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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

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

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

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

(650) 584-2700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.001 per shareEHTHThe Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding as of April 23, 2021 was 26,091,024 shares.




EHEALTH, INC.
FORM 10-Q

TABLE OF CONTENTS

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


























1





Summary of Risk Factors

Our business is subject to numerous risks and uncertainties, including those risks discussed at length in Part II, Item 1A below. The following is a summary of the principal risks we face, any of which could adversely affect our business, operating results, financial condition or prospects:

If our ability to enroll individuals during enrollment periods is impeded or if investments we make in enrollment periods do not result in the returns we expected when making those investments, our business, operating results and financial condition would be harmed.
We may be unsuccessful in competing effectively against current and future competitors, including government-run health insurance exchanges.
Our business may be harmed if we lose our relationship with health insurance carriers or our relationship with health insurance carriers is modified.
Our financial results will be adversely impacted if our membership does not grow or if we are not able to successfully retain our existing members and limit health insurance plan termination.
If we are not able to maintain and enhance our brand, our business and operating results will be harmed.
The ongoing COVID-19 pandemic and public health crises, illness, epidemics or pandemics could adversely impact our business, operating results and financial condition.
Our business may be harmed if we are not successful in executing on our strategic investments and initiatives, including our growth strategy and retention initiatives.
The success of our customer care center operations depends upon our ability to timely hire, train, retain and ensure the productivity of our licensed health insurance agents.
If we are not successful in cost-effectively converting visitors to our website and customers who call into our call centers into members for whom we receive commissions, our business and operating results would be harmed. 
We depend upon Internet search engines and social media platforms to attract a significant portion of the consumers who visit our website, and if we are unable to effectively advertise on search engines or social media platforms on a cost-effective basis, our business and operating results would be harmed.
We rely significantly on marketing partners and our business and operating results would be harmed if we are unable to maintain effective relationships with our existing marketing partners or if we do not establish successful relationships with new marketing partners.
Our future operating results are likely to fluctuate and could fall short of expectations. 
The marketing and sale of Medicare plans are subject to numerous, complex and frequently changing laws, regulations and guidelines, and non-compliance with or changes in laws, regulations and guidelines could harm our business, operating results and financial condition.
Changes and developments in the health insurance industry or system as a result of health care reform could harm our business, operating results and financial condition.
Our success in selling health insurance is dependent in part on the actions of federal and state governments. Changes in the laws and regulations governing the offer, sale and purchase of health insurance could harm our business and operating results.
Our business is subject to security risks and, if we experience cyberattacks, security breaches or are otherwise unable to safeguard the security and privacy of confidential data, including personal health information, our business will be harmed.
Our operating results will be impacted by factors that impact our estimate of the constrained lifetime value, or LTV, of commissions per approved member.

2




PART I.    FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS
EHEALTH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 March 31, 2021December 31, 2020
Assets(Unaudited)
Current assets:
Cash and cash equivalents$92,250 $43,759 
Short-term marketable securities33,922 49,620 
Accounts receivable1,847 1,799 
Contract assets – commissions receivable – current180,276 219,153 
Prepaid expenses and other current assets12,325 16,661 
Total current assets320,620 330,992 
Contract assets – commissions receivable – non-current561,571 573,252 
Property and equipment, net14,869 14,609 
Operating lease right-of-use assets41,284 42,558 
Restricted cash3,354 3,354 
Intangible assets, net8,393 8,569 
Goodwill40,233 40,233 
Other assets27,471 26,455 
Total assets$1,017,795 $1,040,022 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$10,944 $36,921 
Accrued compensation and benefits24,630 20,542 
Accrued marketing expenses11,076 17,788 
Lease liabilities – current5,316 5,192 
Deferred revenue877 308 
Other current liabilities4,270 3,657 
Total current liabilities57,113 84,408 
Commitments and contingencies
Deferred income taxes – non-current71,748 72,317 
Lease liabilities – non-current39,984 41,369 
Other non-current liabilities5,025 4,370 
Stockholders’ equity:
Common stock38 38 
Additional paid-in capital728,213 721,013 
Treasury stock, at cost(199,998)(199,998)
Retained earnings315,355 316,155 
Accumulated other comprehensive income317 350 
Total stockholders’ equity843,925 837,558 
Total liabilities and stockholders’ equity$1,017,795 $1,040,022 

The accompanying notes are an integral part of these condensed consolidated financial statements.
3




