Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Please read the following discussion and analysis together with our condensed consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “Annual Report”). This discussion and analysis contains forward-looking statements, which involve risks and uncertainties. As a result of many factors, such as those described under “Cautionary Note Regarding Forward-Looking Statements,” “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report, our actual results may differ materially from those anticipated in these forward-looking statements.
Overview
We are a leading private online health insurance marketplace with a technology and service platform that provides consumer engagement, education and health insurance enrollment solutions. Our mission is to expertly guide consumers through their health insurance enrollment and related options, when, where and how they prefer. Our platform leverages technology to solve a critical problem in a large and growing market by aiding consumers in what has traditionally been a complex, confusing and opaque health insurance purchasing process. Our omnichannel consumer engagement platform differentiates our offering from other brokers and enables consumers to use our services online, by telephone with a licensed insurance agent, or 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.
Business Update
Our fiscal 2024 growth strategy focuses on pursuing deliberate enrollment and revenue growth, while diversifying our revenue streams, continuing to build out our unified omnichannel marketing engine, driving higher conversion rates on our platform and enhancing enrollment quality and member retention.
During the first half of 2024, we maintained momentum in our Medicare business delivering strong enrollment growth across our core agency (“Agency”) and carrier-dedicated (“Amplify”) models. Our Agency model consists of arrangements where we are the broker of record while our Amplify model consists of both broker of record arrangements as well as non-broker of record arrangements where we provide business process outsourcing services (“BPO”) Broker of record arrangements generate commission revenue, and fee-based BPO arrangements generate fee-based revenue which is recorded in other revenue.
Agency performance during the second quarter was driven by our enhanced marketing strategies, greater lead conversion rates and the retention of our tenured benefit advisors. We also observed significant traction in our Amplify initiatives which is an important element of our business diversification strategy. This year, we added new carriers to the Amplify platform and are expanding relationships with our existing customers.
During the second quarter of 2024, a portion of our Amplify broker of record arrangements converted to fee-based BPO arrangements, resulting in a reduction of our Medicare approved members and a decrease in the corresponding commission revenue, while our fee-based BPO arrangements have increased, contributing to substantial growth in our other revenue. While we have observed declines in Medicare plan approved members, which only reflect our broker-of-record arrangements, our total Medicare submissions, inclusive of our broker of record and fee-based BPO arrangements, increased 16% during the second quarter of 2024 compared to the same
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period in 2023. Submissions describe applications that are submitted by individuals online through our eHealth platform or completed with the assistance of our benefit advisors where the individual provides authorization to the benefit advisor to submit the application to the insurance carrier partner. The individual may have additional actions to take before the application will be reviewed by the insurance carrier and not all submissions ultimately become approved members.
Additionally, during the second quarter of 2024, our existing book of business continued to generate positive adjustment revenue driven by favorable retention and cash collection trends and we continued to execute on our fixed cost reduction initiative while improving our member acquisition costs for our Medicare Agency model. In our Employer and Individual segment (“E&I”) we have been focused on implementing operational enhancements with a plan to resume enrollment growth in the fourth quarter.
We also began preparations for the 2025 Annual Enrollment Period (“AEP”). We expect to see significant consumer demand this upcoming AEP, presenting a growth opportunity for us that is driven by anticipated changes in many Medicare Advantage plans as well as a reduction in tele-broker capacity as several of our competitors have exited the market over the past twelve months. Our AEP preparedness efforts include development of and continued enhancements of our marketing materials, enhancements to our omni-channel consumer platform and hiring and training of the new benefit advisor classes. We have also launched the next phase of our retention strategy including Match Monitor, a tool that allows members to easily understand the implications of annual notice changes, check if any of their critical benefits are impacted and compare their current plan to other options. We also expanded our loyalty program, ePerks, by adding new partners to the platform and we have developed a plan tracker tool called eHealth Application Tracker, which is designed to allow beneficiaries to monitor the status of their Medicare plan application in real-time. Member retention is especially important in the upcoming annual enrollment cycle given the anticipated increase in consumer shopping.
Change in Expense Allocation Methodology
Beginning in the first quarter of 2024, primarily as a result of vacating excess office space, we modified our methodology used in allocating certain expenses for the purpose of evaluating financial and segment performance and resource allocation. Specifically, we no longer allocate our facilities-related expenses, and as a result, these costs are now reported within the “General and administrative” line in our Condensed Consolidated Statements of Comprehensive Loss and within Corporate for our segment profit (loss). We have recast the Condensed Consolidated Statements of Comprehensive Loss and our segment profit (loss) for the prior periods presented to conform to our current methodology. This resulted in a classification change of expenses from marketing and advertising, customer care and enrollment, and technology and content into general and administrative. Additionally, our segment profit (loss) no longer includes our facilities allocation to each of our segments and instead, these costs are included within Corporate. There was no impact to total operating costs and expenses, loss from operations, net loss or net loss per share attributable to common stockholders on our Condensed Consolidated Statements of Comprehensive Loss.
Summary of Selected Metrics
We rely upon certain metrics to estimate and recognize commission revenue, evaluate our business performance and facilitate strategic planning. Our commission revenue is influenced by a number of factors including but not limited to:
• the number of individuals on applications for Medicare-related, individual and family, small business and ancillary health insurance plans that are approved by the relevant health insurance carriers;
• the number of approved members for Medicare-related, individual and family, small business and ancillary health insurance plans from whom we have received an initial commission payment; and
• the constrained LTV of approved members for Medicare-related, individual and family and ancillary health insurance plans we sell, as well as the estimated annual value of approved members for small business plans we sell.
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Approved Members
Approved members represent the number of individuals on submitted applications that were approved by the relevant insurance carrier for the identified product during the current period for which we are the broker of record. The applications may be submitted in either the current period or prior periods. Not all approved members ultimately become paying members.
The following table shows approved members by product for the periods presented:
Three Months Ended
June 30, % Change Six Months Ended
June 30, % Change
2024 2023 2024 2023
Medicare
Medicare Advantage 37,638 35,597 6 % 103,388 96,048 8 %
Medicare Supplement 1,954 2,923 (33) % 8,136 7,508 8 %
Medicare Part D 1,468 2,948 (50) % 5,043 6,794 (26) %
Total Medicare 41,060 41,468 (1) % 116,567 110,350 6 %
Individual and Family 3,508 4,285 (18) % 10,668 14,384 (26) %
Ancillary 11,078 13,051 (15) % 25,028 29,707 (16) %
Small Business 922 1,964 (53) % 2,564 3,903 (34) %
Total Approved Members 56,568 60,768 (7) % 154,827 158,344 (2) %
Three Months Ended June 30, 2024 and 2023 – Total approved members declined 7% during the three months ended June 30, 2024 compared to the same period in 2023, driven by:
• a 1% decline in Medicare approved members, primarily resulting from:
◦ a 50% decline in Medicare Part D approved members due to carrier mix as well as the shift from some broker of record arrangements to fee-based arrangements within our Amplify platform,
◦ a 33% decline in Medicare Supplement approved members due to the shift from some broker of record arrangements to fee-based arrangements within our Amplify platform, and
◦ a 6% increase in Medicare Advantage approved members due to an increased number of benefit advisors and increased variable marketing spend year-over-year, partially offset by the shift from some broker of record arrangements to fee-based arrangements within our Amplify platform.
