EHEALTH, INC. In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words "expect," "anticipate," "believe," "estimate," "target," "goal," "project," "hope," "intend," "plan," "seek," "continue," "may," "could," "should," "might," "forecast," and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements include, among other things, statements regarding our expectations relating to approved members, new paying members and estimated membership; our estimates regarding the constrained lifetime value of commissions; our expectations relating to revenue, operating costs, cash flows and profitability; our expectations regarding our strategy and investments, including investments in our e-commerce and call center capabilities, technology, agent training and quality assurance efforts; our expectations regarding our Medicare business, including market opportunity, consumer demand and our competitive advantage; our expectations regarding our individual and family business, including anticipated trends and our ability to enroll individuals and families into qualified health plans; the impact of future and existing laws and regulations on our business; the expected impact of the COVID-19 pandemic on our business; our expectations regarding commission rates, payment rates, conversion rates, plan termination rates and duration, membership retention rates and membership acquisition costs; our expectations regarding health insurance agents licensing and productivity; our expectations regarding beneficiary complaints, customer experience and enrollment quality; our expectations relating to the seasonality of our business; expected competition from government-run health insurance exchanges and other sources; our expectations relating to marketing and advertising expense and expected contributions from our marketing and strategic partnership channels; the timing of our receipt of commission and other payments; our critical accounting policies and related estimates; liquidity and capital needs; political, legislative, regulatory and legal challenges; the merits or potential impact of any lawsuits filed against us; as well as other statements regarding our future operations, financial condition, prospects and business strategies. We have based these forward-looking statements on our current expectations about future events. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Our actual results may differ materially from those suggested by these forward-looking statements for various reasons, including our ability to retain existing members and enroll new members during the annual healthcare open enrollment period, the Medicare annual enrollment period and other special enrollment periods; changes in laws, regulations and guidelines, including in connection with healthcare reform or with respect to the marketing and sale of Medicare plans; competition, including competition from government-run health insurance exchanges and other sources; the seasonality of our business and the fluctuation of our operating results; our ability to accurately estimate membership, lifetime value of commissions and commissions receivable; changes in product offerings among carriers on our ecommerce platform and the resulting impact on our commission revenue; our ability to execute on our growth strategy in the Medicare market; the continued impact of the COVID-19 pandemic on our operations, business, financial condition and growth prospects, as well as on the general economy; changes in our management and key employees; exposure to security risks and our ability to safeguard the security and privacy of confidential data; our relationships with health insurance carriers; the success of our carrier advertising and sponsorship program; customer concentration and consolidation of the health insurance industry; our success in marketing and selling health insurance plans and our unit cost of acquisition; our ability to hire, train, retain and ensure the productivity of licensed health insurance agents and other employees; the need for health insurance carrier and regulatory approvals in connection with the marketing of Medicare-related insurance products; changes in the market for private health insurance; consumer satisfaction of our service and actions we take to improve the quality of enrollments; changes in member conversion rates; changes in commission rates; our ability to sell qualified health insurance plans to subsidy-eligible individuals and to enroll subsidy-eligible individuals through government-run health insurance exchanges; our ability to maintain and enhance our brand identity; our ability to derive desired benefits from investments in our business, including membership growth and retention initiatives; reliance on marketing partners; the impact of our direct-to-consumer email, telephone and television marketing efforts; timing of receipt and accuracy of commission reports; payment practices of health insurance carriers; dependence on our operations inChina ; the restrictions in our debt obligations; the restrictions in our investment agreement with H.I.G; our ability to raise additional capital; compliance with insurance and other laws and regulations; the outcome of litigation in which we are involved; the performance, reliability and availability of our information technology systems, ecommerce platform and underlying network infrastructure; and those identified under the heading "Risk Factors" in Part II, Item 1A. of this report and those discussed in our other 27 --------------------------------------------------------------------------------Securities and Exchange Commission filings. Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this report are made only as of the date hereof. Except as required by applicable law, we do not undertake, and specifically decline, any obligation to update any of these statements or to publicly announce the results of any revisions to any forward-looking statements, whether as a result of new information, future events, changes in assumptions or otherwise. The following discussion should be read in conjunction with our Annual Report on Form 10-K as filed with theSecurities and Exchange Commission inMarch 2022 , and the audited consolidated financial statements and related notes contained therein.
Overview
We are a leading private health insurance marketplace with a technology and service platform that provides consumer engagement, education and health insurance enrollment solutions. Our mission is to connect every person with the highest quality, most affordable health insurance and Medicare plans for their life circumstances. 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 enables consumers to use our services online, by telephone with a licensed insurance agent, or through a hybrid online assisted interaction. 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 and family, small business and other ancillary health insurance products from approximately 200 health insurance carriers across all fifty states and theDistrict 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.
Updates on Business Initiatives
During 2021, we made a number of changes to our telesales and online
capabilities with a focus on driving performance and improving enrollment
quality in preparation for the annual enrollment period in the fourth quarter.
We continue to build on these initiatives in 2022. The investments in our
telesales operations, technology and enrollment quality assurance have resulted
in lower conversion rates and longer average talk times for telephonic
enrollments and negatively impacted our first quarter financial results.