EHEALTH, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share amounts, unaudited)
Three Months Ended March 31,
20212020
Revenue:  
Commission$127,052 $99,669 
Other7,162 6,739 
Total revenue134,214 106,408 
Operating costs and expenses:
Cost of revenue996 1,138 
Marketing and advertising50,874 37,764 
Customer care and enrollment34,162 30,535 
Technology and content23,163 15,740 
General and administrative23,054 19,653 
Amortization of intangible assets176 547 
Restructuring charges2,431  
Total operating costs and expenses134,856 105,377 
Income (loss) from operations(642)1,031 
Other income, net150 373 
Income (loss) before provision for (benefit from) income taxes(492)1,404 
Provision for (benefit from) income taxes308 (2,048)
Net income (loss)$(800)$3,452 
 
Net income (loss) per share:
Basic$(0.03)$0.14 
Diluted$(0.03)$0.13 
Weighted-average number of shares used in per share amounts:
Basic26,620 24,719 
Diluted26,620 26,179 
Comprehensive income (loss):
Net income (loss)$(800)$3,452 
Unrealized holding gain (loss) for available for sales debt securities, net of tax(16)25 
Foreign currency translation adjustment(17)(31)
Comprehensive income (loss)$(833)$3,446 

The accompanying notes are an integral part of these condensed consolidated financial statements.
4




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

Three Months Ended March 31, 2021
 Common StockAdditional Paid-in
Capital
Treasury StockRetained EarningsAccumulated Other Comprehensive IncomeTotal Stockholders’ Equity
 SharesAmountSharesAmount
Balance as of December 31, 202037,755 $38 $721,013 11,831 $(199,998)$316,155 $350 $837,558 
Issuance of common stock in connection with equity incentive plans238 — 285 — — — — 285 
Repurchase of shares to satisfy employee tax withholding obligations— — (5,037)81 — — — (5,037)
Stock-based compensation— — 11,952 — — — — 11,952 
Other comprehensive income, net of tax— — — — — — (33)(33)
Net loss— — — — — (800)— (800)
Balance as of March 31, 202137,993 $38 $728,213 11,912 $(199,998)$315,355 $317 $843,925 

Three Months Ended March 31, 2020
 Common StockAdditional Paid-in
Capital
Treasury StockRetained EarningsAccumulated Other Comprehensive IncomeTotal Stockholders’ Equity
 SharesAmountSharesAmount
Balance as of December 31, 201934,752 $35 $455,159 11,616 $(199,998)$271,852 $116 $527,164 
Cumulative effect from the adoption of ASU 2016-13— — — — — (1,147)— (1,147)
Issuance of common stock in connection with equity incentive plans141 — 1,091 — — — — 1,091 
Repurchase of shares to satisfy employee tax withholding obligations— — (4,375)33 — — — (4,375)
Shares issued in equity offering2,070 2 228,022 — — — — 228,024 
Settlement of earnout liability295 — 28,521 — — — — 28,521 
Stock-based compensation— — 8,962 — — — — 8,962 
Other comprehensive income, net of tax— — — — — — (6)(6)
Net income— — — — — 3,452 — 3,452 
Balance as of March 31, 202037,258 $37 $717,380 11,649 $(199,998)$274,157 $110 $791,686 

The accompanying notes are an integral part of these condensed consolidated financial statements.
5




EHEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
(in thousands, unaudited)
Three Months Ended March 31,
 20212020
Operating activities:
Net income (loss)$(800)$3,452 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization1,138 823 
Amortization of internally developed software2,806 1,501 
Amortization of intangible assets176 547 
Stock-based compensation expense11,402 8,714 
Deferred income taxes(570)(2,141)
Other non-cash items420 223 
Changes in operating assets and liabilities:
Accounts receivable(48)1,664 
Contract assets – commissions receivable50,635 26,873 
Prepaid expenses and other assets4,225 (159)
Accounts payable(25,826)(16,279)
Accrued compensation and benefits4,088 (11,104)
Accrued marketing expenses(6,712)(7,329)
Deferred revenue570 113 
Accrued expenses and other liabilities1,305 2,009 
Net cash provided by operating activities42,809 8,907 
Investing activities:
Capitalized internal-use software and website development costs(3,242)(3,564)
Purchases of property and equipment and other assets(1,899)(2,508)
Purchases of marketable securities(7,771)(58,064)
Proceeds from redemption and maturities of marketable securities23,409  
Net cash provided by (used in) investing activities10,497 (64,136)
Financing activities:
Proceeds from issuance of common stock, net of issuance costs 228,024 
Net proceeds from exercise of common stock options285 1,091 
Repurchase of shares to satisfy employee tax withholding obligations(5,037)(4,375)
Acquisition-related contingent payments (8,751)
Principal payments in connection with leases(38)(58)
Net cash provided by (used in) financing activities(4,790)215,931 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(25)(2)
Net increase in cash, cash equivalents and restricted cash48,491 160,700 
Cash, cash equivalents and restricted cash at beginning of period47,113 26,820 
Cash, cash equivalents and restricted cash at end of period$95,604 $187,520 


