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 September 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)
____________________________________________________________

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). Yes ¨ No x
The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding as of October 31, 2019 was 23,098,198 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.
 


2



PART I
FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS
EHEALTH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
September 30, 2019
 
December 31, 2018
Assets
(Unaudited)
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
88,070

 
$
13,089

Accounts receivable
682

 
3,601

Commissions receivable — current
127,414

 
134,190

Prepaid expenses and other current assets
18,180

 
5,288

Total current assets
234,346

 
156,168

Commissions receivable — non-current
230,322

 
211,668

Property and equipment, net
10,401

 
7,684

Operating lease right-of-use assets
36,551

 

Restricted cash
3,354

 

Other assets
15,424

 
11,276

Intangible assets, net
10,609

 
12,249

Goodwill
40,233

 
40,233

Total assets
$
581,240

 
$
439,278

Liabilities and stockholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
18,062

 
$
5,688

Accrued compensation and benefits
18,139

 
20,763

Accrued marketing expenses
4,086

 
11,013

Earnout liability — current
28,300

 
20,730

Lease liabilities — current
4,317

 

Deferred Revenue
9,083

 
876

Other current liabilities
1,671

 
1,549

Total current liabilities
83,658

 
60,619

Debt

 
5,000

Earnout liability — non-current

 
19,270

Deferred income taxes — non-current
29,735

 
47,901

Lease liabilities — non-current
34,181

 

Other non-current liabilities
2,095

 
3,339

Stockholders’ equity:
 
 
 
Common stock
35

 
31

Additional paid-in capital
448,409

 
298,024

Treasury stock, at cost
(199,998
)
 
(199,998
)
Retained earnings
183,028

 
204,965

Accumulated other comprehensive income
97

 
127

Total stockholders’ equity
431,571

 
303,149

Total liabilities and stockholders’ equity
$
581,240

 
$
439,278


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

3


EHEALTH, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands, except per share amounts, unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Revenue:
 
 
 
 
 
 
 
Commission
$
59,762

 
$
33,613

 
$
184,595

 
$
104,966

Other
10,151

 
7,138

 
19,858

 
11,512

Total revenue
69,913

 
40,751

 
204,453

 
116,478

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of revenue
410

 
170

 
782

 
473

Marketing and advertising
25,812

 
16,148

 
72,857

 
45,756

Customer care and enrollment
40,144

 
17,272

 
81,567

 
43,730

Technology and content
12,033

 
7,740

 
31,487

 
23,368

General and administrative
16,608

 
10,528

 
42,748

 
32,459

Acquisition costs

 

 

 
76

Change in fair value of earnout liability
(5,400
)
 
3,800

 
15,106

 
6,300

Restructuring charges

 

 

 
1,865

Amortization of intangible assets
547

 
547

 
1,641

 
1,545

Total operating costs and expenses
90,154

 
56,205

 
246,188

 
155,572

Loss from operations
(20,241
)
 
(15,454
)
 
(41,735
)
 
(39,094
)
Other income, net
568

 
296

 
1,824

 
776

Loss before benefit from income taxes
(19,673
)
 
(15,158
)
 
(39,911
)
 
(38,318
)
Benefit from income taxes
(8,649
)
 
(6,186
)
 
(17,974
)
 
(12,487
)
Net loss
$
(11,024
)
 
$
(8,972
)
 
$
(21,937
)
 
$
(25,831
)
 
 
 
 
 
 
 
 
Net loss per share:
 
 
 
 
 
 
 

Basic and diluted
$
(0.47
)
 
$
(0.47
)
 
$
(0.96
)
 
$
(1.36
)
Weighted-average number of shares used in per share amounts:
 
 
 
 
 
 
 

Basic and diluted
23,493

 
19,236

 
22,840

 
19,059

 
 
 
 
 
 
 
 
Comprehensive loss
 
 
 
 
 
 
 
Net loss
$
(11,024
)
 
$
(8,972
)
 
$
(21,937
)
 
$
(25,831
)
Foreign currency translation adjustment, net of taxes
(34
)
 
(66
)
 
(30
)
 
(72
)
Comprehensive loss
$
(11,058
)
 
$
(9,038
)
 
$
(21,967
)
 
$
(25,903
)
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

4


EHEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, unaudited)
Three Months Ended September 30, 2019
 
