BENEFYTT TECHNOLOGIES, INC. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made statements in the Management's Discussion and Analysis of Financial Condition and Results of Operations below and in other sections of this report that are forward-looking statements. All statements other than statements of historical fact included in this quarterly report are forward-looking statements. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as "may," "might," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," or "continue," the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties, and assumptions about us, may include projections of our future financial performance, our anticipated growth strategies, anticipated trends in our business, future and continued regulatory matters and compliance, and other future events or circumstances. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements, and other future events or circumstances to differ materially from the results, level of activity, performance or achievements, events or circumstances expressed or implied by the forward-looking statements, including those factors discussed in "Part I. - Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2019 and those factors discussed in "Part II - Item 1A. Risk Factors" below. We cannot guarantee future results, level of activity, performance, achievements, events, or circumstances. We are under no duty to update any of these forward-looking statements after the date of this report to conform our prior statements to actual results or revised expectations.
Overview
Benefytt Technologies, Inc. ("BFYT") is aDelaware corporation that was incorporated onOctober 26, 2012 under the nameHealth Insurance Innovations, Inc. and that changed its name toBenefytt Technologies, Inc , onMarch 6, 2020 . In this quarterly report, unless the context suggests otherwise, references to the "Company," "we," "us" and "our" refer toBenefytt Technologies, Inc. (formerly known asHealth Insurance Innovations, Inc. ) and its consolidated subsidiaries. The term "HPIH" refers to our majority owned subsidiary,Health Plan Intermediaries Holdings, LLC , on a stand-alone basis. The terms "HealthPocket" or "HP" refer toHealthPocket, Inc. , which was acquired by HPIH onJuly 14, 2014 (and is now wholly owned byHealth Insurance Innovations Holdings, LLC , or "HIIH," a wholly owned subsidiary of HPIH formed onDecember 17, 2018 ). The term "Benefytt Reinsurance" refers toBenefytt, LLC , a wholly owned subsidiary of HIIH which was formed onMay 1, 2019 . The term "TogetherHealth" collectively refers to the three subsidiariesTogetherHealth PAP LLC ,TogetherHealth Insurance LLC , andRx Helpline LLC , which were acquired by HPIH onJune 5, 2019 , and are all wholly owned subsidiaries of HPIH. The term "TIB" refers toTotal Insurance Brokers, LLC which was acquired onAugust 5, 2019 and is wholly owned by HPIH. The term "ASIA" refers toAmerican Service Insurance Agency LLC , a wholly owned subsidiary which was acquired by HPIH onAugust 8, 2014 . HP, HIIH, Benefytt Reinsurance, TogetherHealth, TIB, andASIA are consolidated subsidiaries of HPIH, which is a consolidated subsidiary of BFYT. We are a health insurance technology company that primarily engages in the development and operation of private e-commerce health insurance marketplaces, consumer engagement platforms, agency technology systems, and insurance policy administration platforms. By leveraging existing and emerging platforms and technologies,Benefytt offers a range of Medicare-related insurance plans from many of the nation's leading carriers as well as other types of health insurance and supplemental products that meet the needs of consumers.Benefytt's direct-to-consumer site, HealthInsurance.com, provides seniors and Medicare-eligible consumers the ability to access powerful online comparison tools and educational resources that enable efficient self-guided navigation of available Medicare health insurance options.
COVID-19 Update
Although COVID-19 is currently not material to our results of operations, there
is uncertainty relating to the potential future impact on our business. The
extent to which COVID-19 impacts our operations, or our ability to obtain
financing should we require it, will depend on future developments which are
uncertain and cannot be predicted, including new information which may emerge
concerning the severity of COVID-19 and the actions taken by governments and
private businesses to contain COVID-19, among others. If the disruptions posed
by COVID-19 continue for an extended period of time, financial markets may not
be available to the Company for raising capital in order to fund future growth
or to refinance its existing credit
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facility currently due in May of 2022. Should the company not be able to obtain
financing when required, in the amounts necessary or under terms which are
economically feasible, we may be required to reduce planned future growth and/or
the scope of our operations.