 The accompanying notes are an integral part of these condensed consolidated financial statements.
6






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

Note 1Summary of Business and Significant Accounting Policies

Description of Business – eHealth, Inc. (the “Company,” “eHealth,” “we” or “us”) is a leading health insurance marketplace with a technology and service platform that provides consumer engagement, education and health insurance enrollment solutions. Our mission is to connect every person with the highest quality, most affordable health insurance and Medicare plans for their life circumstances. Our platform integrates proprietary and third-party developed educational content regarding health insurance plans with decision support tools to aid consumers in what has traditionally been a confusing and opaque health insurance purchasing process, and to help them obtain the health insurance products that meet their individual health and economic needs. Our omnichannel consumer engagement platform is designed to meet the consumer wherever they prefer to engage with us, and enables consumers to use our services online, through interactive chat, or by telephone with a licensed insurance agent. We have created a marketplace that offers consumers a broad choice of insurance products that includes thousands of Medicare Advantage, Medicare Supplement, Medicare Part D prescription drug, individual and family, small business and other ancillary health insurance products from over 200 health insurance carriers across all fifty states and the District of Columbia.

Basis of Presentation – The accompanying condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020 and the condensed consolidated statements of comprehensive income (loss), stockholders’ equity, and cash flows for the three months ended March 31, 2021 and 2020, respectively, are unaudited. The condensed consolidated balance sheet data as of December 31, 2020 was derived from the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the Securities and Exchange Commission on February 26, 2021. The accompanying financial statements and related notes should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K.

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and reflect all normal recurring adjustments that are necessary to present fairly the results for the interim periods presented. The condensed consolidated financial statements include the accounts of eHealth, Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in accordance with those rules and regulations. Certain prior period amounts have been reclassified to conform with our current period presentation. However, we believe that the disclosures made are adequate to make the information not misleading.

The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020 and include all adjustments necessary for the fair presentation of our financial position as of March 31, 2021 and December 31, 2020, and our results of operations for the periods presented. Our financial position as of March 31, 2021 and results of operations and cash flows for the three months ended March 31, 2021 were not materially impacted by the COVID-19 pandemic but the Company is continuously assessing the evolving situation related to the pandemic. The results for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for any subsequent period or for the year ending December 31, 2021 and therefore should not be relied upon as an indicator of future results.

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

Significant Accounting Policies, Estimates and Judgments – The preparation of condensed consolidated financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates, judgments and
7






EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates, including those related to, but not limited to, the useful lives of intangible assets, fair value of investments, recoverability of intangible assets, the commissions we expect to collect for each approved member cohort, valuation allowance for deferred income taxes, provision (benefit) for income taxes and the assumptions used in determining stock-based compensation. We base our estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that we believe to be reasonable. Actual results may differ from these estimates. There have been no material changes to our significant accounting policies discussed in our Annual Report on Form 10-K for the year ended December 31, 2020.

Seasonality – Open enrollment periods drive the seasonality of our business. A greater number of our Medicare-related health insurance plans are sold in our fourth quarter during the Medicare annual enrollment period when Medicare-eligible individuals are permitted to change their Medicare Advantage and Medicare Part D prescription drug coverage for the following year. As a result, our Medicare plan-related commission revenue is highest in our fourth quarter. Any changes or additional enrollment periods may change the seasonality of our business. For instance, due to the reintroduction of the Medicare Advantage open enrollment period that takes place in the first quarter of the year, our first quarter is generally the second-highest revenue generating quarter.

The majority of our individual and family health insurance plans are sold in the fourth quarter during the annual open enrollment period as defined under the federal Patient Protection and Affordable Care Act and related amendments in the Health Care and Education Reconciliation Act. Individuals and families generally are not able to purchase individual and family health insurance outside of these open enrollment periods, unless they qualify for a special enrollment period as a result of certain qualifying events, such as losing employer-sponsored health insurance or moving to another state due to the recent COVID-19 pandemic.

