What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-08 compared with 2023-05-09 · 211 added, 149 removed, 287 unchanged (56% of the section changed)

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Our omnichannel consumer engagement platform differentiates our offering from other brokers and enables consumers to use our services online, by telephone with a licensed insurance agent or through a hybrid online assisted interaction that includes live agent chat and co-browsing capabilities.

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, 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.

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In 2022, we purposefully slowed down our enrollment volume and revenue growth as we worked to implement a number of transformation initiatives aimed at increasing the effectiveness of our sales and marketing organizations and further enhancing consumer experience, as well as rationalizing our cost structure.

As a result, we entered the first quarter of 2023 on a significantly improved cost foundation compared to the same period prior year.

In the first quarter of 2023, we continued to execute our multi-year transformation plan with an emphasis on enrollment quality, member experience, and engagement built around audience segmentation and targeting, differentiated messaging based on our unique value proposition and gradual scaling of our direct and strategic partner marketing channels as we reduce our reliance on lead aggregators.

Over the last several months, we have achieved significant improvement in our conversion rates, member retention and Complaint Tracking Module scores.

We plan to continue improving customer experience and conversion rates across our entire omnichannel platform, driven by continued agent and technology enhancements.

We continue to leverage our technology leadership, carrier relationships and distribution capabilities to pursue the diversification of our business and revenue base, which will include investing for growth in existing product lines outside of the core Medicare Advantage broker-of-record business, as well as adding new products and services and accessing adjacent markets within the broader health insurance industry.

As a result, we entered 2023 on a significantly improved cost foundation compared to the same period prior year.

During the first six months of 2023, we continued to execute on our multi-year transformation plan with an emphasis on enrollment quality, member experience, engagement built around audience segmentation and targeting, differentiated messaging based on our unique value proposition and gradual scaling of our direct and strategic partner marketing channels as we reduce our reliance on lead aggregators.

Over the last several months, we have achieved significant improvement in our conversion rates, member retention and Complaint Tracking Module (“CTM”) scores.

As a result of positive retention dynamics and the favorable commissions environment of the past two years, we recognized $18.7 million in positive net adjustment revenue across most products during the second quarter of 2023.

Beginning in the second quarter of 2022, we substantially reduced our agent headcount as we began to implement our transformation plan.

As a result, our agent headcount was significantly lower at the beginning of the second quarter of 2023 compared to the same point in time prior year.

During the second quarter of 2023, we began to scale our agent headcount in preparation for the 2024 annual enrollment period when we expect to resume Medicare enrollment growth year over year.

Most of our agent hiring has been finalized as of the end of July, and agent training is underway.

We are also in the process of implementing our branding and demand generation strategies planned for the 2024 annual enrollment period launch and have started the initial marketing investment ramp up ahead of the fourth quarter of 2023.

Summary of Selected Metrics

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Three Months Ended

March 31, % Change

June 30, % Change Six Months Ended

June 30, % Change

2023 2022 2023 2022

Medicare Advantage 35,597 51,506 (31) % 96,048 133,937 (28) %

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Total Approved Members 60,768 84,135 (28) % 158,344 211,230 (25) %

Three Months Ended March 31, 2023 and 2022 – Total Medicare approved members decreased 28% in the three months ended March 31, 2023 compared to the same period in 2022.

This decrease was attributable to a decline in approved members across all Medicare products that we market including Medicare Advantage, Medicare Supplement, and Medicare Part D prescription drug plans.

This decline was driven primarily by a decrease in submitted applications as a result of reduced member acquisition spend including marketing and customer care and enrollment compared to the same period prior year as we focused on enrollments with the highest unit margins and de-emphasized unprofitable channels.

Individual and family plan approved members grew 3% in the three months ended March 31, 2023 compared to the same period in 2022 primarily due to a 20% increase in non-qualified health plans from individual coverage health reimbursement arrangement opportunities in 2023.

Ancillary product approved members declined 12% in the three months ended March 31, 2023 compared to the same period in 2022 primarily due to declines in approved members across most ancillary insurance products.

Small business group health insurance approved members declined 23% in the three months ended March 31, 2023 compared to the same period in 2022 reflecting the continued shift of our focus away from the sale of small business products.

Three Months Ended June 30, 2023 and 2022 – Total Medicare approved members declined 30% during the three months ended June 30, 2023 compared to the same period in 2022, reflecting a decline across all Medicare products that we market, including Medicare Advantage, Medicare Supplement and Medicare Part D prescription drug plans.

This decline was driven by the decrease in submitted applications as a result of reduced member acquisition spend, including marketing, as we focused on implementing operational enhancements to our sales and marketing organizations with a plan to resume enrollment growth in the fourth quarter on a significantly improved operational and cost foundation.

Individual and family plan approved members declined 7% during the three months ended June 30, 2023 compared to the same period in 2022.

Ancillary product approved members declined 29% during the three months ended June 30, 2023 compared to the same period in 2022 driven by declines in approved members across all ancillary insurance products that are typically cross sold with new individual and family plan enrollments and lower overall volume.

Small business group health insurance approved members increased 8% during the three months ended June 30, 2023 compared to the same period in 2022.

Six Months Ended June 30, 2023 and 2022 – Total Medicare approved members declined 29% during the six months ended June 30, 2023 compared to the same period in 2022, reflecting a decline across all Medicare

products that we market.

This decline was driven by a decrease in submitted applications as a result of reduced member acquisition spend, including marketing and customer care and enrollment, as we focused on implementing operational enhancements to our sales and marketing organizations with a plan to resume enrollment growth in the fourth quarter on a significantly improved operational and cost foundation.

Individual and family plan approved members remained flat during the six months ended June 30, 2023 compared to the same period in 2022 due to a 4% increase in non-qualified health plans, partially offset by a 5% decrease in qualified health plans.

The increase in non-qualified health plans was driven by individual coverage health reimbursement arrangement opportunities in 2023, partially offset by a decrease in submitted applications.

Ancillary product approved members declined 20% during the six months ended June 30, 2023 compared to the same period in 2022, reflecting declines in approved members across all ancillary insurance products that are typically cross sold with new individual and family plan enrollments and lower overall volume.

