What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-09 compared with 2023-08-08 · 168 added, 166 removed, 332 unchanged (50% of the section changed)

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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 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 benefit advisor, or through a hybrid online assisted interaction that includes live agent chat and co-browsing capabilities.

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.

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

We strive to be the most trusted partner to the consumer in their life’s journey through the health insurance market.

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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.

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.

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.

During the first nine months of 2023, we have 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.

In October 2023, we launched our Company rebrand which we have spent the past several months developing.

This rebrand has been designed to reflect our transformational work from the past two years and is expected to increase our brand recognition.

It includes our refreshed marketing plan that will differentiate us in the market and includes a redesign of our omni-channel user experience.

Over the past nine months, we have continued to improve our member retention and Complaint Tracking Module (“CTM”) scores.

As a result of positive retention dynamics, higher quality performance and the favorable commissions environment of the past two years, we recognized $12.2 million and $32.5 million in net adjustment revenue across most products during the three and nine months ended September 30, 2023, respectively.

Additionally, in contrast to the prior year, we expanded our advisor headcount in preparation for the fourth quarter annual enrollment period in which we expect to resume Medicare enrollment growth year over year.

Summary of Selected Metrics

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2023 2022 2023 2022

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Total Approved Members 58,467 69,204 (16) % 216,811 280,434 (23) %

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.

Three Months Ended September 30, 2023 and 2022 – Total Medicare approved members declined 10% during the three months ended September 30, 2023 compared to the same period in 2022, primarily due to a decline in Medicare Advantage and Medicare Part D prescription drug plans.

These declines were due to lower variable marketing spend 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 23% during the three months ended September 30, 2023 compared to the same period in 2022 primarily due to reduced member acquisition spend.

Ancillary product approved members declined 24% during the three months ended September 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 decreased 46% during the three months ended September 30, 2023 compared to the same period in 2022 primarily due to reduced member acquisition spend.

Nine Months Ended September 30, 2023 and 2022 – Total Medicare approved members declined 25% during the nine months ended September 30, 2023 compared to the same period in 2022, reflecting a decline across all Medicare products that we market 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 declined 6% during the nine months ended September 30, 2023 compared to the same period in 2022 primarily due to a 10% decline in qualified health plans as a result of lower volume.

Ancillary product approved members declined 22% during the nine months ended September 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 23% during the nine months ended September 30, 2023 compared to the same period in 2022 due to reduced member acquisition spend.

Estimated Constrained Lifetime Value of Commissions Per Approved Member

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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 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.

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

The constrained LTV of commissions per approved member increased by 5% and 7% for Medicare Advantage and Medicare Part D prescription drug plans, respectively, during the three months ended September 30, 2023 compared to the same period in 2022.

The increase in Medicare Advantage plans was primarily driven by positive trends in commissions collected as a result of more favorable commission rates and improved retention and carrier mix.

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

The constrained LTV of commissions per approved member for Medicare Supplement plans decreased 13% compared to the same period in 2022 primarily driven by unfavorable commission rates due to carrier mix, partially offset by favorable retention.

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.

The constrained LTV of commissions per non-qualified approved member and per qualified approved member increased 6% and 11%, respectively, during the three months ended September 30, 2023 compared to the same period in 2022.

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

The increase in constrained LTV of commissions per qualified approved member was due to more favorable commission rates and better retention.

The constrained LTV of commissions per approved member for vision and dental plans increased 18% and 8%, respectively, during the three months ended September 30, 2023 compared with the same period in 2022 due to favorable commission rate trends.

Small business constrained LTV of commissions per approved member increased 4% compared to the same period in 2022.

Estimated Membership

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

As of June 30, % Change

As of September 30, % Change

Medicare Advantage 565,126 582,203 (3) %

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

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.

Total Medicare estimated membership as of September 30, 2023 decreased 4% compared to estimated membership as of September 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.

Individual and family plan estimated membership as of September 30, 2023 declined 18% compared to estimated membership as of September 30, 2022 due to a decrease in approved applications.

Ancillary plan estimated membership as of September 30, 2023 declined 15% compared to estimated membership as of September 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.

We calculate and evaluate the customer care and enrollment (“CC&E”) expense per approved member and the variable marketing cost per approved member.

We incur CC&E expenses in assisting applicants during the enrollment process.

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.

The numerator used to calculate each member acquisition metric discussed above is the portion of the respective operating expenses for CC&E and marketing and advertising 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.

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.

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.

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

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Variable marketing cost per MA-equivalent approved member (1)

396 410 (3) %

Total acquisition cost per MA-equivalent approved member $ 1,546 $ 1,213 27 %

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

56 102 (45) %

Total acquisition cost per IFP-equivalent approved member $ 340 $ 264 29 %

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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 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.

CC&E cost per MA-equivalent approved member increased 50% in the three months ended September 30, 2023 compared to the same period in 2022.

The increase is primarily driven by an increase in costs associated with the hiring and training of a higher number of new benefit advisors during the third quarter of 2023 in preparation for the fourth quarter annual enrollment period.

Such advisors were 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 third quarter of 2023 as compared to the same period in 2022 as we focused on implementing operational enhancements to our sales and marketing organizations.

CC&E cost per IFP-equivalent approved member increased 57% in the three months ended September 30, 2023 compared to the same period in 2022.

The increase was primarily due to an increase in costs related to a higher number of new benefit advisors in the third quarter of 2023 compared to the same period last year as well as our increased investment in IFP plans, including individual coverage health reimbursement arrangements and state exchange opportunities.

Additionally, the decline in approved members in the current period compared to the same period last year contributed to the increase in CC&E cost per IFP-equivalent approved member.

Variable marketing cost per IFP-equivalent approved member decreased 25% in the three months ended September 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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Loss from operations (39,396) (61) % (48,269) (90) % (88,442) (43) % (133,456) (64) %

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

Other expense, net (138) — % (647) (1) % (622) — % (2,835) (1) %

Loss before income taxes (39,534) (61) % (48,916) (92) % (89,064) (43) % (136,291) (65) %

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Total revenue $ 64,718 $ 53,376 $ 11,342 21 % $ 205,209 $ 209,035 $ (3,826) (2) %

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.

Three Months Ended September 30, 2023 and 2022 – Commission revenue increased $8.3 million, or 17%, during the three months ended September 30, 2023 compared to the same period in 2022 due to a $7.1 million, or 17%, increase in commission revenue from the Medicare segment and a $1.1 million, or 15%, increase in Individual, Family and Small Business segment commission revenue.

The increase in commission revenue from the Medicare segment was driven by $9.3 million in net adjustment revenue from prior period enrollments for the three months ended September 30, 2023 compared to $1.7 million in net adjustment revenue for the same period in 2022 and a 5% increase in Medicare Advantage LTV.

This was partially offset by a 10% decline in overall Medicare plan approved members, specifically a 7% 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.

The increase in net adjustment revenue reflects positive member retention dynamics and the favorable commissions environment related to cohorts 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 $2.9 million in net adjustment revenue from prior period enrollments for the three months ended September 30, 2023 compared to $1.8 million in net adjustment revenue for the same period in 2022, partially offset by a 24% and 23% 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.

Other revenue increased $3.1 million, or 70%, during the three months ended September 30, 2023 compared to the same period in 2022 due to an increase in advertising revenue.

Nine Months Ended September 30, 2023 and 2022 – Commission revenue decreased $5.2 million, or 3%, during the nine months ended September 30, 2023 compared to the same period in 2022 due to a $10.2 million, or 6%, decrease in commission revenue from the Medicare segment, partially offset by a $5.0 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 25% decline in overall Medicare plan approved members, specifically a 24% 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.

This decrease in commission revenue was partially offset by $22.7 million in net adjustment revenue from prior period enrollments for the nine months ended September 30, 2023 compared to $(9.1) 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 related to cohorts of the past two years.

The increase in commission revenue from the Individual, Family and Small Business segment was primarily due to $9.8 million in net adjustment revenue from prior period enrollments for the nine months ended September 30, 2023 compared to $4.4 million in net adjustment revenue for the same period in 2022, partially offset by a 22% 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.

Other revenue increased $1.4 million, or 8%, during the nine months ended September 30, 2023 compared to the same period in 2022 due to an increase in advertising revenue.

Cost of Revenue

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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.

Three Months Ended September 30, 2023 and 2022 – Cost of revenue decreased by $0.3 million during the three months ended September 30, 2023, compared to the same period in 2022, primarily due to decreased activity from our revenue sharing arrangements.

Nine Months Ended September 30, 2023 and 2022 – Cost of revenue decreased by $0.1 million during the nine months ended September 30, 2023, compared to the same period in 2022, primarily due to decreased activity from our revenue sharing arrangements.

Marketing and Advertising

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% of total revenue 45 % 57 % 42 % 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.

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.

Three Months Ended September 30, 2023 and 2022 – Marketing and advertising expenses decreased $1.6 million, or 5%, during the three months ended September 30, 2023 compared to the same period in 2022, driven by a $2.2 million decrease in variable advertising costs and a $0.9 million decrease in consulting expenses, partially offset by $1.0 million of expenses related to our Company rebrand, which launched in early October, and a $0.7 million increase in personnel and compensation costs.

The decrease in variable advertising costs reflects our decision to temporarily reduce member acquisition spend, particularly our online advertising, 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.

Nine Months Ended September 30, 2023 and 2022 – Marketing and advertising expenses decreased $33.8 million, or 28%, during the nine months ended September 30, 2023 compared to the same period in 2022, primarily driven by a $33.5 million decrease in variable advertising costs, a $2.6 million decrease in consulting expenses and a $0.9 million decrease in facilities and other expenses, partially offset by a $1.5 million of expenses related to our Company rebrand and a $0.8 million increase in personnel and compensation cost due to increased bonus accrual.

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% of total revenue 63 % 55 % 49 % 48 %

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.

Three Months Ended September 30, 2023 and 2022 – Customer care and enrollment expenses increased $11.3 million, or 38%, during the three months ended September 30, 2023 compared to the same period in 2022, primarily due to a $10.2 million increase in personnel and compensation costs related to new benefit advisor hiring, training and licensing ahead of the fourth quarter annual enrollment period and by a $0.5 million increase in consulting expenses.

Nine Months Ended September 30, 2023 and 2022 – Customer care and enrollment expenses decreased $0.2 million during the nine months ended September 30, 2023 compared to the same period in 2022, primarily due to a $0.5 million decrease in facilities and other expenses, a $0.5 million decrease in licensing costs, a $0.4 million decrease in professional fees and a $0.2 million decrease in consulting expenses, partially offset by an increase of $0.9 million in personnel costs which reflect costs associated with new benefit advisors ahead of the fourth quarter annual enrollment period and $0.7 million in higher stock-based compensation costs.

Technology and Content

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% of total revenue 21 % 36 % 21 % 27 %

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.

Three Months Ended September 30, 2023 and 2022 – Technology and content expenses decreased $5.6 million, or 29%, during the three months ended September 30, 2023 compared to the same period in 2022 primarily driven by a $3.4 million decrease in personnel and compensation costs due to lower headcount reflective of our cost reduction program and a $1.6 million decrease in facilities and other expenses.

Nine Months Ended September 30, 2023 and 2022 – Technology and content expenses decreased $13.0 million, or 23%, during the nine months ended September 30, 2023 compared to the same period in 2022 primarily driven by a $9.0 million decrease in personnel and compensation costs due to lower headcount, a $1.9 million decrease in facilities and other expenses and a $1.6 million decrease in stock-based compensation costs.

General and Administrative

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Three Months Ended

June 30, Change Six Months Ended

June 30, Change

September 30, Change Nine Months Ended

September 30, Change

2023 2022 $ % 2023 2022 $ %

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% of total revenue 32 % 32 % 31 % 26 %

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.

Three Months Ended September 30, 2023 and 2022 – General and administrative expenses increased $3.1 million, or 18%, during the three months ended September 30, 2023 compared to the same period in 2022, primarily driven by increases of $3.0 million in facilities and other expenses, $1.2 million in stock-based compensation costs and $1.0 million in personnel and compensation costs due to increased bonus accrual, partially offset by a decrease of $0.9 million in professional fees and $0.8 million in consulting expenses.

Nine Months Ended September 30, 2023 and 2022 – General and administrative expenses increased $9.0 million, or 16%, during the nine months ended September 30, 2023 compared to the same period in 2022, primarily driven by increases of $4.6 million in personnel and compensation costs due to increased bonus accrual and changes in senior management, $3.6 million in facilities and other expenses, $2.5 million in higher stock-based compensation costs and $1.7 million in professional fees, partially offset by decreases of $2.4 million in consulting expenses and $0.8 million in depreciation and amortization expenses.

Impairment, Restructuring and Other Charges

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Three Months Ended

June 30, Change Six Months Ended

June 30, Change

September 30, Change Nine Months Ended

September 30, Change

2023 2022 $ % 2023 2022 $ %

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% of total revenue — % 8 % — % 5 %

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 September 30, 2023 and 2022 – We incurred no impairment, restructuring and other charges during the three months ended September 30, 2023 compared to $4.5 million of impairment, restructuring and other charges during the three months ended September 30, 2022.

These charges consisted of $3.7 million of impairment charges which primarily related to our Santa Clara, California sublease as well as $0.8 million of restructuring charges related to employee termination benefits during the three months ended September 30, 2022.

Nine Months Ended September 30, 2023 and 2022 – We incurred no impairment, restructuring and other charges for the nine months ended September 30, 2023 compared to $10.7 million of impairment, restructuring and other charges for the nine months ended September 30, 2022.

These charges consisted of $7.0 million of severance and other personnel related costs related to a reduction in force that took place throughout 2022 and $3.7 million of impairment charges, which primarily related to our Santa Clara, California sublease.

Other Expense, Net

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

Three Months Ended

June 30, Change Six Months Ended

June 30, Change

September 30, Change Nine Months Ended

September 30, Change

2023 2022 $ % 2023 2022 $ %

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

Other expense, net $ (138) $ (647) $ 509 79 % $ (622) $ (2,835) $ 2,213 78 %

% of total revenue — % (1) % — % (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.

Three Months Ended September 30, 2023 and 2022 – Other expense, net, was $0.1 million during the three months ended September 30, 2023, compared to other expense, net, of $0.6 million during the three months ended September 30, 2022.

The change was primarily due to a $1.5 million increase in interest income, partially offset by a $0.6 million increase in interest expense related to the term loan credit agreement.

Nine Months Ended September 30, 2023 and 2022 – Other expense, net, was $0.6 million during the nine months ended September 30, 2023, compared to other expense, net, of $2.8 million during the nine months ended September 30, 2022.

The change was primarily due to a $5.1 million increase in interest income, partially offset by a $2.9 million increase in 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

June 30, Change Six Months Ended

June 30, Change

September 30, Change Nine Months Ended

September 30, Change

2023 2022 $ % 2023 2022 $ %

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Effective tax rate 6.3 % 20.0 % 9.7 % 19.7 %

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.

Three Months Ended September 30, 2023 and 2022 – Our effective tax rate of 6.3% for the three months ended September 30, 2023 was lower than our 20.0% effective tax rate for the three months ended September 30, 2022 primarily due to fluctuations in stock-based compensation adjustments and the change from using an annualized effective tax rate method to using the actual effective tax rate to calculate our provision for income taxes.

Our effective tax rate for the three months ended September 30, 2023 was lower than the statutory federal tax rate due primarily to stock-based compensation adjustments, non-deductible lobbying expenses and changes in our valuation allowance, partially offset by research and development credits and state taxes.

Nine Months Ended September 30, 2023 and 2022 – Our effective tax rate of 9.7% for the nine months ended September 30, 2023 was lower than our 19.7% effective tax rate for the nine months ended September 30, 2022 primarily due to fluctuations in stock-based compensation adjustments and the change from using an annualized effective tax rate method to using the actual effective tax rate to calculate our provision for income taxes.

Our effective tax rate for the nine months ended September 30, 2023 was lower than the statutory federal tax rate due primarily to stock-based compensation adjustments, non-deductible lobbying expenses and changes in our valuation allowance, partially offset by research and development credits and state taxes.

Segment Information

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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.

segment operating management, are not allocated to the reportable segments and instead are reported within Corporate.

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

September 30, Change Nine Months Ended

September 30, Change

2023 2022 $ % 2023 2022 $ %

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Impairment, restructuring and other charges — (4,498) 4,498 100 % — (10,690) 10,690 100 %

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

Other expense, net (138) (647) 509 79 % (622) (2,835) 2,213 78 %

Loss before income taxes $ (39,534) $ (48,916) $ 9,382 19 % $ (89,064) $ (136,291) $ 47,227 35 %

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.

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.

Three Months Ended September 30, 2023 and 2022 – Revenue from our Medicare segment increased $10.4 million, or 23%, during the three months ended September 30, 2023 compared to the same period in 2022, primarily attributable to a $7.1 million increase in commission revenue.

The increase in Medicare segment commission revenue is primarily due to $9.3 million in net adjustment revenue from prior period enrollments for the three months ended September 30, 2023 compared to $1.7 million in net adjustment revenue for the same period in 2022 and a 5% increase in Medicare Advantage LTV.

This was partially offset by a 7% decline in Medicare Advantage plan approved members compared to the same period in 2022 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 $1.0 million, or 12%, during the three months ended September 30, 2023 compared to the same period in 2022, primarily attributable to an increase in LTV and $2.9 million in net adjustment revenue from prior period enrollments for the three months ended September 30, 2023 compared to $1.8 million net adjustment revenue for the same period in 2022, partially offset by a 24% decline in ancillary product approved members and a 23% decrease in individual and family plan approved members.

Nine Months Ended September 30, 2023 and 2022 – Revenue from our Medicare segment decreased $8.5 million, or 5%, during the nine months ended September 30, 2023 compared to the same period in 2022, primarily attributable to a $10.2 million decrease in commission revenue.

The decrease in Medicare segment commission revenue is primarily due to an $8.8 million decrease in Medicare Advantage plan related commission revenue driven by a 24% 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 $22.7 million in net adjustment revenue from prior period enrollments for the nine months ended September 30, 2023 compared to $(9.1) million in net adjustment revenue for the same period in 2022, reflecting positive retention dynamics and the favorable commissions environment related to cohorts of the past two years.

Revenue from our Individual, Family and Small Business segment increased $4.7 million, or 17%, during the nine months ended September 30, 2023 compared to the same period in 2022, primarily attributable to a $5.0 million increase in commission revenue due to an increase in LTV and $9.8 million in net adjustment revenue from prior period enrollments for the nine months ended September 30, 2023 compared to $4.4 million in net adjustment revenue for the same period in 2022, partially offset by a 22% 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.

Three Months Ended September 30, 2023 and 2022 – Our Medicare segment loss was $17.5 million during the three months ended September 30, 2023, an improvement of $5.5 million, or 24%, compared to segment loss of $23.0 million for the same period in 2022.

This was driven by a $10.4 million increase in revenue, offset by a $4.9 million increase in operating expenses, excluding stock-based compensation expense, depreciation and amortization, impairment, restructuring and other charges, and other expense, net.

The increase in operating expenses was mostly attributable to increased costs associated with the hiring and training of a higher number of new benefit advisors compared to the same period last year.

Our Individual, Family and Small Business segment profit was $4.6 million during the three months ended September 30, 2023, an increase of $1.9 million, or 72%, compared to segment profit of $2.7 million for the same period in 2022.

The increase was primarily driven by a $1.0 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.

Nine Months Ended September 30, 2023 and 2022 – Our Medicare segment loss was $25.5 million during the nine months ended September 30, 2023, an improvement of $37.5 million, or 59%, compared to segment loss of $63.1 million for the same period in 2022.

This was driven by a $46.0 million decrease in operating expenses, excluding stock-based compensation expense, depreciation and amortization, impairment, restructuring and other charges, and other expense, net, offset by an $8.5 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.

Our Individual, Family and Small Business segment profit was $18.7 million during the nine months ended September 30, 2023, an increase of $6.5 million, or 53%, compared to segment profit of $12.3 million for the same period in 2022.

The increase was primarily driven by a $4.7 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.

As of September 30, 2023, we had cash, cash equivalents and short-term marketable securities of $160.6 million.

During the nine months ended September 30, 2023, we generated operating cash flow of $26.7 million as summarized below.

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

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Cash and cash equivalents $ 152,118 $ 144,401

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Total cash, cash equivalents and short-term marketable securities $ 160,587 $ 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.

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, commercial paper and agency bonds.

We also maintained $3.1 million and $3.2 million in restricted cash as of September 30, 2023 and December 31, 2022, respectively.

Contractual Obligations and Commitments

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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 $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.

Short-term obligations were $8.9 million for leases and $7.0 million for service and licensing as of September 30, 2023.

Long-term obligations were $34.0 million for leases and $1.5 million for service and licensing as of September 30, 2023.

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

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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.

During the second quarter of 2023, we made our initial 2% semiannual cash dividend payment in the aggregate amount of $0.9 million and as of September 30, 2023, we have accrued $1.3 million for cash dividends.

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.

In addition, the Company is required to maintain an Asset Coverage Ratio (as defined in the H.I.G.

Investment Agreement) of at least 2.5x, which increased from 2.0x in August 2023 (the “Minimum Asset Coverage Ratio”) and a Minimum Liquidity Amount (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.

Failure to maintain the Minimum Asset Coverage Ratio or the Minimum Liquidity Amount as of the date or the time period as required by the H.I.G.

Investment Agreement, or as long as H.I.G.

continues to own at least 30% of the Series A Preferred Stock originally issued to it in the private placement, entitles H.I.G., subject to the conditions and restrictions specified therein, to additional rights including, the right to nominate one additional member to the Company’s 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 the incurrence of certain indebtedness.

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.

As of September 30, 2023, we complied with the Minimum Liquidity Amount.

However, as our Asset Coverage Ratio was 2.3x, we did not meet the Minimum Asset Coverage Ratio as of September 30, 2023, which was the first measurement date of the 2.5x Minimum Asset Coverage Ratio.

The non-compliance with the Minimum Asset Coverage Ratio does not entitle H.I.G.

to accelerate the redemption of the Series A Preferred Stock nor is it

expected to materially impact our ability to generate and obtain adequate amounts of cash to meet our short-term or long-term requirements.

Term Loan Credit Agreement

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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.

As of September 30, 2023, the interest rate was 13.18%.

For the three and nine months ended September 30, 2023, we incurred interest expense of $2.4 million and $6.8 million, respectively.

As of September 30, 2023, the carrying value of the loan under the Credit Agreement was $67.3 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.

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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

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

Nine Months Ended

September 30,

Net cash provided by (used in) operating activities $ 26,694 $ (8,290)

Net cash provided by (used in) investing activities (16,489) 24,135

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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.

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

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

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

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.

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

During the Medicare annual enrollment period 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.

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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.

Nine Months Ended September 30, 2023 – Net cash provided by operating activities was $26.7 million during the nine months ended September 30, 2023, primarily driven by changes in net operating assets and liabilities of $83.5 million and adjustments for non-cash items of $23.6 million, partially offset by a net loss of $80.4 million.

Adjustments for non-cash items primarily consisted of $17.7 million of stock-based compensation expense and $13.2 million of amortization of internally developed software, partially offset by a $9.3 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, 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.

Cash provided by changes in net operating assets and liabilities during the nine months ended September 30, 2023 primarily consisted of a decrease of $104.2 million in contract assets – commissions receivable and an increase of $6.1 million in accrued compensation and benefits, partly offset by a decrease of $16.3 million in accrued marketing expenses and an increase of $12.6 million in prepaid expenses and other assets.

Nine Months Ended September 30, 2022 – Net cash used in operating activities was $8.3 million during the nine months ended September 30, 2022, primarily driven by a net loss of $109.4 million, offset by changes in net operating assets and liabilities of $91.6 million and adjustments for non-cash items of $9.5 million.

Adjustments for non-cash items primarily consisted of $15.9 million of stock-based compensation expense and $12.7 million of amortization of internally-developed software, partially offset by a $27.2 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.

Cash provided by changes in net operating assets and liabilities during the nine months ended September 30, 2022 primarily consisted of decreases of $122.4 million in contract assets – commissions receivable, $2.7 million in prepaid expenses and other assets, and $3.9 million in accounts receivable, partly offset by decreases of $28.2 million in accrued marketing expenses and $7.1 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.

Nine Months Ended September 30, 2023 – Net cash used in investing activities of $16.5 million for the nine months ended September 30, 2023 mainly consisted of $48.6 million used to purchase marketable securities and $7.0 million in capitalized internal-use software and website development costs, partially offset by $40.9 million in proceeds from the maturities and redemptions of marketable securities.

Nine Months Ended September 30, 2022 – Net cash provided by investing activities of $24.1 million for the nine months ended September 30, 2022 mainly consisted of $45.3 million of proceeds from the maturities and redemptions of marketable securities, partially offset by $12.5 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

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.

Nine Months Ended September 30, 2023 – Net cash used in financing activities of $2.6 million for the nine months ended September 30, 2023 was primarily due to $1.9 million in repurchases of shares to satisfy employee tax withholding obligations and $0.9 million in payments of preferred stock dividends.

Nine Months Ended September 30, 2022 – Net cash provided by financing activities of $62.9 million for the nine months ended September 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 $2.9 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