SEC Filing | eHealth, Inc.

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ehth-20220930

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 September 30, 2022

☐ 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, SUITE 150

SANTA CLARA, CA 95054

(Address of principal executive offices)

(650) 210-3150

(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 October 31, 2022 was 27,422,321 shares.

EHEALTH, INC.

FORM 10-Q

TABLE OF CONTENTS


PART I	FINANCIAL INFORMATION	PAGE
Summary of Risk Factors		2
Item 1.	Financial Statements (Unaudited)	4
	Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021	4
	Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2022 and 2021	5
	Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, 2022 and 2021	6
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53
Item 4.	Controls and Procedures	54

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	55
Item 1A.	Risk Factors	55

Item 6.	Exhibits	85
Signatures		86

Summary of Risk Factors

The following is a summary of the principal risks we face, any of which could adversely affect our business, operating results, financial condition or prospects:

•If our ability to enroll individuals during enrollment periods is impeded or if investments we make in enrollment periods do not result in the returns we expected when making those investments, our business, operating results and financial condition would be harmed.

•We may be unsuccessful in competing effectively against current and future competitors, including government-run health insurance exchanges.

•Our business may be harmed if we lose our relationship with health insurance carriers or our relationship with health insurance carriers is modified.

•Our financial results will be adversely impacted if our membership does not grow or if member retention does not improve and plan terminations do not decline.

•If we are not able to maintain and enhance our brand, our business and operating results will be harmed.

•The ongoing COVID-19 pandemic and other public health crises, illness, epidemics or pandemics could adversely impact our business, operating results and financial condition.

•Changes in our management and key employees could affect our business and financial results.

•Our business may be harmed if we are not successful in executing on our strategic plans, including our growth strategy, cost-saving and enrollment quality initiatives.

•Our failure to effectively manage our operations and maintain our company culture as our business evolves and our work practices change could harm us.

•Seasonality may cause fluctuations in our financial results, and if we are not successful in responding to changes in the seasonality of our business, our business, operating results and financial condition could be harmed.

•The success of our customer care center operations depends upon our ability to timely hire, train, retain and ensure the productivity of our licensed health insurance agents.

•We rely on multiple channels, including the Internet, telephone, mail, email, marketing partners and other channels, to market our services and to communicate with qualified prospects and our existing customers. If we are unable to successfully provide a relevant and reliable experience in a cost-effective manner to attract and convert such prospects into members for whom we receive commissions and retain our existing customers, our business, operating results and financial condition would be harmed.

•We rely significantly on marketing partners and our business and operating results would be harmed if we are unable to maintain effective relationships with our existing marketing partners or if we do not establish successful relationships with new marketing partners.

•Our future operating results are likely to fluctuate and could fall short of expectations, which could negatively affect the value of our common stock.

•If commission reports we receive from carriers are inaccurate or not sent to us in a timely manner, our business and operating results could be harmed and we may not recognize trends in our membership.

•We do not receive information about membership cancellations from our health insurance carriers directly, which makes it difficult for us to determine the impact of current conditions on our membership retention and to accurately estimate membership as of a specific date.

•If our carrier advertising and sponsorship program are not successful, our business, operating results and financial condition could be harmed.

•Our operations in China involve many risks that could increase expenses, expose us to increased liability and adversely affect our business, operating results and financial condition.

•Our success in selling Medicare-related health insurance will depend upon a number of factors some of which are outside of our control.

•The marketing and sale of Medicare plans are subject to numerous, complex and frequently changing laws, regulations and guidelines, and non-compliance with or changes in laws, regulations and guidelines could harm our business, operating results and financial condition.

•Changes and developments in the health insurance industry or system could harm our business, operating results and financial condition.

•From time to time we are subject to various legal proceedings which could adversely affect our business.

•Our success in selling health insurance is dependent in part on the actions of federal and state governments. Changes in the laws and regulations governing the offer, sale and purchase of health insurance could harm our business and operating results.

•If we fail to comply with the numerous laws and regulations that are applicable to the sale of health insurance, our business and operating results could be harmed.

•Our business is subject to emerging privacy laws being passed at the state level that create unique compliance challenges. Increasing regulatory focus on privacy and security issues and expanding laws could impact our business and expose us to increased liability.