Operating Segments
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker ("CODM"), or decision-making group, in deciding
how to allocate resources and in assessing performance. Our President and Chief
Executive Officer is our named CODM. As of December 31, 2019 , the Company
determined that we have two reportable segments within our operating platform,
Medicare and IFP. The Company periodically reviews the structure of our
organization and CODM communications to assess the continued appropriateness of
our segment reporting. The CODM reviews our financial information in a manner
substantially similar to the accompanying consolidated financial statements with
emphasis on Medicare and IFP as two distinct operating segments. The Medicare
and IFP segments are described further below:
Medicare - The Medicare segment consists of consumer engagement activities which
generate leads that we both sell to third-parties and feed to our business
process outsourcing partners ("BPO") and captive distribution channels to
support the distribution of a range of Medicare-related health insurance plans,
including Medicare Advantage, Medicare Supplement, and Medicare Part D
prescription drug plans.
IFP - The IFP segment focuses on the sale and service of individual and family health insurance plans ("IFP") which encompasses short-term medical ("STM") insurance plans and health benefit insurance plans ("HBIP"). We also offer supplemental products which include a variety of additional insurance and non-insurance products that are frequently purchased as supplements to IFPs.
The adoption of the revenue recognition standard (ASC 606) highlighted the
seasonality of our revenues. We generally expect to recognize greater revenue in
the first quarter of each year as a result of the increase in submitted policies
during the open enrollment period established by the Patient Protection and
Affordable Care Act ("PPACA") and continued seasonal increases in revenue during
the fourth quarter due to the Medicare annual election period and PPACA open
enrollment period. However, with the de-emphasis of IFP, revenue for the three
and six months ended June 30, 2020 compared to 2019 decreased as expected.
Executive Overview of Second Quarter 2020 Results
Three Months Ended
Our key metrics and financial results for the second quarter of 2020 are as follows:
Medicare Distribution
•Revenue from our Medicare segment was
•The Medicare segment reported a loss of
Expected Duration Units
•Expected duration units submitted for Medicare were 736,100 for the three
months ended
IFP Sales
•Second quarter revenue from our IFP segment was
•Second quarter income for the IFP segment was
Expected Duration Units
•Expected duration units of submitted IFPs were 525,100 and 988,000,
respectively, for the three months ended
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•Revenue was
•Net loss was
•Adjusted EBITDA was
•GAAP diluted loss per share was
•Adjusted earnings per share was
We continue to focus on our top initiatives: (i) expanding our entrance into the Medicare space, (ii) improving the lifetime value of policies sold, (iii) new carrier relationships, (iv) expanding compliant distribution, (v) improving the member experience, and (vi) enhancing technology.
Key Business Metrics
We rely upon the following key business metrics to evaluate our business performance and facilitate long-term strategic planning:
Revenues. Our revenues primarily consist of commissions and fees earned for the
lifetime value of Medicare and IFP products issued to members, referral fees,
and fees for discount benefit plans paid by members as a direct result of our
enrollment services, brokerage services, member management, lead sales, or
referral sales. Revenues reported by the Company are net of risk premiums
remitted to insurance carriers and fees paid for discount benefit plans.
Commission rates that we receive for the sale of products are agreed to in
advance with the relevant contracted party and vary between contract and policy
type. Under our compensation arrangements, the commission rate schedule that is
in effect on the policy effective date governs the commissions over the life of
the policy. We continue to receive a commission payment as a member renews their
policy, or until a plan expires or is terminated.
Expected Duration Units. An expected duration unit represents the cumulative
number of months the Company expects to collect from each policy submitted
during the period. This metric is important because the vast majority of our
revenues are recognized up front at the time the policy is sold. This portion of
revenue represents the total amount of commissions we expect to collect over the
life of each policy sold. Our expected duration units are an important indicator
of our revenues. We have included expected duration units in this report because
it is a key measure used by our management to understand and evaluate our core
revenue performance and trends, to prepare our annual budget, and to develop
short- and long-term operational plans. In particular, the inclusion of expected
duration units can provide a useful measure for period-to-period comparisons of
our business. Expected duration units has limitations as an analytical tool, and
it should not be considered in isolation or as a substitute for analysis of our
results as reported under GAAP.