Small business group health insurance approved members declined 10% during the six months ended June 30, 2023 compared to the same period in 2022 due to lower conversion rates.

Estimated Constrained Lifetime Value of Commissions Per Approved Member

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Three Months Ended

March 31, % Change

June 30, % Change

Medicare (1) (2)

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For additional information on constrained LTV, see “ Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2022.

(2) The constraints for all Medicare products remained the same during the three months ended March 31, 2023, as compared to the same period in the prior year.

The constrained LTV of commissions per approved member declined by 5% for all Medicare product plans during the three months ended March 31, 2023 compared to the same period in 2022.

The decrease was driven primarily by lower retention in all products, partially offset by increased contracted rates and improved quality metrics.

(2) The constraints for all Medicare products remained the same during the three months ended June 30, 2023, as compared to the same period in the prior year.

The constrained LTV of commissions per approved member increased by 1% and 12% for Medicare Advantage and Medicare Part D product plans, respectively, during the three months ended June 30, 2023 compared to the same period in 2022.

The increase in Medicare Advantage was primarily driven by favorable retention, partially offset by unfavorable commission rates due to carrier mix.

The increase in Medicare Part D was primarily driven by favorable retention.

The constrained LTV of commissions per approved member for Medicare Supplement decreased 4% compared to the same period in 2022 primarily driven by unfavorable commission rates due to carrier mix.

Individual and Family, Ancillary and Small Business

The constrained LTV of commissions per non-qualified health plan approved member increased 21% and qualified health plan approved member increased 28% during the three months ended March 31, 2023 compared to the same period in 2022.

The increase was primarily due to more stable retention observations and an increase in estimated average plan duration.

The constrained LTV of commissions per approved member for short-term, dental, vision, and small business insurance plans increased by 3%, 6%, 13% and 18%, respectively, during the three months ended March 31, 2023 compared with the same period in 2022 due to improved retention.

The increase for small business was also due to higher commissions per group.

The constrained LTV of commissions per non-qualified approved member and per qualified approved member increased 1% and 5%, respectively, during the three months ended June 30, 2023 compared to the same period in 2022.

The increase in constrained LTV of commissions per non-qualified approved member was due to an increase in paying approved applications, partially offset by unfavorable commission rates.

The increase in constrained LTV of commissions per qualified approved member was due to a more favorable cohort mix.

The constrained LTV of commissions per approved member for vision plans increased 10% during the three months ended June 30, 2023 compared with the same period in 2022 due to favorable commission rate trends.

The constrained LTV of commissions per approved member for short-term plans decreased by 4% during the three months ended June 30, 2023 compared to the same period in 2022 primarily due to unfavorable commission rates.

Small business constrained LTV of commissions per approved member increased 14% compared to the same period in 2022 driven by an increase in cash collections.

Estimated Membership

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The following table shows estimated membership as of the periods presented below:

As of March 31, % Change

As of June 30, % Change

Medicare Advantage 572,799 589,553 (3) %

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__________________

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

(1) To estimate the number of members on Medicare-related, individual and family, and ancillary health insurance plans, we take the respective sum of:

(i) the number of members for whom we have received or applied a commission payment for a month that may be up to three months prior to the date of estimation (after reducing that number using historical experience for assumed member cancellations over the period being estimated);

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).

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

Conversely, carriers may require us to return commission payments paid in a prior

period due to policy cancellations for members we previously estimated as being active.

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

We do not update our estimated membership numbers reported in previous periods.

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

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

As a result of the delay, we experience in receiving information about our membership, it is difficult for us to determine with any certainty the impact of current conditions on our membership retention.

As a result of the delay in our receipt of information from insurance carriers, actual trends in our membership are most discernible over periods longer than from one quarter to the next, making it difficult for us to determine with any certainty the impact of current conditions on our membership retention.

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.

Total Medicare estimated membership as of March 31, 2023 decreased 2% compared to estimated membership as of March 31, 2022 due to a decline across all Medicare products.

The overall decline in Medicare estimated membership was primarily due to a decrease in overall Medicare approved applications.

Individual and family plan estimated membership as of March 31, 2023 declined 6% compared to estimated membership as of March 31, 2022 due to a decrease in applications.

Ancillary plan estimated membership as of March 31, 2023 declined 10% compared to estimated membership as of March 31, 2022 primarily as a result of the decline in applications across all ancillary plans.

Total Medicare estimated membership as of June 30, 2023 decreased 4% compared to estimated membership as of June 30, 2022 due to a decline across all Medicare products.

The overall decline in Medicare estimated membership was primarily due to a decrease in overall Medicare approved applications as we temporarily reduced our investment in demand generation initiatives.

Individual and family plan estimated membership as of June 30, 2023 declined 12% compared to estimated membership as of June 30, 2022 due to a decrease in applications.

Ancillary plan estimated membership as of June 30, 2023 declined 13% compared to estimated membership as of June 30, 2022 primarily as a result of the decline in applications across all ancillary plans.

Member Acquisition

Marketing initiatives are an important component of our strategy to increase revenue and are primarily designed to encourage consumers to complete an application for health insurance.

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

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

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

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

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

Advantage, Medicare Supplement and Medicare Part D prescription drug plans (collectively, the “Medicare Plans”) and for all individual and family major medical plans and short-term health insurance plans (collectively, “IFP Plans”), respectively.

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

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Three Months Ended

March 31, % Change

June 30, % Change

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

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Variable marketing cost per IFP-equivalent approved member (2)

56 102 (45) %

Total acquisition cost per IFP-equivalent approved member $ 308 $ 251 23 %

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We calculate the number of IFP-equivalent approved 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 periods presented.

CC&E cost per MA-equivalent approved member decreased 15% in the three months ended March 31, 2023 compared to the same period in 2022.

Variable marketing cost per MA-equivalent approved member decreased 27% compared to the same period in 2022.

These decreases were primarily attributable to improvements to our sales and marketing operations and our cost reduction initiatives, which began subsequent to the first quarter of 2022.

These optimizations have enabled improved agent performance at a lower cost resulting in higher lead conversion rates.

CC&E cost per IFP-equivalent approved member increased 38% in the three months ended March 31, 2023 compared to the same period in 2022 primarily due to our increased investment in individual coverage health reimbursement arrangements and state exchange opportunities.

