eHealth, Inc. (EHTH) FY 2022 MD&A

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Please read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included under Part II, Item 8 of this Annual Report on Form 10-K.

Overview

We are a leading private online health insurance marketplace with a technology and service platform that provides consumer engagement, education, and health insurance enrollment solutions. Our mission is to expertly guide consumers through their health insurance enrollment and related options, when, where, and how they prefer. Our platform leverages technology to solve a critical problem in a large and growing market by aiding consumers in what has traditionally been a complex, confusing, and opaque health insurance purchasing process. Our omnichannel consumer engagement platform differentiates our offering from other brokers and enables consumers to use our services online, by telephone with a licensed insurance agent, or through a hybrid online assisted interaction that includes live agent chat and co-browsing capabilities. We have created a consumer-centric marketplace that offers consumers a broad choice of insurance products that includes thousands of Medicare Advantage, Medicare Supplement, Medicare Part D prescription drug, individual, family, small business, and other ancillary health insurance products from approximately 200 health insurance carriers across all fifty states and the District of Columbia. Our plan recommendation tool curates this broad plan selection by analyzing customer health-related information against plan data for insurance coverage fit. This tool is supported by a unified data platform and is available to our ecommerce customers and our licensed agents. We strive to be the most trusted partner to the consumer in their life's journey through the health insurance market.

Multi-Year Business Initiatives

In 2021, we launched several initiatives aimed at improving enrollment quality and member retention in our Medicare business. In 2022, we began to implement a business transformation plan across all key functional areas of our business with emphasis on increasing the effectiveness of our marketing and telesales organization and rationalizing our cost structure. We have observed impacts of these initiatives on our results of operations, as further discussed below:

Enrollment Quality Assurance Initiatives — Enrollment quality, which has been our focus since the launch of our retention program in 2020, helps ensure that we present Medicare beneficiaries with choices that best align with their eligibility status, lifestyle, health conditions, and economic means with the goal of minimal disruption in existing provider relationships. We have sought additional ways to improve our customer experience, enhance accuracy of plan recommendations, and reduce disenrollment.

In the third quarter of 2021, we introduced additional mandatory training for our agents, added a new customer care function to verify certain Medicare enrollments prior to submission to the carrier, and expanded other quality assurance efforts. We also shifted the mix of our telesales capacity towards full-time internal agents and away from third party vendor agents. In 2022, we maintained our strategy of keeping the majority of our agent force internal. We also made other important changes across our call centers to improve the effectiveness of our agents and further enhance consumer experience. These changes include the migration of our call center technology to a new cloud-based agent monitoring system, which provides new robust capabilities to train agents and monitor their performance in real time.

The introduction of enrollment quality assurance in the third quarter of 2021, in particular, resulted in an initial decline in conversion rates and longer talk times through the second quarter of 2022. However, we are seeing the improvement in enrollment quality metrics including Complaint Tracking Module ("CTM") scores and retention characteristics for the new enrollments that we added during the annual enrollment period in 2022, relative to comparable enrollment cohorts from the 2021 and 2020 annual enrollment periods. In the second half of 2022, we achieved a significant year-over-year increase in conversion rates on our Medicare calls and increased productivity

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from our tenured and newly hired agents, while maintaining or, in some cases, further improving enrollment quality metrics.

Transformation Plan — In 2022, we launched a multi-year transformation plan to increase our effectiveness in generating and converting consumer demand, right-size our cost structure and drive future profitability. This plan incorporates different operational and cost savings initiatives, including a reduction in vendor-related spend outside of mission critical areas, plans to reduce our real-estate footprint as we become a remote first workplace, and a targeted workforce reduction. During the second quarter of 2022 we eliminated over 300 full-time positions, representing 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.

We have also made changes to variable cost management. These initiatives are intended to improve our operations through right-sizing our agent force and better deployment of marketing expenses. For example, we have de-emphasized underperforming demand generation channels in favor of channels that bring higher quality leads. Through this transformation plan, we have achieved significant cost savings while preserving our competitive edge and focusing on initiatives with highest in-period returns on investment. In 2022, we achieved over $110 million in annualized cost savings compared to 2021. The variable cost reduction resulted in a decline in our enrollments and revenue in 2022. However, we believe that such decline is temporary before a return to enrollment growth in 2023 on a significantly improved operations and cost foundation.

Update on COVID-19 and Remote First

We experienced a number of changes in our business related to the impacts from the COVID-19 pandemic from 2020 onwards. As a result of the pandemic, we had to adjust our business operations, including shifting to a remote work model and onboarding and training new health insurance agents remotely. Since the pandemic, we have offered several programs to provide additional support to our employees and contractors, including our comfort equipment reimbursement program and Internet and mobile phone reimbursement programs to assist all employees with purchasing equipment to better enable remote work; access to digital health and mental wellness services for employees; and rigorous remote training programs.

In the third quarter of 2022, the Company announced a remote first workplace model in the United States. As a result, except for those employees whose job responsibilities require in-office work, none of our employees are required to work at the office. As part of the remote first strategy, in August 2022, we subleased a portion of our office space located in Santa Clara, California, and retained a portion to be used through first quarter of 2023. We also subleased or vacated other office spaces and evaluated certain of its right-of-use assets and other lease related assets including leasehold improvements, furniture and fixtures, and computer equipment for impairment under Accounting Standards Codification ("ASC") 360. As we continue to assess challenges associated with enabling remote work, including the reconfiguration of work space and our facility footprint and fostering a cohesive workplace culture, we believe flexible workforce positions will make us a more attractive employer, increase productivity, and enable us to recruit from a more diverse pool of applicants.

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

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•the constrained lifetime value ("LTV"), of approved members for Medicare-related, individual and family and ancillary health insurance plans we sell as well as the estimated annual value of approved members for small business plans we sell.

Approved Members

Approved members represent the number of individuals on submitted applications that were approved by the relevant insurance carrier for the identified product during the current period. The applications may be submitted in either the current period or prior periods. Not all approved members ultimately become paying members.

The following table shows approved members for the years presented:

2022 compared to 2021 – Medicare approved members declined 28% in 2022 compared to 2021 due to a decrease in approved members across all Medicare products that we market, including Medicare Advantage, Medicare Supplement, and Medicare Part D prescription drug plans. This decline reflects our decision to temporarily pause enrollment volume while implementing various operational initiatives aimed at increasing the effectiveness of our sales and marketing organizations.

Individual and family plan approved members declined 22% in 2022 compared to 2021 due to a 36% decline in approved members for qualified health plans and an 8% decline in non-qualified health plan approved members primarily due to a reduction in marketing spend.

Ancillary plan approved members declined 26% in 2022 compared to 2021 primarily due to decreased approved members across most ancillary plans. This decrease was partly attributed to the decline in individual and family plan enrollment volume as these enrollments can result in additional sales of ancillary products. Small business group health insurance approved members declined 15% in 2022 compared to 2021 due to the continued shift of our focus away from the sale of small business products.

2021 compared to 2020 – Medicare approved members remained flat in 2021 compared to 2020 due to a 3% growth in Medicare Advantage plan approved members, offset by decreased Medicare Supplement and Medicare Part D plan approved members. The increase in approved Medicare Advantage members was primarily due to our investments in customer care and enrollment and marketing, and an increase in online enrollment, partially offset by a decline in telesales conversion rate during the second half of 2021.