However, we are seeing position traction in CTM scores and retention
characteristics for the new enrollments that we added during the 2022 annual
enrollment period ("AEP"), relative to comparable enrollment cohorts from the
2021 and 2020 AEPs. This suggests that the enrollments are of higher quality,
resulting in higher customer satisfaction and increased plan longevity.
Enrollment quality has been our focus since the launch of our retention program
in 2020, which 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 been seeking additional ways to improve our customer
experience, enhance accuracy of plan recommendations and reduce disenrollment.
In addition to our quality assurance efforts initiated in 2021, we continue to
introduce further initiatives in our customer care centers. This includes
increased agent specialization by product and geography, improvement of agent
scripts to make them more consumer friendly, an outbound call program that
allows and incentivizes agents to proactively work their pipeline during down
times, and emphasis on extending agents' tenure with us. Furthermore, our agent
mix will be more mature in 2022 compared to a year ago. We expect these
initiatives will build on positive momentum in our conversion rates as we
prepare for AEP.
We are making effort in creating greater collaboration between our digital and
conventional marketing teams to create synergies between our diversified demand
generation channels. We are launching a series of omni-channel tools aimed at
supporting seamless transition of customers between channels, including an
online chat staffed by licensed Medicare agents. These initiatives enhance our
technology differentiation and create a stronger connection between agent driven
and digital organizations.
28
-------------------------------------------------------------------------------- Transformation Initiatives - We are implementing a multi-year transformation initiative to right-size our cost structure and drive future profitability. These initiatives include targeted reductions in fixed expenses and vendor-related spend outside of mission critical areas, as well as changes to variable cost management. Through this program, we expect to achieve ongoing significant cost savings while preserving our competitive edge and focusing on initiatives with highest in-period returns on investment. We expect to achieve over$60 million in annualized cost savings, excluding restructuring costs in 2022 of approximately$10 million to$20 million . We expect the variable cost reduction to lead to a temporary decline in our Medicare enrollments and revenue in 2022 before a return to growth in 2023 on a significantly improved operational and cost foundation. These initiatives are intended to improve our operations through re-engineering, reorganizing, 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. InApril 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.
Changes in Senior Management
InJanuary 2022 , we announced the termination of chief revenue officer,Timothy C. Hannan , effectiveJanuary 31, 2022 , and the appointment ofRobert S. Hurley as interim chief revenue officer effectiveFebruary 1, 2022 .Mr. Hurley previously served as an executive officer of the Company for over 20 years until his retirement inMarch 2020 .
In
COVID-19 Impact Updates We experienced a number of changes in our business related to the impacts from the COVID-19 pandemic from 2020 onwards. During the first quarter of 2020, we closed our offices inthe United States andChina and shifted our employees to a work-from-home model in response to the virus outbreak. Our office inChina has reopened since the second quarter of 2020 given the improvements in the situation in the region where our office is located. As ofMarch 31, 2022 , all of ourU.S. offices are open at reduced capacity and with additional safety and social distancing measures. We currently plan to operate with a combination of remote and in-office work inthe United States at least through part of 2022. We plan to adjust the number of in-office employees during the year depending upon the COVID-19 situation. The emergence of COVID-19 variants could cause us to alter our operations and plans for in-office and remote work. The extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments, including the duration, spread and severity of the pandemic, the availability, effectiveness and uptake of vaccines for COVID-19, the emergence of new variants of COVID-19 and whether existing vaccines are effective with respect to such variants, the actions to contain the disease or mitigate its impact, and the duration, timing and severity of the impact on consumer behavior, including any recession resulting from the pandemic, all of which are unpredictable. See Risk Factors in Part II, Item 1A of this Quarterly Report on Form 10-Q for a discussion of risks related to the COVID-19 pandemic.
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;
29
--------------------------------------------------------------------------------
•the number of approved members for Medicare-related, individual and family,
small business and ancillary health insurance plans from whom we have received
an initial commission payment; and
•the constrained 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 by product for the periods presented:
Three Months Ended March 31,
2022 2021 % Change
Medicare
Medicare Advantage 82,431 106,884 (23) %
Medicare Supplement 6,556 7,782 (16) %
Medicare Part D 6,823 8,011 (15) %
Total Medicare 95,810 122,677 (22) %
Individual and Family 9,801 11,314 (13) %
Ancillary 18,970 26,511 (28) %
Small Business 2,514 2,948 (15) %
Total Approved Members 127,095 163,450 (22) %
Three Months Ended March 31, 2022 and 2021 - Total Medicare approved members
decreased 22% in the three months ended March 31, 2022 compared to the same
period in 2021. The decrease in total Medicare approved members was attributable
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, during the three months ended March 31, 2022 compared
to the same period in 2021. The decrease in Medicare Advantage approved members,
in particular, was driven by a decrease in submitted applications primarily due
to lower telephonic conversion rates and our decision to reduce our investment
in telephonic enrollment growth in 2022.
Individual and family plan approved members declined 13% in the three months
ended March 31, 2022 compared to the same period in 2021 partially due to an
extension of the enrollment period in 2021 that did not occur in 2022.