Variable marketing cost per IFP-equivalent approved member decreased 18% in the three months ended March 31, 2023 compared to the same period in 2022 primarily due to lower marketing spend as part of our cost reduction initiatives.

CC&E cost per MA-equivalent approved member increased 59% in the three months ended June 30, 2023 compared to the same period in 2022.

The increase is primarily driven by a $6.0 million increase in costs associated with the hiring and training of new agents during the second quarter of 2023 in preparation for the 2024 annual enrollment period.

Such agents are primarily engaged in training and did not generate approved members for a majority of the quarter.

Additionally, the increase in CC&E cost per MA-equivalent approved member was partially due to the overall decrease in Medicare approved members in the second quarter of 2023 as compared to the same period in 2022 as we focused on implementing operational enhancements to our sales and marketing organizations.

Variable marketing cost per MA-equivalent approved member decreased 3% compared to the same period in 2022 primarily attributable to improved telesales conversion rates as well as our cost reduction initiatives which began in 2022.

CC&E cost per IFP-equivalent approved member increased 69% in the three months ended June 30, 2023 compared to the same period in 2022.

The increase was primarily due to our increased investment in IFP plans, including individual coverage health reimbursement arrangements and state exchange opportunities, as well as a decline in approved members in the current period compared to the same period last year.

Variable marketing cost per IFP-equivalent approved member decreased 45% in the three months ended June 30, 2023 compared to the same period in 2022 primarily due to lower marketing spend as a result of our cost reduction initiatives.

Critical Accounting Policies and Estimates

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To the extent there are material differences between our estimates and the actual results, our future consolidated results of comprehensive income (loss) 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

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:

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• Accounting for Income Taxes.

There have been no changes to our critical accounting policies and estimates described in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 1, 2023, 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, 2022, filed with the Securities and Exchange Commission on March 1, 2023, 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, 2022, for a complete discussion of our other critical accounting policies and estimates.

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Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Commission $ 60,186 90 % $ 47,835 95 % $ 128,189 91 % $ 141,685 91 %

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Loss from operations (26,152) (39) % (45,473) (90) % (49,046) (35) % (85,187) (55) %

Other expense, net (592) (1) % (1,021) (1) %

Other income (expense), net 108 — % (1,167) (2) % (484) — % (2,188) (1) %

Loss before income taxes (26,044) (39) % (46,640) (93) % (49,530) (35) % (87,375) (56) %

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Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Marketing and advertising $ 538 $ 428 $ 993 $ 741

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Three Months Ended

March 31, Change

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June 30, Change

2023 2022 $ % 2023 2022 $ %

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Total revenue $ 66,768 $ 50,409 $ 16,359 32 % $ 140,491 $ 155,659 $ (15,168) (10) %

Three Months Ended March 31, 2023 and 2022 – Commission revenue decreased $25.8 million, or 28%, during the three months ended March 31, 2023 compared to the same period in 2022 due to a $27.7 million, or 33%, decrease in commission revenue from the Medicare segment, partially offset by a $1.8 million, or 19%, increase in Individual, Family and Small Business segment commission revenue.

The decrease in commission revenue from the Medicare segment was driven by a 28% decline in overall Medicare plan approved members, specifically a 27% decline in Medicare Advantage plan approved members compared to the same period in 2022.

The increase in commission revenue from the Individual, Family and Small Business segment was primarily driven by an increase in lifetime values, a 3% increase in individual and family plan approved members and $1.5 million in net adjustment revenue from prior period enrollments for the three months ended March 31, 2023 compared to $0.4 million for the same period in 2022, partially offset by a 12% decline in ancillary product approved members.

Three Months Ended June 30, 2023 and 2022 – Commission revenue increased $12.4 million, or 26%, during the three months ended June 30, 2023 compared to the same period in 2022 due to a $10.3 million, or 26%, increase in commission revenue from the Medicare segment and a $2.0 million, or 23%, increase in Individual, Family and Small Business segment commission revenue.

The increase in commission revenue from the Medicare segment was driven by $13.4 million in net adjustment revenue from prior period enrollments for the three months ended June 30, 2023 compared to $(10.8) million in net adjustment revenue for the same period in 2022.

This was partially offset by a 30% decline in overall Medicare plan approved members, specifically a 31% decline in Medicare Advantage plan approved members compared to the same period in 2022.

The increase in net adjustment revenue reflects positive retention dynamics, and the favorable commissions environment of the past two years.

The increase in commission revenue from the Individual, Family and Small Business segment was primarily due to an increase in LTV and $5.3 million in net adjustment revenue from prior period enrollments for the three months ended June 30, 2023 compared to $2.1 million in net adjustment revenue for the same period in 2022, partially offset by a 29% and 7% decline in ancillary product and individual and family plan approved members, respectively.

See Summary of Selected Metrics above and Segment Information below for further discussion.

Other revenue decreased $5.7 million, or 50%, during the three months ended March 31, 2023 compared to the same period in 2022 due to a decrease in advertising revenue.

Other revenue increased $4.0 million, or 156%, during the three months ended June 30, 2023 compared to the same period in 2022 due to an increase in advertising revenue.

Six Months Ended June 30, 2023 and 2022 – Commission revenue decreased $13.5 million, or 10%, during the six months ended June 30, 2023 compared to the same period in 2022 due to a $17.3 million, or 14%, decrease in commission revenue from the Medicare segment, partially offset by a $3.8 million, or 21%, increase in Individual, Family and Small Business segment commission revenue.

The decrease in commission revenue from the Medicare segment was driven by a 29% decline in overall Medicare plan approved members, specifically a 28% decline in Medicare Advantage plan approved members compared to the same period in 2022, as we temporarily pulled back on member acquisition spend.

This decrease in commission revenue was partially offset by $13.5 million in net adjustment revenue from prior period enrollments for the six months ended June 30, 2023 compared to $(10.7) million in net adjustment revenue for the same period in 2022.

The increase in net adjustment revenue reflects positive retention dynamics and the favorable commissions environment of the past two years.