Individual and family plan approved members grew 28% in 2021 compared to 2020 primarily due to a 57% increase in approved members for qualified health plans and an 8% increase in non-qualified health plan approved members. The individual and family health insurance market benefited from the passage of the American Rescue Plan Act adopted in March 2021. This legislation expanded access to premium credits making individual and family major medical plans more affordable, which allows a larger population to get the coverage that our major medical plans offer. The credits cover the 2021 and 2022 plan years, after which the credit subsidies expire.

Ancillary plan approved members declined 15% in 2021 compared to 2020 primarily due to a decrease in short-term health insurance plans and other ancillary plans approved members. Small business group insurance

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approved members declined 23% in 2021 compared to 2020 mainly due to the shift of our focus away from the sale of small business products.

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 years presented:

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(1)Constrained LTV of commissions per approved member 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. 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. These factors may result in varying values from period to period. For additional information on constrained LTV, see Critical Accounting Policies and Estimates.

(2)For small business, the amount 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. These factors may result in varying values from period to period.

Medicare

2022 compared to 2021 – The constrained LTV of commissions per approved member was flat for Medicare Advantage plans and decreased for Medicare Supplement and Medicare Part D plans in 2022 compared to 2021. Medicare Advantage plans experienced decreased estimated average plan durations and higher churn observations, the impacts of which were offset by increased contracted rates and improved quality metrics. The decline in constrained LTV of commissions per approved member for Medicare Supplement and Medicare Part D plans was primarily due to decreased estimated average plan durations and higher churn observations.

2021 compared to 2020 – The constrained LTV of commissions per approved member for Medicare Advantage plans increased 3% and decreased by 12% and 6%, respectively, for Medicare Supplement and Medicare Part D prescription drug plans in 2021 compared to 2020. The increase in constrained LTV of Medicare Advantage plans was primarily due to higher commissions rates. The decline in constrained LTV of commissions per approved member for Medicare Supplement and Medicare Part D prescription drug plans was primarily due to shorter estimated average plan durations for both products.

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Individual and Family and Ancillaries

2022 compared to 2021 – The constrained LTV of commissions per approved non-qualified health plan member increased by 32% in 2022 compared to 2021 primarily due to more stable churn observations and an increase in estimated average plan duration. The constrained LTV of commissions per approved qualified health plan member increased by 7% in 2022 compared to 2021 due to a slight increase in average plan duration. The constrained LTV of commissions per approved member increased for dental, vision, and small business insurance plans by 9%, 3%, and 16%, respectively, in 2022 compared to 2021 primarily as a result of an increase in estimated average plan duration. The increase in small business insurance plan was also due to higher commissions per group.

2021 compared to 2020 – The constrained LTV of commissions per approved qualified health plan member increased by 17% in 2021 compared to 2020 primarily due to increased estimates of average plan duration and a lower constraint for non-qualified health insurance plans. The constrained LTV of commissions per approved member for short-term health insurance, dental, vision, and small business insurance plans increased 4%, 22%, 11%, and 16%, respectively, in 2021 compared to 2020 primarily as a result of an increase in estimated average plan duration.

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 the periods presented below are summarized as follows:

The constraints for all Medicare products remained the same during the year ended December 31, 2022, as compared to the same period in the prior year. The constraints for non-qualified health plans decreased during the year ended December 31, 2022, as compared to the same period in the prior year, due to stabilization of market conditions and historical increases in LTV values. Qualified health plans, ancillary plans and small business insurance plans remained the same during the year ended December 31, 2022, as compared to the same period in the prior year.

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Estimated Membership

Estimated membership represents the estimated number of members active as of the date indicated based on the number of members for whom we have received or applied a commission payment during the period of estimation. The following table shows estimated membership as of the periods presented below:

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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 through the date of the estimate). To the extent we determine through confirmations from a health insurance carrier that a commission payment is delayed or is inaccurate as of the date of estimation, we adjust the estimated membership to also reflect the number of members for whom we expect to receive or to refund a commission payment. Further, to the extent we have received substantially all of the commission payments related to a given month during the period being estimated, we will take the number of members for whom we have received or applied a commission payment during the month of estimation. For ancillary health insurance plans, the one to three-month period varies by insurance product and is largely dependent upon the timeliness of commission payment and related reporting from the related carriers.

(2)To estimate the number of members on small business health insurance plans, we use the number of initial members at the time the group was approved, and we update this number for changes in membership if such changes are reported to us by the group or carrier. However, groups generally notify the carrier directly of policy cancellations and increases or decreases in group size without informing us. Health insurance carriers often do not communicate policy cancellation information or group size changes to us. We often are made aware of policy cancellations and group size changes at the time of annual renewal and update our membership statistics accordingly in the period they are reported.

A member who purchases and is active on multiple standalone insurance plans will be counted as a member more than once. For example, a member who is active on both an individual and family health insurance plan and a standalone dental plan will be counted as two continuing members.

Health insurance carriers bill and collect insurance premiums paid by our members. The carriers do not report to us the number of members that we have as of a given date. The majority of our members who terminate their plans 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

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historical membership as compared to our initial estimates, we may provide the updated information in other communications or disclosures. As a result of the delay in our receipt of information from insurance carriers, actual trends in our membership are most discernible over periods longer than from one quarter to the next. As a result of the delay we experience in receiving information about our membership, it is difficult for us to determine with any certainty the impact of current conditions on our membership retention. Various circumstances could cause the assumptions and estimates that we make in connection with estimating our membership to be inaccurate, which would cause our membership estimates to be inaccurate.

2022 compared to 2021 – Medicare estimated membership increased 2% as of December 31, 2022 compared to December 31, 2021, driven by a 2% increase in both Medicare Advantage and Medicare Part D plan estimated memberships, offset by a 2% decline in Medicare Supplement plan estimated membership. The overall growth in Medicare estimated membership reflects new enrollments we generated during the year, net of estimated attrition. Individual and family plan estimated membership declined by 2% as of December 31, 2022 compared to December 31, 2021 due to a decrease in new enrollments. Ancillary plan estimated membership as of December 31, 2022 declined 9% compared to estimated membership as of December 31, 2021 due to the decline of estimated membership across all ancillary plans.

2021 compared to 2020 – Medicare estimated membership grew 10% as of December 31, 2021 compared to December 31, 2020 driven by a 19% increase in Medicare Advantage, offset by 6% and 2% decreases in Medicare Part D prescription drug plan and Medicare Supplement plan estimated memberships, respectively. The overall growth in Medicare estimated membership reflected new enrollments we generated during the year, net of estimated attrition. Individual and family plan estimated membership declined by 9% as of December 31, 2021 compared to December 31, 2020 due to our previous decision to shift our investment to our Medicare business. Ancillary plan estimated membership as of December 31, 2021 declined 5% compared to estimated membership as of December 31, 2020 primarily as a result of the decline of estimated membership of dental, short-term health plans, and other ancillary plans.

Member Acquisition

Marketing initiatives are an important component of our strategy to increase revenue and are primarily designed to encourage consumers to complete an application for health insurance. Variable marketing cost represents direct costs incurred in member acquisition from our direct, marketing partners and online advertising channels. In addition, we incur customer care and enrollment (“CC&E”) expenses in assisting applicants during the enrollment process. Variable marketing costs exclude fixed overhead costs, such as personnel related costs, consulting expenses, facilities and other operating costs allocated to the marketing and advertising department.

