Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019


OR

o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                 to

001-33071
(Commission File Number)
_____________________________________________
EHEALTH, INC.
(Exact name of registrant as specified in its charter)
_____________________________________________

Delaware
(State or other jurisdiction of
incorporation or organization)
 
56-2357876
(I.R.S Employer
Identification No)

2625 AUGUSTINE DRIVE, SECOND FLOOR
SANTA CLARA, CALIFORNIA, 95054
 (Address of principal executive offices)

(650) 584-2700
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
____________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, par value $0.001 per share
EHTH
The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ☐




Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES x NO ☐
    

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
¨


 
Accelerated filer
x
 
Non-accelerated filer
¨


 
Smaller reporting company
¨

 
 
 
 
Emerging growth Company
¨


 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2) of the Exchange Act). ☐

The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding as of July 31, 2019 was 22,806,046 shares. 










 
EHEALTH, INC. FORM 10-Q
TABLE OF CONTENTS

 
PART I FINANCIAL INFORMATION
PAGE
Item 1.
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
PART II OTHER INFORMATION
 
Item 1.
Item 1A.
Item 6.
 
 





3




PART I

FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS


4


EHEALTH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, unaudited)

 
June 30, 2019
 
December 31, 2018
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
115,883

 
$
13,089

Accounts receivable
1,059

 
3,601

Commissions receivable—current
117,573

 
134,190

Prepaid expenses and other current assets
12,180

 
5,288

Total current assets
246,695

 
156,168

Commissions receivable—non-current
223,842

 
211,668

Property and equipment, net
9,708

 
7,684

Operating lease right-of-use assets
37,744

 

Other assets
14,116

 
11,276

Intangible assets, net
11,156

 
12,249

Goodwill
40,233

 
40,233

Total assets
$
583,494

 
$
439,278

Liabilities and stockholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
5,523

 
$
5,688

Accrued compensation and benefits
15,265

 
20,763

Accrued marketing expenses
3,671

 
11,013

Earnout liability—current
33,700

 
20,730

Lease liabilities—current
3,896

 

Other current liabilities
2,400

 
2,425

Total current liabilities
64,455

 
60,619

Debt

 
5,000

Earnout liability—non-current

 
19,270

Deferred income taxes—non-current
38,366

 
47,901

Lease liabilities—non-current
35,386

 

Other non-current liabilities
2,022

 
3,339

Stockholders’ equity:
 
 
 
Common stock
34

 
31

Additional paid-in capital
449,046

 
298,024

Treasury stock, at cost
(199,998
)
 
(199,998
)
Retained earnings
194,052

 
204,965

Accumulated other comprehensive income
131

 
127

Total stockholders’ equity
443,265

 
303,149

Total liabilities and stockholders’ equity
$
583,494

 
$
439,278


The accompanying notes are an integral part of these condensed consolidated financial statements.

5


EHEALTH, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands, except per share amounts, unaudited)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Revenue:
 
 
 
 
 
 
 
Commission
$
60,606

 
$
30,646

 
$
124,833

 
$
71,353

Other
5,161

 
2,011

 
9,707

 
4,374

Total revenue
65,767

 
32,657

 
134,540

 
75,727

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of revenue
449

 
151

 
372

 
303

Marketing and advertising
23,104

 
14,606

 
47,045

 
29,608

Customer care and enrollment
21,479

 
13,219

 
41,423

 
26,458

Technology and content
10,437

 
7,287

 
19,454

 
15,628

General and administrative
14,862

 
11,240

 
26,140

 
21,931

Acquisition costs

 
18

 

 
76

Change in fair value of earnout liability
7,200

 
2,500

 
20,506

 
2,500

Restructuring charges

 
9

 

 
1,865

Amortization of intangible assets
547

 
547

 
1,094

 
998

Total operating costs and expenses
78,078

 
49,577

 
156,034

 
99,367

Loss from operations
(12,311
)
 
(16,920
)
 
(21,494
)
 
(23,640
)
Other income, net
699

 
296

 
1,256

 
480

Loss before benefit from income taxes
(11,612
)
 
(16,624
)
 
(20,238
)
 
(23,160
)
Benefit from income taxes
(5,858
)
 
(4,610
)
 
(9,325
)
 
(6,301
)
Net loss
$
(5,754
)
 
$
(12,014
)
 
$
(10,913
)
 
$
(16,859
)
 
 
 
 
 
 
 
 
Net loss per share:
 
 
 
 
 
 
 

Basic and diluted
$
(0.25
)
 
$
(0.63
)
 
$
(0.48
)
 
$
(0.89
)
Weighted-average number of shares used in per share amounts:
 
 
 
 
 
 
 

Basic and diluted
23,091

 
19,063

 
22,508

 
18,968

 
 
 
 
 
 
 
 
Comprehensive loss
 
 
 
 
 
 
 
Net loss
$
(5,754
)
 
$
(12,014
)
 
$
(10,913
)
 
$
(16,859
)
Foreign currency translation adjustment, net of taxes
(25
)
 
(71
)
 
4

 
(6
)
Comprehensive loss
$
(5,779
)
 
$
(12,085
)
 
$
(10,909
)
 
$
(16,865
)
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

6


EHEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, unaudited)

Three Months Ended June 30, 2019
 
Common Stock
 
 
 
Treasury Stock
 
 
 
 
 
 
 
Shares
 
Amount
 
Additional Paid-in
Capital
 
Shares
 
Amount
 
Retained Earnings
 
Accumulated Other Comprehensive Income
 
Total Stockholders’ Equity
Balance at March 31, 2019
34,090

 
$
34

 
$
445,652

 
11,450

 
$
(199,998
)
 
$
199,806

 
$
156

 
$
445,650

Issuance of common stock in connection with exercise of common stock options and release of vested restricted stock units, net of cash used to net-share settle equity awards
177

 

 
888

 

 

 

 

 
888

Common stock traded for employee tax obligation

 

 
(2,172
)
 
32

 

 

 

 
(2,172
)
Stock-based compensation expense

 

 
4,678

 

 

 

 

 
4,678

Foreign currency translation adjustment, net of taxes

 

 

 

 

 

 
(25
)
 
(25
)
Net loss

 

 

 

 

 
(5,754
)
 

 
(5,754
)
Balance at June 30, 2019
34,267

 
$
34

 
$
449,046

 
11,482

 
$
(199,998
)
 
$
194,052

 
$
131

 
$
443,265


Three Months Ended June 30, 2018
 
Common Stock
 
 
 
Treasury Stock
 
 
 
 
 
 
 
Shares
 
Amount
 
Additional Paid-in
Capital
 
Shares
 
Amount
 
Retained Earnings
 
Accumulated Other Comprehensive Income
 
Total Stockholders’ Equity
Balance at March 31, 2018
30,235

 
$
30

 
$
289,925

 
11,254

 
$
(199,998
)
 
$
199,880

 
$
266

 
$
290,103

Issuance of common stock in connection with exercise of common stock options and release of vested restricted stock units, net of cash used to net-share settle equity awards
250

 

 
559

 

 

 

 

 
559

Common stock traded for employee tax obligation

 

 
(1,456
)
 
70

 

 

 

 
(1,456
)
Stock-based compensation expense

 

 
3,131

 

 

 

 

 
3,131

Foreign currency translation adjustment, net of taxes

 

 

 

 

 

 
(71
)
 
(71
)
Net loss

 

 

 

 

 
(12,014
)
 
 
 
(12,014
)
Balance at June 30, 2018
30,485

 
$
30

 
$
292,159

 
11,324

 
$
(199,998
)
 
$
187,866

 
$
195

 
$
280,252


The accompanying notes are an integral part of these condensed consolidated financial statements.


