Common Stock
 
Additional Paid-in
Capital
 
Treasury Stock
 
Retained Earnings
 
Accumulated Other Comprehensive Income
 
Total Stockholders’ Equity
 
Shares
 
Amount
 
 
Shares
 
Amount
 
 
 
Balance at June 30, 2019
34,267

 
$
34

 
$
449,046

 
11,482

 
$
(199,998
)
 
$
194,052

 
$
131

 
$
443,265

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
335

 
1

 
1,912

 

 

 

 

 
1,913

Common stock traded for employee tax obligations

 

 
(8,059
)
 
89

 

 

 

 
(8,059
)
Stock-based compensation expense

 

 
5,510

 

 

 

 

 
5,510

Foreign currency translation adjustment, net of taxes

 

 

 

 

 

 
(34
)
 
(34
)
Net loss

 

 

 

 

 
(11,024
)
 

 
(11,024
)
Balance at September 30, 2019
34,602

 
$
35

 
$
448,409

 
11,571

 
$
(199,998
)
 
$
183,028

 
$
97

 
$
431,571


Three Months Ended September 30, 2018
 
Common Stock
 
Additional Paid-in
Capital
 
Treasury Stock
 
Retained Earnings
 
Accumulated Other Comprehensive Income
 
Total Stockholders’ Equity
 
Shares
 
Amount
 
 
Shares
 
Amount
 
 
 
Balance at June 30, 2018
30,485

 
$
30

 
$
292,159

 
11,324

 
$
(199,998
)
 
$
187,866

 
$
195

 
$
280,252

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
249

 
1

 
1,362

 

 

 

 

 
1,363

Common stock traded for employee tax obligations

 

 
(1,656
)
 
65

 

 

 

 
(1,656
)
Stock-based compensation expense

 

 
3,543

 

 

 

 

 
3,543

Foreign currency translation adjustment, net of taxes

 

 

 

 

 

 
(66
)
 
(66
)
Net loss

 

 

 

 

 
(8,972
)
 

 
(8,972
)
Balance at September 30, 2018
30,734

 
$
31

 
$
295,408

 
11,389

 
$
(199,998
)
 
$
178,894

 
$
129

 
$
274,464


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



5


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

Nine Months Ended September 30, 2019
 
Common Stock
 
Additional Paid-in
Capital
 
Treasury Stock
 
Retained Earnings
 
Accumulated Other Comprehensive Income
 
Total Stockholders’ Equity
 
Shares
 
Amount
 
 
Shares
 
Amount
 
 
 
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 settle equity awards
684

 
1

 
5,167

 

 

 

 

 
5,168

Common stock traded for employee tax obligations

 

 
(11,511
)
 
145

 

 

 

 
(11,511
)
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

 

 
13,417

 

 

 

 

 
13,417

Foreign currency translation adjustment, net of taxes

 

 

 

 

 

 
(30
)
 
(30
)
Net loss

 

 

 

 

 
(21,937
)
 

 
(21,937
)
Balance at September 30, 2019
34,602

 
$
35

 
$
448,409

 
11,571

 
$
(199,998
)
 
$
183,028

 
$
97

 
$
431,571


Nine Months Ended September 30, 2018
 
Common Stock
 
Additional Paid-in
Capital
 
Treasury Stock
 
Retained Earnings
 
Accumulated Other Comprehensive Income
 
Total Stockholders’ Equity
 
Shares
 
Amount
 
 
Shares
 
Amount
 
 
 
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
559

 
1

 
2,030

 

 

 

 

 
2,031

Common stock traded for employee tax obligation

 

 
(3,398
)
 
151

 

 

 

 
(3,398
)
Stock-based compensation expense

 

 
9,475

 

 

 

 

 
9,475

Stock issued for GoMedigap acquisition
295

 

 
5,595

 

 

 

 

 
5,595

Foreign currency translation adjustment, net of taxes

 

 

 

 

 

 
(72
)
 
(72
)
Net loss

 

 

 

 

 
(25,831
)
 

 
(25,831
)
Balance at September 30, 2018
30,734

 
$
31

 
$
295,408

 
11,389

 
$
(199,998
)
 
$
178,894

 
$
129

 
$
274,464


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


6


EHEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
(in thousands, unaudited)
 
Nine Months Ended September 30,
 
2019
 
2018
Operating activities
 
 
 
