (ii) a fraction, the numerator of which is the number of shares of Series A preferred stock held by such holder and the denominator of which is the aggregate number of issued and outstanding shares of Series A preferred stock.

“Minimum Price” means the lower of:

(i) the Nasdaq Official Closing Price per share of common stock on the Closing Date;

or (ii) the average Nasdaq Official Closing Price per share of common stock for the five trading days immediately prior to the Closing Date.

Holders of Series A preferred stock will have one vote per share on any matter on which the holders of the Series A preferred stock are entitled to vote separately as a class (subject to certain voting limitations set forth in, and the terms and conditions of, the certificate of designations).

Mandatory Conversion of the Series A Preferred Stock – At any time on or after the third anniversary of the Closing Date, if the volume-weighted average price per share of our common stock is greater than 167.5 % of the then-current Conversion Price for 20 consecutive trading days in a 30 -day trading day period, the Company will have the right to convert all, but not less than all, of the Series A preferred stock into common stock at a conversion rate with respect to each share of Series A Preferred

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock of (i) the Accrued Value plus accrued PIK dividends that have not yet been added to the Accrued Value, (ii) divided by the then applicable Conversion Price.

Covenants and Liquidity Requirements – As long as H.I.G.

continues to own at least 30 % of the Series A preferred stock originally issued to it in the private placement, the consent of H.I.G.

will be required for the Company to incur certain indebtedness and to take certain other corporate actions as set forth in the Company's investment agreement with H.I.G.

entered into on February 17, 2021 (the “Investment Agreement”).

In addition, the Company is required to maintain an asset coverage ratio (as defined in the Investment Agreement) of at least 2 x, which increases to 2.5 x thirty months after the date of the Investment Agreement.

Additionally, the Investment Agreement requires the Company to maintain a minimum liquidity amount (as defined in the Investment Agreement) for certain periods that ranges from $ 65 million to $ 125 million.

If the Company fails to maintain the minimum asset coverage ratio or minimum liquidity amount as of a certain date or for a certain time period required by the Investment Agreement and H.I.G continues to own at least 30 % of the Series A preferred stock originally issued to it in the private placement, H.I.G will have the right to nominate an additional director to our board of directors, and the consent of H.I.G.

will be required to approve the Company's annual budget, hire or terminate certain key executives, and incur certain indebtedness as specified in the Investment Agreement.

will no longer have these additional board nomination and consent rights if the Company is able to satisfy the minimum liquidity amount requirements in the Investment Agreement for any subsequent 12 consecutive months.

Our Series A preferred stock is considered temporary equity in our consolidated financial statements.

We have determined there are no material embedded features that require recognition as a derivative asset or liability.

We recognized the Series A preferred stock at its stated amount less issuance costs of $ 11.0 million, or $ 214.0 million.

As of December 31, 2021, the estimated Series A preferred stock redemption value equals 135 % of the Accrued Value per share as of the redemption date, plus any accrued and unpaid dividends, which is significantly in excess of the fair value of the common stock into which the Series A preferred stock is convertible as of December 31, 2021.

We have elected to apply the accretion method to adjust the carrying value of the Series A preferred stock to its redemption value at the earliest date of redemption, April 30, 2027.

Amounts recognized to accrete the Series A preferred stock to its estimated redemption value are treated as a deemed dividend and are recorded as a reduction to retained earnings.

The estimated redemption value will vary in subsequent periods due to the redemption put right described above and we have elected to recognize such changes prospectively.

No shares of Series A preferred stock have been converted and the Series A preferred stock was convertible into 3.0 million shares of common stock as of December 31, 2021.

The following table summarizes the proceeds and changes to our Series A preferred stock (in thousands):

Gross proceeds $ 225,000

issuance costs ( 10,975 )

Net proceeds $ 214,025

Balance as of Closing Date $ 214,025

Accrued paid-in-kind dividends 12,206

Change in preferred stock redemption value 6,361

Balance as of December 31, 2021 $ 232,592

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7 – Net Income (Loss) Per Share Attributable to Common Stockholders

Our Series A preferred stock is considered a participating security which requires the use of two-class method for the computation of basic and diluted per share amounts.

Under the two-class method, earnings available to common stockholders for the period are allocated between common stockholders and participating securities according to dividends accumulated and participation rights in undistributed earnings.

Net loss attributable to common stockholders is not allocated to the convertible preferred stock as the holder of the Series A preferred stock does not have a contractual obligation to share in losses.