Recently Adopted Accounting Pronouncement

Income Taxes (Topic 740) – In December 2019, the FASB issued ASU No. 2019-12, Income Tax, Simplifying the Accounting for Income Taxes, which aims to simplify the accounting for income taxes. We adopted this guidance in the first quarter of 2021 and it did not have a material impact on our condensed consolidated financial statements.

Codification Improvements In October 2020, the FASB issued ASU No. 2020-10, Codification Improvements. ASU 2020-10 is intended to facilitate codification updates for technical corrections, such as conforming amendments, clarifications to guidance, simplifications to wording or structure of guidance, and other minor improvements. It contains amendments that improve the consistency of the codification by including all disclosure guidance in the appropriate disclosure section and other updates that varies in nature. We adopted this guidance in the first quarter of 2021 with no material impact on our condensed consolidated financial statements and disclosures.

Debt with Conversion and Other Options (Topic 470) and Contracts in Entity's Own Equity (Topic 815) – In June 2020, the FASB issued ASU No. 2020-06 to simplify the accounting for convertible instruments and improve the usefulness and relevance of information regarding convertible instruments. This ASU reduces the number of accounting models for converting debt instruments and convertible preferred stock. ASU No. 2020-06 is effective for us in 2022, with early adoption permitted. We have early adopted this guidance in the first quarter of 2021 and it did not have a material impact on our condensed consolidated financial statements.



8






EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 2Revenue

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

Three Months Ended March 31,
20212020
Medicare
Medicare Advantage$103,525 $68,347 
Medicare Supplement8,222 15,170 
Medicare Part D1,736 5,661 
Total Medicare113,483 89,178 
Individual and Family (1)
Non-Qualified Health Plans3,367 1,446 
Qualified Health Plans2,100 1,210 
Total Individual and Family5,467 2,656 
Ancillary
Short-term1,756 2,216 
Dental1,728 743 
Vision205 243 
Other35 1,049 
Total Ancillary3,724 4,251 
Small Business3,223 2,971 
Commission Bonus1,155 613 
Total Commission Revenue127,052 99,669 
Other Revenue
Sponsorship and Advertising Revenue5,814 5,890 
Other1,348 849 
Total Other Revenue7,162 6,739 
Total Revenue$134,214 $106,408 
_____________

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


9






EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Commission revenue by segment is presented in the table below (in thousands):

Three Months Ended March 31,
20212020
Medicare
Commission Revenue from Members Approved During the Period (1)
$114,678 $81,125 
Net Commission Revenue from Members Approved in Prior Periods (2)
14 8,979 
Total Medicare Segment Commission Revenue$114,692 $90,104 
Individual, Family and Small Business
Commission Revenue from Members Approved During the Period (1)
$6,395 $5,796 
Commission Revenue from Renewals of Small Business Members During the Period (3)
2,687 2,396 
Net Commission Revenue from Members Approved in Prior Periods (2)
3,278 1,373 
Total IFP/SMB Segment Commission Revenue$12,360 $9,565 
Total Commission Revenue from Members Approved During the Period (1)
$121,073 $86,921 
Commission Revenue from Renewals of Small Business Members During the Period (3)
2,687 2,396 
Total Net Commission Revenue from Members Approved in Prior Periods (2)(4)
3,292 10,352 
Total Commission Revenue$127,052 $99,669 
_____________

(1)These amounts include commission bonus revenue.
(2)These amounts reflect our revised estimates of cash collections for certain members approved prior to the relevant reporting period that are recognized as adjustments to revenue within the relevant reporting period. The net adjustment revenue includes both increases in revenue for certain prior period cohorts as well as reductions in revenue for certain prior period cohorts.
(3)Commission revenue from renewals of small business members during the period was previously included in net commission revenue from members approved in prior periods. However, starting in the first quarter of 2021, we enhanced our reporting by separately disclosing commission revenue from renewals of small business members during the period in a separate line item.
(4)The impacts of total net commission revenue from members approved in prior periods were $0.12 and $0.42 per basic share, respectively, or $0.12 and $0.40 per diluted share, respectively, for the three months ended March 31, 2021 and 2020, respectively. The total reductions to revenue from members approved in prior periods were $0.9 million for the three months ended March 31, 2021 and immaterial for the three months ended March 31, 2020. These reductions to revenue primarily related to the Individual, Family and Small Business segment.


Note 3Supplemental Financial Statement Information

Cash, Cash Equivalents and Restricted Cash

We consider all investments with an original maturity of 90 days or less from the date of purchase to be cash equivalents. Cash and cash equivalents are stated at fair value. We also invest in marketable securities that are measured and recorded at fair value. See Note 4Fair Value Measurements for further discussion about our marketable securities.