Ancillary plan approved members declined 28% in the three months ended March 31,
2022 compared to the same period in 2021 primarily due to declines in approved
members for short-term health insurance plans and dental insurance plans. Small
business group health insurance approved members declined 15% in the three
months ended March 31, 2022 compared to the same period in 2021 mainly due to a
decrease in approved groups.
New Paying Members
New Paying Members consist of approved members from the period presented and any
periods prior to the period presented from whom we have received an initial
commission payment during the period presented. The following table shows our
new paying members by product for the periods presented below:
30
--------------------------------------------------------------------------------
Three Months Ended
2022 2021 % Change
Medicare
Medicare Advantage 117,643 140,997 (17) %
Medicare Supplement 7,062 9,996 (29) %
Medicare Part D 27,384 29,139 (6) %
Total Medicare 152,089 180,132 (16) %
Individual and Family 16,230 17,607 (8) %
Ancillary 22,917 31,591 (27) %
Small Business 3,084 4,125 (25) %
Total New Paying Members 194,320 233,455 (17) %
Three Months Ended March 31, 2022 and 2021 - Total Medicare new paying members
declined 16% in the three months ended March 31, 2022 compared to the same
period in 2021, due primarily to a decrease in approved members for all Medicare
products. Individual and family plan new paying members declined 8% in the three
months ended March 31, 2022 compared to the same period in 2021 due primarily to
decreases in approved members for non-qualified and qualified plans. Ancillary
new paying members declined 27% in the three months ended March 31, 2022
compared to the same period in 2021 primarily due to a decrease in approved
members for short-term and dental insurance plans. Small business new paying
members declined 25% in the three months ended March 31, 2022 compared to the
same period in 2021 primarily due to a decrease in approved members for small
business plans.
31
--------------------------------------------------------------------------------
Estimated Constrained Lifetime Value of Commissions Per Approved Member
The following table shows our estimated constrained LTV of commissions per approved member by product for the periods presented below:
Three Months Ended March 31,
2022 2021 % Change
Medicare
Medicare Advantage (1) $ 948 $ 968 (2) %
Medicare Supplement (1) 927 1,057 (12) %
Medicare Part D (1) 213 217 (2) %
Individual and Family
Non-Qualified Health Plans (1) 330 200 65 %
Qualified Health Plans (1) 302 298 1 %
Ancillary
Short-term (1) 182 180 1 %
Dental (1) 104 91 14 %
Vision (1) 62 59 5 %
Small Business (2) 198 182 9 %
__________
(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 in our Annual
Report on Form 10-K for the year ended December 31, 2021 .
(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
The constrained LTV of commissions per approved member declined by 2%, 12%, and 2%, respectively, for Medicare Advantage, Medicare Supplement and Medicare Part D prescription drug plans during the three months endedMarch 31, 2022 compared to the same period in 2021. The decrease in constrained LTV was due to decreased estimates of average plan durations for these products.
Individual and Family and Ancillary
The constrained LTV of commissions per non-qualified health plan approved member and qualified health plan approved member increased 65% and 1%, respectively, during the three months endedMarch 31, 2022 compared with the same period in 2021 mostly 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 by 1%, 14%, 5%, and 9%, respectively, during the three months endedMarch 31, 2022 compared with the same period in 2021 primarily due to an increase in estimated average plan duration. 32
--------------------------------------------------------------------------------
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:
Three Months Ended March 31,
2022 2021
Medicare
Medicare Advantage 7 % 7 %
Medicare Supplement 9 % 5 %
Medicare Part D 7 % 5 %
Individual and Family
Non-Qualified Health Plans 7 % 15 %
Qualified Health Plans 4 % 4 %
Ancillary
Short-term 20 % 20 %
Dental 5 % 7 %
Vision 5 % 5 %
Other 10 % 10 %
Small Business 5 % 5 %
The constraints for Medicare Supplement and Medicare Part D prescription drug
plans increased during the three months ended March 31, 2022 , as compared to the
same period in the prior year, due to declining LTV trends for these products.
The constraints for non-qualified health plans decreased during the three months
ended March 31, 2022 , as compared to the same period in the prior year, due to
stabilization of market conditions and increases in LTV values. The constraints
for dental plans decreased during the three months ended March 31, 2022 , as
compared to the same period in the prior year, due to improved LTV trends.
33
--------------------------------------------------------------------------------Estimated Membership
Estimated membership represents the estimated number of members active as of the
date indicated based on the estimation methodology below. The following table
shows estimated membership by product for the periods presented below:
As of March 31,
2022 2021 % Change
Medicare (1)
Medicare Advantage 585,824 538,716 9 %
Medicare Supplement 100,006 104,727 (5) %
Medicare Part D 219,801 229,598 (4) %
Total Medicare 905,631 873,041 4 %
Individual and Family (2) 104,849 103,844 1 %
Ancillary (3) 229,284 241,415 (5) %
Small Business (4) 47,876 45,207 6 %
Total Estimated Membership 1,287,640 1,263,507 2 %
__________________
(1)To estimate the number of members on Medicare-related health insurance plans,
we take the 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 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.