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The following table shows the estimated variable marketing cost per approved member and the estimated CC&E expense per approved member metrics for the years presented below. The numerator used to calculate each metric is the portion of the respective operating expenses for marketing and advertising and CC&E that is directly related to member acquisition for our sale of Medicare Advantage, Medicare Supplement and Medicare Part D prescription drug plans (collectively, “Medicare Plans”) and for all individual and family major medical plans and short-term health insurance plans (collectively, “IFP Plans”), respectively. The denominator used to calculate each metric is based on a derived metric that represents the relative value of the new members acquired. For Medicare Plans, we call this derived metric Medicare Advantage (“MA”)-equivalent members, and for IFP Plans, we call this derived metric IFP-equivalent members. The calculations for MA-equivalent members and for IFP-equivalent members are based on the weighted number of approved members for Medicare Plans and IFP Plans during the year, 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 year to year, the weight given to each product was determined based on their relative LTVs at the time of our adoption of ASC 606.

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(1)MA-equivalent approved members is a derived metric with a Medicare Part D approved member being weighted at 25% of a Medicare Advantage member and a Medicare Supplement member based on their relative LTVs at the time of our adoption of ASC 606. We calculate the number of MA-equivalent approved members by adding the total number of approved Medicare Advantage and Medicare Supplement members and 25% of the total number of approved Medicare Part D members during the years presented.

(2)IFP-equivalent approved members is a derived metric with a short-term approved member being weighted at 33% of a major medical individual and family health insurance plan member based on their relative LTVs at the time of our adoption of ASC 606. We calculate the number of IFP-equivalent approved members by adding the total number of approved qualified and non-qualified health plan members and 33% of the total number of short-term approved members during the years presented.

2022 compared to 2021 – Estimated CC&E cost per MA-equivalent approved member increased $14, or 4%, in 2022 compared to 2021 driven primarily by overall lower telephonic conversion rates combined with a large number of full-time Medicare agents relative to our planned demand needs at the beginning of the year until the cost reduction program was implemented in April 2022. Estimated variable marketing cost per MA-equivalent approved member decreased by 6% in 2022 compared to 2021, primarily due to a decline in our marketing spend as part of our cost savings initiatives in 2022.

Estimated variable CC&E cost per IFP-equivalent approved member increased $40, or 44%, in 2022 compared to 2021 primarily due to an increase in the number of agents as we pursue the emerging opportunities in the individual coverage health reimbursement arrangement and state exchange business. Estimated variable marketing cost per IFP-equivalent approved member increased by 7% in 2022 compared to 2021 primarily driven by the decline in approved members.

2021 compared to 2020 – Estimated CC&E costs per MA-equivalent approved member increased 4% in 2021 compared to 2020, due to lower enrollment volume resulting from enrollment quality initiatives, a decline in our telesales conversion rate, and an earlier start to our staffing increase for the Medicare annual enrollment period in 2021. Estimated variable marketing costs per MA-equivalent approved member increased by 36% in 2021 compared to 2020, primarily due to a decline in telesales conversion rates leading to a reduced return on our marketing spend and an increase in cost of leads in certain marketing channels, such as direct television and direct mail. In addition, a greater focus on our online advertising channel also contributed to the increase as it carries higher per enrollment marketing costs but lower customer care and enrollment costs.

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Estimated CC&E cost per IFP-equivalent approved member decreased 1% in 2021 compared to 2020 due primarily to a decrease in costs and an increase in the number of approved members. Estimated variable marketing cost per IFP-equivalent approved member decreased by 19% in 2021 compared to 2020 due primarily to a decrease in online marketing spend and an increase in the number of approved members.

Results of Operations

The following table sets forth our operating results and related percentage of total revenues for the years presented below (dollars in thousands):

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(1)     Operating costs and expenses include the following amounts of stock-based compensation expense (in thousands):

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Revenue

Our commission revenue, other revenue and total revenue are summarized as follows (dollars in thousands):

2022 compared to 2021 – Commission revenue decreased $131.9 million, or 27%, in 2022 compared to 2021 due to a $109.1 million, or 25%, decrease in commission revenue from the Medicare segment and a $22.7 million, or 36%, decrease in commission revenue from the Individual, Family and Small Business segment.

The decrease in commission revenue from the Medicare segment was driven by a 28% decline in Medicare plan approved members across all Medicare products that we market, reflecting our decision to temporarily pause enrollment growth while implementing a number of operational initiatives aimed at increasing the effectiveness of our sales and marketing organizations. This impact of lower enrollment volume was partially offset by net adjustment revenue from prior period enrollments of $(2.3) million for the year ended December 31, 2022 which was favorable compared to $(8.4) million of net adjustment revenue for the same period in 2021. Net adjustment revenue consists of increases in revenue for certain prior period cohorts as well as reductions in revenue for certain prior period cohorts. We recognize positive adjustments to revenue to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur.

The decrease in commission revenue from the Individual, Family and Small Business segment was primarily due to a 22% decrease in individual and family plan approved members, a 26% decline in ancillary product approved members and $8.7 million in net adjustment revenue from prior period enrollments for the year ended December 31, 2022 compared to $30.2 million of net adjustment revenue for the same period in 2021. See Segment Information below and Note 2 – Revenue in our Notes to Consolidated Financial Statements for more information.

Other revenue decreased $1.0 million, or 2%, in 2022 compared to the same period in 2021 due to a decrease in advertising revenue.

2021 compared to 2020 – Commission revenue decreased $15.1 million, or 3%, in 2021 compared to 2020 due to a $17.1 million, or 4%, decrease in commission revenue from the Medicare segment, offset by a $2.0 million, or 3%, increase in commission revenue from the Individual, Family and Small Business segment. The decrease in commission revenue from the Medicare segment for the year ended December 31, 2021 compared to 2020 was primarily due to a decrease in net adjustment revenue and a decline in the estimated constrained LTV and lower enrollment volume for Medicare Supplement and Medicare Part D prescription drug plans, partially offset by an increase in constrained LTV and enrollment volume for Medicare Advantage plans. The increase in commission revenue from the Individual, Family and Small Business segment was primarily driven by a 28% increase in individual and family plan approved members.

Net adjustment revenue for our Medicare segment in 2021 and 2020 was $(8.4) million and $5.7 million, respectively. For our Individual, Family and Small Business segment net adjustment revenue in 2021 and 2020 was $30.2 million and $33.1 million, respectively.

Other revenue decreased $29.5 million, or 40%, in 2021 compared to the same period in 2020 due to a decrease in Medicare advertising revenue as a result of a decrease in the size and number of advertising programs with certain carriers.

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Cost of Revenue

Cost of revenue consists of payments related to health insurance plans sold to members who were referred to our website by marketing partners with whom we have revenue-sharing arrangements. In order to enter into a revenue-sharing arrangement, marketing partners must be licensed to sell health insurance in the state where the policy is sold. Costs related to revenue-sharing arrangements are expensed as the related revenue is recognized.

Additionally, cost of revenue includes the amortization of consideration we paid to certain broker partners in connection with the transfer of their health insurance members to us as the new broker of record on the underlying plans. These transfers include primarily Medicare plan members. Consideration for all book-of-business transfers is being amortized to cost of revenue as we recognize commission revenue related to the transferred members.

Our cost of revenue is summarized as follows (dollars in thousands):

2022 compared to 2021 – Cost of revenue decreased $0.3 million in 2022, compared to 2021, primarily due to decreased activity from our revenue sharing arrangements.

2021 compared to 2020 – Cost of revenue decreased $2.1 million in 2021, compared to 2020, primarily due to decreased activity from our revenue sharing arrangements.

