eHealth, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis together with our condensed consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “Annual Report”). This discussion and analysis contains forward-looking statements, which involve risks and uncertainties. As a result of many factors, such as those described under “Cautionary Note Regarding Forward-Looking Statements,” “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report, our actual results may differ materially from those anticipated in these forward-looking statements. Overview We are a leading private online health insurance marketplace with a technology and service platform that provides consumer engagement, education and health insurance enrollment solutions. Our mission is to expertly guide consumers through their health insurance enrollment and related options, when, where and how they prefer. 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 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 50 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. We strive to be the most trusted partner to the consumer in their life’s journey through the health insurance market. Business Update Beginning in the fourth quarter of 2021, the Company began to execute significant strategic and management changes to transform our business and adapt to the evolving needs of our customers in order to position ourselves for long-term success. 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 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. 27 Table of Contents Summary of Selected Metrics We rely upon certain metrics to estimate and recognize commission revenue, evaluate our business performance and facilitate strategic planning. Our commission revenue is influenced by a number of factors including but not limited to: • the number of individuals on applications for Medicare-related, individual and family, small business and ancillary health insurance plans that are approved by the relevant health insurance carriers; • the number of approved members for Medicare-related, individual and family, small business and ancillary health insurance plans from whom we have received an initial commission payment; and • the constrained lifetime value (“LTV”) of approved members for Medicare-related, individual and family and ancillary health insurance plans we sell, as well as the estimated annual value of approved members for small business plans we sell. Approved Members Approved members represent the number of individuals on submitted applications that were approved by the relevant insurance carrier for the identified product during the current period. The applications may be submitted in either the current period or prior periods. Not all approved members ultimately become paying members. The following table shows approved members by product for the periods presented: Three Months Ended June 30, % Change Six Months Ended June 30, % Change 2023 2022 2023 2022 Medicare Medicare Advantage 35,597 51,506 (31) % 96,048 133,937 (28) % Medicare Supplement 2,923 3,092 (5) % 7,508 9,648 (22) % Medicare Part D 2,948 4,845 (39) % 6,794 11,668 (42) % Total Medicare 41,468 59,443 (30) % 110,350 155,253 (29) % Individual and Family 4,285 4,601 (7) % 14,384 14,402 — % Ancillary 13,051 18,266 (29) % 29,707 37,236 (20) % Small Business 1,964 1,825 8 % 3,903 4,339 (10) % Total Approved Members 60,768 84,135 (28) % 158,344 211,230 (25) % 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 28 Table of Contents 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 The following table shows our estimated constrained LTV of commissions per approved member by product for the periods presented below: Three Months Ended June 30, % Change 2023 2022 Medicare (1) (2) Medicare Advantage $ 891 $ 886 1 % Medicare Supplement 875 913 (4) % Medicare Part D 231 207 12 % Individual and Family (1) Non-Qualified Health Plans 329 327 1 % Qualified Health Plans 357 340 5 % Ancillary (1) Short-term 161 167 (4) % Dental 98 99 (1) % Vision 66 60 10 % Small Business (1) 229 201 14 % __________ (1) Constrained LTV of commissions per approved member for Medicare, individual and family and ancillary plans represents commissions estimated to be collected over the estimated life of an approved member’s plan after applying constraints in accordance with our revenue recognition policy. Constrained LTV of commissions per approved member for small business represents the estimated commissions we expect to collect from the plan over the following twelve months. The estimate is driven by multiple factors, including but not limited to, contracted commission rates, carrier mix, estimated average plan duration, the regulatory environment, and cancellations of insurance plans offered by health insurance carriers with which we have a relationship and applied constraints. The constraints are applied to help ensure that commissions estimated to be collected over the estimated life of an approved member’s plan are recognized as revenue only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with future commissions receivable from the plan is subsequently resolved. These factors may result in varying values from period to period. 