• a 15% decline in ancillary approved members due to declines in approved members across all ancillary insurance products that are typically cross-sold with new individual and family plan enrollments; and
• a 53% and 18% decline in small business health insurance and individual and family plan approved members, respectively, primarily due to a decrease in volume as we focus on implementing operational enhancements with a plan to resume enrollment growth in our E&I segment in the fourth quarter of 2024.
Six Months Ended June 30, 2024 and 2023 – Total approved members declined 2% during the six months ended June 30, 2024 compared to the same period in 2023, driven by:
• a 16% decline in ancillary approved members due to declines in approved members across most ancillary insurance products that are typically cross-sold with new individual and family plan enrollments; and
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• a 26% and 34% decline in individual and family plan and small business health insurance approved members, respectively, primarily due to a decrease in volume as we focus on implementing operational enhancements with a plan to resume enrollment growth in our E&I segment in the fourth quarter of 2024;
• partially offset by a 6% increase in Medicare approved members, primarily resulting from:
◦ an increased number of benefit advisors and increased variable marketing spend year-over-year, specifically contributing to an 8% increase in both Medicare Advantage and Medicare Supplement approved members,
◦ slightly offset by the shift from some broker of record arrangements to fee-based arrangements within our Amplify platform, which impacted all Medicare products, along with an additional decline in Medicare Part D approved members due to carrier mix.
Estimated Constrained Lifetime Value of Commissions Per Approved Member
The following table shows our estimated constrained LTV of commissions per approved member by product for the periods presented below:
Three Months Ended
June 30, % Change
2024 2023
Medicare (1) (2)
Medicare Advantage $ 927 $ 891 4 %
Medicare Supplement 1,112 875 27 %
Medicare Part D 225 231 (3) %
Individual and Family (1)
Non-Qualified Health Plans 353 329 7 %
Qualified Health Plans 354 357 (1) %
Ancillary (1)
Short-term 172 161 7 %
Dental 122 98 24 %
Vision 76 66 15 %
Small Business (1)
253 229 10 %
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(1) Constrained LTV of commissions per approved member for Medicare, individual and family and ancillary plans represents commissions estimated to be collected over the estimated life of an approved member’s plan after applying constraints in accordance with our revenue recognition policy. Constrained LTV of commissions per approved member for small business represents the estimated commissions we expect to collect from the plan over the following twelve months. The estimate is driven by multiple factors, including but not limited to, contracted commission rates, carrier mix, estimated average plan duration, the regulatory environment, and cancellations of insurance plans offered by health insurance carriers with which we have a relationship and applied constraints. The constraints are applied to help ensure that commissions estimated to be collected over the estimated life of an approved member’s plan are recognized as revenue only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with future commissions receivable from the plan is subsequently resolved. These factors may result in varying values from period to period. For additional information on constrained LTV, see “ Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2023.
(2) The constraints applied to the total estimated lifetime commissions we expect to receive for selling the plan after the carrier approves an application in order to derive the constrained LTV of commissions for approved members recognized for Medicare Advantage, Medicare Supplement and Medicare Part D were 5.5%, 9% and 7%, respectively, for the three months ended June 30, 2024 and 7%, 9% and 7%, respectively, for the three months ended June 30, 2023.
Three Months Ended June 30, 2024 and 2023 - The changes in constrained LTV of commissions per approved member primarily consisted of:
• a 4% increase in Medicare Advantage plans, reflecting positive trends in commissions collected as a result of more favorable carrier and contract mix and a decrease in constraint due to a decline in
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volatility and the observed increases in LTV trends, partially offset by less favorable retention for Q2 2024 cohorts compared to Q2 2023 cohorts;
• a 27% increase in Medicare Supplement plans, primarily due to favorable carrier and contract mix and favorable retention;
• a 3% decrease in Medicare Part D plans, primarily driven by unfavorable carrier and contract mix, partially offset by improved retention;
• a 7% increase in non-qualified health plans, primarily driven by favorable carrier and contract mix, partially offset by unfavorable retention;
• a 24%, 15% and 7% increase in dental, vision and short-term plans, respectively, primarily driven by favorable carrier and contract mix; and
• a 10% increase in small business plans, primarily due to favorable contract rates.
Estimated Membership
Estimated membership represents the estimated number of members active as of the date indicated based on the number of members for whom we have received or applied a commission payment during the period of estimation. There is generally up to a few months lag between newly approved plans and the receipt of commission payments from the health insurance carrier. A member who purchases and is active on multiple standalone insurance plans will be counted as a member more than once. For example, a member who is active on both an individual and family health insurance plan and a standalone dental plan will be counted as two continuing members.
Health insurance carriers bill and collect insurance premiums paid by our members. The carriers do not report to us the number of members that we have as of a given date. The majority of our members who terminate their policies do so by discontinuing their premium payments to the carrier or notifying the carrier directly and do not inform us of the cancellation. Also, some of our members pay their premiums less frequently than monthly. Given the number of months required to observe non-payment of commissions in order to confirm cancellations, we estimate the number of members who are active on insurance policies as of a specified date.
After we have estimated membership for a period, we may receive information from health insurance carriers that would have impacted the estimate if we had received the information prior to the date of estimation. We may receive commission payments or other information that indicates that a member who was not included in our estimates for a prior period was in fact an active member at that time, or that a member who was included in our estimates was in fact not an active member of ours. For instance, we reconcile information carriers provide to us and may determine that we were not historically paid commissions owed to us, which would cause us to have underestimated membership. Conversely, carriers may require us to return commission payments paid in a prior period due to policy cancellations for members we previously estimated as being active. We do not update our estimated membership numbers reported in previous periods. Instead, we reflect updated information regarding our historical membership in the membership estimate for the current period. If we experience a significant variance in historical membership as compared to our initial estimates, while we keep the prior period data consistent with previously reported amounts, we may provide the updated information in other communications or disclosures. As a result of the delay in our receipt of information from insurance carriers, actual trends in our membership are most discernible over periods longer than from one quarter to the next, making it difficult for us to determine with any certainty the impact of current conditions on our membership retention. Various circumstances could cause the
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assumptions and estimates that we make in connection with estimating our membership to be inaccurate, which would cause our membership estimates to be inaccurate.
The following table shows estimated membership by product as of the periods presented below:
As of June 30, % Change
2024 2023
Medicare (1)
Medicare Advantage 584,649 572,799 2 %
Medicare Supplement 97,426 94,372 3 %
Medicare Part D 195,671 211,144 (7) %
Total Medicare 877,746 878,315 — %
Individual and Family (1)
79,786 90,082 (11) %
Ancillary (1)
174,107 196,141 (11) %
Small Business (2)
45,101 46,560 (3) %
Total Estimated Membership 1,176,740 1,211,098 (3) %
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(1) To estimate the number of members on Medicare-related, individual and family, and ancillary health insurance plans, we take the respective sum of: (i) the number of members for whom we have received or applied a commission payment for a month that may be up to three months prior to the date of estimation (after reducing that number using historical experience for assumed member cancellations over the period being estimated); and (ii) the number of approved members over that period (after reducing that number using historical experience for an assumed number of members who do not accept their approved policy and for estimated member cancellations). To the extent we determine through confirmations from a health insurance carrier that a commission payment is delayed or is inaccurate as of the date of estimation, we adjust the estimated membership to also reflect the number of members for whom we expect to receive or to refund a commission payment. Further, to the extent we have received substantially all of the commission payments related to a given month during the period being estimated, we will take the number of members for whom we have received or applied a commission payment during the month of estimation. For ancillary health insurance plans, the one-to-three-month period varies by insurance product and is largely dependent upon the timeliness of commission payment and related reporting from the related carriers.