Basic net income (loss) attributable to common stockholders per share is computed by dividing net income (loss) available to common stockholders by the weighted-average number of shares of common stock outstanding for the period.

Diluted net income (loss) attributable to common stockholders per share is computed by dividing the net income (loss) available to common stockholders for the period by the weighted average number of common and common equivalent shares outstanding during the period.

Diluted net income (loss) attributable to common stockholders per share reflects all potential dilutive common stock equivalent shares, including conversion of preferred stock, stock options, restricted stock units and shares to be issued under our employee stock purchase program (“ESPP”).

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

Year Ended December 31,

2021 2020 2019

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

Net income (loss) attributable to common stockholders $ ( 122,942 ) $ 45,450 $ 66,887

Shares used in per share calculation – basic 26,781 26,025 23,075

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

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

Net income (loss) attributable to common stockholders per share – basic $ ( 4.59 ) $ 1.75 $ 2.90

Net income (loss) attributable to common stockholders $ ( 122,942 ) $ 45,450 $ 66,887

Shares used in per share calculation – basic 26,781 26,025 23,075

Dilutive effect of common stock — 989 1,464

Total common stock shares used in diluted share calculation 27,014 24,539 20,409

Net income per share – diluted $ 1.68 $ 2.73 $ 0.01

Shares used in diluted share calculation 26,781 27,014 24,539

Net income (loss) attributable to common stockholders per share – diluted $ ( 4.59 ) $ 1.68 $ 2.73

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For each of the years ended December 31, 2021, 2020 and 2019, we had securities outstanding that could potentially dilute net income per share, but the shares from the assumed conversion or exercise of these securities were excluded in the computation of diluted net income per share as their effect would have been anti-dilutive.

The number of outstanding anti-dilutive shares that were excluded from the computation of diluted net income per share consisted of the following (in thousands):

The number of weighted-average outstanding anti-dilutive shares that were excluded from the computation of diluted net income per share consisted of the following (in thousands):

Year Ended December 31,

2021 2020 2019

Common stock options — 11 291

Convertible preferred stock 1,905 — —

Restricted stock units 1,078 151 41

Common stock options 333 — 11

Total 3,345 151 52

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 – Commitments and Contingencies

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For the Years Ending December 31,

Thereafter 1,353

2022 $ 10,493

Total $ 21,459

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Operating Leases

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The accrued amount was settled and paid in January 2021.

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

There was no material additional litigation-related accrual recorded during the year ended or as of December 31, 2021.

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

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

Flanders, our chief financial officer, Derek N.

Flanders, our then-chief financial officer, Derek N.

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

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

Francis (collectively, the “Defendants”), in the United States District Court for the Northern District of California.

The cases are captioned Patel v.

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

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

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The complaints seek compensatory and (in the Patel lawsuit) punitive damages, attorneys’ fees and costs, and such other relief as the court deems proper.

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

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

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

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

The lead plaintiff filed an amended complaint on August 25, 2020, which the Defendants moved to dismiss on October 23, 2020.

The Defendants’ motion, which the plaintiff opposed, was granted in part and denied in part on August 12, 2021.

The court dismissed the plaintiff's claims to the extent premised upon alleged misrepresentations or omissions relating to churn, but denied the Defendants motion with respect to alleged misstatements regarding purported operating costs.

On October 1, 2021, the Company filed an answer denying in part and admitting in part the remaining allegations, and denying any wrongdoing.

On November 11, 2021, Plaintiff’s counsel filed a suggestion of death with respect to lead plaintiff Billy White.

The parties stipulated to a schedule for the lead plaintiff process to be re-opened, which was so-ordered by the Court on January 10, 2022.

Plaintiff’s counsel published notice regarding the appointment of a new lead plaintiff on January 17, 2022, and motions for appointment of lead plaintiff are due no later than 60 days after such publication.

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

Flanders, our chief financial officer, Mr.

Flanders, our then-chief financial officer, Mr.

Yung, our then-chief operating officer, Mr.

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

Francis, and the members of our board of directors at the time of filing of the complaints (collectively, the “Individual Defendants”), in the United States District Court for the Northern District of California and the Superior Court of California, County of Santa Clara.

The cases are captioned Chernet v.

5 unchanged sentences

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

A third derivative lawsuit was filed against the same defendants on October 5, 2021 in the

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

United States District Court for the Northern District of California, captioned Badwal v.

Flanders et al ., Case No.

4:21-cv-07795 (N.D.