7


EHEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, unaudited)

Six Months Ended June 30, 2019
 
Common Stock
 
 
 
Treasury Stock
 
 
 
 
 
 
 
Shares
 
Amount
 
Additional Paid-in
Capital
 
Shares
 
Amount
 
Retained Earnings
 
Accumulated Other Comprehensive Income
 
Total Stockholders’ Equity
Balance at December 31, 2018
30,863

 
$
31

 
$
298,024

 
11,426

 
$
(199,998
)
 
$
204,965

 
$
127

 
$
303,149

Issuance of common stock in connection with exercise of common stock options and release of vested restricted stock units, net of cash used to net-share settle equity awards
349

 

 
3,255

 

 

 

 

 
3,255

Common stock traded for employee tax obligation

 

 
(3,452
)
 
56

 

 

 

 
(3,452
)
Stock issued in equity offering
2,760

 
3

 
126,048

 

 

 

 

 
126,051

Stock issued for GoMedigap earnout
295

 

 
17,264

 

 

 

 

 
17,264

Stock-based compensation expense

 

 
7,907

 

 

 

 

 
7,907

Foreign currency translation adjustment, net of taxes

 

 

 

 

 

 
4

 
4

Net loss

 

 

 

 

 
(10,913
)
 

 
(10,913
)
Balance at June 30, 2019
34,267

 
$
34

 
$
449,046

 
11,482

 
$
(199,998
)
 
$
194,052

 
$
131

 
$
443,265


Six Months Ended June 30, 2018
 
Common Stock
 
 
 
Treasury Stock
 
 
 
 
 
 
 
Shares
 
Amount
 
Additional Paid-in
Capital
 
Shares
 
Amount
 
Retained Earnings
 
Accumulated Other Comprehensive Income
 
Total Stockholders’ Equity
Balance at December 31, 2017
29,880

 
$
30

 
$
281,706

 
11,238

 
$
(199,998
)
 
$
204,725

 
$
201

 
$
286,664

Issuance of common stock in connection with exercise of common stock options and release of vested restricted stock units, net of cash used to net-share settle equity awards
310

 

 
668

 

 

 

 

 
668

Common stock traded for employee tax obligation

 

 
(1,742
)
 
86

 

 

 

 
(1,742
)
Stock-based compensation expense

 

 
5,932

 

 

 

 

 
5,932

Stock issued for GoMedigap acquisition
295

 

 
5,595

 

 

 

 

 
5,595

Foreign currency translation adjustment, net of taxes

 

 

 

 

 

 
(6
)
 
(6
)
Net loss

 

 

 

 

 
(16,859
)
 

 
(16,859
)
Balance at June 30, 2018
30,485

 
$
30

 
$
292,159

 
11,324

 
$
(199,998
)
 
$
187,866

 
$
195

 
$
280,252


The accompanying notes are an integral part of these condensed consolidated financial statements.


8


EHEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
(in thousands, unaudited)
 
Six Months Ended June 30,
 
2019
 
2018
Operating activities
 
 
 
Net loss
$
(10,913
)
 
$
(16,859
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Deferred income taxes
(9,535
)
 
(6,482
)
Depreciation and amortization
1,388

 
1,250

Amortization of internally developed software
1,513

 
1,011

Amortization of intangible assets
1,094

 
998

Stock-based compensation expense
7,907

 
5,932

Change in fair value of earnout liability
20,506

 
2,500

Change in deferred rent
(1,272
)
 
314

Other non-cash items
224

 
62

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
2,543

 
629

Commissions receivable
4,443

 
27,495

Prepaid expenses and other assets
(2,696
)
 
(1,120
)
Accounts payable
147

 
(1,202
)
Accrued compensation and benefits
(5,498
)
 
(3,598
)
Accrued marketing expenses
(7,342
)
 
(1,951
)
Deferred revenue
(118
)
 
376

Accrued expense and other liabilities
(1,166
)
 
1,081

Net cash provided by operating activities
1,225

 
10,436

Investing activities
 
 
 
Capitalized internal-use software and website development costs
(3,433
)
 
(2,763
)
Purchases of property and equipment and other assets
(3,786
)
 
(1,122
)
Payments for security deposits
(896
)
 

Acquisition of business, net of cash acquired

 
(14,929
)
Cash used in investing activities
(8,115
)
 
(18,814
)
Financing activities
 
 
 
Proceeds from issuance of common stock, net of issuance costs
126,051

 

Net proceeds from exercise of common stock options
3,255

 
668

Cash used to net-share settle equity awards
(3,452
)
 
(1,742
)
Repayment of debt
(5,000
)
 

Acquisition-related contingent payments
(9,542
)
 

Principal payments in connection with finance leases
(50
)
 
(52
)
Net cash provided by (used in) financing activities
111,262

 
(1,126
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
29

 
(15
)
 
 
 
 
Net increase (decrease) in cash, cash equivalents and restricted cash
104,401

 
(9,519
)
Cash, cash equivalents and restricted cash at beginning of period
13,089

 
40,293

Cash, cash equivalents and restricted cash at end of period (1)
$
117,490

 
$
30,774

(1) The ending balance of cash, cash equivalents and restricted cash as of June 30, 2019 included $1.6 million of restricted cash, which was classified as part of prepaid expenses and other current assets on the balance sheet as of June 30, 2019. There was no restricted cash as of December 31, 2018 or June 30, 2018.
 The accompanying notes are an integral part of these condensed consolidated financial statements.

9


EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Note 1Summary of Business and Significant Accounting Policies

Description of Business—eHealth, Inc. (the “Company,” “eHealth,” “we” or “us”) is a leading private health insurance exchange for individuals, families and small businesses in the United States. Through our website addresses (www.eHealth.com, www.eHealthInsurance.com, www.eHealthMedicare.com, www.Medicare.com, www.PlanPrescriber.com and www.GoMedigap.com), consumers can get quotes from leading health insurance carriers, compare plans side-by-side, and apply for and purchase Medicare-related, individual and family, small business and ancillary health insurance plans. We actively market the availability of Medicare-related insurance plans and offer Medicare plan comparison tools and educational materials for Medicare-related insurance plans, including Medicare Advantage, Medicare Supplement and Medicare Part D prescription drug plans. Our ecommerce technology also enables us to deliver consumers’ health insurance applications electronically to health insurance carriers. We are licensed to market and sell health insurance in all 50 states and the District of Columbia. 

Basis of Presentation—The accompanying condensed consolidated balance sheets as of June 30, 2019 and December 31, 2018, the condensed consolidated statements of comprehensive loss and stockholders' equity for the three and six months ended June 30, 2019 and 2018, and the condensed consolidated statements of cash flows for the six months ended June 30, 2019 and 2018, respectively, are unaudited. The condensed consolidated balance sheet data as of December 31, 2018 was derived from the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the Securities and Exchange Commission on March 14, 2019. The accompanying statements should be read in conjunction with the audited consolidated financial statements and related notes contained in our Annual Report on Form 10-K.