(2) To estimate the number of members on small business health insurance plans, we use the number of initial members at the time the group was approved, and we update this number for changes in membership if such changes are reported to us by the group or carrier. However, groups generally notify the carrier directly of policy cancellations and increases or decreases in group size without informing us. Health insurance carriers often do not communicate policy cancellation information or group size changes to us. We often are made aware of policy cancellations and group size changes at the time of annual renewal and update our membership statistics accordingly in the period they are reported.
June 30, 2024 compared to June 30, 2023 - Total estimated membership declined 3% as of June 30, 2024 compared to June 30, 2023 due to:
• an 11%, 11% and 3% decline year-over-year in individual and family plan, ancillary plan and small business plan estimated membership, respectively, primarily due to a decrease in approved applications as we focus on implementing operational enhancements with a plan to resume enrollment growth in our E&I segment in the fourth quarter of 2024; and
• overall flat Medicare estimated membership year over year, due to a 2% and 3% increase in Medicare Advantage and Medicare Supplement plans, respectively, as a result of increased approved applications, partially offset by the shift from some broker of record arrangements to fee-based arrangements within our Amplify platform, which impacted all Medicare products.
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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”) cost 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 costs incurred in member acquisition from our direct marketing and marketing partner channels. Variable marketing costs exclude fixed overhead costs, such as personnel related costs, consulting expenses and other operating costs allocated to the marketing and advertising department.
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, “Medicare Plans”) and for all individual and family major medical plans and short-term health insurance plans (collectively, “IFP Plans”), respectively, for which we are the broker of record. The denominator used to calculate each metric is based on a derived metric that represents the relative value of the new members acquired. For Medicare Plans, we call this derived metric Medicare Advantage (“MA”)-equivalent approved members, and for IFP Plans, we call this derived metric IFP-equivalent approved members. The calculations for MA-equivalent approved members and for IFP-equivalent approved members are based on the weighted number of approved members for Medicare Plans and IFP Plans during the period, with the number of approved members adjusted based on the relative LTV of the product they are purchasing. Since the LTV for any product fluctuates from period to period, the weight given to each product was determined based on their relative LTVs at the time of our adoption of ASC 606.
The following table shows the CC&E expense per approved member and the variable marketing cost per approved member for the periods presented below:
Three Months Ended
June 30, % Change
2024 2023
Medicare
CC&E cost per MA-equivalent approved member (1)
$ 599 $ 706 (15) %
Variable marketing cost per MA-equivalent approved member (1)
457 396 15 %
Total acquisition cost per MA-equivalent approved member $ 1,056 $ 1,102 (4) %
Individual and Family Plan
CC&E cost per IFP-equivalent approved member (2)
$ 284 $ 230 23 %
Variable marketing cost per IFP-equivalent approved member (2)
59 56 5 %
Total acquisition cost per IFP-equivalent approved member $ 343 $ 286 20 %
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(1) We calculate the number of MA-equivalent approved members by adding the total number of approved Medicare Advantage and Medicare Supplement members and 25% of the total number of approved Medicare Part D members during the periods presented.
(2) 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.
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Medicare
Three Months Ended June 30, 2024 and 2023 - Total acquisition cost per MA-equivalent approved member decreased $46, or 4%, during the three months ended June 30, 2024 compared to the same period in 2023, driven by:
• a $107, or 15%, decrease in CC&E cost per MA-equivalent approved member driven by:
◦ a reduced new benefit advisor ramp during the three months ended June 30, 2024 compared to the same period in 2023 as we retained a larger number of tenured benefit advisors subsequent to our 2024 AEP,
◦ continued optimization of our sales force operations, and
◦ reductions in third party agent costs which were utilized to support volume during the three months ended June 30th 2023.
• a $61, or 15%, increase in variable marketing cost per MA-equivalent approved member, primarily reflecting acquisition costs to drive Medicare enrollment growth on our Agency platform.
Individual and Family
Three Months Ended June 30, 2024 and 2023 - Total acquisition cost per IFP-equivalent approved member increased $57, or 20%, during the three months ended June 30, 2024 compared to the same period in 2023, driven by:
• a $54, or 23%, increase in CC&E cost per IFP-equivalent approved member due the overall decline in individual and family plan, ancillary and small business approved members as a result of a decline in our conversion rates; and
• a $3, or 5%, increase in variable marketing cost per IFP-equivalent approved member, primarily driven by the decline in approved members as a result of a decline in our conversion rates.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles requires us to make judgments, assumptions, and estimates that affect the amounts reported in the consolidated financial statements and the accompanying notes. These estimates and assumptions are based on current facts, historical experience, and various other factors that we believe are reasonable under the circumstances to determine reported amounts of assets, liabilities, revenue and expenses that are not readily apparent from other sources. To the extent there are material differences between our estimates and the actual results, our future consolidated results of comprehensive income (loss) may be affected.
An accounting policy is considered to be critical if the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and the effect of the estimates and assumptions on financial condition or operating performance. The accounting policies we believe to reflect our more significant estimates, judgments and assumptions and are most critical to understanding and evaluating our reported financial results are as follows:
• Revenue recognition and contract assets - commissions receivable;
• Stock-based compensation; and
• Accounting for income taxes.
There have been no changes to our critical accounting policies and estimates described in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission on February 29, 2024, that have had a significant impact on our condensed consolidated financial statements and related notes. Please refer to Management’s Discussion and Analysis of Financial Condition and Results of
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Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023, for a complete discussion of our other critical accounting policies and estimates.
