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EHEALTH, INC. – 10-K – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Please read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included under Part II, Item 8 of this Annual Report on Form 10-K. Overview We are a leading private online health insurance marketplace with a technology and service platform that provides consumer engagement, education, and health insurance enrollment solutions. Our mission is to expertly guide consumers through their health insurance enrollment and related options, when, where, and how they prefer. Our platform leverages technology to solve a critical problem in a large and growing market by aiding consumers in what has traditionally been a complex, confusing, and opaque health insurance purchasing process. Our omnichannel consumer engagement platform differentiates our offering from other brokers and enables consumers to use our services online, by telephone with a licensed insurance agent, or through a hybrid online assisted interaction that includes live agent chat and co-browsing capabilities. We have created a consumer-centric marketplace that offers consumers a broad choice of insurance products that includes thousands of Medicare Advantage, Medicare Supplement, Medicare Part D prescription drug, individual, family, small business, and other ancillary health insurance products from approximately 200 health insurance carriers across all fifty states and theDistrict of Columbia . Our plan recommendation tool curates this broad plan selection by analyzing customer health-related information against plan data for insurance coverage fit. This tool is supported by a unified data platform and is available to our ecommerce customers and our licensed agents. We strive to be the most trusted partner to the consumer in their life's journey through the health insurance market.
Multi-Year Business Initiatives
In 2021, we launched several initiatives aimed at improving enrollment quality
and member retention in our Medicare business. In 2022, we began to implement a
business transformation plan across all key functional areas of our business
with emphasis on increasing the effectiveness of our marketing and telesales
organization and rationalizing our cost structure. We have observed impacts of
these initiatives on our results of operations, as further discussed below:
Enrollment Quality Assurance Initiatives - Enrollment quality, which has been
our focus since the launch of our retention program in 2020, helps ensure that
we present Medicare beneficiaries with choices that best align with their
eligibility status, lifestyle, health conditions, and economic means with the
goal of minimal disruption in existing provider relationships. We have sought
additional ways to improve our customer experience, enhance accuracy of plan
recommendations, and reduce disenrollment.
In the third quarter of 2021, we introduced additional mandatory training for
our agents, added a new customer care function to verify certain Medicare
enrollments prior to submission to the carrier, and expanded other quality
assurance efforts. We also shifted the mix of our telesales capacity towards
full-time internal agents and away from third party vendor agents. In 2022, we
maintained our strategy of keeping the majority of our agent force internal. We
also made other important changes across our call centers to improve the
effectiveness of our agents and further enhance consumer experience. These
changes include the migration of our call center technology to a new cloud-based
agent monitoring system, which provides new robust capabilities to train agents
and monitor their performance in real time.
The introduction of enrollment quality assurance in the third quarter of 2021,
in particular, resulted in an initial decline in conversion rates and longer
talk times through the second quarter of 2022. However, we are seeing the
improvement in enrollment quality metrics including Complaint Tracking Module
("CTM") scores and retention characteristics for the new enrollments that we
added during the annual enrollment period in 2022, relative to comparable
enrollment cohorts from the 2021 and 2020 annual enrollment periods. In the
second half of 2022, we achieved a significant year-over-year increase in
conversion rates on our Medicare calls and increased productivity
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from our tenured and newly hired agents, while maintaining or, in some cases,
further improving enrollment quality metrics.
Transformation Plan - In 2022, we launched a multi-year transformation plan to
increase our effectiveness in generating and converting consumer demand,
right-size our cost structure and drive future profitability. This plan
incorporates different operational and cost savings initiatives, including a
reduction in vendor-related spend outside of mission critical areas, plans to
reduce our real-estate footprint as we become a remote first workplace, and a
targeted workforce reduction. During the second quarter of 2022 we eliminated
over 300 full-time positions, representing approximately 14% of our workforce,
primarily within our customer care and enrollment group, and to a lesser extent,
in our marketing and advertising, technology and content, and general and
administrative groups.
We have also made changes to variable cost management. These initiatives are
intended to improve our operations through right-sizing our agent force and
better deployment of marketing expenses. For example, we have de-emphasized
underperforming demand generation channels in favor of channels that bring
higher quality leads. Through this transformation plan, we have achieved
significant cost savings while preserving our competitive edge and focusing on
initiatives with highest in-period returns on investment. In 2022, we achieved
over $110 million in annualized cost savings compared to 2021. The variable cost
reduction resulted in a decline in our enrollments and revenue in 2022. However,
we believe that such decline is temporary before a return to enrollment growth
in 2023 on a significantly improved operations and cost foundation.
Update on COVID-19 and Remote First
We experienced a number of changes in our business related to the impacts from the COVID-19 pandemic from 2020 onwards. As a result of the pandemic, we had to adjust our business operations, including shifting to a remote work model and onboarding and training new health insurance agents remotely. Since the pandemic, we have offered several programs to provide additional support to our employees and contractors, including our comfort equipment reimbursement program and Internet and mobile phone reimbursement programs to assist all employees with purchasing equipment to better enable remote work; access to digital health and mental wellness services for employees; and rigorous remote training programs. In the third quarter of 2022, the Company announced a remote first workplace model inthe United States . As a result, except for those employees whose job responsibilities require in-office work, none of our employees are required to work at the office. As part of the remote first strategy, inAugust 2022 , we subleased a portion of our office space located inSanta Clara, California , and retained a portion to be used through first quarter of 2023. We also subleased or vacated other office spaces and evaluated certain of its right-of-use assets and other lease related assets including leasehold improvements, furniture and fixtures, and computer equipment for impairment under Accounting Standards Codification ("ASC") 360. As we continue to assess challenges associated with enabling remote work, including the reconfiguration of work space and our facility footprint and fostering a cohesive workplace culture, we believe flexible workforce positions will make us a more attractive employer, increase productivity, and enable us to recruit from a more diverse pool of applicants.
Summary of Selected Metrics
We rely upon certain metrics to estimate and recognize commission revenue,
evaluate our business performance and facilitate strategic planning. Our
commission revenue is influenced by a number of factors including but not
limited to:
•the number of individuals on applications for Medicare-related, individual and
family, small business and ancillary health insurance plans that are approved by
the relevant health insurance carriers;
•the number of approved members for Medicare-related, individual and family,
small business and ancillary health insurance plans from whom we have received
an initial commission payment; and
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•the constrained lifetime value ("LTV"), of approved members for
Medicare-related, individual and family and ancillary health insurance plans we
sell as well as the estimated annual value of approved members for small
business plans we sell.
Approved Members Approved members represent the number of individuals on submitted applications that were approved by the relevant insurance carrier for the identified product during the current period. The applications may be submitted in either the current period or prior periods. Not all approved members ultimately become paying members.
The following table shows approved members for the years presented:
Year Ended December 31,
2022 2021
2020
Medicare
Medicare Advantage 302,949 399,758
387,652
Medicare Supplement 18,569 28,020 40,551 Medicare Part D 40,094 73,292 74,357 Total Medicare 361,612 501,070 502,560 Individual and Family 33,271 42,711 33,328 Ancillary 72,004 97,694 114,946 Small Business 9,722 11,432 14,809 Total Approved Members 476,609 652,907
665,643
2022 compared to 2021 - Medicare approved members declined 28% in 2022 compared to 2021 due to a decrease in approved members across all Medicare products that we market, including Medicare Advantage, Medicare Supplement, and Medicare Part D prescription drug plans. This decline reflects our decision to temporarily pause enrollment volume while implementing various operational initiatives aimed at increasing the effectiveness of our sales and marketing organizations. Individual and family plan approved members declined 22% in 2022 compared to 2021 due to a 36% decline in approved members for qualified health plans and an 8% decline in non-qualified health plan approved members primarily due to a reduction in marketing spend. Ancillary plan approved members declined 26% in 2022 compared to 2021 primarily due to decreased approved members across most ancillary plans. This decrease was partly attributed to the decline in individual and family plan enrollment volume as these enrollments can result in additional sales of ancillary products. Small business group health insurance approved members declined 15% in 2022 compared to 2021 due to the continued shift of our focus away from the sale of small business products. 2021 compared to 2020 - Medicare approved members remained flat in 2021 compared to 2020 due to a 3% growth in Medicare Advantage plan approved members, offset by decreased Medicare Supplement and Medicare Part D plan approved members. The increase in approved Medicare Advantage members was primarily due to our investments in customer care and enrollment and marketing, and an increase in online enrollment, partially offset by a decline in telesales conversion rate during the second half of 2021. Individual and family plan approved members grew 28% in 2021 compared to 2020 primarily due to a 57% increase in approved members for qualified health plans and an 8% increase in non-qualified health plan approved members. The individual and family health insurance market benefited from the passage of the American Rescue Plan Act adopted inMarch 2021 . This legislation expanded access to premium credits making individual and family major medical plans more affordable, which allows a larger population to get the coverage that our major medical plans offer. The credits cover the 2021 and 2022 plan years, after which the credit subsidies expire. Ancillary plan approved members declined 15% in 2021 compared to 2020 primarily due to a decrease in short-term health insurance plans and other ancillary plans approved members. Small business group insurance 50 -------------------------------------------------------------------------------- Table of Contents approved members declined 23% in 2021 compared to 2020 mainly due to the shift of our focus away from the sale of small business products.