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and reflect all normal recurring adjustments that are necessary to present fairly the results for the interim periods presented. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in accordance with those rules and regulations. However, the Company believes the disclosures made are adequate to make the information not misleading. The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2018 and include all adjustments necessary for the fair presentation of our financial position as of June 30, 2019 and December 31, 2018, and our results of operations for the periods presented. The results for the three and six months ended June 30, 2019 are not necessarily indicative of the results to be expected for any subsequent period or for the year ending December 31, 2019 and therefore should not be relied upon as an indicator of future results.

Principles of Consolidation—The condensed consolidated financial statements include the accounts of eHealth, Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Operating Segments—We report segment information based on how our chief executive officer, who is our chief operating decision maker ("CODM"), regularly reviews our operating results, allocates resources and makes decisions regarding our business operations. 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.

The Medicare segment consists 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 customers, including but not limited to, dental and vision insurance, as well as our advertising program that allows carriers to purchase Medicare-related advertising on a separate website developed, hosted and maintained by us, and 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 customers, including but not limited to, dental, vision, and short-term 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

10


EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

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, change in fair value of earnout liability, restructuring charges, acquisition costs, depreciation and amortization expense, other income, net, and amortization of intangible assets.

Use of Estimates—The preparation of condensed consolidated financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates, including those related to, but not limited to, the commissions we expect to collect for each approved member cohort, the useful lives of intangible assets, fair value of investments, recoverability of intangible assets, valuation allowance for deferred income taxes, provision (benefit) for income taxes and the assumptions used in determining stock-based compensation. We base our estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that we believe to be reasonable. Actual results may differ from these estimates.

Seasonality—A greater number of our Medicare-related health insurance plans are sold in our fourth quarter during the Medicare annual enrollment period when Medicare-eligible individuals are permitted to change their Medicare Advantage, Medicare Supplement, and Medicare Part D prescription drug coverage for the following year. As a result, our Medicare plan-related commission revenue is highest in our fourth quarter. Due to the recent reintroduction of the Medicare open enrollment period into January to March of the following year, commission revenue is typically second-highest in our first quarter.

 The majority of our major medical individual and family health insurance plans are sold in the fourth quarter during the annual open enrollment period as defined under the federal Patient Protection and Affordable Care Act and related amendments in the Health Care and Education Reconciliation Act. Individuals and families generally are not able to purchase major medical individual and family health insurance outside of these open enrollment periods, unless they qualify for a special enrollment period as a result of certain qualifying events, such as losing employer-sponsored health insurance or moving to another state.

Cash Equivalents—We consider all investments with an original maturity of 90 days or less from the date of purchase to be cash equivalents. Cash and cash equivalents are stated at fair value.

Revenue Recognition—We are compensated by the receipt of commission payments from health insurance carriers whose health insurance policies are purchased through our ecommerce platforms or our customer care centers. We may also receive commission bonuses based on our attaining predetermined target sales levels for Medicare, individual and family, small business and ancillary health insurance products, or other objectives, as determined by the health insurance carrier, which we recognize as commission revenue when we achieve the predetermined target sales levels or other objectives. In addition, we also generate revenue from non-commission revenue sources, which include online sponsorship and advertising, technology licensing and lead referrals. Payment of commissions typically commences within 60 days from the effective date. Payment terms for non-commission revenue are typically 30 days from the invoice date.

We account for revenue under Accounting Standards Codification ("ASC") 606Revenue from Contracts with Customers. The core principle of ASC 606 is to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. Accordingly, we recognize revenue for our services in accordance with the following five steps outlined in ASC 606:


11


EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Identification of the contract, or contracts, with a customer. A contract with a customer exists when (i) we enter into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or services, (ii) the contract has commercial substance, and (iii) we determine that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.
Identification of the performance obligations in the contract. Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the goods or service either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract.
Determination of the transaction price. The transaction price is determined based on the consideration to which we will be entitled in exchange for transferring goods or services to the customer.
Allocation of the transaction price to the performance obligations in the contract. If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis.    
Recognition of revenue when, or as, we satisfy a performance obligation. We satisfy performance obligations either over time or at a point in time, as discussed in further detail below. Revenue is recognized at the time the related performance obligation is satisfied by transferring the promised good or service to the customer.

Commission Revenue—Our commission revenue is primarily comprised of commissions paid to us by health insurance carriers related to insurance plans that have been applied for by a member through our health insurance exchange service and the applications have been approved by the carrier. We define a member as an individual currently covered by an insurance plan, which include Medicare-related, individual and family, small business and ancillary plans. We are compensated by the health insurance carrier, which we define as our customer.

We typically enter into contractual agency relationships with health insurance carriers that are non-exclusive and terminable on short notice by either party for any reason. In addition, health insurance carriers often have the ability to terminate or amend our agreements unilaterally on short notice, including provisions in our agreements relating to the commission rates paid to us by the health insurance carriers. The amendment or termination of an agreement we have with a health insurance carrier may adversely impact the commissions we are paid on health insurance plans purchased from the carrier by means of our health insurance exchange services.

For both Medicare Advantage and Medicare Part D prescription drug plans, we receive a fixed, annual commission payment from insurance carriers once the plan is approved by the carrier and either a fixed, monthly, or annual commission payment beginning with and subsequent to the second plan year. In the first plan year of a Medicare Advantage and Medicare Part D prescription drug plan, after the health insurance carrier approves the application but during the effective year of the plan, we are paid a fixed commission that is prorated for the number of months remaining in the calendar year. Additionally, if the plan is the first Medicare Advantage or Medicare Part D prescription drug plan issued to the member, we may receive a higher commission rate that covers a full twelve-month period, regardless of the month the plan was effective. We earn commission revenue for Medicare Advantage and Medicare Part D prescription drug plans for which we are the broker of record, typically until either the policy is cancelled or we otherwise do not remain the agent on the policy. 

For individual and family, Medicare Supplement, small business and ancillary plans, our commissions generally represent a flat amount per member per month or a percentage of the premium amount collected by the carrier during the period that a member maintains coverage under a plan. Premium-based commissions are reported to us after the premiums are collected by the carrier, generally on a monthly basis. We generally continue to receive the commission payment from the relevant insurance carrier until the health insurance plan is cancelled or we otherwise do not remain the agent on the policy.

We utilize a practical expedient to estimate commission revenue for each insurance product by applying the use of a portfolio approach to group approved members by the effective month of the relevant plan (referred to as a “cohort”). This allows us to estimate the commissions we expect to collect for each approved member cohort by evaluating various factors, including but not limited to, contracted commission rates, carrier mix and expected member churn.

For Medicare-related, individual and family and ancillary health insurance plans, our services are complete once a submitted application is approved by the relevant health insurance carrier. Accordingly, we recognize commission revenue

12


EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

based upon the total estimated lifetime commissions we expect to receive for selling the plan after the carrier approves an application, net of an estimated constraint. We refer to these estimated and constrained lifetime values as the "constrained LTV" for the plan. We provide annual services in selling and renewing small business health insurance plans; therefore, we recognize small business health insurance plan commission revenue at the time the plan is approved by the carrier, and when it renews each year thereafter, equal to the estimated commissions we expect to collect from the plan over the following twelve months. Our estimate of commission revenue for each product line is based on a number of assumptions, which include, but are not limited to, estimating conversion of an approved member to a paying member, forecasting member churn and forecasting the commission amounts likely to be received per member. These assumptions are based on historical trends and incorporate management’s judgment in interpreting those trends and in applying the constraints discussed below. To the extent we make changes to the assumptions, we will recognize any material impact of the changes to commission revenue in the reporting period in which the change is made, including revisions of estimated lifetime commissions either below or in excess of previously estimated constrained LTV recognized as revenue. Primarily due to lower than expected churn in IFP membership we recorded additional net revenue of $9.4 million and $16.8 million, respectively, or $0.41 per share and $0.75 per share, respectively, for the three and six months ended June 30, 2019, and $2.2 million and $5.7 million, or $0.11 per share and $0.30 per share, respectively, for the three and six months ended June 30, 2018, respectively.