•Any legal liability, regulatory penalties, complaints or negative publicity related to the information on our website or that we otherwise provide could harm our business and operating results.

•Our operating results will be impacted by factors that impact our estimate of the constrained LTV of commissions per approved member.

•Our debt and preferred stock obligations contain restrictions that impact our business and expose us to risks that could materially adversely affect our liquidity and financial condition.

•Operating and growing our business is likely to require additional capital, and if capital is not available to us, our business, operating results and financial condition may suffer.

•Our ability to sell Medicare-related health insurance plans as a health insurance agent depends upon maintenance of functioning information technology systems.

•System failures or capacity constraints could harm our business and operating results.

•Our business is subject to security risks and, if we experience a successful cyberattack, a security breach or are otherwise unable to safeguard the confidentiality and integrity of the data we hold, including sensitive personal information, our business will be harmed.

•We may not be able to adequately protect our intellectual property, which could harm our business and operating results.

•Consumers and our employees depend upon third-party service providers to access our website, services and systems, and our business and operating results could be harmed as a result of technical difficulties experienced by these service providers.

•Our actual operating results may differ significantly from our guidance.

•The price of our common stock has been and may continue to be volatile, and the value of your investment could decline.

•Our Series A preferred stock has rights, preferences and privileges that are not held by, and are preferential to, the rights of our common stockholders, which could adversely affect our liquidity and financial condition, result in the interests of holders of our Series A preferred stock differing from those of our common stockholders and make an acquisition of us more difficult.

Our Risk Factors are not guarantees that no such conditions exist as of the date of this report and should not be interpreted as an affirmative statement that such risks or conditions have not materialized, in whole or in part.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EHEALTH, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, unaudited)


	September 30, 2022		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	160,258	$	81,926
Short-term marketable securities	4,491		41,306
Accounts receivable	1,804		5,750
Contract assets – commissions receivable – current	207,505		254,821
Prepaid expenses and other current assets	21,039		23,784
Total current assets	395,097		407,587
Contract assets – commissions receivable – non-current	578,339		653,441
Property and equipment, net	7,927		12,105

Operating lease right-of-use assets	30,845		37,373
Restricted cash	3,239		3,239


Other assets	36,446		35,547
Total assets	$	1,051,893	$	1,149,292
Liabilities, convertible preferred stock and stockholders’ equity
Current liabilities:
Accounts payable	$	6,626	$	13,750
Accrued compensation and benefits	14,278		16,458
Accrued marketing expenses	8,209		36,384

Lease liabilities – current	5,988		5,543

Other current liabilities	3,016		3,330
Total current liabilities	38,117		75,465
Long-term debt	65,725		—
Deferred income taxes – non-current	23,589		50,796
Lease liabilities – non-current	31,234		35,826
Other non-current liabilities	4,545		5,094
Total liabilities	163,210		167,181
Commitments and contingencies
Convertible preferred stock	255,185		232,592
Stockholders’ equity:
Common stock	40		39
Additional paid-in capital	772,328		755,875
Treasury stock, at cost	(199,998)		(199,998)
Retained earnings	61,227		193,213
Accumulated other comprehensive income (loss)	(99)		390
Total stockholders’ equity	633,498		749,519
Total liabilities, convertible preferred stock, and stockholders’ equity	$	1,051,893	$	1,149,292

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

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,
	2022		2021		2022		2021
Revenue:
Commission	$	48,977	$	59,191	$	190,662	$	276,066
Other	4,399		4,723		18,373		18,619
Total revenue	53,376		63,914		209,035		294,685
Operating costs and expenses:
Cost of revenue	494		(25)		790		1,217
Marketing and advertising	30,556		43,317		118,973		138,772
Customer care and enrollment	29,398		48,956		100,711		121,480
Technology and content	19,399		20,369		56,842		63,996
General and administrative	17,300		16,640		54,485		57,812
Amortization of intangible assets	—		121		—		416

Impairment, restructuring and other charges	4,498		573		10,690		3,004

Total operating costs and expenses	101,645		129,951		342,491		386,697
Loss from operations	(48,269)		(66,037)		(133,456)		(92,012)
Other income (expense), net	(647)		189		(2,835)		511
Loss before income taxes	(48,916)		(65,848)		(136,291)		(91,501)
Benefit from income taxes	(9,767)		(12,834)		(26,898)		(19,278)
Net loss	(39,149)		(53,014)		(109,393)		(72,223)