10






EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Our cash, cash equivalent and restricted cash balances are summarized as follows (in thousands):
March 31, 2021December 31, 2020
Cash$72,326 $39,552 
Cash equivalents19,924 4,207 
Cash and cash equivalents92,250 43,759 
Restricted cash3,354 3,354 
Total cash, cash equivalents and restricted cash$95,604 $47,113 

As of March 31, 2021 and December 31, 2020, we had $3.4 million of restricted cash which was classified as a non-current asset on our Condensed Consolidated Balance Sheets. This amount collateralizes letters of credit related to certain lease commitments.

Contract Assets and Accounts Receivable

We do not require collateral or other security for our contract assets and accounts receivable. We believe the potential for collection issues with any of our customers was minimal as of March 31, 2021.

We estimate an allowance for credit losses using relevant available information from internal and external sources, related to past events, current conditions, and reasonable and supportable forecasts. Specifically, for the purpose of measuring the probability of default parameters, we utilize Capital IQ’s, Standard & Poor’s and Moody’s analytics. Our estimates of loss given default are determined by using our historical collections data as well as historical information obtained through our research and review of other insurance related companies. Our estimated exposure at default is determined by applying these internal and external data sources to our commission receivable balances. As such, we apply an immediate reversion method and revert to historical loss information when computing our credit loss exposure. Credit loss expenses are assessed quarterly and included in general and administrative expense on our Condensed Consolidated Statement of Comprehensive Income (Loss).

We considered the impact of recent events and global economic conditions when evaluating the appropriate adjustments to our allowance for credit losses as of March 31, 2021. Determining the extent of these adjustments in the three months ended March 31, 2021 was especially challenging because we do not have any historical loss information for a period of similar economic uncertainty. We also considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic.

The change in the allowance for credit losses for the three months ended March 31, 2021 is summarized as follows (in thousands): 

Three Months Ended March 31, 2021
Beginning balance$2,026 
Change in allowance(78)
Ending balance$1,948 


11






EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Our contract assets – commission receivable activities, net of credit loss allowances are summarized as follows (in thousands):
Three Months Ended March 31, 2021
Medicare SegmentIFP/SMB SegmentTotal
Beginning balance$739,637 $52,768 $792,405 
Commission revenue from members approved during the period114,678 6,395 121,073 
Commission revenue from renewals of small business members during the period (1)
 2,687 2,687 
Net commission revenue adjustments from members approved in prior period14 3,278 3,292 
Cash receipts(165,520)(12,012)(177,532)
Net change in credit loss allowance(72)(6)(78)
Ending balance$688,737 $53,110 $741,847 

Three Months Ended March 31, 2020
Medicare SegmentIFP/SMB SegmentTotal
Beginning balance$550,922 $38,300 $589,222 
Commission revenue from members approved during the period81,125 5,796 86,921 
Commission revenue from renewals of small business members during the period (1)
 2,396 2,396 
Net commission revenue adjustments from members approved in prior period8,979 1,373 10,352 
Cash receipts(112,731)(13,811)(126,542)
Net change in credit loss allowance(1,574)(58)(1,632)
Ending balance$526,721 $33,996 $560,717 

_____________

(1)Commission revenue from renewals of small business members during the period was previously included in net commission revenue from members approved in prior periods. However, starting in the first quarter of 2021, we enhanced our reporting by separately disclosing commission revenue from renewals of small business members during the period in a separate line item.

Credit Risk

Our financial instruments that are exposed to concentrations of credit risk principally consist of cash, cash equivalents, marketable securities, contract assets – commissions receivable, and accounts receivable. We invest our cash and cash equivalents with major banks and financial institutions and, at times, such investments are in excess of federally insured limits. We also have deposits with major banks in China that are denominated in both U.S. dollars and Chinese Yuan Renminbi and are not insured by the U.S. federal government. The deposits in China were $3.5 million as of March 31, 2021. See Note 4Fair Value Measurements for more information regarding our marketable securities.

12






EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
We do not require collateral or other security for either our contract assets or accounts receivable. Carriers that represented 10% or more of our total contract assets and accounts receivable balance are summarized as of the dates presented below:
 March 31, 2021December 31, 2020
UnitedHealthCare (1)
21 %21 %
Humana21 %21 %
Aetna (1)
20 %20 %
Centene (1)(2)
12 %11 %
_____________

(1)Percentages include the carriers' subsidiaries.
(2)Centene Corporation acquired WellCare Health Plans, Inc. in 2020, and the contract assets and accounts receivable of WellCare are included in the percentage calculation for March 31, 2021 and December 31, 2020.