(2)To estimate the number of members on Individual and Family health insurance
plans ("IFP"), we take the sum of (i) the number of IFP 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 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.
(3)To estimate the number of members on ancillary health insurance plans (such
as short-term, dental and vision insurance), we take the 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 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. 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.
(4)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
34
-------------------------------------------------------------------------------- inform us of the cancellation. Also, some of our members pay their premiums less frequently than monthly. Given the number of months required to observe non-payment of commissions in order to confirm cancellations, we estimate the number of members who are active on insurance policies as of a specified date. After we have estimated membership for a period, we may receive information from health insurance carriers that would have impacted the estimate if we had received the information prior to the date of estimation. We may receive commission payments or other information that indicates that a member who was not included in our estimates for a prior period was in fact an active member at that time, or that a member who was included in our estimates was in fact not an active member of ours. For instance, we reconcile information carriers provide to us and may determine that we were not historically paid commissions owed to us, which would cause us to have underestimated membership. Conversely, carriers may require us to return commission payments paid in a prior period due to policy cancellations for members we previously estimated as being active. We do not update our estimated membership numbers reported in previous periods. Instead, we reflect updated information regarding our historical membership in the membership estimate for the current period. If we experience a significant variance in historical membership as compared to our initial estimates, we keep the prior period data consistent with previously reported amounts, while 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. Medicare-related plan estimated membership as ofMarch 31, 2022 grew 4% compared to estimated membership as ofMarch 31, 2021 due to a 9% growth in Medicare Advantage estimated membership, offset by a 5% and 4% decline in Medicare Supplement plan and Medicare Part D plan estimated membership, respectively. The overall growth in Medicare estimated membership was due to new paying members we added over the last twelve months, net of churn. Individual and family plan estimated membership as ofMarch 31, 2022 grew 1% compared to estimated membership as ofMarch 31, 2021 due to overall market conditions in the individual and family plan market, including recent stabilization and improvement. Ancillary plan estimated membership as ofMarch 31, 2022 declined 5% compared to estimated membership as ofMarch 31, 2021 primarily as a result of the decline in short-term health plans estimated membership. 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. The following table shows the estimated variable marketing cost per approved member and the estimated customer care and enrollment expense per approved member metrics for the periods presented below. The numerator used to calculate each metric is the portion of the respective operating expenses for marketing and advertising and customer care and enrollment 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 (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 35 -------------------------------------------------------------------------------- approved members for Medicare Plans and IFP Plans during the period, with the number of approved members adjusted based on the relative LTV of the product they are purchasing. Since the LTV for any product fluctuates from period to period, the weight given to each product was determined based on their relative LTVs at the time of our adoption of Accounting Standards Codification 606 - Revenue from Contracts with Customers ("ASC 606"). Three Months Ended March 31, 2022 2021 % Change Medicare
Estimated CC&E cost per approved MA-equivalent approved member (1)
$ 441 $ 278 59 %
Estimated variable marketing cost per MA-equivalent approved member (1)
545 353 54 %
Total Medicare estimated cost per approved member $ 986 $ 631 56 %
Individual and Family Plan Estimated CC&E cost per IFP-equivalent approved member (2)
$ 88 $ 63 40 %
Estimated variable marketing cost per IFP-equivalent approved member (2)
49 44 11 %
Total IFP estimated cost per approved member $ 137 $ 107 28 %
__________________
(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 approved MA-equivalent 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 period 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 approved IFP-equivalent 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
period presented.
Estimated CC&E cost per approved MA-equivalent member increased 59% in the three
months ended March 31, 2022 compared to the same period in 2021 due to lower
enrollment volume while having more agents than the prior year and a decline in
our telesales conversion rate resulting from enrollment quality initiatives. We
believe that this investment in our telesales organization will improve our
competitive positioning and drive higher quality enrollments characterized by
improved persistency. Estimated variable marketing cost per MA-equivalent member
increased 54% primarily due to lower enrollment volume as a result of lower
conversion rates from our telephonic leads. 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.
Estimated CC&E cost per approved IFP-equivalent member increased 40% in the
three months ended
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity withU.S. generally accepted accounting principles requires us to make judgments, assumptions, and estimates that affect the amounts reported in the consolidated financial statements and the accompanying notes. These estimates and assumptions are based on current facts, historical experience, and various other factors that we believe are reasonable under the circumstances to determine reported amounts of assets, liabilities, revenue and expenses that are not readily apparent from other sources. To the extent there are material differences between our estimates and the actual results, our future consolidated results of comprehensive income may be affected.
An accounting policy is considered to be critical if the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of
36
--------------------------------------------------------------------------------
such matters to change, and the effect of the estimates and assumptions on
financial condition or operating performance. The accounting policies we believe
to reflect our more significant estimates, judgments and assumptions and are
most critical to understanding and evaluating our reported financial results are
as follows:
•Revenue Recognition and contract assets - commission receivable; •Stock-Based Compensation; and •Accounting for Income Taxes.