Estimated Constrained Lifetime Value of Commissions Per Approved Member
The following table shows our estimated constrained LTV, of commissions per
approved member by product for the years presented:
Year Ended December 31,
2022 2021 2020
Medicare:
Medicare Advantage (1) $ 975 $ 979 $ 952
Medicare Supplement (1) 935 993 1,125
Medicare Part D (1) 194 203 215
Individual and Family:
Non-Qualified Health Plans (1) 361 274 203
Qualified Health Plans (1) 333 311 265
Ancillaries:
Short-term (1) 166 169 162
Dental (1) 105 96 79
Vision (1) 63 61 55
Small Business (2) 212 182 157
__________
(1)Constrained LTV of commissions per approved member represents commissions
estimated to be collected over the estimated life of an approved member's plan
after applying constraints in accordance with our revenue recognition policy.
The estimate is driven by multiple factors, including but not limited to,
contracted commission rates, carrier mix, estimated average plan duration, the
regulatory environment, and cancellations of insurance plans offered by health
insurance carriers with which we have a relationship. These factors may result
in varying values from period to period. For additional information on
constrained LTV, see Critical Accounting Policies and Estimates.
(2)For small business, the amount represents the estimated commissions we expect
to collect from the plan over the following twelve months. The estimate is
driven by multiple factors, including but not limited to, contracted commission
rates, carrier mix, estimated average plan duration, the regulatory environment,
and cancellations of insurance plans offered by health insurance carriers with
which we have a relationship and applied constraints. These factors may result
in varying values from period to period.
Medicare
2022 compared to 2021 - The constrained LTV of commissions per approved member
was flat for Medicare Advantage plans and decreased for Medicare Supplement and
Medicare Part D plans in 2022 compared to 2021. Medicare Advantage plans
experienced decreased estimated average plan durations and higher churn
observations, the impacts of which were offset by increased contracted rates and
improved quality metrics. The decline in constrained LTV of commissions per
approved member for Medicare Supplement and Medicare Part D plans was primarily
due to decreased estimated average plan durations and higher churn observations.
2021 compared to 2020 - The constrained LTV of commissions per approved member
for Medicare Advantage plans increased 3% and decreased by 12% and 6%,
respectively, for Medicare Supplement and Medicare Part D prescription drug
plans in 2021 compared to 2020. The increase in constrained LTV of Medicare
Advantage plans was primarily due to higher commissions rates. The decline in
constrained LTV of commissions per approved member for Medicare Supplement and
Medicare Part D prescription drug plans was primarily due to shorter estimated
average plan durations for both products.
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Individual and Family and Ancillaries
2022 compared to 2021 - The constrained LTV of commissions per approved
non-qualified health plan member increased by 32% in 2022 compared to 2021
primarily due to more stable churn observations and an increase in estimated
average plan duration. The constrained LTV of commissions per approved qualified
health plan member increased by 7% in 2022 compared to 2021 due to a slight
increase in average plan duration. The constrained LTV of commissions per
approved member increased for dental, vision, and small business insurance plans
by 9%, 3%, and 16%, respectively, in 2022 compared to 2021 primarily as a result
of an increase in estimated average plan duration. The increase in small
business insurance plan was also due to higher commissions per group.
2021 compared to 2020 - The constrained LTV of commissions per approved
qualified health plan member increased by 17% in 2021 compared to 2020 primarily
due to increased estimates of average plan duration and a lower constraint for
non-qualified health insurance plans. The constrained LTV of commissions per
approved member for short-term health insurance, dental, vision, and small
business insurance plans increased 4%, 22%, 11%, and 16%, respectively, in 2021
compared to 2020 primarily as a result of an increase in estimated average plan
duration.
The constraints applied to the total estimated lifetime commissions we expect to
receive for selling the plan after the carrier approves an application in order
to derive the constrained LTV of commissions for approved members recognized for
the periods presented below are summarized as follows:
Year Ended
December 31,
2022 2021
Medicare
Medicare Advantage 7 % 7 %
Medicare Supplement 9 % 9 %
Medicare Part D 7 % 7 %
Individual and Family
Non-Qualified Health Plans 4 % 7 %
Qualified Health Plans 4 % 4 %
Ancillary Products
Short-term 20 % 20 %
Dental 5 % 5 %
Vision 5 % 5 %
Other 10 % 10 %
Small Business 5 % 5 %
The constraints for all Medicare products remained the same during the year
ended December 31, 2022 , as compared to the same period in the prior year. The
constraints for non-qualified health plans decreased during the year ended
December 31, 2022 , as compared to the same period in the prior year, due to
stabilization of market conditions and historical increases in LTV values.
Qualified health plans, ancillary plans and small business insurance plans
remained the same during the year ended December 31, 2022 , as compared to the
same period in the prior year.
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Estimated Membership
Estimated membership represents the estimated number of members active as of the
date indicated based on the number of members for whom we have received or
applied a commission payment during the period of estimation. The following
table shows estimated membership as of the periods presented below:
As of December 31,
2022 2021 2020
Medicare (1)
Medicare Advantage 645,864 632,574 533,282
Medicare Supplement 100,039 101,794 104,188
Medicare Part D 229,962 225,129 238,503
Total Medicare 975,865 959,497 875,973
Individual and Family (1) 102,971 105,211 116,247
Ancillaries (1) 214,570 235,017 247,355
Small Business (2) 45,584 46,650 45,771
Total Estimated Membership 1,338,990 1,346,375 1,285,346
__________________
(1)To estimate the number of members on Medicare-related, individual and family,
and ancillary health insurance plans, we take the respective sum of (i) the
number of members for whom we have received or applied a commission payment for
a month that may be up to three months prior to the date of estimation (after
reducing that number using historical experience for assumed member
cancellations over the period being estimated); and (ii) the number of approved
members over that period (after reducing that number using historical experience
for an assumed number of members who do not accept their approved policy and for
estimated member cancellations through the date of the estimate). To the extent
we determine through confirmations from a health insurance carrier that a
commission payment is delayed or is inaccurate as of the date of estimation, we
adjust the estimated membership to also reflect the number of members for whom
we expect to receive or to refund a commission payment. Further, to the extent
we have received substantially all of the commission payments related to a given
month during the period being estimated, we will take the number of members for
whom we have received or applied a commission payment during the month of
estimation. For ancillary health insurance plans, the one to three-month period
varies by insurance product and is largely dependent upon the timeliness of
commission payment and related reporting from the related carriers.
(2)To estimate the number of members on small business health insurance plans,
we use the number of initial members at the time the group was approved, and we
update this number for changes in membership if such changes are reported to us
by the group or carrier. However, groups generally notify the carrier directly
of policy cancellations and increases or decreases in group size without
informing us. Health insurance carriers often do not communicate policy
cancellation information or group size changes to us. We often are made aware of
policy cancellations and group size changes at the time of annual renewal and
update our membership statistics accordingly in the period they are reported.
A member who purchases and is active on multiple standalone insurance plans will
be counted as a member more than once. For example, a member who is active on
both an individual and family health insurance plan and a standalone dental plan
will be counted as two continuing members.
Health insurance carriers bill and collect insurance premiums paid by our
members. The carriers do not report to us the number of members that we have as
of a given date. The majority of our members who terminate their plans do so by
discontinuing their premium payments to the carrier or notifying the carrier
directly and do not inform us of the cancellation. Also, some of our members pay
their premiums less frequently than monthly. Given the number of months required
to observe non-payment of commissions in order to confirm cancellations, we
estimate the number of members who are active on insurance policies as of a
specified date.
After we have estimated membership for a period, we may receive information from
health insurance carriers that would have impacted the estimate if we had
received the information prior to the date of estimation. We may receive
commission payments or other information that indicates that a member who was
not included in our estimates for a prior period was in fact an active member at
that time, or that a member who was included in our estimates was in fact not an
active member of ours. For instance, we reconcile information carriers provide
to us and may determine that we were not historically paid commissions owed to
us, which would cause us to have underestimated membership. Conversely, carriers
may require us to return commission payments paid in a prior period due to
policy cancellations for members we previously estimated as being active. We do
not update our estimated membership numbers reported in previous periods.
Instead, we reflect updated information regarding our historical membership in
the membership estimate for the current period. If we experience a significant
variance in
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historical membership as compared to our initial estimates, we may provide the
updated information in other communications or disclosures. As a result of the
delay in our receipt of information from insurance carriers, actual trends in
our membership are most discernible over periods longer than from one quarter to
the next. As a result of the delay we experience in receiving information about
our membership, it is difficult for us to determine with any certainty the
impact of current conditions on our membership retention. Various circumstances
could cause the assumptions and estimates that we make in connection with
estimating our membership to be inaccurate, which would cause our membership
estimates to be inaccurate.
2022 compared to 2021 - Medicare estimated membership increased 2% as of
December 31, 2022 compared to December 31, 2021 , driven by a 2% increase in both
Medicare Advantage and Medicare Part D plan estimated memberships, offset by a
2% decline in Medicare Supplement plan estimated membership. The overall growth
in Medicare estimated membership reflects new enrollments we generated during
the year, net of estimated attrition. Individual and family plan estimated
membership declined by 2% as of December 31, 2022 compared to December 31, 2021
due to a decrease in new enrollments. Ancillary plan estimated membership as of
December 31, 2022 declined 9% compared to estimated membership as of December
31, 2021 due to the decline of estimated membership across all ancillary plans.
