GoHealth, Inc. - FORM 10-Q - August 19, 2020

Attached files

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

file	filename
EX-32.2 - EX-32.2 - GoHealth, Inc.	d935246dex322.htm
EX-32.1 - EX-32.1 - GoHealth, Inc.	d935246dex321.htm
EX-31.2 - EX-31.2 - GoHealth, Inc.	d935246dex312.htm
EX-31.1 - EX-31.1 - GoHealth, Inc.	d935246dex311.htm
EX-10.2 - EX-10.2 - GoHealth, Inc.	d935246dex102.htm
EX-3.2 - EX-3.2 - GoHealth, Inc.	d935246dex32.htm
EX-3.1 - EX-3.1 - GoHealth, Inc.	d935246dex31.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2020

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

For the transition period from to

Commission File Number: 001-39390

GoHealth, Inc.

(Exact name of registrant as specified in its charter)


Delaware		85-0563805
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

214 West Huron St. Chicago, Illinois		60654
(Address of principal executive offices)		(Zip Code)

(312) 386-8200

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange

on which registered

Common Stock,

$0.0001 par value per share

GOCO

The Nasdaq Global Market

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 ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation 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 ☒ 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.

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 ☒

As of August 14, 2020, the registrant had 84,182,961 shares of Class A common stock, $0.0001 par value per share, outstanding and 229,399,322 shares of Class B common stock, $0.0001 par value per share, outstanding.

Table of Contents


		Page
PART I.	FINANCIAL INFORMATION		5
Item 1.	Financial Statements (Unaudited)		5
	GoHealth, Inc.		5
	Balance sheets		5
	Notes to balance sheets		6
	GoHealth Holdings, LLC and subsidiaries		9
	Condensed consolidated statements of income (loss)		9
	Condensed consolidated statements of comprehensive income (loss)		10
	Condensed consolidated balance sheets		11
	Condensed consolidated statements of changes in members’ equity		12
	Condensed consolidated statements of cash flows		14
	Notes to condensed consolidated financial statements		15
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		49
Item 4.	Controls and Procedures		50
PART II.	OTHER INFORMATION		50
Item 1.	Legal Proceedings		50
Item 1A.	Risk Factors		50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		85
Item 3.	Defaults Upon Senior Securities		86
Item 4.	Mine Safety Disclosures		86
Item 5.	Other Information		86
Item 6.	Exhibits		86
	Signatures		88

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q may be forward-looking statements. Statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, including, among others, statements regarding our expected growth, future capital expenditures and debt service obligations, are forward-looking statements.

In some cases, you can identify forward-looking statements by terms, such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the factors described under the sections in this Quarterly Report on Form 10-Q titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

CERTAIN DEFINTIONS

As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires:

•

“we,” “us,” “our,” the “Company,” “GoHealth” and similar references refer: (1) following the consummation of the Transactions, including our initial public offering, or IPO, to GoHealth, Inc., and, unless otherwise stated, all of its direct and indirect subsidiaries, including GoHealth Holdings, LLC (formerly known as Blizzard Parent, LLC), and (2) prior to the completion of the Transactions, including our IPO, to GoHealth Holdings, LLC and, unless otherwise stated, all of its direct and indirect subsidiaries, or, as applicable, the Predecessor.

•

“Blocker Company” refers to an entity affiliated with Centerbridge that was an indirect owner of LLC Interests in GoHealth Holdings, LLC prior to the Transactions and is taxable as a corporation for U.S. federal income tax purposes.

•

“Blocker Shareholders” refer to entities affiliated with Centerbridge, the owners of the Blocker Company prior to the Transactions, who exchanged their interests in the Blocker Company for shares of our Class A common stock and cash in connection with the consummation of the Transactions.

•

“Centerbridge” refers to Centerbridge Capital Partners III, L.P., our sponsor and a Delaware limited partnership, certain funds affiliated with Centerbridge Capital Partners III, L.P. and other entities over which Centerbridge Capital Partners III, L.P. has voting control (including any such fund or entity formed to hold shares of Class A common stock for the Blocker Shareholders).

•

“Centerbridge Acquisition” refers to the acquisition, on September 13, 2019, by Centerbridge, indirectly through a subsidiary of GoHealth Holdings, LLC (formerly known as Blizzard Parent, LLC), an entity formed in contemplation of the acquisition, of a 100% interest in Norvax.

•

“Continuing Equity Owners” refer collectively to direct or indirect holders of LLC Interests and our Class B common stock immediately following consummation of the Transactions, including Centerbridge, Norwest, NVX Holdings, our Founders, the Former Profits Unit Holders and certain executive officers, employees and other minority investors and their respective permitted transferees who may, following the consummation of our IPO, exchange at each of their respective options (subject

in certain circumstances to time-based vesting requirements and certain other restrictions), in whole or in part from time to time, their LLC Interests (along with an equal number of shares of Class B common stock (and such shares shall be immediately cancelled)) for, at our election (determined solely by our independent directors (within the meaning of the listing rules of The Nasdaq Global Market, or the Nasdaq rules) who are disinterested), cash or newly-issued shares of our Class A common stock.

•

“Founders” refer to Brandon M. Cruz, our Co-Founder and Chief Strategy Officer and Special Advisor to the Executive Team, and Clinton P. Jones, our Co-Founder and Chief Executive Officer.

•

“Former Profits Unit Holders” refers collectively to certain of our directors and certain current and former officers and employees, in each case, who directly or indirectly held existing vested and unvested profits units, which were comprised of profits units that have time-based vesting conditions and profits units that have performance-based vesting conditions, of GoHealth Holdings, LLC pursuant to GoHealth Holdings, LLC’s existing profits unit plan and who received LLC Interests in exchange for their profits units in connection with the Transactions. LLC Interests received in exchange for unvested profits units remain subject to their existing time-based vesting requirements, but are not be subject to the performance-based vesting conditions as such conditions were met in connection with our IPO.

•

“GoHealth Holdings, LLC Agreement” refers to GoHealth Holdings, LLC’s amended and restated limited liability company agreement, which became effective substantially concurrently with or prior to the consummation of our IPO.

•

“LLC Interests” refer to the common units of GoHealth Holdings, LLC, including those that we purchased with a portion of the net proceeds from our IPO.