Commission revenue by segment is presented in the table below (in thousands):

 
Three Months Ended June 30, 2019
 
Three Months Ended June 30, 2018
 
Commission Revenue from Members Approved During the Period
 
Net Commission Revenue Adjustments from Members Approved in Prior Periods(1)
 
Total Commission Revenue
 
Commission Revenue from Members Approved During the Period
 
Net Commission Revenue Adjustments from Members Approved in Prior Periods(1)
 
Total Commission Revenue
Medicare
$
47,428

 
$
346

 
$
47,774

 
$
24,545

 
$
(321
)
 
$
24,224

Individual, Family and Small Business
3,786

 
9,046

 
12,832

 
3,943

 
2,479

 
6,422

Total commission revenue
$
51,214

 
$
9,392

 
$
60,606

 
$
28,488

 
$
2,158

 
$
30,646

 

 

 

 

 
 
 
 
 
Six Months Ended June 30, 2019
 
Six Months Ended June 30, 2018
 
Commission Revenue from Members Approved During the Period
 
Net Commission Revenue Adjustments from Members Approved in Prior Periods(1)
 
Total Commission Revenue
 
Commission Revenue from Members Approved During the Period
 
Net Commission Revenue Adjustments from Members Approved in Prior Periods(1)
 
Total Commission Revenue
Medicare
$
98,010

 
$
1,413

 
$
99,423

 
$
53,604

 
$
(27
)
 
$
53,577

Individual, Family and Small Business
10,010

 
15,400

 
25,410

 
12,069

 
5,707

 
17,776

Total commission revenue
$
108,020

 
$
16,813

 
$
124,833

 
$
65,673

 
$
5,680

 
$
71,353


(1) These amounts reflect our revised estimates of cash collections for certain members approved prior to the relevant reporting period that are recognized as adjustments to revenue within the relevant reporting period.  


13


EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Commissions receivable activity during the six months ended June 30, 2019 was as follows (in thousands):

Commissions receivable, December 31, 2018
$
345,858

Commission revenue from members approved during the six months ended June 30, 2019
108,020

Net commission revenue adjustments from members approved in prior periods
16,813

Commission collections and cash receipts
(129,276
)
Commissions receivable, June 30, 2019
$
341,415


For Medicare-related, individual and family and ancillary health insurance plans, we apply constraints to determine the amount of commission revenue to recognize per approved member. The constraints are applied to help ensure that the total estimated lifetime commissions expected to be collected for an approved member’s plan are recognized as revenue only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with future commissions receivable from the plan is subsequently resolved. We evaluate the appropriateness of these constraints on at least an annual basis, including assessing factors affecting our estimate of the estimated lifetime value of commissions per approved member based on current trends impacting our business and assessing whether any adjustment to those constraints should be made. We update the assumptions when we observe a sufficient level of evidence that would suggest that the long-term expectation of the assumption has changed.

For the three and six months ended June 30, 2019 and 2018, 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 lifetime value of commissions per approved member were as follows:

 
Three and Six Months Ended June 30,
 
2019
 
2018
Medicare
 
 
 
Medicare Advantage
7
%
 
7
%
Medicare Supplement
5
%
 
5
%
Medicare Part D
5
%
 
5
%
 
 
 
 
Individual and Family
 
 
 
Non-Qualified Health Plans
15
%
 
15
%
Qualified Health Plans
20
%
 
20
%
 
 
 
 
Ancillaries
10
%
 
10
%
 
 
 
 
Small Business
%
 
%

Other Revenue—Our sponsorship and advertising program allows carriers to purchase advertising space in specific markets in a sponsorship area on our website. In return, we are typically paid a monthly fee, which is recognized over the period that advertising is displayed, and often a performance fee based on metrics such as submitted health insurance applications, which is recognized based on attainment of metrics. We also offer Medicare advertising services, which include website development, hosting and maintenance. In these instances, we are typically paid a fixed, up-front fee, which we recognize as revenue ratably over the service period.

Our commercial technology licensing business allows carriers the use of our ecommerce platform to offer their own health insurance policies on their websites and to utilize our technology to power their online quoting, content and application submission processes. Typically, we are paid a one-time implementation fee, which we recognize ratably on a straight-line basis over the estimated term of the customer relationship (generally the initial term of the agreement), commencing once the

14


EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

technology is available for use by the third party, and a performance fee based on metrics such as submitted health insurance applications. The metrics used to calculate performance fees for both sponsorship and advertising and technology licensing are based on performance criteria that are either measured based on data tracked by us, or based on data tracked by the third party. In instances where the performance criteria data is tracked by us, we recognize revenue in the period of performance and when all other revenue recognition criteria have been met. In instances where the performance criteria data is tracked by the third party, we recognize revenue at amounts in which reversal of such amounts is not likely to occur. Typically, this occurs through our receipt of a cash payment from the third party along with a detailed statement containing the data that is tracked by the third party.

Deferred Revenue—Deferred revenue includes deferred technology licensing implementation fees and amounts billed for or collected from sponsorship or technology licensing customers in advance of our performing our service for such customers. It also includes the amount by which both unbilled and billed services provided under our technology licensing arrangements exceed the straight-line revenue recognized to date.

Disaggregation of Revenue—The table below depicts the disaggregation of revenue by product for the three and six months ended June 30, 2019 and 2018 and is consistent with how we evaluate our financial performance (in thousands):

15


EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 
Three Months Ended June 30,
 
 
 
Six Months Ended June 30,
 
 
 
2019
 
2018
 
Percent
Change
 
2019
 
2018
 
Percent
Change
Medicare
 
 
 
 
 
 
 
 
 
 
 
Medicare Advantage
$
36,607

 
$
17,738

 
106
 %
 
$
76,450

 
$
39,673

 
93
 %
Medicare Supplement
8,256

 
5,355

 
54
 %
 
16,853

 
10,947

 
54
 %
Medicare Part D
1,765

 
715

 
147
 %
 
4,101

 
1,874

 
119
 %
Total Medicare
46,628

 
23,808

 
96
 %
 
97,404

 
52,494

 
86
 %
 
 
 
 
 
 
 
 
 
 
 
 
Individual and Family (1)
 
 
 
 
 
 
 
 
 
 
 
Non-Qualified Health Plans
5,817

 
1,069

 
444
 %
 
8,446

 
2,510

 
236
 %
Qualified Health Plans
553

 
1,675

 
(67
)%
 
4,061

 
3,837

 
6
 %
Total Individual and Family
6,370

 
2,744

 
132
 %
 
12,507

 
6,347

 
97
 %
 
 
 
 
 
 
 
 
 
 
 
 
Ancillaries
 
 
 
 
 
 
 
 
 
 
 