Paid-in-kind dividends for preferred stock	(4,933)		(4,561)		(14,420)		(7,643)
Change in preferred stock redemption value	(2,916)		(2,373)		(8,173)		(3,770)

Net loss attributable to common stockholders	$	(46,998)	$	(59,948)	$	(131,986)	$	(83,636)

Net loss per share attributable to common stockholders:
Basic and diluted	$	(1.72)	$	(2.24)	$	(4.83)	$	(3.13)

Weighted-average number of shares used in per share amounts:
Basic and diluted	27,346		26,786		27,329		26,688

Comprehensive loss:
Net loss	$	(39,149)	$	(53,014)	$	(109,393)	$	(72,223)
Unrealized holding gain (loss) for available for sales debt securities, net of tax	(4)		3		(6)		(48)
Foreign currency translation adjustments	(245)		(26)		(483)		16
Comprehensive loss	$	(39,398)	$	(53,037)	$	(109,882)	$	(72,255)

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 September 30, 2022
	Common Stock			Additional Paid-in Capital		Treasury Stock			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount				Shares	Amount
Balance as of June 30, 2022	39,493	$	40	$	767,164	12,287	$	(199,998)	$	108,225	$	150	$	675,581
Issuance of common stock in connection with equity incentive plans	214	—		—		—	—		—		—		—
Repurchase of shares to satisfy employee tax withholding obligations	—	—		(467)		71	—		—		—		(467)
Paid-in-kind dividend and accretion related to convertible preferred stock	—	—		—		—	—		(7,849)		—		(7,849)

Stock-based compensation	—	—		5,631		—	—		—		—		5,631
Other comprehensive loss, net of tax	—	—		—		—	—		—		(249)		(249)
Net loss	—	—		—		—	—		(39,149)		—		(39,149)
Balance as of September 30, 2022	39,707	$	40	$	772,328	12,358	$	(199,998)	$	61,227	$	(99)	$	633,498


Three Months Ended September 30, 2021
	Common Stock			Additional Paid-in Capital		Treasury Stock			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount				Shares	Amount
Balance as of June 30, 2021	38,094	$	38	$	738,906	11,925	$	(199,998)	$	292,467	$	341	$	831,754
Issuance of common stock in connection with equity incentive plans	231	—		1,933		—	—		—		—		1,933
Repurchase of shares to satisfy employee tax withholding obligations	—	—		(2,061)		51	—		—		—		(2,061)
Paid-in-kind dividend and accretion related to convertible preferred stock	—	—		—		—	—		(6,934)		—		(6,934)

Stock-based compensation	—	—		6,006		—	—		—		—		6,006
Other comprehensive loss, net of tax	—	—		—		—	—		—		(23)		(23)
Net loss	—	—		—		—	—		(53,014)		—		(53,014)
Balance as of September 30, 2021	38,325	$	38	$	744,784	11,976	$	(199,998)	$	232,519	$	318	$	777,661

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

EHEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, unaudited)


Nine Months Ended September 30, 2022
	Common Stock			Additional Paid-in Capital		Treasury Stock			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount				Shares	Amount
Balance as of December 31, 2021	38,704	$	39	$	755,875	12,016	$	(199,998)	$	193,213	$	390	$	749,519
Issuance of common stock in connection with equity incentive plans	920	1		1,054		—	—		—		—		1,055
Repurchase of shares to satisfy employee tax withholding obligations	—	—		(2,901)		342	—		—		—		(2,901)
Paid-in-kind dividend and accretion related to convertible preferred stock	—	—		—		—	—		(22,593)		—		(22,593)
Issuance of common stock for employee stock purchase program	83	—		873		—	—		—		—		873
Stock-based compensation	—	—		17,427		—	—		—		—		17,427
Other comprehensive loss, net of tax	—	—		—		—	—		—		(489)		(489)
Net loss	—	—		—		—	—		(109,393)		—		(109,393)
Balance as of September 30, 2022	39,707	$	40	$	772,328	12,358	$	(199,998)	$	61,227	$	(99)	$	633,498