Results of Operations
The following table sets forth our operating results and related percentage of total revenue for the periods presented (dollars in thousands):
Three Months Ended
June 30, Six Months Ended
June 30,
2024 2023 2024 2023
Revenue
Commission $ 56,847 86 % $ 60,186 90 % $ 137,774 87 % $ 128,189 91 %
Other 9,009 14 % 6,582 10 % 21,046 13 % 12,302 9 %
Total revenue 65,856 100 % 66,768 100 % 158,820 100 % 140,491 100 %
Operating costs and expenses (1)
Marketing and advertising 26,783 41 % 23,439 35 % 65,520 41 % 56,308 40 %
Customer care and enrollment 28,551 43 % 29,979 45 % 61,452 39 % 55,050 39 %
Technology and content 13,044 20 % 14,453 22 % 26,349 17 % 28,806 21 %
General and administrative 22,402 34 % 25,049 38 % 42,021 26 % 49,373 35 %
Impairment, restructuring and other charges 3,035 5 % — — % 9,348 6 % — — %
Total operating costs and expenses 93,815 142 % 92,920 139 % 204,690 129 % 189,537 135 %
Loss from operations (27,959) (42) % (26,152) (39) % (45,870) (29) % (49,046) (35) %
Interest expense (2,849) (4) % (2,720) (4) % (5,658) (4) % (5,300) (4) %
Other income, net 2,335 4 % 2,828 4 % 4,726 3 % 4,816 3 %
Loss before income taxes (28,473) (43) % (26,044) (39) % (46,802) (29) % (49,530) (35) %
Benefit from income taxes (505) (1) % (2,543) (4) % (1,850) (1) % (6,151) (4) %
Net loss $ (27,968) (42) % $ (23,501) (35) % $ (44,952) (28) % $ (43,379) (31) %
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(1) Operating costs and expenses include the following amounts of stock-based compensation expense (in thousands):
Three Months Ended
June 30, Six Months Ended
June 30,
2024 2023 2024 2023
Marketing and advertising $ 711 $ 538 $ 1,355 $ 993
Customer care and enrollment 511 788 1,035 1,393
Technology and content 779 1,173 1,753 2,078
General and administrative 3,105 3,694 6,503 6,723
Total stock-based compensation expense $ 5,106 $ 6,193 $ 10,646 $ 11,187
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Revenue
Our commission revenue, other revenue and total revenue are summarized as follows (dollars in thousands):
Three Months Ended
June 30, Change Six Months Ended
June 30, Change
2024 2023 $ % 2024 2023 $ %
Commission $ 56,847 $ 60,186 $ (3,339) (6) % $ 137,774 $ 128,189 $ 9,585 7 %
% of total revenue 86 % 90 % 87 % 91 %
Other 9,009 6,582 2,427 37 % 21,046 12,302 8,744 71 %
% of total revenue 14 % 10 % 13 % 9 %
Total revenue $ 65,856 $ 66,768 $ (912) (1) % $ 158,820 $ 140,491 $ 18,329 13 %
Three Months Ended June 30, 2024 and 2023 – Commission revenue decreased $3.3 million, or 6%, during the three months ended June 30, 2024 compared to the same period in 2023 due to:
• a $4.6 million, or 42%, decrease in commission revenue from our E&I segment driven by:
◦ net adjustment revenue from prior periods enrollments of $0.8 million during the three months ended June 30, 2024 compared to $5.3 million in the same period in 2023;
◦ an 18%, 15% and 53% decline in individual and family plan, ancillary product and small business approved members, respectively;
◦ partially offset by improved constrained LTV of commissions per approved member for most products in our E&I segment.
• a $1.2 million, or 2%, increase in commission revenue from our Medicare segment driven by:
◦ a 6% increase in Medicare Advantage plan approved members, partially offset by decreases in Medicare Supplement and Medicare Part D plan approved members;
◦ improved constrained LTV of commissions per approved member for Medicare Advantage and Medicare Supplement products;
◦ partially offset by a net adjustment revenue from prior periods enrollments of $10.7 million during the three months ended June 30, 2024 compared to $13.4 million in the same period in 2023.
Other revenue increased $2.4 million, or 37%, during the three months ended June 30, 2024 compared to the same period in 2023 due to an increase in fee-based revenue due to a shift in some of our Amplify broker of record arrangements to fee-based arrangements.
Six Months Ended June 30, 2024 and 2023 – Commission revenue increased $9.6 million, or 7%, during the six months ended June 30, 2024 compared to the same period in 2023 due to:
• a $15.3 million, or 14%, increase in commission revenue from our Medicare segment driven by:
◦ a 6% increase in overall Medicare plan approved members, specifically driven by increases in Medicare Advantage and Medicare Supplement plan approved members;
◦ improved constrained LTV of commissions per approved member for Medicare Advantage and Medicare Supplement products;
◦ partially offset by a net adjustment revenue from prior periods enrollments of $11.7 million during the six months ended June 30, 2024 compared to $13.5 million in the same period in 2023.
• a $5.7 million, or 26%, decrease in commission revenue from our E&I segment driven by:
◦ a net adjustment revenue from prior periods enrollments of $2.3 million during the six months ended June 30, 2024 compared to $6.8 million in the same period in 2023;
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◦ a 26%, 16% and 34% decline in individual and family plan, ancillary product and small business approved members, respectively;
◦ partially offset by improved constrained LTV of commissions per approved member for most products in our E&I segment.
Other revenue increased $8.7 million, or 71%, during the six months ended June 30, 2024 compared to the same period in 2023 due to an increase in sponsorship revenue as well as fee-based revenue due to a shift in some of our Amplify broker of record arrangements to fee-based arrangements.
See Summary of Selected Metrics above and Segment Information below for further discussion.
Marketing and Advertising
Marketing and advertising expenses consist primarily of member acquisition expenses associated with our direct marketing and marketing partner member acquisition channels, in addition to compensation and other expenses related to marketing, business development, partner management, public relations and carrier relations personnel who support our offerings. Marketing and advertising expenses also include cost of revenue, which consists of payments related to health insurance plans sold to members who were referred to our website by marketing partners with whom we have revenue-sharing arrangements. We recognize expenses in our direct marketing acquisition channel in the period in which they are incurred, including in the period in which the consumer clicks on the advertisement for direct online channels. We generally compensate our marketing partners for referrals based on the consumer submitting a health insurance application on our platform, regardless of whether the consumer’s application is approved by the health insurance carrier, or for the referral of a Medicare-related lead to us by the marketing partner.
Some of our marketing partners have tiered arrangements where the amount we pay the marketing partner per submitted application increases as the volume of submitted applications we receive from the marketing partner increases. We recognize these expenditures in the period when a marketing partner’s referral results in the submission of a health insurance application. Increases in submitted applications resulting from marketing partner referrals or visitors to our website from our direct marketing channel has in the past, and could in the future, result in marketing and advertising expenses significantly higher than our expectations.
Our marketing and advertising expenses are summarized as follows (dollars in thousands):
Three Months Ended
June 30, Change Six Months Ended
June 30, Change
2024 2023 $ % 2024 2023 $ %
Marketing and advertising $ 26,783 $ 23,439 $ 3,344 14 % $ 65,520 $ 56,308 $ 9,212 16 %
% of total revenue 41 % 35 % 41 % 40 %
Three Months Ended June 30, 2024 and 2023 – Marketing and advertising expenses increased $3.3 million, or 14%, during the three months ended June 30, 2024 compared to the same period in 2023, primarily driven by a $2.7 million increase in variable advertising costs, a $0.7 million increase in personnel costs and a $0.4 million increase in software costs, partly offset by a $0.6 million decrease in fixed marketing costs. The increase in variable advertising costs was primarily related to our investment in direct marketing channels and reflects our plan to increasingly attract and retain beneficiaries through brand-driven materials and communications in fiscal 2024.
Six Months Ended June 30, 2024 and 2023 – Marketing and advertising expenses increased $9.2 million, or 16%, during the six months ended June 30, 2024 compared to the same period in 2023, primarily driven by a $6.8 million increase in variable advertising costs, a $0.9 million increase in personnel costs, a $0.8 million increase in software costs and a $0.4 million increase in fixed marketing costs as we returned to growth in our Medicare segment after completing our business transformation plan in fiscal 2023. The increase in variable advertising costs was primarily related to our direct marketing channels and brand investment.