Short-term
2,695

 
1,293

 
108
 %
 
4,011

 
2,543

 
58
 %
Dental
928

 
147

 
531
 %
 
1,718

 
1,366

 
26
 %
Vision
295

 
391

 
(25
)%
 
757

 
731

 
4
 %
Other
723

 
(118
)
 
(713
)%
 
1,674

 
2,653

 
(37
)%
Total Ancillaries
4,641

 
1,713

 
171
 %
 
8,160

 
7,293

 
12
 %
 
 
 
 
 
 
 
 
 
 
 
 
Small Business
1,998

 
1,772

 
13
 %
 
4,638

 
4,131

 
12
 %
 
 
 
 
 
 
 
 
 
 
 
 
Commission Bonus
969

 
609

 
59
 %
 
2,124

 
1,088

 
95
 %
 
 
 
 
 
 
 
 
 
 
 
 
Total Commission Revenue
60,606

 
30,646

 
98
 %
 
124,833

 
71,353

 
75
 %
 
 
 
 
 
 
 
 
 
 
 
 
Other Revenue
5,161

 
2,011

 
157
 %
 
9,707

 
4,374

 
122
 %
 
 
 
 
 
 
 
 
 
 
 
 
Total Revenue
$
65,767

 
$
32,657

 
101
 %
 
$
134,540

 
$
75,727

 
78
 %

(1)
We define our individual and family plan offerings as major medical individual and family health insurance plans, which does not include Medicare-related, small business or ancillary plans. Individual and family health insurance plans include both qualified and non-qualified plans. Qualified health plans are individual and family health insurance plans that meet the requirements of the Affordable Care Act and are offered through the government-run health insurance exchange in the relevant jurisdiction. Non-qualified health plans are individual and family health insurance plans that meet the requirements of the Affordable Care Act and are not offered through the exchange in the relevant jurisdiction. Individuals that purchase non-qualified health plans cannot receive a subsidy in connection with the purchase of non-qualified plans.

Incremental Costs to Obtain a Contract
We reviewed our sales compensation plans, which are directed at converting leads into approved members, and concluded that they are fulfillment costs and not costs to obtain a contract with a customer. Additionally, we reviewed compensation plans related to personnel responsible for identifying new health insurance carriers and entering into contracts with new health insurance carriers and concluded that no incremental costs are incurred to obtain such contracts.

Accounting Pronouncement Not Yet Adopted


16


EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Financial Instruments—Credit Losses (Topic 326)—In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments—Credit Losses (Topic 326), which amends the guidance for accounting for assets that are potentially subject to credit risk. The amendments affect contract assets, loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2016-13 is effective for us beginning January 1, 2020 using a modified retrospective transition method. We are still in the process of assessing the impact, if any, this ASU will have on our condensed consolidated financial statements.

Recently Adopted Accounting Pronouncement

Leases (Topic 842)—In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement, and presentation of expenses will depend on classification as a finance or operating lease. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct finance leases. The guidance also eliminates existing real estate-specific provisions for all entities. The new standard was effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. We adopted the standard using the optional transition method on January 1, 2019. As a result of adopting the ASU, on January 1, 2019, we recorded a right-of-use asset and lease liability of $23.3 million and $24.6 million, respectively, which are discussed in Note 11—Leases in the Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

Note 2Acquisition

On January 22, 2018, we completed our acquisition of all outstanding membership interests of Wealth, Health and Life Advisors, LLC, more commonly known as GoMedigap, a technology-enabled provider of Medicare Supplement enrollment services. We expect this acquisition to enhance our growing presence in the Medicare Supplement market and put us in a stronger position with carriers and strategic partners. The acquisition consideration consisted of cash of $15.0 million, less $0.1 million cash acquired, and 294,637 shares of our common stock. In addition, the members are entitled to receive earnout consideration consisting of up to $20 million in cash and 589,216 shares of our common stock. The earnout consideration becomes payable, subject to the terms and conditions of the purchase agreement relating to the acquisition, upon the final determination of the achievement of certain milestones in 2018 and 2019. The first earnout liability settlement was made during the three months ended March 31, 2019, which consisted of a $9.5 million cash payment as well as a $17.3 million non-cash issuance of common stock.


17


EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

The GoMedigap acquisition was accounted for using the acquisition method of accounting under ASC 805Business Combinations. The acquisition method of accounting requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The major classes of assets and liabilities to which we have allocated the acquisition consideration were as follows (in thousands):

Acquisition Consideration
 
Cash paid
$
15,000

Fair value of equity awards issued to GoMedigap members (1)
5,595

Estimated fair value of earnout liability (2)
27,700

 
$
48,295

Allocation
 
Cash and cash equivalents
$
71

Commission receivablecurrent
4,371

Prepaid expenses and other current assets
11

Commission receivablenon-current
11,103

Property and equipment, net
174

Accounts payable
(110
)
Accrued compensation and benefits
(132
)
Other current liabilities
(130
)
Net tangible assets acquired
15,358

Intangible assets
6,800

Goodwill
26,137

Total intangible assets acquired
32,937

Total net assets acquired
$
48,295

(1) The fair value of equity awards issued was determined based on the January 22, 2018 closing price of our common stock of $18.99 per share.
(2) The fair value of the earnout liability was determined based on the valuation of a third-party specialist, which utilized certain inputs, including the closing price of our common stock on January 22, 2018 of $18.99 per share.

Goodwill and Intangible Assets—Goodwill represents the excess of the purchase price of the acquired business over the acquisition date fair value of the net assets acquired. Goodwill is primarily attributable to the assembled workforce, new product development capabilities and anticipated synergies and economies of scale expected from the operations of the combined company. The goodwill was assigned to our Medicare segment. Goodwill is tested for impairment on an annual basis in the fourth quarter of each year or whenever events or changes in circumstances indicate that the asset may be impaired. Factors that we consider in deciding when to perform an impairment test include significant negative industry or economic trends or significant changes or planned changes in our use of the intangible assets. Goodwill will be deductible for tax purposes over 15 years.

Earnout liability—The earnout liability represents the fair value of the earnout consideration payable and will be adjusted to fair value at each reporting date until settled. Changes in fair value will be recognized in operations while changes in the earnout liability due to the passage of time will be recognized as other expense. The earnout liability will be adjusted to the extent the specified enrollment targets are not achieved. The first earnout liability settlement was made during the three months ended March 31, 2019, which consisted of a $9.5 million cash payment as well as a $17.3 million non-cash issuance of common stock. The second payment is expected to be made in the first quarter of 2020. See Note 4—Fair Value Measurement for additional information regarding change in fair value of the earnout liability for the three and six months ended June 30, 2019.

Fair Value Measurements—The assets acquired and liabilities assumed of GoMedigap have been recognized at fair value in accordance with ASC 820Fair Value Measurement. ASC 820 defines fair value as the price that would be received to sell an asset or would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 requires three levels of hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy level assigned to each asset and liability is based on the assessment of the transparency and reliability of inputs used in the valuation of such items based on the lowest level of input that is significant to fair value measurement. The

18


EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and lowest priority to unobservable inputs (Level 3 measurements).

Assets acquired and liabilities assumed measured and reported at fair value are classified in one of the following categories based on inputs:

Level 1
Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2
Unadjusted quoted prices in active markets for similar assets or liabilities; or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are observable for the asset or liability.
Level 3
Unobservable inputs for the asset or liability.