There have been no changes to our critical accounting policies and estimates described in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , filed with theSEC onMarch 1, 2022 , that have had a significant impact on our condensed consolidated financial statements and related notes. Please refer to Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year endedDecember 31, 2021 , for a complete discussion of our other critical accounting policies and estimates. 37 --------------------------------------------------------------------------------
Results of Operations
Our operating results and related percentage of total revenue are summarized below for the periods presented (dollars in thousands):
Three Months Ended March 31,
2022 2021
Revenue
Commission $ 93,850 89 % $ 127,052 95 %
Other 11,400 11 % 7,162 5 %
Total revenue 105,250 100 % 134,214 100 %
Operating costs and expenses (1)
Cost of revenue (127) - % 996 1 %
Marketing and advertising 58,454 56 % 50,874 38 %
Customer care and enrollment 42,164 40 % 34,162 25 %
Technology and content 19,663 19 % 23,163 17 %
General and administrative 19,987 19 % 23,054 17 %
Amortization of intangible assets - - % 176 - %
Restructuring and reorganization charges 4,823 5 % 2,431 2 %
Total operating costs and expenses 144,964 139 % 134,856 100 %
Loss from operations (39,714) (38) % (642) - %
Other income (expense), net (1,021) (1) % 150 - %
Loss before income taxes (40,735) (39) % (492) - %
Provision for (benefit from) income taxes (7,993) (8) % 308 - %
Net loss $ (32,742) (31) % $ (800) (1) %
____________
(1)Operating costs and expenses include the following amounts of stock-based compensation expense (in thousands):
Three Months Ended March 31,
2022 2021
Marketing and advertising $ 313 $ 2,485
Customer care and enrollment 454 469
Technology and content 1,850 2,743
General and administrative 2,668 5,705
Total stock-based compensation expense $ 5,285 $ 11,402
38
--------------------------------------------------------------------------------
Revenue
Our commission revenue, other revenue and total revenue are summarized as follows (dollars in thousands):
Three Months Ended March 31, Change
2022 2021 $ %
Commission $ 93,850 $ 127,052 $ (33,202) (26) %
% of total revenue 89 % 95 %
Other 11,400 7,162 4,238 59 %
% of total revenue 11 % 5 %
Total revenue $ 105,250 $ 134,214 $ (28,964) (22) %
Three Months Ended March 31, 2022 and 2021 - Commission revenue decreased $33.2
million , or 26%, during the three months ended March 31, 2022 compared to the
same period in 2021 due to a $27.8 million decrease in commission revenue from
the Medicare segment and a $3.0 million 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 22%
decrease in Medicare plan approved members, driven primarily by a 23% decline in
Medicare Advantage plan approved members compared to 2021. The decrease in
commission revenue from the Individual, Family and Small Business segment was
primarily due to a 28% decrease in ancillary plan approved members, a 13%
decrease in individual and family major medical plan approved members, and a
$2.8 million decrease in net adjustment revenue. See Segment Information below
for further discussion.
Other revenue increased
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):
Three Months Ended March 31, Change
2022 2021 $ %
Cost of revenue $ (127) $ 996 $ (1,123) (113) %
% of total revenue - % 1 %
Three Months Ended March 31, 2022 and 2021 - Cost of revenue decreased by $1.1
million during the three months ended March 31, 2022 , compared to the same
period in 2021, primarily due to decreased activity from our revenue sharing
arrangements.
39
--------------------------------------------------------------------------------
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.
Our marketing and advertising expenses are summarized as follows (dollars in thousands):
Three Months Ended March 31, Change
2022 2021 $ %
Marketing and advertising $ 58,454 $ 50,874 $ 7,580 15 %
% of total revenue 56 % 38 %
Three Months Ended March 31, 2022 and 2021 - Marketing and advertising expenses
increased $7.6 million , or 15%, during the three months ended March 31, 2022
compared to the same period in 2021, primarily driven by a $8.1 million increase
in Medicare plan related variable advertising, $0.6 million in personnel and
compensation costs, and $0.6 million in consulting expenses, partially offset by
decreases of $2.2 million in stock-based compensation expenses. The increase in
variable advertising expenses was due to an increase in our advertising expense
through our partner and online 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):
Three Months Ended March 31, Change
2022 2021 $ %
Customer care and enrollment $ 42,164 $ 34,162 $ 8,002 23 %
% of total revenue 40 % 25 %
Three Months Ended March 31, 2022 and 2021 - Customer care and enrollment
expenses increased $8.0 million , or 23%, during the three months ended March 31,
2022 compared to the same period in 2021, primarily due to increases of $7.9
million in personnel cost from increased headcount, $1.4 million in facilities
and other costs, and $1.3 million in licensing costs, partially offset by
decreases of $2.6 million in consulting expenses.