Nine Months Ended September 30, 2021
	Common Stock			Additional Paid-in Capital		Treasury Stock			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount				Shares	Amount
Balance as of December 31, 2020	37,755	$	38	$	721,013	11,831	$	(199,998)	$	316,155	$	350	$	837,558
Issuance of common stock in connection with equity incentive plans	532	—		2,735		—	—		—		—		2,735
Repurchase of shares to satisfy employee tax withholding obligations	—	—		(7,968)		145	—		—		—		(7,968)
Paid-in-kind dividend and accretion related to convertible preferred stock	—	—		—		—	—		(11,413)		—		(11,413)
Issuance of common stock for employee stock purchase program	38	—		2,248		—	—		—		—		2,248
Stock-based compensation	—	—		26,756		—	—		—		—		26,756
Other comprehensive loss, net of tax	—	—		—		—	—		—		(32)		(32)
Net loss	—	—		—		—	—		(72,223)		—		(72,223)
Balance as of September 30, 2021	38,325	$	38	$	744,784	11,976	$	(199,998)	$	232,519	$	318	$	777,661

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

EHEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)


	Nine Months Ended September 30,
	2022		2021
Operating activities:
Net loss	$	(109,393)	$	(72,223)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	2,971		3,700
Amortization of internally developed software	12,714		9,140
Amortization of intangible assets	—		416
Stock-based compensation expense	15,934		24,881
Deferred income taxes	(27,207)		(20,134)


Impairment charges	3,734		—
Other non-cash items	1,333		908
Changes in operating assets and liabilities:
Accounts receivable	3,946		493
Contract assets – commissions receivable	122,410		35,244
Prepaid expenses and other assets	2,728		(20,790)
Accounts payable	(7,118)		(26,913)
Accrued compensation and benefits	(1,345)		(118)
Accrued marketing expenses	(28,175)		(6,525)
Deferred revenue	(284)		10,240
Accrued expenses and other liabilities	(538)		1,360
Net cash used in operating activities	(8,290)		(60,321)
Investing activities:
Capitalized internal-use software and website development costs	(12,540)		(12,589)
Purchases of property and equipment and other assets	(192)		(3,554)
Purchases of marketable securities	(8,402)		(88,967)
Proceeds from redemption and maturities of marketable securities	45,269		68,288


Net cash provided by (used in) investing activities	24,135		(36,822)
Financing activities:
Proceeds from issuance of preferred stock, net of issuance costs	—		214,025

Net proceeds from debt financing	64,862		—
Net proceeds from exercise of common stock options and employee stock purchases	1,054		4,983
Repurchase of shares to satisfy employee tax withholding obligations	(2,901)		(7,968)




Principal payments in connection with leases	(90)		(126)
Net cash provided by financing activities	62,925		210,914
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(438)		—
Net increase in cash, cash equivalents and restricted cash	78,332		113,771
Cash, cash equivalents and restricted cash at beginning of period	85,165		47,113
Cash, cash equivalents and restricted cash at end of period	$	163,497	$	160,884

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


Table of Contents

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 omnichannel consumer engagement platform 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 approximately 200 health insurance carriers across all fifty states and the District of Columbia.

Basis of Presentation – The accompanying condensed consolidated balance sheet as of September 30, 2022, the condensed consolidated statements of comprehensive loss and stockholders’ equity for the three and nine months ended September 30, 2022 and 2021, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2022 and 2021 are unaudited. The condensed consolidated balance sheet data as of December 31, 2021 was derived from the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the Securities and Exchange Commission on March 1, 2022. 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 direct and indirect 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 prior period amounts have been reclassified to conform with our current period presentation.

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, 2021 and include all adjustments necessary for the fair presentation of our financial position as of September 30, 2022 and December 31, 2021, and our results of operations for the periods presented. The results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for any subsequent period or for the year ending December 31, 2022 and therefore should not be relied upon as an indicator of future results.

