What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-05-06 compared with 2021-11-08 · 191 added, 261 removed, 363 unchanged (55% of the section changed)

24 unchanged sentences

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

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

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

8 unchanged sentences

our relationships with health insurance carriers;

the success of our carrier advertising and sponsorship program;

customer concentration and consolidation of the health insurance industry;

16 unchanged sentences

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

our ability to raise additional capital;

compliance with insurance and other laws and regulations;

2 unchanged sentences

and those identified under the heading “Risk Factors” in Part II, Item 1A.

of this report and those discussed in our other Securities and Exchange Commission filings.

of this report and those discussed in our other

Securities and Exchange Commission filings.

Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements.

1 unchanged sentence

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

The following discussion should be read in conjunction with our Annual Report on Form 10-K as filed with the

Securities and Exchange Commission in February 2021 and amended in April 2021, and the audited consolidated financial statements and related notes contained therein.

The following discussion should be read in conjunction with our Annual Report on Form 10-K as filed with the Securities and Exchange Commission in March 2022, and the audited consolidated financial statements and related notes contained therein.

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

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.

Our platform leverages technology to solve a critical problem in a large and growing market by aiding consumers in what has traditionally been a complex, confusing, and opaque health insurance purchasing process.

Our omnichannel consumer engagement platform enables consumers to use our services online, by telephone with a licensed insurance agent, or through a hybrid online assisted interaction.

We have created a consumer-centric 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 approximately 200 health insurance carriers across all fifty states and the District of Columbia.

Our plan recommendation tool curates this broad plan selection by analyzing customer health-related information against plan data for insurance coverage fit.

This tool is supported by a unified data platform and is available to our ecommerce customers and our licensed agents.

Updates on Business Initiatives

During the third quarter of 2021, we made a number of changes to our telesales and online capabilities with a focus on driving performance and improving enrollment quality in preparation for the annual enrollment period in the fourth quarter.

In 2021, we shifted the mix of our telesales capacity towards full-time internal agents and away from third party vendor agents.

In October 2021, we entered the Medicare annual enrollment period with internal agents comprising over 95% of our total agents, the largest number of full-time employed agents in our history and compared to approximately 50% at the same time in 2020.

We also made other important changes across our call centers to improve the effectiveness of our agents and further enhance consumer experience.

These changes include the migration of our call center technology to a cloud-based contact center and upgraded lead scoring and routing tools.

We believe these improvements and new tools provide better support to our agents in their interactions with consumers as we enter into the most critical selling season of the year.

Enrollment quality has been our focus since the launch of our retention program over a year ago, which is ensuring that eHealth presents Medicare beneficiaries with choices that best align with their eligibility status, lifestyle, health conditions and economic means with the goal of minimal disruption in existing provider relationships.

During 2021, we made a number of changes to our telesales and online capabilities with a focus on driving performance and improving enrollment quality in preparation for the annual enrollment period in the fourth quarter.

We continue to build on these initiatives in 2022.

The investments in our telesales operations, technology and enrollment quality assurance have resulted in lower conversion rates and longer average talk times for telephonic enrollments and negatively impacted our first quarter financial results.

However, we are seeing position traction in CTM scores and retention characteristics for the new enrollments that we added during the 2022 annual enrollment period ("AEP"), relative to comparable enrollment cohorts from the 2021 and 2020 AEPs.

This suggests that the enrollments are of higher quality, resulting in higher customer satisfaction and increased plan longevity.

Enrollment quality has been our focus since the launch of our retention program in 2020, which helps ensure that we present Medicare beneficiaries with choices that best align with their eligibility status, lifestyle, health conditions and economic means with the goal of minimal disruption in existing provider relationships.

We have been seeking additional ways to improve our customer experience, enhance accuracy of plan recommendations and reduce disenrollment.

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

We restructured agent compensation incentives to place more focus on addressing the longer-term coverage needs of customers.

As part of the recent migration of our call center technology to a cloud-based contact center, we also implemented a new cloud-based agent monitoring system, which is expected to provide new robust capabilities to train agents and monitor their performance in real time.

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

We continuously look for ways to improve the user experience of our online tools.

Ahead of the annual enrollment period, we enhanced our online capabilities by launching an updated recommendation engine.

This engine is designed to improve the accuracy of personalized plan-matching.

It has machine-learning capabilities and leverages data from online customer interactions to provide recommendations, which we believe improves the online shopping experience and helps Medicare eligible consumers navigate increasingly broad and complex plan choices.

Our online Customer Center continues to strengthen and support our relationships with consumers and to help retain their business when it's time to review their plan coverage choices.

The Customer Center enables members to create a secure personal profile that stores their prescription drug regimen, preferred doctors and pharmacies, current coverage, and other relevant data, and makes this data available to the member and our licensed agents that they contact.

The accessibility of the information facilities plan selection for our agents and members with accounts and also incentivizes members to return to us when their needs change.

Although the investments in our telesales operations, technology and enrollment quality assurance have negatively impacted our third quarter financial results, we believe that they will create long-term competitive advantages for us as carriers place an increasing value on enrollment quality and reduction in beneficiary complaints.

In addition to our quality assurance efforts initiated in 2021, we continue to introduce further initiatives in our customer care centers.

This includes increased agent specialization by product and geography, improvement of agent scripts to make them more consumer friendly, an outbound call program that allows and incentivizes agents to proactively work their pipeline during down times, and emphasis on extending agents' tenure with us.

Furthermore, our agent mix will be more mature in 2022 compared to a year ago.

We expect these initiatives will build on positive momentum in our conversion rates as we prepare for AEP.

We are making effort in creating greater collaboration between our digital and conventional marketing teams to create synergies between our diversified demand generation channels.

We are launching a series of omni-channel tools aimed at supporting seamless transition of customers between channels, including an online chat staffed by licensed Medicare agents.

These initiatives enhance our technology differentiation and create a stronger connection between agent driven and digital organizations.

Transformation Initiatives — We are implementing a multi-year transformation initiative to right-size our cost structure and drive future profitability.

These initiatives include targeted reductions in fixed expenses and vendor-related spend outside of mission critical areas, as well as changes to variable cost management.

Through this program, we expect to achieve ongoing significant cost savings while preserving our competitive edge and focusing on initiatives with highest in-period returns on investment.

We expect to achieve over $60 million in annualized cost savings, excluding restructuring costs in 2022 of approximately $10 million to $20 million.

We expect the variable cost reduction to lead to a temporary decline in our Medicare enrollments and revenue in 2022 before a return to growth in 2023 on a significantly improved operational and cost foundation.

These initiatives are intended to improve our operations through re-engineering, reorganizing, and better deployment of marketing expenses.

For example, we have de-emphasized underperforming demand generation channels in favor of channels that bring higher quality leads.

In April 2022, we eliminated over 300 full-time positions, representing approximately 14% 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.

Changes in Senior Management

In September 2021, we announced the appointment of Christine Janofsky as our senior vice president, chief financial officer, effective September 2021.

We also announced the resignation of Scott Flanders from his positions as a member of our board of directors and chief executive officer, effective October 31, 2021, and the appointment of Fran Soistman as a member of our board of directors and our chief executive officer, effective November 1, 2021.

Flanders has agreed to provide consulting services to us through December 31, 2021 to assist with the transition of his duties and responsibilities.