The fair values of cash and cash equivalents, prepaid expenses and other current assets, property and equipment, net, accounts payable, accrued compensation and benefits, and other current liabilities were determined using Level 1 inputs, which approximated their carrying value at the date of acquisition. The fair value of commissions receivable was determined using a discount rate of interest, which is a Level 2 input. Intangible assets and the earnout liability were valued using Level 3 inputs.

The fair values of the acquired intangible assets were determined using the profit allocation method, which is based on determining the estimated royalties we are relieved from paying because we own the assets.

The fair value of the earnout liability was measured using probability-weighted analysis and is discounted using a rate that appropriately captures the risks associated with the obligation. Key assumptions included new enrollments and volatility for the year ended December 31, 2018 and the year ending December 31, 2019 and eHealth’s simulated stock price at the time of payment. The earnout consideration payable was part of the acquisition consideration and will be adjusted to fair value at each reporting date until settled. The fair value adjustments to the earnout liability during the three and six months ended June 30, 2019 totaled $7.2 million and $20.5 million, respectively, and were primarily due to the increase in the value of the shares to be issued upon settlement of the earnout liability. We will update the key assumptions each reporting period and record any fair value adjustments, as necessary.

Following are the details of the acquisition consideration allocated to the intangible assets acquired (in thousands):

Technology
$
2,000

Trade names, trademarks and website addresses
4,800

Total intangible assets
$
6,800


We are amortizing the existing technology and trade name using a straight-line method over an estimated life of 3 and 10 years, respectively. The estimated useful lives are based on the time periods during which the intangibles are expected to result in incremental cash flows.


19


EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 3Balance Sheet Accounts

Cash and Cash Equivalents—As of June 30, 2019 and December 31, 2018, our cash equivalents consisted of money market accounts that invested in U.S. government-sponsored enterprise bonds and discount notes, U.S. government treasury bills and notes and repurchase agreements collateralized by U.S. government obligations. As of June 30, 2019 and December 31, 2018, our cash equivalents carried no unrealized gains or losses.

As of June 30, 2019 and December 31, 2018, our cash and cash equivalent balances were invested as follows (in thousands):
 
June 30, 2019
 
December 31, 2018
Cash
$
12,280

 
$
12,766

Money market funds
103,603

 
323

Total cash and cash equivalents
$
115,883

 
$
13,089


In addition to our $115.9 million total cash and cash equivalents balance as of June 30, 2019, we also had $1.6 million of restricted cash, which is classified as part of prepaid expenses and other current assets. This amount collateralizes letters of credit related to certain lease commitments.

Total Accounts Receivable—We do not require collateral or other security for our total accounts receivable. We believe the potential for collection issues with any of our customers was minimal as of June 30, 2019. Accordingly, our estimate for uncollectible amounts at June 30, 2019 was immaterial. Total accounts receivable as of June 30, 2019 and December 31, 2018 was comprised of the following (in thousands):

 
June 30, 2019
 
December 31, 2018
Accounts receivable
$
1,059

 
$
3,601

Commissions receivable—current
117,573

 
134,190

Commissions receivable—non-current
223,842

 
211,668

Total accounts receivable
$
342,474

 
$
349,459


Concentration of Credit Risk—Our financial instruments that are exposed to concentrations of credit risk principally consist of cash, cash equivalents and total accounts receivable (which includes commissions receivable). We invest our cash and cash equivalents with major banks and financial institutions and, at times, such investments are in excess of federally insured limits. We also have deposits with major banks in China that are denominated in both U.S. dollars and Chinese Yuan Renminbi and are not insured by the U.S. federal government.

We do not require collateral or other security for our total accounts receivable. Carriers that represented 10% or more of our total accounts receivable balance of $342.5 million and $349.5 million as of June 30, 2019 and December 31, 2018, respectively, were as follows:


20


EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 
June 30, 2019
 
December 31, 2018
Aetna (1)
21
%
 
19
%
UnitedHealthcare (2)
20
%
 
19
%
Humana
18
%
 
19
%

(1)
Aetna also includes other carriers owned by Aetna.
(2)
UnitedHealthcare also includes other carriers owned by UnitedHealthcare. 

Prepaid Expenses and Other Current Assets—Prepaid expenses and other current assets as of June 30, 2019 and December 31, 2018 was comprised of the following (in thousands):

 
June 30, 2019
 
December 31, 2018
Prepaid maintenance contracts
$
3,025

 
$
1,937

Equity issuance costs

 
294

Prepaid insurance
791

 
161

Prepaid facilities
87

 
324

Income tax receivable
1,108

 
1,108

Prepaid advertising
3,898

 
62

Restricted cash
1,608

 

Other current assets
1,663

 
1,402

Total prepaid expenses and other current assets
$
12,180

 
$
5,288



Intangible Assets—The carrying amounts, accumulated amortization, net carrying value and weighted average remaining life of our definite-lived amortizable intangible assets, as well as our indefinite-lived intangible trademarks, are presented in the table below as of June 30, 2019 and December 31, 2018 (dollars in thousands, weighted-average remaining life in years):

 
June 30, 2019
 
 
 
December 31, 2018
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Weighted-Average Remaining Life
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Technology
$
2,000

 
$
(944
)
 
$
1,056

 
1.6
 
$
2,000

 
$
(611
)
 
$
1,389

Pharmacy and customer relationships
9,500

 
(8,708
)
 
792

 
0.8
 
9,500

 
(8,234
)
 
1,266

Trade names, trademarks and website addresses
5,700

 
(1,506
)
 
4,194

 
8.4
 
5,700

 
(1,220
)
 
4,480

Total intangible assets subject to amortization
$
17,200

 
$
(11,158
)
 
6,042

 
 
 
$
17,200

 
$
(10,065
)
 
7,135

Indefinite-lived trademarks and domain names
 
 
 
 
5,114

 
Indefinite
 
 
 
 
 
5,114

Total intangible assets
 
 
 
 
$
11,156

 
 
 
 
 
 
 
$
12,249



21


EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

As of June 30, 2019, expected amortization expense in future periods is as follows (in thousands):

Years Ending December 31,
Technology
 
Pharmacy and Customer Relationships
 
Trade Names, Trademarks and Website Addresses
 
Total
Remainder of 2019
$
333

 
$
475

 
$
284

 
$
1,092

2020
667

 
317

 
510

 
1,494

2021
56

 

 
480

 
536

2022

 

 
480

 
480

2023

 

 
480

 
480

Thereafter

 

 
1,960

 
1,960

Total
$
1,056

 
$
792

 
$
4,194

 
$
6,042


Note 4Fair Value Measurements

We define fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques we use to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. We classify the inputs used to measure fair value into the following hierarchy:

Level 1
 
Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2
 
Unadjusted quoted prices in active markets for similar assets or liabilities; unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability.
Level 3
 
Unobservable inputs for the asset or liability.