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 June 30, 2023, as compared to the same period in the prior year. 29 Table of Contents Medicare 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 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 Estimated membership represents the estimated number of members active as of the date indicated based on the number of members for whom we have received or applied a commission payment during the period of estimation. The following table shows estimated membership as of the periods presented below: As of June 30, % Change 2023 2022 Medicare (1) Medicare Advantage 572,799 589,553 (3) % Medicare Supplement 94,372 104,414 (10) % Medicare Part D 211,144 223,474 (6) % Total Medicare 878,315 917,441 (4) % Individual and Family (1) 90,082 101,802 (12) % Ancillary (1) 196,141 224,649 (13) % Small Business (2) 46,560 49,172 (5) % Total Estimated Membership 1,211,098 1,293,064 (6) % __________________ (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). 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. For ancillary health insurance plans, the one- to three-month period varies by insurance product and is largely dependent upon the timeliness of commission payment and related reporting from the related carriers. 30 Table of Contents (2) To estimate the number of members on small business health insurance plans, we use the number of initial members at the time the group was approved, and we update this number for changes in membership if such changes are reported to us by the group or carrier. However, groups generally notify the carrier directly of policy cancellations and increases or decreases in group size without informing us. Health insurance carriers often do not communicate policy cancellation information or group size changes to us. We often are made aware of policy cancellations and group size changes at the time of annual renewal and update our membership statistics accordingly in the period they are reported. A member who purchases and is active on multiple standalone insurance plans will be counted as a member more than once. For example, a member who is active on both an individual and family health insurance plan and a standalone dental plan will be counted as two continuing members. Health insurance carriers bill and collect insurance premiums paid by our members. The carriers do not report to us the number of members that we have as of a given date. The majority of our members who terminate their policies 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. Given the number of months required to observe non-payment of commissions in order to confirm cancellations, we estimate the number of members who are active on insurance policies as of a specified date. After we have estimated membership for a period, we may receive information from health insurance carriers that would have impacted the estimate if we had received the information prior to the date of estimation. We may receive commission payments or other information that indicates that a member who was not included in our estimates for a prior period was in fact an active member at that time, or that a member who was included in our estimates was in fact not an active member of ours. For instance, we reconcile information carriers provide to us and may determine that we were not historically paid commissions owed to us, which would cause us to have 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. We do not update our estimated membership numbers reported in previous periods. Instead, we reflect updated information regarding our historical membership in the membership estimate for the current period. If we experience a significant variance in historical membership as compared to our initial estimates, 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, 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 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 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 31 Table of Contents 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. For Medicare Plans, we call this derived metric Medicare Advantage (“MA”)-equivalent approved members, and for IFP Plans, we call this derived metric IFP-equivalent approved members. The calculations for MA-equivalent approved members and for IFP-equivalent approved members are based on the weighted number of approved members for Medicare Plans and IFP Plans during the period, with the number of approved members adjusted based on the relative LTV of the product they are purchasing. Since the LTV for any product fluctuates from period to period, the weight given to each product was determined based on their relative LTVs at the time of our adoption of ASC 606. The following table shows the variable marketing cost per approved member and the CC&E expense per approved member metrics for the periods presented below: Three Months Ended June 30, % Change 2023 2022 Medicare CC&E cost per MA-equivalent approved member (1) $ 774 $ 486 59 % Variable marketing cost per MA-equivalent approved member (1) 396 410 (3) % Total acquisition cost per MA-equivalent approved member $ 1,170 $ 896 31 % Individual and Family Plan CC&E cost per IFP-equivalent approved member (2) $ 252 $ 149 69 % Variable marketing cost per IFP-equivalent approved member (2) 56 102 (45) % Total acquisition cost per IFP-equivalent approved member $ 308 $ 251 23 % __________________ (1) MA-equivalent approved members is a derived metric with a Medicare Part D approved member being weighted at 25% of a Medicare Advantage member and a Medicare Supplement member based on their relative LTVs at the time of our adoption of ASC 606. We calculate the number of MA-equivalent approved members by adding the total number of approved Medicare Advantage and Medicare Supplement members and 25% of the total number of approved Medicare Part D members during the periods presented. (2) IFP-equivalent approved members is a derived metric with a short-term approved member being weighted at 33% of a major medical individual and family health insurance plan member based on their relative LTVs at the time of our adoption of ASC 606. 