•

“Norwest” refers to Norwest Equity Partners and certain funds affiliated with Norwest Equity Partners.

•

“Norvax” or “Predecessor” refers to Norvax, LLC, a Delaware limited liability company and a subsidiary of GoHealth Holdings, LLC.

•

“NVX Holdings” refers to NVX Holdings, Inc., a Delaware corporation that is controlled by the Founders.

•

“Original Equity Owners” refer to the owners of LLC Interests in GoHealth Holdings, LLC prior to the consummation of the Transactions, collectively, which include Centerbridge, Norwest, our Founders and certain executive officers, employees and other minority investors.

•

“Transactions” refer to our IPO and certain organizational transactions that were effected in connection with our IPO, and the application of the net proceeds therefrom. See “The Transactions” below and Note 4 to GoHealth, Inc.’s condensed balance sheets for a description of the Transactions.

GoHealth, Inc. is a holding company and the sole managing member of GoHealth Holdings, LLC, and its principal asset consists of LLC Interests.

KEY TERMS AND PERFORMANCE INDICATORS; NON-GAAP FINANCIAL MEASURES

Throughout this Quarterly Report on Form 10-Q, we use a number of key terms and provide a number of key performance indicators used by management. We define these terms and key performance indicators as follows:

•

“Approved Submissions” refer to Submitted Policies approved by carriers for the identified product during the indicated period.

•

“Adjusted EBITDA” represents, as applicable for the period, EBITDA as further adjusted for share-based compensation, change in fair value of contingent consideration liability, Centerbridge Acquisition costs, severance costs and incremental organizational costs in connection with our IPO.

•

“Adjusted EBITDA margin” refers to Adjusted EBITDA divided by net revenues.

•

“Consumer interactions” refer to the number of times a consumer calls us or visits us online.

•

“Consumer lead” refers to a consumer for which we have collected some personally identifiable information related to health insurance.

iii

•

“EBITDA” represents net income (loss) before interest expense, income tax expense (benefit) and depreciation and amortization expense.

•

“Impressions” refer to the number of times our advertisement is shown to consumers through any medium, regardless of whether such consumers have viewed, clicked through or otherwise interacted with the advertisement.

•

“LTV Per Approved Submission” refers to the Lifetime Value of Commissions per Approved Submission, which we define as (i) aggregate commissions estimated to be collected over the estimated life of all commissionable Approved Submissions for the relevant period based on multiple factors, including but not limited to, contracted commission rates, carrier mix and expected policy persistency with applied constraints, divided by (ii) the number of commissionable Approved Submissions for such period.

•

“LTV/CAC” refers to the Lifetime Value of Commissions per Consumer Acquisition Cost, which we define as (i) aggregate commissions estimated to be collected over the estimated life of all commissionable Approved Submissions for the relevant period based on multiple factors, including but not limited to, contracted commission rates, carrier mix and expected policy persistency with applied constraints, or LTV, divided by (ii) the cost to convert a prospect into a customer less other non-commission carrier revenue for such period, or CAC. CAC is comprised of cost of revenue, marketing and advertising expenses and customer care and enrollment expenses less other revenue and is presented on a per commissionable Approved Submission basis.

•

“Qualified prospect” refers to a consumer that has confirmed an interest to us in shopping for health insurance over the phone, online or via live transfer to our agents, both through the internal and external channels.

•

“Submitted Policies” refer to completed applications that, with respect to each such application, the consumer has authorized us to submit to the carrier.

We use supplemental measures of our performance that are derived from our consolidated financial information, but which are not presented in our consolidated financial statements prepared in accordance with GAAP. These non-GAAP financial measures include net income (loss) before interest expense, income tax expense (benefit) and depreciation and amortization expense, or EBITDA; Adjusted EBITDA and Adjusted EBITDA margin. Adjusted EBITDA is the primary financial performance measure used by management to evaluate its business and monitor its results of operations.

Adjusted EBITDA represents EBITDA as further adjusted for share-based compensation, change in fair value of earnout liability, Centerbridge Acquisition costs, severance costs and incremental organizational costs in connection with the IPO. Adjusted EBITDA margin represents Adjusted EBITDA divided by net revenues.

We use non-GAAP financial measures to supplement financial information presented on a GAAP basis. We believe that excluding certain items from our GAAP results allows management to better understand our consolidated financial performance from period to period and better project our future consolidated financial performance as forecasts are developed at a level of detail different from that used to prepare GAAP-based financial measures. Moreover, we believe these non-GAAP financial measures provide our stakeholders with useful information to help them evaluate our operating results by facilitating an enhanced understanding of our operating performance and enabling them to make more meaningful period to period comparisons. There are limitations to the use of the non-GAAP financial measures presented in this Quarterly Report on Form 10-Q. For example, our non-GAAP financial measures may not be comparable to similarly titled measures of other companies. Other companies, including companies in our industry, may calculate non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes.

The non-GAAP financial measures are not meant to be considered as indicators of performance in isolation from or as a substitute for net income (loss) prepared in accordance with GAAP, and should be read only in conjunction with financial information presented on a GAAP basis. Reconciliations of each of EBITDA and Adjusted EBITDA to its most directly comparable GAAP financial measure, net income (loss), are presented in the tables below in this Quarterly Report on Form 10-Q. We encourage you to review the reconciliations in conjunction with the presentation of the non-GAAP financial measures for each of the periods presented. In future periods, we may exclude similar items, may incur income and expenses similar to these excluded items and include other expenses, costs and non-recurring items.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

GoHealth, Inc.

Balance Sheets

(dollars in actuals)


	As of June 30, 2020		As of March 27, 2020
	(Unaudited)
Assets
Current assets:
Cash	$	1	$	1

Total assets	$	1	$	1

Commitments and contingencies
Stockholder’s equity:
Common stock, $0.001 par value, 1,000 shares authorized, issued and outstanding	$	1	$	1

Total stockholder’s equity	$	1	$	1

See accompanying notes to balance sheets.

GoHealth, Inc.

Notes to Balance Sheets

1.	ORGANIZATION AND BASIS OF PRESENTATION

Organization

GoHealth, Inc. (the “Company”) was incorporated in Delaware on March 27, 2020 for the purpose of facilitating an initial public offering of its Class A common stock and other related transactions in order to carry on the business of GoHealth Holdings, LLC (formerly known as Blizzard Parent, LLC), a Delaware limited liability company, and its wholly owned subsidiaries (collectively, “GHH, LLC”).