2021 compared to 2020 - Medicare estimated membership grew 10% as of December
31, 2021 compared to December 31, 2020 driven by a 19% increase in Medicare
Advantage, offset by 6% and 2% decreases in Medicare Part D prescription drug
plan and Medicare Supplement plan estimated memberships, respectively. The
overall growth in Medicare estimated membership reflected new enrollments we
generated during the year, net of estimated attrition. Individual and family
plan estimated membership declined by 9% as of December 31, 2021 compared to
December 31, 2020 due to our previous decision to shift our investment to our
Medicare business. Ancillary plan estimated membership as of December 31, 2021
declined 5% compared to estimated membership as of December 31, 2020 primarily
as a result of the decline of estimated membership of dental, short-term health
plans, and other ancillary plans.
Member Acquisition
Marketing initiatives are an important component of our strategy to increase
revenue and are primarily designed to encourage consumers to complete an
application for health insurance. Variable marketing cost represents direct
costs incurred in member acquisition from our direct, marketing partners and
online advertising channels. In addition, we incur customer care and enrollment
("CC&E") expenses in assisting applicants during the enrollment process.
Variable marketing costs exclude fixed overhead costs, such as personnel related
costs, consulting expenses, facilities and other operating costs allocated to
the marketing and advertising department.
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The following table shows the estimated variable marketing cost per approved
member and the estimated CC&E expense per approved member metrics for the years
presented below. The numerator used to calculate each metric is the portion of
the respective operating expenses for marketing and advertising and CC&E that is
directly related to member acquisition for our sale of Medicare Advantage,
Medicare Supplement and Medicare Part D prescription drug plans (collectively,
"Medicare Plans") and for all individual and family major medical plans and
short-term health insurance plans (collectively, "IFP Plans"), respectively. The
denominator used to calculate each metric is based on a derived metric that
represents the relative value of the new members acquired. For Medicare Plans,
we call this derived metric Medicare Advantage ("MA")-equivalent members, and
for IFP Plans, we call this derived metric IFP-equivalent members. The
calculations for MA-equivalent members and for IFP-equivalent members are based
on the weighted number of approved members for Medicare Plans and IFP Plans
during the year, with the number of approved members adjusted based on the
relative LTV of the product they are purchasing. Since the LTV for any product
fluctuates from year to year, the weight given to each product was determined
based on their relative LTVs at the time of our adoption of ASC 606.
Year Ended December 31,
2022 2021 2020
Medicare:
Estimated CC&E cost per MA-equivalent approved member (1)
Estimated variable marketing cost per MA-equivalent approved
member (1)
491 523 384 Total Medicare estimated cost per approved member$ 888 $ 906 $ 752 Individual and Family Plan: Estimated CC&E cost per IFP-equivalent approved member (2)$ 131
Estimated variable marketing cost per IFP-equivalent approved
member (2)
72 67 83 Total IFP estimated cost per approved member$ 203 $ 158 $ 175 _____________ (1)MA-equivalent approved members is a derived metric with a Medicare Part D approved member being weighted at 25% of a Medicare Advantage member and a Medicare Supplement member based on their relative LTVs at the time of our adoption of ASC 606. We calculate the number of MA-equivalent approved members by adding the total number of approved Medicare Advantage and Medicare Supplement members and 25% of the total number of approved Medicare Part D members during the years presented. (2)IFP-equivalent approved members is a derived metric with a short-term approved member being weighted at 33% of a major medical individual and family health insurance plan member based on their relative LTVs at the time of our adoption of ASC 606. We calculate the number of IFP-equivalent approved members by adding the total number of approved qualified and non-qualified health plan members and 33% of the total number of short-term approved members during the years presented. 2022 compared to 2021 - Estimated CC&E cost per MA-equivalent approved member increased$14 , or 4%, in 2022 compared to 2021 driven primarily by overall lower telephonic conversion rates combined with a large number of full-time Medicare agents relative to our planned demand needs at the beginning of the year until the cost reduction program was implemented inApril 2022 . Estimated variable marketing cost per MA-equivalent approved member decreased by 6% in 2022 compared to 2021, primarily due to a decline in our marketing spend as part of our cost savings initiatives in 2022. Estimated variable CC&E cost per IFP-equivalent approved member increased$40 , or 44%, in 2022 compared to 2021 primarily due to an increase in the number of agents as we pursue the emerging opportunities in the individual coverage health reimbursement arrangement and state exchange business. Estimated variable marketing cost per IFP-equivalent approved member increased by 7% in 2022 compared to 2021 primarily driven by the decline in approved members. 2021 compared to 2020 - Estimated CC&E costs per MA-equivalent approved member increased 4% in 2021 compared to 2020, due to lower enrollment volume resulting from enrollment quality initiatives, a decline in our telesales conversion rate, and an earlier start to our staffing increase for the Medicare annual enrollment period in 2021. Estimated variable marketing costs per MA-equivalent approved member increased by 36% in 2021 compared to 2020, primarily due to a decline in telesales conversion rates leading to a reduced return on our marketing spend and an increase in cost of leads in certain marketing channels, such as direct television and direct mail. In addition, a greater focus on our online advertising channel also contributed to the increase as it carries higher per enrollment marketing costs but lower customer care and enrollment costs. 55 -------------------------------------------------------------------------------- Table of Contents Estimated CC&E cost per IFP-equivalent approved member decreased 1% in 2021 compared to 2020 due primarily to a decrease in costs and an increase in the number of approved members. Estimated variable marketing cost per IFP-equivalent approved member decreased by 19% in 2021 compared to 2020 due primarily to a decrease in online marketing spend and an increase in the number of approved members. Results of Operations
The following table sets forth our operating results and related percentage of
total revenues for the years presented below (dollars in thousands):
Year Ended
2022 2021 2020 Revenue: Commission$ 361,246 89 %$ 493,119 92 %$ 508,189 87 % Other 44,110 11 % 45,080 8 % 74,585 13 % Total revenue 405,356 100 % 538,199 100 % 582,774 100 % Operating costs and expenses (1) Cost of revenue 1,647 - % 1,992 - % 4,083 1 % Marketing and advertising 195,088 48 % 271,300 50 % 209,340 36 % Customer care and enrollment 141,099 35 % 179,295 33 % 172,895 30 % Technology and content 78,809 19 % 83,800 16 % 65,188 11 % General and administrative 71,810 18 % 75,699 14 % 76,452 13 % Amortization of intangible assets - - % 536 - % 1,493 - % Impairment, restructuring and other charges 19,616 5 % 51,222 10 % - - % Total operating costs and expenses 508,069 125 % 663,844 123 % 529,451 91 % Income (loss) from operations (102,713) (25) % (125,645) (23) % 53,323 9 % Other income (expense), net (3,676) (1) % 755 - % 666 - % Income (loss) before income taxes (106,389) (26) % (124,890) (23) % 53,989 9 % Provision for (benefit from) income taxes (17,667) (4) % (20,515) (4) % 8,539 1 % Net income (loss)$ (88,722) (22) %$ (104,375) (19) %$ 45,450 8 % ____________
(1) Operating costs and expenses include the following amounts of stock-based
compensation expense (in thousands):
Year Ended December 31,
2022 2021 2020
Marketing and advertising $ 1,901 $ 8,660 $ 5,102
Customer care and enrollment 2,096 2,836 2,723
Technology and content 6,015 10,013 5,460
General and administrative 10,304 11,348 11,887
Total stock-based compensation expense
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Revenue
Our commission revenue, other revenue and total revenue are summarized as
follows (dollars in thousands):
Change Change
2022 $ % 2021 $ % 2020
Commission $ 361,246 $ (131,873) (27) % $ 493,119 $ (15,070) (3) % $ 508,189
% of total revenue 89 % 92 % 87 %
Other 44,110 (970) (2) % 45,080 (29,505) (40) % 74,585
% of total revenue 11 % 8 % 13 %
Total revenue
2022 compared to 2021 - Commission revenue decreased$131.9 million , or 27%, in 2022 compared to 2021 due to a$109.1 million , or 25%, decrease in commission revenue from the Medicare segment and a$22.7 million , or 36%, decrease in commission revenue from the Individual, Family and Small Business segment. The decrease in commission revenue from the Medicare segment was driven by a 28% decline in Medicare plan approved members across all Medicare products that we market, reflecting our decision to temporarily pause enrollment growth while implementing a number of operational initiatives aimed at increasing the effectiveness of our sales and marketing organizations. This impact of lower enrollment volume was partially offset by net adjustment revenue from prior period enrollments of$(2.3) million for the year endedDecember 31, 2022 which was favorable compared to$(8.4) million of net adjustment revenue for the same period in 2021. Net adjustment revenue consists of increases in revenue for certain prior period cohorts as well as reductions in revenue for certain prior period cohorts. We recognize positive adjustments to revenue to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. The decrease in commission revenue from the Individual, Family and Small Business segment was primarily due to a 22% decrease in individual and family plan approved members, a 26% decline in ancillary product approved members and$8.7 million in net adjustment revenue from prior period enrollments for the year endedDecember 31, 2022 compared to$30.2 million of net adjustment revenue for the same period in 2021. See Segment Information below and Note 2 - Revenue in our Notes to Consolidated Financial Statements for more information.
Other revenue decreased
in 2021 due to a decrease in advertising revenue.