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--------------------------------------------------------------------------------The following table presents expected duration units by product type:
Expected Duration Units by Product Type
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 Change (%) 2020 2019 Change (%)Medicare(1) Medicare Advantage 684,000 - - % 1,469,000 - - % Medicare Supplement 15,200 - - % 30,700 - - % Medicare Part D 11,300 - - % 20,500 - - % Supplementals 25,600 - - % 53,400 - - % Total Medicare 736,100 - - % 1,573,600 - - % IFP STM <12 Months 12,200 38,400 (68.2) % 34,269 83,370 (58.9) % STM ? 12 Months 159,600 207,400 (23.0) % 426,644 505,697 (15.6) % Total STM 171,800 245,800 (30.1) % 460,913 589,067 (21.8) % Health Benefit Plans 81,200 270,600 (70.0) % 270,300 607,200 (55.5) % Supplementals 272,100 471,600 (42.3) % 676,000 570,500 18.5 % Total IFP 525,100 988,000 (46.9) % 1,407,213 1,766,767 (20.4) % Total Expected Duration Units 1,261,200 988,000 27.7 % 2,980,813 1,766,767 68.7 % (1)For the three and six months endedJune 30, 2019 , the Company did not have material operations within the Medicare segment due to the timing of the Company's entrance into Medicare associated with the acquisition of TogetherHealth onJune 5, 2019 . Accordingly, the comparative period has been excluded due to immateriality. Submitted and Approved Applications. Our submitted applications are an important input of our expected revenues when included in context with the corresponding expected average duration of the submitted application. A member may be enrolled in more than one policy or discount benefit plan simultaneously. Submitted applications will differ from the amount of approved applications. Approved applications represent the number of submitted applications that were approved by the relevant insurance carrier for the identified product during the relevant period. Medicare approved applications are calculated assuming a 92% conversion of submitted applications. We have included submitted and approved applications in this report because in conjunction with expected duration units, they are key measures used by our management to understand and evaluate our core revenue performance and trends, to prepare our annual budget and to develop short- and long-term operational plans. In particular, the inclusion of submitted and approved applications can provide as useful measures for period-to-period comparisons of our business. 32
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The following table presents submitted applications by product type:
Submitted Applications by Product Type
Three Months Ended June 30 ,
Six Months Ended
2020 2019 Change (%) 2020 2019 Change (%)
Medicare(1)
Medicare Advantage 17,700 - - % 37,900 - - %
Medicare Supplement 400 - - % 800 - - %
Medicare Part D 300 - - % 500 - - %
Supplementals 700 - - % 1,300 - - %
Total Medicare 19,100 - - % 40,500 - - %
IFP
STM <12 Months 3,000 9,700 (69.1) % 8,300 20,800 (60.1) %
STM ? 12 Months 16,300 20,000 (18.5) % 39,400 49,200 (19.9) %
Total STM 19,300 29,700 (35.0) % 47,700 70,000 (31.9) %
Health Benefit Plans 9,300 30,800 (69.8) % 27,100 66,100 (59.0) %
Supplementals 31,900 55,900 (42.9) % 79,300 123,600 (35.8) %
Total IFP 60,500 116,400 (48.0) % 154,100 259,700 (40.7) %
Total Submitted Applications 79,600 116,400 (31.6) % 194,600 259,700 (25.1) %
(1)For the three and six months ended June 30, 2019 , the Company did not have
material operations within the Medicare segment due to the timing of the
Company's entrance into Medicare associated with the acquisition of
TogetherHealth on June 5, 2019 . Accordingly, the comparative period has been
excluded due to immateriality.
The following table presents approved applications by product type:
Approved Applications by Product Type
Three Months Ended June 30 ,
Six Months Ended
2020 2019 Change (%) 2020 2019 Change (%)
Medicare(1)
Medicare Advantage 16,300 - - % 34,900 - - %
Medicare Supplement 400 - - % 700 - - %
Medicare Part D 300 - - % 500 - - %
Supplementals 600 - - % 1,200 - - %
Total Medicare 17,600 - - % 37,300 - - %
IFP
STM <12 Months 3,000 9,700 (69.1) % 8,300 20,800 (60.1) %
STM ? 12 Months 16,300 20,000 (18.5) % 39,400 49,200 (19.9) %
Total STM 19,300 29,700 (35.0) % 47,700 70,000 (31.9) %
Health Benefit Plans 9,300 30,800 (69.8) % 27,100 66,100 (59.0) %
Supplementals 31,900 55,900 (42.9) % 79,300 123,600 (35.8) %
Total IFP 60,500 116,400 (48.0) % 154,100 259,700 (40.7) %
Total Approved Applications 78,100 116,400 (32.9) % 191,400 259,700 (26.3) %
(1)For the three and six months ended June 30, 2019 , the Company did not have
material operations within the Medicare segment due to the timing of the
Company's entrance into Medicare associated with the acquisition of
TogetherHealth on June 5, 2019 . Accordingly, the comparative period has been
excluded due to immateriality.