Net loss
$
(21,937
)
 
$
(25,831
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Deferred income taxes
(18,166
)
 
(12,679
)
Depreciation and amortization
2,153

 
1,870

Amortization of internally developed software
2,443

 
1,583

Amortization of intangible assets
1,641

 
1,545

Stock-based compensation expense
13,417

 
9,475

Change in fair value of earnout liability
15,106

 
6,300

Change in deferred rent
(1,272
)
 
326

Other non-cash items
336

 
61

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
2,920

 
(665
)
Commissions receivable
(11,878
)
 
29,156

Prepaid expenses and other assets
(9,346
)
 
(8,209
)
Accounts payable
13,155

 
1,513

Accrued compensation and benefits
(2,624
)
 
(2,081
)
Accrued marketing expenses
(6,927
)
 
(1,635
)
Deferred revenue
8,207

 
5,354

Accrued expenses and other liabilities
(1,942
)
 
(595
)
Net cash (used in) provided by operating activities
(14,714
)
 
5,488

Investing activities
 
 
 
Capitalized internal-use software and website development costs
(6,356
)
 
(4,344
)
Purchases of property and equipment and other assets
(5,616
)
 
(3,471
)
Payments for security deposits
(72
)
 

Acquisition of business, net of cash acquired

 
(14,929
)
Cash used in investing activities
(12,044
)
 
(22,744
)
Financing activities
 
 
 
Proceeds from issuance of common stock, net of issuance costs
126,051

 

Net proceeds from exercise of common stock options
5,168

 
2,030

Cash used to net-share settle equity awards
(11,511
)
 
(3,398
)
Debt issuance cost payments

 
(1,172
)
Repayment of debt
(5,000
)
 

Acquisition-related contingent payments
(9,542
)
 

Principal payments in connection with finance leases
(81
)
 
(78
)
Net cash (used in) provided by financing activities
105,085

 
(2,618
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
8

 
(71
)
Net increase (decrease) in cash, cash equivalents and restricted cash
78,335

 
(19,945
)
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)
$
91,424

 
$
20,348

(1) The ending balance of cash, cash equivalents and restricted cash as of September 30, 2019 included $3.4 million of restricted cash as of September 30, 2019. There was no restricted cash as of December 31, 2018.

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

7


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


Note 1 — Summary 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 September 30, 2019 and December 31, 2018, the condensed consolidated statements of comprehensive loss and stockholders' equity for the three and nine months ended September 30, 2019 and 2018, and the condensed consolidated statements of cash flows for the nine months ended September 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 financial statements and related notes should be read in conjunction with the audited consolidated financial statements and related notes included 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 September 30, 2019 and December 31, 2018, and our results of operations for the periods presented. The results for the three and nine months ended September 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 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 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-eligible

8


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

customers, 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 two 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 account for revenue under Accounting Standards Codification ("ASC") 606 — Revenue from Contracts with Customers. Refer to Note 2 — Revenue in the Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for a discussion of our revenue recognition.

Accounting Pronouncement Not Yet Adopted

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.

9


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


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 2 — Revenue

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") 606 — Revenue 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:

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.

We adopted ASC 606 using the full retrospective method on January 1, 2018, which required us to recast previously reported financial statements. Upon adoption at January 1, 2018, our retained earnings balance increased by $225.5 million.

Commission Revenue — Our commission revenue results from approval of an application from health insurance carriers, which we define as our customers.  Our commission revenue is primarily comprised of commissions from health

10


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

insurance carriers which is computed using the estimated constrained lifetime value of commission payments that we expect to receive.

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 estimate commission revenue for each insurance product by applying the use of a portfolio approach to a group of approved members by plan type and the effective month of the relevant plan, which we refer to as “cohorts”. We estimate the commissions we expect to collect for each approved member cohort by evaluating various factors, including but not limited to, contracted commission rates, carrier mix and estimated average plan duration.