Prepaid Expenses and Other Current Assets – Our prepaid expenses and other current assets are summarized as of the periods presented as follows (in thousands):
 March 31, 2021December 31, 2020
Prepaid maintenance contracts$6,583 $7,715 
Prepaid expenses4,095 6,628 
Prepaid insurance1,031 1,672 
Others616 646 
Prepaid expenses and other current assets$12,325 $16,661 


Note 4Fair Value Measurements

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

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

13






EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Our financial assets measured at fair value on a recurring basis are summarized below by their classification within the fair value hierarchy as of the dates presented below (in thousands):
March 31, 2021
Carrying ValueLevel 1Level 2Level 3Total
Assets
Cash equivalents
Money market funds$5,602 $5,602 $ $ $5,602 
Commercial paper14,322  14,322  14,322 
Short-term marketable securities
Agency bonds26,826  26,826  26,826 
Commercial paper7,096  7,096  7,096 
Total assets measured at fair value$53,846 $5,602 $48,244 $ $53,846 


 December 31, 2020
 Carrying ValueLevel 1Level 2Level 3Total
Assets
Cash equivalents
Money market funds$4,207 $4,207 $ $ $4,207 
Short-term marketable securities
Agency bonds35,423  35,423  35,423 
Commercial paper14,197  14,197  14,197 
Total assets measured at fair value$53,827 $4,207 $49,620 $ $53,827 

Our cash equivalents were invested in money market funds and commercial paper with original maturity of 90 days or less were classified as Level 1. We endeavor to utilize the best available information in measuring fair value. We used observable prices in active markets in determining the classification of our money market funds as Level 1.

As of March 31, 2021, our Level 2 assets included our available for sale marketable securities, which consisted of commercial paper and agency bonds with maturity less than one year. We classify our marketable debt securities within Level 2 in the fair value hierarchy, because we use quoted market prices to the extent available or alternative pricing sources and models utilizing market observable inputs to determine fair value. Our portfolio primarily consisted of financial instruments with a credit rating of AA or equivalent by S&P Rating and Moody's Investor Services. There were no transfers between the hierarchy levels during the three months ended March 31, 2021 and year ended December 31, 2020.

The following table summarizes our cash equivalents and available-for-sale debt securities by contractual maturity (in thousands):
As of March 31, 2021
Amortized CostFair Value
Due in 1 year$53,827 $53,846 

14






EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Unrealized gains and losses on available-for-sale debt securities that are not credit related are included in accumulated other comprehensive income and summarized as follows as of March 31, 2021 (in thousands):

Amortized CostUnrealized GainUnrealized LossFair Value
Cash equivalents
Money market funds$5,602 $ $ $5,602 
Commercial paper14,323  (1)14,322 
Short-term marketable securities
Agency bonds26,805 21  26,826 
Commercial paper7,097  (1)7,096 
Total$53,827 $21 $(2)$53,846 

As of March 31, 2021, there were twelve securities in net loss positions and their unrealized losses were immaterial. We did not record any credit losses regarding our available-for-sales debt securities during the three months ended March 31, 2021. We do not intend to sell these securities and it is more likely than not that we will not be required to sell these securities before the recovery of their amortized cost basis.


Note 5Equity

Public Offering of Common Stock – Pursuant to an effective registration statement that was filed on December 17, 2018, and amended on January 22, 2019 and March 2, 2020, we entered into an underwriting agreement in March 2020 to issue a total of 2.1 million shares of common stock, which included the exercise in full of the underwriters’ option to purchase 0.3 million additional shares of common stock, at a price to the public of $115.00 per share in March 2020. Net proceeds from the offering were approximately $228.0 million after deducting underwriting discounts, commissions and expenses of the offering.

Stock Repurchase Programs – We had no stock repurchase activity during the three months ended March 31, 2021. In addition to 10.7 million shares repurchased under our previous repurchase programs, we have in treasury 1.2 million shares as of March 31, 2021 that were previously surrendered by employees to satisfy tax withholding due in connection with the vesting of certain restricted stock units. As of March 31, 2021 and December 31, 2020, we had a total of 11.9 million shares and 11.8 million shares, respectively, held in treasury.

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

Stock-Based Compensation Expense – Our stock-based compensation expense is summarized as follows by award types (in thousands): 
Three Months Ended March 31,
20212020
Common stock options$180 $306 
Restricted stock units*10,719 8,408 
ESPP503  
Total stock-based compensation expense$11,402 $8,714 
_________

*    Amounts include market-based and performance-based RSUs.