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Customer Care and Enrollment
Customer care and enrollment expenses primarily consist of compensation, benefits and licensing costs for personnel engaged in assistance to applicants who call our advisor enrollment center and for benefit advisors who assist applicants during the enrollment process.
Our customer care and enrollment expenses are summarized as follows (dollars in thousands):
Three Months Ended
June 30, Change Six Months Ended
June 30, Change
2024 2023 $ % 2024 2023 $ %
Customer care and enrollment $ 28,551 $ 29,979 $ (1,428) (5) % $ 61,452 $ 55,050 $ 6,402 12 %
% of total revenue 43 % 45 % 39 % 39 %
Three Months Ended June 30, 2024 and 2023 – Customer care and enrollment expenses decreased $1.4 million, or 5%, during the three months ended June 30, 2024 compared to the same period in 2023, primarily due to a $0.8 million decrease in personnel and compensation costs and a $0.3 million decrease in consulting expenses.
Six Months Ended June 30, 2024 and 2023 – Customer care and enrollment expenses increased $6.4 million, or 12%, during the six months ended June 30, 2024 compared to the same period in 2023, primarily due to increases of $4.9 million in personnel and compensation costs and $1.2 million in licensing costs. The increase in personnel costs reflect the scaling of our agent force supporting our dedicated carrier efforts, retention of a greater number of licensed advisors subsequent to our most recent AEP to support enrollment growth planned for fiscal 2024 and expansion of our member retention efforts.
Technology and Content
Technology and content expenses consist primarily of compensation and benefits costs for personnel associated with developing and enhancing our website technology as well as maintaining our website. A portion of our technology and content group is located at our wholly-owned subsidiary in China, where technology development costs are generally lower than in the United States.
Our technology and content expenses are summarized as follows (dollars in thousands):
Three Months Ended
June 30, Change Six Months Ended
June 30, Change
2024 2023 $ % 2024 2023 $ %
Technology and content $ 13,044 $ 14,453 $ (1,409) (10) % $ 26,349 $ 28,806 $ (2,457) (9) %
% of total revenue 20 % 22 % 17 % 21 %
Three Months Ended June 30, 2024 and 2023 – Technology and content expenses decreased $1.4 million, or 10%, during the three months ended June 30, 2024 compared to the same period in 2023, primarily driven by a $0.7 million decrease in amortization of internally developed software and a $0.5 million decrease in personnel and compensation costs due to lower headcount as a result of our continued cost reduction initiative.
Six Months Ended June 30, 2024 and 2023 – Technology and content expenses decreased $2.5 million, or 9%, during the six months ended June 30, 2024 compared to the same period in 2023, primarily driven by a $1.5 million decrease in amortization of internally developed software and a $0.5 million decrease in personnel and compensation costs due to lower headcount as a result of our continued cost reduction initiative.
General and Administrative
General and administrative expenses include compensation and benefits costs for personnel working in our executive, finance, investor relations, government affairs, legal, compliance, human resources, facilities and internal
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information technology departments. These expenses also include fees paid for outside professional services, tax, legal, government affairs and information technology fees.
Our general and administrative expenses are summarized as follows (dollars in thousands):
Three Months Ended
June 30, Change Six Months Ended
June 30, Change
2024 2023 $ % 2024 2023 $ %
General and administrative $ 22,402 $ 25,049 $ (2,647) (11) % $ 42,021 $ 49,373 $ (7,352) (15) %
% of total revenue 34 % 38 % 26 % 35 %
Three Months Ended June 30, 2024 and 2023 – General and administrative expenses decreased $2.6 million, or 11%, during the three months ended June 30, 2024 compared to the same period in 2023, primarily driven by a $0.6 million decrease in professional fees, a $0.6 million decrease in stock based compensation expense, a $0.6 million decrease in facilities and other operating expenses and a $0.5 million decrease in personnel and compensation costs.
Six Months Ended June 30, 2024 and 2023 – General and administrative expenses decreased $7.4 million, or 15%, during the six months ended June 30, 2024 compared to the same period in 2023, primarily driven by a $3.3 million decrease in personnel and compensation costs, a $1.4 million decrease in professional fees, a $1.2 million decrease in facilities and other operating expenses and a $0.6 million decrease in consulting expenses.
Impairment, Restructuring and Other Charges
Our impairment, restructuring and other charges consist primarily of severance, transition and other related costs and impairment charges. Our impairment, restructuring and other charges are summarized as follows (dollars in thousands):
Three Months Ended
June 30, Change Six Months Ended
June 30, Change
2024 2023 $ % 2024 2023 $ %
Impairment, restructuring and other charges $ 3,035 $ — $ 3,035 * $ 9,348 $ — $ 9,348 *
% of total revenue 5 % — % 6 % — %
__________
* Percentage calculated is not meaningful.
Three Months Ended June 30, 2024 and 2023 – We incurred $3.0 million in impairment, restructuring and other charges for the three months ended June 30, 2024 compared to no impairment, restructuring and other charges for the three months ended June 30, 2023. These charges consisted of $1.9 million of impairment charges related to our leased office spaces, primarily related to our operating lease right-of-use assets. We also incurred $1.1 million of restructuring charges which were primarily related to employee termination benefits as a result of our continued cost reduction efforts since the beginning of fiscal 2024.
Six Months Ended June 30, 2024 and 2023 – We incurred $9.3 million in impairment, restructuring and other charges for the six months ended June 30, 2024 compared to no impairment, restructuring and other charges for the six months ended June 30, 2023. These charges consisted of $7.4 million of impairment related to several of our leased office spaces, which was comprised of $6.9 million of operating lease right-of-use asset impairments and $0.5 million of property and equipment impairments. We also incurred $1.9 million of restructuring charges which primarily related to employee termination benefits as a result of our cost-reduction efforts during the first half of fiscal 2024.
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Interest Expense
Interest expense primarily consists of interest expense and amortization of debt issuance costs related to our Credit Agreement. See Note 12 – Debt for additional information. Our interest expense is summarized as follows (dollars in thousands):
Three Months Ended
June 30, Change Six Months Ended
June 30, Change
2024 2023 $ % 2024 2023 $ %
Interest expense $ (2,849) $ (2,720) $ (129) (5) % $ (5,658) $ (5,300) $ (358) (7) %
% of total revenue (4) % (4) % (4) % (4) %
Three Months Ended June 30, 2024 and 2023 – Interest expense increased by $0.1 million, or 5%, primarily driven by a $0.1 million increase in debt interest expense as a result of higher interest rates.
Six Months Ended June 30, 2024 and 2023 – Interest expense increased by $0.4 million, or 7%, primarily driven by a $0.2 million increase in debt interest expense as a result of higher interest rates.
Other Income, Net
Other income, net, primarily consisted of 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, net, is summarized as follows (dollars in thousands):
Three Months Ended
June 30, Change Six Months Ended
June 30, Change
2024 2023 $ % 2024 2023 $ %
Other income, net $ 2,335 $ 2,828 $ (493) (17) % $ 4,726 $ 4,816 $ (90) (2) %
% of total revenue 4 % 4 % 3 % 3 %
Three Months Ended June 30, 2024 and 2023 – Other income, net, was $2.3 million during the three months ended June 30, 2024, compared to other income, net, of $2.8 million during the three months ended June 30, 2023. The change was primarily due to a $0.2 million increase in interest income as a result of more favorable short-term investment returns.