Constrained Lifetime Value per Approved Application ("CLTV"). We have included
CLTV in this report because it is a key measure used by our management to
understand and evaluate our core revenue performance and trends, to prepare our
annual budget, and to develop short- and long-term operational plans. CLTV is
the constrained lifetime value of both the sales and marketing, and member
management performance obligations, expected to be recognized over the life of
the products, divided by the number of approved applications received during the
reporting period. Total CLTV excludes the fulfillment-only applications that
represent low margin products where the Company outsourced all sales and
marketing obligations and some of
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its member management services. We believe that excluding these fulfillment-only
applications from CLTV provides greater insight into our core operations. The
inclusion of CLTV can provide a useful measure for period-to-period comparisons
of our business. CLTV has limitations as an analytical tool, and it should not
be considered in isolation or as a substitute for analysis of our results as
reported under GAAP. Prior to the adoption of CLTV, the Company used Constrained
Lifetime Value per Submitted Application ("LVSA") as a key metric. While there
is little distinction between submitted and approved applications for IFP,
approved applications are a more useful metric for management with respect to
Medicare products and therefore now uses CLTV as a substitute for LVSA.
The following table presents the CLTV per approved application, by product type
($ in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 Change (%) 2020 2019 Change (%)
Medicare(1) $ 1,143 $ - - % $ 1,102 $ - - %
Short Term Medical<12 months 371 267 39.0 % 370 417 (11.3) %
Short Term Medical ?12 months 732 655 11.8 % 796 1,070 (25.6) %
Total STM 676 549 23.1 % 724 887 (18.4) %
Health Benefit Plans 778 614 26.7 % 878 842 4.3 %
Supplemental 281 329 (14.6) % 310 334 (7.2) %
(1)CLTV per approved application for Medicare is presented gross of customer
care and enrollment expenses ("CC&E"). Including CC&E, Medicare CLTV per
submitted application for the three and six months ended June 30, 2020 was $879
and $886 , respectively.
The following table presents expense metrics per approved application, by product type ($ in thousands):
Three Months Ended Six Months Ended
June 30, 2020 June 30, 2020
Medicare variable marketing cost per approved application(1) $
680$ 676 Medicare variable CC&E cost per approved application(2) 504 399 Total Medicare cost per approved member(3)$ 1,184 $ 1,075 (1)Medicare variable marketing cost per approved application includes direct costs incurred in member acquisition for all Medicare products from our direct marketing partners and online advertising channels divided by Medicare approved applications in each period. (2)Medicare CC&E cost per approved application includes compensation and benefits costs for personnel engaged in assistance to applicants during the enrollment process divided by Medicare approved applications in each period. CC&E costs include amounts netted against revenue for certain Medicare BPO relationships. (3)For the three and six months endedJune 30, 2019 , the Company did not have material operations within the Medicare segment due to the timing of the Company's entrance into Medicare associated with the acquisition of TogetherHealth onJune 5, 2019 . Accordingly, the comparative period has been excluded due to immateriality. EBITDA. We define this metric as net income before interest, income taxes, and depreciation and amortization. We have included EBITDA in this report because it is a key measure used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operational plans. In particular, the exclusion of certain expenses in calculating EBITDA can provide a useful measure for period-to-period comparisons of our business. However, EBITDA does not represent, and should not be considered as, an alternative to net income or cash flows from operations, each as determined in accordance with GAAP. Other companies may calculate EBITDA differently than we do. EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Adjusted EBITDA. To calculate adjusted EBITDA, we calculate EBITDA, which is then further adjusted for items such as stock-based compensation and related costs, and items that are not part of regular operating activities, including tax receivable adjustments, fair value adjustments to contingent consideration, indemnity and other legal costs, and severance, restructuring, and acquisition costs. Adjusted EBITDA does not represent, and should not be considered as, an alternative to net income or cash flows from operations, each as determined in accordance with GAAP. We have presented adjusted EBITDA because we consider it an important supplemental measure of our performance and believe that it is frequently used by analysts, investors and other interested parties in the evaluation of companies. Other companies may calculate adjusted EBITDA 34 -------------------------------------------------------------------------------- differently than we do. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP.