Subsequent to the issuance of our consolidated financial statements for the year ended December 31, 2020, we identified certain errors, including a $3.0 million under-recognition of stock-based compensation expense and a $1.5 million over-recognition of licensing costs for the year ended December 31, 2020. We adjusted for these items in the first quarter of 2021 and the adjustments reduced our net loss by approximately $1.5 million, or $0.06 per basic and diluted share in our Condensed Consolidated Statement of Comprehensive Loss for the three months ended March 31, 2021. These items also reduced our net loss by approximately $1.5 million, or $0.06 per basic and diluted share, on our Condensed Consolidated Statement of Comprehensive Loss for the nine months ended September 30, 2021. We evaluated the effects of these out-of-period adjustments, both qualitatively and quantitatively, and concluded that the errors and the correction thereof were immaterial both individually and in the aggregate to the current reporting period and the periods in which they originated, including quarterly reporting.


Table of Contents

EHEALTH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Significant Accounting Policies, Estimates and Judgments – 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 useful lives of intangible assets, fair value of investments, recoverability of intangible assets, the commissions we expect to collect for each approved member cohort, 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. 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, 2021.

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 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. Our Medicare plan-related commission revenue is also elevated in the first quarter compared to the second and third quarters as a result of the reintroduction of the Medicare Advantage open enrollment period in the first quarter of 2019. Any changes to or additional enrollment periods may change the seasonality of our business.

The majority of our 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. In the states where the Federally Facilitated marketplace operates as the state health insurance exchange, individuals and families generally are not able to purchase individual and family health insurance outside of the annual 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. Extended open enrollment or special enrollment periods may change the seasonality of our individual and family health insurance business. For example, the COVID-related special enrollment period which ended on August 15, 2021 caused increased commission revenue from the sale of individual and family health insurance plans outside of the open enrollment period.

Recently Adopted Accounting Pronouncements

Reference Rate Reform (Topic 848) – In March 2020, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and other transactions affected by reference rate reform if certain criteria are met in order to ease the financial reporting burden as the market transitions from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates expected to be discontinued to alternative reference rates. The FASB further issued ASU 2021-01 in January 2021 to refine and clarify the scope of Topic 848. The election allows relief from remeasuring the contracts at modification or from reassessing a previous accounting determination. The guidance was effective upon issuance and may be applied through December 31, 2022. We elected the optional expedient under ASU 2020-04 and ASU 2021-01 in the third quarter of 2022 upon the amendment to our term loan credit agreement, which transitions the use of LIBOR to the Secured Overnight Financing Rate ("SOFR"). The adoption of the standard allows entities to account for such modification as if the modification was not substantial and as a result, the implementation of this standard did not have a material impact on our condensed consolidated financial statements. See Note 12 – Debt for additional information regarding the amendment to our term loan credit agreement.


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EHEALTH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 2 – Revenue

Disaggregation of Revenue – The table below depicts the disaggregation of revenue by product and is consistent with how we evaluate our financial performance (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Medicare
Medicare Advantage	$	37,454	$	36,557	$	152,061	$	209,224
Medicare Supplement	2,534		3,214		11,291		15,357
Medicare Part D	1,167		1,338		2,165		(2,953)
Total Medicare	41,155		41,109		165,517		221,628
Individual and Family (1)
Non-Qualified Health Plans	1,991		5,909		5,970		20,352
Qualified Health Plans	714		2,266		2,975		7,204
Total Individual and Family	2,705		8,175		8,945		27,556
Ancillary
Short-term	967		1,370		3,287		4,639
Dental	715		3,938		2,249		9,326
Vision	245		642		741		1,781
Other	674		845		1,803		1,901
Total Ancillary	2,601		6,795		8,080		17,647
Small Business	2,640		2,190		8,546		7,703
Commission Bonus and Other	(124)		922		(426)		1,532
Total Commission Revenue	48,977		59,191		190,662		276,066
Other Revenue
Sponsorship and Advertising Revenue	3,805		4,165		16,540		16,002
Other	594		558		1,833		2,617
Total Other Revenue	4,399		4,723		18,373		18,619
Total Revenue	$	53,376	$	63,914	$	209,035	$	294,685

_____________

(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 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.