As described in more detail in Note 4, “Subsequent Events,” on July 17, 2020, the Company completed its initial public offering of 43,500,000 shares of its Class A common stock at a public offering price of $21.00 per share (“the IPO”), receiving approximately $852.0 million in net proceeds, after deducting the underwriting discount and estimated offering expenses. The net proceeds from the IPO were used to purchase 38,679,685 newly-issued LLC interests from GHH, LLC at a price per unit equal to the initial public offering price per share of Class A common stock in the IPO, less the underwriting discount and estimated offering expenses.

Subsequent to the IPO and pursuant to a reorganization into a holding company structure, the Company became a holding company and its principal asset is a controlling equity interest in GHH, LLC. As the sole managing member of GHH, LLC, the Company operates and controls all of the business and affairs of GHH, LLC, and through GHH, LLC and its subsidiaries, conduct its business.

Basis of Presentation

The accompanying balance sheets are presented in accordance with accounting principles generally accepted in the United States. Separate statements of income, comprehensive income, changes in stockholder’s equity and cash flows have not been presented because the Company has not engaged in any activities except in connection with its formation.

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash

All cash as of the balance sheet date was cash on hand held in deposit, and is carried at fair value, which approximates carrying value.

Income Taxes

The Company is treated as a subchapter C corporation, and therefore, is subject to both federal and state income taxes. GHH, LLC continues to be recognized as a limited liability company, a pass-through entity for income tax purposes.

3.	STOCKHOLDER’S EQUITY

On March 27, 2020, the Company was authorized to issue 1,000 shares of common stock, $0.001 par value. On March 27, 2020, the Company issued 1,000 shares of common stock for $1, all of which were owned by GHH, LLC.

In connection with the Company’s IPO in July 2020, the Company’s Board of Directors approved an amended and restated certificate of incorporation and amended and restated bylaws. The amended and restated certificate of incorporation authorizes the issuance of up to 1,100,000,000 shares of Class A common stock, 690,000,000 shares of Class B common stock and 20,000,000 shares of preferred stock, each having a par value of $0.0001 per share.

Holders of Class A common stock are entitled to one vote per share held of record on all matters submitted to a vote of stockholders. Holders of Class A common stock are entitled to receive dividends when and if declared by the Company’s board of directors out of funds legally available, subject to any statutory or contractual restrictions on the payment of dividends and to any restrictions on the payment of dividends imposed by the terms of any outstanding preferred stock.

Holders of Class B common stock are entitled to one vote per share held of record on all matters presented to stockholders generally and do not have any right to receive dividends.

Upon the Company’s dissolution or liquidation, after payment in full of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any, holders of Class A common stock and Class B common stock will be entitled to receive ratable portions of the Company’s remaining assets available for distribution; provided, that the holders of Class B common stock shall not be entitled to receive more than $0.0001 per share of Class B common stock and upon receiving such amount, shall not be entitled to receive any of the Company’s other assets or funds with respect to such shares of Class B common stock.

Under the terms of the amended and restated certificate of incorporation, the Company’s board of directors is authorized to direct the Company to issue shares of preferred stock in one or more series without stockholder approval. The Company’s board of directors has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock.

4.	SUBSEQUENT EVENTS

In connection with the Company’s IPO, the Company completed a series of organizational transactions (the “Transactions”). The Transactions included:

•

The amendment and restatement of the existing limited liability company agreement of GHH, LLC to, among other things, (1) recapitalize all existing ownership interests in GHH, LLC (including profits units awarded under the existing limited liability company agreement of GHH, LLC) and (2) appoint the Company as the sole managing member of GHH, LLC upon its acquisition of LLC Interests in connection with the IPO;

•

The amendment and restatement of the Company’s certificate of incorporation to, among other things, provide for (1) the recapitalization of the Company’s outstanding shares of existing common stock into one share of Class A common stock, (2) Class A common stock, with each share of the Company’s Class A common stock entitling its holder to one vote per share on all matters presented to stockholders generally and (3) Class B common stock, with each share of the Company’s Class B common stock entitling its holder to one vote per share on all matters presented to stockholders generally, and that shares of Class B common stock may only be held by the Continuing Equity Owners and their respective permitted transferees;

•

The issuance of 229,399,322 shares of the Company’s Class B common stock to the Continuing Equity Owners, which is equal to the number of LLC Interests held directly or indirectly by such Continuing Equity Owners immediately following the Transactions, for nominal consideration;

•

The acquisition of, by means of one or more mergers, the Blocker Company (the “Blocker Merger”) and the issuance to the Blocker Shareholders 40,682,961 shares of the Company’s Class A common stock and payment of $96.2 million in cash to Blocker Shareholders as partial consideration in the Blocker Merger;

•

The issuance of 43,500,000 shares of the Company’s Class A common stock to the purchasers in the IPO in exchange for net proceeds, after taking into account the underwriting discount and estimated offering expenses payable by the Company, of approximately $852.0 million;

•

The use of the net proceeds from the IPO to (i) purchase 38,679,685 newly-issued LLC Interests directly from GHH, LLC at a price per unit equal to the IPO price per share of Class A common stock less the underwriting discount and estimated offering expenses payable by the Company and (ii) pay $96.2 million in cash to the Blocker Shareholders as partial consideration in the Blocker Merger;

•

GHH, LLC used the net proceeds from the sale of LLC Interests to the Company (i) to pay $508.3 million in cash to partially redeem certain of the LLC Interests held directly or indirectly by the Continuing Equity Owners, (ii) to satisfy in full $100.0 million in aggregate face amount of an existing equity instrument in connection with the Transactions and (iii) for general corporate purposes, to the extent any proceeds remain, to support the growth of the business; and

•

The Company entered into (1) a stockholders’ agreement with Centerbridge and NVX Holdings, (2) a registration rights agreement with certain of the Continuing Equity Owners and (3) a tax receivable agreement with GHH, LLC, the Continuing Equity Owners and the Blocker Shareholders.