The following table presents a reconciliation of net income to EBITDA and adjusted EBITDA ($ in thousands):
Six Months Ended June
Three Months Ended June 30, 30,
2020 2019 2020 2019
Net (loss) income $ (7,627) $ 3,230 $ (57,442) $ 5,412
Interest expense 1,830 1,349 3,924 1,694
Depreciation and amortization 4,807 1,639 9,152 2,771
(Benefit) provision for income taxes (3,434) 2,290 (13,040) 5,087
EBITDA (4,424) 8,508 (57,406) 14,964
Loss on impairment - - 41,076 -
Stock-based compensation and related costs 2,309 2,987 5,016 4,849
Fair value adjustment to contingent
consideration (207) - 2,674 -
Transaction costs 23 1,086 151 1,360
Tax receivable agreement liability adjustment 370 - 370 -
Indemnity and other legal costs 3,588 903 10,679 1,575
Severance, restructuring and other 244 338 275 341
Adjusted EBITDA $ 1,903 $ 13,822 $ 2,835 $ 23,089
Adjusted Net Income. To calculate adjusted net income, we calculate net income
then add back amortization (but not depreciation), interest, tax expense, items
such as stock-based compensation and related costs, and other items that are not
part of regular operating activities, including, tax receivable adjustments,
fair value adjustments to contingent consideration, indemnity and other legal
costs, severance, restructuring, and acquisition costs. From adjusted pre-tax
net income, we apply a pro forma tax expense calculated at an assumed rate of
24%, which consists of the maximum federal corporate rate of 21%, with an
assumed 3% state tax rate. We have included adjusted net income in this report
because it is a key performance measure used by our management to understand and
evaluate our core operating performance and trends and because we believe it is
frequently used by analysts, investors, and other interested parties in their
evaluation of the Company. Other companies may calculate this measure
differently than we do. Adjusted net income has limitations as an analytical
tool, and you should not consider it in isolation or substitution for earnings
per share as reported under GAAP.
Adjusted Net Income per Share. Adjusted net income per share is computed by
dividing adjusted net income by the total number of weighted-average diluted
Class A and weighted-average Class B shares of our common stock for each period.
We have included adjusted net income per share in this report because it is a
key measure used by our management to understand and evaluate our core operating
performance and trends and because we believe it is frequently used by analysts,
investors, and other interested parties in the evaluation of companies. Other
companies may calculate this measure differently than we do. Adjusted net income
per share has limitations as an analytical tool, and you should not consider it
in isolation or as a substitute for earnings per share as reported under GAAP.
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The following table presents a reconciliation of net income to adjusted net
income and adjusted net income per share (in thousands, except per share data):
Six Months Ended June
Three Months Ended June 30, 30,
2020 2019 2020 2019
Net (loss) income $ (7,627) $ 3,230 $ (57,442) $ 5,412
Interest expense 1,830 1,349 3,924 1,694
Amortization 3,740 864 7,245 1,199
(Benefit) provision for income taxes (3,434) 2,290 (13,040) 5,087
Loss on impairment - - 41,076 -
Stock-based compensation and related costs 2,309 2,987 5,016 4,849
Fair value adjustment to contingent
consideration (207) - 2,674 -
Tax receivable agreement liability adjustment 370 - 370 -
Transaction costs 23 1,086 151 1,360
Indemnity and other legal costs 3,588 903 10,679 1,575
Severance, restructuring and other charges 244 338 275 341
Adjusted pre-tax income 836 13,047 928 21,517
Pro forma income taxes (201) (3,131) (223) (5,164)
Adjusted net income $ 635 $ 9,916 $ 705 $ 16,353
Total weighted average diluted share count 13,370 13,903 13,309 14,863
Adjusted net income per share $ 0.05 $ 0.71 $ 0.05 $ 1.10
Results of Operations
Comparison of Three and Six Months Ended
Revenues
Revenues for the three months endedJune 30, 2020 were$52.1 million , a decrease of$6.3 million , or 10.7%, compared to the same period in 2019. Revenues for the six months endedJune 30, 2020 were$123.7 million , a decrease of$22.0 million , or 15.1%, compared to the same period in 2019. The decrease in revenue compared to prior year was primarily due to the increased focus on Medicare and the de-emphasis of IFP. The Company realized slightly lower Medicare revenues due to a lower response rate to marketing and advertising efforts, which the Company believes to be an indirect effect of COVID-19.