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 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. 32 Table of Contents Critical Accounting Policies and Estimates The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles requires us to make judgments, assumptions, and estimates that affect the amounts reported in the consolidated financial statements and the accompanying notes. These estimates and assumptions are based on current facts, historical experience, and various other factors that we believe are reasonable under the circumstances to determine reported amounts of assets, liabilities, revenue and expenses that are not readily apparent from other sources. To the extent there are material differences between our estimates and the actual results, our future consolidated results of 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 performance. The accounting policies we believe to reflect our more significant estimates, judgments and assumptions and are most critical to understanding and evaluating our reported financial results are as follows: • Revenue Recognition and contract assets - commissions receivable; • Stock-Based Compensation; and • 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 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. 33 Table of Contents Results of Operations The following table sets forth our operating results and related percentage of total revenue for the periods presented (dollars in thousands): Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Revenue Commission $ 60,186 90 % $ 47,835 95 % $ 128,189 91 % $ 141,685 91 % Other 6,582 10 % 2,574 5 % 12,302 9 % 13,974 9 % Total revenue 66,768 100 % 50,409 100 % 140,491 100 % 155,659 100 % Operating costs and expenses (1) Cost of revenue 253 — % 423 1 % 468 — % 296 — % Marketing and advertising 23,284 35 % 29,963 59 % 56,183 40 % 88,417 57 % Customer care and enrollment 32,862 49 % 29,149 58 % 59,819 43 % 71,313 46 % Technology and content 14,500 22 % 17,780 31 % 30,044 21 % 37,443 24 % General and administrative 22,021 33 % 17,198 34 % 43,023 31 % 37,185 24 % Impairment, restructuring and other charges — — % 1,369 3 % — — % 6,192 4 % Total operating costs and expenses 92,920 139 % 95,882 190 % 189,537 135 % 240,846 155 % Loss from operations (26,152) (39) % (45,473) (90) % (49,046) (35) % (85,187) (55) % 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) % Benefit from income taxes (2,543) (4) % (9,138) (18) % (6,151) (4) % (17,131) (11) % Net loss $ (23,501) (35) % $ (37,502) (74) % $ (43,379) (31) % $ (70,244) (45) % ____________ (1) Operating costs and expenses include the following amounts of stock-based compensation expense (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Marketing and advertising $ 538 $ 428 $ 993 $ 741 Customer care and enrollment 788 512 1,393 966 Technology and content 1,173 1,821 2,078 3,671 General and administrative 3,694 2,744 6,723 5,412 Total stock-based compensation expense $ 6,193 $ 5,505 $ 11,187 $ 10,790 Revenue Our commission revenue, other revenue and total revenue are summarized as follows (dollars in thousands): Three Months Ended June 30, Change Six Months Ended June 30, Change 2023 2022 $ % 2023 2022 $ % Commission $ 60,186 $ 47,835 $ 12,351 26 % $ 128,189 $ 141,685 $ (13,496) (10) % % of total revenue 90 % 95 % 91 % 91 % Other 6,582 2,574 4,008 156 % 12,302 13,974 (1,672) (12) % % of total revenue 10 % 5 % 9 % 9 % Total revenue $ 66,768 $ 50,409 $ 16,359 32 % $ 140,491 $ 155,659 $ (15,168) (10) % 34 Table of Contents 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 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 Cost of revenue consists of payments related to health insurance plans sold to members who were referred to our website by marketing partners with whom we have revenue-sharing arrangements. In order to enter into a revenue-sharing arrangement, marketing partners must be licensed to sell health insurance in the state where the policy is sold. Costs related to revenue-sharing arrangements are expensed as the related revenue is recognized. 35 Table of Contents Our cost of revenue is summarized as follows (dollars in thousands): Three Months Ended June 30, Change Six Months Ended June 30, Change 2023 2022 $ % 2023 2022 $ % Cost of revenue $ 253 $ 423 $ (170) (40) % $ 468 $ 296 $ 172 58 % % of total revenue — % 1 % — % — % 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 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. Some of our marketing partners have tiered arrangements where the amount we pay the marketing partner per submitted application increases as the volume of submitted applications we receive from the marketing partner increases. We recognize these expenditures in the period when a marketing partner’s referral results in the submission of a health insurance application. We recognize expenses associated with our online advertising member acquisition channels in the period in which the consumer clicks on the advertisement. Increases in submitted applications resulting from marketing partner referrals or visitors to our website from our online advertising channel has in the past, and could in the future, result in marketing and advertising expenses significantly higher than our expectations. Our marketing and advertising expenses are summarized as follows (dollars in thousands): Three Months Ended June 30, Change Six Months Ended June 30, Change 2023 2022 $ % 2023 2022 $ % Marketing and advertising $ 23,284 $ 29,963 $ (6,679) (22) % $ 56,183 $ 88,417 $ (32,234) (36) % % of total revenue 35 % 59 % 40 % 57 % 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. 