2021 compared to 2020 - Commission revenue decreased$15.1 million , or 3%, in 2021 compared to 2020 due to a$17.1 million , or 4%, decrease in commission revenue from the Medicare segment, offset by a$2.0 million , or 3%, increase in commission revenue from the Individual, Family and Small Business segment. The decrease in commission revenue from the Medicare segment for the year endedDecember 31, 2021 compared to 2020 was primarily due to a decrease in net adjustment revenue and a decline in the estimated constrained LTV and lower enrollment volume for Medicare Supplement and Medicare Part D prescription drug plans, partially offset by an increase in constrained LTV and enrollment volume for Medicare Advantage plans. The increase in commission revenue from the Individual, Family and Small Business segment was primarily driven by a 28% increase in individual and family plan approved members. Net adjustment revenue for our Medicare segment in 2021 and 2020 was$(8.4) million and$5.7 million , respectively. For our Individual, Family and Small Business segment net adjustment revenue in 2021 and 2020 was$30.2 million and$33.1 million , respectively.
Other revenue decreased
period in 2020 due to a decrease in Medicare advertising revenue as a result of
a decrease in the size and number of advertising programs with certain carriers.
57 -------------------------------------------------------------------------------- Table of Contents Cost of Revenue Cost of revenue consists of payments related to health insurance plans sold to members who were referred to our website by marketing partners with whom we have revenue-sharing arrangements. In order to enter into a revenue-sharing arrangement, marketing partners must be licensed to sell health insurance in the state where the policy is sold. Costs related to revenue-sharing arrangements are expensed as the related revenue is recognized. Additionally, cost of revenue includes the amortization of consideration we paid to certain broker partners in connection with the transfer of their health insurance members to us as the new broker of record on the underlying plans. These transfers include primarily Medicare plan members. Consideration for all book-of-business transfers is being amortized to cost of revenue as we recognize commission revenue related to the transferred members.
Our cost of revenue is summarized as follows (dollars in thousands):
Change Change
2022 $ % 2021 $ % 2020
Cost of revenue
% of total revenue - %
- % 1 %
2022 compared to 2021 - Cost of revenue decreased
to 2021, primarily due to decreased activity from our revenue sharing
arrangements.
2021 compared to 2020 - Cost of revenue decreased
to 2020, primarily due to decreased activity from our revenue sharing
arrangements.
Marketing and Advertising
Marketing and advertising expenses consist primarily of member acquisition
expenses associated with our direct, marketing partner, and online advertising
member acquisition channels, in addition to compensation and other expenses
related to marketing, business development, partner management, public relations
and carrier relations personnel who support our offerings. We recognize expenses
in our direct member acquisition channel in the period in which they are
incurred. We generally compensate our marketing partners for referrals based on
the consumer submitting a health insurance application on our platform,
regardless of whether the consumer's application is approved by the health
insurance carrier, or for the referral of a Medicare-related lead to us by the
marketing partner.
Some of our marketing partners have tiered arrangements where the amount we pay
the marketing partner per submitted application increases as the volume of
submitted applications we receive from the marketing partner increases. We
recognize these expenditures in the period when a marketing partner's referral
results in the submission of a health insurance application. We recognize
expenses in our online advertising member acquisition channels in the period in
which the consumer clicks on the advertisement. Increases in submitted
applications resulting from marketing partner referrals or visitors to our
website from our online advertising channel has in the past, and could in the
future, result in marketing and advertising expenses significantly higher than
our expectations.
Our marketing and advertising expenses are summarized as follows (dollars in
thousands):
Change Change
2022 $ % 2021 $ % 2020
Marketing and advertising $ 195,088 $ (76,212) (28) % $ 271,300 $ 61,960 30 % $ 209,340
% of total revenue 48 % 50 % 36 %
2022 compared to 2021 - Marketing and advertising expenses decreased by $76.2
million , or 28%, in 2022, compared to 2021, primarily due to a $70.7 million
decrease in variable advertising costs, $6.8 million decrease in stock-based
compensation, and $1.4 million decrease in personnel related costs, partially
offset by increases of $1.9 million in consulting costs and $1.3 million in
facilities and operating costs. The decrease in variable advertising expenses
was due to a decrease in our advertising expense through select lead generation
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partners and direct TV channels as we shifted to a more targeted deployment of
our marketing budget to emphasize the highest performing channels.
2021 compared to 2020 - Marketing and advertising expenses increased by $62.0
million , or 30%, in 2021 compared to 2020, primarily due to a $60.4 million
increase in variable advertising costs, $3.6 million increase in stock-based
compensation, and $0.7 million increase in facilities and operating costs,
partially offset by decreases in consulting and personnel related costs. The
increase in variable advertising and expenses was due to an increase in our
advertising expense through our affiliate lead generation partner and online
channels. The increase in expense as a percentage of revenue reflects lower than
expected volume driven by underperformance of certain marketing channels.
Customer Care and Enrollment
Customer care and enrollment expenses primarily consist of compensation,
benefits, and licensing costs for personnel engaged in assistance to applicants
who call our customer care center and for enrollment personnel who assist
applicants during the enrollment process.
Our customer care and enrollment expenses are summarized as follows (dollars in
thousands):
Change Change
2022 $ % 2021 $ % 2020
Customer care and enrollment $ 141,099 $ (38,196) (21) % $ 179,295 $ 6,400 4 % $ 172,895
% of total revenue 35 % 33 % 30 %
2022 compared to 2021 - Customer care and enrollment expenses decreased by $38.2
million , or 21%, in 2022 compared to 2021. This decrease was primarily due to a
$32.1 million decrease in personnel costs associated with a decrease in
headcount, a $5.9 million decrease in consulting expenses and a $0.7 million
decrease in stock-based compensation expense, partially offset by a $0.7 million
increase in facilities and other operating expenses. The decrease in personnel
costs reflects our targeted headcount reduction implemented in April 2022 and
our decision to limit the hiring of new agents in preparation for the annual
enrollment period in the fourth quarter, compared to 2021.
2021 compared to 2020 - Customer care and enrollment expenses increased by $6.4
million , or 4%, in 2021 compared to 2020. This increase was primarily driven by
a $36.4 million increase in personnel costs associated with an increase in
customer care and enrollment headcount and a $3.3 million increase in facilities
and other operating expenses, partially offset by a $27.5 million decrease in
spending on external call center and agents, and a $6.6 million decrease in
licensing costs. The decrease in licensing costs was primarily due to previously
over-recognized licensing costs that were adjusted during the first quarter of
2021.
During 2021, we shifted to a predominantly internal agent model with the intent
to employ and maintain the majority of our health insurance agent force
year-round. We started internal agent hiring and training earlier in 2021
compared to 2020, with the largest headcount increase in the second and third
quarters. In October 2021 , we entered the annual enrollment period with over 95%
of our sales force consisting of internal agents, the largest number of
full-time agents in our company's history. We also incurred more spending on
agent training and the expansion of our customer service team in the second half
of 2021, including the addition of a new customer care role to verify Medicare
enrollments prior to submission and expanding our quality assurance efforts.
Technology and Content
Technology and content expenses consist primarily of compensation and benefits
costs for personnel associated with developing and enhancing our website
technology as well as maintaining our website. A portion of our technology and
content group is located at our wholly-owned subsidiary in China , where
technology development costs are generally lower than in the United States .
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Our technology and content expenses are summarized as follows (dollars in
thousands):
Change Change
2022 $ % 2021 $ % 2020
Technology and content
$ 18,612 29 %$ 65,188 % of total revenue 19 % 16 % 11 % 2022 compared to 2021 - Technology and content expenses decreased$5.0 million , or 6%, in 2022 compared to 2021, reflective of our cost reduction program and primarily due to decreases of$4.0 million in stock-based compensation expense,$2.8 million in consulting costs,$1.5 million in personnel and compensation costs due to lower headcount and a$1.6 million decrease in depreciation and amortization, partially offset by increases of$4.4 million in amortization of internally developed software and$0.5 million in facilities and other operating costs. 2021 compared to 2020 - Technology and content expenses increased$18.6 million , or 29%, in 2021 compared to 2020, primarily driven by increases of$6.9 million in personnel and compensation costs,$5.1 million in amortization of internally developed software,$4.6 million in stock-based compensation expense,$0.9 million in depreciation and amortization, and$0.9 million in facilities and other operating costs. The increase reflects an implementation of a cloud-based call center technology platform and further enhancements to our online user experience in 2021. General and Administrative General and administrative expenses include compensation and benefits costs for personnel working in our executive, finance, investor relations, government affairs, legal, human resources, internal audit, facilities, and internal information technology departments. These expenses also include fees paid for outside professional services, including audit, tax, legal, government affairs, and information technology fees. Our general and administrative expenses are summarized as follows (dollars in thousands): Change Change 2022 $ % 2021 $ % 2020 General and administrative$ 71,810 $ (3,889) (5) %$ 75,699 $ (753) (1) %$ 76,452 % of total revenue 18 % 14 % 13 % 2022 compared to 2021 - General and administrative expenses decreased by$3.9 million , or 5%, in 2022 compared to 2021, primarily due to decreases of$9.5 million in facilities and other operating costs and$1.0 million in stock-based compensation expense, partially offset by an increase of$5.9 million in compensation and personnel costs. 2021 compared to 2020 - General and administrative expenses decreased by$0.8 million , or 1%, in 2021 compared to 2020, primarily due to decreases of$2.8 million in compensation and personnel costs and$1.1 million in consulting expense, partly offset by a$2.7 million increase in professional fees. The decrease in stock-based compensation expenses in 2021 compared to 2020 was primarily attributable to a one-time reversal related to forfeited equity awards due to our former chief executive officer's termination of employment.