In connection with the IPO, the Company became the sole managing member of GHH, LLC and will control the management of GHH, LLC. As a result, the Company will consolidate GHH, LLC’s financial results in its consolidated financial statements and report a non-controlling interest for the economic interest in GHH, LLC held by the Continuing Equity Owners.

In connection with the IPO, the Company entered into the Tax Receivable Agreement with GHH, LLC, the Continuing Equity Owners and the Blocker Shareholders that will provide for the payment by the Company to the Continuing Equity Owners and the Blocker Shareholders of 85% of the amount of tax benefits, if any, that the Company actually realizes (or in some circumstances is deemed to

realize) as a result of (1) the Company’s allocable share of existing tax basis acquired in connection with the Transactions (including the Blocker Company’s share of existing tax basis) and increases to such allocable share of existing tax basis; (2) increases in tax basis resulting from (a) the Company’s purchase of LLC Interests directly from GHH, LLC and the partial redemption of LLC Interests by GHH, LLC, (b) future redemptions or exchanges (or deemed exchanges in certain circumstances) of LLC Interests for Class A common stock or cash, and (c) certain distributions (or deemed distributions) by GHH, LLC; and (3) certain additional tax benefits arising from payments made under the Tax Receivable Agreement.

On July 7, 2020, the Company adopted the 2020 Incentive Award Plan, which became effective on July 14, 2020, under which 6,465,359 shares of the Company’s Class A common stock will be initially reserved for issuance. In connection with the IPO, the Company granted 2,426,100 shares of Class A common stock issuable pursuant to stock options and 305,068 shares of Class A common stock issuable pursuant to restricted stock units.

Also on July 7, 2020, the Company adopted the 2020 Employee Stock Purchase Plan, which became effective on the same date, under which 808,170 shares of the Company’s Class A common stock will be initially reserved for issuance.

GoHealth Holdings, LLC and Subsidiaries

Condensed Consolidated Statements of Income (Loss)

(dollars in thousands, except share and per share amounts, unaudited)


	Three Months Ended June 30,					Six Months Ended June 30,
	Successor			Predecessor		Successor			Predecessor
	2020			2019		2020			2019
Net revenues:
Commission	$	96,606		$	60,077	$	209,116		$	111,293
Other		30,451			14,434		58,951			32,308

Net revenues		127,057			74,511		268,067			143,601
Operating expenses:
Cost of revenue		36,559			26,561		78,693			54,113
Marketing and advertising		21,634			5,026		47,708			16,437
Customer care and enrollment		28,394			15,814		52,371			29,753
Technology		5,705			4,301		10,298			8,457
General and administrative		10,359			7,106		20,849			14,096
Change in fair value of contingent consideration liability		15,300			—		19,700			—
Amortization of intangible assets		23,514			—		47,029			—
Transaction costs		—			299		—			299

Total operating expenses		141,465			59,107		276,648			123,155

(Loss) income from operations		(14,408	)		15,404		(8,581	)		20,446
Interest expense		8,986			81		15,742			109
Other (income) expense		(505	)		38		(495	)		48

(Loss) income before income taxes		(22,889	)		15,285		(23,828	)		20,289
Income tax (benefit) expense		(22	)		9		(24	)		11

Net (loss) income	$	(22,867	)	$	15,276	$	(23,804	)	$	20,278

Pro forma net (loss) per share (Note 9):
Pro forma net (loss) per share—basic and diluted	$	(0.07	)			$	(0.07	)
Pro forma weighted-average shares outstanding—basic and diluted		40,682,961					40,682,961

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

GoHealth Holdings, LLC and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(dollars in thousands, unaudited)


	Three Months Ended June 30,					Six Months Ended June 30,
	Successor		Predecessor			Successor		Predecessor
	2020		2019			2020		2019
Net (loss) income	$	(22,867)	$	15,276		$	(23,804)	$	20,278
Other comprehensive income (loss):
Foreign currency translation adjustments		183		(7	)		98		(53	)

Other comprehensive income (loss)		183		(7	)		98		(53	)

Total comprehensive (loss) income	$	(22,684)	$	15,269		$	(23,706)	$	20,225

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

GoHealth Holdings, LLC and Subsidiaries

Condensed Consolidated Balance Sheets

(dollars in thousands, except unit and per unit amounts)


	Successor		Successor
	June 30, 2020		December 31, 2019
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	118,341	$	12,276
Accounts receivable, net of allowance for doubtful accounts of $729 in 2020 and $904 in 2019		9,444		24,461
Commissions receivable – current		74,044		101,078
Prepaid expenses and other current assets		15,019		5,954

Total current assets		216,848		143,769
Commissions receivable – non-current		367,596		281,853
Property, equipment, and capitalized software, net		12,467		6,339
Intangible assets, net		735,754		782,783
Goodwill		386,553		386,553
Other long-term assets		1,193		998

Total assets	$	1,720,411	$	1,602,295

Liabilities and members’ equity
Current liabilities:
Accounts payable	$	10,243	$	13,582
Accrued liabilities		21,659		22,568
Commissions payable – current		46,240		56,003
Deferred revenue		1,047		15,218
Current portion of debt		4,170		3,000
Other current liabilities		3,974		2,694

Total current liabilities		87,333		113,065
Non-current liabilities:
Commissions payable – non-current		125,387		97,489
Long-term debt, net of current portion		397,235		288,233
Contingent consideration		62,400		242,700
Other non-current liabilities		543		664

Total non-current liabilities		585,565		629,086
Commitments and contingencies (Note 11)
Members’ Equity:
Preferred Units – $1.00 par value; 541,263,042 units authorized, issued and outstanding at June 30, 2020 and December 31, 2019		536,489		547,542
Class A Common Units – $1.00 par value; 351,345,682 and 237,938,682 units authorized, issued and outstanding at June 30, 2020 and December 31, 2019		282,317		218,911
Class B Common Units – $1.00 par value; 157,372,734 and 102,061,318 units authorized, issued and outstanding at June 30, 2020 and December 31, 2019, respectively		130,563		93,708
Senior Preferred Earnout Units – no par value; 100,000,000 and 0 units authorized, issued, and outstanding at June 30, 2020 and December 31, 2019, respectively		98,063		—
Profits Units – no par value; 97,918,116 units authorized at June 30, 2020 and December 31, 2019; 86,097,861 and 78,398,133 units issued at June 30, 2020 and December 31, 2019, respectively; and none outstanding at June 30, 2020 and December 31, 2019		—		—
Accumulated other comprehensive income (loss)		81		(17	)