The following table is a summary of financial assets measured at fair value as of June 30, 2019 and December 31, 2018 on a recurring basis and their classification within the fair value hierarchy (in thousands):

 
June 30, 2019
 
December 31, 2018
 
Carrying Value
 
Level 1
 
Level 3
 
Total
 
Carrying Value
 
Level 1
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
103,603

 
$
103,603

 
$

 
$
103,603

 
$
323

 
$
323

 
$

 
$
323

Total assets measured and recorded at fair value
$
103,603

 
$
103,603

 
$

 
$
103,603

 
$
323

 
$
323

 
$

 
$
323

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnout liability—current
$
33,700

 
$

 
$
33,700

 
$
33,700

 
$
20,730

 
$

 
$
20,730

 
$
20,730

Earnout liability—non-current

 

 

 

 
19,270

 

 
19,270

 
19,270

Total liabilities measured and recorded at fair value
$
33,700

 
$

 
$
33,700

 
$
33,700

 
$
40,000

 
$

 
$
40,000

 
$
40,000


Our cash equivalents were invested in money market funds and were classified as Level 1. We endeavor to utilize the best available information in measuring fair value. We used observable prices in active markets in determining the classification of our money market funds as Level 1.

The earnout liability represents the fair value of the earnout consideration payable to acquire GoMedigap and will be adjusted to fair value at each reporting date until settled. Changes in fair value will be recognized in operations while changes in the earnout liability due to the passage of time will be recognized as other expense.

22


EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


We measure the earnout liability using internally developed assumptions, therefore it is classified as Level 3. The fair value of the earnout liability was measured using probability-weighted analysis and is discounted using a rate that appropriately captures the risks associated with the obligation. Key assumptions included new enrollments and volatility for the year ended December 31, 2018 and the year ending December 31, 2019 and our simulated stock price at the time of payment.

Earnout liability activity during the three and six months ended June 30, 2019 was as follows (in thousands):

Balance at December 31, 2018
$
40,000

Settlement of first earnout liability
(26,800
)
Change in fair value
13,300

Balance at March 31, 2019
$
26,500

Change in fair value
7,200

Balance at June 30, 2019
$
33,700


The first earnout liability settlement was made during the three months ended March 31, 2019, which consisted of a $9.5 million cash payment as well as a $17.3 million non-cash issuance of common stock.

Note 5Stockholder's Equity

2014 Equity Incentive Plan—The following table summarizes activity under our 2014 Equity Incentive Plan (the “2014 Plan”) for the six months ended June 30, 2019 (in thousands):

 
Shares Available for Grant
Shares available for grant December 31, 2018
512

  Additional shares authorized pursuant to the 2014 Equity Incentive Plan
2,500

Restricted stock units granted (1)
(475
)
Options granted (2)
(14
)
Restricted stock units cancelled (3)
72

Options cancelled
26

Shares available for grant June 30, 2019
2,621

  
(1)
Includes grants of restricted stock units with service, performance-based or market-based vesting criteria.
(2)
Includes grants of stock options with service, performance-based or market-based vesting criteria.
(3)
Includes cancelled restricted stock units with service, performance-based or market-based vesting criteria.


23


EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

The following table summarizes stock option activity for the six months ended June 30, 2019 (in thousands, except weighted-average exercise price and weighted-average remaining contractual life data): 

 
Number of Stock Options (1)
 
Weighted Average Exercise Price
 
Weighted-Average Remaining Contractual Life (years)
 
Aggregate Intrinsic Value (2)
Balance outstanding at December 31, 2018
1,005

 
$
18.34

 
5.0
 
$
20,226

Granted
14

 
$
65.43

 
 
 
 
Exercised
(160
)
 
$
20.06

 
 
 
 
Cancelled
(31
)
 
$
23.22

 
 
 
 
Balance outstanding at June 30, 2019
828

 
$
18.62

 
4.9
 
$
55,860

Vested and expected to vest at June 30, 2019
794

 
$
18.32

 
4.8
 
$
53,878

Exercisable at June 30, 2019
436

 
$
14.74

 
4.3
 
$
31,126

 
(1)
Includes certain stock options with service, performance-based or market-based vesting criteria.
(2)
The aggregate intrinsic value is calculated as the difference between the closing price of our common stock as of June 30, 2019 and December 31, 2018 and the exercise price multiplied by number of in-the-money options. 
 
The following table summarizes restricted stock unit activity for the six months ended June 30, 2019 (in thousands, except weighted-average grant date fair value and weighted-average remaining contractual life data): 

 
Number of Restricted Stock Units (1)
 
Weighted-Average Grant Date Fair Value
 
Weighted-Average Remaining Service Period (years)
 
Aggregate Intrinsic Value (2)
Unvested as of December 31, 2018
1,869

 
$
16.95

 
4.8
 
$
71,816

Granted
475

 
$
63.02

 
 
 
 
Vested
(189
)
 
$
14.31

 
 
 
 
Cancelled
(72
)
 
$
20.50

 
 
 
 
Unvested as of June 30, 2019
2,083

 
$
27.54

 
5.5
 
$
179,362


(1)
Includes certain restricted stock units with service, performance-based or market-based vesting criteria.
(2)
The aggregate intrinsic value is calculated as the product of our closing stock price as of June 30, 2019 and December 31, 2018, and the number of restricted stock units outstanding as of June 30, 2019 and December 31, 2018, respectively.   

Stock Repurchase Programs—We had no stock repurchase activity during the three and six months ended June 30, 2019. In addition to 10,663,888 shares repurchased under our past repurchase programs as of June 30, 2019, we have in treasury 817,962 shares that were previously surrendered by employees to satisfy tax withholdings due in connection with the vesting of certain restricted stock units. As of June 30, 2019 and December 31, 2018, we had a total of 11,481,850 shares and 11,426,292 shares, respectively, held in treasury. 

For accounting purposes, common stock repurchased under our stock repurchase programs is recorded based upon the settlement date of the applicable trade. Such repurchased shares are held in treasury and are presented using the cost method.


24


EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Stock-Based Compensation Expense—The following table summarizes stock-based compensation expense recorded during the three and six months ended June 30, 2019 and 2018 (in thousands): 

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Common stock options
$
530

 
$
436

 
$
1,132

 
$
934

Restricted stock units
4,148

 
2,695

 
6,775

 
4,998

Total stock-based compensation expense
$
4,678

 
$
3,131

 
$
7,907

 
$
5,932


The following table summarizes stock-based compensation expense by operating function for the three and six months ended June 30, 2019 and 2018 (in thousands): 

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Marketing and advertising
$
711

 
$
553

 
$
1,340

 
$
923

Customer care and enrollment
285

 
206

 
558

 
371

Technology and content
668

 
383

 
1,217

 
726

General and administrative
3,014

 
1,989

 
4,792

 
3,661

Restructuring charges

 

 

 
251

Total stock-based compensation expense
$
4,678

 
$
3,131

 
$
7,907

 
$
5,932


Note 6Income Taxes

The following table summarizes our benefit from income taxes and our effective tax rates for the three and six months ended June 30, 2019 and 2018 (in thousands, except effective tax rate):

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Loss before benefit from income taxes
$
(11,612
)
 
$
(16,624
)
 
$
(20,238
)
 
$
(23,160
)
Benefit from income taxes
(5,858
)
 
(4,610
)
 
(9,325
)
 
(6,301
)
Effective tax rate
50.4
%
 
27.7
%
 
46.1
%
 
27.2
%

For the three months ended June 30, 2019, we recognized a benefit for income taxes of $5.9 million representing an effective tax rate of 50.4%, which was higher than the statutory federal tax rate due primarily to stock-based compensation adjustments, and lobbying and other non-deductible expenses, partially offset by research and development credits. For the three months ended June 30, 2018, we recognized a benefit from income taxes of $4.6 million, representing an effective tax rate of 27.7%, which was higher than the statutory federal tax rate due primarily to stock-based compensation adjustments, non-deductible lobbying expenses, and foreign income inclusions, partially offset by research and development credits.