Amortization of Intangible Assets
Our intangible asset amortization expense is summarized as follows (dollars in
thousands):
Change Change
2022 $ % 2021 $ % 2020
Amortization of intangible assets $ - $ (536) (100) % $ 536 $ (957) (64) % $ 1,493
% of total revenue - % - % - %
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-------------------------------------------------------------------------------- Table of Contents 2022 compared to 2021 - Amortization expense decreased in 2022 compared to 2021 due to the impairment of our finite-lived intangible assets atDecember 31, 2021 . 2021 compared to 2020 - Amortization expense was primarily related to intangible assets purchased through our acquisitions. Amortization expense decreased in 2021 compared to 2020 due to certain intangible assets being fully amortized in 2021.
Impairment, Restructuring and Other Charges
Our impairment, restructuring and other charges consist primarily of severance,
transition and other related costs and goodwill and intangible asset impairment
charges. Our impairment, restructuring and other charges are summarized as
follows (dollars in thousands):
Change Change
2022 $ % 2021 $ % 2020
Impairment, restructuring and other
charges $ 19,616 $ (31,606) (62) % $ 51,222 $ 51,222 - % $ -
% of total revenue 5 % 10 % - %
2022 compared to 2021 - Impairment, restructuring and other charges for the year
ended December 31, 2022 primarily consisted of $12.1 million related to the
subleasing and vacating of several of our office spaces, primarily consisting of
$9.6 million of operating lease right-of-use asset and $2.2 million of property,
plant and equipment impairment charges as well as $7.5 million of severance and
other personnel related cost as a result of the restructuring that took place
throughout 2022. In the first half of 2022, we eliminated approximately 14% of
our workforce, primarily within our customer care and enrollment group, and to a
lesser extent, in our marketing and advertising, technology and content, and
general and administrative groups, and, as a result, recorded pre-tax
restructuring charges of $6.2 million of restructuring charges. In the second
half of 2022, we incurred pre-tax restructuring charges of $1.3 million for
additional eliminated positions.
2021 compared to 2020 - Impairment, restructuring and other charges for the year
ended December 31, 2021 were $51.2 million , consisting of $46.3 million in
impairment charges and $4.9 million in restructuring and reorganization charges.
We recorded an impairment charge of $40.2 million and $6.1 million related to
our goodwill and intangible assets, respectively, primarily due to the recent
change in our market valuation and financial performance. There were no
impairment charges record during the year ended December 31, 2020 . We incurred
$4.9 million in restructuring and reorganization charges in 2021, which
primarily consisted of the severance and other personnel related costs related
to the restructuring that took place in the first quarter of 2021 and the
severance and other personnel related cost related to the separation arrangement
with our former chief executive officer in September 2021 . We did not incur any
restructuring and reorganization charges in 2020.
Other Income (Expense), Net
Other income (expense), net, primarily consisted of interest income, sublease
income and margin earned on commissions received from Medicare plan members
transferred to us in 2010 through 2012 by a broker partner, partially offset by
interest expense on finance leases and debt and other bank fees.
Our other income (expense), net is summarized as follows (dollars in thousands):
Change Change
2022 $ % 2021 $ % 2020
Other income (expense), net $ (3,676) $ (4,431) (587) % $ 755 $ 89 13 % $ 666
% of total revenue (1) % - % - %
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-------------------------------------------------------------------------------- Table of Contents 2022 compared to 2021 - Other expense, net was$3.7 million in 2022 compared to other income, net of$0.8 million in 2021. The change was driven by$5.9 million of interest expense and$1.1 million of amortization of debt issuance costs related to the credit agreement withBlue Torch Finance, LLC , which was entered into during the first quarter of 2022, partially offset by an increase of$2.6 million in interest income.
2021 compared to 2021 - Other income, net was
Provision for (Benefit from) Income Taxes
The following table presents our provision for (benefit from) income taxes for
the years presented below (dollars in thousands):
Change Change
2022 $ % 2021 $ % 2020
Provision for (benefit from) $ (17,667) $ 2,848 (14)
%$ (20,515) $ (29,054) (340) %$ 8,539 income taxes Effective tax rate 16.6 % 16.4 % 15.8 % Year EndedDecember 31, 2022 - For the year endedDecember 31, 2022 , we recorded a benefit from income taxes of$17.7 million representing an effective tax rate of 16.6%. In 2022, the effective tax rate was lower than the statutory tax rate due to stock-based compensation adjustments and changes to the valuation allowance, offset by state tax and research and development tax credits. Year EndedDecember 31, 2021 - For the year endedDecember 31, 2021 , we recorded a benefit from income taxes of$20.5 million representing an effective tax rate of 16.4%. In 2021, the effective tax rate was lower than the statutory tax rate due to goodwill impairment, stock-based compensation adjustments, a valuation allowance of$3.2 million recorded on netCalifornia state deferred tax assets, partially offset by research and development tax credits. Year EndedDecember 31, 2020 - For the year endedDecember 31, 2020 , we recorded a provision for income taxes of income taxes of$8.5 million representing an effective tax rate of 15.8%. In 2020, the effective tax rate was lower than the statutory tax rate primarily due to stock-based compensation adjustments and research and development credits, offset by state tax and lobbying expenses. Segment Information 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.
Our CODM does not separately evaluate assets by segment, with the exception of
commissions receivable, and therefore assets by segment are not presented.
The Medicare segment consists primarily of amounts 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,
amounts from our sale of ancillary products sold to our Medicare-eligible
customers, including but not limited to, dental and vision plans, as well as
amounts we are paid in connection with our advertising program that allows
Medicare-related carriers to purchase advertising on a separate website
developed, hosted and maintained by us and to purchase other services such as
marketing and advertising services, as well as our delivery and sale to third
parties of Medicare-related health insurance leads generated by our ecommerce
platforms and our marketing activities.
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The Individual, Family and Small Business segment consists primarily of amounts
earned from our sale of individual, family and small business health insurance
plans and ancillary products sold to our non-Medicare-eligible applicants,
including but not limited to, dental, vision and short-term health insurance. To
a lesser extent, the Individual, Family and Small Business segment consists of
amounts earned from our online sponsorship program that allows carriers to
purchase advertising space in specific markets in a sponsorship area on our
website, our licensing to third parties for the use of our health insurance
ecommerce technology, and our delivery and sale to third parties of individual
and family health insurance leads generated by our ecommerce platforms and our
marketing activities.
Marketing and advertising, customer care and enrollment, technology and content
and general and administrative operating expenses that are directly attributable
to a segment are reported within the applicable segment. Indirect marketing and
advertising, customer care and enrollment, and technology and content operating
expenses are allocated to each segment based on usage. Other indirect general
and administrative operating expenses are managed in a corporate shared services
environment and, since they are not the responsibility of segment operating
management, are not allocated to the operating segments and instead reported
within Corporate.
Segment profit (loss) is calculated as total revenue for the applicable segment
less direct and indirect allocated marketing and advertising, customer care and
enrollment, technology and content and general and administrative operating
expenses, excluding stock-based compensation expense, depreciation and
amortization, amortization of intangible assets, and impairment, restructuring
and other charges.