Marketing and Advertising

Marketing and advertising expenses consist primarily of member acquisition expenses associated with our direct, marketing partner, and online advertising member acquisition channels, in addition to compensation and other expenses related to marketing, business development, partner management, public relations and carrier relations personnel who support our offerings. We recognize expenses in our direct member acquisition channel in the period in which they are incurred. We generally compensate our marketing partners for referrals based on the consumer submitting a health insurance application on our platform, regardless of whether the consumer's application is approved by the health insurance carrier, or for the referral of a Medicare-related lead to us by the marketing partner.

Some of our marketing partners have tiered arrangements where the amount we pay the marketing partner per submitted application increases as the volume of submitted applications we receive from the marketing partner increases. We recognize these expenditures in the period when a marketing partner’s referral results in the submission of a health insurance application. We recognize expenses in our online advertising member acquisition channels in the period in which the consumer clicks on the advertisement. Increases in submitted applications resulting from marketing partner referrals or visitors to our website from our online advertising channel has in the past, and could in the future, result in marketing and advertising expenses significantly higher than our expectations.

Our marketing and advertising expenses are summarized as follows (dollars in thousands):

2022 compared to 2021 – Marketing and advertising expenses decreased by $76.2 million, or 28%, in 2022, compared to 2021, primarily due to a $70.7 million decrease in variable advertising costs, $6.8 million decrease in stock-based compensation, and $1.4 million decrease in personnel related costs, partially offset by increases of $1.9 million in consulting costs and $1.3 million in facilities and operating costs. The decrease in variable advertising expenses was due to a decrease in our advertising expense through select lead generation

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partners and direct TV channels as we shifted to a more targeted deployment of our marketing budget to emphasize the highest performing channels.

2021 compared to 2020 – Marketing and advertising expenses increased by $62.0 million, or 30%, in 2021 compared to 2020, primarily due to a $60.4 million increase in variable advertising costs, $3.6 million increase in stock-based compensation, and $0.7 million increase in facilities and operating costs, partially offset by decreases in consulting and personnel related costs. The increase in variable advertising and expenses was due to an increase in our advertising expense through our affiliate lead generation partner and online channels. The increase in expense as a percentage of revenue reflects lower than expected volume driven by underperformance of certain marketing channels.

Customer Care and Enrollment

Customer care and enrollment expenses primarily consist of compensation, benefits, and licensing costs for personnel engaged in assistance to applicants who call our customer care center and for enrollment personnel who assist applicants during the enrollment process.

Our customer care and enrollment expenses are summarized as follows (dollars in thousands):

2022 compared to 2021 – Customer care and enrollment expenses decreased by $38.2 million, or 21%, in 2022 compared to 2021. This decrease was primarily due to a $32.1 million decrease in personnel costs associated with a decrease in headcount, a $5.9 million decrease in consulting expenses and a $0.7 million decrease in stock-based compensation expense, partially offset by a $0.7 million increase in facilities and other operating expenses. The decrease in personnel costs reflects our targeted headcount reduction implemented in April 2022 and our decision to limit the hiring of new agents in preparation for the annual enrollment period in the fourth quarter, compared to 2021.

2021 compared to 2020 – Customer care and enrollment expenses increased by $6.4 million, or 4%, in 2021 compared to 2020. This increase was primarily driven by a $36.4 million increase in personnel costs associated with an increase in customer care and enrollment headcount and a $3.3 million increase in facilities and other operating expenses, partially offset by a $27.5 million decrease in spending on external call center and agents, and a $6.6 million decrease in licensing costs. The decrease in licensing costs was primarily due to previously over-recognized licensing costs that were adjusted during the first quarter of 2021.

During 2021, we shifted to a predominantly internal agent model with the intent to employ and maintain the majority of our health insurance agent force year-round. We started internal agent hiring and training earlier in 2021 compared to 2020, with the largest headcount increase in the second and third quarters. In October 2021, we entered the annual enrollment period with over 95% of our sales force consisting of internal agents, the largest number of full-time agents in our company's history. We also incurred more spending on agent training and the expansion of our customer service team in the second half of 2021, including the addition of a new customer care role to verify Medicare enrollments prior to submission and expanding our quality assurance 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.

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Our technology and content expenses are summarized as follows (dollars in thousands):

2022 compared to 2021 – Technology and content expenses decreased $5.0 million, or 6%, in 2022 compared to 2021, reflective of our cost reduction program and primarily due to decreases of $4.0 million in stock-based compensation expense, $2.8 million in consulting costs, $1.5 million in personnel and compensation costs due to lower headcount and a $1.6 million decrease in depreciation and amortization, partially offset by increases of $4.4 million in amortization of internally developed software and $0.5 million in facilities and other operating costs.

2021 compared to 2020 – Technology and content expenses increased $18.6 million, or 29%, in 2021 compared to 2020, primarily driven by increases of $6.9 million in personnel and compensation costs, $5.1 million in amortization of internally developed software, $4.6 million in stock-based compensation expense, $0.9 million in depreciation and amortization, and $0.9 million in facilities and other operating costs. The increase reflects an implementation of a cloud-based call center technology platform and further enhancements to our online user experience in 2021.

General and Administrative

General and administrative expenses include compensation and benefits costs for personnel working in our executive, finance, investor relations, government affairs, legal, human resources, internal audit, facilities, and internal information technology departments. These expenses also include fees paid for outside professional services, including audit, tax, legal, government affairs, and information technology fees.

Our general and administrative expenses are summarized as follows (dollars in thousands):

2022 compared to 2021 – General and administrative expenses decreased by $3.9 million, or 5%, in 2022 compared to 2021, primarily due to decreases of $9.5 million in facilities and other operating costs and $1.0 million in stock-based compensation expense, partially offset by an increase of $5.9 million in compensation and personnel costs.

2021 compared to 2020 – General and administrative expenses decreased by $0.8 million, or 1%, in 2021 compared to 2020, primarily due to decreases of $2.8 million in compensation and personnel costs and $1.1 million in consulting expense, partly offset by a $2.7 million increase in professional fees. The decrease in stock-based compensation expenses in 2021 compared to 2020 was primarily attributable to a one-time reversal related to forfeited equity awards due to our former chief executive officer's termination of employment.

Amortization of Intangible Assets

Our intangible asset amortization expense is summarized as follows (dollars in thousands):

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2022 compared to 2021 – Amortization expense decreased in 2022 compared to 2021 due to the impairment of our finite-lived intangible assets at December 31, 2021.

2021 compared to 2020 – Amortization expense was primarily related to intangible assets purchased through our acquisitions. Amortization expense decreased in 2021 compared to 2020 due to certain intangible assets being fully amortized in 2021.

Impairment, Restructuring and Other Charges

Our impairment, restructuring and other charges consist primarily of severance, transition and other related costs and goodwill and intangible asset impairment charges. Our impairment, restructuring and other charges are summarized as follows (dollars in thousands):

2022 compared to 2021 – Impairment, restructuring and other charges for the year ended December 31, 2022 primarily consisted of $12.1 million related to the subleasing and vacating of several of our office spaces, primarily consisting of $9.6 million of operating lease right-of-use asset and $2.2 million of property, plant and equipment impairment charges as well as $7.5 million of severance and other personnel related cost as a result of the restructuring that took place throughout 2022. In the first half of 2022, we eliminated 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 of restructuring charges. In the second half of 2022, we incurred pre-tax restructuring charges of $1.3 million for additional eliminated positions.