These executive changes resulted in lower general and administrative expenses in the third quarter of 2021, primarily due to the reversal of stock-based compensation expense related to Mr.

Flanders' forfeited equity awards.

Severance and other personnel costs related to Mr.

Flanders' separation are included in restructuring and reorganization charges on our Condensed Consolidated Statement of Comprehensive Loss in the third quarter of 2021.

Part of these severance and other personnel costs will be recognized during his remaining service period in the fourth quarter.

In January 2022, we announced the termination of chief revenue officer, Timothy C.

Hannan, effective January 31, 2022, and the appointment of Robert S.

Hurley as interim chief revenue officer effective February 1, 2022.

Hurley previously served as an executive officer of the Company for over 20 years until his retirement in March 2020.

In February 2022, we announced the appointment of Roman Rariy as our chief operating officer and chief transformation officer, effective March 1, 2022.

COVID-19 Impact Updates

As of September 30, 2021, all of our offices remained open at reduced capacity and with additional safety and social distancing measures as a result of the COVID-19 pandemic.

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

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

We experienced a number of changes in our business related to the impacts from the COVID-19 pandemic from 2020 onwards.

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

Our office in China has reopened since the second quarter of 2020 given the improvements in the situation in the region where our office is located.

As of March 31, 2022, all of our U.S.

offices are open at reduced capacity and with additional safety and social distancing measures.

We currently plan to operate with a combination of remote and in-office work in the United States at least through part of 2022.

We plan to adjust the number of in-office employees during the year depending upon the COVID-19 situation.

The emergence of COVID-19 variants could cause us to alter our operations and plans for in-office and remote work.

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

Due to the surge of COVID-19 cases caused by the COVID-19 Delta variant, employees in our California offices are still required by county order to wear masks while in our offices regardless of vaccination status.

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

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

9 unchanged sentences

Not all approved members ultimately become paying members.

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

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

2021 2020 2021 2020

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

Three Months Ended March 31, % Change

Medicare Advantage 82,431 106,884 (23) %

3 unchanged sentences

Individual and Family 9,801 11,314 (13) %

Non-Qualified Health Plans 3,241 2,665 22 % 12,970 10,283 26 %

Qualified Health Plans 4,991 1,707 192 % 16,049 8,764 83 %

Total Individual and Family 8,232 4,372 88 % 29,019 19,047 52 %

Short-term 7,313 9,784 (25) % 21,651 31,368 (31) %

Dental 9,043 10,136 (11) % 30,619 27,568 11 %

Vision 4,332 3,806 14 % 13,960 12,071 16 %

Other 2,396 2,991 (20) % 7,413 11,262 (34) %

Total Ancillary 23,084 26,717 (14) % 73,643 82,269 (10) %

Ancillary 18,970 26,511 (28) %

Small Business 2,514 2,948 (15) %

Total Approved Members 127,095 163,450 (22) %

Three Months Ended September 30, 2021 and 2020 – Medicare approved members decreased 22% in the three months ended September 30, 2021 compared to the same period in 2020.

The decrease in total Medicare approved members was primarily attributable to a decline in telesales conversion rate which was primarily driven by additional quality initiatives we introduced during the third quarter of 2021, partially offset by the growth of our online applications.

Individual and family plan approved members grew 88% in the three months ended September 30, 2021 compared to the same period in 2020 due to the favorable market environment.

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

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

Ancillary plan approved members decreased 14% in the three months ended September 30, 2021 compared to the same period in 2020 primarily due to decreases in approved members for short-term health insurance plans, dental and other ancillary insurance, partially offset by an increase in approved members for vision insurance.

Small business group health insurance approved members declined 33% in the three months ended September 30, 2021 compared to the same period in 2020 mainly due to the shift of our focus away from the sale of small business products.

Nine Months Ended September 30, 2021 and 2020 – Medicare approved members increased 18% in the nine months ended September 30, 2021 compared to the same period in 2020.

The increase in total Medicare approved members was primarily attributable to an increase in Medicare Advantage plan members, partially offset by decreases in Medicare Supplement plan members and Medicare Part D prescription drug plan members during the nine months ended September 30, 2021 compared to the same period in 2020.

The increase in approved Medicare Advantage members was primarily driven by strong consumer demand, online enrollment growth, and an increase in our internal agent productivity during the Medicare Advantage open enrollment period in the first quarter of 2021, partially offset by a decline in telesales conversion rate during the third quarter of 2021, as described above.

Individual and family plan approved members grew 52% in the nine months ended September 30, 2021 compared to the same period in 2020 partially due to the favorable market environment resulting from the passage of the American Rescue Plan Act mentioned above.

Ancillary plan approved members declined 10% in the nine months ended September 30, 2021 compared to the same period in 2020 primarily due to declines in approved members for short-term health insurance plans and other ancillary plans, partially offset by an increase in approved members for dental and vision insurance.

Small business group health insurance approved members declined 23% in the nine months ended September 30, 2021 compared to the same period in 2020 mainly due to the shift of our focus away from the sale of small business products.

Three Months Ended March 31, 2022 and 2021 – Total Medicare approved members decreased 22% in the three months ended March 31, 2022 compared to the same period in 2021.

The decrease in total Medicare approved members was attributable to a decrease in approved members across all Medicare products that we market including Medicare Advantage, Medicare Supplement, and Medicare Part D prescription drug plans, during the three months ended March 31, 2022 compared to the same period in 2021.

The decrease in Medicare Advantage approved members, in particular, was driven by a decrease in submitted applications primarily due to lower telephonic conversion rates and our decision to reduce our investment in telephonic enrollment growth in 2022.

Individual and family plan approved members declined 13% in the three months ended March 31, 2022 compared to the same period in 2021 partially due to an extension of the enrollment period in 2021 that did not occur in 2022.

Ancillary plan approved members declined 28% in the three months ended March 31, 2022 compared to the same period in 2021 primarily due to declines in approved members for short-term health insurance plans and dental insurance plans.

Small business group health insurance approved members declined 15% in the three months ended March 31, 2022 compared to the same period in 2021 mainly due to a decrease in approved groups.

New Paying Members

1 unchanged sentence

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

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

2021 2020 2021 2020

Three Months Ended March 31, % Change

Medicare Advantage 117,643 140,997 (17) %

3 unchanged sentences

Individual and Family 16,230 17,607 (8) %

Non-Qualified Health Plans 3,206 2,550 26 % 18,781 15,920 18 %

Qualified Health Plans 4,937 1,548 219 % 16,180 10,600 53 %

Total Individual and Family 8,143 4,098 99 % 34,961 26,520 32 %

Short-term 8,703 10,461 (17) % 26,909 32,293 (17) %

Dental 8,862 9,500 (7) % 29,765 26,848 11 %

Vision 4,563 3,953 15 % 14,972 13,170 14 %

Other 2,534 3,502 (28) % 7,710 11,289 (32) %

Total Ancillary 24,662 27,416 (10) % 79,356 83,600 (5) %

Ancillary 22,917 31,591 (27) %

Small Business 3,084 4,125 (25) %

Total New Paying Members 194,320 233,455 (17) %

Three Months Ended September 30, 2021 and 2020 – Medicare total new paying members declined 19% in the three months ended September 30, 2021 compared to the same period in 2020, attributable to a decline in telesales conversion rate, partially offset by the growth of our online applications .