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 inChina , where technology development costs are generally lower than inthe United States . Our technology and content expenses are summarized as follows (dollars in thousands): Three Months Ended March 31, Change 2022 2021 $ % Technology and content$ 19,663 $ 23,163 $ (3,500) (15) % % of total revenue 19 % 17 % 40
-------------------------------------------------------------------------------- Three Months EndedMarch 31, 2022 and 2021 - Technology and content expenses decreased$3.5 million , or 15%, during the three months endedMarch 31, 2022 compared to the same period in 2021 primarily driven by decreases of$1.4 million in personnel and compensation costs due to lower capitalized project costs,$1.4 million in facilities and other operating costs,$0.9 million in stock-based compensation expense, and$0.8 million in consulting costs, partially offset by an increase of$1.0 million in amortization of internally developed software. 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):
Three Months Ended March 31, Change
2022 2021 $ %
General and administrative $ 19,987 $ 23,054 $ (3,067) (13) %
% of total revenue 19 % 17 %
Three Months Ended March 31, 2022 and 2021 - General and administrative expenses
decreased $3.1 million , or 13%, during the three months ended March 31, 2022
compared to the same period in 2021, primarily driven by decreases of $3.0
million in stock-based compensation expenses, $0.6 million in facilities and
other operating costs, and $0.6 million in consulting expenses, partially offset
by an increase of $1.3 million in other professional fees.
Amortization of Intangible Assets
Our intangible asset amortization expense is summarized as follows (dollars in
thousands):
Three Months Ended March 31, Change
2022 2021 $ %
Amortization of intangible assets $ - $ 176 $ (176) (100) %
% of total revenue - % - %
Amortization expense decreased during the three months ended
41
--------------------------------------------------------------------------------Restructuring and Reorganization Charges
Our restructuring and reorganization charges consist primarily of severance,
transition and other related costs. Our restructuring and reorganization charges
are summarized as follows (dollars in thousands):
Three Months Ended March 31, Change
2022 2021 $ %
Restructuring and reorganization charges $ 4,823 $ 2,431 $ 2,392 98%
% of total revenue 5 % 2 %
Three Months Ended March 31, 2022 and 2021 - Restructuring and reorganization
costs for the three months ended March 31, 2022 primarily consisted of the
severance and other personnel related cost related to the restructuring that
took place in early second quarter of 2022. We completed a reduction in force in
April 2022 in which we eliminated approximately 339 full-time positions,
representing approximately 14% of our workforce, primarily in within the
customer care and enrollment groups, and to a lesser extent, in our marketing
and advertising and general and administrative groups.
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):
Three Months Ended March 31, Change
2022 2021 $ %
Other income (expense), net $ (1,021) $ 150 $ (1,171) (781) %
% of total revenue (1) % - %
Three Months Ended March 31, 2022 and 2021 - Other income (expense), net
decreased $1.2 million during the three months ended March 31, 2022 compared to
the same period in 2021 due primarily to interest expense for the Term Loan
Credit Agreement entered in the first quarter of 2022 and expenses related to
the termination of the RBC revolving credit facility at the same time.
Benefit from Income Taxes
Our benefit from income taxes are summarized as follows (dollars in thousands):
Three Months Ended March 31, Change
2022 2021 $ %
Provision for (benefit from) income taxes $ (7,993) $ 308 $ (8,301) (2,695) %
Effective tax rate 19.6 % (62.6) %
Three Months Ended March 31, 2022 and 2021 - Our effective tax rate of 19.6% for
the three months ended March 31, 2022 was lower compared to (62.6)% for the
three months ended March 31, 2021 primarily due to a one-time state tax
adjustment in 2021 that did not occur in 2022. Our effective tax rate for the
three months ended March 31, 2022 was lower than the statutory federal tax rate
due primarily to stock-based compensation adjustments and non-deductible
lobbying expenses, partially offset by research and development credits and
state taxes.
42
--------------------------------------------------------------------------------
Segment Information
We report segment information based on how our chief executive officer, who is our chief operating decision maker, or 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 commissions 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,
ancillary products sold to our Medicare-eligible applicants, including but not
limited to, dental and vision plans, as well as 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 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.
The Individual, Family and Small Business segment consists primarily of
commissions 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 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 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 expense, amortization of intangible assets, and restructuring and
reorganization charges.
43
--------------------------------------------------------------------------------
Our operating segment revenue and profit (loss) are summarized as follows (in thousands):
Three Months Ended March 31, Change
2022 2021 $ %
Revenue:
Medicare $ 95,067 $ 121,021 $ (25,954) (21) %
Individual, Family and Small Business 10,183 13,193 (3,010) (23) %
Total revenue $ 105,250 $ 134,214 $ (28,964) (22) %
Segment profit (loss)
Medicare segment profit (loss) $ (14,817) $ 24,545 $ (39,362) (160) %
Individual, Family and Small Business segment profit 5,254 8,052 (2,798) (35) %
Segment profit (loss) (9,563) 32,597 (42,160) (129) %
Corporate (15,265) (15,286) 21 *
Stock-based compensation expense (5,285) (11,402) 6,117 (54) %
Depreciation and amortization (1) (4,778) (3,944) (834) 21 %
Amortization of intangible assets - (176) 176 (100) %
Restructuring and reorganization charges (4,823) (2,431) (2,392) 98 %
Other income (expense), net (1,021) 150 (1,171) (781) %
Loss before income taxes $ (40,735) $ (492) $ (40,243) 8179 %
_______
* Percentage calculated is not meaningful.
(1)Depreciation and amortization has been adjusted to include amortization of software development costs.