2021 compared to 2020 – Impairment, restructuring and other charges for the year ended December 31, 2021 were $51.2 million, consisting of $46.3 million in impairment charges and $4.9 million in restructuring and reorganization charges. We recorded an impairment charge of $40.2 million and $6.1 million related to our goodwill and intangible assets, respectively, primarily due to the recent change in our market valuation and financial performance. There were no impairment charges record during the year ended December 31, 2020. We incurred $4.9 million in restructuring and reorganization charges in 2021, which primarily consisted of the severance and other personnel related costs related to the restructuring that took place in the first quarter of 2021 and the severance and other personnel related cost related to the separation arrangement with our former chief executive officer in September 2021. We did not incur any restructuring and reorganization charges in 2020.

Other Income (Expense), Net

Other income (expense), net, primarily consisted of interest income, sublease income and margin earned on commissions received from Medicare plan members transferred to us in 2010 through 2012 by a broker partner, partially offset by interest expense on finance leases and debt and other bank fees.

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

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2022 compared to 2021 – Other expense, net was $3.7 million in 2022 compared to other income, net of $0.8 million in 2021. The change was driven by $5.9 million of interest expense and $1.1 million of amortization of debt issuance costs related to the credit agreement with Blue Torch Finance, LLC, which was entered into during the first quarter of 2022, partially offset by an increase of $2.6 million in interest income.

2021 compared to 2021 – Other income, net was $0.8 million in 2021 compared to $0.7 million in 2020.

Provision for (Benefit from) Income Taxes

The following table presents our provision for (benefit from) income taxes for the years presented below (dollars in thousands):

Year Ended December 31, 2022 – For the year ended December 31, 2022, we recorded a benefit from income taxes of $17.7 million representing an effective tax rate of 16.6%. In 2022, the effective tax rate was lower than the statutory tax rate due to stock-based compensation adjustments and changes to the valuation allowance, offset by state tax and research and development tax credits.

Year Ended December 31, 2021 – For the year ended December 31, 2021, we recorded a benefit from income taxes of $20.5 million representing an effective tax rate of 16.4%. In 2021, the effective tax rate was lower than the statutory tax rate due to goodwill impairment, stock-based compensation adjustments, a valuation allowance of $3.2 million recorded on net California state deferred tax assets, partially offset by research and development tax credits.

Year Ended December 31, 2020 – For the year ended December 31, 2020, we recorded a provision for income taxes of income taxes of $8.5 million representing an effective tax rate of 15.8%. In 2020, the effective tax rate was lower than the statutory tax rate primarily due to stock-based compensation adjustments and research and development credits, offset by state tax and lobbying expenses.

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 total revenue and profit (loss). Our business structure is comprised of two operating segments:

•Medicare; and

•Individual, Family and Small Business.

Our CODM does not separately evaluate assets by segment, with the exception of commissions receivable, and therefore assets by segment are not presented.

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

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The Individual, Family and Small Business segment consists primarily of amounts earned from our sale of individual, family and small business health insurance plans and ancillary products sold to our non-Medicare-eligible applicants, including but not limited to, dental, vision and short-term health insurance. To a lesser extent, the Individual, Family and Small Business segment consists of amounts earned from our online sponsorship program that allows carriers to purchase advertising space in specific markets in a sponsorship area on our website, our licensing to third parties for the use of our health insurance ecommerce technology, and our delivery and sale to third parties of individual and family health insurance leads generated by our ecommerce platforms and our marketing activities.

Marketing and advertising, customer care and enrollment, technology and content and general and administrative operating expenses that are directly attributable to a segment are reported within the applicable segment. Indirect marketing and advertising, customer care and enrollment, and technology and content operating expenses are allocated to each segment based on usage. Other indirect general and administrative operating expenses are managed in a corporate shared services environment and, since they are not the responsibility of segment operating management, are not allocated to the operating segments and instead reported within Corporate.

Segment profit (loss) is calculated as total revenue for the applicable segment less direct and indirect allocated marketing and advertising, customer care and enrollment, technology and content and general and administrative operating expenses, excluding stock-based compensation expense, depreciation and amortization, amortization of intangible assets, and impairment, restructuring and other charges.

Our operating segment revenue and profit (loss) are summarized as follows (in thousands):

_______

(1)    During the first quarter of 2021, we revised the calculation of segment profit by excluding amortization of capitalized software development costs to enhance comparability of our financial metrics with peer companies. The amortization of capitalized software was $17.3 million, $12.9 million and $7.8 million for the years ended December 31, 2022, 2021 and 2020, respectively.

(2)    Depreciation and amortization has been adjusted to include amortization of software development costs.

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Segment Revenue

2022 compared to 2021 – Revenue from our Medicare segment decreased $109.5 million, or 23%, in 2022 compared to 2021, primarily attributable to a $109.1 million decrease in Medicare segment commission revenue. The decrease in Medicare segment commission revenue was primarily due to a $100.3 million decrease in Medicare Advantage plan commission revenue, driven by a 24% decline in Medicare Advantage approved members.

Revenue from our Individual, Family and Small Business segment decreased $23.3 million, or 35%, in 2022 compared to 2021, primarily attributable to a $22.7 million decrease in commission revenue, driven by a 22% decline in individual and family plan approved members and a 26% decline in ancillary plan approved members compared to the same period in 2021. Based on our evaluation of the updated LTV models and retention trends, we recognized $8.7 million in net adjustment revenue from prior period enrollments in 2022 compared to net adjustment revenue of $30.2 million in 2021.

2021 compared to 2020 – Medicare segment revenue declined $45.5 million, or 9%, in 2021 compared to 2020, primarily attributable to a $28.5 million decrease in sponsorship and advertising revenue and a $17.1 million decrease in Medicare segment commission revenue. The decrease in Medicare segment commission revenue was primarily due to a decrease in commission revenue for Medicare Supplement plans of $24.3 million and Medicare Part D prescription drug plans of $5.5 million, partially offset by an increase of $18.9 million in Medicare Advantage plan commission revenue. The increase in Medicare Advantage plan commission revenue was driven by 3% growth in Medicare Advantage approved members and higher constrained LTVs. The decrease in commission revenue for Medicare Supplement and Medicare Part D prescription drug plans was attributable to a decline in enrollment volume and net adjustment revenue of $(8.4) million for the year ended December 31, 2021, primarily due to lower LTVs.

Revenue from the Individual, Family and Small Business segment increased $1.0 million, or 1%, in 2021 compared to 2020, primarily attributable to a $2.0 million increase in commission revenue. The increase in commission revenue from Individual, Family and Small Business segment was primarily due to an increase in commission revenue from members approved during the period of $3.1 million, partially offset by net adjustment revenue of $30.2 million in 2021 compared to net adjustment revenue of $33.1 million in 2020. The net adjustment revenue in 2021 was due to stronger retention rates for earlier period cohorts of certain products on our latest LTV assessment.

Segment Profit (Loss)

2022 compared to 2021 – Our Medicare segment loss was $9.9 million in 2022, a decrease of $2.2 million or 18%, compared to 2021 segment loss of $12.1 million. This was driven by a $111.7 million decrease in operating expenses, excluding stock-based compensation expense, depreciation and amortization expenses, impairment, restructuring and other charges, and other income (expense), offset by a $109.5 million decrease in revenue. The decrease in operating expenses was mostly attributable to impacts from our transformation initiatives in 2022.

Our Individual, Family and Small Business segment profit was $21.4 million in 2022, a decrease of $24.3 million, or 53%, compared to 2021. The decrease was driven by a $23.3 million decrease in revenue and a $1.0 million increase in operating expenses, excluding stock-based compensation expense, depreciation and amortization expenses, impairment, restructuring and other charges, and other income (expense).