Individual and family plan new paying members grew 99% in the three months ended September 30, 2021 compared to the same period in 2020 primarily driven by an increase in approved members for qualified health plans.

Ancillary new paying members declined 10% in the three months ended September 30, 2021 compared to the same period in 2020 primarily due to a decline in approved members for short-term, dental and other ancillary insurance plans, partially offset by an increase in approved members for vision insurance plans.

Small business new paying members declined 37% in the three months ended September 30, 2021 compared to the same period in 2020 primarily due to a decrease in approved members for small business plans .

Nine Months Ended September 30, 2021 and 2020 – Medicare total new paying members grew 8% in the nine months ended September 30, 2021 compared to the same period in 2020, primarily driven by an increase in Medicare Advantage plan approved members, partially offset by decreases in Medicare Part D prescription drug plan and Medicare Supplement plan approved members .

Individual and family plan new paying members grew 32% in the nine months ended September 30, 2021 compared to the same period in 2020 primarily driven by increases in approved members for non-qualified and qualified plans.

Ancillary new paying members declined 5% in the nine months ended September 30, 2021 compared to the same period in 2020 primarily due to a decrease in approved members for short-term and other ancillary plans.

Small business new paying members declined 26% in the nine months ended September 30, 2021 compared to the same period in 2020 primarily due to a decrease in approved members for small business plans .

Three Months Ended March 31, 2022 and 2021 – Total Medicare new paying members declined 16% in the three months ended March 31, 2022 compared to the same period in 2021, due primarily to a decrease in approved members for all Medicare products.

Individual and family plan new paying members declined 8% in the three months ended March 31, 2022 compared to the same period in 2021 due primarily to decreases in approved members for non-qualified and qualified plans.

Ancillary new paying members declined 27% in the three months ended March 31, 2022 compared to the same period in 2021 primarily due to a decrease in approved members for short-term and dental insurance plans.

Small business new paying members declined 25% in the three months ended March 31, 2022 compared to the same period in 2021 primarily due to a decrease in approved members for small business plans .

Estimated Constrained Lifetime Value of Commissions Per Approved Member

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

Three Months Ended September 30, % Change

Three Months Ended March 31, % Change

Medicare Advantage (1)

16 unchanged sentences

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

The constrained LTV of commissions per approved member for Medicare Advantage plans grew by 9%, and declined by 11% and 7%, respectively, for Medicare Supplement and Medicare Part D prescription drug plans during the three months ended September 30, 2021 compared to the same period in 2020.

The increase in constrained LTV of Medicare Advantage plans was due to higher commission rates.

The decline in constrained LTV of commissions per approved member for Medicare Supplement and Medicare Part D prescription drug plans was due to shorter average plan durations for both products.

The constrained LTV of commissions per approved member declined by 2%, 12%, and 2%, respectively, for Medicare Advantage, Medicare Supplement and Medicare Part D prescription drug plans during the three months ended March 31, 2022 compared to the same period in 2021.

The decrease in constrained LTV was due to decreased estimates of average plan durations for these products.

Individual and Family and Ancillary

The constrained LTV of commissions per non-qualified health plan approved member and qualified health plan approved member increased 35% and 21%, respectively, during the three months ended September 30, 2021 compared with the same period in 2020 mostly due to increased estimates of average plan duration and a lower constraint for non-qualified health insurance plans.

The constrained LTV of commissions per approved member for short-term health insurance, dental, vision, and small business insurance plans increased by 5%, 17%, 11%, and 31%, respectively, during the three months ended September 30, 2021 compared with the same period in 2020 primarily due to an increase in estimated average plan duration.

The constrained LTV of commissions per non-qualified health plan approved member and qualified health plan approved member increased 65% and 1%, respectively, during the three months ended March 31, 2022 compared with the same period in 2021 mostly due to increased estimates of average plan duration and a lower constraint for non-qualified health insurance plans.

The constrained LTV of commissions per approved member for short-term health insurance, dental, vision, and small business insurance plans increased by 1%, 14%, 5%, and 9%, respectively, during the three months ended March 31, 2022 compared with the same period in 2021 primarily due to an increase in estimated average plan duration.

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

Three Months Ended September 30,

Three Months Ended March 31,

Medicare Advantage 7 % 7 %

9 unchanged sentences

Small Business 5 % 5 %

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

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

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

The constraints for Medicare Supplement and Medicare Part D prescription drug plans increased during the three months ended March 31, 2022, as compared to the same period in the prior year, due to declining LTV trends for these products.

The constraints for non-qualified health plans decreased during the three months ended March 31, 2022, as compared to the same period in the prior year, due to stabilization of market conditions and increases in LTV values.

The constraints for dental plans decreased during the three months ended March 31, 2022, as compared to the same period in the prior year, due to improved LTV trends.

Estimated Membership

1 unchanged sentence

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

As of September 30, % Change

As of March 31, % Change

Medicare Advantage 585,824 538,716 9 %

3 unchanged sentences

Individual and Family (2)

Non-Qualified Health Plans 84,260 92,054 (8) %

Qualified Health Plans 23,866 20,780 15 %

Total Individual and Family 108,126 112,834 (4) %

104,849 103,844 1 %

Ancillary (3)

Short-term 17,073 24,105 (29) %

Dental 122,126 116,846 5 %

Vision 69,210 67,944 2 %

Other 32,957 36,158 (9) %

Total Ancillary 241,366 245,053 (2) %

229,284 241,415 (5) %

Small Business (4)

4 unchanged sentences

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

To the extent we determine through confirmations from a health insurance carrier that a commission payment is delayed or is inaccurate as of the date of estimation, we adjust the estimated membership to also reflect the number of members for whom we expect to receive or to refund a commission payment.

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

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

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

13 unchanged sentences

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

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

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

inform us of the cancellation.

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

10 unchanged sentences

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

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

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

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

The difference between our estimates and carrier data have returned to our historical ranges since that time.

Medicare-related plan estimated membership as of September 30, 2021 grew 19% compared to estimated membership as of September 30, 2020 due to a 33% growth in Medicare Advantage estimated membership and a 3% growth in Medicare Supplement plan estimated membership.

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

Individual and family plan estimated membership as of September 30, 2021 declined 4% compared to estimated membership as of September 30, 2020 due to overall market conditions in the individual and family plan market, despite the recent stabilization and improvement, and the shift of our investment towards Medicare.

Ancillary plan estimated membership as of September 30, 2021 declined 2% compared to estimated membership as of September 30, 2020 primarily as a result of the decline in short-term health plans estimated membership.

Medicare-related plan estimated membership as of March 31, 2022 grew 4% compared to estimated membership as of March 31, 2021 due to a 9% growth in Medicare Advantage estimated membership, offset by a 5% and 4% decline in Medicare Supplement plan and Medicare Part D plan estimated membership, respectively.

The overall growth in Medicare estimated membership was due to new paying members we added over the last twelve months, net of churn.

Individual and family plan estimated membership as of March 31, 2022 grew 1% compared to estimated membership as of March 31, 2021 due to overall market conditions in the individual and family plan market, including recent stabilization and improvement.

Ancillary plan estimated membership as of March 31, 2022 declined 5% compared to estimated membership as of March 31, 2021 primarily as a result of the decline in short-term health plans estimated membership.

Member Acquisition

7 unchanged sentences

For Medicare Plans, we call this derived metric Medicare Advantage (“MA”)-equivalent members, and for IFP Plans, we call this derived metric IFP-equivalent members.

