SEC Filing | eHealth, Inc.

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ehth-20200630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2020

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

For the transition period from to

Commission File Number: 001-33071

_____________________________________________

EHEALTH, INC.

(Exact name of registrant as specified in its charter)

_____________________________________________


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

2625 AUGUSTINE DRIVE, SECOND FLOOR

SANTA CLARA, CA 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

☐

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 the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding as of July 31, 2020 was 25,749,916 shares.

EHEALTH, INC.

FORM 10-Q

TABLE OF CONTENTS


PART I	FINANCIAL INFORMATION	PAGE
Item 1.	Financial Statements (unaudited)	2
	Condensed Consolidated Balance Sheets as of June 30 , 2020 and December 31, 2019	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30 , 2020 and 2019	3
	Condensed Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended June 30 , 2020 and 2019	5
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30 , 2020 and 2019	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47
Item 4.	Controls and Procedures	48
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 6.	Exhibits	78
	Signatures	79

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EHEALTH, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)


	June 30, 2020*		December 31, 2019
Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$	76,842	$	23,466
Short-term marketable securities	123,158		—
Accounts receivable	2,724		2,332
Contract assets – commissions receivable – current	141,774		174,526
Prepaid expenses and other current assets	10,635		7,822
Total current assets	355,133		208,146
Contract assets – commissions receivable – non-current	441,012		414,696
Property and equipment, net	13,751		10,518
Long-term marketable securities	11,361		—
Operating lease right-of-use assets	47,497		36,621
Restricted cash	3,354		3,354
Other assets	21,865		18,004
Intangible assets, net	9,142		10,062
Goodwill	40,233		40,233
Total assets	$	943,348	$	741,634
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	7,285	$	24,554
Accrued compensation and benefits	21,795		29,578
Accrued marketing expenses	4,712		12,041
Earnout liability – current	—		37,273
Lease liabilities – current	4,922		4,759
Deferred revenue	97		2,570
Other current liabilities	3,909		2,210
Total current liabilities	42,720		112,985


Deferred income taxes – non-current	59,244		64,130
Lease liabilities – non-current	45,784		34,305
Other non-current liabilities	3,545		3,050
Stockholders’ equity:
Common stock	37		35
Additional paid-in capital	720,976		455,159
Treasury stock, at cost	(199,998)		(199,998)
Retained earnings	270,787		271,852
Accumulated other comprehensive income	253		116
Total stockholders’ equity	792,055		527,164
Total liabilities and stockholders’ equity	$	943,348	$	741,634

_____________

* Reflects the impact from the adoption of ASC 326 on January 1, 2020. See Note 1 – Summary of Business and Significant Accounting Policies for details.

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

EHEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share amounts, unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Revenue:
Commission	$	80,773	$	60,606	$	180,442	$	124,833
Other	7,993		5,161		14,732		9,707
Total revenue	88,766		65,767		195,174		134,540
Operating costs and expenses:
Cost of revenue	540		449		1,678		372
Marketing and advertising	32,873		23,104		70,637		47,045
Customer care and enrollment	27,148		21,479		57,683		41,423
Technology and content	13,373		10,437		29,113		19,454
General and administrative	20,713		14,862		40,366		26,140
Amortization of intangible assets	373		547		920		1,094
Change in fair value of earnout liability	—		7,200		—		20,506


Total operating costs and expenses	95,020		78,078		200,397		156,034
Loss from operations	(6,254)		(12,311)		(5,223)		(21,494)
Other income, net	452		699		825		1,256
Loss before benefit from income taxes	(5,802)		(11,612)		(4,398)		(20,238)
Benefit from income taxes	(2,432)		(5,858)		(4,480)		(9,325)
Net income (loss)	$	(3,370)	$	(5,754)	$	82	$	(10,913)

Net income (loss) per share:
Basic and diluted	$	(0.13)	$	(0.25)	$	0.00	$	(0.48)

Weighted-average number of shares used in per share amounts:
Basic	26,358		23,091		25,539		22,508
Diluted	26,358		23,091		26,758		22,508
Comprehensive income:
Net income (loss)	$	(3,370)	$	(5,754)	$	82	$	(10,913)
Unrealized holding gain for available for sales debt securities, net of tax	143		—		168		—
Foreign currency translation adjustment	—		(25)		(31)		4
Comprehensive income (loss)	$	(3,227)	$	(5,779)	$	219	$	(10,909)

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

EHEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, unaudited)


Three Months Ended June 30, 2020
	Common Stock					Additional Paid-in Capital		Treasury Stock							Retained Earnings		Accumulated Other Comprehensive Income	Total Stockholders’ Equity
	Shares	Amount					Shares			Amount
Balance as of March 31, 2020	37,258	$	37	$	717,380	(11,649)		$	(199,998)		$	274,157	$	110	$	791,686