Six Months Ended June 30, 2024 and 2023 – Other income, net, was $4.7 million during the six months ended June 30, 2024, compared to other income, net, of $4.8 million during the six months ended June 30, 2023.
Benefit from Income Taxes
Our benefit from income taxes is summarized as follows (dollars in thousands):
Three Months Ended
June 30, Change Six Months Ended
June 30, Change
2024 2023 $ % 2024 2023 $ %
Benefit from income taxes $ (505) $ (2,543) $ 2,038 (80) % $ (1,850) $ (6,151) $ 4,301 70 %
Effective tax rate 1.8 % 9.8 % 4.0 % 12.4 %
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Three Months Ended June 30, 2024 and 2023 – Our effective tax rate of 1.8% for the three months ended June 30, 2024 was lower than our 9.8% effective tax rate for the three months ended June 30, 2023 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 June 30, 2024 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.
Six Months Ended June 30, 2024 and 2023 – Our effective tax rate of 4.0% for the six months ended June 30, 2024 was lower than our 12.4% effective tax rate for the six months ended June 30, 2023 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 six months ended June 30, 2024 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
We report segment information based on how our chief executive officer, who is our chief operating decision maker (“CODM”), regularly reviews our operating results, allocates resources and makes decisions regarding our business operations. The performance measures of our segments include revenue and segment profit (loss). Our business structure is comprised of two operating segments:
• Medicare; and
• Employer and Individual.
Our CODM does not separately evaluate assets by segment, with the exception of commissions receivable, and therefore assets by segment are not presented.
The Medicare segment consists primarily of amounts earned from our sale of Medicare-related health insurance plans, including Medicare Advantage, Medicare Supplement and Medicare Part D prescription drug plans, fees earned for the performance of administrative services, amounts earned from our non-broker-of-record, or fee-based, arrangements, our performance of various post-enrollment services for members and to a lesser extent, amounts earned from our sale of ancillary products sold to our Medicare-eligible customers, including but not limited to, dental and vision plans, as well as amounts we are paid in connection with our advertising program for marketing and other services.
The E&I segment consists primarily of amounts earned from our sale of individual, family and small business health insurance plans, including both qualified and non-qualified plans, and ancillary products sold to our non-Medicare-eligible customers, including but not limited to, dental, vision and short-term insurance. To a lesser extent, the E&I segment consists of amounts earned from our online sponsorship and advertising program that allows carriers to purchase advertising space in specific markets in a sponsorship area on our website, and our technology licensing and lead referral activities.
Marketing and advertising, customer care and enrollment, technology and content and general and administrative operating expenses that are directly attributable to a segment are reported within the applicable segment. Indirect marketing and advertising, customer care and enrollment, and technology and content operating expenses are allocated to each segment based on usage. Corporate consists of other indirect general and administrative operating expenses, excluding stock-based compensation expense, depreciation and amortization, which are managed in a corporate shared services environment and, since they are not the responsibility of segment operating management, are not allocated to the reportable segments and are instead reported within Corporate. Our results below reflect our updated methodology used in allocating certain expenses beginning in the
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first quarter of fiscal 2024, and results from the prior period presented have been recast to conform with the current period presentation.
The performance of each reportable segment is evaluated based on several factors, including revenue and segment profit (loss), which 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, impairment, restructuring and other charges, interest expense and other income (expense), net.
Our operating segment revenue and segment profit (loss) are summarized as follows (dollars in thousands):
Three Months Ended
June 30, Change Six Months Ended
June 30, Change
2024 2023 $ % 2024 2023 $ %
Revenue:
Medicare $ 59,248 $ 55,430 $ 3,818 7 % $ 141,636 $ 117,264 $ 24,372 21 %
Employer and Individual 6,608 11,338 (4,730) (42) % 17,184 23,227 (6,043) (26) %
Total revenue $ 65,856 $ 66,768 $ (912) (1) % $ 158,820 $ 140,491 $ 18,329 13 %
Segment profit (loss):
Medicare $ 1,274 $ (2,062) $ 3,336 162 % $ 9,583 $ (2,648) $ 12,231 462 %
Employer and Individual 890 6,888 (5,998) (87) % 5,542 14,562 (9,020) (62) %
Segment profit
2,164 4,826 (2,662) (55) % 15,125 11,914 3,211 27 %
Corporate (17,704) (19,634) 1,930 10 % (32,317) (39,377) 7,060 18 %
Stock-based compensation expense (5,106) (6,193) 1,087 18 % (10,646) (11,187) 541 5 %
Depreciation and amortization (4,278) (5,151) 873 17 % (8,684) (10,396) 1,712 16 %
Impairment, restructuring and other charges (3,035) — (3,035) * (9,348) — (9,348) *
Interest expense (2,849) (2,720) (129) (5) % (5,658) (5,300) (358) (7) %
Other income, net 2,335 2,828 (493) (17) % 4,726 4,816 (90) (2) %
Loss before income taxes $ (28,473) $ (26,044) $ (2,429) (9) % $ (46,802) $ (49,530) $ 2,728 6 %
__________
* Percentage calculated is not meaningful.
Medicare Segment
Three Months Ended June 30, 2024 and 2023 – Revenue from our Medicare segment increased $3.8 million, or 7%, during the three months ended June 30, 2024 compared to the same period in 2023 due to a $2.6 million increase in fee-based revenue and a $1.2 million increase in commission revenue. The increase in fee-based revenue was driven by a shift in some of our Amplify broker-of-record arrangements to fee-based arrangements. The increase in Medicare segment commission revenue is due primarily to a 6% increase in Medicare Advantage plan approved members, increased constrained LTV of commissions per approved member for Medicare Advantage and Medicare Supplement products, as well as an increase of $0.6 million in Medicare segment bonus revenue. These increases were partially offset by lower net adjustment revenue from prior period enrollments, which was $10.7 million for the three months ended June 30, 2024, compared to $13.4 million for the same period in 2023.
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Our Medicare segment profit was $1.3 million during the three months ended June 30, 2024, an improvement of $3.3 million, compared to a segment loss of $2.1 million for the same period in 2023. This increase was primarily driven by a $3.8 million increase in revenue from our Medicare segment, partially offset by a $0.5 million increase in operating expenses from our Medicare segment, excluding stock-based compensation expense, depreciation and amortization, impairment, restructuring and other charges, interest expense and other income, net. The increase in operating expenses was mostly attributable to continued implementation of our initiatives to attract and retain beneficiaries in fiscal 2024.
Six Months Ended June 30, 2024 and 2023 – Revenue from our Medicare segment increased $24.4 million, or 21%, during the six months ended June 30, 2024 compared to the same period in 2023, primarily attributable to a $15.3 million increase in commission revenue. The increase in Medicare segment commission revenue is primarily due to a $4.7 million and $4.4 million increase in Medicare Advantage plan and Medicare Supplement plan related commission revenue, respectively, driven by an 8% growth in both Medicare Advantage plan and Medicare Supplement plan approved members. Additionally, the increase in Medicare segment commission was due to improved constrained LTV of commissions per approved member for Medicare Advantage plans and Medicare Supplement plans compared to the same period in the prior year. These increases were partially offset by $11.7 million in net adjustment revenue from prior period enrollments for the six months ended June 30, 2024, compared to $13.5 million in net adjustment revenue for the same period in 2023 in our Medicare segment.