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

The calculations for MA-equivalent members and for IFP-equivalent members are based on the weighted number of

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

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

Three Months Ended September 30, % Change

Three Months Ended March 31, % Change

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

12 unchanged sentences

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

Estimated CC&E cost per approved MA-equivalent member increased 45% in the three months ended September 30, 2021 compared to the same period in 2020 due to lower enrollment volume resulting from enrollment quality initiatives, a decline in our telesales conversion rate and an earlier start to our staffing increase for the Medicare annual enrollment period this year.

In October 2021, we entered this annual enrollment period with over 95% of our sales force consisting of internal agents.

We believe that this investment in internal telesales capacity will strengthen our telesales organization and improve enrollment quality going forward.

Estimated CC&E cost per approved MA-equivalent member increased 59% in the three months ended March 31, 2022 compared to the same period in 2021 due to lower enrollment volume while having more agents than the prior year and a decline in our telesales conversion rate resulting from enrollment quality initiatives.

We believe that this investment in our telesales organization will improve our competitive positioning and drive higher quality enrollments characterized by improved persistency.

Estimated variable marketing cost per MA-equivalent member increased 54% primarily due to lower enrollment volume as a result of lower conversion rates from our telephonic leads.

In addition, a greater focus on our online advertising channel also contributed to the increase as it carries higher per enrollment marketing costs but lower customer care and enrollment costs.

Estimated CC&E cost per approved IFP-equivalent member decreased 13% in the three months ended September 30, 2021 compared to the same period in 2020 due primarily to an increase in agent productivity.

Estimated variable marketing cost per IFP-equivalent member decreased 18% in the three months ended September 30, 2021 compared to the same period in 2020 due to an extended special open enrollment period.

Estimated CC&E cost per approved IFP-equivalent member increased 40% in the three months ended March 31, 2022 compared to the same period in 2021 due primarily to an increase in the number of agents in anticipation of volume increases for the rest of 2022.

Estimated variable marketing cost per IFP-equivalent member increased 11% in the three months ended March 31, 2022 compared to the same period in 2021.

Critical Accounting Policies and Estimates

3 unchanged sentences

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

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

such matters to change, and the effect of the estimates and assumptions on financial condition or operating performance.

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

2 unchanged sentences

• Accounting for Income Taxes.

There have been no changes to our critical accounting policies and estimates described in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 26, 2021 and amended on April 29, 2021, that have had a significant impact on our condensed consolidated financial statements and related notes.

There have been no changes to our critical accounting policies and estimates described in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 1, 2022, that have had a significant impact on our condensed consolidated financial statements and related notes.

Please refer to Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021, for a complete discussion of our other critical accounting policies and estimates.

1 unchanged sentence

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

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

2021 2020 2021 2020

Three Months Ended March 31,

Commission $ 93,850 89 % $ 127,052 95 %

12 unchanged sentences

Other income (expense), net (1,021) (1) % 150 — %

Loss before benefit from income taxes (65,848) (103) % (20,948) (22) % (91,501) (31) % (25,346) (9) %

Benefit from income taxes (12,834) (20) % (6,443) (7) % (19,278) (7) % (10,923) (4) %

Loss before income taxes (40,735) (39) % (492) — %

Provision for (benefit from) income taxes (7,993) (8) % 308 — %

Net loss $ (32,742) (31) % $ (800) (1) %

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

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

2021 2020 2021 2020

Three Months Ended March 31,

Marketing and advertising $ 313 $ 2,485

3 unchanged sentences

Total stock-based compensation expense $ 5,285 $ 11,402

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

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

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

Three Months Ended March 31, Change

2022 2021 $ %

4 unchanged sentences

Total revenue $ 105,250 $ 134,214 $ (28,964) (22) %

Three Months Ended September 30, 2021 and 2020 – Commission revenue decreased $14.4 million, or 20%, during the three months ended September 30, 2021 compared to the same period in 2020 due to an $8.8 million decrease in commission revenue from the Medicare segment and a $5.5 million decrease in commission revenue from the Individual, Family and Small Business segment.

The decrease in commission revenue from the Medicare segment during the three months ended September 30, 2021 compared to the same period in 2020 was due to a 22% decline in approved members primarily attributable to an 18% decline of approved members for Medicare Advantage plans, partially offset by a 9% increase in Medicare Advantage LTVs.

The decrease in commission revenue from the Individual, Family and Small Business segment was due primarily to a $7.0 million decrease in net adjustment revenue from members enrolled in prior periods, partially offset by an 88% increase in approved individual and family plan members due to a favorable market environment, and higher lifetime values for individual and family plan and certain ancillary products.

Other revenue declined $16.0 million, or 77%, during the three months ended September 30, 2021 compared to the same period in 2020 due primarily to a decrease in Medicare sponsorship and advertising revenue driven by reduced sponsorship activity, a decline in Medicare enrollment volumes year-over-year, and timing, with certain advertising arrangements commencing in the fourth quarter as compared to the third quarter in 2020.

Nine Months Ended September 30, 2021 and 2020 – Commission revenue increased $22.1 million, or 9%, during the nine months ended September 30, 2021 compared to the same period in 2020 due to a $12.1 million increase in commission revenue from the Individual, Family and Small Business segment and a $10.0 million increase in commission revenue from the Medicare segment.

The increase in commission revenue from the Medicare segment was driven by an 18% increase in Medicare plan approved members, driven primarily by a 30% growth in Medicare Advantage plan approved members compared to 2020, partially offset by a decrease in net commission revenue from Medicare members approved in prior periods which was primarily attributable to Medicare Supplement and Medicare Part D prescription drug plans.

The increase in commission revenue from the Individual, Family and Small Business segment was primarily driven by a $8.6 million increase in net adjustment revenue, 52% increase in individual and family major medical plan approved members, 11% increase in dental plan approved members, and 16% increase in vision plan approved members.

Three Months Ended March 31, 2022 and 2021 – Commission revenue decreased $33.2 million, or 26%, during the three months ended March 31, 2022 compared to the same period in 2021 due to a $27.8 million decrease in commission revenue from the Medicare segment and a $3.0 million decrease in commission revenue from the Individual, Family and Small Business segment.

The decrease in commission revenue from the Medicare segment was driven by a 22% decrease in Medicare plan approved members, driven primarily by a 23% decline in Medicare Advantage plan approved members compared to 2021.

The decrease in commission revenue from the Individual, Family and Small Business segment was primarily due to a 28% decrease in ancillary plan approved members, a 13% decrease in individual and family major medical plan approved members, and a $2.8 million decrease in net adjustment revenue.

See Segment Information below for further discussion.

Other revenue decreased $16.9 million, or 48%, during the nine months ended September 30, 2021 compared to the same period in 2020 due to a decrease in Medicare sponsorship and advertising revenue also related to timing as mentioned above.

We believe that the nature of our sponsorship arrangements with carriers will evolve and be driven by the quality of broker enrollments to a greater extent compared to the prior arrangements which were more focused on volume.

Other revenue increased $4.2 million, or 59%, during the three months ended March 31, 2022 compared to the same period in 2021 due to an increase in Medicare advertising revenue.