2021 compared to 2020 – Our Medicare segment loss was $12.1 million in 2021 compared to segment profit of $108.8 million in 2020. This was primarily due to a $75.3 million increase in operating expenses, excluding stock-based compensation expense, depreciation and amortization expenses, impairment, restructuring and other charges, and amortization of intangible assets and a $45.5 million decrease in revenue. The increase in operating expenses was mostly attributable to increases in marketing costs and customer care and enrollment costs as we continued to invest in telesales capacity, internal agent counts, agent productivity tools and incentives, customer engagement and retention initiatives, and enhancements to our technology platform. Our Medicare segment profit

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(loss) was negatively impacted by the underperformance of our internal agent force and certain of our marketing channels during the fourth quarter 2021 annual enrollment period.

Our Individual, Family and Small Business segment profit was $45.7 million in 2021, an increase of $5.4 million, or 13%, compared to 2020. The increase was primarily driven by a $4.4 million decrease in operating expenses, excluding stock-based compensation expense, depreciation and amortization expenses, impairment, restructuring and other charges, and amortization of intangible assets, and a $1.0 million increase in revenue.

Liquidity and Capital Resources

Material Cash Requirements

Our material cash requirements include our operating leases and service and licensing obligations. See Note 10 – Leases in our Notes to Consolidated Financial Statements for the 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 our Notes to Consolidated Financial Statements.

Short-term obligations were $8.6 million for leases and $7.8 million for service and licensing as of December 31, 2022. Long-term obligations were $39.4 million for leases and $2.7 million for service and licensing as of December 31, 2022. We expect to fund these obligations through our existing cash and cash equivalents and cash generated from operations.

Our future capital requirements will depend on many factors, including our enrollment volume, membership, retention rates, telesales conversion rates, and our level of investment in technology and content, marketing and advertising, customer care and enrollment, and other initiatives. In addition, our cash position could be impacted by the level of investments we make to pursue our strategy. To the extent that available funds are insufficient to fund our future activities or to execute our financial strategy, we may raise additional capital through bank debt, or public or private equity or debt financing to the extent such funding sources are available. We have begun implementing a multi-year transformation plan to right-size our cost structure and drive future profitability. This plan has incorporated different operational and cost savings initiatives, including a reduction in vendor-related spend outside of mission critical areas, a reduction of our real-estate footprint as we decided to become a remote first workplace, and a targeted workforce reduction implemented during 2022. These reductions could adversely impact the growth of membership and revenue.

We believe our current cash and cash equivalents, including the proceeds from the term loan we obtained on February 28, 2022 under our credit agreement with Blue Torch Finance, LLC and expected cash collections will be sufficient to fund our operations for at least 12 months after the filing date of this Annual Report on Form 10-K.

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

As of December 31, 2022 and 2021, our cash and cash equivalents totaled $144.4 million and $81.9 million, respectively. Cash equivalents, which are comprised of financial instruments with an original maturity of 90 days or less from the date of purchase, primarily consist of money market funds. The increase in cash and cash equivalents reflects $63.8 million of net cash provided by financing activities and $25.9 million of net cash provided by investing activities, partially offset by $26.9 million of net cash used in operating activities.

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Our cash flows are summarized as follows (in thousands):

Operating Activities

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

Collection of commissions receivable depends upon the timing of our receipt of commission payments and associated commission reports from health insurance carriers. If we were to experience a delay in receiving a commission payment from a 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 generally becomes positive over the lifetime of the member. In periods of membership growth, cash receipts associated with new and continuing members may be less than the cash outlays to acquire new members.

A significant portion of our marketing and advertising expense is directly correlated with the number of health insurance applications submitted on our ecommerce platforms. Since our marketing and advertising costs are expensed and generally paid as incurred, and since commission revenue is recognized upon approval of a member but commission payments are paid to us over time, our operating cash flows could be adversely impacted by a substantial increase in the volume of applications submitted during a quarter or positively impacted by a substantial decline in the volume of applications submitted during a quarter. During the Medicare annual enrollment period that takes place during the last quarter of each year and the reintroduced Medicare Advantage open enrollment period in the first quarter of the year, we experience an increase in the number of submitted Medicare-related health insurance applications and marketing and advertising expenses compared to outside of these annual enrollment periods. Similarly, during the open enrollment period for individual and family health insurance plans which typically takes place during the fourth quarter of each year, we experience an increase in the number of submitted individual and family plan health insurance applications and marketing and advertising expenses compared to outside of open enrollment periods. The timing of open enrollment periods for individual and family health insurance plans, the Medicare annual enrollment period and the open enrollment period for Medicare-related health insurance can positively or negatively affect our cash flows during each quarter.

Year Ended December 31, 2022 – Net cash used in operating activities was $26.9 million during the year ended December 31, 2022, primarily driven by a net loss of $88.7 million, partially offset by changes in net operating assets and liabilities of $24.7 million and adjustments for non-cash items of $37.2 million. Cash from changes in net operating assets and liabilities during the year ended December 31, 2022 primarily consisted of increases of $23.8 million in contract assets – commissions receivable, $13.5 million in prepaid expenses and $4.2 million in accrued compensation and benefits, partially offset by decreases of $12.6 million in accrued marketing expenses and $7.0 million in accounts payables. Adjustments for non-cash items primarily consisted of $20.3 million of stock-based compensation expense, $17.3 million of amortization of internally-developed software, and $12.1 million of impairment charges on right-of use assets and associated property, plant and equipment write-offs, partially offset by a $18.4 million decrease in deferred income taxes.

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Year Ended December 31, 2021 – Net cash used in operating activities was $162.6 million during the year ended December 31, 2021, primarily driven by changes in net operating assets and liabilities of $136.3 million and a net loss of $104.4 million, partly offset by adjustments for non-cash items of $78.0 million. Cash used from changes in net operating assets and liabilities during the year ended December 31, 2021 primarily consisted of an increase of $116.0 million in contract assets – commissions receivable, a decrease of $23.1 million in accounts payables, an increase of $7.9 million in prepaid expenses, and a decrease of $4.1 million in accrued compensation and benefits, partially offset by increases of $18.6 million in accrued marketing expenses. Adjustments for non-cash items primarily consisted of $32.9 million of stock-based compensation expense, $12.9 million of amortization of internally-developed software, and $0.5 million of amortization of intangible assets, partially offset by a $21.5 million decline in deferred income taxes.

Year Ended December 31, 2020 – Net cash used in operating activities was $107.9 million during the year ended December 31, 2020, primarily driven by changes in net operating assets and liabilities of $201.3 million, partially offset by net income of $45.5 million and adjustments for non-cash items of $48.0 million. Cash used from changes in net operating assets and liabilities during the year ended December 31, 2020 primarily consisted of an increase of $205.2 million in contract assets – commissions receivable, a decrease of $9.0 million in accrued compensation and benefits, an increase of $6.2 million in prepaid expenses and other assets and a decrease of $2.3 million in deferred revenue, partially offset by increases of $12.3 million in accounts payable, $5.7 million in accrued marketing expenses, and $2.8 million in accrued expenses and other liabilities. Adjustments for non-cash items primarily consisted of $25.2 million of stock-based compensation expense, $8.8 million change in deferred income taxes, $7.8 million of amortization of internally-developed software, and $1.5 million of amortization of intangible assets.

Investing Activities

Our investing activities primarily consist of purchases and redemption of marketable securities, purchases of computer hardware and software to enhance our website and customer care operations, leasehold improvements related to facilities expansion, capitalized internal-use software and security deposit payments.