For Medicare-related, individual and family and ancillary health insurance plans, our services are complete once a submitted application is approved by the relevant health insurance carrier. Accordingly, we recognize commission revenue based upon the total estimated lifetime commissions we expect to receive for selling the plan after the carrier approves an application, net of an estimated constraint. We refer to these 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 average plan duration and forecasting the commission amounts likely to be received per member. These assumptions are based on our analysis of historical trends for the different cohorts and incorporate management’s judgment in interpreting those trends to apply the constraints discussed below. For our Medicare business, which represented 78% and 75% of our total commission revenue for the nine months ended September 30, 2019 and 2018, respectively, the estimated average plan duration used to calculate Medicare health insurance plan LTVs historically has been approximately 3 years for Medicare Advantage plans, approximately 5 years for Medicare Part D prescription drug plans, and approximately 5.5 years for Medicare Supplement plans. The estimated average plan duration used to calculate the LTV for major medical individual and family health insurance plans historically has been approximately 1.5 to 2 years. For short term health insurance plan LTVs, the estimated average plan duration historically has been less than six months. For all other ancillary health insurance plan LTVs, the estimated average plan duration has historically varied from 1 to 3 years. To the extent we make changes to the assumptions we use to calculate constrained LTVs, 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.


11


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

We recognize revenue at the time of approval as the constrained LTV for that product. We recognize adjustment revenue when our cash collections are in excess of the estimated constrained LTVs for previously approved members. Adjustment revenue is a result of actual cash collections exceeding the estimated constrained LTV for the revenue recognized at the time of approval. If cash collections to date are lower than expected collections to date in the constrained LTV in the revenue booked at the time of approval, we would consider an impairment of the commission receivable.

We recorded adjustment revenue of $11.5 million and $28.3 million, respectively, or $0.49 per share and $1.24 per share, respectively, for the three and nine months ended September 30, 2019, and $2.4 million and $8.0 million, or $0.12 per share and $0.42 per share, respectively, for the three and nine months ended September 30, 2018.

Commission revenue by segment is presented in the table below (in thousands):
 
Three Months Ended September 30, 2019
 
Three Months Ended September 30, 2018
 
Commission Revenue from Members Approved During the Period (1)
 
Net Commission Revenue from Members Approved in Prior Periods(2)
 
Total Commission Revenue
 
Commission Revenue from Members Approved During the Period (1)
 
Net Commission Revenue from Members Approved in Prior Periods(2)
 
Total Commission Revenue
Medicare
$
43,888

 
$
3,813

 
$
47,701

 
$
26,999

 
$
(35
)
 
$
26,964

Individual, Family and Small Business
4,392

 
7,669

 
12,061

 
4,262

 
2,387

 
6,649

Total commission revenue
$
48,280

 
$
11,482

 
$
59,762

 
$
31,261

 
$
2,352

 
$
33,613

 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2019
 
Nine Months Ended September 30, 2018
 
Commission Revenue from Members Approved During the Period (1)
 
Net Commission Revenue from Members Approved in Prior Periods(2)
 
Total Commission Revenue
 
Commission Revenue from Members Approved During the Period (1)
 
Net Commission Revenue from Members Approved in Prior Periods(2)
 
Total Commission Revenue
Medicare
$
141,898

 
$
5,226

 
$
147,124

 
$
80,601

 
$
(62
)
 
$
80,539

Individual, Family and Small Business
14,403

 
23,068

 
37,471

 
16,333

 
8,094

 
24,427

Total commission revenue
$
156,301

 
$
28,294

 
$
184,595

 
$
96,934

 
$
8,032

 
$
104,966



(1) These amounts include commission bonus revenue.
(2) 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.  These amounts include revenue associated with renewing small business health insurance members.

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. The judgments that can be significant in estimating LTVs are related to the constraint. To determine the constraints to be applied to LTV, we compare prior calculations of LTV to actual cash received and review the reasons for any differences. We then apply judgment in assessing whether the difference between historical cash collections and LTV is representative of differences that can be expected in future periods. We also analyze whether circumstances have changed and considers any known or potential modifications to the inputs into LTV in light of the factors that can impact the amount of cash expected to be collected in future periods such as commission rates, carrier mix, plan duration, changes in laws and regulations, and cancellations of insurance plans offered by health insurance carriers with which we have a relationship. We evaluate the appropriateness of our constraints on at least an annual basis, and 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.

12


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


For the three and nine months ended September 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 LTV per approved member were as shown in the following table.
 
Three and Nine Months Ended September 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 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.

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.    