Cost of Revenue

6 unchanged sentences

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

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

Three Months Ended March 31, Change

2022 2021 $ %

1 unchanged sentence

% of total revenue — % 1 %

Three Months Ended September 30, 2021 and 2020 – Cost of revenue decreased by $0.5 million during the three months ended September 30, 2021, compared to the same period in 2020, primarily due to decreased activity from our revenue sharing arrangements.

Nine Months Ended September 30, 2021 and 2020 – Cost of revenue decreased by $0.9 million during the three months ended September 30, 2021, compared to the same period in 2020, primarily due to decreased activity from our revenue sharing arrangements.

Three Months Ended March 31, 2022 and 2021 – Cost of revenue decreased by $1.1 million during the three months ended March 31, 2022, compared to the same period in 2021, primarily due to decreased activity from our revenue sharing arrangements.

Marketing and Advertising

1 unchanged sentence

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

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

Three Months Ended March 31, Change

2022 2021 $ %

1 unchanged sentence

% of total revenue 56 % 38 %

Three Months Ended September 30, 2021 and 2020 – Marketing and advertising expenses increased $9.9 million, or 30%, during the three months ended September 30, 2021 compared to the same period in 2020, primarily driven by a $10.2 million increase in Medicare plan related variable advertising, $0.4 million in stock-based compensation expenses and $0.4 million in facilities and other costs, partially offset by decreases of $0.6 million in consulting expenses and $0.6 million in personnel and compensation costs.

The increase in variable advertising expense was due to an increase in our advertising expense per approved Medicare member, partially offset by a decline in the number of approved members during the quarter.

Nine Months Ended September 30, 2021 and 2020 – Marketing and advertising expenses increased $34.7 million, or 33%, during the nine months ended September 30, 2021 compared to the same period in 2020, primarily driven by a $36.1 million increase in Medicare plan related variable advertising and $1.8 million in stock-based compensation expenses, partially offset by decreases of $2.2 million in consulting expenses and $1.8 million in personnel and compensation costs.

Three Months Ended March 31, 2022 and 2021 – Marketing and advertising expenses increased $7.6 million, or 15%, during the three months ended March 31, 2022 compared to the same period in 2021, primarily driven by a $8.1 million increase in Medicare plan related variable advertising, $0.6 million in personnel and compensation costs, and $0.6 million in consulting expenses, partially offset by decreases of $2.2 million in stock-based compensation expenses.

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

1 unchanged sentence

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

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

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

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

Three Months Ended March 31, Change

2022 2021 $ %

1 unchanged sentence

% of total revenue 40 % 25 %

Three Months Ended September 30, 2021 and 2020 – Customer care and enrollment expenses increased $5.6 million, or 13%, during the three months ended September 30, 2021 compared to the same period in 2020, primarily due to increases of $15.1 million in personnel costs reflecting our investment in earlier onboarding of our internal telesales team and strengthening our resources in advance of the Medicare annual enrollment period as noted below and $1.9 million in facilities and other costs as well as a decline in telephonic conversion rates, partially offset by decreases of $8.4 million in external agents and consulting expenses, and $3.2 million in licensing costs.

Nine Months Ended September 30, 2021 and 2020 – Customer care and enrollment expenses increased $20.5 million, or 20%, during the nine months ended September 30, 2021 compared to the same period in 2020, primarily due to increases of $28.7 million in personnel costs reflecting our investment in earlier onboarding of our internal telesales team and strengthening our resources in advance of the Medicare annual enrollment period as noted below and $2.4 million in facilities and other costs, partially offset by decreases of $7.0 million in consulting expenses and $4.4 million in licensing costs.

The decrease in licensing costs was primarily due to previously over-recognized licensing costs that were adjusted during the first quarter of 2021.

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

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

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

In October 2021, we entered the annual enrollment period with over 95% of our sales force consisting of internal agents, the largest number of full-time agents in our company's history.

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

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

Three Months Ended March 31, 2022 and 2021 – Customer care and enrollment expenses increased $8.0 million, or 23%, during the three months ended March 31, 2022 compared to the same period in 2021, primarily due to increases of $7.9 million in personnel cost from increased headcount, $1.4 million in facilities and other costs, and $1.3 million in licensing costs, partially offset by decreases of $2.6 million in consulting expenses.

Technology and Content

2 unchanged sentences

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

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

Three Months Ended March 31, Change

2022 2021 $ %

1 unchanged sentence

% of total revenue 19 % 17 %

Three Months Ended September 30, 2021 and 2020 – Technology and content expenses increased $2.7 million, or 15%, during the three months ended September 30, 2021 compared to the same period in 2020 primarily driven by increases of $1.7 million in depreciation and amortization expenses, $1.0 million in stock-based compensation expense and $0.9 million in personnel and compensation costs due to higher headcount, partially offset by $0.6 million decrease in facilities and other operating costs and $0.3 million in consulting expenses.

Nine Months Ended September 30, 2021 and 2020 – Technology and content expenses increased $17.2 million, or 37%, during the nine months ended September 30, 2021 compared to the same period in 2020 primarily driven by increases of $6.8 million in personnel and compensation costs due to higher headcount, $4.5 million in stock-based compensation expense, $4.3 million in depreciation and amortization expenses, and $1.2 million in facilities and other operating costs.

Three Months Ended March 31, 2022 and 2021 – Technology and content expenses decreased $3.5 million, or 15%, during the three months ended March 31, 2022 compared to the same period in 2021 primarily driven by decreases of $1.4 million in personnel and compensation costs due to lower capitalized project costs, $1.4 million in facilities and other operating costs, $0.9 million in stock-based compensation expense, and $0.8 million in consulting costs, partially offset by an increase of $1.0 million in amortization of internally developed software.

General and Administrative

2 unchanged sentences

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

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

Three Months Ended March 31, Change

2022 2021 $ %

1 unchanged sentence

% of total revenue 19 % 17 %

Three Months Ended September 30, 2021 and 2020 – General and administrative expenses decreased $3.3 million, or 17%, during the three months ended September 30, 2021 compared to the same period in 2020, primarily driven by decreases of $2.7 million in stock-based compensation expenses, $1.8 million in personnel and compensation costs, and $0.5 million in consulting expenses, partially offset by an increase of $1.3 million in other professional fees.

Nine Months Ended September 30, 2021 and 2020 – General and administrative expenses decreased $2.5 million, or 4%, during the nine months ended September 30, 2021 compared to the same period in 2020, primarily driven by decreases of $3.3 million in stock-based compensation expenses, $2.4 million in personnel and compensation costs and $1.1 million in consulting expenses, partially offset by an increase of $2.7 million in other professional fees, $0.8 million in facilities and other operating costs and $0.5 million in depreciation and amortization expenses.

The decrease in stock-based compensation expenses for both three and nine months ended September 30, 2021 compared to the same periods in the prior year was primarily attributable to a $4.1 million credit related to forfeited equity awards due to our chief executive officer's separation.

Three Months Ended March 31, 2022 and 2021 – General and administrative expenses decreased $3.1 million, or 13%, during the three months ended March 31, 2022 compared to the same period in 2021, primarily driven by decreases of $3.0 million in stock-based compensation expenses, $0.6 million in facilities and other operating costs, and $0.6 million in consulting expenses, partially offset by an increase of $1.3 million in other professional fees.

Amortization of Intangible Assets

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

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

Three Months Ended March 31, Change

2022 2021 $ %

1 unchanged sentence

% of total revenue — % — %

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

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

Amortization expense decreased during the three months ended March 31, 2022 compared to the same periods in 2021 due to the impairment of our finite-lived intangible assets at December 31, 2021.