Year Ended December 31, 2022 – Net cash provided by investing activities of $25.9 million during 2022 mainly consisted of $49.8 million of proceeds from redemption and maturities of marketable securities, offset by $15.3 million of capitalized internal-use software and website development costs and $8.4 million used to purchase marketable securities.

Year Ended December 31, 2021 – Net cash used in investing activities of $12.6 million during 2021 mainly consisted of $103.1 million used to purchase marketable securities, $17.0 million of capitalized internal-use software and website development costs, and $3.9 million used to purchase property and equipment and other assets, partially offset by $111.3 million of proceeds from redemption and maturities of marketable securities.

Year Ended December 31, 2020 – Net cash used in investing activities of $73.3 million during 2020 mainly consisted of $180.5 million used to purchase marketable securities, $16.0 million of capitalized internal-use software and website development costs, and $7.8 million used to purchase property and equipment and other assets, partially offset by $131.0 million of proceeds from redemption and maturities of marketable securities.

Financing Activities

Year Ended December 31, 2022 – Net cash provided by financing activities of $63.8 million during 2022 was primarily attributable to $64.9 million of net proceeds from debt financing and $2.2 million of net proceeds from exercises of common stock options, partially offset by $3.1 million of cash used for share repurchases to satisfy employee tax withholding obligations.

Year Ended December 31, 2021 – Net cash provided by financing activities of $213.2 million during 2021 was primarily attributable to $214.0 million proceeds from issuance of preferred stock, net of issuance costs and $8.7 million of net proceeds from exercise of common stock options, partially offset by $9.3 million of cash used for share repurchases to satisfy employee tax withholding obligations.

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Year Ended December 31, 2020 – Net cash provided by financing activities of $201.2 million during 2020 was primarily attributable to $228.0 million proceeds from issuance of common stock, net of issuance costs and $1.9 million of net proceeds from exercise of common stock options, partially offset by $19.8 million cash used for share repurchases to satisfy employee tax withholding obligations and $8.8 million of acquisition-related contingent consideration payments.

See Note 5 – Equity and Note 6 – Convertible Preferred Stock in our Notes to Consolidated Financial Statements for information regarding our equity offering in 2020 and our preferred stock transaction in 2021, respectively. We also had $3.2 million in restricted cash as of December 31, 2022 and 2021.

As of December 31, 2022 and 2021, we had 1.7 million and 1.3 million shares held in treasury stock, respectively, that were shares repurchased to satisfy tax withholding obligations. As of December 31, 2022 and 2021, we had a total of 12.4 million and 12.0 million shares held in treasury stock, respectively, including 10.7 million shares previously repurchased.

Common Stock Issuance

In March 2020, we entered into an underwriting agreement to issue and sell a total of 2,070,000 shares of common stock, which total included the exercise in full of the underwriters’ option to purchase 270,000 additional shares of common stock, at a price to the public of $115.00 per share. Net proceeds from the offering were approximately $228.0 million after deducting underwriting discounts, commissions and expenses of the offering.

Convertible Preferred Stock

On April 30, 2021 (the "Closing Date"), we issued and sold 2,250,000 shares of our newly designated Series A preferred stock at an aggregate purchase price of $225.0 million to Echelon Health SPV, LP ("H.I.G."), at a price of $100 (the “Stated Value” per share of Series A preferred stock) per share (the "Private Placement"). We received $214.0 million net proceeds from the Private Placement with H.I.G., net of sales commissions and certain transaction fees.

Dividends on our outstanding shares of Series A preferred stock accrue daily at 8% per annum on the Stated Value per share and compound semiannually, payable in kind until April 30, 2023, which is the second anniversary of the Closing Date on June 30, and December 31 of each year, beginning on June 30, 2021, and will thereafter be 6% payable in kind and 2% payable in cash in arrears on June 30 and December 31 of each year, beginning on June 30, 2023 (each, a “Cash Dividend Payment Date”). Dividends payable in kind will be cumulative. The Series A preferred stock also participates, on an as-converted basis (without regard to conversion limitations) in all dividends paid to the holders of our common stock. If we fail to declare and pay full cash dividend payments as required by the certificate of designations for the Series A preferred stock for two consecutive Cash Dividend Payment Dates, the cash dividend rate then in effect shall increase one time by 2%, retroactive to the first day of the semiannual period immediately preceding the first Cash Dividend Payment Date at which we failed to pay such accrued cash dividends, until such failure to pay full cash dividends is cured (at which time the dividend rate shall return to the rate prior to such increase). The dividend rights of the Series A preferred stock are senior to all of our other equity securities.

Beginning on April 30, 2027, which is the sixth anniversary of the Closing Date, each holder of Series A preferred stock will have the right to require us to redeem all or any portion of the Series A preferred stock for cash at a price calculated as set forth in the certificate of designations. In addition, upon certain change of control events, holders of Series A preferred stock can require us, subject to certain exceptions, to repurchase any or all of their Series A preferred stock. See Note 6 – Convertible Preferred Stock of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for more information.

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Term Loan Credit Agreement

We entered into a Credit Agreement with Blue Torch Finance LLC, as administrative agent and collateral agent, and the other lenders party thereto in February 2022 (the "Original Credit Agreement") and entered into an amendment (the "Amendment") to the Original Credit Agreement in August 2022 (as amended by the Amendment, the "Credit Agreement"). The Credit Agreement provides for a $70.0 million secured term loan credit facility, which term loans were made available to us on February 28, 2022. We terminated our credit agreement with Royal Bank of Canada ("RBC"), pursuant to which we had an up to $75 million revolving credit facility in connection with our receiving the loan under the Term Loan Credit Agreement. The Amendment replaced the LIBOR-based Adjusted Eurocurrency Rate (as defined in the Original Credit Agreement) with Adjusted Term SOFR (as defined in the Amendment) as a reference rate for loans under the Credit Agreement.

The proceeds of the loans under the Credit Agreement may be used for working capital and general corporate purposes, to refinance our credit agreement with RBC and to pay fees and expenses in connection with the entry into the Credit Agreement. The Original Credit Agreement bore interest, at our option, at either a rate based on the London Interbank Offered Rate ("LIBOR") for the applicable interest period or a base rate, in each case plus a margin. The base rate is the highest of the prime rate, the federal funds rate plus 0.50% and one month adjusted LIBOR plus 1.0%. The margin is 7.50% for LIBOR loans and 6.50% for base rate loans. After the Amendment, the loans under the Credit Agreement bear interest, at our option, at either a rate based on the Adjusted Term SOFR or a base rate, in each case plus a margin. The base rate is the highest of the prime rate, the federal funds rate plus 0.50% and three-month Adjusted Term SOFR plus 1.00%. The margin is 7.50% for Adjusted Term SOFR loans and 6.50% for base rate loans.

Furthermore, as part of the Credit Agreement, we incur a $0.3 million fee per annum, payable annually. The outstanding obligations under the Credit Agreement are payable in full on the maturity date. The Credit Agreement matures in February of 2025. We have the right to prepay the loans under the Credit Agreement in whole or in part at any time, subject, in the case of certain mandatory prepayments or any voluntary prepayment of the loans under the Credit Agreement after February 28, 2023, to an exit fee. Our obligations under the Credit Agreement are guaranteed by certain of our material domestic subsidiaries and substantially all of our assets and the assets of such guarantors, in each case, subject to customary exclusions. We are obligated to pay administration fees in connection with the Credit Agreement.