For the six months ended June 30, 2019, we recognized a benefit for income taxes of $9.3 million, representing an effective tax rate of 46.1%, which was higher than the statutory federal tax rate due primarily to stock-based compensation adjustments, and lobbying and other non-deductible expenses, partially offset by research and development credits. For the six months ended June 30, 2018, we recognized a benefit from income taxes of $6.3 million, representing an effective tax rate of 27.2%, which was higher than the statutory federal tax rate due primarily to stock-based compensation adjustments, non-deductible lobbying expenses, and foreign income inclusions, partially offset by research and development credits.
 
Assessing the realizability of our deferred tax assets is dependent upon several factors, including the likelihood and amount, if any, of future taxable income in relevant jurisdictions during the periods in which those temporary differences become deductible. We forecast taxable income by considering all available positive and negative evidence, including our history of operating income and losses and our financial plans and estimates that we use to manage the business. These assumptions require significant judgment about future taxable income. As a result, the amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income change. We continue to recognize our deferred tax assets as of June 30, 2019, as we believe it is more likely than not that the net deferred tax assets will be realized, with the exception of certain state net operating losses that are expected to expire unutilized which have a valuation allowance.

As a result of our adoption of ASC 606 using the full retrospective method, we recognized a significant deferred tax liability due to the resulting acceleration of revenue recognition while revenue for tax purposes will continue to be recognized as we collect cash. This deferred tax liability is a source of income that can be used to support the realizability of our deferred tax assets. As a result of the significantly increased deferred tax liability, in 2018, we reversed the valuation allowance recorded against our U.S. deferred tax assets as of January 1, 2015, the earliest period to which the retrospective adoption of ASC 606 was applied.

Note 7Net Loss Per Share

For each of the three and six months ended June 30, 2019 and 2018, we had securities outstanding that could potentially dilute earnings per share, but the shares from the assumed conversion or exercise of these securities were excluded in the computation of diluted net loss per share as their effect would have been anti-dilutive. The number of outstanding anti-dilutive shares that were excluded from the computation of diluted net loss per share consisted of the following (in thousands): 

 
Three Months Ended
June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Common stock options
903

 
1,021

 
948

 
1,013

Restricted stock units
1,355

 
1,632

 
1,390

 
1,581

Total
2,258

 
2,653

 
2,338

 
2,594


Note 8Commitments and Contingencies

Operating Leases

Refer to Note 11—Leases for commitments related to our operating leases.

Contingencies

From time to time, we receive inquiries from governmental bodies and also may be subject to various legal proceedings and claims arising in the ordinary course of business. We assess contingencies to determine the degree of probability and range of possible loss for potential accrual in our consolidated financial statements. An estimated loss contingency is accrued in the consolidated financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Legal proceedings or other contingencies could result in material costs, even if we ultimately prevail.

Legal Proceedings

On April 6, 2018, a former Company employee, Lupita Gonzalez, filed a complaint against the Company in the Superior Court of the State of California for the County of Sacramento (the “Gonzalez Complaint”). The Gonzalez Complaint is brought under the California Private Attorney General Act (“PAGA”) on behalf of all current and former hourly-paid or non-exempt employees who work or have worked for us in California. The claim alleges that the Company violated wage and hour laws with respect to these non-exempt employees, including, among other things, the failure to comply with California law as to (i) the payment of overtime wages; (ii) the payment of minimum wages; (iii) providing meal and rest periods, (iv) the

25


EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

payment of wages earned during employment and owed upon the termination of employment; (v) providing complete and accurate wage statements, (vi) keeping of accurate payroll records; and (vii) the proper reimbursement for necessary business-related expenses and costs. The Gonzalez Complaint seeks civil penalties and costs, expenses and attorneys’ fees. Discovery is ongoing, and a trial date has been set for April 13, 2020. Given the early stage of the litigation, we cannot estimate the likelihood of liability or the amount of potential damages.

On July 1, 2019, two other former Company employees, Michael Le’Vias and Ramona Meadows, filed a similar complaint against the Company and eHealth Ins. Serv. Co., in the Superior Court of the State of California for the County of Santa Clara (the “Le’Vias Complaint”). There is substantial overlap between the facts and circumstances alleged in the Gonzalez Complaint and the Le’Vias Complaint. Specifically, the Le’Vias Complaint is also brought under PAGA on behalf of all current and former hourly-paid or non-exempt employees who work or have worked for us in California. The claim alleges that the Company violated wage and hour laws with respect to these non-exempt employees, including, among other things, the failure to comply with California law as to (i) the payment of overtime wages; (ii) the payment of minimum wages; (iii) providing meal and rest periods, (iv) the payment of wages earned during employment and owed upon the termination of employment; (v) providing complete and accurate wage statements, (vi) keeping of accurate payroll records; and (vii) the proper reimbursement for necessary business-related expenses and costs. The Le’Vias Complaint seeks unpaid wages, civil penalties and costs, expenses and attorneys’ fees. Plaintiffs in the Le’Vias Complaint have agreed to stay the Le’Vias case until October 16, 2019. No trial date has been set for the Le’Vias Complaint and discovery has not yet commenced. Given the early stage of the litigation, we cannot estimate the likelihood of liability or the amount of potential damages.

On April 17, 2019, an individual filed a putative class action complaint against us that alleges we violated the Telephone Consumer Protection Act (“TCPA”), 47 U.S.C. §§ 227(b)(1) and (c)(5) and certain provisions of 47 C.F.R. § 64.1200 promulgated thereunder. The complaint alleges, among other things, that we (i) made unsolicited telephone calls to the Plaintiff and putative class members using a prerecorded voice message in violation of 47 U.S.C. § 227(b)(1); and (ii) made more than one unsolicited telephone call to Plaintiff and putative class members within a 12-month period without express consent and without instituting procedures that comply with regulatory minimum standards for implementing Do Not Call in violation of 47 C.F.R. § 64.1200 and 47 U.S.C. § 227(c)(5). The complaint seeks an order certifying two classes: (i) a class of individuals in the United States who we (or agents acting on our behalf) called using a prerecorded voice message for substantially the same reason we allegedly called the Plaintiff; and (ii) a class of individuals in the United States who we (or agents acting on our behalf) called more than one time within any 12-month period for substantially the same reason we allegedly called the Plaintiff. The complaint also seeks (i) an award of actual and/or statutory damages for the benefit of Plaintiff and the classes; (ii) an order declaring that our actions violate the TCPA; (iii) an injunction requiring us to cease all unsolicited calling activity and to otherwise protect the interest of the classes; and (iv) such further other relief as the court deems just and proper. In May 2019, the plaintiff voluntarily dismissed the complaint without prejudice.

Service and Licensing Obligations

We have entered into service and licensing agreements with third party vendors to provide various services, including network access, equipment maintenance and software licensing. As the benefits of these agreements are experienced uniformly over the applicable contractual periods, we record the related service and licensing expenses on a straight-line basis, although actual cash payment obligations under certain of these agreements fluctuate over the terms of the agreements.

 The following table presents a summary of our future minimum payments under non-cancellable contractual service and licensing obligations as of June 30, 2019 (in thousands): 


26


EHEALTH, INC.