Total members’ equity		1,047,513		860,144

Total liabilities and members’ equity	$	1,720,411	$	1,602,295

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

GoHealth Holdings, LLC and Subsidiaries

Condensed Consolidated Statements of Changes in Members’ Equity

(dollars and units in thousands, unaudited)


	Three Months Ended June 30, 2020
	Preferred Units					Class A Common Units					Class B Common Units					Senior Preferred Earnout Units					Class A Units		Class B Units		Retained Earnings (Deficit)		Accumulated Other Comprehensive (Loss) Income			Members’ Equity (Deficit)
	Units		Amount			Units		Amount			Units		Amount			Units		Amount			Units	Amount	Units	Amount	Retained Earnings (Deficit)					Members’ Equity (Deficit)
Successor:
Balance at March 31, 2020		541,263	$	546,972			237,939	$	219,139			108,728	$	103,593											$	—	$	(102	)	$	869,602
Foreign currency translation adjustment																												183			183
Issuance of Senior Preferred Earnout Units																	100,000		100,000												100,000
Issuance of Common Earnout Units							113,407		69,982			48,645		30,018																	100,000
Share-based compensation expense				281					182					82					52												597
Net loss				(10,764	)				(6,986	)				(3,129	)				(1,988	)											(22,867	)

Balance at June 30, 2020		541,263	$	536,489			351,346	$	282,317			157,372	$	130,563			100,000	$	98,063						$	—	$	81		$	1,047,513


	Three Months Ended June 30, 2019
Predecessor:
Balance at March 31, 2019		8,365	$	235	220	$	2,200	$	(299,100)		$	(32)		$	(296,697)
Redeemable Class B unit accretion									(15,000	)					(15,000	)
Foreign currency translation adjustment												(7	)		(7	)
Net income									15,276						15,276

Balance at June 30, 2019		8,365	$	235	220	$	2,200	$	(298,824)		$	(39)		$	(296,428)

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

GoHealth Holdings, LLC and Subsidiaries

Condensed Consolidated Statements of Changes in Members’ Equity (continued)

(dollars and units in thousands, unaudited)


	Six Months Ended June 30, 2020
	Preferred Units					Class A Common Units					Class B Common Units					Senior Preferred Earnout Units					Class A Units		Class B Units		Retained Earnings (Deficit)		Accumulated Other Comprehensive (Loss) Income			Members’ Equity (Deficit)
	Units		Amount			Units		Amount			Units		Amount			Units		Amount			Units	Amount	Units	Amount	Retained Earnings (Deficit)					Members’ Equity (Deficit)
Successor:
Balance at January 1, 2020		541,263	$	547,542			237,939	$	218,911			102,061	$	93,708											$	—	$	(17	)	$	860,144
Foreign currency translation adjustment																												98			98
Issuance of Senior Preferred Earnout Units																	100,000		100,000												100,000
Issuance of Common Earnout Units							113,407		69,982			48,645		30,018																	100,000
Issuance of Common Units												6,667		10,000																	10,000
Share-based compensation expense				281					662					82					52												1,077
Net loss				(11,334	)				(7,238	)				(3,244	)				(1,989	)											(23,804	)

Balance at June 30, 2020		541,263	$	536,489			351,346	$	282,317			157,373	$	130,563			100,000	$	98,063						$	—	$	81		$	1,047,513


	Six Months Ended June 30, 2019
Predecessor:
Balance at January 1, 2019		8,365	$	235	220	$	2,200	$	(189,102)		$	14		$	(186,653)
Redeemable Class B unit accretion									(130,000	)					(130,000	)
Foreign currency translation adjustment												(53	)		(53	)
Net income									20,278						20,278

Balance at June 30, 2019		8,365	$	235	220	$	2,200	$	(298,824)		$	(39)		$	(296,428)

GoHealth Holdings, LLC and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(dollars in thousands, unaudited)


	Successor			Predecessor
	Six Months Ended June 30, 2020			Six Months Ended June 30, 2019
Operating activities:
Net (loss) income	$	(23,804)		$	20,278
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Share-based compensation		1,077			—
Depreciation and amortization		1,636			3,043
Amortization of intangible assets		47,029			—
Amortization of debt discount and issuance costs		1,058			—
Change in fair value of contingent consideration		19,700			—
Other non-cash items		(458	)		808
Changes in assets and liabilities:
Accounts receivable		15,506			860
Commissions receivable		(58,709	)		(33,885	)
Prepaid expenses and other assets		(1,329	)		1,276
Accounts payable		(3,467	)		(3,496	)
Accrued liabilities		(7,641	)		(1,792	)
Deferred revenue		(14,171	)		12,210
Commissions payable		18,135			12,377
Other liabilities		1,269			1,300

Net cash (used in) provided by operating activities		(4,169	)		12,979
Investing activities:
Purchases of property, equipment and software		(7,764	)		(4,783	)

Net cash used in investing activities		(7,764	)		(4,783	)
Financing activities:
Borrowings under term loans		117,000			—
Principal payments under term loans		(1,793	)		—
Payment of deferred offering costs		(874	)		—
Principal payments under capital lease obligations		(144	)		—
Borrowings under revolving credit facilities		—			42,967
Payments under revolving credit facilities		—			(47,823	)
Debt issuance cost payments		(6,289	)		—
Proceeds received upon issuance of common units		10,000			—

Net cash provided by (used in) financing activities		117,900			(4,856	)
Effect of exchange rate changes on cash		98			(53	)
Increase in cash and cash equivalents		106,065			3,287
Cash and cash equivalents at beginning of period		12,276			505

Cash and cash equivalents at end of period	$	118,341		$	3,792

Supplemental disclosure of cash flow information:
Non-cash investing and financing activities:
Purchases of property, equipment and software included in accounts payable	$	798		$	26
Purchases of property, equipment and software under capital leases	$	—		$	654
Issuance of senior preferred earnout units to settle contingent consideration liability	$	100,000		$	—
Issuance of common A and B units to settle contingent consideration liability	$	100,000		$	—

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

GoHealth Holdings, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(tabular amounts in thousands, except share and per share amounts)

(unaudited)

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Description of Business

GoHealth Holdings, LLC (formerly known as Blizzard Parent, LLC), a Delaware limited liability company, and its wholly owned subsidiaries (collectively, the “Company” or “GHH, LLC”) is a leading health insurance marketplace whose mission is to improve healthcare in America. The Company works with insurance carriers to provide solutions to efficiently enroll individuals in health insurance plans. The Company’s proprietary technology platform leverages modern machine-learning algorithms powered by nearly two decades of insurance purchasing behavior to reimagine the optimal process for helping individuals find the best health insurance plan for their specific needs. The Company’s insurance agents leverage the power of its vertically integrated customer acquisition platform to enroll members in Medicare and individual and family plans. Certain of the Company’s operations do business as GoHealth, LLC (“GoHealth”), a wholly owned subsidiary of the Company that was founded in 2001.