Third-party Commissions
Our third-party commissions consist of fees and commissions paid to third-party distributors for selling our products to members. Third-party commissions, as a percentage of revenue, will vary based on the mix of sales between AgileHealthInsurance.com and our third-party distributors. Third-party commissions for the three months endedJune 30, 2020 were$20.5 million , a decrease of$6.4 million , or 23.9%, compared to the three months endedJune 30, 2019 . Third-party commissions for the six months endedJune 30, 2020 were$53.3 million , a decrease of$34.3 million , or 39.2%, compared to the six months endedJune 30, 2019 . Third-party commissions represented 39.3% of revenues for the three months endedJune 30, 2020 , as compared to 46.1% of revenues for the three months endedJune 30, 2019 . Third-party commissions represented 43.1% of revenues for the six months endedJune 30, 2020 , as compared to 60.1% of revenues for the six months endedJune 30, 2019 .
The decrease in third-party commissions was primarily due to the continued planned diversification of our revenue mix towards Medicare, which do not have an associated commissions expense.
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--------------------------------------------------------------------------------Selling, General and Administrative Expense
Our SG&A expenses primarily consist of personnel costs, which include salaries, bonuses, commissions, stock-based compensation, payroll taxes and benefits. SG&A expenses also include certain costs associated with obtaining new distributor relationships. In addition, these expenses also include expenses for outside professional services and technology expenses, including legal, audit and financial services, and the maintenance of our administrative technology platform and marketing costs for online advertising. SG&A expense for the three months endedJune 30, 2020 was$20.3 million . This represents an increase of$1.7 million , or 9.3%, compared to the three months endedJune 30, 2019 . SG&A expense for the six months endedJune 30, 2020 was$48.3 million . This represents an increase of$14.1 million , or 41.2%, compared to the six months endedJune 30, 2019 . The increase in SG&A was primarily attributable to increased legal fees, staffing, training and professional fees associated with the continued expansion of the Medicare segment. SG&A expense represented 39.0% of revenues for the three months endedJune 30, 2020 and 31.8% of revenues for the three months endedJune 30, 2019 . SG&A expense represented 39.0% of revenues for the six months endedJune 30, 2020 and 23.5% of revenues for the six months endedJune 30, 2019 .
Marketing and Advertising Expense
Marketing and advertising expense for the three months endedJune 30, 2020 was$14.3 million . This represents an increase of$11.5 million , or 412%. Marketing and advertising expense for the six months endedJune 30, 2020 was$32.7 million . This represents an increase of$26.9 million , or 459%. The increase in marketing and advertising expenses was primarily attributable to the Company's Medicare segment and the up-front expense of lead generation. Marketing and advertising expense represented 27.4% of revenues for the three months endedJune 30, 2020 and 4.8% of revenues for the three months endedJune 30, 2019 . Marketing and advertising expense represented 26.5% for the six months endedJune 30, 2020 and 4.0% of revenues for the six months endedJune 30, 2019 .
Provision for Income Taxes
For the three months endedJune 30, 2020 and 2019, we recorded a benefit for income taxes of$3.4 million compared to a provision of$2.3 million , reflecting effective tax benefit/rate of 31.0% and 41.5%, respectively. For the six months endedJune 30, 2020 and 2019, we recorded a benefit for income taxes of$13.0 million compared to a provision of$5.1 million , reflecting effective tax benefit/rate of 18.5% and 48.5%, respectively.
See Note 11 of the accompanying condensed financial statements for further information on income taxes and the effective tax rates.
Noncontrolling Interest
We are the sole managing member of HPIH and have 100% of the voting rights and control. As ofJune 30, 2020 , we had an 92.9% economic interest in HPIH, whereasHealth Plan Intermediaries, LLC ("HPI") andHealth Plan Intermediaries Sub, LLC ("HPIS"), two entities owned and controlled by our founderMichael Kosloske , had the remaining 7.1% economic interest in HPIH. HPI and HPIS' interest in HPIH is reflected as a noncontrolling interest in our accompanying condensed consolidated financial statements. During the six months endedJune 30, 2020 ,Mr. Kosloske exchanged a total of 900,000 shares of Class B common stock and an equal number of Series B membership interests. This transaction contributed to the 6.3% decrease in HPI and HPIS' collective economic interest in HPIH sinceDecember 31, 2019 . See Note 10 of the Annual Report on Form 10-K for the year endedDecember 31, 2019 for further information on the Exchange Agreement. Net loss/income attributable to BFYT for the three and six months endedJune 30, 2020 and 2019 included BFYT's share of its consolidated entities' net income and loss. 37
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Liquidity and Capital Resources
General
As ofJune 30, 2020 , we had$13.6 million of cash and cash equivalents. We believe that in addition to cash generated from operations and our current cash and cash equivalents, the Company will require the use of other sources of liquidity within the next 12 months. This may include utilizing expected tax refunds and additional modifications to our advanced commission program, among other things. Under the Company's current Senior Credit Facility, there are specific covenants that limit the total amount of indebtedness relative to the Company's trailing twelve month Consolidated EBITDA, as defined within the Credit Facility. The Company requested and the lender agreed to amend the financial covenants of the Credit Facility to increase the Consolidated Total Leverage Ratio, as defined within the Credit Facility, to 3.5:1 from 3.0:1 throughSeptember 30, 2020 . The Company is in compliance with all debt covenants. For further information on the Credit Facility see Note 9 of the Company's Annual Report on Form 10-K for the year endedDecember 31, 2019 .