Revenue Three Months EndedMarch 31, 2022 and 2021 - Revenue from our Medicare segment declined$26.0 million , or 21%, during the three months endedMarch 31, 2022 compared to the same period in 2021, attributable to a$27.8 million decrease in commission revenue, partially offset by a$4.4 million increase in sponsorship and advertising revenue. The decrease in Medicare segment commission revenue is primarily due to a decrease in Medicare Advantage plan related commission revenue of$25.4 million . The decrease in Medicare Advantage commission revenue was driven by 23% decline in Medicare Advantage plan approved members. Revenue from our Individual, Family and Small Business segment declined$3.0 million , or 23%, during the three months endedMarch 31, 2022 compared to the same period in 2021, primarily attributable to a$3.0 million decrease in commission revenue. Based on our evaluation of the updated LTV models and retention trends, we recognized$0.4 million in net adjustment revenue, a decrease of$2.8 million during the three months endedMarch 31, 2022 compared to the same period in 2021. The decrease in commission revenue is attributable to a decline of 28% in ancillary approved members and a decline of 13% in individual and family approved members.
Segment Profit (Loss)
Three Months EndedMarch 31, 2022 and 2021 - Our Medicare segment loss was$14.8 million during the three months endedMarch 31, 2022 , a decrease of$39.4 million , or 160%, compared to segment profit of$24.5 million for the same period in 2021. This was primarily due to a$13.4 million increase in operating expenses, excluding stock-based compensation expense, depreciation and amortization expense, restructuring and reorganization charges, and other income (expense), as well as a$26.0 million decrease in revenue. The increase in operating expenses was mostly attributable to a higher agent work force in 2022 compared to the prior year as well as higher spending on certain marketing channels, especially online marketing. Our Individual, Family and Small Business segment profit was$5.3 million during the three months endedMarch 31, 2022 , a decrease of$2.8 million , or 35% compared to the same period in 2021. The decrease was primarily driven by a$3.0 million decrease in revenue and a$0.2 million decrease in operating expenses, excluding 44
--------------------------------------------------------------------------------
stock-based compensation expense, depreciation and amortization expense, restructuring and reorganization charges, and other income (expense).
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 Condensed 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 Condensed Consolidated Financial Statements. Short-term obligations were$7.7 million for leases and$10.4 million for service and licensing as ofMarch 31, 2022 . Long-term obligations were$41.4 million for leases and$8.9 million for service and licensing as ofMarch 31, 2022 . We expect to fund these obligations through our existing cash and cash equivalents and cash generated from operations. Our future capital requirements will depend on many factors, including our enrollment volume, membership, retention rates, telesales conversion rates, and our level of investment in technology and content, marketing and advertising, customer care and enrollment, and other initiatives. In addition, our cash position could be impacted by the level of investments we make to pursue our strategy. To the extent that available funds are insufficient to fund our future activities or to execute our financial strategy, we may raise additional capital through bank debt, or public or private equity or debt financing to the extent such funding sources are available. Alternatively, we may decide to reduce expenses in order to manage liquidity. These reductions could adversely impact the growth of membership and revenue. We believe our current cash and cash equivalents, along with the proceeds from the term loan we obtained onFebruary 28, 2022 , and expected cash collections will be sufficient to fund our operations for at least 12 months after the filing date of this Quarterly Report on Form 10-Q. Our cash, cash equivalents, and short-term marketable securities are summarized as follows (in thousands): March 31, 2022 December 31, 2021 Cash and cash equivalents$ 220,563 $ 81,926 Short-term marketable securities 10,938 41,306 Total cash, cash equivalents, and short-term marketable securities$ 231,501 $ 123,232 45
-------------------------------------------------------------------------------- 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. We expect a reduction in cash and cash equivalents in the future resulting from our continued investments to grow our business. 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. Alternatively, we may decide to reduce marketing and advertising, customer care and enrollment, technology and content, or other expenses in order to manage liquidity. These reductions could adversely impact our rate of membership and revenue growth. As ofMarch 31, 2022 , our cash and cash equivalents totaled$220.6 million . Cash equivalents, which are comprised of financial instruments with an original maturity of 90 days or less from the date of purchase, primarily consist of money market funds and commercial paper. The increase in cash and cash equivalents reflects$65.4 million of net cash provided by financing activities, partially offset by$47.1 million of net cash provided by operating activities and$26.1 million of net cash provided by investing activities. We also maintained$3.2 million in restricted cash as ofMarch 31, 2022 andDecember 31, 2021 .
The following table presents a summary of our cash flows for the three months
ended
Three
Months Ended
2022 2021
Net cash provided by operating activities $ 47,112 $ 42,809
Net cash provided by investing activities 26,121 10,497
Net cash provided by (used in) financing activities 65,373 (4,790)
Operating Activities
Net cash provided by operating activities primarily consists of net loss,
adjusted for certain non-cash items, including, deferred income taxes,
stock-based compensation expense, depreciation and amortization, amortization of
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.
A significant portion of our marketing and advertising expense is driven by 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 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
46
--------------------------------------------------------------------------------enrollment periods. The timing of 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.