The increase in commission revenue from the Individual, Family and Small Business segment was primarily due to $6.8 million in net adjustment revenue from prior period enrollments for the six months ended June 30, 2023 compared to $2.5 million in net adjustment revenue for the same period in 2022, partially offset by a 20% decline in ancillary product approved members.

See Summary of Selected Metrics above and Segment Information below for further discussion.

Other revenue decreased $1.7 million, or 12%, during the six months ended June 30, 2023 compared to the same period in 2022 due to a decrease in advertising revenue.

Cost of Revenue

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Three Months Ended

March 31, Change

June 30, Change Six Months Ended

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% of total revenue — % 1 % — % — %

Three Months Ended March 31, 2023 and 2022 – Cost of revenue increased by $0.3 million during the three months ended March 31, 2023, compared to the same period in 2022, primarily due to increased activity from our revenue sharing arrangements.

Three Months Ended June 30, 2023 and 2022 – Cost of revenue decreased by $0.2 million during the three months ended June 30, 2023, compared to the same period in 2022, primarily due to decreased activity from our revenue sharing arrangements.

Six Months Ended June 30, 2023 and 2022 – Cost of revenue increased by $0.2 million during the six months ended June 30, 2023, compared to the same period in 2022, primarily due to increased activity from our revenue sharing arrangements.

Marketing and Advertising

Marketing and advertising expenses consist primarily of member acquisition expenses associated with our direct, marketing partner and online advertising member acquisition channels, in addition to compensation and other expenses related to marketing, business development, partner management, public relations and carrier relations personnel who support our offerings.

We recognize expenses in our direct member acquisition channel in the period

in which they are incurred.

Marketing and advertising expenses consist primarily of member acquisition expenses directly associated with our marketing partner and online advertising member acquisition channels, in addition to compensation and other expenses related to marketing, business development, partner management, public relations and carrier relations personnel who support our offerings.

We recognize expenses in our direct member acquisition channel in the period in which they are incurred.

We generally compensate our marketing partners for referrals based on the consumer submitting a health insurance application on our platform, regardless of whether the consumer’s application is approved by the health insurance carrier, or for the referral of a Medicare-related lead to us by the marketing partner.

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% of total revenue 35 % 59 % 40 % 57 %

Three Months Ended March 31, 2023 and 2022 – Marketing and advertising expenses decreased $25.6 million, or 44%, during the three months ended March 31, 2023 compared to the same period in 2022, primarily driven by a $23.5 million decrease in variable advertising costs, a $1.1 million decrease in personnel and compensation costs and a $0.7 million decrease in consulting expenses.

The decrease in variable advertising costs was due to a decrease in our advertising expense amongst all of our channels primarily as a result of more targeted deployment of our marketing budget.

Three Months Ended June 30, 2023 and 2022 – Marketing and advertising expenses decreased $6.7 million, or 22%, during the three months ended June 30, 2023 compared to the same period in 2022, primarily driven by a $7.8 million decrease in variable advertising costs and a $1.0 million decrease in consulting expenses, partially offset by a $1.1 million increase in personnel and compensation costs and a $1.1 million increase in product research related expenses.

The decrease in variable advertising costs reflects our decision to temporarily reduce member acquisition spend as we enhance our sales and marketing organizations and prepare to resume enrollment growth in the fourth quarter of 2023 on a substantially improved operational and cost foundation.

Six Months Ended June 30, 2023 and 2022 – Marketing and advertising expenses decreased $32.2 million, or 36%, during the six months ended June 30, 2023 compared to the same period in 2022, primarily driven by a $31.3 million decrease in variable advertising costs, a $1.7 million decrease in consulting expenses and a $0.5 million decrease in facilities and other expenses, partially offset by a $0.8 million increase in product research related expenses.

Customer Care and Enrollment

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% of total revenue 49 % 58 % 43 % 46 %

Three Months Ended March 31, 2023 and 2022 – Customer care and enrollment expenses decreased $15.2 million, or 36%, during the three months ended March 31, 2023 compared to the same period in 2022, primarily due to a $13.6 million decrease in personnel costs from lower headcount, a $0.7 million decrease in facilities and other expenses, a $0.5 million decrease in licensing costs and a $0.2 million decrease in consulting expenses.

Three Months Ended June 30, 2023 and 2022 – Customer care and enrollment expenses increased $3.7 million, or 13%, during the three months ended June 30, 2023 compared to the same period in 2022, primarily due to a $4.3 million increase in personnel costs which reflects costs associated with new agent hiring, training and licensing ahead of the fourth quarter annual enrollment period, partially offset by a $0.5 million decrease in consulting expenses.

Six Months Ended June 30, 2023 and 2022 – Customer care and enrollment expenses decreased $11.5 million, or 16%, during the six months ended June 30, 2023 compared to the same period in 2022, primarily due to a $9.3 million decrease in personnel costs from lower headcount, a $0.7 million decrease in facilities and other expenses, a $0.7 million decrease in licensing costs and a $0.7 million decrease in consulting expenses.

Technology and Content

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% of total revenue 22 % 35 % 21 % 24 %

Three Months Ended March 31, 2023 and 2022 – Technology and content expenses decreased $4.1 million, or 21%, during the three months ended March 31, 2023 compared to the same period in 2022 primarily driven by a $3.7 million decrease in personnel and compensation costs due to lower headcount, a $0.9 million decrease in stock-based compensation expense and a $0.5 million decrease in consulting costs, partially offset by increases of $0.8 million in amortization of internally developed software and $0.4 million in facilities and other expenses.

Three Months Ended June 30, 2023 and 2022 – Technology and content expenses decreased $3.3 million, or 18%, during the three months ended June 30, 2023 compared to the same period in 2022 primarily driven by a $2.5 million decrease in personnel and compensation costs due to lower headcount reflective of our cost reduction program and a $0.6 million decrease in stock-based compensation expense.

Six Months Ended June 30, 2023 and 2022 – Technology and content expenses decreased $7.4 million, or 20%, during the six months ended June 30, 2023 compared to the same period in 2022 primarily driven by a $5.6 million decrease in personnel and compensation costs due to lower headcount, a $1.6 million decrease in stock-based compensation expense and a $0.6 million decrease in consulting costs, partially offset by a $1.0 million increase in amortization of internally developed software.