Issuance of common stock in connection with equity incentive plans	115	—		223		—		—			—		—		223
Repurchase of shares to satisfy employee tax withholding obligations		—		(3,785)		(49)		—			—		—		(3,785)


Stock-based compensation	—	—		7,158		—		—			—		—		7,158
Other comprehensive income, net of tax	—	—		—		—		—			—		143		143
Net loss	—	—		—		—		—			(3,370)		—		(3,370)
Balance as of June 30, 2020	37,373	$	37	$	720,976	(11,698)		$	(199,998)		$	270,787	$	253	$	792,055


Three Months Ended June 30, 2019
	Common Stock					Additional Paid-in Capital		Treasury Stock							Retained Earnings		Accumulated Other Comprehensive Income	Total Stockholders’ Equity
	Shares	Amount					Shares			Amount
Balance as of March 31, 2019	34,090	$	34	$	445,652	(11,450)		$	(199,998)		$	199,806	$	156	$	445,650
Issuance of common stock in connection with equity incentive plans	177	—		888		—		—					—		888
Repurchase of shares to satisfy employee tax withholding obligations	—	—		(2,172)		(32)		—					—		(2,172)


Stock-based compensation	—	—		4,678		—		—					—		4,678
Foreign currency translation adjustment, net of taxes	—	—		—		—		—					(25)		(25)
Net loss	—	—		—		—		—			(5,754)		—		(5,754)
Balance as of June 30, 2019	34,267	$	34	$	449,046	(11,482)		$	(199,998)		$	194,052	$	131	$	443,265

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

EHEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, unaudited)


Six Months Ended June 30, 2020
	Common Stock					Additional Paid-in Capital		Treasury Stock							Retained Earnings		Accumulated Other Comprehensive Income	Total Stockholders’ Equity
	Shares	Amount					Shares			Amount
Balance as of December 31, 2019	34,752	$	35	$	455,159	(11,616)		$	(199,998)		$	271,852	$	116	$	527,164
Cumulative effect from the adoption of ASU 2016-13	—	—		—		—		—			(1,147)		—		(1,147)
Issuance of common stock in connection with equity incentive plans	256	—		1,314		—		—			—		—		1,314
Repurchase of shares to satisfy employee tax withholding obligations	—	—		(8,160)		(82)		—			—		—		(8,160)
Shares issued in equity offering	2,070	2		228,022		—		—			—		—		228,024
Settlement of earnout liability	295	—		28,521		—		—			—		—		28,521
Stock-based compensation	—	—		16,120		—		—			—		—		16,120
Other comprehensive income, net of tax	—	—		—		—		—			—		137		137
Net income	—	—		—		—		—			82		—		82
Balance as of June 30, 2020	37,373	$	37	$	720,976	(11,698)		$	(199,998)		$	270,787	$	253	$	792,055


Six Months Ended June 30, 2019
	Common Stock					Additional Paid-in Capital		Treasury Stock							Retained Earnings		Accumulated Other Comprehensive Income	Total Stockholders’ Equity
	Shares	Amount					Shares			Amount
Balance as of December 31, 2018	30,863	$	31	$	298,024	(11,426)		$	(199,998)		$	204,965	$	127	$	303,149
Issuance of common stock in connection with equity incentive plans	349	—		3,255		—		—			—		—		3,255
Repurchase of shares to satisfy employee tax withholding obligations	—	—		(3,452)		(56)		—			—		—		(3,452)
Shares issued in equity offering	2,760	3		126,048		—		—			—		—		126,051
Settlement of earnout liability	295	—		17,264		—		—			—		—		17,264
Stock-based compensation	—	—		7,907		—		—			—		—		7,907
Foreign currency translation adjustment, net of taxes	—	—		—		—		—			—		4		4
Net loss	—	—		—		—		—			(10,913)		—		(10,913)
Balance as of June 30, 2019	34,267	$	34	$	449,046	(11,482)		$	(199,998)		$	194,052	$	131	$	443,265

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

EHEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)


	Six Months Ended June 30,
	2020		2019
Operating activities:
Net income (loss)	$	82	$	(10,913)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	1,681		1,388
Amortization of internally developed software	3,235		1,513
Amortization of intangible assets	920		1,094
Stock-based compensation expense	15,390		7,907
Deferred income taxes	(4,520)		(9,535)
Change in fair value of earnout liability	—		20,506

Other non-cash items	246		(1,048)
Changes in operating assets and liabilities:
Accounts receivable	(392)		2,543
Contract assets – commissions receivable	4,842		4,443
Prepaid expenses and other assets	(1,031)		(2,696)
Accounts payable	(17,482)		147
Accrued compensation and benefits	(7,782)		(5,498)
Accrued marketing expenses	(7,328)		(7,342)
Deferred revenue	(2,473)		(118)
Accrued expenses and other liabilities	2,214		(1,166)
Net cash provided by (used in) operating activities	(12,398)		1,225
Investing activities:
Capitalized internal-use software and website development costs	(7,609)		(3,433)
Purchases of property and equipment and other assets	(4,664)		(3,786)
Purchases of marketable securities	(147,546)		—
Proceeds from redemption and maturities of marketable securities	13,250		—
Payments for security deposits	—		(896)