36 Table of Contents 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. 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. Customer Care and Enrollment 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 are summarized as follows (dollars in thousands): Three Months Ended June 30, Change Six Months Ended June 30, Change 2023 2022 $ % 2023 2022 $ % Customer care and enrollment $ 32,862 $ 29,149 $ 3,713 13 % $ 59,819 $ 71,313 $ (11,494) (16) % % of total revenue 49 % 58 % 43 % 46 % 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 Technology and content expenses consist primarily of compensation and benefits costs for personnel associated with developing and enhancing our website technology as well as maintaining our website. A portion of our technology and content group is located at our wholly-owned subsidiary in China, where technology development costs are generally lower than in the United States. Our technology and content expenses are summarized as follows (dollars in thousands): Three Months Ended June 30, Change Six Months Ended June 30, Change 2023 2022 $ % 2023 2022 $ % Technology and content $ 14,500 $ 17,780 $ (3,280) (18) % $ 30,044 $ 37,443 $ (7,399) (20) % % of total revenue 22 % 35 % 21 % 24 % 37 Table of Contents 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, 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. Our general and administrative expenses are summarized as follows (dollars in thousands): Three Months Ended June 30, Change Six Months Ended June 30, Change 2023 2022 $ % 2023 2022 $ % General and administrative $ 22,021 $ 17,198 $ 4,823 28 % $ 43,023 $ 37,185 $ 5,838 16 % % of total revenue 33 % 34 % 31 % 24 % 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 Our impairment, restructuring and other charges consist primarily of severance, transition and other related costs and impairment charges. Our impairment, restructuring and other charges are summarized as follows (dollars in thousands): Three Months Ended June 30, Change Six Months Ended June 30, Change 2023 2022 $ % 2023 2022 $ % Impairment, restructuring and other charges $ — $ 1,369 $ (1,369) (100) % $ — $ 6,192 $ (6,192) (100) % % of total revenue — % 3 % — % 4 % 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. 38 Table of Contents 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 June 30, Change Six Months Ended June 30, Change 2023 2022 $ % 2023 2022 $ % Other income (expense), net $ 108 $ (1,167) $ 1,275 109 % $ (484) $ (2,188) $ 1,704 78 % % of total revenue — % (2) % — % (1) % 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 Our benefit from income taxes is summarized as follows (dollars in thousands): Three Months Ended June 30, Change Six Months Ended June 30, Change 2023 2022 $ % 2023 2022 $ % Benefit from income taxes $ (2,543) $ (9,138) $ 6,595 (72) % $ (6,151) $ (17,131) $ 10,980 64 % Effective tax rate 9.8 % 19.6 % 12.4 % 19.6 % 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. 39 Table of Contents Segment Information We report segment information based on how our chief executive officer, who is our chief operating decision maker (“CODM”), regularly reviews our operating results, allocates resources and makes decisions regarding our business operations. The performance measures of our segments include revenue and segment profit (loss). Our business structure is comprised of two operating segments: • Medicare; and • Individual, Family and Small Business. Our CODM does not separately evaluate assets by segment, with the exception of commissions receivable, and therefore assets by segment are not presented. The Medicare segment consists primarily of 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. 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. Marketing and advertising, customer care and enrollment, technology and content and general and administrative operating expenses that are directly attributable to a segment are reported within the applicable segment. Indirect marketing and advertising, customer care and enrollment and technology and content operating expenses are allocated to each segment based on usage. Corporate consists of other indirect general and administrative operating expenses, excluding stock-based compensation expense, depreciation and amortization, which are managed in a corporate shared services environment and, since they are not the responsibility of segment operating management, are not allocated to the reportable segments and instead are reported within Corporate. Segment profit (loss) is calculated as total revenue for the applicable segment less direct and indirect 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, and impairment, restructuring and other charges. 