Our Medicare segment profit was $9.6 million during the six months ended June 30, 2024, an improvement of $12.2 million, compared to a segment loss of $2.6 million for the same period in 2023. This increase was primarily driven by a $24.4 million increase in revenue from our Medicare segment, partially offset by an $12.1 million increase in operating expenses from our Medicare segment, excluding stock-based compensation expense, depreciation and amortization, impairment, restructuring and other charges, interest expense and other income, net. The increase in operating expenses was mostly attributable to continued implementation of our initiatives to attract and retain beneficiaries in fiscal 2024.
Employer and Individual Segment
Three Months Ended June 30, 2024 and 2023 – Revenue from our E&I segment decreased $4.7 million, or 42%, during the three months ended June 30, 2024 compared to the same period in 2023, primarily attributable to a $4.6 million decrease in commission revenue driven by lower net adjustment revenue from prior period enrollments. Net adjustment revenue from prior period enrollments for the three months ended June 30, 2024 was $0.8 million, compared to $5.3 million for the same period in 2023. Revenue also decreased due to declines in individual and family plan, ancillary product and small business approved members, partially offset by an increase in LTV of commissions per approved member for most products in our E&I segment. The reduced volumes are a result of our focus on implementing operational enhancements in the E&I segment and we plan to return to enrollment growth in the fourth quarter of fiscal 2024.
Our E&I segment profit was $0.9 million during the three months ended June 30, 2024, a decrease of $6.0 million, or 87%, compared to segment profit of $6.9 million for the same period in 2023. The decrease was primarily driven by a $4.7 million decrease in our E&I segment revenue and a $1.3 million increase in our E&I segment operating expenses, excluding stock-based compensation expense, depreciation and amortization, impairment, restructuring and other charges, interest expense and other income, net. The increase in operating expenses was mostly attributable to investments in operational enhancements for our E&I segment that are underway in fiscal 2024.
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Six Months Ended June 30, 2024 and 2023 – Revenue from our E&I segment decreased $6.0 million, or 26%, during the six months ended June 30, 2024 compared to the same period in 2023, primarily attributable to a $5.7 million decrease in commission revenue driven by lower net adjustment revenue from prior period enrollments. Net adjustment revenue from prior period enrollments for the six months ended June 30, 2024 was $2.3 million, compared to $6.8 million in the same period in 2023. Revenue also decreased due to declines in individual and family plan, ancillary product and small business approved members, partially offset by an increase in LTV of commissions per approved member for most products in our E&I segment. The reduced volumes are a result of our focus on implementing operational enhancements in the E&I segment, and we plan to return to enrollment growth in the fourth quarter of fiscal 2024.
Our E&I segment profit was $5.5 million during the six months ended June 30, 2024, a decrease of $9.0 million, or 62%, compared to segment profit of $14.6 million for the same period in 2023. The decrease was primarily driven by a $6.0 million decrease in our E&I segment revenue and a $3.0 million increase in our E&I segment operating expenses, excluding stock-based compensation expense, depreciation and amortization, impairment, restructuring and other charges, interest expense and other income, net. The increase in operating expenses was mostly attributable to investments in our operational enhancements for our E&I segment that are underway in fiscal 2024.
Liquidity and Capital Resources
As of June 30, 2024, we had cash, cash equivalents and short-term marketable securities of $151.1 million. During the six months ended June 30, 2024, we generated operating cash flow of $38.6 million as summarized below. We have historically financed our operations primarily through cash generated from our operations, equity issuances and debt financing. Our principal uses of cash in recent periods have been funding working capital, purchases of short-term investments, the satisfaction of tax withholding obligations in connection with the settlement of restricted stock units, making payments on our operating lease obligations and service and licensing obligations, and complying with our debt servicing requirements and preferred stock dividend payment obligations.
Cash and Cash Equivalents
Our cash, cash equivalents and short-term marketable securities are summarized as follows (in thousands):
June 30, 2024 December 31, 2023
Cash and cash equivalents $ 126,344 $ 115,722
Short-term marketable securities 24,721 5,930
Total cash, cash equivalents and short-term marketable securities $ 151,065 $ 121,652
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 commercial paper, money market funds and agency bonds. We also maintained $3.1 million in restricted cash as of June 30, 2024 and December 31, 2023.
Material Cash Requirements
Our material cash requirements include our operating leases and service and licensing obligations. See Note 10 – Leases in our Notes to Condensed Consolidated Financial Statements for details of our operating lease obligations. We have entered into service and licensing agreements with third party vendors to provide various services, including network access, equipment maintenance and software licensing. The terms of these services and licensing agreements are generally up to three years. We record the related service and licensing expenses on a straight-line basis, although actual cash payment obligations under certain of these agreements fluctuate over the terms of the agreements. See Note 8 – Commitments and Contingencies in ou r Notes to Condensed Consolidated Financial Statements.
Short-term obligations were $9.0 million for leases and $3.0 million for service and licensing as of June 30, 2024. Long-term obligations were $27.1 million for leases and $0.1 million for service and licensing as of June 30,
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2024. We expect to fund these obligations through our existing cash and cash equivalents and cash generated from operations.
Convertible Preferred Stock
Pursuant to an investment agreement dated February 17, 2021 with Echelon Health SPV, LP (“H.I.G.”) (the “H.I.G. Investment Agreement”), we issued and sold 2,250,000 shares of Series A convertible preferred stock (“Series A Preferred Stock”) at an aggregate purchase price of $225.0 million to H.I.G. in a private placement and received $214.0 million net proceeds on April 30, 2021 . During 2023, we made cash dividend payments in the aggregate amount of $3.5 million . During the second quarter of 2024 we made a cash dividend payment of $2.7 million. The H.I.G. Investment Agreement also provides certain redemption rights on or after April 2027. In addition, the Company is required to maintain 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). 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, 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 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.
As of September 30, 2023, we failed to maintain the Minimum Asset Coverage Ratio, which entitles H.I.G. to the additional rights set forth above. On March 13, 2024, the Nominating and Corporate Governance Committee of our Board of Directors approved the appointment of a board observer designated by H.I.G. Our failure to maintain 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. As of June 30, 2024, we were in compliance with the Minimum Liquidity Amount.