13


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

Disaggregation of Revenue — The table below depicts the disaggregation of revenue by product for the three and nine months ended September 30, 2019 and 2018 and is consistent with how we evaluate our financial performance (in thousands):
 
Three Months Ended September 30,
 
 
 
Nine Months Ended September 30,
 
 
 
2019
 
2018
 
Percent
Change
 
2019
 
2018
 
Percent
Change
Medicare
 
 
 
 
 
 
 
 
 
 
 
Medicare Advantage
$
36,735

 
$
17,976

 
104
 %
 
$
113,185

 
$
57,649

 
96
 %
Medicare Supplement
8,229

 
7,358

 
12
 %
 
25,082

 
18,305

 
37
 %
Medicare Part D
1,805

 
1,005

 
80
 %
 
5,906

 
2,879

 
105
 %
Total Medicare
46,769

 
26,339

 
78
 %
 
144,173

 
78,833

 
83
 %
Individual and Family (1)
 
 
 
 
 
 
 
 
 
 
 
Non-Qualified Health Plans
3,146

 
876

 
259
 %
 
11,592

 
3,386

 
242
 %
Qualified Health Plans
839

 
1,169

 
(28
)%
 
4,900

 
5,006

 
(2
)%
Total Individual and Family
3,985

 
2,045

 
95
 %
 
16,492

 
8,392

 
97
 %
Ancillaries
 
 
 
 
 
 
 
 
 
 
 
Short-term
3,151

 
1,699

 
85
 %
 
7,162

 
4,242

 
69
 %
Dental
1,420

 
245

 
480
 %
 
3,138

 
1,611

 
95
 %
Vision
537

 
126

 
326
 %
 
1,294

 
857

 
51
 %
Other
1,104

 
1,006

 
10
 %
 
2,778

 
3,659

 
(24
)%
Total Ancillaries
6,212

 
3,076

 
102
 %
 
14,372

 
10,369

 
39
 %
Small Business
1,938

 
1,697

 
14
 %
 
6,576

 
5,828

 
13
 %
Commission Bonus
858

 
456

 
88
 %
 
2,982

 
1,544

 
93
 %
Total Commission Revenue
59,762

 
33,613

 
78
 %
 
184,595

 
104,966

 
76
 %
Other Revenue
10,151

 
7,138

 
42
 %
 
19,858

 
11,512

 
72
 %
Total Revenue
$
69,913

 
$
40,751

 
72
 %
 
$
204,453

 
$
116,478

 
76
 %
(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.

Note 3 — Acquisition

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

14


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

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 GoMedigap acquisition was accounted for using the acquisition method of accounting under ASC 805 — Business 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 receivable — current
4,371

Prepaid expenses and other current assets
11

Commission receivable — non-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 5 — Fair Value Measurement for additional information regarding change in fair value of the earnout liability for the three and nine months ended September 30, 2019.


15


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

Fair Value Measurements — The assets acquired and liabilities assumed of GoMedigap have been recognized at fair value in accordance with ASC 820 — Fair 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 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 our 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 adjustment to the earnout liability during the three months ended September 30, 2019 was a non-cash gain of $5.4 million primarily related to the decrease in value of the shares to be issued upon settlement of the earnout liability. The fair value adjustment to the earnout liability during the nine months ended September 30, 2019 was a non-cash expense of $15.1 million, 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.


16


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

Note 4 — Balance Sheet Accounts

Cash and Cash Equivalents — As of September 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 September 30, 2019 and December 31, 2018, our cash equivalents carried no unrealized gains or losses.

As of September 30, 2019 and December 31, 2018, our cash and cash equivalent balances were invested as follows (in thousands):
 
September 30, 2019
 
December 31, 2018
Cash
$
5,989

 
$
12,766

Money market funds
82,081

 
323

Total cash and cash equivalents
$
88,070

 
$
13,089


In addition to our $88.1 million total cash and cash equivalents balance as of September 30, 2019, we also had $3.4 million of restricted cash on our condensed consolidated balance sheet. 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 September 30, 2019. Accordingly, our estimate for uncollectible amounts at September 30, 2019 was immaterial. Total accounts receivable as of September 30, 2019 and December 31, 2018 was comprised of the following (in thousands):
 
September 30, 2019
 
December 31, 2018
Accounts receivable
$
682

 
$
3,601

Commissions receivable — current
127,414

 
134,190

Commissions receivable — non-current
230,322

 
211,668

Total accounts receivable
$
358,418

 
$
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 $358.4 million and $349.5 million as of September 30, 2019 and December 31, 2018, respectively, were as follows:
 