Our operating segment revenue and profit (loss) are summarized as follows (in
thousands):
Change Change
2022 $ % 2021 $ % 2020
Revenue:
Medicare $ 361,687 $ (109,530) (23) % $ 471,217 $ (45,545) (9) % $ 516,762
Individual, Family and Small Business 43,669 (23,313) (35) % 66,982 970 1 % 66,012
Total revenue $ 405,356 (132,843) (25) % $ 538,199 (44,575) (8) % $ 582,774
Segment profit (loss)
Medicare(1) $ (9,873) 2,206 (18) % $ (12,079) (120,866) (111) % $ 108,787
Individual, Family and Small
Business(1) 21,438 (24,267) (53) % 45,705 5,390 13 % 40,315
Segment profit 11,565 (22,061) (66) % 33,626 (115,476) (77) % 149,102
Corporate (53,238) 3,087 (5) % (56,325) 1,339 (2) % (57,664)
Stock-based compensation expense (20,316) 12,541 (38) % (32,857) (7,685) 31 %
(25,172)
Depreciation and amortization(2) (21,108) (2,777) (15) % (18,331) (6,881) 60 %
(11,450)
Impairment, restructuring and other charges (19,616) 31,606 (62) % (51,222) (51,222) - %
-
Amortization of intangible assets - 536 (100) % (536) 957 (64) %
(1,493)
Other income (expense), net (3,676) (4,431) (587) % 755 89 13 %
666
Income (loss) before income taxes$ (106,389) 18,501 (15) %$ (124,890) (178,879) (331) %$ 53,989 _______ (1) During the first quarter of 2021, we revised the calculation of segment profit by excluding amortization of capitalized software development costs to enhance comparability of our financial metrics with peer companies. The amortization of capitalized software was$17.3 million ,$12.9 million and$7.8 million for the years endedDecember 31, 2022 , 2021 and 2020, respectively. (2) Depreciation and amortization has been adjusted to include amortization of software development costs. 63
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Segment Revenue
2022 compared to 2021 - Revenue from our Medicare segment decreased$109.5 million , or 23%, in 2022 compared to 2021, primarily attributable to a$109.1 million decrease in Medicare segment commission revenue. The decrease in Medicare segment commission revenue was primarily due to a$100.3 million decrease in Medicare Advantage plan commission revenue, driven by a 24% decline in Medicare Advantage approved members. Revenue from our Individual, Family and Small Business segment decreased$23.3 million , or 35%, in 2022 compared to 2021, primarily attributable to a$22.7 million decrease in commission revenue, driven by a 22% decline in individual and family plan approved members and a 26% decline in ancillary plan approved members compared to the same period in 2021. Based on our evaluation of the updated LTV models and retention trends, we recognized$8.7 million in net adjustment revenue from prior period enrollments in 2022 compared to net adjustment revenue of$30.2 million in 2021. 2021 compared to 2020 - Medicare segment revenue declined$45.5 million , or 9%, in 2021 compared to 2020, primarily attributable to a$28.5 million decrease in sponsorship and advertising revenue and a$17.1 million decrease in Medicare segment commission revenue. The decrease in Medicare segment commission revenue was primarily due to a decrease in commission revenue for Medicare Supplement plans of$24.3 million and Medicare Part D prescription drug plans of$5.5 million , partially offset by an increase of$18.9 million in Medicare Advantage plan commission revenue. The increase in Medicare Advantage plan commission revenue was driven by 3% growth in Medicare Advantage approved members and higher constrained LTVs. The decrease in commission revenue for Medicare Supplement and Medicare Part D prescription drug plans was attributable to a decline in enrollment volume and net adjustment revenue of$(8.4) million for the year endedDecember 31, 2021 , primarily due to lower LTVs. Revenue from the Individual, Family and Small Business segment increased$1.0 million , or 1%, in 2021 compared to 2020, primarily attributable to a$2.0 million increase in commission revenue. The increase in commission revenue from Individual, Family and Small Business segment was primarily due to an increase in commission revenue from members approved during the period of$3.1 million , partially offset by net adjustment revenue of$30.2 million in 2021 compared to net adjustment revenue of$33.1 million in 2020. The net adjustment revenue in 2021 was due to stronger retention rates for earlier period cohorts of certain products on our latest LTV assessment.
Segment Profit (Loss)
2022 compared to 2021 - Our Medicare segment loss was$9.9 million in 2022, a decrease of$2.2 million or 18%, compared to 2021 segment loss of$12.1 million . This was driven by a$111.7 million decrease in operating expenses, excluding stock-based compensation expense, depreciation and amortization expenses, impairment, restructuring and other charges, and other income (expense), offset by a$109.5 million decrease in revenue. The decrease in operating expenses was mostly attributable to impacts from our transformation initiatives in 2022. Our Individual, Family and Small Business segment profit was$21.4 million in 2022, a decrease of$24.3 million , or 53%, compared to 2021. The decrease was driven by a$23.3 million decrease in revenue and a$1.0 million increase in operating expenses, excluding stock-based compensation expense, depreciation and amortization expenses, impairment, restructuring and other charges, and other income (expense). 2021 compared to 2020 - Our Medicare segment loss was$12.1 million in 2021 compared to segment profit of$108.8 million in 2020. This was primarily due to a$75.3 million increase in operating expenses, excluding stock-based compensation expense, depreciation and amortization expenses, impairment, restructuring and other charges, and amortization of intangible assets and a$45.5 million decrease in revenue. The increase in operating expenses was mostly attributable to increases in marketing costs and customer care and enrollment costs as we continued to invest in telesales capacity, internal agent counts, agent productivity tools and incentives, customer engagement and retention initiatives, and enhancements to our technology platform. Our Medicare segment profit 64 -------------------------------------------------------------------------------- Table of Contents (loss) was negatively impacted by the underperformance of our internal agent force and certain of our marketing channels during the fourth quarter 2021 annual enrollment period. Our Individual, Family and Small Business segment profit was$45.7 million in 2021, an increase of$5.4 million , or 13%, compared to 2020. The increase was primarily driven by a$4.4 million decrease in operating expenses, excluding stock-based compensation expense, depreciation and amortization expenses, impairment, restructuring and other charges, and amortization of intangible assets, and a$1.0 million increase in revenue.
Liquidity and Capital Resources
Material Cash Requirements
Our material cash requirements include our operating leases and service and licensing obligations. See Note 10 - Leases in our Notes to Consolidated Financial Statements for the details of our operating lease obligations. We have entered into service and licensing agreements with third party vendors to provide various services, including network access, equipment maintenance and software licensing. The terms of these services and licensing agreements are generally up to three years. We record the related service and licensing expenses on a straight-line basis, although actual cash payment obligations under certain of these agreements fluctuate over the terms of the agreements. See Note 8 - Commitments and Contingencies in our Notes to Consolidated Financial Statements. Short-term obligations were$8.6 million for leases and$7.8 million for service and licensing as ofDecember 31, 2022 . Long-term obligations were$39.4 million for leases and$2.7 million for service and licensing as ofDecember 31, 2022 . We expect to fund these obligations through our existing cash and cash equivalents and cash generated from operations. Our future capital requirements will depend on many factors, including our enrollment volume, membership, retention rates, telesales conversion rates, and our level of investment in technology and content, marketing and advertising, customer care and enrollment, and other initiatives. In addition, our cash position could be impacted by the level of investments we make to pursue our strategy. To the extent that available funds are insufficient to fund our future activities or to execute our financial strategy, we may raise additional capital through bank debt, or public or private equity or debt financing to the extent such funding sources are available. We have begun implementing a multi-year transformation plan to right-size our cost structure and drive future profitability. This plan has incorporated different operational and cost savings initiatives, including a reduction in vendor-related spend outside of mission critical areas, a reduction of our real-estate footprint as we decided to become a remote first workplace, and a targeted workforce reduction implemented during 2022. These reductions could adversely impact the growth of membership and revenue. We believe our current cash and cash equivalents, including the proceeds from the term loan we obtained onFebruary 28, 2022 under our credit agreement withBlue Torch Finance, LLC and expected cash collections will be sufficient to fund our operations for at least 12 months after the filing date of this Annual Report on Form 10-K.
Our cash, cash equivalents, and short-term marketable securities are summarized
as follows (in thousands):
December 31, 2022 December 31, 2021
Cash and cash equivalents $ 144,401 $ 81,926
Short-term marketable securities - 41,306
Total cash, cash equivalents, and short-term marketable
securities $ 144,401 $ 123,232
As of December 31, 2022 and 2021, our cash and cash equivalents totaled $144.4
million and $81.9 million , respectively. Cash equivalents, which are comprised
of financial instruments with an original maturity of 90 days or less from the
date of purchase, primarily consist of money market funds. The increase in cash
and cash equivalents reflects $63.8 million of net cash provided by financing
activities and $25.9 million of net cash provided by investing activities,
partially offset by $26.9 million of net cash used in operating activities.
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Our cash flows are summarized as follows (in thousands):
Year Ended
2022 2021 2020
Net cash used in operating activities $ (26,869) $ (162,622) $ (107,860)
Net cash provided by (used in) investing activities 25,861 (12,631) (73,283)
Net cash provided by financing activities 63,838 213,241 201,249
Operating Activities
Net cash used in operating activities primarily consists of net loss, adjusted
for certain non-cash items, including deferred income taxes, stock-based
compensation expense, depreciation and amortization, amortization of intangible
assets and internally developed software, other non-cash items, and the effect
of changes in working capital and other activities.
Collection of commissions receivable depends upon the timing of our receipt of
commission payments and associated commission reports from health insurance
carriers. If we were to experience a delay in receiving a commission payment
from a health insurance carrier within a quarter, our operating cash flows for
that quarter could be adversely impacted.
While we recognize constrained LTV as revenue at the time applications are
approved, our collection of the cash commissions resulting from approved
applications generally occurs over a number of years. The expense associated
with approved applications, however, is generally incurred at the time of
enrollment. As a result, the net cash flow resulting from approved applications
is generally negative in the period of revenue recognition and generally becomes
positive over the lifetime of the member. In periods of membership growth, cash
receipts associated with new and continuing members may be less than the cash
outlays to acquire new members.
A significant portion of our marketing and advertising expense is directly
correlated with the number of health insurance applications submitted on our
ecommerce platforms. Since our marketing and advertising costs are expensed and
generally paid as incurred, and since commission revenue is recognized upon
approval of a member but commission payments are paid to us over time, our
operating cash flows could be adversely impacted by a substantial increase in
the volume of applications submitted during a quarter or positively impacted by
a substantial decline in the volume of applications submitted during a quarter.
During the Medicare annual enrollment period that takes place during the last
quarter of each year and the reintroduced Medicare Advantage open enrollment
period in the first quarter of the year, we experience an increase in the number
of submitted Medicare-related health insurance applications and marketing and
advertising expenses compared to outside of these annual enrollment periods.