15






EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following table summarizes stock-based compensation expense by operating function for the periods presented below (in thousands): 

 Three Months Ended March 31,
 20212020
Marketing and advertising$2,485 $1,730 
Customer care and enrollment469 662 
Technology and content2,743 1,617 
General and administrative5,705 4,705 
Total stock-based compensation expense$11,402 $8,714 
Amount capitalized in internal-use software550 248 
Total stock-based compensation$11,952 $8,962 


Note 6 — Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common and common equivalent shares outstanding during the period. Diluted net income (loss) per share is computed giving effect to all potential dilutive common stock equivalent shares, including options, restricted stock units and shares to be issued under our ESPP. The dilutive effect of outstanding awards is reflected in diluted net income (loss) per share by application of the treasury stock method.
 
The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except per share amounts):
Three Months Ended March 31,
20212020
Numerator:
Net income (loss)$(800)$3,452 
Denominator:
Shares used in per share calculation – basic26,620 24,719 
Dilutive effect of common stock 1,460 
Shares used in diluted share calculation26,620 26,179 
Net income (loss) per share – basic$(0.03)$0.14 
Net income (loss) per share – diluted$(0.03)$0.13 

16






EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
For each of the three months ended March 31, 2021 and 2020, we had securities outstanding that could potentially dilute per share amounts, but the shares from the assumed conversion or exercise of these securities were excluded in the computation of diluted net income (loss) per share as their effect would have been anti-dilutive. The number of outstanding anti-dilutive shares that were excluded from the computation of diluted net income (loss) per share consisted of the following (in thousands):
Three Months Ended March 31,
20212020*
Common stock options363 n/a
Restricted stock units1,090 n/a
ESPP7 n/a
Total1,460 n/a
_________

*    There were no antidilutive shares for this period.


Note 7Commitments and Contingencies

Service and Licensing Obligations

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

Our future minimum payments under non-cancellable contractual service and licensing obligations as of March 31, 2021 (in thousands): 
For the Years Ending December 31,
Remainder of 2021$4,246 
20223,472 
20232,745 
20242,056 
20251,353 
Thereafter1,353 
Total$15,225 

Operating Leases

Refer to Note 9Leases for commitments related to our operating leases.

Contingencies

From time to time, we receive inquiries from governmental bodies and also may be subject to various legal proceedings and claims arising in the ordinary course of business. We assess contingencies to determine the degree of probability and range of possible loss for potential accrual in our condensed consolidated financial statements. An estimated loss contingency is accrued in the condensed consolidated financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. There was no material litigation-related accrual during the three months ended March 31, 2021. Legal proceedings or other contingencies could result in material costs, even if we ultimately prevail.

17






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

Securities Class Action – On April 8, 2020 and April 30, 2020, two purported class action lawsuits were filed against us, our chief executive officer, Scott N. Flanders, our chief financial officer, Derek N. Yung, and our then-chief operating officer, David K. Francis, in the United States District Court for the Northern District of California. The cases are captioned Patel v. eHealth, Inc., et al., Case No. 5:20-cv-02395 (N.D. Cal.) and Bertrand v. eHealth, Inc. et al., Case No. 4:20-cv-02967 (N.D. Cal.). The complaints allege, among other things, that we and Messrs. Flanders, Yung and Francis made materially false and misleading statements and/or failed to disclose material information regarding our accounting and modeling assumptions, rate of member churn and our profitability during the alleged class period of March 19, 2018 to April 7, 2020. The complaints allege that we and Messrs. Flanders, Yung and Francis violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The complaints seek compensatory and (in the Patel lawsuit) punitive damages, attorneys’ fees and costs, and such other relief as the court deems proper. On June 24, 2020, the Court consolidated the above-referenced matters under the caption In re eHealth Securities Litig., Master File No. 4:20-cv-02395-JST (N.D. Cal.). The Court also appointed a lead plaintiff and lead counsel for the consolidated matter. The lead plaintiff filed an amended complaint on August 25, 2020, which Defendants moved to dismiss. The motion to dismiss has been fully briefed.

Derivative Actions – On July 7, 2020 and October 13, 2020, two derivative lawsuits were filed against our chief executive officer, Mr. Flanders, our chief financial officer, Mr. Yung, our then-chief operating officer, Mr. Francis, and the members of our Board of Directors (collectively, the “Individual Defendants”), in the United States District Court for the Northern District of California and the Superior Court of California, County of Santa Clara. The cases are captioned Chernet v. Flanders et al., Case No. 3:20-cv-04477-SK (N.D. Cal.), and Lincolnshire Police Pension Fund v. Flanders et al., Case No. 20CV371555 (Cal. Super. Ct.), and also name the Company as a nominal defendant. The complaints allege, among other things, that beginning on March 19, 2018, the Individual Defendants made or caused the Company to make materially false and misleading statements and/or failed to disclose material information regarding our accounting and modeling assumptions, rate of member churn, profitability, and internal controls. Both complaints purport to assert claims for breach of fiduciary duty, unjust enrichment and waste of corporate assets. The Chernet lawsuit also alleges that the Individual Defendants violated Sections 14(a), 10(b), and 20(a) of the Securities Exchange Act of 1934, and asserts claims for abuse of control and gross mismanagement. The complaints seek damages, restitution, attorneys’ fees and costs, and certain measures with respect to the Company’s corporate governance and internal procedures, and (in the Lincolnshire lawsuit) equitable and/or injunctive relief. The Chernet and Lincolnshire lawsuits have both been stayed pending the resolution of the motion to dismiss in the Securities Class Action, In re eHealth Securities Litig., Master File No. 4:20-cv-02395-JST (N.D. Cal.).

The Gonzalez and LeVias Complaints – On April 6, 2018, a former employee, Lupita Gonzalez, filed a complaint against us in the Superior Court of the State of California for the County of Sacramento (the “Gonzalez Complaint”). On July 1, 2019, two other current or former employees, Michael Le’Vias and Ramona Meadows, filed a related complaint against us and eHealth Ins. Serv. Co., in the Superior Court of the State of California for the County of Santa Clara (the “Le’Vias Complaint”). Both complaints asserted claims under the California Private Attorney General Act (“PAGA”) on behalf of all current and former hourly-paid or non-exempt employees who work or have worked for us in California, based on alleged failures to comply with California wage and hour laws.

The parties have entered into a court-approved settlement agreement that resolves both matters related to the Gonzalez and Le'Vias Complaints, and Plaintiffs Michael Le’Vias and Ramona Meadows have sought dismissal with prejudice of the Le’Vias Complaint. Upon the completion of the distribution of the settlement funds in accordance with the settlement agreement and the court order approving the settlement agreement, the parties will seek a dismissal with prejudice of the Gonzalez Complaint.


Note 8Segment and Geographic Information

Operating Segments

We report segment information based on how our chief executive officer, who is our chief operating decision maker ("CODM"), regularly reviews our operating results, allocates resources and makes decisions regarding our business operations. The performance measures of our segments include total revenue and profit. Our business structure is comprised
18






EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
of two operating segments: Medicare and Individual, Family and Small Business. Please refer to Note 1Summary of Business and Significant Accounting Policies of the Notes to Consolidated Financial Statements in Part II, Item 8 of the Annual Report on Form 10-K for the year ended December 31, 2020 for our accounting policies relating to operating segments.

The results of our operating segments are summarized for the periods presented below (in thousands):
Three Months Ended March 31,
 20212020
Revenue:
Medicare$121,021 $96,151 
Individual, Family and Small Business13,193 10,257 
Total revenue$134,214 $106,408 
Segment profit:
Medicare segment profit (1)
$24,545 $23,136 
Individual, Family and Small Business segment profit (1)
8,052 2,928 
Total segment profit32,597 26,064 
Corporate(15,286)(13,448)
Stock-based compensation expense(11,402)(8,714)
Depreciation and amortization(2)
(3,944)(2,324)
Amortization of intangible assets(176)(547)
Restructuring charges(2,431) 
Other income, net150 373 
Income (loss) before provision for (benefit from) income taxes$(492)$1,404 

_____________

(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 development costs were $2.8 million and $1.5 million for the first quarter of 2021 and 2020, respectively.
(2)Depreciation and amortization has been adjusted to include amortization of software development costs.

There were no inter-segment revenue transactions for the periods presented. With the exception of contract assets – commissions receivable, which is presented by segment in Note 3Supplemental Financial Statement Information, our CODM does not separately evaluate assets by segment, and therefore, assets by segment are not presented.

Geographic Information

Our long-lived assets primarily consist of property and equipment and internally-developed software. Our long-lived assets are attributed to the geographic location in which they are located. Long-lived assets by geographical area are summarized as follows (in thousands):

March 31, 2021December 31, 2020
United States$41,829 $40,500 
China511 565 
Total$42,340 $