GoHealth, Inc. was incorporated in Delaware on March 27, 2020 for the purpose of facilitating an initial public offering and other related transactions in order to carry on GHH, LLC’s business. On July 17, 2020, GoHealth, Inc. completed an initial public offering of 43,500,000 shares of its Class A common stock at a public offering price of $21.00 per share (“the IPO”), receiving approximately $852.0 million in net proceeds, after deducting the underwriting discount and estimated offering expenses, which were used to purchase 38,679,685 newly-issued LLC interests from GHH, LLC at a price per unit equal to the initial public offering price per share of Class A common stock in the IPO, less the underwriting discount and estimated offering expenses.

Pursuant to a reorganization into a holding company structure, GoHealth, Inc. is a holding company and its principal asset is a controlling equity interest in GHH, LLC. As the sole managing member of GHH, LLC, GoHealth Inc. operates and controls all of the business and affairs of GHH, LLC, and through GHH, LLC and its subsidiaries, conduct its business.

Basis of Presentation and Significant Accounting Policies

GHH, LLC is a holding company with no operating assets or operations and was formed to acquire a 100% equity interest in Norvax, LLC (“Norvax”). On May 6, 2020, Blizzard Parent, LLC changed its name to GoHealth Holdings, LLC. GHH, LLC owns 100% of Blizzard Midco, LLC, which owns 100% of Norvax. For all of the periods reported in these condensed consolidated financial statements, GHH, LLC has not and does not have any material operations on a standalone basis, and all of the operations of the Company are carried out by Norvax. On August 15, 2019, GHH, LLC entered a series of arrangements to acquire 100% of the equity interest in Norvax. On September 13, 2019, Blizzard Merger Sub LLC, a transitory merger company of Blizzard Midco, LLC, merged into Norvax, with Norvax continuing as the surviving limited liability company and the Company’s operating entity (the “Acquisition”).

As a result of the Acquisition, which is discussed further in Note 2 – Acquisition, Norvax was determined to be the accounting acquirer and Norvax’s historical assets and liabilities are reflected at fair value as of the acquisition date. The financial information for the period after September 13, 2019, represents the condensed consolidated financial information of the “Successor” company. Prior to September 13, 2019, the condensed consolidated financial statements include the accounts of the “Predecessor” company. Due to the change in the basis of accounting resulting from the application of the acquisition method of accounting, the Predecessor’s condensed consolidated financial statements and the Successor’s condensed consolidated financial statements are not necessarily comparable.

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, but do not include all information and footnote disclosures required under U.S. GAAP for annual financial statements. In the opinion of management, the interim condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position, results of operations and cash flows as of the dates and for the periods presented. All intercompany transactions and balances are eliminated in consolidation.

These interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the prospectus dated July 14, 2020, filed with the Securities and Exchange Commission (“SEC”) in accordance with Rule 424(b) of the Securities Act of 1933, as amended, on July 16, 2020. Interim results are not necessarily indicative of results for the full fiscal year due to seasonality and other factors.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. The Company bases its estimates on historical experience and on various other assumptions that management believes are reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. There have been no material changes to the Company’s significant accounting policies as discussed in the notes to the Company’s audited consolidated financial statements as of and for the year ended December 31, 2019.

Cash and Cash Equivalents

The Company considers all investments with an original maturity of 90 days or less from the date of purchase to be cash equivalents. Cash includes all deposits in banks. The Company maintains its cash balances at financial institutions in the United States and Europe.

Cash accounts in the United States are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of June 30, 2020 and December 31, 2019, the Company’s cash balances in the United States exceeded the FDIC-insured limits by $117.7 million and $11.9 million, respectively. The Company also has an immaterial amount of cash held in Europe to fund its Slovakian operations. The Company does not believe it is exposed to any significant risk with respect to cash balances.

Concentration of Credit Risk

The Company does not require collateral or other security in granting credit. As of June 30, 2020, three customers each represented 10% or more of the Company’s total accounts receivable and, in aggregate, represented 92%, or $8.7 million, of the Company’s total accounts receivable. As of December 31, 2019, five customers each represented 10% or more of the Company’s total accounts receivable and, in aggregate, represented 87%, or $21.2 million, of the Company’s total accounts receivable.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount and typically do not bear interest. The Company provides allowances for doubtful accounts related to accounts receivable for estimated losses resulting from the inability of its customers to make required payments. The Company takes into consideration the overall quality of the receivables portfolio, along with specifically identified customer risks in establishing allowances. Accounts receivable are charged off against the allowance for doubtful accounts when it is determined the receivable is uncollectible.

Commissions Receivable

Commissions receivable are contract assets that represent estimated variable consideration for renewal commissions to be received from insurance carriers for performance obligations that have been satisfied. The current portion of commissions receivable are future renewal commissions expected to be received within one year, while the non-current portion of commissions receivable are expected to be received beyond one year. The Company assesses impairment for uncollectible consideration when information available indicates it is probable that an asset has been impaired. There were no impairments recorded during the three and six months ended June 30, 2020 and 2019.

Deferred Offering Costs

Deferred offering costs, primarily consisting of legal, accounting and other fees relating to the IPO, are capitalized and included in prepaid expenses and other assets in the condensed consolidated balance sheets, and will be offset against the proceeds upon the completion of the IPO in July 2020. As of June 30, 2020, the Company had capitalized $7.7 million of deferred offering costs.