General and Administrative

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

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

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

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Three Months Ended

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% of total revenue 33 % 34 % 31 % 24 %

Three Months Ended March 31, 2023 and 2022 – General and administrative expenses increased $1.0 million, or 5%, during the three months ended March 31, 2023 compared to the same period in 2022, primarily driven by increases of $1.5 million in personnel costs and $0.4 million in stock-based compensation expense, partially offset by decreases of $0.4 million in professional fees and $0.2 million in facilities and other expenses.

Three Months Ended June 30, 2023 and 2022 – General and administrative expenses increased $4.8 million, or 28%, during the three months ended June 30, 2023 compared to the same period in 2022, primarily driven by increases of $3.0 million in professional fees, $2.9 million in personnel costs due to increased bonus accrual and $1.0 million in stock-based compensation expense, partially offset by a decrease of $1.7 million in consulting expenses.

Six Months Ended June 30, 2023 and 2022 – General and administrative expenses increased $5.8 million, or 16%, during the six months ended June 30, 2023 compared to the same period in 2022, primarily driven by increases of $3.7 million in personnel costs due to increased bonus accrual and changes in senior management, $2.6 million in professional fees, $1.3 million in stock-based compensation expense and $0.6 million in facilities and other expenses, partially offset by decreases of $1.6 million in consulting expenses, $0.5 million in depreciation and amortization expenses and $0.5 million in licensing costs.

Impairment, Restructuring and Other Charges

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Three Months Ended

March 31, Change

June 30, Change Six Months Ended

June 30, Change

2023 2022 $ % 2023 2022 $ %

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% of total revenue — % 3 % — % 4 %

Three Months Ended March 31, 2023 and 2022 – We incurred no impairment, restructuring and other charges for the three months ended March 31, 2023 compared to $4.8 million of restructuring and reorganization charges for the three months ended March 31, 2022.

These charges primarily consisted of severance and other personnel related costs related to a reduction in force.

Other Expense, Net

Other expense, net, primarily consisted of interest expense and fees related to our Credit Agreement, partially offset by interest income and margin earned on commissions received from Medicare plan members transferred to us in 2010 through 2012 by a broker partner.

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

Three Months Ended June 30, 2023 and 2022 – We incurred no impairment, restructuring and other charges during the three months ended June 30, 2023 compared to $1.4 million of impairment, restructuring and other charges during the three months ended June 30, 2022.

These charges primarily consisted of severance and other personnel related costs related to a reduction in force that occurred in the first half of 2022.

Six Months Ended June 30, 2023 and 2022 – We incurred no impairment, restructuring and other charges for the six months ended June 30, 2023 compared to $6.2 million of impairment, restructuring and other charges for the six months ended June 30, 2022.

These charges primarily consisted of severance and other personnel related costs related to a reduction in force that occurred in the first half of 2022.

Other Income (Expense), Net

Other income (expense), net, primarily consisted of interest expense and fees related to our Credit Agreement, offset by interest income and margin earned on commissions received from Medicare plan members transferred to us in 2010 through 2012 by a broker partner.

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

Three Months Ended

March 31, Change

June 30, Change Six Months Ended

June 30, Change

2023 2022 $ % 2023 2022 $ %

Other expense, net $ (592) $ (1,021) $ 429 42 %

Other income (expense), net $ 108 $ (1,167) $ 1,275 109 % $ (484) $ (2,188) $ 1,704 78 %

% of total revenue — % (2) % — % (1) %

Three Months Ended March 31, 2023 and 2022 – Other expense, net was $0.6 million during the three months ended March 31, 2023, compared to $1.0 million during the three months ended March 31, 2022.

The change was primarily due to an increase of $1.8 million in interest income, partially offset by an increase of $1.5 million of interest expense related to the Credit Agreement entered into during the first quarter of 2022.

Three Months Ended June 30, 2023 and 2022 – Other income, net, was $0.1 million during the three months ended June 30, 2023, compared to other expense, net, of $1.2 million during the three months ended June 30, 2022.

The change was primarily due to an increase of $1.9 million in interest income, partially offset by an increase of $0.7 million of interest expense related to the term loan credit agreement.

Six Months Ended June 30, 2023 and 2022 – Other expense, net, was $0.5 million during the six months ended June 30, 2023, compared to other expense, net, of $2.2 million during the six months ended June 30, 2022.

The change was primarily due to an increase of $3.6 million in interest income, partially offset by an increase of $2.2 million of interest expense related to the term loan credit agreement entered into during the first quarter of 2022.

Benefit from Income Taxes

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Three Months Ended

March 31, Change

June 30, Change Six Months Ended

June 30, Change

2023 2022 $ % 2023 2022 $ %

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Effective tax rate 9.8 % 19.6 % 12.4 % 19.6 %

Three Months Ended March 31, 2023 and 2022 – Our effective tax rate of 15.4% for the three months ended March 31, 2023 was lower than our 19.6% effective tax rate for the three months ended March 31, 2022 primarily due to fluctuations in stock-based compensation adjustments.

Our effective tax rate for the three months ended March 31, 2023 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.

Three Months Ended June 30, 2023 and 2022 – Our effective tax rate of 9.8% for the three months ended June 30, 2023 was lower than our 19.6% effective tax rate for the three months ended June 30, 2022 primarily due to fluctuations in stock-based compensation adjustments.

Our effective tax rate for the three months ended June 30, 2023 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.

Six Months Ended June 30, 2023 and 2022 – Our effective tax rate of 12.4% for the six months ended June 30, 2023 was lower than our 19.6% effective tax rate for the six months ended June 30, 2022 primarily due to fluctuations in stock-based compensation adjustments.

Our effective tax rate for the six months ended June 30, 2023 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

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

ancillary products sold to our non-Medicare-eligible customers, including but not limited to, dental, vision, and short-term insurance.

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

To a lesser extent, the Individual, Family and Small Business segment consists of amounts earned from our online sponsorship program that allows carriers to purchase advertising space in specific markets in a sponsorship area on our website, our licensing to third parties for the use of our health insurance ecommerce technology and our delivery and sale to third parties of individual and family health insurance plan leads generated by our ecommerce platforms and our marketing activities.