Restructuring and Reorganization Charges

1 unchanged sentence

Our restructuring and reorganization charges are summarized as follows (dollars in thousands):

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

Three Months Ended March 31, Change

2022 2021 $ %

1 unchanged sentence

% of total revenue 5 % 2 %

* Percentage calculated is not meaningful.

Three Months Ended September 30, 2021 and 2020 – Restructuring and reorganization charges for the three months ended September 30, 2021 consisted of the severance and other personnel related cost related to the separation arrangement with our chief executive officer in September 2021.

Nine Months Ended September 30, 2021 and 2020 – Restructuring and reorganization costs for the nine months ended September 30, 2021 primarily consisted of the severance and other personnel related cost related to the restructuring that took place in the first quarter of 2021.

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

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

In addition, we recognized severance and other personnel related costs related to our chief executive officer's separation as described above.

Three Months Ended March 31, 2022 and 2021 – Restructuring and reorganization costs for the three months ended March 31, 2022 primarily consisted of the severance and other personnel related cost related to the restructuring that took place in early second quarter of 2022.

We completed a reduction in force in April 2022 in which we eliminated approximately 339 full-time positions, representing approximately 14% of our workforce, primarily in within the customer care and enrollment groups, and to a lesser extent, in our marketing and advertising and general and administrative groups.

Other Income (Expense), Net

1 unchanged sentence

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

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

Three Months Ended March 31, Change

2022 2021 $ %

1 unchanged sentence

% of total revenue (1) % — %

Three Months Ended September 30, 2021 and 2020 – Other income (expense), net increased $0.3 million during the three months ended September 30, 2021 compared to the same period in 2020 due to multiple individually immaterial items.

Nine Months Ended September 30, 2021 and 2020 – Other income (expense), net decreased $0.2 million during the nine months ended September 30, 2021 compared to the same period in 2020 due primarily to a decrease in interest income.

Three Months Ended March 31, 2022 and 2021 – Other income (expense), net decreased $1.2 million during the three months ended March 31, 2022 compared to the same period in 2021 due primarily to interest expense for the Term Loan Credit Agreement entered in the first quarter of 2022 and expenses related to the termination of the RBC revolving credit facility at the same time.

Benefit from Income Taxes

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

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

Three Months Ended March 31, Change

2022 2021 $ %

Benefit from income taxes $ (12,834) $ (6,443) $ (6,391) 99 % $ (19,278) $ (10,923) $ (8,355) 76 %

Provision for (benefit from) income taxes $ (7,993) $ 308 $ (8,301) (2,695) %

Effective tax rate 19.6 % (62.6) %

Three Months Ended September 30, 2021 and 2020 – Our effective tax rate of 19.5% for the three months ended September 30, 2021 was lower compared to 30.8% for the three months ended September 30, 2020 primarily due to a decrease in excess tax benefits associated with stock-based compensation.

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

Nine Months Ended September 30, 2021 and 2020 – Our effective tax rate of 21.1% for the nine months ended September 30, 2021 was lower compared to 43.1% for the nine months ended September 30, 2020 primarily due to a decrease in excess tax benefits associated with stock-based compensation.

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

Three Months Ended March 31, 2022 and 2021 – Our effective tax rate of 19.6% for the three months ended March 31, 2022 was lower compared to (62.6)% for the three months ended March 31, 2021 primarily due to a one-time state tax adjustment in 2021 that did not occur in 2022.

Our effective tax rate for the three months ended March 31, 2022 was lower than the statutory federal tax rate due primarily to stock-based compensation adjustments and non-deductible lobbying expenses, partially offset by research and development credits and state taxes.

Segment Information

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

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

The performance measures of our segments include total revenue and profit (loss).

9 unchanged sentences

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

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

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

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

Three Months Ended March 31, Change

2022 2021 $ %

4 unchanged sentences

Medicare segment profit (loss) $ (14,817) $ 24,545 $ (39,362) (160) %

$ (52,882) $ (14,139) $ (38,743) 274 % $ (46,141) $ 23,993 $ (70,134) (292) %

Individual, Family and Small Business segment profit 5,254 8,052 (2,798) (35) %

12,499 18,487 (5,988) (32) % 38,476 24,153 14,323 59 %

Total segment profit (loss) (40,383) 4,348 (44,731) (1,029) % (7,665) 48,146 (55,811) (116) %

Segment profit (loss) (9,563) 32,597 (42,160) (129) %

Corporate (15,265) (15,286) 21 *

5 unchanged sentences

Other income (expense), net (1,021) 150 (1,171) (781) %

Loss before benefit from income taxes $ (65,848) $ (20,948) $ (44,900) 214 % $ (91,501) $ (25,346) $ (66,155) 261 %

Loss before income taxes $ (40,735) $ (492) $ (40,243) 8179 %

* Percentage calculated is not meaningful.

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

The amortization of capitalized software development costs were $3.4 million and $2.1 million for the three months ended September 30, 2021 and 2020, respectively, and were $9.1 million and $5.3 million for the nine months ended September 30, 2021 and 2020, respectively.

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

Three Months Ended September 30, 2021 and 2020 – Revenue from our Medicare segment declined $24.0 million, or 34%, during the three months ended September 30, 2021 compared to the same period in 2020, primary attributable to a $15.2 million decrease in sponsorship and advertising revenue and an $8.8 million decrease in commission revenue.

Revenue from our Individual, Family and Small Business segment declined $6.4 million, or 27%, during the three months ended September 30, 2021 compared to the same period in 2020, primarily attributable to a $7.0 million decrease in net adjustment revenue.

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.

Based on our evaluation of the updated LTV models and retention trends, we recognized $10.0 million in net adjustment revenue during the three months ended September 30, 2021, compared to $17.1 million recognized in the same period in 2020.

Nine Months Ended September 30, 2021 and 2020 – Revenue from our Medicare segment declined $6.3 million, or 3%, during the nine months ended September 30, 2021 compared to the same period in 2020, primary attributable to a $16.2 million decrease in sponsorship and advertising revenue, partially offset by a $10.0 million increase in commission revenue.

The increase in Medicare segment commission revenue is primarily driven by an increase in Medicare Advantage plan related commission revenue of $40.4 million, partially offset by a $20.7 million decrease in net adjustment revenue which was largely attributable to our Medicare Part D prescription drug plans and a decline in the LTV of Medicare Supplement and Medicare Part D prescription drug plans.

The increase in Medicare Advantage commission revenue was driven by 30% growth in Medicare Advantage plan approved members.

Revenue from our Individual, Family and Small Business segment grew $11.5 million, or 27%, during the nine months ended September 30, 2021 compared to the same period in 2020, primarily attributable to a $12.1 million increase in commission revenue.

Based on our evaluation of the updated LTV models and retention trends, we recognized $29.1 million in net adjustment revenue, an increase of $8.6 million during the nine months ended September 30, 2021 compared to the same period in 2020.

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

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

Three Months Ended March 31, 2022 and 2021 – Revenue from our Medicare segment declined $26.0 million, or 21%, during the three months ended March 31, 2022 compared to the same period in 2021, attributable to a $27.8 million decrease in commission revenue, partially offset by a $4.4 million increase in sponsorship and advertising revenue.