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

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

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

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

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

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

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

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

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

The claim alleges that we violated wage and hour laws with respect to these non-exempt employees, including, among other things, the failure to comply with California law as to (i) the payment of overtime wages;

(ii) the payment of minimum wages;

(iii) providing compliant meal and rest periods, (iv) the payment of wages earned during employment and owed upon the termination of employment;

(v) providing complete and accurate wage statements, (vi) keeping of accurate payroll records;

and (vii) the proper reimbursement for necessary business-related expenses and costs.

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

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

Co., in the Superior Court of the State of California for the County of Santa Clara (the “Le’Vias Complaint”).

A substantial overlap exists between the facts and circumstances alleged in the Gonzalez Complaint and the Le’Vias Complaint.

Specifically, the Le’Vias Complaint is also brought under PAGA on behalf of all current and former hourly-paid or non-exempt employees who work or have worked for us in California.

(ii) the payment of minimum wages;

(iii) providing compliant meal and rest periods, (iv) the payment of wages earned during employment and owed upon the termination of employment;

(v) providing complete and accurate wage statements, (vi) keeping of accurate payroll records;

and (vii) the proper reimbursement for necessary business-related expenses and costs.

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

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

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

The Badwal complaint purports to assert a claim for breach of fiduciary duty, an insider trading claim, and violations of Section 14(a), 10(b) and 20D of the Securities Exchange Act of 1934.

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

The Badwal complaint seeks damages, declaratory relief, corporate governance measures, equitable and injunctive relief, restitution and disgorgement, and attorneys' fees and costs.

On August 10, 2020, the parties filed a Stipulation and Proposed Order in the Chernet matter to stay the action until and through the resolution of the Defendants' anticipated motion to dismiss the consolidated securities class action, and filed a similar stipulation in the Lincolnshire matter on December 11, 2020.

The Chernet stipulation was granted by the court on August 12, 2020 and the Lincolnshire stipulation on December 11, 2020.

In December 2021, the parties entered into a stipulation to further stay the Badwal and Chernet actions pending the appointment of a lead plaintiff in the consolidated action, which was so ordered by the Court on December 14, 2021.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 9 – Segment and Geographic Information

6 unchanged sentences

Total revenue $ 538,199 $ 582,774 $ 506,201

Segment profit:

Medicare segment profit $ 101,963 $ 155,234 $ 60,844

Segment profit (loss):

Medicare segment profit (loss) (1)

$ ( 12,079 ) $ 108,787 $ 158,061

Individual, Family and Small Business segment profit (1)

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

45,705 40,315 24,361

Total segment profit (loss) 33,626 149,102 182,422

Corporate ( 56,325 ) ( 57,664 ) ( 45,374 )

1 unchanged sentence

Depreciation and amortization (2)

( 18,331 ) ( 11,450 ) ( 6,803 )

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

Restructuring charges — — ( 1,865 )

Acquisition costs — — ( 76 )

Impairment charges ( 46,344 ) — —

Restructuring and reorganization charges ( 4,878 ) — —

Amortization of intangible assets ( 536 ) ( 1,493 ) ( 2,187 )

Other income, net 755 666 $ 2,090

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

Income (loss) before income taxes $ ( 124,890 ) $ 53,989 $ 83,499

(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 were $ 12.9 million, $ 7.8 million and $ 3.8 million for the years ended December 31, 2021, 2020 and 2019, respectively.

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

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

With the exception of contract assets – commissions receivable, which is presented by segment in Note 3 – Supplemental Financial Statement Information, our CODM does not separately evaluate assets by segment, and therefore assets by segment are not presented.

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Geographic Information

6 unchanged sentences

Total $ 45,729 $ 41,065

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Significant Customers

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2021 2020 2019

Humana 22 % 26 % 22 %

UnitedHealthcare (1)

20 % 21 % 19 %

Humana 19 % 22 % 26 %

18 % 15 % 17 %

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

(2) Aetna includes other carriers owned by Aetna.

Centene (1)(2)

12 % 10 % 2 %

(1) Percentages include the carriers' subsidiaries.

(2) Centene Corporation acquired WellCare Health Plans, Inc.

in 2020, and the revenue of WellCare is included in the percentage calculation for years ended December 31, 2021 and 2020.

Note 10 – Leases

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

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

We determine if an arrangement is a lease at inception.

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

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

We recognize lease expense on a straight-line basis over the terms

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

of the leases, although actual cash payment obligations under certain of these agreements fluctuate over the terms of the agreements.

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

2 unchanged sentences

We recorded $ 1.2 million and $ 1.2 million of sublease income during the years ended December 31, 2021 and 2020, respectively.