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Three Months Ended

March 31, Change

June 30, Change Six Months Ended

June 30, Change

2023 2022 $ % 2023 2022 $ %

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Impairment, restructuring and other charges — (1,369) 1,369 100 % — (6,192) 6,192 100 %

Other expense, net (592) (1,021) 429 42 %

Other income (expense), net 108 (1,167) 1,275 109 % (484) (2,188) 1,704 78 %

Loss before income taxes $ (26,044) $ (46,640) $ 20,596 44 % $ (49,530) $ (87,375) $ 37,845 43 %

Three Months Ended March 31, 2023 and 2022 – Revenue from our Medicare segment declined $33.2 million, or 35%, during the three months ended March 31, 2023 compared to the same period in 2022, primarily attributable to a $27.7 million decrease in commission revenue.

Three Months Ended June 30, 2023 and 2022 – Revenue from our Medicare segment increased $14.4 million, or 35%, during the three months ended June 30, 2023 compared to the same period in 2022, primarily attributable to a $10.3 million increase in commission revenue.

The increase in Medicare segment commission revenue is primarily due to $13.4 million in net adjustment revenue from prior period enrollments for the three months ended June 30, 2023 compared to $(10.8) million in net adjustment revenue for the same period in 2022, partially offset by a 31% decline in Medicare Advantage plan approved members compared to the same period of the prior year as we execute on our transformation initiatives to optimize customer acquisition spend and ultimately return to sustainable profitable growth.

Revenue from our Individual, Family and Small Business segment increased $2.0 million, or 21%, during the three months ended June 30, 2023 compared to the same period in 2022, primarily attributable to an increase in LTV and $5.3 million in net adjustment revenue from prior period enrollments for the three months ended June 30, 2023 compared to $2.1 million net adjustment revenue for the same period in 2022, partially offset by a 29% decline in ancillary product approved members and a 7% decrease in individual and family plan approved members.

Six Months Ended June 30, 2023 and 2022 – Revenue from our Medicare segment decreased $18.9 million, or 14%, during the six months ended June 30, 2023 compared to the same period in 2022, primarily attributable to a $17.3 million decrease in commission revenue.

The decrease in Medicare segment commission revenue is primarily due to a $15.1 million decrease in Medicare Advantage plan related commission revenue, as a result of a 28% decline in Medicare Advantage plan approved members compared to the same period prior year as we execute on our transformation initiatives to optimize customer acquisition spend and ultimately grow profitability.

Revenue from our Individual, Family and Small Business segment grew $1.7 million, or 17%, during the three months ended March 31, 2023 compared to the same period in 2022, primarily attributable to a $1.8 million increase in commission revenue driven by a 3% increase in individual and family plan approved members and $1.5 million in net adjustment revenue from prior period enrollments for the three months ended March 31, 2023 compared to $0.4 million for the same period in 2022, partially offset by a 12% decline in ancillary product approved members.

This decrease was offset by $13.5 million in net adjustment revenue from prior period enrollments for the six months ended June 30, 2023 compared to $(10.7) million in net adjustment revenue for the same period in 2022, reflecting positive retention dynamics and the favorable commissions environment of the past two years.

Revenue from our Individual, Family and Small Business segment increased $3.7 million, or 19%, during the six months ended June 30, 2023 compared to the same period in 2022, primarily attributable to a $3.8 million increase in commission revenue driven by an increase in LTV and $6.8 million in net adjustment revenue from prior period enrollments for the six months ended June 30, 2023 compared to $2.5 million in net adjustment revenue for the same period in 2022, partially offset by a 20% decline in ancillary product approved members.

Segment Profit (Loss)

Three Months Ended March 31, 2023 and 2022 – Our Medicare segment loss was $3.4 million during the three months ended March 31, 2023, an improvement of $11.4 million, or 77%, compared to segment loss of $14.8 million for the same period in 2022.

This was primarily due to a $44.7 million decrease in operating expenses, excluding stock-based compensation expense, depreciation and amortization, impairment, restructuring and other charges, and other expense, net, partially offset by a $33.2 million decrease in revenue.

The decrease in operating expenses was mostly attributable to impacts from our transformation initiatives which began in the second quarter of 2022.

Our Individual, Family and Small Business segment profit was $7.4 million during the three months ended March 31, 2023, an increase of $2.2 million, or 41%, compared to segment profit of $5.3 million for the same period in 2022.

Three Months Ended June 30, 2023 and 2022 – Our Medicare segment loss was $4.7 million during the three months ended June 30, 2023, an improvement of $20.6 million, or 81%, compared to segment loss of $25.3 million for the same period in 2022.

This was driven by a $14.4 million increase in revenue and a $6.2 million decrease in operating expenses, excluding stock-based compensation expense, depreciation and amortization, impairment, restructuring and other charges, and other income (expense), net.

The decrease in operating expenses was mostly attributable to continued impacts from our transformation initiatives which began in 2022.

Our Individual, Family and Small Business segment profit was $6.7 million during the three months ended June 30, 2023, an increase of $2.4 million, or 54%, compared to segment profit of $4.3 million for the same period in 2022.

The increase was primarily driven by a $2.0 million increase in revenue.

Six Months Ended June 30, 2023 and 2022 – Our Medicare segment loss was $8.1 million during the six months ended June 30, 2023, an improvement of $32.0 million, or 80%, compared to segment loss of $40.1 million for the same period in 2022.

This was driven by a $50.9 million decrease in operating expenses, excluding stock-based compensation expense, depreciation and amortization, impairment, restructuring and other charges, and other expense, net, offset by a $18.9 million decrease in revenue.

The decrease in operating expenses was mostly attributable to continued impacts from our transformation initiatives which began in the second quarter of 2022.

Our Individual, Family and Small Business segment profit was $14.1 million during the six months ended June 30, 2023, an increase of $4.5 million, or 47%, compared to segment profit of $9.6 million for the same period in 2022.

The increase was primarily driven by a $3.7 million increase in revenue.

Liquidity and Capital Resources

Material Cash Requirements

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

As of June 30, 2023, we had cash, cash equivalents and short-term marketable securities of $189.8 million.

During the six months ended June 30, 2023, we generated operating cash flow of $51.4 million as summarized below.