The decrease in Medicare segment commission revenue is primarily due to a decrease in Medicare Advantage plan related commission revenue of $25.4 million.

The decrease in Medicare Advantage commission revenue was driven by 23% decline in Medicare Advantage plan approved members.

Revenue from our Individual, Family and Small Business segment declined $3.0 million, or 23%, during the three months ended March 31, 2022 compared to the same period in 2021, primarily attributable to a $3.0 million decrease in commission revenue.

Based on our evaluation of the updated LTV models and retention trends, we recognized $0.4 million in net adjustment revenue, a decrease of $2.8 million during the three months ended March 31, 2022 compared to the same period in 2021.

The decrease in commission revenue is attributable to a decline of 28% in ancillary approved members and a decline of 13% in individual and family approved members.

Segment Profit (Loss)

Three Months Ended September 30, 2021 and 2020 – Our Medicare segment loss was $52.9 million during the three months ended September 30, 2021, an increase of $38.7 million, or 274%, compared to segment loss of $14.1 million for the same period in 2020.

This was primarily due to a $24.0 million decrease in revenue and a $14.8 million increase in operating expenses, excluding stock-based compensation expense, depreciation and amortization expenses, amortization of intangible assets, and restructuring and reorganization charges.

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

These investments were made in preparation for the annual enrollment period in the fourth quarter.

Our Individual, Family and Small Business segment profit was $12.5 million during the three months ended September 30, 2021, a decrease of $6.0 million, or 32% compared to the same period in 2020.

The decrease was primarily driven by a $6.4 million decrease in revenue and a $0.4 million decrease in operating expenses, excluding stock-based compensation expense, depreciation and amortization expenses, amortization of intangible assets, and restructuring and reorganization charges.

Nine Months Ended September 30, 2021 and 2020 – Our Medicare segment loss was $46.1 million during the nine months ended September 30, 2021, a decrease of $70.1 million, or 292%, compared to segment profit of $24.0 million for the same period in 2020.

This was primarily due to a $63.9 million increase in operating expenses, excluding stock-based compensation expense, depreciation and amortization expenses, amortization of intangible assets, and restructuring and reorganization charges, as well as a $6.3 million decrease in revenue.

The increase in operating expenses was mostly attributable to our enrollment quality initiatives and our investments in preparation for the annual enrollment period in the fourth quarter.

Our Individual, Family and Small Business segment profit was $38.5 million during the nine months ended September 30, 2021, an increase of $14.3 million, or 59% compared to the same period in 2020.

The increase was primarily driven by a $11.5 million increase in revenue and a $2.8 million decrease in operating expenses, excluding stock-based compensation expense, depreciation and amortization expenses, amortization of intangible assets, and restructuring and reorganization charges.

Three Months Ended March 31, 2022 and 2021 – Our Medicare segment loss was $14.8 million during the three months ended March 31, 2022, a decrease of $39.4 million, or 160%, compared to segment profit of $24.5 million for the same period in 2021.

This was primarily due to a $13.4 million increase in operating expenses, excluding stock-based compensation expense, depreciation and amortization expense, restructuring and reorganization charges, and other income (expense), as well as a $26.0 million decrease in revenue.

The increase in operating expenses was mostly attributable to a higher agent work force in 2022 compared to the prior year as well as higher spending on certain marketing channels, especially online marketing.

Our Individual, Family and Small Business segment profit was $5.3 million during the three months ended March 31, 2022, a decrease of $2.8 million, or 35% compared to the same period in 2021.

The decrease was primarily driven by a $3.0 million decrease in revenue and a $0.2 million decrease in operating expenses, excluding

stock-based compensation expense, depreciation and amortization expense, restructuring and reorganization charges, and other income (expense).

Liquidity and Capital Resources

Material Cash Requirements

Our material cash requirements include our operating leases and service and licensing obligations.

See Note 10 – Leases in our Notes to Condensed Consolidated Financial Statements for the details of our operating lease obligations.

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

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

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

See Note 8 – Commitments and Contingencies in ou r Notes to Condensed Consolidated Financial Statements.

Short-term obligations were $7.7 million for leases and $10.4 million for service and licensing as of March 31, 2022.

Long-term obligations were $41.4 million for leases and $8.9 million for service and licensing as of March 31, 2022.

We expect to fund these obligations through our existing cash and cash equivalents and cash generated from operations.

Our future capital requirements will depend on many factors, including our enrollment volume, membership, retention rates, telesales conversion rates, and our level of investment in technology and content, marketing and advertising, customer care and enrollment, and other initiatives.

In addition, our cash position could be impacted by the level of investments we make to pursue our strategy.

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

Alternatively, we may decide to reduce expenses in order to manage liquidity.

These reductions could adversely impact the growth of membership and revenue.

We believe our current cash and cash equivalents, along with the proceeds from the term loan we obtained on February 28, 2022, and expected cash collections will be sufficient to fund our operations for at least 12 months after the filing date of this Quarterly Report on Form 10-Q.

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Cash and cash equivalents $ 220,563 $ 81,926

1 unchanged sentence

Total cash, cash equivalents, and short-term marketable securities $ 231,501 $ 123,232

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

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

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

While we recognize constrained LTV as revenue at the time applications are approved, our collection of the cash commissions resulting from approved applications generally occurs over a number of years.

6 unchanged sentences

These reductions could adversely impact our rate of membership and revenue growth.

As of September 30, 2021, our cash and cash equivalents totaled $157.5 million.

As of March 31, 2022, our cash and cash equivalents totaled $220.6 million.

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

The increase in cash and cash equivalents reflects $210.9 million of net cash provided by financing activities, partially offset by $60.3 million of net cash used in operating activities and $36.8 million of net cash used in investing activities.

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

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

Nine Months Ended September 30,

Net cash used in operating activities $ (60,321) $ (10,959)

Net cash used in investing activities (36,822) (128,291)

Net cash provided by financing activities 210,914 203,555

The increase in cash and cash equivalents reflects $65.4 million of net cash provided by financing activities, partially offset by $47.1 million of net cash provided by operating activities and $26.1 million of net cash provided by investing activities.

We also maintained $3.2 million in restricted cash as of March 31, 2022 and December 31, 2021.

The following table presents a summary of our cash flows for the three months ended March 31, 2022 (in thousands):

Three Months Ended March 31,

Net cash provided by operating activities $ 47,112 $ 42,809

Net cash provided by investing activities 26,121 10,497

Net cash provided by (used in) financing activities 65,373 (4,790)

Operating Activities

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

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

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

3 unchanged sentences

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

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

enrollment periods.

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

Nine Months Ended September 30, 2021 – Net cash used in operating activities was $60.3 million during the nine months ended September 30, 2021, primarily driven by net loss of $72.2 million and changes in net operating assets and liabilities of $7.0 million, partially offset by adjustments for non-cash items of $18.9 million.

Adjustments for non-cash items primarily consisted of $24.9 million of stock-based compensation expense, $9.6 million of amortization of intangible assets and internally-developed software, and $3.7 million of depreciation and amortization, partially offset by a $20.1 million decrease due to the change in deferred income taxes.