40 Table of Contents Our operating segment revenue and segment profit (loss) are summarized as follows (in thousands): Three Months Ended June 30, Change Six Months Ended June 30, Change 2023 2022 $ % 2023 2022 $ % Revenue: Medicare $ 55,430 $ 41,062 $ 14,368 35 % $ 117,264 $ 136,129 $ (18,865) (14) % Individual, Family and Small Business 11,338 9,347 1,991 21 % 23,227 19,530 3,697 19 % Total revenue $ 66,768 $ 50,409 $ 16,359 32 % $ 140,491 $ 155,659 $ (15,168) (10) % Segment profit (loss): Medicare $ (4,695) $ (25,271) $ 20,576 81 % $ (8,068) $ (40,088) $ 32,020 80 % Individual, Family and Small Business 6,693 4,343 2,350 54 % 14,106 9,597 4,509 47 % Segment loss 1,998 (20,928) 22,926 110 % 6,038 (30,491) 36,529 120 % Corporate (16,806) (12,322) (4,484) (36) % (33,501) (27,587) (5,914) (21) % Stock-based compensation expense (6,193) (5,505) (688) (12) % (11,187) (10,790) (397) (4) % Depreciation and amortization (5,151) (5,349) 198 4 % (10,396) (10,127) (269) (3) % Impairment, restructuring and other charges — (1,369) 1,369 100 % — (6,192) 6,192 100 % 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 % 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. 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. 41 Table of Contents 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 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 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. 42 Table of Contents 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. 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 $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. The H.I.G. 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. 43 Table of Contents 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. 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 June 30, 2023 2022 Net cash provided by operating activities $ 51,375 $ 21,346 Net cash provided by (used in) investing activities (40,777) 28,264 Net cash provided by (used in) financing activities (1,687) 63,418 Operating 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 internally developed software, other non-cash items, and the effect of changes in working capital and other activities. Collection of commissions receivable depends upon the timing of our receipt of commission payments and associated commission reports from health insurance carriers. If we were to experience a delay in receiving a commission payment from a significant health insurance carrier within a quarter, our operating cash flows for that quarter could be adversely impacted. 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. The expense associated with approved applications, however, is generally incurred at the time of enrollment. As a result, the net cash flow resulting from approved applications is generally negative in the period of revenue recognition and becomes positive over the lifetime of the member. In periods of membership growth, cash receipts associated with new and continuing members may be less than the cash outlays to acquire new members. 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 44 Table of Contents 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. 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 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. 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 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 45 Table of Contents 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. Seasonality Open enrollment periods drive the seasonality of our business. A greater number of our Medicare-related health insurance plans are sold in our fourth quarter during the Medicare annual enrollment period when Medicare-eligible individuals are permitted to change their Medicare Advantage and Medicare Part D prescription drug coverage for the following year. As a result, our Medicare plan-related commission revenue is highest in our fourth quarter. Our Medicare plan-related commission revenue is also elevated in the first quarter compared to the second and third quarters as a result of the reintroduction of the Medicare Advantage open enrollment period in the first quarter of 2019. Any changes to or additional enrollment periods may change the seasonality of our business. The majority of our individual and family health insurance plans are sold in the fourth quarter during the annual open enrollment period as defined under the federal Patient Protection and Affordable Care Act and related amendments in the Health Care and Education Reconciliation Act. In the states where the Federally Facilitated marketplace operates as the state health insurance exchange, individuals and families generally are not able to purchase individual and family health insurance outside of the annual enrollment period, unless they qualify for a special enrollment period as a result of certain qualifying events, such as losing employer-sponsored health insurance or moving to another state. Extended open enrollment or special enrollment periods may change the seasonality of our individual and family health insurance business. Recent Accounting Pronouncements See Note 1 – Summary of Business and Significant Accounting Policies in the Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for recently issued accounting standards that could have an effect on us. 46 Table of Contents