September 30, 2019
 
December 31, 2018
Aetna (1)
21
%
 
19
%
UnitedHealthcare (2)
20
%
 
19
%
Humana
19
%
 
19
%

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

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

17


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

Commissions receivable, December 31, 2018
$
345,858

Commission revenue from members approved during the nine months ended September 30, 2019
156,301

Net commission revenue adjustments from members approved in prior periods
28,294

Cash receipts
(172,717
)
Commissions receivable, September 30, 2019
$
357,736


Prepaid Expenses and Other Current Assets — Prepaid expenses and other current assets as of September 30, 2019 and December 31, 2018 was comprised of the following (in thousands):
 
September 30, 2019
 
December 31, 2018
Prepaid maintenance contracts
$
3,727

 
$
1,937

Equity issuance costs

 
294

Prepaid insurance
477

 
161

Prepaid facilities
86

 
324

Income tax receivable
1,108

 
1,108

Prepaid advertising
10,939

 
62

Other current assets
1,843

 
1,402

Total prepaid expenses and other current assets
$
18,180

 
$
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 September 30, 2019 and December 31, 2018 (dollars in thousands, weighted-average remaining life in years):
 
September 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

 
$
(1,111
)
 
$
889

 
1.3
 
$
2,000

 
$
(611
)
 
$
1,389

Pharmacy and customer relationships
9,500

 
(8,946
)
 
554

 
0.6
 
9,500

 
(8,234
)
 
1,266

Trade names, trademarks and website addresses
5,700

 
(1,648
)
 
4,052

 
8.2
 
5,700

 
(1,220
)
 
4,480

Total intangible assets subject to amortization
$
17,200

 
$
(11,705
)
 
5,495

 
 
 
$
17,200

 
$
(10,065
)
 
7,135

Indefinite-lived trademarks and domain names
 
 
 
 
5,114

 
Indefinite
 
 
 
 
 
5,114

Total intangible assets
 
 
 
 
$
10,609

 
 
 
 
 
 
 
$
12,249



18


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

As of September 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
$
166

 
$
237

 
$
142

 
$
545

2020
667

 
317

 
510

 
1,494

2021
56

 

 
480

 
536

2022

 

 
480

 
480

2023

 

 
480

 
480

Thereafter

 

 
1,960

 
1,960

Total
$
889

 
$
554

 
$
4,052

 
$
5,495


Note 5 — Fair 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; 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 following table is a summary of financial assets measured at fair value as of September 30, 2019 and December 31, 2018 on a recurring basis and their classification within the fair value hierarchy (in thousands):
 
September 30, 2019
 
December 31, 2018
 
Carrying Value
 
Level 1
 
Level 3
 
Total
 
Carrying Value
 
Level 1
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
82,081

 
$
82,081

 
$

 
$
82,081

 
$
323

 
$
323

 
$

 
$
323

Total assets measured and recorded at fair value
$
82,081

 
$
82,081

 
$

 
$
82,081

 
$
323

 
$
323

 
$

 
$
323

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnout liability—current
$
28,300

 
$

 
$
28,300

 
$
28,300

 
$
20,730

 
$

 
$
20,730

 
$
20,730

Earnout liability—non-current

 

 

 

 
19,270

 

 
19,270

 
19,270

Total liabilities measured and recorded at fair value
$
28,300

 
$

 
$
28,300

 
$
28,300

 
$
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.

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

19


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

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 nine months ended September 30, 2019 was as follows (in thousands):
Balance at December 31, 2018
$
40,000

Settlement of first earnout liability
(26,806
)
Change in fair value
13,306

Balance at March 31, 2019
26,500

Change in fair value
7,200

Balance at June 30, 2019
33,700

Change in fair value
(5,400
)
Balance at September 30, 2019
$
28,300


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 6 — Stockholder's Equity

2014 Equity Incentive Plan — The following table summarizes activity under our 2014 Equity Incentive Plan (the “2014 Plan”) for the nine months ended September 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)
(563
)
Options granted (2)
(14
)
Restricted stock units cancelled (3)
95

Options cancelled
36

Shares available for grant September 30, 2019
2,566


(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.