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

16 unchanged sentences

Total $ 41,369

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

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

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11 – Restructuring and Reorganization

Our restructuring and reorganization costs and liabilities consist primarily of severance, transition and other related costs.

The following table summarizes the cash-based restructuring and reorganization related liabilities (in thousands):

December 31, 2021

Beginning balance $ —

Restructuring and reorganization charges 4,878

Payments ( 4,704 )

Adjustment ( 28 )

Ending balance $ 146

In February 2021, we eliminated 89 full-time positions, primarily in the United States, representing approximately 5 % of our workforce, primarily within our customer care and enrollment group, and to a lesser extent, in our marketing and advertising, technology and content, and general and administrative groups.

Total pre-tax restructuring charges were $ 2.4 million for the year ended December 31, 2021, which primarily related to employee termination benefits.

Substantially all of the restructuring charges resulted in cash expenditures.

The restructuring activities were completed by March 31, 2021.

In September 2021, we announced the transition of our chief executive officer.

Scott Flanders resigned as a member of our board of directors and chief executive officer, effective October 31, 2021.

We recognized $ 2.4 million in severance costs related to his separation in 2021.

Stock-based compensation expense for the year ended December 31, 2021 was impacted by a $ 4.1 million credit related to forfeited equity awards due to Mr.

Flanders' separation, which was included in general and administrative expenses on our Consolidated Statement of Comprehensive Income (Loss).

Note 12 – Debt

3 unchanged sentences

The maturity date has been extended to December 20, 2022.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The borrowing base under the Credit Agreement is comprised of an amount equal to (a) the lesser of (i) eighty percent ( 80 %) of Eligible Commissions Receivables (as defined in the Credit Agreement) we actually collected during the immediately preceding period of three months or (ii) eighty percent 80 %) of our Eligible Commission Receivables for the immediately succeeding period of three months, plus (b) fifty percent ( 50 %) of our Eligible Commission Receivables for the immediately succeeding period of six months (excluding the immediately succeeding period of three months), in each case subject to reserves established by RBC (the “Borrowing Base”).

2 unchanged sentences

Subject to availability under the Borrowing Base, amounts repaid may be reborrowed.

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amounts not borrowed under the Credit Agreement will be subject to a commitment fee of 0.5 % per annum on the daily unused portion of the credit facility, to be paid in arrears on the first business day of each calendar quarter.

13 unchanged sentences

As of December 31, 2021, we had no outstanding borrowings under our revolving credit facility.

On February 28, 2022, we terminated our Credit Agreement with RBC and entered into a term loan credit agreement with Blue Torch Finance LLC, as administrative agent and collateral agent, and the other lenders party thereto (the “Term Loan Credit Agreement”).

This loan agreement provides for a $ 70.0 million secured term loan, which term loans were made available to us on February 28, 2022.

The proceeds of the loans under the Term Loan Credit Agreement may be used for working capital and general corporate purposes, refinance our Credit Agreement with RBC and to pay fees and expenses in connection with the entry into the Term Loan Credit Agreement.

We expect to incur closing costs totaling approximately $ 5.0 million, which will be amortized over the term of this agreement.

EHEALTH, INC.

1 unchanged sentence

Note 13 – Income Taxes

The components of our income before provision for income taxes were as follows (in thousands):

The components of our income (loss) before provision (benefit) for income taxes were as follows (in thousands):

Year Ended December 31,

2 unchanged sentences

Foreign 986 911 1,108

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

The federal and state income tax provision is summarized as follows (in thousands):

Income (loss) before income taxes $ ( 124,890 ) $ 53,989 $ 83,499

The federal and state income tax provision (benefit) is summarized as follows (in thousands):

Year Ended December 31,

8 unchanged sentences

Total deferred ( 21,521 ) 8,812 16,211

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

In 2020, we had worldwide consolidated income before tax of $ 54.0 million, and tax expense of $ 8.5 million, with an annual effective tax rate of 15.8 %.

Provision for (benefit from) income taxes $ ( 20,515 ) $ 8,539 $ 16,612

In 2021, we had a worldwide consolidated loss before tax of $ 124.9 million, and a tax benefit of $ 20.5 million, with an annual effective tax rate of 16.4 %.

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The effective tax rate of our provision for income taxes differs from the federal statutory rate as follows:

10 unchanged sentences

Non-deductible parking expense — — 0.2

Goodwill impairment ( 2.4 ) — —

Other permanent differences ( 0.3 ) 0.3 0.4

Effective tax rate 16.4 % 15.8 % 19.9 %

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, together with operating losses and tax credit carryforwards.