Net cash used in investing activities	(146,569)		(8,115)
Financing activities:
Proceeds from issuance of common stock, net of issuance costs	228,024		126,051
Net proceeds from exercise of common stock options	1,314		3,255
Repurchase of shares to satisfy employee tax withholding obligations	(8,160)		(3,452)


Repayment of debt	—		(5,000)
Acquisition-related contingent payments	(8,751)		(9,542)
Principal payments in connection with leases	(83)		(50)
Net cash provided by financing activities	212,344		111,262
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(1)		29
Net increase in cash, cash equivalents and restricted cash	53,376		104,401
Cash, cash equivalents and restricted cash at beginning of period	26,820		13,089
Cash, cash equivalents and restricted cash at end of period	$	80,196	$	117,490

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

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 health insurance marketplace with a technology and service platform that provides consumer engagement, education and health insurance enrollment solutions. Our mission is to connect every person with the highest quality, most affordable health insurance and Medicare plans for their life circumstances. Our platform integrates proprietary and third-party developed educational content regarding health insurance plans with decision support tools to aid consumers in what has traditionally been a confusing and opaque health insurance purchasing process, and to help them obtain the health insurance products that meet their individual health and economic needs. Our omni-channel consumer engagement platform is designed to meet the consumer wherever they prefer to engage with us, and enables consumers to use our services online, through interactive chat, or by telephone with a licensed insurance agent. We have created a marketplace that offers consumers a broad choice of insurance products that includes thousands of Medicare Advantage, Medicare Supplement, Medicare Part D prescription drug, individual and family, small business and other ancillary health insurance products from over 180 health insurance carriers across all fifty states and the District of Columbia.

Basis of Presentation – The accompanying condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019, the condensed consolidated statements of comprehensive income (loss) and stockholders’ equity for the three and six months ended June 30, 2020 and 2019, and the condensed consolidated statements of cash flows for the six months ended June 30, 2020 and 2019, respectively, are unaudited. The condensed consolidated balance sheet data as of December 31, 2019 was derived from the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the Securities and Exchange Commission on March 2, 2020. 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. 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. 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. Certain reclassifications might be made to conform with the current presentation. However, the Company believes that 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, 2019 and include all adjustments necessary for the fair presentation of our financial position as of June 30, 2020 and December 31, 2019, and our results of operations for the periods presented. Our financial position as of June 30, 2020, results of operations for the three and six months ended June 30, 2020, and cash flows for the six months ended June 30, 2020 were not materially impacted by the COVID-19 pandemic but the Company is continuously assessing the evolving situation related to the pandemic. The results for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for any subsequent period or for the year ending December 31, 2020 and therefore should not be relied upon as an indicator of future results.

Significant Accounting Polices, Estimates and Judgements – 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, allowance for credit loss, 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.

EHEALTH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

With the exception of the change for the accounting of credit losses as a result of the adoption of Accounting Standard Updates (“ASU”) No. 2016-13, Financial Instruments – Credit Losses discussed below, there have been no material changes to our significant accounting policies discussed in our Annual Report on Form 10-K for the year ended December 31, 2019.

Seasonality – Open enrollment periods drive the seasonality of our business. 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. Any changes or additional enrollment periods may change the seasonality of our business. For instance, due to the recent reintroduction of the Medicare Advantage open enrollment period that takes place in the first quarter of the year, our first quarter is generally the second-highest revenue generating 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 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 the open enrollment period, 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.

Recently Adopted Accounting Pronouncement

Financial Instruments – Credit Losses (Topic 326) – In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), that requires companies to present certain financial assets net of the amount expected to be collected. The guidance requires the measurement of expected credit losses to be based on relevant information from past events, including historical experiences, current conditions and reasonable and supportable forecasts that affect collectability. Contract assets – commissions receivable were the Company's only financial assets that were materially impacted by this guidance.

We adopted ASU 2016-13 using a modified retrospective transition method on January 1, 2020 for all financial assets measured at amortized cost. Results for periods after January 1, 2020 are presented under ASU 2016-13 while prior period amounts continue to be reported under the previous accounting standards. We recorded a $1.1 million decrease, net of income taxes, to the retained earnings as of January 1, 2020 for the cumulative effect of adopting ASU 2016-13. See Note 3 – Supplemental Financial Statement Information for further discussion on credit losses.

The impacts from the adoption are summarized as follows (in thousands):


Balance Sheet Impact:	December 31, 2019		Transition Adjustments		January 1, 2020
Contract assets – commissions receivable – current	$	174,526	$	(71)	$	174,455
Contract assets – commissions receivable – non-current	$	414,696	$	(1,442)	$