Similarly, during the open enrollment period for individual and family health
insurance plans which typically takes place during the fourth quarter of each
year, we experience an increase in the number of submitted individual and family
plan health insurance applications and marketing and advertising expenses
compared to outside of open enrollment periods. The timing of open enrollment
periods for individual and family health insurance plans, the Medicare annual
enrollment period and the open enrollment period for Medicare-related health
insurance can positively or negatively affect our cash flows during each
quarter.
Year Ended December 31, 2022 - Net cash used in operating activities was $26.9
million during the year ended December 31, 2022 , primarily driven by a net loss
of $88.7 million , partially offset by changes in net operating assets and
liabilities of $24.7 million and adjustments for non-cash items of $37.2
million . Cash from changes in net operating assets and liabilities during the
year ended December 31, 2022 primarily consisted of increases of $23.8 million
in contract assets - commissions receivable, $13.5 million in prepaid expenses
and $4.2 million in accrued compensation and benefits, partially offset by
decreases of $12.6 million in accrued marketing expenses and $7.0 million in
accounts payables. Adjustments for non-cash items primarily consisted of $20.3
million of stock-based compensation expense, $17.3 million of amortization of
internally-developed software, and $12.1 million of impairment charges on
right-of use assets and associated property, plant and equipment write-offs,
partially offset by a $18.4 million decrease in deferred income taxes.
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Year Ended December 31, 2021 - Net cash used in operating activities was $162.6
million during the year ended December 31, 2021 , primarily driven by changes in
net operating assets and liabilities of $136.3 million and a net loss of $104.4
million , partly offset by adjustments for non-cash items of $78.0 million . Cash
used from changes in net operating assets and liabilities during the year ended
December 31, 2021 primarily consisted of an increase of $116.0 million in
contract assets - commissions receivable, a decrease of $23.1 million in
accounts payables, an increase of $7.9 million in prepaid expenses, and a
decrease of $4.1 million in accrued compensation and benefits, partially offset
by increases of $18.6 million in accrued marketing expenses. Adjustments for
non-cash items primarily consisted of $32.9 million of stock-based compensation
expense, $12.9 million of amortization of internally-developed software, and
$0.5 million of amortization of intangible assets, partially offset by a $21.5
million decline in deferred income taxes.
Year Ended December 31, 2020 - Net cash used in operating activities was $107.9
million during the year ended December 31, 2020 , primarily driven by changes in
net operating assets and liabilities of $201.3 million , partially offset by net
income of $45.5 million and adjustments for non-cash items of $48.0 million .
Cash used from changes in net operating assets and liabilities during the year
ended December 31, 2020 primarily consisted of an increase of $205.2 million in
contract assets - commissions receivable, a decrease of $9.0 million in accrued
compensation and benefits, an increase of $6.2 million in prepaid expenses and
other assets and a decrease of $2.3 million in deferred revenue, partially
offset by increases of $12.3 million in accounts payable, $5.7 million in
accrued marketing expenses, and $2.8 million in accrued expenses and other
liabilities. Adjustments for non-cash items primarily consisted of $25.2 million
of stock-based compensation expense, $8.8 million change in deferred income
taxes, $7.8 million of amortization of internally-developed software, and $1.5
million of amortization of intangible assets.
Investing Activities
Our investing activities primarily consist of purchases and redemption of marketable securities, purchases of computer hardware and software to enhance our website and customer care operations, leasehold improvements related to facilities expansion, capitalized internal-use software and security deposit payments. Year EndedDecember 31, 2022 - Net cash provided by investing activities of$25.9 million during 2022 mainly consisted of$49.8 million of proceeds from redemption and maturities of marketable securities, offset by$15.3 million of capitalized internal-use software and website development costs and$8.4 million used to purchase marketable securities. Year EndedDecember 31, 2021 - Net cash used in investing activities of$12.6 million during 2021 mainly consisted of$103.1 million used to purchase marketable securities,$17.0 million of capitalized internal-use software and website development costs, and$3.9 million used to purchase property and equipment and other assets, partially offset by$111.3 million of proceeds from redemption and maturities of marketable securities. Year EndedDecember 31, 2020 - Net cash used in investing activities of$73.3 million during 2020 mainly consisted of$180.5 million used to purchase marketable securities,$16.0 million of capitalized internal-use software and website development costs, and$7.8 million used to purchase property and equipment and other assets, partially offset by$131.0 million of proceeds from redemption and maturities of marketable securities.
Financing Activities
Year EndedDecember 31, 2022 - Net cash provided by financing activities of$63.8 million during 2022 was primarily attributable to$64.9 million of net proceeds from debt financing and$2.2 million of net proceeds from exercises of common stock options, partially offset by$3.1 million of cash used for share repurchases to satisfy employee tax withholding obligations. Year EndedDecember 31, 2021 - Net cash provided by financing activities of$213.2 million during 2021 was primarily attributable to$214.0 million proceeds from issuance of preferred stock, net of issuance costs and$8.7 million of net proceeds from exercise of common stock options, partially offset by$9.3 million of cash used for share repurchases to satisfy employee tax withholding obligations. 67
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Year EndedDecember 31, 2020 - Net cash provided by financing activities of$201.2 million during 2020 was primarily attributable to$228.0 million proceeds from issuance of common stock, net of issuance costs and$1.9 million of net proceeds from exercise of common stock options, partially offset by$19.8 million cash used for share repurchases to satisfy employee tax withholding obligations and$8.8 million of acquisition-related contingent consideration payments. See Note 5 - Equity and Note 6 - Convertible Preferred Stock in our Notes to Consolidated Financial Statements for information regarding our equity offering in 2020 and our preferred stock transaction in 2021, respectively. We also had$3.2 million in restricted cash as ofDecember 31, 2022 and 2021. As ofDecember 31, 2022 and 2021, we had 1.7 million and 1.3 million shares held in treasury stock, respectively, that were shares repurchased to satisfy tax withholding obligations. As ofDecember 31, 2022 and 2021, we had a total of 12.4 million and 12.0 million shares held in treasury stock, respectively, including 10.7 million shares previously repurchased.
Common Stock Issuance
InMarch 2020 , we entered into an underwriting agreement to issue and sell a total of 2,070,000 shares of common stock, which total included the exercise in full of the underwriters' option to purchase 270,000 additional shares of common stock, at a price to the public of$115.00 per share. Net proceeds from the offering were approximately$228.0 million after deducting underwriting discounts, commissions and expenses of the offering.
Convertible Preferred Stock
OnApril 30, 2021 (the "Closing Date"), we issued and sold 2,250,000 shares of our newly designated Series A preferred stock at an aggregate purchase price of$225.0 million toEchelon Health SPV, LP ("H.I.G."), at a price of$100 (the "Stated Value" per share of Series A preferred stock) per share (the "Private Placement"). We received$214.0 million net proceeds from the Private Placement with H.I.G., net of sales commissions and certain transaction fees. Dividends on our outstanding shares of Series A preferred stock accrue daily at 8% per annum on the Stated Value per share and compound semiannually, payable in kind untilApril 30, 2023 , which is the second anniversary of the Closing Date onJune 30 , andDecember 31 of each year, beginning onJune 30, 2021 , and will thereafter be 6% payable in kind and 2% payable in cash in arrears onJune 30 andDecember 31 of each year, beginning onJune 30, 2023 (each, a "Cash Dividend Payment Date"). Dividends payable in kind will be cumulative. The Series A preferred stock also participates, on an as-converted basis (without regard to conversion limitations) in all dividends paid to the holders of our common stock. If we fail to declare and pay full cash dividend payments as required by the certificate of designations for the Series A preferred stock for two consecutive Cash Dividend Payment Dates, the cash dividend rate then in effect shall increase one time by 2%, retroactive to the first day of the semiannual period immediately preceding the first Cash Dividend Payment Date at which we failed to pay such accrued cash dividends, until such failure to pay full cash dividends is cured (at which time the dividend rate shall return to the rate prior to such increase). The dividend rights of the Series A preferred stock are senior to all of our other equity securities. Beginning onApril 30, 2027 , which is the sixth anniversary of the Closing Date, each holder of Series A preferred stock will have the right to require us to redeem all or any portion of the Series A preferred stock for cash at a price calculated as set forth in the certificate of designations. In addition, upon certain change of control events, holders of Series A preferred stock can require us, subject to certain exceptions, to repurchase any or all of their Series A preferred stock. See Note 6 - Convertible Preferred Stock of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for more information. 68 -------------------------------------------------------------------------------- Table of Contents Term Loan Credit Agreement We entered into a Credit Agreement withBlue Torch Finance LLC , as administrative agent and collateral agent, and the other lenders party thereto inFebruary 2022 (the "Original Credit Agreement") and entered into an amendment (the "Amendment") to the Original Credit Agreement inAugust 2022 (as amended by the Amendment, the "Credit Agreement"). The Credit Agreement provides for a$70.0 million secured term loan credit facility, which term loans were made available to us onFebruary 28, 2022 . We terminated our credit agreement with Royal Bank of Canada ("RBC"), pursuant to which we had an up to$75 million revolving credit facility in connection with our receiving the loan under the Term Loan Credit Agreement. The Amendment replaced the LIBOR-based Adjusted Eurocurrency Rate (as defined in the Original Credit Agreement) with Adjusted Term SOFR (as defined in the Amendment) as a reference rate for loans under the Credit Agreement. The proceeds of the loans under the Credit Agreement may be used for working capital and general corporate purposes, to refinance our credit agreement with RBC and to pay fees and expenses in connection with the entry into the Credit Agreement. The Original Credit Agreement bore interest, at our option, at either a rate based on the London Interbank Offered Rate ("LIBOR") for the applicable interest period or a base rate, in each case plus a margin. The base rate is the highest of the prime rate, the federal funds rate plus 0.50% and one month adjusted LIBOR plus 1.0%. The margin is 7.50% for LIBOR loans and 6.50% for base rate loans. After the Amendment, the loans under the Credit Agreement bear interest, at our option, at either a rate based on the Adjusted Term SOFR or a base rate, in each case plus a margin. The base rate is the highest of the prime rate, the federal funds rate plus 0.50% and three-month Adjusted Term SOFR plus 1.00%. The margin is 7.50% for Adjusted Term SOFR loans and 6.50% for base rate loans. Furthermore, as part of the Credit Agreement, we incur a$0.3 million fee per annum, payable annually. The outstanding obligations under the Credit Agreement are payable in full on the maturity date. The Credit Agreement matures in February of 2025. We have the right to prepay the loans under the Credit Agreement in whole or in part at any time, subject, in the case of certain mandatory prepayments or any voluntary prepayment of the loans under the Credit Agreement afterFebruary 28, 2023 , to an exit fee. Our obligations under the Credit Agreement are guaranteed by certain of our material domestic subsidiaries and substantially all of our assets and the assets of such guarantors, in each case, subject to customary exclusions. We are obligated to pay administration fees in connection with the Credit Agreement. As ofDecember 31, 2022 , we had$66.1 million outstanding principal amount under our Credit Agreement, net of closing costs. See Note 12 - Debt in our Notes to Consolidated Financial Statements regarding our previously terminated credit agreement with RBC and additional information regarding the Credit Agreement.