6 unchanged sentences

Intangible assets 7,480 2,592

Tax credits 7,805 5,818

Research and development credits carryovers 9,954 7,805

Stock-based compensation 4,642 4,500

9 unchanged sentences

Net deferred tax liabilities $ ( 50,796 ) $ ( 72,317 )

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Assessing the realizability of our deferred tax assets is dependent upon several factors, including the likelihood and amount, if any, of future taxable income in relevant jurisdictions during the periods in which those temporary differences become deductible.

2 unchanged sentences

As a result, the amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income change.

The valuation allowance was recorded as a result of increased uncertainty regarding our future taxable income and a lack of sources of other taxable income to realize certain net operating losses and credits prior to expiration.

The change in our valuation allowance is summarized as follows (in thousands):

Deferred Tax Assets - Valuation Allowance Balance at beginning of year Provision for income taxes Balance at

Year Ended December 31, 2020 $ 2,407 $ 72 $ 2,479

Year Ended December 31, 2019 2,407 — 2,407

Year Ended December 31, 2018 — 2,407 2,407

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the year ended December 31, 2021, a valuation allowance of $ 3.2 million was recorded against California net deferred tax assets.

The valuation allowance was recorded as a result of increased uncertainty regarding our future taxable income and a lack of sources of other taxable income to realize our net deferred tax assets in California.

The remaining deferred tax assets are supported by the reversal of deferred tax liabilities.

The change in our valuation allowance is summarized as follows for the years ended (in thousands):

Deferred Tax Assets - Valuation Allowance Balance at beginning of year Provision for income taxes Write-offs and Deductions Balance at

December 31, 2021 $ 2,479 $ 3,150 $ ( 2,415 ) $ 3,214

December 31, 2020 2,407 72 — 2,479

December 31, 2019 2,407 — — 2,407

The net operating loss and tax credit carryforwards as of December 31, 2021 are summarized as follows (in thousands):

2 unchanged sentences

Net operating losses, federal (without expiration) 573,222 Indefinite

Net operating losses, state 283,700 2021

Net operating losses, state (with expiration) 378,582 2033-2041

Tax credits, federal 9,559 2022-2041

2 unchanged sentences

These ownership change limitations may limit the amount of net operating loss carryforwards and other tax attributes that can be utilized annually to offset future taxable income and tax, respectively.

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A reconciliation of the beginning and ending amount of our unrecognized tax benefits is as follows (in thousands):

3 unchanged sentences

$ 6,330 $ 4,709 $ 3,740

Increase based on tax positions related to the prior year — — 70

Additions for tax positions of prior years 646 — —

Lapse of statute of limitations ( 64 ) ( 8 ) —

5 unchanged sentences

We record interest and penalties related to unrecognized tax benefits in income tax expense.

As of December 31, 2020, the amount accrued for estimated interest related to uncertain tax positions was immaterial.

We did not record an accrual for penalties.

Included in the balance of income tax liabilities and accrued interest as of December 31, 2020 is an immaterial amount related to tax positions for which it is reasonably possible that the statute of limitations will expire in various jurisdictions and income tax exams will close within the next twelve months.

As of December 31, 2021, the amount accrued for estimated interest related to uncertain tax positions was $ 0.1 million and the amount accrued for estimated penalties related to uncertain tax positions was $ 0.1 million.

Included in the balance of income tax liabilities and accrued interest as of December 31, 2021 is an immaterial amount related to tax positions for which it is reasonably possible that the statute of limitations will expire in various jurisdictions and income tax exams will close within the next 12 months.

We are subject to taxation in various jurisdictions, including federal, state and foreign.

Our federal and state income tax returns are generally not subject to examination by taxing authorities for fiscal years before 2001 due to our net operating losses and credits carryforward.

Our federal and state income tax returns are generally not subject to examination by taxing authorities for fiscal years before 2002 due to our credit carryforwards.

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

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

The income tax provisions of

EHEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

the CARES Act did not have a material impact on our Consolidated Financial Statements for the year ended December 31, 2020.

Note 13 – Subsequent Event

On February 17, 2021,we entered into an investment agreement with an affiliate of H.I.G.

Capital (together with its affiliated funds, “H.I.G.”), pursuant to which we have agreed to issue and sell to affiliated entities of H.I.G., 2,250,000 shares of the Company’s newly designated Series A preferred stock for an aggregate purchase price of $ 225.0 million.

The income tax provisions of the CARES Act did not have a material impact on our Consolidated Financial Statements for the year ended December 31, 2020.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data