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASC 606, requiring an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services.

The Company is compensated by the receipt of commission payments from health insurance carriers whose health insurance policies are purchased through the Company’s ecommerce platforms or customer care centers. The Company also generates revenue from non-commission revenue sources, which include providing dedicated insurance agent resources for carrier-specific programs, sales of insurance leads to other marketing agencies and carriers, and the implementation and use of the Company’s platform. The Company accounts for payments made under certain carrier-specific arrangements as deductions to revenue.

The core principle of ASC 606 is to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. Accordingly, the Company recognizes revenue for its services in accordance with the following five steps outlined in ASC 606:

•

Identification of the contract, or contracts, with a customer. A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. Payment of commissions typically commences within 60 days from the effective date. Payment terms from non-commission revenue are typically 30 days from the invoice date.

•

Identification of the performance obligations in the contract. Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the goods or services either on their own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract.

•

Determination of the transaction price. The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods or services to the customer.

•

Allocation of the transaction price to the performance obligations in the contract. If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price (“SSP”) basis.

•

Recognition of revenue when, or as, the Company satisfies a performance obligation. The Company satisfies performance obligations either over time or at a point in time, as discussed in further detail below. Revenue is recognized at the time the related performance obligation is satisfied by transferring the promised good or service to the customer.

Commission Revenue

The Company recognizes commission revenue from the sale of insurance products at the point when carriers approve an insurance application produced by the Company. The Company records as commission revenue the expected amount of commissions received from the insurance carriers and any renewal commissions to be paid on such placement as long as the policyholder remains with the same insurance product. The Company defines its customer to be the health insurance carrier.

The Company typically enters contractual agency relationships with health insurance carriers that are non-exclusive and terminable on short notice by either party for any reason. In addition, health insurance carriers often can terminate or amend agreements unilaterally on short notice, including provisions in agreements relating to the commission rates paid to the Company by the health insurance carriers. The amendment or termination of an agreement the Company has with a health insurance carrier may adversely impact the commissions it is paid on health insurance plans purchased from the carrier.

Compensation in the form of commissions is received from insurance carriers for the multiple types of insurance products sold by the Company on behalf of the carriers. For Medicare and non-Medicare eligible products, commission revenue generally represents a percentage of the premium amount expected to be collected by the carrier while the policyholder is enrolled in the insurance product, including renewal periods. The Company’s performance obligation is complete when a carrier has received and approved an insurance application. As such, the Company recognizes revenue at this point in time, which represents the total estimated lifetime commissions it expects to receive for selling the product after the carrier approves an application, net of an estimated constraint. The Company’s consideration is variable based on the amount of time it estimates a policy will remain in force. The Company estimates the amount of variable consideration that it expects to receive based on historical experience or carrier experience to the extent available, industry data, and expectations as to future retention rates. Additionally, the Company considers application of the constraint and only recognizes the amount of variable consideration that it believes is probable that it will be entitled to receive and will not be subject to a significant revenue reversal in the future. The Company monitors and updates this estimate at each reporting date. The Company does not have any remaining performance obligations in its contracts with customers.

The Company utilizes a practical expedient to estimate commission revenue for each insurance product by applying the use of a portfolio approach to group approved members by the effective month of the relevant policy (referred to as a “cohort”). This allows the Company to estimate the commissions it expects to collect for each cohort by evaluating various factors, including but not limited to, contracted commission rates, carrier mix, and expected member churn.

The Company’s variable consideration includes estimated and constrained lifetime values as the “constrained LTV” for the plans. The Company’s 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 applicant to a paying policyholder, forecasting persistency and forecasting the commission amounts likely to be received per policyholder. These assumptions are based on historical trends and incorporate management’s judgment in interpreting those trends and in applying constraints.

On a quarterly basis, the Company re-estimates LTV at a cohort level for outstanding cohorts, reviews and monitors changes in the data used to estimate LTV, as well as the cash received for each cohort as compared to the original estimates. The difference between cash received for each cohort and the respective estimated LTV can be significant and may or may not be indicative of the need to adjust revenue for prior period cohorts. Changes in LTV may result in an increase or a decrease to revenue and a corresponding increase or decrease to commissions receivable. The Company analyzes these differences and, to the extent the Company believes differences in the estimates of the cash received are indicative of an increase or decrease to prior period LTVs, the Company will adjust revenue for the affected cohorts at the time such determination is made and when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. For the three and six months ended June 30, 2020, the Company did not recognize any revenue adjustment related to prior period cohorts.

Other Revenue

Within the Company’s Medicare and IFP and Other segments, the Company provides trained licensed agents dedicated to carrier programs that assist in producing health insurance policies, typically prior to and during the annual enrollment period. The Company is compensated for the hours incurred on the carrier program at the time hours are incurred as well as performance-based enrollment fees relating to the Company enrolling individuals into health insurance plans. The Company recognizes revenue as control transfers over the term of the contract.

The Company recognizes revenue at a point in time resulting from the sale of leads to third parties and independent agents. The Company generates this revenue through the sale of leads sourced through its marketing efforts.

The Company provides certain customers access to its technology platform, where it charges for the implementation and monthly access to the software. This application allows carriers the use of the Company’s e-commerce platform to offer their own health insurance policies on their websites and agents to utilize the Company’s technology to power their online quoting, content and application submission processes. Typically, the Company is paid a one-time implementation fee, which it recognizes as control is transferred on a straight-line basis over the estimated term of the customer relationship (generally the initial term of the agreement), commencing once the technology is available for use by the third party.

Additionally, the Company earns development funds, based on delivering call volumes to certain insurance carriers. The Company recognizes revenue as control transfers over the term of the contract.