Term Loan Credit Agreement
On February 28, 2022, we entered into a term loan credit agreement providing for a $70.0 million secured term loan credit facility with Blue Torch Finance LLC, as administrative agent and collateral agent, and other lenders party thereto, which agreement was subsequently amended on August 16, 2022 (as amended, the “Credit Agreement”) to update our borrowing benchmark from LIBOR to SOFR. The Credit Agreement matures in February 2025. As part of the Credit Agreement, we incur a $0.3 million fee per annum, payable annually. The loans under the Credit Agreement bear interest, at our option, at either a rate based on the Adjusted Term SOFR or a base rate, in each case plus a margin. The base rate is the highest of the prime rate, the federal funds rate plus 0.50% and the three-month Adjusted Term SOFR plus 1.00%. The margin is 7.50% for Adjusted Term SOFR loans and 6.50% for base rate loans. As of June 30, 2024, the interest rate was 13.11%. For the three and six months ended June 30, 2024 we incurred interest expense on the credit facility of $2.3 million and $4.6 million, respectively. 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, 2024, the carrying value of the loan under the Credit Agreement was $68.7 million and we were in compliance with our loan covenants. See Note 12 – Debt in our 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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Availability and Use of Cash
We believe our current cash, cash equivalents and short-term marketable securities, including the proceeds from the equity financing we obtained on April 30, 2021 under the H.I.G. Investment Agreement and the term loan we obtained on February 28, 2022 under the Credit Agreement, and expected cash collections will be sufficient to fund our operations for at least 12 months after the filing date of this Quarterly Report on Form 10-Q as well as to refinance or select other alternatives based on market conditions for our term loan under our Credit Agreement that matures in February 2025.
Our future capital requirements will depend on many factors, including our enrollment volume, membership, retention rates, telesales conversion rates, and our level of investment in technology and content, marketing and advertising, customer care and enrollment and other initiatives. In addition, our cash position could be impacted by the level of investments we make to pursue our strategy. To the extent that available funds are insufficient to fund our future activities or to execute our financial strategy, we may raise additional capital through bank debt, or public or private capital financing to the extent such funding sources are available. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all.
Cash Activities
Our cash flows for the six months ended June 30, 2024 and 2023 are summarized as follows (in thousands):
Six Months Ended
June 30,
2024 2023
Net cash provided by operating activities $ 38,579 $ 51,375
Net cash used in investing activities (23,735) (40,777)
Net cash used in financing activities (4,241) (1,687)
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, impairment charges, other non-cash items, and the effect of changes in working capital and other activities.
Collection of commissions receivable depends upon the timing of our receipt of commission payments and associated commission reports from health insurance carriers. If we were to experience a delay in receiving a commission payment from a significant health insurance carrier within a quarter, our operating cash flows for that quarter could be adversely impacted.
While we recognize constrained LTV as revenue at the time applications are approved, our collection of the cash commissions resulting from approved applications generally occurs over a number of years. The expense associated with approved applications, however, is generally incurred at the time of enrollment. As a result, the net cash flow resulting from approved applications is generally negative in the period of revenue recognition and becomes positive over the lifetime of the member. In periods of membership growth, cash receipts associated with new and continuing members may be less than the cash outlays to acquire new members.
Six Months Ended June 30, 2024 – Net cash provided by operating activities was $38.6 million during the six months ended June 30, 2024, primarily driven by changes in net operating assets and liabilities of $59.5 million and adjustments for non-cash items of $24.0 million, partially offset by a net loss of $45.0 million. Adjustments for non-cash items primarily consisted of $10.6 million of stock-based compensation expense, $7.7 million of amortization of internally developed software and $7.4 million of impairment charges, partially offset by a $2.6 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, 2024 primarily consisted of a decrease of $86.7 million in
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contract assets – commissions receivable and $2.8 million in accounts receivable, a $2.3 million increase in accrued expenses and other liabilities and a $2.0 million increase in deferred revenue, partly offset by decreases of $20.8 million in accrued compensation and related expenses and $12.5 million in accrued marketing expenses.
Six Months Ended June 30, 2023 – Net cash provided by operating activities was $51.4 million during the six months ended June 30, 2023, primarily driven by changes in net operating assets and liabilities of $80.0 million and adjustments for non-cash items of $14.8 million, partially offset by a net loss of $43.4 million. Adjustments for non-cash items primarily consisted of $11.2 million of stock-based compensation expense and $9.1 million of amortization of internally developed software, partially offset by a $6.7 million decrease due to the change in deferred income taxes. Cash provided by changes in net operating assets and liabilities during the six months ended June 30, 2023 primarily consisted of decreases of $95.0 million in contract assets – commissions receivable and $2.0 million in accounts receivable, partly offset by decreases of $17.3 million in accrued marketing expenses.
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 advisor enrollment center operations and capitalized internal-use software.
Six Months Ended June 30, 2024 – Net cash used in investing activities of $23.7 million for the six months ended June 30, 2024 mainly consisted of $37.4 million used to purchase marketable securities and $4.9 million in capitalized internal-use software and website development costs, partially offset by $19.0 million in proceeds from the maturities and redemptions of marketable securities.
Six Months Ended June 30, 2023 – Net cash used in investing activities of $40.8 million for the six months ended June 30, 2023 mainly consisted of $48.6 million used to purchase marketable securities and $4.2 million in capitalized internal-use software and website development costs, partially offset by $12.4 million in proceeds from the maturities and redemptions of marketable securities.
Financing Activities
Six Months Ended June 30, 2024 – Net cash used in financing activities of $4.2 million for the six months ended June 30, 2024 was primarily due to a $2.7 million payment of preferred stock dividends and $1.9 million in repurchases of shares to satisfy employee tax withholding obligations.
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.
Seasonality
Open enrollment periods drive the seasonality of our business. A greater number of our Medicare plans are sold in the fourth quarter of each calendar year during the Medicare AEP, which occurs from October 15 th to December 7 th , when Medicare-eligible individuals are permitted to change their Medicare Advantage and Medicare Part D prescription drug coverage for the following year. As a result, we experience an increase in the number of approved applications during the fourth quarter and our Medicare plan-related commission revenue is highest in our fourth quarter. Additionally, our Medicare plan-related commission revenue is also elevated in the first quarter compared to the second and third quarters as a result of the Medicare Advantage open enrollment period that occurs from January 1 st to March 31 st . Any changes to or additional enrollment periods may change the seasonality of our business.
The majority of our individual and family health insurance plans are sold in the fourth quarter during the annual open enrollment period as prescribed under the federal Patient Protection and Affordable Care Act and related amendments in the Health Care and Education Reconciliation Act. In the states where the Federally Facilitated marketplace operates as the state health insurance exchange, individuals and families generally are not
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able to purchase individual and family health insurance outside of the annual enrollment period, unless they qualify for a special enrollment period as a result of certain qualifying events, such as losing employer-sponsored health insurance or moving to another state. Extended open enrollment or special enrollment periods may change the seasonality of our individual and family health insurance business.
We incur a significant portion of our marketing and advertising expense, which is directly correlated with the number of health insurance applications submitted on our ecommerce platforms, in the fourth quarter as a result of the Medicare AEP and the open enrollment period under the Affordable Care Act. 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, with a fixed, annual commission payment for new approved applications generally occurring after the plan becomes effective, 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.
Full-time internal benefit advisors represent the majority of our telesales capacity. We plan to maintain our internal telesales benefit advisors year-round, net of natural attrition, and expect to increase our internal benefit advisors’ utilization outside of the enrollment periods by expanding our offerings of ancillary products and carrier call center outsourcing programs. We typically begin ramping our telesales capacity during the second quarter, in preparation for the fourth quarter AEP. The magnitude of new agent hiring is driven by our enrollment growth goals for that year. Our customer care and enrollment expenses are typically highest in the fourth quarter and lowest in the second quarter.
Recent Accounting Pronouncements
See Note 1 – Summary of Business and Significant Accounting Policies in the Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for recently issued accounting standards that could have an effect on us.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.