We have historically financed our operations primarily through cash generated from our operations, equity issuances and debt financing.

Our principal uses of cash in recent periods have been funding working capital, purchases of short-term investments, the satisfaction of tax withholding obligations in connection with the settlement of restricted stock units, making payments on our operating lease obligations and service and licensing obligations, and complying with our debt servicing requirements and preferred stock dividend payment obligations.

Cash and Cash Equivalents

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

June 30, 2023 December 31, 2022

Cash and cash equivalents $ 153,185 $ 144,401

Short-term marketable securities 36,619 —

Total cash, cash equivalents and short-term marketable securities $ 189,804 $ 144,401

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.

We also maintained $3.2 million in restricted cash as of June 30, 2023 and December 31, 2022.

Contractual Obligations and Commitments

Our contractual obligations and commitments include our operating leases and service and licensing obligations.

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

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

Short-term obligations were $8.4 million for leases and $8.2 million for service and licensing as of March 31, 2023.

Long-term obligations were $37.3 million for leases and $1.4 million for service and licensing as of March 31, 2023.

Short-term obligations were $8.4 million for leases and $7.0 million for service and licensing as of June 30, 2023.

Long-term obligations were $35.2 million for leases and $0.9 million for service and licensing as of June 30, 2023.

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

Convertible Preferred Stock

Pursuant an investment agreement dated February 17, 2021 with Echelon Health SPV, LP (“H.I.G.”) (the “H.I.G.

Investment Agreement”), we issued and sold 2,250,000 shares of our newly designated Series A convertible preferred stock (“Series A Preferred Stock”) at an aggregate purchase price of $225.0 million to H.I.G.

in a private placement and received $214.0 million net proceeds on April 30, 2021.

During the second quarter of 2023, we made our initial 2% semiannual cash dividend payment in the aggregate amount of $0.9 million.

Investment Agreement also provides certain redemption rights on or after April 2027.

In addition, the Company is required to maintain a Minimum Asset Coverage Ratio and a Minimum Liquidity Amount (each as defined in the H.I.G.

Investment Agreement).

As of June 30, 2023, we were in compliance with the Minimum Asset Coverage Ratio and the Minimum Liquidity Amount.

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.

The Minimum Asset Coverage Ratio will increase to 2.5x starting in August 2023, and based on our current projection of our financial performance, we anticipate that we will not meet the Minimum Asset Coverage Ratio as of the initial compliance date at the end of the third quarter of 2023.

In the event of a default, the H.I.G.

Investment Agreement entitles H.I.G.

to additional rights including, under certain circumstances, the right to nominate one additional member to our Board of Directors, the right to approve the Company’s annual budget, the right to approve hiring or termination of certain key executives and the right to approve certain indebtedness.

Term Loan Credit Agreement

On February 28, 2022, we entered into a term loan credit agreement providing for a $70.0 million secured term loan credit facility with Blue Torch Finance LLC as administrative agent and collateral agent, and other lenders party thereto, which agreement was subsequently amended on August 16, 2022 (as amended, the “Credit Agreement”) to update our borrowing benchmark from LIBOR to SOFR.

The Credit Agreement matures in February 2025.

As part of the Credit Agreement, we incur a $0.3 million fee per annum, payable annually.

The loans under the Credit Agreement bear interest, at our option, at either a rate based on the Adjusted Term SOFR 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 three-month Adjusted Term SOFR plus 1.00%.

The margin is 7.50% for Adjusted Term SOFR loans and 6.50% for base rate loans.

As of June 30, 2023, the interest rate was 13.03%.

For the three and six months ended June 30, 2023, we incurred interest expense of $2.2 million and $4.4 million, respectively.

As of June 30, 2023, the carrying value of the loan under the Credit Agreement was $66.9 million and we were in compliance with our loan covenants.

See Note 12 – Debt of Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional information regarding the Credit Agreement.

Availability and Use of Cash

We believe our current cash, cash equivalents and short-term marketable securities, including the proceeds from the equity financing we obtained on April 30, 2021 under the H.I.G.

Investment Agreement and the term loan we obtained on February 28, 2022 under the Credit Agreement, 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 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.

We have implemented a multi-year transformation plan to right-size our cost structure and drive future profitability.

This plan has incorporated different operational and cost savings initiatives, including a reduction in vendor-related spend outside of mission critical areas, a reduction of our real-estate footprint as we decided to become a remote first workplace in 2022, and a targeted workforce reduction implemented during 2022.

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

We believe our current cash and cash equivalents, including the proceeds from the term loan we obtained on February 28, 2022 under our credit agreement with Blue Torch Finance, LLC 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):

March 31, 2023 December 31, 2022

Cash and cash equivalents $ 180,633 $ 144,401

Short-term marketable securities 22,059 —

Total cash, cash equivalents, and short-term marketable securities $ 202,692 $ 144,401

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.

We also maintained $3.2 million in restricted cash as of March 31, 2023 and December 31, 2022.

Our cash flows for the three months ended March 31, 2023 are summarized as follows (in thousands):

Three Months Ended

In 2022, we purposefully slowed down our enrollment volume and revenue growth as we worked to implement several transformation initiatives aimed at increasing the effectiveness of our sales and marketing organizations and further enhancing consumer experience, as well as rationalizing our cost structure to drive future profitability.

During 2023, we are focusing on pursuing deliberate enrollment and revenue growth, continuing to build out our unified omnichannel marketing engine, focusing on enrollment quality and member retention, driving higher conversions on our platform and diversifying our revenue streams.

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 capital financing to the extent such funding sources are available.

In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all.

Cash Activities

Our cash flows for the six months ended June 30, 2023 are summarized as follows (in thousands):

Six Months Ended

Net cash provided by operating activities $ 51,375 $ 21,346

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

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

by a substantial increase in the volume of applications submitted during a quarter or positively impacted by a substantial decline in the volume of applications submitted during a quarter.

During the Medicare annual enrollment period 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 annual enrollment periods.

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

The timing of open enrollment periods for individual and family

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

Three Months Ended March 31, 2023 – Net cash provided by operating activities was $60.8 million during the three months ended March 31, 2023, primarily driven by changes in net operating assets and liabilities of $74.0 million and adjustments for non-cash items of $6.7 million, partially offset by a net loss of $19.9 million.