Cash used from changes in net operating assets and liabilities during the nine months ended September 30, 2021 primarily consisted of decreases of $26.9 million in accounts payable, $6.5 million in accrued marketing expense, increases of $20.8 million in prepaid expenses and other current asset, and decreases in $0.1 million in accrued compensation and benefits, partially offset by decreases of $35.2 million in contract assets – commissions receivable, increases of $10.2 million in deferred revenue and $1.4 million in accrued expenses and other liabilities.

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

Adjustments for non-cash items primarily consisted of $21.7 million of stock-based compensation expense, $6.5 million of amortization of intangible assets and internally developed software, and $2.6 million of depreciation and amortization, partially offset by an $11.0 million change in deferred income taxes.

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

Three Months Ended March 31, 2022 – Net cash provided by operating activities was $47.1 million during the three months ended March 31, 2022, primarily driven by changes in net operating assets and liabilities of $77.6 million and adjustments for non-cash items of $2.2 million, partially offset by a net loss of $32.7 million.

Adjustments for non-cash items primarily consisted of $5.3 million of stock-based compensation expense and $3.8 million of amortization of intangible assets and internally-developed software, partially offset by an $8.0 million decrease due to the change in deferred income taxes.

Cash provided by changes in net operating assets and liabilities during the three months ended March 31, 2022 primarily consisted of decreases of $77.1 million in contract assets – commissions receivable, $12.4 million in prepaid expenses and other current asset, and increases of $4.8 million in accrued expenses and other liabilities, partly offset by decreases of $16.8 million in accrued marketing expense and $5.5 million in accounts payable.

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

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

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

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

Investing Activities

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

Nine Months Ended September 30, 2021 – Net cash used in investing activities of $36.8 million for the nine months ended September 30, 2021 mainly consisted of $89.0 million used to purchase marketable securities, $12.6 million in capitalized internal-use software and website development costs and $3.6 million used to purchase property and equipment and other assets, partially offset by $68.3 million proceeds from the maturities and redemptions of marketable securities.

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

Three Months Ended March 31, 2022 – Net cash provided by investing activities of $26.1 million for the three months ended March 31, 2022 mainly consisted of $34.3 million proceeds from the maturities and redemptions of marketable securities, partially offset by $4.2 million in capitalized internal-use software and website development costs and $3.9 million used to purchase marketable securities.

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

Financing Activities

Nine Months Ended September 30, 2021 – Net cash provided by financing activities of $210.9 million for the nine months ended September 30, 2021 was primarily due to $214.0 million net proceeds from issuance of convertible preferred stock and $5.0 million net proceeds from exercise of common stock options, partially offset by $8.0 million in repurchases of shares to satisfy employee tax withholding obligations.

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

Three Months Ended March 31, 2022 – Net cash provided by financing activities of $65.4 million for the three months ended March 31, 2022 was primarily due to $64.9 million of net proceeds from debt financing and $1.1 million of net proceeds from the exercise of common stock options, partially offset by $0.5 million in repurchases of shares to satisfy employee tax withholding obligations.

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

Convertible Preferred Stock

8 unchanged sentences

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

As of September 30, 2021, no shares of the Series A preferred stock have been converted and the balance of our Series A preferred stock was $225.4 million, including a change in the redemption value of $3.8 million and the accrued paid-in-kind dividends of $7.6 million, which was equivalent to 2.9 million shares of common stock on an as-converted basis.

As of March 31, 2022, no shares of the Series A preferred stock have been converted and the balance of our Series A preferred stock was $239.8 million, including a change in the redemption value of $2.5 million and the accrued paid-in-kind dividends of $4.7 million, which was equivalent to 3.0 million shares of common stock on an as-converted basis.

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

Credit Agreement

We entered into a credit agreement with Royal Bank of Canada (“RBC”) as administrative agent and collateral agent, (the “Credit Agreement”) in September 2018.

The Credit Agreement provides for a $40.0 million secured asset-backed revolving credit facility with a $5.0 million letter of credit sub-facility.

On December 20, 2019, we amended our revolving credit facility agreement with RBC (the “Amendment”) and increased the maximum borrowing amount to $75.0 million and extended the expiration to December 20, 2022.

The borrowing base under the Credit Agreement is comprised of an amount equal to (a) the lesser of (i) eighty percent (80%) of Eligible Commissions Receivables (as defined in the Credit Agreement) we actually collected during the immediately

preceding period of three months or (ii) eighty percent (80%) of our Eligible Commission Receivables for the immediately succeeding period of three months, plus (b) fifty percent (50%) of our Eligible Commission Receivables for the immediately succeeding period of six months (excluding the immediately succeeding period of three months), in each case subject to reserves established by RBC (the “Borrowing Base”).

The proceeds of the loans under the Credit Agreement may be used for working capital and general corporate purposes.

We have the right to prepay the loans under the Credit Agreement in whole or in part at any time without penalty.

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

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

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

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

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

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

Term Loan Credit Agreement

We entered into a term loan credit agreement (the "Term Loan Credit Agreement") with Blue Torch Finance LLC, as administrative agent and collateral agent, and the other lenders party thereto in February 2022.

The Term Loan Credit Agreement provides for a $70.0 million secured term loan credit facility, which term loans were made available to us on February 28, 2022.

We terminated our credit agreement with Royal Bank of Canada ("RBC"), pursuant to which we had an up to $75 million revolving credit facility in connection with our receiving the loan under the Term Loan Credit Agreement.

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

The term loan bears interest, at our option, at either a rate based on the London Interbank Offered Rate ("LIBOR") for the applicable interest period or a base rate, in each case plus a margin.

The base rate is the highest of the prime rate, the federal funds rate plus 0.50% and one month adjusted LIBOR plus 1.0%.

The margin is 7.50% for LIBOR loans and 6.50% for base rate loans and the Term Loan Credit Agreement includes customary "fallback" provisions with respect to potential

transition from the LIBOR.

The outstanding obligations under the Term Loan Credit Agreement are payable in full on the maturity date.

The Term Loan Credit Agreement matures in February of 2025.

We have the right to prepay the loans under the Term Loan Credit Agreement in whole or in part at any time, subject, in the case of certain mandatory prepayments or any voluntary prepayment of the loans under the Term Loan Credit Agreement after February 28, 2023, to an exit fee.

Our obligations under the Term Loan Credit Agreement are guaranteed by certain of our material domestic subsidiaries and substantially all of our assets and the assets of such guarantors, in each case, subject to customary exclusions.

We are obligated to pay administration fees in connection with the Term Loan Credit Agreement.

As of March 31, 2022, we had $65.0 million outstanding principal amount under our Term Loan Credit Agreement, net of closing costs.

See Note 12 – Debt of Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional information regarding this credit agreement and subsequent amendment.

Common Stock Issuance

Pursuant to an effective registration statement that was filed on December 17, 2018, and amended on January 22, 2019 and March 2, 2020, we entered into an underwriting agreement in March 2020 to issue a total of 2,070,000 shares of common stock, which included the exercise in full of the underwriters’ option to purchase 270,000 additional shares of common stock, at a price to the public of $115.00 per share.

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

Contractual Obligations and Commitments

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

See Note 10 – Leases in the Notes to Condensed Consolidated Financial Statements for information about our operating lease obligations.

See Note 8 – Commitments and Contingencies in the Notes to Condensed Consolidated Financial Statements for the information about our non-cancellable contractual service and licensing obligations .

Off-Balance Sheet Arrangements

As of September 30, 2021, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues, or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.

Recent Accounting Pronouncements

1 unchanged sentence

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis