eHealth, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS EHEALTH, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, unaudited) September 30, 2023 December 31, 2022 Assets Current assets: Cash and cash equivalents $ 152,118 $ 144,401 Short-term marketable securities 8,469 — Accounts receivable 522 2,633 Contract assets – commissions receivable – current 212,399 242,749 Prepaid expenses and other current assets 23,233 11,301 Total current assets 396,741 401,084 Contract assets – commissions receivable – non-current 568,177 641,555 Property and equipment, net 5,427 5,501 Operating lease right-of-use assets 23,943 26,516 Restricted cash 3,090 3,239 Other assets 28,998 34,716 Total assets $ 1,026,376 $ 1,112,611 Liabilities, convertible preferred stock and stockholders’ equity Current liabilities: Accounts payable $ 7,004 $ 6,732 Accrued compensation and benefits 26,793 20,690 Accrued marketing expenses 7,423 23,770 Lease liabilities – current 6,902 6,486 Other current liabilities 5,126 2,887 Total current liabilities 53,248 60,565 Long-term debt 67,321 66,129 Deferred income taxes – non-current 23,048 32,359 Lease liabilities – non-current 30,138 34,187 Other non-current liabilities 4,101 5,132 Total liabilities 177,856 198,372 Commitments and contingencies (Note 8) Convertible preferred stock 288,883 263,284 Stockholders’ equity: Common stock 40 40 Additional paid-in capital 794,135 777,187 Treasury stock, at cost ( 199,998 ) ( 199,998 ) Retained earnings (accumulated deficit) ( 34,407 ) 73,799 Accumulated other comprehensive loss ( 133 ) ( 73 ) Total stockholders’ equity 559,637 650,955 Total liabilities, convertible preferred stock and stockholders’ equity $ 1,026,376 $ 1,112,611 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 Table of Contents EHEALTH, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands, except per share amounts, unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Revenue: Commission $ 57,239 $ 48,977 $ 185,428 $ 190,662 Other 7,479 4,399 19,781 18,373 Total revenue 64,718 53,376 205,209 209,035 Operating costs and expenses: Cost of revenue 194 494 662 790 Marketing and advertising 28,988 30,556 85,171 118,973 Customer care and enrollment 40,682 29,398 100,501 100,711 Technology and content 13,828 19,399 43,872 56,842 General and administrative 20,422 17,300 63,445 54,485 Impairment, restructuring and other charges — 4,498 — 10,690 Total operating costs and expenses 104,114 101,645 293,651 342,491 Loss from operations ( 39,396 ) ( 48,269 ) ( 88,442 ) ( 133,456 ) Other expense, net ( 138 ) ( 647 ) ( 622 ) ( 2,835 ) Loss before income taxes ( 39,534 ) ( 48,916 ) ( 89,064 ) ( 136,291 ) Benefit from income taxes ( 2,509 ) ( 9,767 ) ( 8,660 ) ( 26,898 ) Net loss ( 37,025 ) ( 39,149 ) ( 80,404 ) ( 109,393 ) Preferred stock dividends ( 5,320 ) ( 4,933 ) ( 15,644 ) ( 14,420 ) Change in preferred stock redemption value ( 4,898 ) ( 2,916 ) ( 12,158 ) ( 8,173 ) Net loss attributable to common stockholders $ ( 47,243 ) $ ( 46,998 ) $ ( 108,206 ) $ ( 131,986 ) Net loss per share attributable to common stockholders: Basic and diluted $ ( 1.68 ) $ ( 1.72 ) $ ( 3.88 ) $ ( 4.83 ) Weighted-average number of shares used in per share amounts: Basic and diluted 28,114 27,346 27,863 27,329 Comprehensive income (loss): Net loss $ ( 37,025 ) $ ( 39,149 ) $ ( 80,404 ) $ ( 109,393 ) Unrealized gain (loss) for available-for-sale debt securities, net of tax ( 15 ) ( 4 ) 5 ( 6 ) Foreign currency translation adjustments 73 ( 245 ) ( 65 ) ( 483 ) Comprehensive loss $ ( 36,967 ) $ ( 39,398 ) $ ( 80,464 ) $ ( 109,882 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of Contents EHEALTH, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, unaudited) Common Stock Additional Paid-in Capital Treasury Stock Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Shares Amount Shares Amount Balance as of December 31, 2022 39,977 $ 40 $ 777,187 12,415 $ ( 199,998 ) $ 73,799 $ ( 73 ) $ 650,955 Issuance of common stock in connection with equity incentive plans 160 — — — — — — — Repurchase of shares to satisfy employee tax withholding obligations — — ( 428 ) 57 — — — ( 428 ) Dividends and accretion related to convertible preferred stock — — — — — ( 8,170 ) — ( 8,170 ) Stock-based compensation — — 5,306 — — — — 5,306 Other comprehensive income, net of tax — — — — — — 123 123 Net loss — — — — — ( 19,878 ) — ( 19,878 ) Balance as of March 31, 2023 40,137 $ 40 $ 782,065 12,472 $ ( 199,998 ) $ 45,751 $ 50 $ 627,908 Issuance of common stock in connection with equity incentive plans 320 — — — — — — — Repurchase of shares to satisfy employee tax withholding obligations — — ( 623 ) 70 — — — ( 623 ) Dividends and accretion related to convertible preferred stock — — — — — ( 9,414 ) — ( 9,414 ) Issuance of common stock for employee stock purchase program 76 — 262 — — — — 262 Stock-based compensation — — 6,518 — — — — 6,518 Other comprehensive loss, net of tax — — — — — — ( 241 ) ( 241 ) Net loss — — — — — ( 23,501 ) — ( 23,501 ) Balance as of June 30, 2023 40,533 $ 40 $ 788,222 12,542 $ ( 199,998 ) $ 12,836 $ ( 191 ) $ 600,909 Issuance of common stock in connection with equity incentive plans 343 — — — — — — — Repurchase of shares to satisfy employee tax withholding obligations — — ( 884 ) 116 — — — ( 884 ) Dividends and accretion related to convertible preferred stock — — — — — ( 10,218 ) — ( 10,218 ) Stock-based compensation — — 6,797 — — — — 6,797 Other comprehensive income, net of tax — — — — — — 58 58 Net loss — — — — — ( 37,025 ) — ( 37,025 ) Balance as of September 30, 2023 40,876 $ 40 $ 794,135 12,658 $ ( 199,998 ) $ ( 34,407 ) $ ( 133 ) $ 559,637 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents EHEALTH, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, unaudited, continued) Common Stock Additional Paid-in Capital Treasury Stock Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Shares Amount Shares Amount Balance as of December 31, 2021 38,704 $ 39 $ 755,875 12,016 $ ( 199,998 ) $ 193,213 $ 390 $ 749,519 Issuance of common stock in connection with equity incentive plans 176 — 1,054 — — — — 1,054 Repurchase of shares to satisfy employee tax withholding obligations — — ( 508 ) 37 — — — ( 508 ) Dividends and accretion related to convertible preferred stock — — — — — ( 7,218 ) — ( 7,218 ) Stock-based compensation — — 5,791 — — — — 5,791 Other comprehensive income, net of tax — — — — — — 31 31 Net loss — — — — — ( 32,742 ) — ( 32,742 ) Balance as of March 31, 2022 38,880 $ 39 $ 762,212 12,053 $ ( 199,998 ) $ 153,253 $ 421 $ 715,927 Issuance of common stock in connection with equity incentive plans 530 1 — — — — — 1 Repurchase of shares to satisfy employee tax withholding obligations — — ( 1,926 ) 234 — — — ( 1,926 ) Dividends and accretion related to convertible preferred stock — — — — — ( 7,526 ) — ( 7,526 ) Issuance of common stock for employee stock purchase program 83 — 873 — — — — 873 Stock-based compensation — — 6,005 — — — — 6,005 Other comprehensive loss, net of tax — — — — — — ( 271 ) ( 271 ) Net loss — — — — — ( 37,502 ) — ( 37,502 ) Balance as of June 30, 2022 39,493 $ 40 $ 767,164 12,287 $ ( 199,998 ) $ 108,225 $ 150 $ 675,581 Issuance of common stock in connection with equity incentive plans 214 — — — — — — — Repurchase of shares to satisfy employee tax withholding obligations — — ( 467 ) 71 — — — ( 467 ) Dividends and accretion related to convertible preferred stock — — — — — ( 7,849 ) — ( 7,849 ) Stock-based compensation — — 5,631 — — — — 5,631 Other comprehensive loss, net of tax — — — — — — ( 249 ) ( 249 ) Net loss — — — — — ( 39,149 ) — ( 39,149 ) Balance as of September 30, 2022 39,707 $ 40 $ 772,328 12,358 $ ( 199,998 ) $ 61,227 $ ( 99 ) $ 633,498 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents EHEALTH, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands, unaudited) Nine Months Ended September 30, 2023 2022 Operating activities: Net loss $ ( 80,404 ) $ ( 109,393 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 1,908 2,971 Amortization of internally developed software 13,233 12,714 Stock-based compensation expense 17,741 15,934 Deferred income taxes ( 9,311 ) ( 27,207 ) Impairment charges — 3,734 Other non-cash items 5 1,333 Changes in operating assets and liabilities: Accounts receivable 2,110 3,946 Contract assets – commissions receivable 104,160 122,410 Prepaid expenses and other assets ( 12,597 ) 2,728 Accounts payable 181 ( 7,118 ) Accrued compensation and benefits 6,102 ( 1,345 ) Accrued marketing expenses ( 16,347 ) ( 28,175 ) Deferred revenue 1,323 ( 284 ) Accrued expenses and other liabilities ( 1,410 ) ( 538 ) Net cash provided by (used in) operating activities 26,694 ( 8,290 ) Investing activities: Capitalized internal-use software and website development costs ( 7,028 ) ( 12,540 ) Purchases of property and equipment and other assets ( 1,759 ) ( 192 ) Purchases of marketable securities ( 48,602 ) ( 8,402 ) Proceeds from redemption and maturities of marketable securities 40,900 45,269 Net cash provided by (used in) investing activities ( 16,489 ) 24,135 Financing activities: Net proceeds from debt financing — 64,862 Net proceeds from exercise of common stock options and employee stock purchases 262 1,054 Repurchase of shares to satisfy employee tax withholding obligations ( 1,935 ) ( 2,901 ) Principal payments in connection with leases ( 33 ) ( 90 ) Payments of preferred stock dividends ( 873 ) — Net cash provided by (used in) financing activities ( 2,579 ) 62,925 Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 58 ) ( 438 ) Net increase in cash, cash equivalents and restricted cash 7,568 78,332 Cash, cash equivalents and restricted cash at beginning of period 147,640 85,165 Cash, cash equivalents and restricted cash at end of period $ 155,208 $ 163,497 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Table of Contents EHEALTH, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 1 – Summary of Business and Significant Accounting Policies Description of Business – eHealth, Inc., a Delaware corporation, and its consolidated subsidiaries (collectively, “eHealth”) is 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 benefit advisor, 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 over 180 health insurance carriers nationwide. 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 benefit advisors. We strive to be the most trusted partner to the consumer in their life’s journey through the health insurance market. Unless otherwise specified or required by the context, references in this Quarterly Report on Form 10-Q to “eHealth,” “the Company,” “we,” “us” or “our” mean eHealth, Inc. and its consolidated direct and indirect wholly-owned subsidiaries. Basis of Presentation – The accompanying Condensed Consolidated Balance Sheet as of September 30, 2023 and other condensed consolidated financial statements for the three and nine months ended September 30, 2023 and 2022 are unaudited. The Condensed Consolidated Balance Sheet data as of December 31, 2022 was derived from the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission on March 1, 2023. The accompanying financial statements and related notes should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K. The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and reflect all normal recurring adjustments that are necessary to present fairly the results for the interim periods presented. The condensed consolidated financial statements include the accounts of eHealth, Inc. and its direct and indirect wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in accordance with those rules and regulations. The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022 and include all adjustments necessary for the fair presentation of our financial position as of September 30, 2023 and December 31, 2022, and our results of operations for the periods presented. The results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for any subsequent period or for the year ending December 31, 2023 and therefore, should not be relied upon as an indicator of future results. 7 Table of Contents EHEALTH, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Significant Accounting Policies, Estimates and Judgments – The preparation of condensed consolidated financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates, including those related to, but not limited to, the fair value of investments, the commissions we expect to collect for each approved member cohort, valuation allowance for deferred income taxes, provision (benefit) for income taxes and the assumptions used in determining stock-based compensation. We base our estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that we believe to be reasonable. Actual results may differ from these estimates. There have been no material changes for the nine months ended September 30, 2023 to our significant accounting policies discussed in our Annual Report on Form 10-K for the year ended December 31, 2022. Recently Adopted Accounting Pronouncements We did not adopt any new accounting pronouncements during the nine months ended September 30, 2023. 8 Table of Contents EHEALTH, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 2 – Revenue Disaggregation of Revenue – The table below depicts the disaggregation of revenue by product and is consistent with how we evaluate our financial performance (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Medicare Medicare Advantage $ 43,721 $ 37,454 $ 143,231 $ 152,061 Medicare Supplement 2,630 2,534 7,786 11,291 Medicare Part D 2,046 1,167 4,686 2,165 Total Medicare 48,397 41,155 155,703 165,517 Individual and Family (1) Non-Qualified Health Plans 1,560 1,991 6,904 5,970 Qualified Health Plans 681 714 4,084 2,975 Total Individual and Family 2,241 2,705 10,988 8,945 Ancillary Short-term 870 967 2,426 3,287 Dental 649 715 2,317 2,249 Vision 486 245 972 741 Other 555 674 1,788 1,803 Total Ancillary 2,560 2,601 7,503 8,080 Small Business 3,884 2,640 12,557 8,546 Commission Bonus and Other 157 ( 124 ) ( 1,323 ) ( 426 ) Total Commission Revenue 57,239 48,977 185,428 190,662 Other Revenue Sponsorship and Advertising Revenue 7,135 3,805 18,195 16,540 Other 344 594 1,586 1,833 Total Other Revenue 7,479 4,399 19,781 18,373 Total Revenue $ 64,718 $ 53,376 $ 205,209 $ 209,035 _____________ (1) We define our individual and family plan offerings as major medical individual and family health insurance plans, which do not include Medicare-related, small business or ancillary plans. Individual and family plans include both qualified and non-qualified plans. Qualified health plans meet the requirements of the Affordable Care Act and are offered through the government-run health insurance exchange in the relevant jurisdiction. Non-qualified health plans do not meet the requirements of the Affordable Care Act and are not offered through the government-run health insurance exchange in the relevant jurisdiction. Individuals that purchase non-qualified health plans cannot receive a subsidy in connection with the purchase of non-qualified plans. 9 Table of Contents EHEALTH, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Commission revenue by segment is presented in the table below (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Medicare Commission revenue from members approved during the period $ 39,169 $ 39,652 $ 131,792 $ 173,790 Net commission revenue from members approved in prior periods (1) 9,291 1,685 22,746 ( 9,052 ) Total Medicare segment commission revenue $ 48,460 $ 41,337 $ 154,538 $ 164,738 Individual, Family and Small Business Commission revenue from members approved during the period $ 3,829 $ 3,600 $ 13,835 $ 14,254 Commission revenue from renewals of small business members during the period 2,028 2,200 7,299 7,281 Net commission revenue from members approved in prior periods (1) 2,922 1,840 9,756 4,389 Total Individual, Family and Small Business segment commission revenue $ 8,779 $ 7,640 $ 30,890 $ 25,924 Total commission revenue from members approved during the period $ 42,998 $ 43,252 $ 145,627 $ 188,044 Commission revenue from renewals of small business members during the period 2,028 2,200 7,299 7,281 Total net commission revenue from members approved in prior periods (1)(2) 12,213 3,525 32,502 ( 4,663 ) Total commission revenue $ 57,239 $ 48,977 $ 185,428 $ 190,662 _____________ (1) These amounts reflect our revised estimates of cash collections for certain members approved prior to the relevant reporting period that are recognized as adjustments to revenue within the relevant reporting period. The net adjustment revenue includes both increases in revenue for certain prior period cohorts as well as reductions in revenue for certain prior period cohorts. (2) The impacts of total net commission revenue from members approved in prior periods were $ 0.43 and $ 0.13 per basic and diluted share for the three months ended September 30, 2023 and 2022, respectively. The impacts of total net commission revenue from members approved in prior periods were $ 1.17 and $( 0.17 ) per basic and diluted share for the nine months ended September 30, 2023 and 2022, respectively. The total reductions to revenue from members approved in prior periods were $ 0.8 million and $ 2.1 million for the three months ended September 30, 2023 and 2022, respectively, and $ 3.7 million and $ 15.8 million for the nine months ended September 30, 2023 and 2022, respectively. These reductions to revenue primarily relate to the Medicare segment. Note 3 – Supplemental Financial Statement Information Cash, Cash Equivalents and Restricted Cash We consider all investments with an original maturity of 90 days or less from the date of purchase to be cash equivalents. Cash and cash equivalents are stated at fair value. We also invest in marketable securities that are measured and recorded at fair value. See Note 4 – Fair Value Measurements for further discussion about our marketable securities. 10 Table of Contents EHEALTH, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Our cash, cash equivalents and restricted cash balances are summarized as follows (in thousands): September 30, 2023 December 31, 2022 Cash $ 22,835 $ 17,776 Cash equivalents 129,283 126,625 Cash and cash equivalents 152,118 144,401 Restricted cash 3,090 3,239 Total cash, cash equivalents and restricted cash $ 155,208 $ 147,640 As of September 30, 2023 and December 31, 2022, we had $ 3.1 million and $ 3.2 million of restricted cash which was classified as a non-current asset on our Condensed Consolidated Balance Sheets. This amount collateralizes letters of credit related to certain lease commitments. Contract Assets and Accounts Receivable We estimate an allowance for credit losses using relevant available information from internal and external sources, related to past events, current conditions and reasonable and supportable forecasts. Specifically, for the purpose of measuring the probability of default parameters, we utilize Capital IQ’s, Standard & Poor’s and Moody’s analytics. Our estimates of loss given default are determined by using our historical collections data as well as historical information obtained through our research and review of other insurance related companies. Our estimated exposure at default is determined by applying these internal and external data sources to our commissions receivable balances. As such, we apply an immediate reversion method and revert to historical loss information when computing our credit loss exposure. Credit loss expenses are assessed quarterly and are included in the “General and administrative” line in our Condensed Consolidated Statements of Comprehensive Loss. There were no write-offs during the nine months ended September 30, 2023 or for the year ended December 31, 2022. The change in the allowance for credit losses is summarized as follows (in thousands): September 30, 2023 December 31, 2022 Beginning balance $ 2,398 $ 2,198 Change in allowance ( 433 ) 200 Ending balance $ 1,965 $ 2,398 Our contract assets – commissions receivable activities, net of credit loss allowances, are summarized as follows (in thousands): Medicare Segment IFP/SMB Segment Total Beginning balance at December 31, 2022 $ 817,043 $ 67,261 $ 884,304 Commission revenue from members approved during the period 131,792 13,835 145,627 Commission revenue from renewals of small business members during the period — 7,299 7,299 Net commission revenue from members approved in prior periods 22,746 9,756 32,502 Cash receipts ( 258,724 ) ( 30,865 ) ( 289,589 ) Net change in credit loss allowance 396 37 433 Ending balance at September 30, 2023 $ 713,253 $ 67,323 $ 780,576 11 Table of Contents EHEALTH, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Credit Risk Our financial instruments that are exposed to concentrations of credit risk principally consist of cash, cash equivalents, marketable securities, contract assets – commissions receivable and accounts receivable. We invest our cash and cash equivalents with major banks and financial institutions and, at times, such investments are in excess of federally insured limits. We also have deposits with major banks in China that are denominated in both U.S. dollars and Chinese Yuan Renminbi and are not insured by the U.S. federal government. The deposits in China were $ 2.8 million as of September 30, 2023. See Note 4 – Fair Value Measurements for more information regarding our marketable securities. We do not require collateral or other security for either our contract assets or accounts receivable. Carriers that represented 10% or more of our total contract assets – commissions receivable and accounts receivable balances are summarized as follows: September 30, 2023 December 31, 2022 Humana 27 % 26 % UnitedHealthCare (1) 25 % 24 % Aetna (1) 15 % 16 % _____________ (1) Percentages include the carriers’ subsidiaries. Prepaid Expenses and Other Current Assets – Our prepaid expenses and other current assets are summarized as follows (in thousands): September 30, 2023 December 31, 2022 Prepaid expenses $ 12,629 $ 2,858 Prepaid software and maintenance contracts 6,304 5,211 Prepaid licenses 3,289 1,116 Prepaid insurance 775 1,893 Other current assets 236 223 Prepaid expenses and other current assets $ 23,233 $ 11,301 Note 4 – Fair Value Measurements We define fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques we use to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. We classify the inputs used to measure fair value into the following hierarchy: Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 Unadjusted quoted prices in active markets for similar assets or liabilities; unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability. Level 3 Unobservable inputs for the asset or liability. 12 Table of Contents EHEALTH, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Our financial assets measured at fair value on a recurring basis are summarized below by their classification within the fair value hierarchy (in thousands): September 30, 2023 Carrying Value Level 1 Level 2 Level 3 Total Assets Cash equivalents Money market funds $ 502 $ 502 $ — $ — $ 502 Commercial paper 113,884 — 113,884 — 113,884 Agency bonds 14,897 — 14,897 — 14,897 Short-term marketable securities Commercial paper 8,469 — 8,469 — 8,469 Total assets measured at fair value $ 137,752 $ 502 $ 137,250 $ — $ 137,752 December 31, 2022 Carrying Value Level 1 Level 2 Level 3 Total Assets Cash equivalents Money market funds $ 13,015 $ 13,015 $ — $ — $ 13,015 Commercial paper 112,268 — 112,268 — 112,268 Agency bonds 1,342 — 1,342 — 1,342 Total assets measured at fair value $ 126,625 $ 13,015 $ 113,610 $ — $ 126,625 We endeavor to utilize the best available information in measuring fair value. Our money market funds are measured at fair value based on quoted prices in active markets and are classified as Level 1 within the fair value hierarchy. Our available-for-sale marketable securities, which include commercial paper and agency bonds with maturities of less than one year, are measured at fair value using quoted market prices to the extent available or alternative pricing sources and models utilizing market observable inputs and are classified as Level 2 within the fair value hierarchy. There were no transfers between the hierarchy levels during the nine months ended September 30, 2023 or the year ended December 31, 2022. The following table summarizes our cash equivalents and available-for-sale debt securities by contractual maturity (in thousands): As of September 30, 2023 As of December 31, 2022 Amortized Cost Fair Value Amortized Cost Fair Value Due in 1 year $ 137,796 $ 137,752 $ 126,664 $ 126,625 13 Table of Contents EHEALTH, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Unrealized gains and losses on available-for-sale debt securities that are not credit related are included in accumulated other comprehensive income (loss) and summarized as follows (in thousands): September 30, 2023 Amortized Cost Unrealized Gains Unrealized Losses Fair Value Cash equivalents Money market funds $ 502 $ — $ — $ 502 Commercial paper 113,927 — ( 43 ) 113,884 Agency bonds 14,895 2 — 14,897 Short-term marketable securities Commercial paper 8,472 — ( 3 ) 8,469 Total $ 137,796 $ 2 $ ( 46 ) $ 137,752 December 31, 2022 Amortized Cost Unrealized Gains Unrealized Losses Fair Value Cash equivalents Money market funds $ 13,015 $ — $ — $ 13,015 Commercial paper 112,307 — ( 39 ) 112,268 Agency bonds 1,342 — — 1,342 Total $ 126,664 $ — $ ( 39 ) $ 126,625 As of September 30, 2023 and December 31, 2022, we had 28 and 26 securities, respectively, in a net unrealized loss position that were immaterial individually and in aggregate. We did not record any credit losses regarding our available-for-sale debt securities during the nine months ended September 30, 2023 or the year ended December 31, 2022. We do not intend to sell these securities, and it is more likely than not that we will not be required to sell these securities before the recovery of their amortized cost basis. Note 5 – Equity 2021 Inducement Plan – On September 22, 2021, the Company adopted an inducement plan (the “2021 Inducement Plan”), pursuant to which the Company reserved 0.4 million shares of its common stock (subject to customary adjustments in the event of a change in capital structure of the Company) to be used exclusively for grants of awards to individuals who were not previously employees or directors of the Company, other than following a bona fide period of non-employment, as an inducement material to the individual’s entry into employment with the Company within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules (“Nasdaq Rules”). In March 2022 and September 2022, the Company amended and restated its 2021 Inducement Plan to reserve an additional 0.5 million and 1.5 million shares of its common stock, respectively (as amended and restated, the “A&R 2021 Inducement Plan”). The 2021 Inducement Plan and its amendments were approved by the Company’s Board of Directors without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Rules, and the terms and conditions of the A&R 2021 Inducement Plan and awards to be granted thereunder are substantially similar to our stockholder-approved Amended and Restated 2014 Equity Incentive Plan. As of September 30, 2023, 2.0 million shares were issued under the A&R 2021 Inducement Plan. Stock Repurchase Programs – We had no stock repurchase activity during the three and nine months ended September 30, 2023 or 2022. As of September 30, 2023 and 2022, we had a total o f 12.7 million and 12.4 million shares, respectively, held in treasury. As of September 30, 2023 and 2022, we had 2.0 million and 1.7 million shares, respectively, in treasury that were previously surrendered by employees to satisfy tax withholding due in 14 Table of Contents EHEALTH, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) connection with the vesting of certain restricted stock units as well as 10.7 million shares previously repurchased under our past repurchase programs. For accounting purposes, common stock repurchased under our stock repurchase programs is recorded based upon the settlement date of the applicable trade. Such repurchased shares are held in treasury and are presented using the cost method. Stock-Based Compensation Expense – Our stock-based compensation expense is summarized as follows by award types for the periods presented below (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Restricted stock units (1) $ 6,098 $ 4,687 $ 16,559 $ 14,625 Common stock options 333 313 899 864 Employee stock purchase program 123 144 283 445 Total stock-based compensation expense $ 6,554 $ 5,144 $ 17,741 $ 15,934 Related tax benefit recognized $ 1,543 $ 1,194 $ 4,162 $ 3,702 _________ (1) Amounts include market-based and performance-based restricted stock units. The following table summarizes stock-based compensation expense by operating function for the periods presented below (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Marketing and advertising $ 605 $ 570 $ 1,598 $ 1,311 Customer care and enrollment 836 610 2,229 1,576 Technology and content 1,306 1,341 3,384 5,012 General and administrative 3,807 2,623 10,530 8,035 Total stock-based compensation expense $ 6,554 $ 5,144 $ 17,741 $ 15,934 Amount capitalized for internal-use software 243 487 880 1,493 Total stock-based compensation $ 6,797 $ 5,631 $ 18,621 $ 17,427 Note 6 — Convertible Preferred Stock Pursuant to an investment agreement dated February 17, 2021 with Echelon Health SPV, LP (“H.I.G.”), an investment vehicle of H.I.G. Capital (the “H.I.G. Investment Agreement”), we issued and sold to H.I.G., in a private placement, 2,250,000 shares of our newly designated Series A convertible preferred stock (the “Series A Preferred Stock”), par value $ 0.001 per share, at an aggregate purchase price of $ 225.0 million on April 30, 2021 (the “Closing Date”). We received $ 214.0 million in net proceeds from the private placement with H.I.G., net of sales commissions and certain transaction fees totaling $ 11.0 million. The Series A Preferred Stock ranks senior to all other equity securities of the Company with respect to dividend rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. Dividends – Dividends initially accrued on the Series A Preferred Stock daily at 8 % per annum on the stated value of $ 100 per share (the “Stated Value”), and were payable in kind (“PIK”) beginning on June 30, 2021 through the second anniversary of the Closing Date. Subsequent to the second anniversary of the Closing Date, dividends continue to accrue at 8 % per annum, with 6 % PIK and 2 % payable in cash in arrears beginning on June 15 Table of Contents EHEALTH, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 30, 2023. Dividends compound semiannually and are PIK and payable in cash in arrears, as applicable, on June 30 and December 31 of each year (each a “Dividend Payment Date”). PIK dividends are cumulative and are added to the Accrued Value (as defined below). “Accrued Value” means, as of any date, with respect to any share of Series A Preferred Stock, the sum of the Stated Value per share plus, on each Dividend Payment Date, on a cumulative basis, all PIK dividends that have accrued on such share but that have not previously been added to the Accrued Value. During the second quarter of 2023, we made the initial cash dividend payment in the aggregate amount of $ 0.9 million and as of September 30, 2023, w e have accrued $ 1.3 million for cash dividends. T he Series A Preferred Stock participates, on an as-converted basis, in all dividends paid to the holders of our common stock. Conversion Rights – The Series A Preferred Stock is convertible at any time into common stock at a conversion rate equal to (i) the Accrued Value plus accrued PIK dividends that have not yet been added to the Accrued Value, (ii) divided by the conversion price as of the applicable conversion date (the “Conversion Price”). As of the date of this report, the Conversion Price is equal to $ 79.5861 per share. This Conversion Price is subject to further adjustment and the number of shares of common stock issuable upon conversion of the Series A Preferred Stock is subject to certain limitations, each as set forth in the Certificate of Designations of Series A Preferred Stock, as filed with the Secretary of State of the State of Delaware on April 30, 2021 (the “Certificate of Designations”). Redemption Put Right – At any time on or after the sixth anniversary of the Closing Date, holders of the Series A Preferred Stock will have the right to cause the Company to redeem all or any portion of the Series A Preferred Stock in cash at an amount equal to the greater of (i) 135 % of the Accrued Value per share as of the redemption date, plus accrued PIK dividends that have not yet been added to the Accrued Value and (ii) the amount per share that would be payable on an as-converted basis on such Series A Preferred Stock at the then-current Accrued Value, plus accrued PIK dividends that have not yet been added to the Accrued Value, and in either case of (i) or (ii) plus any unpaid cash dividends that would have otherwise been settled in cash in connection with such conversion (the greater of (i) and (ii), the “Redemption Price”). Redemption Call Right – At any time on or after the sixth anniversary of the Closing Date, the Company will have the right (but not the obligation) to redeem out of legally available funds and for cash consideration all (but not less than all) of the Series A Preferred Stock upon at least 30 days prior written notice at an amount equal to the Redemption Price. Board Nomination Rights – H.I.G. is entitled to nominate one individual for election to our Board of Directors so long as it continues to own at least 30 % of the common stock issuable or issued upon conversion of the Series A Preferred Stock originally issued to it in the private placement. Under certain circumstances, H.I.G. also has the right to nominate an additional individual to our Board of Directors if we fail to maintain certain levels of commissions receivable or liquidity as further discussed below. Voting Rights – The Series A Preferred Stock will vote together with the common stock as a single class on all matters submitted to a vote of the holders of the common stock (subject to certain voting limitations set forth in, and the terms and conditions of, the Certificate of Designations). Each holder of Series A Preferred Stock shall be entitled to the number of votes, rounded down to the nearest whole number, equal to the product of (i) the aggregate Accrued Value of the issued and outstanding shares of Series A Preferred Stock divided by $ 69.684 , which is the “Minimum Price” computed in accordance with the Certificate of Designations (as further described below), multiplied by (ii) a fraction, the numerator of which is the number of shares of Series A Preferred Stock held by such holder and the denominator of which is the aggregate number of issued and outstanding shares of Series A Preferred Stock. “Minimum Price” means the lower of: (i) the Nasdaq Official Closing Price per share of common stock on the Closing Date; or (ii) the average Nasdaq Official Closing Price per share of common stock for the five trading days immediately prior to the Closing Date. Holders of Series A Preferred Stock will have one vote per share on any matter on which the holders of the Series A Preferred Stock are entitled to vote separately as a class (subject to certain voting limitations set forth in the Certificate of Designations). Mandatory Conversion of the Series A Preferred Stock – At any time on or after the third anniversary of the Closing Date, if the volume-weighted average price per share of our common stock is greater than 167.5 % of 16 Table of Contents EHEALTH, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) the then-current Conversion Price for 20 consecutive trading days in a 30 -day trading day period, the Company will have the right to convert all, but not less than all, of the Series A Preferred Stock into common stock at a conversion rate with respect to each share of Series A Preferred Stock of (i) the Accrued Value plus accrued PIK dividends that have not yet been added to the Accrued Value, (ii) divided by the then applicable Conversion Price. Covenants and Liquidity Requirements – As long as H.I.G. continues to own at least 30 % of the Series A Preferred Stock originally issued to it in the private placement, the consent of H.I.G. will be required for the Company to incur certain indebtedness and to take certain other corporate actions as set forth in the H.I.G. Investment Agreement. In addition, the Company is required to maintain an Asset Coverage Ratio (as defined in the H.I.G. Investment Agreement) of at least 2.0 x (the “Minimum Asset Coverage Ratio”), which increased to 2.5 x in August of 2023. The first measurement date of the 2.5 x Minimum Asset Coverage Ratio was September 30, 2023. Additionally, the H.I.G. Investment Agreement requires the Company to maintain a Minimum Liquidity Amount (as defined in the H.I.G. Investment Agreement) for certain periods that ranges from $ 65.0 million to $ 125.0 million. Failure to maintain the Minimum Asset Coverage Ratio or the Minimum Liquidity Amount as of the date or for the time period required by the H.I.G. Investment Agreement, for 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 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. As of September 30, 2023, we complied with the Minimum Liquidity Amount. However, our Asset Coverage Ratio was 2.3 x as of September 30, 2023, and as a result, we did not meet the Minimum Asset Coverage Ratio. Our Series A Preferred Stock is considered temporary equity in our condensed consolidated financial statements. We have determined there are no material embedded features that require recognition as a derivative asset or liability. We recognized the Series A Preferred Stock at its stated amount less issuance costs of $ 11.0 million, or $ 214.0 million. As of September 30, 2023, the estimated Series A Preferred Stock redemption value equals 135 % of the Accrued Value per share as of the redemption date, plus accrued PIK dividends that have not yet been added to the Accrued Value, which is significantly in excess of the fair value of the common stock into which the Series A Preferred Stock is convertible as of September 30, 2023. We have elected to apply the accretion method to adjust the carrying value of the Series A Preferred Stock to its redemption value at the earliest date of redemption, April 30, 2027. Amounts recognized to accrete the Series A Preferred Stock to its estimated redemption value are treated as a deemed dividend and are recorded as a reduction to retained earnings. The estimated redemption value will vary in subsequent periods due to the redemption put right described above and we have elected to recognize such changes prospectively. No shares of Series A Preferred Stock have been converted, and the Series A Preferred Stock was convertible into 3.4 million shares of common stock as of September 30, 2023. 17 Table of Contents EHEALTH, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The following table summarizes the proceeds and changes to our Series A Preferred Stock (in thousands): Gross proceeds $ 225,000 Less: issuance costs ( 10,975 ) Net proceeds $ 214,025 Balance as of December 31, 2021 $ 232,592 Accrued paid-in-kind dividends 19,357 Change in preferred stock redemption value 11,335 Balance as of December 31, 2022 $ 263,284 Accrued paid-in-kind dividends 13,441 Change in preferred stock redemption value 12,158 Balance as of September 30, 2023 $ 288,883 Note 7 – Net Loss Per Share Attributable to Common Stockholders Our Series A Preferred Stock is considered a participating security which requires the use of the two-class method for the computation of basic and diluted per share amounts. Under the two-class method, earnings available to common stockholders for the period are allocated between common stockholders and participating securities according to dividends accumulated and participation rights in undistributed earnings. Net loss attributable to common stockholders is not allocated to the convertible preferred stock as the holder of the Series A Preferred Stock does not have a contractual obligation to share in losses. Basic net loss attributable to common stockholders per share is computed by dividing net loss available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted net loss attributable to common stockholders per share is computed by dividing the net loss available to common stockholders for the period by the weighted average number of common and common equivalent shares outstanding during the period. Diluted net loss attributable to common stockholders per share reflects all potential dilutive common stock equivalent shares, including conversion of preferred stock, stock options, restricted stock units and shares to be issued under our employee stock purchase program. The following table sets forth the computation of basic and diluted net loss attributable to common stockholders per share (in thousands, except per share amounts): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Numerator: Net loss attributable to common stockholders $ ( 47,243 ) $ ( 46,998 ) $ ( 108,206 ) $ ( 131,986 ) Denominator: Shares used in per share calculation – basic 28,114 27,346 27,863 27,329 Dilutive effect of common stock — — — — Shares used in per share calculation – diluted 28,114 27,346 27,863 27,329 Net loss attributable to common stockholders per share – basic and diluted $ ( 1.68 ) $ ( 1.72 ) $ ( 3.88 ) $ ( 4.83 ) 18 Table of Contents EHEALTH, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) For each of the three and nine months ended September 30, 2023 and 2022, we had securities outstanding that could potentially dilute per share amounts, but the shares from the assumed conversion or exercise of these securities were excluded in the computation of diluted net loss per share as their effect would have been anti-dilutive. The number of outstanding anti-dilutive shares that were excluded from the computation of diluted net loss per share consisted of the following (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Convertible preferred stock 3,368 3,130 3,315 3,083 Restricted stock units (1) 2,901 1,999 2,574 1,299 Common stock options 218 239 222 282 Employee stock purchase program 67 — 59 — Total 6,554 5,368 6,170 4,664 _________ (1) Amounts include market-based and performance-based restricted stock units. Note 8 – Commitments and Contingencies Service and Licensing 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. As the benefits of these agreements are experienced uniformly over the applicable contractual periods, 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. Our future minimum payments under non-cancellable contractual service and licensing obligations as of September 30, 2023 were as follows (in thousands): For the Years Ending December 31, 2023 (remainder) $ 2,574 2024 4,911 2025 1,041 2026 — 2027 — Thereafter — Total $ 8,526 19 Table of Contents EHEALTH, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Operating Leases Refer to Note 10 – Leases for commitments related to our operating leases. Self-Insurance We provide comprehensive major medical benefits to our employees. Effective January 1, 2023, in the United States, we are self-insured for employee health insurance benefits up to $ 0.3 million per individual per year and a maximum claim liability of $ 13.6 million. As a result, we record a self-insurance liability based on claims filed and an estimate of claims incurred but not yet reported. As of September 30, 2023, we had a self-insurance liability balance of $ 2.0 million in the “Accrued compensation and benefits” line on our Condensed Consolidated Balance Sheet. We had no liability on our Condensed Consolidated Balance Sheet as of December 31, 2022 as our employee health insurance coverage was not self-insured at the time. Contingencies From time to time, we receive inquiries from governmental bodies and also may be subject to various legal proceedings and claims arising in the ordinary course of business. We assess contingencies to determine the degree of probability and range of possible loss for potential accrual in our condensed consolidated financial statements. An estimated loss contingency is accrued in the condensed consolidated financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. There was no material litigation-related accrual during the three and nine months ended September 30, 2023 or 2022. Legal proceedings or other contingencies could result in material costs, even if we ultimately prevail. Legal Proceedings Securities Class Action – On April 8, 2020 and April 30, 2020, two purported class action lawsuits were filed against the Company, its then-chief executive officer, Scott N. Flanders, its then-chief financial officer, Derek N. Yung, and its then-chief operating officer, David K. Francis in the United States District Court for the Northern District of California. The cases are captioned Patel v. eHealth, Inc., et al ., Case No. 5:20-cv-02395 (N.D. Cal.) and Bertrand v. eHealth, Inc. et al. , Case No. 4:20-cv-02967 (N.D. Cal.). The complaints allege, among other things, that the Company and Messrs. Flanders, Yung and Francis made materially false and misleading statements and/or failed to disclose material information regarding the Company’s accounting and modeling assumptions, rate of member churn and the Company’s profitability during the alleged class period of March 19, 2018 to April 7, 2020. The complaints allege that we and Messrs. Flanders, Yung and Francis violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (as amended, the “Exchange Act”) and Rule 10b-5 promulgated thereunder. The complaints seek compensatory and (in the Patel lawsuit) punitive damages, attorneys’ fees and costs, and such other relief as the court deems proper. On June 24, 2020, the Court consolidated the above-referenced matters under the caption In re eHealth Securities Litig. , Master File No. 4:20-cv-02395-JST (N.D. Cal.). The Court also appointed a lead plaintiff and lead counsel for the consolidated matter. An Amended Complaint was filed on August 25, 2020, which Defendants moved to dismiss on October 23, 2020. Defendants’ motion, which Plaintiff opposed, was granted in part and denied in part on August 12, 2021. The Court dismissed Plaintiff’s claims to the extent premised upon alleged misrepresentations or omissions relating to churn but denied Defendants’ motion with respect to alleged misstatements regarding purported operating costs. On October 1, 2021, the Company filed an Answer denying in part and admitting in part the remaining allegations and denying any wrongdoing. On November 11, 2021, Plaintiff’s counsel filed a suggestion of death with respect to the lead plaintiff Billy White. Plaintiff’s counsel published notice regarding the appointment of a new lead plaintiff on January 17, 2022. On November 9, 2022, the Court appointed Chicago & Vicinity Laborers’ District Council Pension Fund as the new lead plaintiff and approved plaintiff’s selection of counsel. On November 29, 2022, the new lead plaintiff and lead plaintiff’s counsel filed a supplement to the amended complaint, replacing the names of the prior lead plaintiff and counsel and incorporating new lead plaintiff’s previously filed certification. On December 22, 2022, the Company, Mr. Flanders, and Mr. Yung moved for judgment on the pleadings as to the remaining claims. Mr. Francis also moved for judgment on the pleadings the same day, and joined the motion by the Company, Mr. Flanders, and Mr. Yung. The motions for 20 Table of Contents EHEALTH, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) judgment on the pleadings were fully briefed by February 9, 2023 and were scheduled for a hearing on April 13, 2023. On April 5, 2023, the Court vacated the hearing on the motions and stated its intent to issue a decision based on the parties’ written briefing. On April 25, 2023, a consortium of putative class members (the “Alger Funds”) filed a motion to intervene in the case, prior to the expiration of the applicable statute of repose, to preserve their individual rights. On May 5, 2023, a defendants’ statement of non-opposition to Alger Funds’ limited motion to intervene and a stipulation with Alger Funds regarding same were filed. On September 28, 2023, the Court granted, with leave to amend, the Company’s motion for judgment on the pleadings as to all remaining claims, along with the similar motions of Mr. Flanders and Mr. Yung. The Court simultaneously dismissed, with prejudice and without leave to amend, all claims against Mr. Francis. On October 23, 2023, plaintiff filed a stipulation of dismissal order and notice, indicating that lead plaintiff would not file an amended complaint or appeal (a) the order granting in part and denying in part the motion to dismiss or (b) the order granting the motion for judgment on the pleadings. On October 25, 2023, the court entered the stipulated order, dismissing the case without leave to amend. There has not been subsequent follow-up from the Alger Funds. Derivative Actions – On July 7, 2020, a derivative lawsuit captioned  Chernet v. Flanders et al. , Case No. 3:20-cv-04477-SK (N.D. Cal.) (the “ Chernet” matter) was filed in the United States District Court for the Northern District of California. On October 13, 2020, a derivative lawsuit captioned Lincolnshire Police Pension Fund v. Flanders et al. , Case No. 20CV371555 (Cal. Super. Ct.) (the “ Lincolnshire” matter) was filed in the Superior Court of California, County of Santa Clara. The complaints were brought against the Company’s then-chief executive officer, Mr. Flanders, its then-chief financial officer, Mr. Yung, its then-chief operating officer, Mr. Francis, and the then-current members of the Board of Directors (collectively, the “Individual Defendants”), and name the Company as a nominal defendant. The complaints allege, among other things, that the Individual Defendants made or caused the Company to make materially false and misleading statements and/or failed to disclose material information regarding the Company’s accounting and modeling assumptions, rate of member churn, profitability and internal controls for the period of March 2018 through the present. The  Chernet  and  Lincolnshire  complaints purport to assert claims for breach of fiduciary duty, unjust enrichment and waste of corporate assets. The  Chernet  lawsuit also alleges that the Individual Defendants violated Sections 14(a), 10(b), and 20(a) of the Exchange Act and asserts claims for abuse of control and gross mismanagement. The  Chernet  and  Lincolnshire  complaints seek damages, restitution, attorneys’ fees and costs, and certain measures with respect to the Company’s corporate governance and internal procedures, and (in the  Lincolnshire  lawsuit) equitable and/or injunctive relief. On August 12, 2020, the court stayed the Chernet matter pending the resolution of the then-anticipated motion to dismiss the consolidated securities class action. On December 11, 2020, the court stayed the Lincolnshire matter, also pending the resolution of the motion to dismiss in the consolidated securities class action. On October 5, 2021, a third derivative lawsuit, captioned Badwal v. Flanders et al. , Case No. 4:21-cv-07795 (N.D. Cal.) (the “ Badwal” matter) was filed in the United States District Court for the Northern District of California. The  Badwal  complaint purports to assert a claim for breach of fiduciary duty, an insider trading claim, and violations of Section 14(a), 10(b) and 21D of the Exchange Act. The  Badwal  complaint seeks damages, declaratory relief, corporate governance measures, equitable and injunctive relief, restitution and disgorgement, and attorneys’ fees and costs. On November 29, 2021, the federal court consolidated the Chernet and Badwal matters under the caption In re eHealth, Inc. Stockholder Derivative Litigation (the “Federal Derivative Action”). On August 12, 2021, the court granted-in-part and denied-in-part defendants’ motion to dismiss the securities class action. In December 2021, the parties entered into a stipulation to further stay the Federal Derivative Action pending the appointment of a new lead plaintiff in the securities class action, which was so ordered by the court on December 14, 2021. As discussed above, November 9, 2022, the court appointed a new lead plaintiff in the securities class action. On December 9, 2022, plaintiffs in the Federal Derivative Action filed a verified consolidated stockholder derivative complaint on behalf of the Company against certain current and former members of its Board of Directors and certain of its officers. The complaint alleges breaches of fiduciary duties, insider trading, and violations of Sections 14(a), 10(b) and 21D of the Exchange Act. The complaint seeks damages, declaratory relief, corporate governance measures, equitable and injunctive relief, restitution and disgorgement, and attorneys’ fees and costs. On January 3, 2023, pursuant to a joint stipulation, the court ordered all proceedings in the Federal Derivative Action stayed pending the resolution of the securities class action. On July 28, 2023, the Lincolnshire matter was stayed pending 21 Table of Contents EHEALTH, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) the resolution of the securities class action, pursuant to the parties’ stipulation. There has not been subsequent follow-up from the plaintiffs in these matters. Note 9 – Segment and Geographic Information Operating Segments We report segment information based on how our chief executive officer, who is our chief operating decision maker (“CODM”), regularly reviews our operating results, allocates resources and makes decisions regarding our business operations. We evaluate our business performance and manage our operations as two distinct operating segments: Medicare and Individual, Family and Small Business. The performance measures of our segments include revenue and segment profit (loss). Please refer to Note 1 – Summary of Business and Significant Accounting Policies of the Notes to Consolidated Financial Statements in Part II, Item 8 of the Annual Report on Form 10-K for the year ended December 31, 2022 for our accounting policies relating to operating segments. The results of our operating segments are summarized for the periods presented below (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Revenue: Medicare $ 55,523 $ 45,137 $ 172,787 $ 181,266 Individual, Family and Small Business 9,195 8,239 32,422 27,769 Total revenue $ 64,718 $ 53,376 $ 205,209 $ 209,035 Segment profit (loss): Medicare $ ( 17,471 ) $ ( 22,962 ) $ ( 25,539 ) $ ( 63,050 ) Individual, Family and Small Business 4,631 2,688 18,737 12,285 Segment profit (loss) ( 12,840 ) ( 20,274 ) ( 6,802 ) ( 50,765 ) Corporate ( 15,257 ) ( 12,795 ) ( 48,758 ) ( 40,382 ) Stock-based compensation expense ( 6,554 ) ( 5,144 ) ( 17,741 ) ( 15,934 ) Depreciation and amortization ( 4,745 ) ( 5,558 ) ( 15,141 ) ( 15,685 ) Impairment, restructuring and other charges — ( 4,498 ) — ( 10,690 ) Other income (expense), net ( 138 ) ( 647 ) ( 622 ) ( 2,835 ) Loss before income taxes $ ( 39,534 ) $ ( 48,916 ) $ ( 89,064 ) $ ( 136,291 ) There were no inter-segment revenue transactions for the periods presented. With the exception of contract assets – commissions receivable, which is presented by segment in Note 3 – Supplemental Financial Statement Information , our CODM does not separately evaluate assets by segment, and therefore, assets by segment are not presented. 22 Table of Contents EHEALTH, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Geographic Information Our long-lived assets primarily consist of property and equipment, net and internally developed software. Our long-lived assets are attributed to the geographic location in which they are located. Long-lived assets by geographical area are summarized as follows (in thousands): September 30, 2023 December 31, 2022 United States $ 32,254 $ 37,915 China 249 381 Total $ 32,503 $ 38,296 Significant Customers Substantially all revenue for the three and nine months ended September 30, 2023 and 2022 was generated from customers located in the United States. Carriers representing 10% or more of our total revenue are summarized as follows: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Humana 31 % 17 % 28 % 18 % UnitedHealthCare (1) 22 % 27 % 22 % 22 % Aetna (1) 8 % 12 % 7 % 12 % Centene (1) 3 % 10 % 3 % 13 % ____________ (1) Percentages include the carriers’ subsidiaries. Note 10 – Leases Our lease portfolio primarily consists of operating leases for office space and our leases have remaining lease terms of less than 1 year to 6 years. Certain of these leases have free or escalating rent payment provisions. We recognize lease expense on a straight-line basis over the terms of the leases, although actual cash payment obligations under certain of these agreements fluctuate over the terms of the agreements. Most leases include options to renew, and the exercise of these options is at our discretion. Subsequent to becoming a remote first workplace in the third quarter of 2022, we have executed several subleases of our office space in the United States. The subleases run through the remaining term of the primary leases. As of September 30, 2023, we expect to generate a total of $ 14.6 million in future sublease income through January 31, 2030. Sublease income is recorded on a straight-line basis as a reduction of lease expense in our Condensed Consolidated Statements of Comprehensive Loss. 23 Table of Contents EHEALTH, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The components of operating lease costs for the three and nine months ended September 30, 2023 and 2022 were as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Operating lease expense $ 1,705 $ 1,905 $ 5,395 $ 5,729 Operating sublease income ( 518 ) ( 387 ) ( 1,675 ) ( 472 ) Total operating lease cost $ 1,187 $ 1,518 $ 3,720 $ 5,257 Supplemental information related to our leases are as follows (dollars in thousands): Nine Months Ended September 30, 2023 2022 Cash paid for amounts included in the measurement of operating lease liabilities $ 6,533 $ 5,878 Non-cash investing activities relating to operating lease right-of-use assets $ 1,285 $ — September 30, 2023 December 31, 2022 Weighted-average remaining lease term of operating leases 5.0 years 5.7 years Weighted-average discount rate used to recognize operating lease right-of-use-assets 5.7 % 5.6 % As of September 30, 2023, maturities of our operating lease liabilities are as follows (in thousands): Year ending December 31, 2023 (remainder) $ 2,193 2024 8,889 2025 9,094 2026 7,760 2027 6,773 Thereafter 8,201 Total lease payments (1) $ 42,910 Less imputed interest ( 5,870 ) Total $ 37,040 ____________ (1) Non-cancellable sublease income for the remainder of 2023 and the years ending December 31, 2024, 2025, 2026, 2027 and thereafter of $ 0.4 million, $ 2.4 million, $ 2.6 million, $ 2.7 million, $ 2.8 million, and $ 3.8 million, respectively, are not included in the table above. 24 Table of Contents EHEALTH, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 11 — Impairment, Restructuring and Other Charges The following table details impairment, restructuring and other charges for each of the periods presented (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Restructuring and reorganization charges $ — $ 764 $ — $ 6,956 Asset impairment charges — 3,734 — 3,734 Impairment, restructuring and other charges $ — $ 4,498 $ — $ 10,690 Restructuring Our restructuring and reorganization costs and liabilities consist primarily of severance, transition and other related costs. The following table summarizes the cash-based restructuring and reorganization related liabilities (in thousands): Balance at December 31, 2022 $ 366 Restructuring and reorganization charges — Payments ( 366 ) Balance at September 30, 2023 $ — During the three and nine months ended September 30, 2023, we incurred no pre-tax restructuring charges. As of September 30, 2023, we had no restructuring accrual on our Condensed Consolidated Balance Sheet. In the first half of 2022, we eliminated 339 full-time positions, which represented approximately 14 % of our workforce, primarily within our customer care and enrollment group, and to a lesser extent, in our marketing and advertising, technology and content, and general and administrative groups, and, as a result, recorded pre-tax restructuring charges of $ 6.2 million in the “Impairment, restructuring and other charges” line in our Condensed Consolidated Statements of Comprehensive Loss. During the three months ended September 30, 2022, we incurred pre-tax restructuring charges of $ 0.8 million for additional eliminated positions, which resulted in a $ 7.0 million pre-tax restructuring charge for the nine months ended September 30, 2022 in the “Impairment, restructuring and other charges” line in our Condensed Consolidated Statements of Comprehensive Loss. For the three and nine months ended September 30, 2022, we recognized a non-cash, pre-tax asset impairment charge of $ 3.4 million related to the sublease of our office space in Santa Clara, California in the “Impairment, restructuring and other charges” line in our Condensed Consolidated Statements of Comprehensive Loss. This charge was comprised of $ 2.5 million of operating lease right-of-use assets impairment and $ 0.9 million of property and equipment impairment. We also incurred $ 0.3 million of impairment charges related to abandoned in-process internally developed software during the quarter, which was also recognized in the “Impairment, restructuring and other charges” line in our Condensed Consolidated Statements of Comprehensive Loss. Note 12 – Debt On February 28, 2022, we entered into a term loan credit agreement with Blue Torch Finance LLC, as administrative agent and collateral agent, and other lenders party thereto (the “Original Credit Agreement”). On August 16, 2022, we entered into an Amendment (the “Amendment”) to the Original Credit Agreement (as amended by the Amendment, the “Credit Agreement”). The Amendment replaced the LIBOR-based Adjusted Euro currency Rate (as defined in the Original Credit Agreement) with Adjusted Term SOFR (as defined in the Amendment) as a reference rate for loans under the Credit Agreement. The proceeds of the loans under the Credit Agreement may be 25 Table of Contents EHEALTH, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) used for working capital and general corporate purposes, to refinance our credit agreement with Royal Bank of Canada (“RBC”) and to pay fees and expenses in connection with the entry into the Credit Agreement. The Credit Agreement provides for a $ 70.0 million secured term loan credit facility. We incurred closing costs totaling $ 5.1 million, which were recorded as a direct deduction from the face of the loan on our Condensed Consolidated Balance Sheets. There were $ 2.7 million of unamortized issuance costs as of September 30, 2023. The carrying value of the term loan approximates the fair value, based on Level 2 inputs (observable market prices in less than active markets), as the interest rate is variable over the selected interest period and is similar to current rates at which we can borrow funds. The carrying value of the loan was $ 67.3 million as of September 30, 2023. The Original Credit Agreement bore interest, at our option, at either a rate based on the LIBOR for the applicable interest period or a base rate, in each case plus a margin. The base rate was the highest of the prime rate, the federal funds rates plus 0.50 % and one month adjusted LIBOR plus 1.00 %. The margin was 7.50 % for LIBOR loans and 6.50 % for base rate loans. After the Amendment, the loans under the Credit Agreement bear interest, at our option, at either a rate based on the Adjusted Term SOFR or a base rate, in each case plus a margin. The base rate is the highest of the prime rate, the federal funds rate plus 0.50 % and three-month Adjusted Term SOFR plus 1.00 %. The margin is 7.50 % for Adjusted Term SOFR loans and 6.50 % for base rate loans. 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. For the three and nine months ended September 30, 2022, we incurred interest expense of $ 1.7 million and $ 3.9 million, respectively. Furthermore, as part of the Credit Agreement, we incur a $ 0.3 million fee per annum, payable annually. The outstanding obligations under the Credit Agreement are payable in full on the maturity date. The Credit Agreement matures in February 2025. We have the right to prepay the loans under the Credit Agreement in whole or in part at any time, subject, in the case of certain mandatory prepayments or any voluntary prepayment of the loans under the Credit Agreement after February 28, 2023, to an exit fee, which right we did not exercise. Our obligations under the Credit Agreement are guaranteed by certain of our material domestic subsidiaries and substantially all of our assets and the assets of such guarantors, in each case, subject to customary exclusion. Financial covenants in the Credit Agreement require that we maintain Liquidity (as defined in the Credit Agreement) at or above $ 25.0 million as of the last calendar day of any month. The Credit Agreement also requires that the outstanding amount as of the last calendar day of any month be less than 50 % of our total contract assets - commissions receivables (i.e., both current and non-current commissions receivables). As of September 30, 2023, we were in compliance with our loan covenants. In the first quarter of 2022, in connection with entering into the Credit Agreement, we terminated our credit agreement with RBC, pursuant to which we had an up to $ 75 million revolving credit facility, and as a result, wrote off our remaining related debt issuance cost of $ 0.4 million. We had no outstanding borrowings under our agreement with RBC at the time of termination. Note 13 – Income Taxes The following table summarizes our benefit from income taxes and our effective tax rates for the periods presented below (in thousands, except effective tax rate): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Loss before income taxes $ ( 39,534 ) $ ( 48,916 ) $ ( 89,064 ) $ ( 136,291 ) Benefit from income taxes ( 2,509 ) ( 9,767 ) ( 8,660 ) ( 26,898 ) Effective tax rate 6.3 % 20.0 % 9.7 % 19.7 % 26 Table of Contents EHEALTH, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Our provision for income taxes during interim reporting periods has historically been calculated by applying an estimate of the annual effective tax rate to income (loss) before income taxes for the reporting period. Although we believe the use of the annual effective tax rate method to be appropriate for prior interim reporting periods, for the three and nine months ended September 30, 2023, we applied the actual effective tax rate, which reflects the actual taxes attributable to year-to-date losses, as allowed by ASC 740-270 “Income taxes, Interim Reporting.” We determined that since minor changes in estimated income or loss for fiscal 2023 would result in significant changes in the estimated annual effective tax rate, the discrete method would provide a more reliable estimate for the three and nine months ended September 30, 2023. For the three and nine months ended September 30, 2023, we recognized a benefit from income taxes of $ 2.5 million and $ 8.7 million, respectively, representing an effective tax rate of 6.3 % and 9.7 %, respectively, which was lower than the statutory federal tax rate primarily due 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. For the three and nine months ended September 30, 2022, we recognized a benefit from income taxes of $ 9.8 million and $ 26.9 million, respectively, representing an effective tax rate of 20.0 % and 19.7 %, respectively, which was lower than the statutory federal tax rate primarily due to stock-based compensation adjustments and non-deductible lobbying expenses, partially offset by research and development credits and state taxes. Assessing the realizability of our deferred tax assets is dependent upon several factors, including the likelihood and amount, if any, of future taxable income in relevant jurisdictions during the periods in which those temporary differences become deductible. We forecast taxable income by considering all available positive and negative evidence, including our history of operating income and losses and our financial plans and estimates that we use to manage the business. These assumptions require significant judgment about future taxable income. As a result, the amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income change. We continue to recognize our deferred tax assets as of September 30, 2023, as we believe it is more likely than not that such deferred tax assets will be realized, with the exception of certain net operating losses and credits for which there is increased uncertainty regarding our future taxable income and a lack of other sources of taxable income, which have a valuation allowance. 27 Table of Contents