Our Indebtedness
As ofJune 30, 2020 , we had a$207.5 million outstanding balance from draws on the Senior Credit Facility and there was no remaining balance available to be drawn upon. As ofDecember 31, 2019 , we had$180.3 million outstanding from draws on the revolving line of credit. The Company was in compliance with all covenants for all periods. See Note 6 to the condensed consolidated financial statements for additional details on our Senior Credit Facility.
Cash Flows
The following summary of cash flows for the periods indicated has been derived
from our condensed consolidated financial statements included elsewhere in this
report:
Six Months Ended June 30,
2020 2019
Cash (used in) provided by:
Operating activities $ (14,104) $(8,959)
Investing activities (3,158) (48,458)
Financing activities 24,934 64,956
Cash Flows from Operating Activities
Cash flows from operating activities during the six months endedJune 30, 2020 decreased compared to the six months endedJune 30, 2019 primarily due to the increased costs associated with marketing and advertising due to the expansion into Medicare, and increased corporate spend, including legal and professional fees, and payroll.
Cash Flows from Investing Activities
Our cash outflows from investing activities for the six months endedJune 30, 2020 decreased compared to the six months endedJune 30, 2019 as the prior year reflects the cash outflows related to the acquisition of TogetherHealth. Outflows related to purchases of property and equipment were$940,000 which increased over the prior year largely due to costs associated with the relocation of the Company's corporate office.
Cash Flows from Financing Activities
Cash provided by financing activities during the six months endedJune 30, 2020 decreased compared to the six months endedJune 30, 2019 primarily driven by the prior year's net borrowings against the credit facility of$133.1 million compared to the current year's net borrowing of$27.3 million . In the prior year, cash provided by financing activities was decreased by$64.0 million due to repurchases of the Company's Class A common stock.
Off-Balance Sheet Arrangements
Through
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--------------------------------------------------------------------------------Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with GAAP. The preparation of these financial statements require management to make estimates, assumptions, and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the applicable periods. We base our estimates, assumptions, and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances. Different assumptions and judgments could change the estimates used in the preparation of our financial statements, which, in turn, could change the results from those reported. We evaluate our estimates, assumptions, and judgments on an ongoing basis. The critical accounting estimates, assumptions, and judgments that we believe have the most significant impact on our financial statements are described in Note 1 to the accompanying condensed consolidated financial statements, the Notes to the Consolidated Financial Statements included in Part IV, Item 15 and Part II, Item 7 of the Company's Annual Report on Form 10-K for the year endedDecember 31, 2019 under the heading "Critical Accounting Policies and Estimates." There have been no material changes to the Company's critical accounting policies and estimates since the Company's Annual Report on Form 10-K for the year endedDecember 31, 2019 .
Recent Accounting Pronouncements
Note 1 to the condensed consolidated financial statements contains a discussion of recently issued accounting pronouncements and their impact or potential future impact on the Company's financial results, if determinable, under the sub-heading "Recent Accounting Pronouncements."
Legal and Other Contingencies
The Company is subject to legal proceedings, claims, and liabilities that arise in the ordinary course of business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors. The Company accrues for losses associated with legal claims when such losses are probable and reasonably estimable. If the Company determines that a loss is probable and cannot estimate a specific amount for that loss, but can estimate a range of loss, the best estimate within the range is accrued. If no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. Estimates are adjusted as additional information becomes available or circumstances change. Legal defense costs associated with loss contingencies are expensed in the period incurred. For a further detailed discussion surrounding legal and other contingencies, see Note 14 "Commitments and Contingencies."
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