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EHEALTH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Medicare
Commission Revenue from Members Approved During the Period	$	39,652	$	42,698	$	173,790	$	235,974
Net Commission Revenue from Members Approved in Prior Periods(1)	1,685		(171)		(9,052)		(11,700)
Total Medicare Segment Commission Revenue	$	41,337	$	42,527	$	164,738	$	224,274
Individual, Family and Small Business
Commission Revenue from Members Approved During the Period	$	3,600	$	4,892	$	14,254	$	16,495
Commission Revenue from Renewals of Small Business Members During the Period	2,200		1,744		7,281		6,154
Net Commission Revenue from Members Approved in Prior Periods(1)	1,840		10,028		4,389		29,143
Total IFP/SMB Segment Commission Revenue	$	7,640	$	16,664	$	25,924	$	51,792

Total Commission Revenue from Members Approved During the Period	$	43,252	$	47,590	$	188,044	$	252,469
Commission Revenue from Renewals of Small Business Members During the Period	2,200		1,744		7,281		6,154
Total Net Commission Revenue from Members Approved in Prior Periods (1)(2)	3,525		9,857		(4,663)		17,443
Total Commission Revenue	$	48,977	$	59,191	$	190,662	$	276,066

_____________

(1)These amounts reflect our revised estimates of cash collections for certain members approved prior to the relevant reporting period that are recognized as adjustments to revenue within the relevant reporting period. The net adjustment revenue includes both increases in revenue for certain prior period cohorts as well as reductions in revenue for certain prior period cohorts.

(2)The impacts of total net commission revenue from members approved in prior periods were $0.13 and $0.37 per basic and diluted share, for the three months ended September 30, 2022 and 2021, respectively. The impacts of total net commission revenue from members approved in prior periods were $(0.17) and $0.65 per basic and diluted share, for the nine months ended September 30, 2022 and 2021, respectively.

The total reductions to revenue from members approved in prior periods were $2.1 million and $3.2 million for the three months ended September 30, 2022 and 2021, respectively, and $15.8 million and $22.6 million for the nine months ended September 30, 2022 and 2021. These reductions to revenue primarily related to the Medicare segment.

Note 3 – Supplemental Financial Statement Information

Cash, Cash Equivalents and Restricted Cash

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. We also invest in marketable securities that are measured and recorded at fair value. See Note 4 – Fair Value Measurements for further discussion about our marketable securities.


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EHEALTH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Our cash, cash equivalents and restricted cash balances are summarized as follows (in thousands):


	September 30, 2022		December 31, 2021
Cash	$	23,476	$	33,253
Cash equivalents	136,782		48,673
Cash and cash equivalents	160,258		81,926
Restricted cash	3,239		3,239
Total cash, cash equivalents and restricted cash	$	163,497	$	85,165

As of September 30, 2022 and December 31, 2021, we had $3.2 million of restricted cash which was classified as a non-current asset on our Condensed Consolidated Balance Sheets. This amount collateralizes letters of credit related to certain lease commitments.

Contract Assets and Accounts Receivable

We do not require collateral or other security for our contract assets and accounts receivable. We believe the potential for collection issues with any of our customers was minimal as of September 30, 2022.

We estimate an allowance for credit losses using relevant available information from internal and external sources, related to past events, current conditions, and reasonable and supportable forecasts. Specifically, for the purpose of measuring the probability of default parameters, we utilize Capital IQ’s, Standard & Poor’s and Moody’s analytics. Our estimates of loss given default are determined by using our historical collections data as well as historical information obtained through our research and review of other insurance related companies. Our estimated exposure at default is determined by applying these internal and external data sources to our commission receivable balances. As such, we apply an immediate reversion method and revert to historical loss information when computing our credit loss exposure. Credit loss expenses are assessed quarterly and included in the "General and administrative" line in our Condensed Consolidated Statements of Comprehensive Loss. There were no write-offs during the nine months ended September 30, 2022 and 2021.

We considered the impact of recent events and global economic conditions when evaluating the appropriate adjustments to our allowance for credit losses as of September 30, 2022. We also considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic.

The change in the allowance for credit losses for the nine months ended September 30, 2022 is summarized as follows (in thousands):



Beginning balance	$	2,198
Change in allowance	9
Ending balance	$	2,207


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EHEALTH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Our contract assets – commission receivable activities, net of credit loss allowances are summarized as follows (in thousands):


	Nine Months Ended September 30, 2022
	Medicare Segment		IFP/SMB Segment		Total
Beginning balance	$	837,474	$	70,788	$	908,262
Commission revenue from members approved during the period	173,790		14,254		188,044
Commission revenue from renewals of small business members during the period