Three Months EndedMarch 31, 2022 - Net cash provided by operating activities was$47.1 million during the three months endedMarch 31, 2022 , primarily driven by changes in net operating assets and liabilities of$77.6 million and adjustments for non-cash items of$2.2 million , partially offset by a net loss of$32.7 million . Adjustments for non-cash items primarily consisted of$5.3 million of stock-based compensation expense and$3.8 million of amortization of intangible assets and internally-developed software, partially offset by an$8.0 million decrease due to the change in deferred income taxes. Cash provided by changes in net operating assets and liabilities during the three months endedMarch 31, 2022 primarily consisted of decreases of$77.1 million in contract assets - commissions receivable,$12.4 million in prepaid expenses and other current asset, and increases of$4.8 million in accrued expenses and other liabilities, partly offset by decreases of$16.8 million in accrued marketing expense and$5.5 million in accounts payable. Three Months EndedMarch 31, 2021 - Net cash provided by operating activities was$42.8 million during the three months endedMarch 31, 2021 , primarily driven by changes in net operating assets and liabilities of$28.2 million and a net loss of$0.8 million , partially offset by adjustments for non-cash items of$15.4 million . Adjustments for non-cash items primarily consisted of$11.4 million of stock-based compensation expense,$3.0 million of amortization of intangible assets and internally-developed software, and$1.1 million of depreciation and amortization. Cash used from changes in net operating assets and liabilities during the three months endedMarch 31, 2021 primarily consisted of decreases of$50.6 million in contract assets - commissions receivable and$4.2 million in prepaid expenses and other current asset, increases of$4.1 million in accrued compensation and benefits and$1.3 million in accrued expenses and other liabilities, partially offset by decreases of$25.8 million in accounts payable and$6.7 million in accrued marketing expense. Cash collection during the three months endedMarch 31, 2021 increased primarily driven by enrollment growth and increases in commission rates for new enrollments, as compared to the three months endedMarch 31, 2020 .
Investing Activities
Our investing activities primarily consist of purchases, maturities, and redemptions of marketable securities as well as 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 website development costs and security deposit payments.
Three Months Ended
Three Months EndedMarch 31, 2021 - Net cash provided by investing activities of$10.5 million for the three months endedMarch 31, 2021 mainly consisted$23.4 million proceeds from the maturities and redemptions of marketable securities, partially offset by$7.8 million used to purchase marketable securities,$3.2 million in capitalized internal-use software and website development costs and$1.9 million used to purchase property and equipment and other assets.
Financing Activities
Three Months EndedMarch 31, 2022 - Net cash provided by financing activities of$65.4 million for the three months endedMarch 31, 2022 was primarily due to$64.9 million of net proceeds from debt financing and$1.1 million of net proceeds from the exercise of common stock options, partially offset by$0.5 million in repurchases of shares to satisfy employee tax withholding obligations. 47
--------------------------------------------------------------------------------
Three Months Ended
Convertible Preferred Stock
OnApril 30, 2021 (the "Closing Date"), we issued and sold 2,250,000 shares of our newly designated Series A convertible preferred stock ("Series A preferred stock") at an aggregate purchase price of$225.0 million , at a price of$100 (the "Stated Value" per share of Series A preferred stock) per share. We received$214.0 million net proceeds from the private placement withEchelon Health SPV, LP ("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 untilApril 30, 2023 , which is the second anniversary of the Closing Date, onJune 30 andDecember 31 of each year, beginning onJune 30, 2021 , and will thereafter become 6% payable in kind and 2% payable in cash in arrears onJune 30 andDecember 31 of each year, beginning onJune 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 onApril 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.
As of
Term Loan Credit Agreement
We entered into a term loan credit agreement (the "Term Loan Credit Agreement") withBlue Torch Finance LLC , as administrative agent and collateral agent, and the other lenders party thereto inFebruary 2022 . The Term Loan Credit Agreement provides for a$70.0 million secured term loan credit facility, which term loans were made available to us onFebruary 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 proceeds of the loans under the Term Loan Credit Agreement may be used for working capital and general corporate purposes, to refinance our credit agreement with Royal Bank of Canada and to pay fees and expenses in connection with the entry into the Term Loan Credit Agreement. The term loan bears 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 and the Term Loan Credit Agreement includes customary "fallback" provisions with respect to potential 48 -------------------------------------------------------------------------------- transition from the LIBOR. The outstanding obligations under the Term Loan Credit Agreement are payable in full on the maturity date. The Term Loan Credit Agreement matures in February of 2025. We have the right to prepay the loans under the Term Loan 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 Term Loan Credit Agreement afterFebruary 28, 2023 , to an exit fee. Our obligations under the Term Loan 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 Term Loan Credit Agreement. As ofMarch 31, 2022 , we had$65.0 million outstanding principal amount under our Term Loan Credit Agreement, net of closing costs. See Note 12 - Debt of Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional information regarding this credit agreement and subsequent amendment.
Recent Accounting Pronouncements
See Note 1 - Summary of Business and Significant Accounting Policies in the Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for recently issued accounting standards that could have an effect on us.
© Edgar Online, source