20


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

The following table summarizes stock option activity for the nine months ended September 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

 
$
66.06

 
 
 
 
Exercised
(298
)
 
$
17.19

 
 
 
 
Cancelled
(41
)
 
$
25.45

 
 
 
 
Balance outstanding at September 30, 2019
680

 
$
19.42

 
4.7
 
$
32,230

Vested and expected to vest at September 30, 2019
656

 
$
19.16

 
4.6
 
$
31,231

Exercisable at September 30, 2019
402

 
$
16.21

 
4.1
 
$
20,334

 
(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 September 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 nine months ended September 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
563

 
$
66.94

 
 
 
 
Vested
(386
)
 
$
13.58

 
 
 
 
Cancelled
(95
)
 
$
32.01

 
 
 
 
Unvested as of September 30, 2019
1,951

 
$
31.03

 
5.4
 
$
130,307


(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 September 30, 2019 and December 31, 2018, and the number of restricted stock units outstanding as of September 30, 2019 and December 31, 2018, respectively.   

Stock Repurchase Programs — We had no stock repurchase activity during the three and nine months ended September 30, 2019. In addition to 10,663,888 shares repurchased under our past repurchase programs as of September 30, 2019, we have in treasury 907,363 shares that were previously surrendered by employees to satisfy tax withholdings due in connection with the vesting of certain restricted stock units. As of September 30, 2019 and December 31, 2018, we had a total of 11,571,251 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.


21


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 nine months ended September 30, 2019 and 2018 (in thousands): 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Common stock options
$
542

 
$
639

 
$
1,745

 
$
1,573

Restricted stock units
4,968

 
2,904

 
11,672

 
7,902

Total stock-based compensation expense
$
5,510

 
$
3,543

 
$
13,417

 
$
9,475


The following table summarizes stock-based compensation expense by operating function for the three and nine months ended September 30, 2019 and 2018 (in thousands): 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Marketing and advertising
$
872

 
$
545

 
$
2,212

 
$
1,477

Customer care and enrollment
369

 
194

 
927

 
565

Technology and content
729

 
388

 
1,946

 
1,115

General and administrative
3,540

 
2,416

 
8,332

 
6,067

Restructuring charges

 

 

 
251

Total stock-based compensation expense
$
5,510

 
$
3,543

 
$
13,417

 
$
9,475


Note 7 — Net Loss Per Share

For each of the three and nine months ended September 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 September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Common stock options
729

 
925

 
850

 
928

Restricted stock units
1,461

 
1,610

 
1,537

 
1,662

Total
2,190

 
2,535

 
2,387

 
2,590


Note 8 — Commitments 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.


22


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

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 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 December 15, 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.

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 September 30, 2019 (in thousands): 
For the Years Ending December 31,
Service and Licensing Obligations
Remainder of 2019
$
499

2020
2,465

2021
950

2022
415

2023
444

Thereafter
229

Total
$
5,002


Note 9 — Operating Segments, Geographic Information and Significant Customers

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.

23


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

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 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 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-eligible customers, 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.

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.

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 two operating segments and instead reported within Corporate.


24


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

    
The following table presents summary results of our operating segments for the three and nine months ended September 30, 2019 and 2018 (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Revenue
 
 
 
 
 
 
 
Medicare revenue
$
57,189

 
$
32,733

 
$
164,357

 
$
88,964

Individual, Family and Small Business revenue
12,724

 
8,018

 
40,096

 
27,514

Total revenue
$
69,913

 
$
40,751

 
$
204,453

 
$
116,478

 
 
 
 
 
 
 
 
Segment profit (loss)
 
 
 
 
 
 
 
Medicare segment profit (loss)
$
(11,004
)
 
$
467

 
$
5,917

 
$
2,174

Individual, Family and Small Business segment profit (loss)
3,753

 
(579
)
 
15,045

 
2,292

Total segment profit (loss)
(7,251
)
 
(112
)
 
20,962

 
4,466

Corporate
(11,568
)
 
(6,832
)
 
(30,380
)
 
(22,680
)
Stock-based compensation expense
(5,510
)
 
(3,543
)
 
(13,417
)
 
(9,224
)
Depreciation and amortization
(765
)
 
(620
)
 
(2,153
)
 
(1,870
)
Acquisition costs

 

 

 
(76
)
Change in fair value of earnout liability
5,400