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

Six Months Ended June 30, 2023 – Net cash provided by operating activities was $51.4 million during the six months ended June 30, 2023, primarily driven by changes in net operating assets and liabilities of $80.0 million and adjustments for non-cash items of $14.8 million, partially offset by a net loss of $43.4 million.

Adjustments for non-cash items primarily consisted of $11.2 million of stock-based compensation expense and $9.1 million of amortization of internally developed software, partially offset by a $6.7 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, 2023 primarily consisted of decreases of $82.5 million in contract assets – commissions receivable and $1.6 million in accounts receivable and increases of $7.2 million in accrued compensation and related expenses, partly offset by decreases of $15.0 million in accrued marketing expenses and $1.5 million in accounts payable.

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 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 and $12.4 million in prepaid expenses and other current assets, and increases of $4.8 million in accrued expenses and other liabilities, partly offset by decreases of $16.8 million in accrued marketing expenses and $5.5 million in accounts payable.

Cash provided by changes in net operating assets and liabilities during the six months ended June 30, 2023 primarily consisted of decreases of $95.0 million in contract assets – commissions receivable and $2.0 million in accounts receivable, partly offset by decreases of $17.3 million in accrued marketing expenses.

Six Months Ended June 30, 2022 – Net cash provided by operating activities was $21.3 million during the six months ended June 30, 2022, primarily driven by changes in net operating assets and liabilities of $86.9 million and adjustments for non-cash items of $4.7 million, partially offset by a net loss of $70.2 million.

Adjustments for non-cash items primarily consisted of $10.8 million of stock-based compensation expense and $8.1 million of amortization of internally-developed software, partially offset by a $17.3 million decrease due to the change in deferred income taxes.

Cash provided by changes in net operating assets and liabilities during the six months ended June 30, 2022 primarily consisted of decreases of $106.6 million in contract assets – commissions receivable, $14.7 million in prepaid expenses and other assets, and $5.3 million in accounts receivable, partly offset by decreases of $26.7 million in accrued marketing expenses and $7.9 million in accounts payable.

Investing Activities

Our investing activities primarily consist of purchases and redemption of marketable securities, purchases of computer hardware and software to enhance our website and customer care operations and capitalized internal-use software.

Three Months Ended March 31, 2023 – Net cash used in investing activities of $24.2 million for the three months ended March 31, 2023 mainly consisted of $22.0 million used to purchase marketable securities and $2.2 million in capitalized internal-use software and website development costs.

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 of 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.

Six Months Ended June 30, 2023 – Net cash used in investing activities of $40.8 million for the six months ended June 30, 2023 mainly consisted of $48.6 million used to purchase marketable securities and $4.2 million in capitalized internal-use software and website development costs, partially offset by $12.4 million in proceeds from the maturities and redemptions of marketable securities.

Six Months Ended June 30, 2022 – Net cash provided by investing activities of $28.3 million for the six months ended June 30, 2022 mainly consisted of $45.3 million of proceeds from the maturities and redemptions of marketable securities, partially offset by $8.4 million in capitalized internal-use software and website development costs and $8.4 million used to purchase marketable securities.

Financing Activities

Three Months Ended March 31, 2023 – Net cash used in financing activities of $0.4 million for the three months ended March 31, 2023 was primarily due to $0.4 million in repurchases of shares to satisfy employee tax withholding obligations.

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.

Convertible Preferred Stock

On April 30, 2021 (the “Closing Date”), we issued and sold 2,250,000 shares of our newly designated Series A convertible preferred stock (“Series A preferred stock”) at an aggregate purchase price of $225.0 million to

Echelon Health SPV, LP ("H.I.G."), at a price of $100 (the “Stated Value” per share of Series A preferred stock) per share (the "Private Placement").

We received $214.0 million net proceeds from the Private Placement with H.I.G., which are net of sales commissions and certain transaction fees.

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

Dividends payable in kind will be cumulative.

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

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

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

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

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

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.

Term Loan Credit Agreement

We entered into a Credit Agreement with Blue Torch Finance LLC, as administrative agent and collateral agent, and the other lenders party thereto in February 2022 (the "Original Credit Agreement") and entered into an amendment (the "Amendment") to the Original Credit Agreement in August 2022 (as amended by the Amendment, the "Credit Agreement").

The 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 $75.0 million revolving credit facility in connection with our receiving the loan under the Term Loan Credit Agreement.

The Amendment replaced the LIBOR-based Adjusted Eurocurrency Rate (as defined in the Original Credit Agreement) with Adjusted Term SOFR (as defined in the Amendment) as a reference rate for loans under the Credit Agreement

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

The Original Credit Agreement bore 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 was the highest of the prime rate, the federal funds rate plus 0.50% and one month adjusted LIBOR plus 1.00%.

The margin was 7.50% for LIBOR loans and 6.50% for base rate loans.

After the Amendment, the loans under the Credit Agreement bear interest, at our option, at either a rate based on the Adjusted Term SOFR 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 three-month Adjusted Term SOFR plus 1.00%.

The margin is 7.50% for Adjusted Term SOFR loans and 6.50% for base rate loans.

Furthermore, as part of the Credit Agreement, we incur a $0.3 million fee per annum, payable annually.

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

The Credit Agreement matures in February of 2025.

We have the right to prepay the loans under the 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 Credit Agreement after February 28, 2023, to an exit fee, which right we did not exercise.

Our obligations under the 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 Credit Agreement.

As of March 31, 2023, we had $66.5 million outstanding principal amount under our 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 the Credit Agreement.

Six Months Ended June 30, 2023 – Net cash used in financing activities of $1.7 million for the six months ended June 30, 2023 was primarily due to $1.1 million in repurchases of shares to satisfy employee tax withholding obligations and $0.9 million in payments of preferred stock dividends.

Six Months Ended June 30, 2022 – Net cash provided by financing activities of $63.4 million for the six months ended June 30, 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 $2.4 million in repurchases of shares to satisfy employee tax withholding obligations.

Open enrollment periods drive the seasonality of our business.

9 unchanged sentences

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What changed 10-Q

Item 2. Management’s Discussion and Analysis