Seasonality
See Item 1, Business - Seasonality for information regarding seasonal impacts on
our business and financial condition and results of operations.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity withU.S. generally accepted accounting principles ("U.S. GAAP"), requires us to make judgments, assumptions, and estimates that affect the amounts reported in the consolidated financial statements and the accompanying notes. These estimates and assumptions are based on current facts, historical experience, and various other factors that we believe are reasonable under the circumstances to determine reported amounts of assets, liabilities, revenue and expenses that are not readily apparent from other sources. To the extent there are material differences between our estimates and the actual results, our future consolidated results of comprehensive income (loss) may be affected.
Among our significant accounting policies, which are described in Note 1 -
Summary of Business and Significant Accounting Policies in our Notes to
Consolidated Financial Statements, the following accounting policies and
specific estimates involve a greater degree of judgments and complexity:
•Revenue recognition and contract assets - commission receivable;
•Stock-based compensation; and
69 -------------------------------------------------------------------------------- Table of Contents •Accounting for income taxes.
During the year ended
our critical accounting policies and estimates.
Revenue Recognition and Contract Assets - Commission Receivable
Commission Revenue - Our commission revenue results from approval of an
application from health insurance carriers, which we define as our customers
under ASC 606. Our commission revenue is primarily comprised of commissions from
health insurance carriers which is computed using the estimated constrained
lifetime values as the "constrained LTVs" of commission payments that we expect
to receive. Our commissions include regular payments with respect to
administrative services we perform. Our Medicare Supplement plan commissions
include certain bonus payments, which are generally based on our attaining
predetermined target sales levels or other objectives, as determined by the
health insurance carriers.
We estimate commission revenue for each insurance product by using 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, commission rates, carrier mix, estimated
average plan duration, the regulatory environment, and cancellations of
insurance plans offered by health insurance carriers with which we have a
relationship. Contract assets - commissions receivable represent the variable
consideration for policies that have not renewed yet and therefore are subject
to the same assumptions, judgements and estimates used when recognizing revenue
as noted above.
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 as estimated and constrained LTVs 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 12 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.
The estimated average plan duration used to calculate Medicare health insurance
plan LTVs historically has been approximately 3-5 years, while 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. To the extent we make changes to the assumptions we use to calculate
constrained LTVs, we 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.
We recognize revenue for members approved during the period by applying the
latest estimated constrained LTV for that product. We recognize adjustment
revenue for members approved in prior periods when our cash collections are
different from the estimated constrained LTVs. Adjustment revenue is a result of
a change in estimate of expected cash collections when actual cash collections
have indicated a trend that is different from the estimated constrained LTV for
the revenue recognized at the time of approval. Adjustment revenue can be
positive or negative and we recognize adjustment revenue when we do not believe
there is a probable reversal. We assess the risk of reversal based on
statistical analysis given historical information and consideration of the
constraints used at the time of approval.
Adjustment revenue can have a significant favorable or unfavorable impact on our
revenue and we seek to enhance our LTV estimation models to improve the accuracy
and to reduce the fluctuations of our LTV estimates.
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Other Revenue - Sponsorship, Advertising and Other Services - Our sponsorship and advertising program allows carriers to purchase non-Medicare advertising space in specific markets in a sponsorship area on our website. In return, we are typically paid a 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 when control has been transferred. We also offer Medicare plan related advertising and other 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 as the service is rendered ratably over the service period.
Stock-Based Compensation
We recognize stock-based compensation expense in the accompanying Consolidated Statements of Comprehensive Income (Loss) based on the fair value of our stock-based awards over their respective requisite service periods, typically the vesting period, which is generally four years for service-based awards or the one-year anniversary of achieving performance criteria for performance and market-based awards. The estimated attainment of performance-based awards and related expense is based on the achievement of certain financial targets over a predetermined performance period, subject to the discretion of the Company's compensation committee. The estimated fair value of performance awards with market conditions is determined using the Monte-Carlo simulation model. The estimated grant date fair value of our stock options is determined using the Black-Scholes-Merton pricing model and a single option award approach. The weighted-average expected term for stock options granted is calculated using historical option exercise behavior. The dividend yield is determined by dividing the expected per share dividend during the coming year by the grant date stock price. ThroughDecember 31, 2022 , we had not declared or paid any cash dividends to common stockholders, and we do not expect to pay any in the foreseeable future. We base the risk-free interest rate on the implied yield currently available onU.S. Treasury zero-coupon issues with a remaining term equal to the expected term of our stock options. Expected volatility is determined using a combination of the implied volatility of publicly traded options in our stock and historical volatility of our stock price. The assumptions used in calculating the fair value of stock-based payment awards and expected attainment of performance-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. We will continue to use judgment in evaluating the expected term and volatility related to our own stock-based awards on a prospective basis, and incorporating these factors into the model. Changes in key assumptions could significantly impact the valuation of such instruments.
Accounting for Income Taxes
We account for income taxes using the liability method. Deferred income taxes
are determined based on the differences between the financial reporting and tax
bases of assets and liabilities, using enacted statutory tax rates in effect for
the year in which the differences are expected to reverse.
Since tax laws and financial accounting standards differ in their recognition
and measurement of assets, liabilities, equity, revenues, expenses, gains and
losses, differences arise between the amount of taxable income and pretax
financial income for a year and between the tax bases of assets or liabilities
and their reported amounts in our financial statements. Because we assume that
the reported amounts of assets and liabilities will be recovered and settled,
respectively, a difference between the tax basis of an asset or a liability and
its reported amount in the balance sheet will result in a taxable or a
deductible amount in some future years when the related liabilities are settled
or the reported amounts of the assets are recovered, which gives rise to a
deferred tax asset or liability. We must then assess the likelihood that our
deferred tax assets will be recovered from future taxable income and to the
extent we believe that recovery does not meet the more likely than not criteria,
we must establish a valuation allowance. Management judgment is required in
determining any valuation allowance recorded against our net deferred tax
assets.
As part of the process of preparing our consolidated financial statements, we
are required to estimate our income taxes. This process involves estimating our
actual current tax expense together with assessing temporary differences that
may result in deferred tax assets.
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Assessing the realizability of our deferred tax assets is dependent upon several
factors, including the likelihood and amount, if any, of future taxable income
in relevant jurisdictions during the periods in which those temporary
differences become deductible. We forecast taxable income by considering all
available positive and negative evidence, including our history of operating
income and losses and our financial plans and estimates that we use to manage
the business. These assumptions require significant judgment about future
taxable income. As a result, the amount of deferred tax assets considered
realizable is subject to adjustment in future periods if estimates of future
taxable income change.
Future changes in various factors, such as the amount of stock-based
compensation we record during the period and the related tax benefit we realize
upon the exercise of employee stock options, potential limitations on the use of
our federal and state net operating loss credit carry forwards, pending or
future tax law changes including rate changes and the tax benefit from or
limitations on our ability to utilize research and development credits, the
amount of non-deductible lobbying and acquisition-related costs, changes in our
valuation allowance and state and foreign taxes, would impact our estimates, and
as a result, could affect our effective tax rate and the amount of income tax
expense we record, and pay, in future periods.
Recent Accounting Pronouncements
See Note 1 - Summary of Business and Significant Accounting Policies in the
Notes to Consolidated Financial Statements for the recently issued accounting
standards that could have an effect on us.
Patent Application Titled “System And Method For Non-Fungible Tokenization Of Intellectual Property” Published Online (USPTO 20230044901): Patent Application
CCC INTELLIGENT SOLUTIONS HOLDINGS INC. – 10-K – Management's Discussion and Analysis of Financial Condition and Results of Operations.
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