As of December 31, 2022, we had $66.1 million outstanding principal amount under our Credit Agreement, net of closing costs. See Note 12 – Debt in our Notes to Consolidated Financial Statements regarding our previously terminated credit agreement with RBC and additional information regarding the Credit Agreement.

Seasonality

See Item 1, Business – Seasonality for information regarding seasonal impacts on our business and financial condition and results of operations.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles ("U.S. GAAP"), 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.

Among our significant accounting policies, which are described in Note 1 – Summary of Business and Significant Accounting Policies in our Notes to Consolidated Financial Statements, the following accounting policies and specific estimates involve a greater degree of judgments and complexity:

•Revenue recognition and contract assets - commission receivable;

•Stock-based compensation; and

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•Accounting for income taxes.

During the year ended December 31, 2022, there were no significant changes to our critical accounting policies and estimates.

Revenue Recognition and Contract Assets - Commission Receivable

Commission Revenue – Our commission revenue results from approval of an application from health insurance carriers, which we define as our customers under ASC 606. Our commission revenue is primarily comprised of commissions from health insurance carriers which is computed using the estimated constrained lifetime values as the “constrained LTVs” of commission payments that we expect to receive. Our commissions include regular payments with respect to administrative services we perform. Our Medicare Supplement plan commissions include certain bonus payments, which are generally based on our attaining predetermined target sales levels or other objectives, as determined by the health insurance carriers.

We estimate commission revenue for each insurance product by using a portfolio approach to a group of approved members by plan type and the effective month of the relevant plan, which we refer to as “cohorts”. We estimate the commissions we expect to collect for each approved member cohort by evaluating various factors, including but not limited to, 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. Contract assets - commissions receivable represent the variable consideration for policies that have not renewed yet and therefore are subject to the same assumptions, judgements and estimates used when recognizing revenue as noted above.

For Medicare-related, individual and family and ancillary health insurance plans, our services are complete once a submitted application is approved by the relevant health insurance carrier. Accordingly, we recognize commission revenue based upon the total estimated lifetime commissions we expect to receive for selling the plan after the carrier approves an application, net of an estimated constraint. We refer to these as estimated and constrained LTVs for the plan. We provide annual services in selling and renewing small business health insurance plans; therefore, we recognize small business health insurance plan commission revenue at the time the plan is approved by the carrier, and when it renews each year thereafter, equal to the estimated commissions we expect to collect from the plan over the following 12 months. Our estimate of commission revenue for each product line is based on a number of assumptions, which include, but are not limited to, estimating conversion of an approved member to a paying member, forecasting average plan duration and forecasting the commission amounts likely to be received per member. These assumptions are based on our analysis of historical trends for the different cohorts and incorporate management’s judgment in interpreting those trends to apply the constraints discussed below. The estimated average plan duration used to calculate Medicare health insurance plan LTVs historically has been approximately 3-5 years, while the estimated average plan duration used to calculate the LTV for major medical individual and family health insurance plans historically has been approximately 1.5 to 2 years. To the extent we make changes to the assumptions we use to calculate constrained LTVs, we recognize any material impact of the changes to commission revenue in the reporting period in which the change is made, including revisions of estimated lifetime commissions either below or in excess of previously estimated constrained LTV recognized as revenue.

We recognize revenue for members approved during the period by applying the latest estimated constrained LTV for that product. We recognize adjustment revenue for members approved in prior periods when our cash collections are different from the estimated constrained LTVs. Adjustment revenue is a result of a change in estimate of expected cash collections when actual cash collections have indicated a trend that is different from the estimated constrained LTV for the revenue recognized at the time of approval. Adjustment revenue can be positive or negative and we recognize adjustment revenue when we do not believe there is a probable reversal. We assess the risk of reversal based on statistical analysis given historical information and consideration of the constraints used at the time of approval.

Adjustment revenue can have a significant favorable or unfavorable impact on our revenue and we seek to enhance our LTV estimation models to improve the accuracy and to reduce the fluctuations of our LTV estimates.

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Other Revenue – Sponsorship, Advertising and Other Services – Our sponsorship and advertising program allows carriers to purchase non-Medicare advertising space in specific markets in a sponsorship area on our website. In return, we are typically paid a fee, which is recognized over the period that advertising is displayed, and often a performance fee based on metrics such as submitted health insurance applications, which is recognized when control has been transferred. We also offer Medicare plan related advertising and other services, which include website development, hosting and maintenance. In these instances, we are typically paid a fixed, up-front fee, which we recognize as revenue as the service is rendered ratably over the service period.

Stock-Based Compensation

We recognize stock-based compensation expense in the accompanying Consolidated Statements of Comprehensive Income (Loss) based on the fair value of our stock-based awards over their respective requisite service periods, typically the vesting period, which is generally four years for service-based awards or the one-year anniversary of achieving performance criteria for performance and market-based awards. The estimated attainment of performance-based awards and related expense is based on the achievement of certain financial targets over a predetermined performance period, subject to the discretion of the Company's compensation committee. The estimated fair value of performance awards with market conditions is determined using the Monte-Carlo simulation model. The estimated grant date fair value of our stock options is determined using the Black-Scholes-Merton pricing model and a single option award approach. The weighted-average expected term for stock options granted is calculated using historical option exercise behavior. The dividend yield is determined by dividing the expected per share dividend during the coming year by the grant date stock price. Through December 31, 2022, we had not declared or paid any cash dividends to common stockholders, and we do not expect to pay any in the foreseeable future. We base the risk-free interest rate on the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term of our stock options. Expected volatility is determined using a combination of the implied volatility of publicly traded options in our stock and historical volatility of our stock price. The assumptions used in calculating the fair value of stock-based payment awards and expected attainment of performance-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. We will continue to use judgment in evaluating the expected term and volatility related to our own stock-based awards on a prospective basis, and incorporating these factors into the model. Changes in key assumptions could significantly impact the valuation of such instruments.

Accounting for Income Taxes

We account for income taxes using the liability method. Deferred income taxes are determined based on the differences between the financial reporting and tax bases of assets and liabilities, using enacted statutory tax rates in effect for the year in which the differences are expected to reverse.

Since tax laws and financial accounting standards differ in their recognition and measurement of assets, liabilities, equity, revenues, expenses, gains and losses, differences arise between the amount of taxable income and pretax financial income for a year and between the tax bases of assets or liabilities and their reported amounts in our financial statements. Because we assume that the reported amounts of assets and liabilities will be recovered and settled, respectively, a difference between the tax basis of an asset or a liability and its reported amount in the balance sheet will result in a taxable or a deductible amount in some future years when the related liabilities are settled or the reported amounts of the assets are recovered, which gives rise to a deferred tax asset or liability. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery does not meet the more likely than not criteria, we must establish a valuation allowance. Management judgment is required in determining any valuation allowance recorded against our net deferred tax assets.

As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes. This process involves estimating our actual current tax expense together with assessing temporary differences that may result in deferred tax assets.

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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.

Future changes in various factors, such as the amount of stock-based compensation we record during the period and the related tax benefit we realize upon the exercise of employee stock options, potential limitations on the use of our federal and state net operating loss credit carry forwards, pending or future tax law changes including rate changes and the tax benefit from or limitations on our ability to utilize research and development credits, the amount of non-deductible lobbying and acquisition-related costs, changes in our valuation allowance and state and foreign taxes, would impact our estimates, and as a result, could affect our effective tax rate and the amount of income tax expense we record, and pay, in future periods.

Recent Accounting Pronouncements

See Note 1 – Summary of Business and Significant Accounting Policies in the Notes to Consolidated Financial Statements for the recently issued accounting standards that could have an effect on us.