Disaggregation of Revenue

The table below depicts the disaggregation of revenue by product, and is consistent with how the Company evaluates its financial performance:


	Three Months Ended June 30,				Six Months Ended June 30,
	Successor		Predecessor		Successor		Predecessor
	2020		2019		2020		2019
Commission revenue:
Medicare
Medicare Advantage	$	87,626	$	41,035	$	186,917	$	72,063
Medicare Supplement		1,965		3,594		4,154		6,988
Prescription Drug Plans		425		532		995		1,047

Total Medicare		90,016		45,161		192,066		80,098
Individual and Family Plan:
Fixed Indemnity		3,818		11,463		10,597		24,101
Short Term		1,524		1,006		3,302		2,060
Major Medical		52		170		238		330

Total Individual and Family Plan		5,394		12,639		14,137		26,491
Ancillary		952		1,920		2,259		4,006
Small Group		244		357		654		698

Total Commission Revenue		96,606		60,077		209,116		111,293
Other Revenue		30,451		14,434		58,951		32,308

Net Revenues	$	127,057	$	74,511	$	268,067	$	143,601

For the six months ended June 30, 2020, the Company recognized $14.6 million of revenue that was deferred as of December 31, 2019.

Seasonality

A greater number of the Company’s Medicare-related health insurance plans are sold in its 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, the Company’s Medicare plan-related commission revenue is typically highest in the Company’s fourth quarter.

The majority of the Company’s individual and family health insurance plans are sold in its 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 the open enrollment period, unless they qualify for a special enrollment period as a result of certain qualifying events, such as losing employer-sponsored health insurance or moving to another state. As a result, the Company’s individual and family plan-related commission revenue is typically highest in the Company’s fourth quarter.

Recent Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820), which amended the disclosure requirements under ASC 820. This update clarifies and unifies the disclosure of Level 3 fair value instruments. This guidance is effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years, although early adoption is permitted for either the entire standard or only the provisions that eliminate or modify the requirements. The Company adopted this standard on January 1, 2020, and the adoption did not have a material effect on our condensed consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07, Stock Compensation – Improvements to Nonemployee Share-Based Payment Accounting (Topic 718). This guidance expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. Per ASU 2019-08, issued November 2019, the guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The Company adopted this standard on January 1, 2020, and the adoption did not have a material effect on our condensed consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The guidance specifies that lessees will need to recognize a right-of-use asset and a lease liability for virtually all their leases except those which meet the definition of a short-term lease. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or financing. Classification will be based on criteria that are similar to those applied in current lease accounting, but without explicit bright lines. Per ASU 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities, issued June 2020, the guidance in ASU 2016-02, as amended, is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company is currently evaluating the new guidance to determine the impact it will have on its condensed consolidated financial statements.

In November 2019, the FASB issued ASU 2019-11, Financial Instruments – Credit Losses (Topic 326), which amends the guidance for accounting for assets that are potentially subject to credit risk. The amendments affect contract assets, loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. Per ASU 2019-10, issued November 2019, the guidance is effective for annual and interim periods beginning after December 15, 2022. Early adoption is permitted. The Company is currently evaluating the new guidance to determine the impact it will have on its condensed consolidated financial statements.

2. ACQUISITION

Acquisition of Norvax, LLC

On September 13, 2019, the Company acquired a 100% interest in Norvax, for $807.6 million in cash and $306.0 million in equity. In connection with the Acquisition, the Company also agreed to pay additional consideration of up to $275.0 million in additional Common and Senior Preferred Earnout Units, if Adjusted EBITDA, as defined in the terms of the acquisition agreement, exceeds certain thresholds for the period September 13, 2019 to December 31, 2019 and the year ended December 31, 2020 (“Earnout” or “contingent consideration”).

The elements of the purchase consideration are as follows:


Cash paid	$	807,591
Fair value of Class A and B Common Units issued		306,000
Fair value of contingent consideration liability		172,000

Total consideration	$	1,285,591

Contingent Consideration

The contingent consideration liability of $172.0 million represents the acquisition date fair value of the Earnout payments to Norvax’s selling shareholders and will be remeasured at each reporting date until settled. The contingent consideration will be settled in Common and Senior Preferred Earnout Units within 60 days of the issuance of the 2019 and 2020 audited financial statements. The Senior Preferred Earnout Units earn an annual coupon of 10.3% that provides for the accrual of additional units. Changes in the fair value of the contingent consideration are recognized in the consolidated statement of income (loss).

The full amount available relative to the 2019 target was earned as of December 31, 2019. On May 15, 2020, the contingent consideration related to the 2019 target of $200.0 million was settled with the issuance of 113,407,000 Class A Common Units, 48,644,750 Class B Common Units, and 100,000,000 Senior Preferred Earnout Units.

In connection with the IPO, the Company satisfied in full the Senior Preferred Earnout Units issued in connection with the 2019 Earnout through the use of proceeds raised in the IPO in the amount of $100.0 million. In addition, in connection with the IPO a significant shareholder assumed the liability associated with the 2020 Earnout. After the completion of the IPO, the full amount of the Company’s liabilities with respect to the 2019 and 2020 Earnouts accrued in connection with the Acquisition were settled.

Allocation of Preliminary Purchase Price

The preliminary allocation of the purchase price is based on the fair value of assets acquired and liabilities assumed as of the acquisition date. The components of the preliminary purchase price allocation are as follows:


Net working capital	$	18,787
Commission receivable – non-current		113,565
Property and equipment		4,442
Other noncurrent assets		218
Other noncurrent liabilities		(963	)
Trade names		83,000
Developed technology		496,000
Customer relationships		232,000
Goodwill		386,553
Deferred revenue		(3,283	)
Commissions payable – non-current		(44,728	)

Total consideration transferred	$	1,285,591

Goodwill represents the excess of the consideration paid over the estimated fair value of assets acquired and liabilities assumed in a business combination and is primarily attributable to future growth and the assembled workforce.

3. BALANCE SHEET ACCOUNTS

Commissions Receivable

Commissions receivable activity is summarized as follows:


	Successor
	Six Months Ended June 30, 2020
Balance at December 31, 2019	$	382,931
Commission revenue for the period		209,116
Cash receipts for the period		(150,407	)

Balance at June 30, 2020		441,640
Less: Commissions receivable – current		74,044

Commissions receivable – non-current	$	367,596

4. FAIR VALUE MEASUREMENTS

The Company defines 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 the Company uses to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company classifies the inputs used to measure fair value into the following hierarchy:


Level 1 Inputs		Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 Inputs		Unadjusted 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 3 Inputs		Unobservable inputs for the asset or liability.

Fair Value Measurements

The fair value of the acquired developed technology was estimated as of the acquisition date of September 13, 2019 and does not represent the fair value as of June 30, 2020. Such fair value was estimated using the multi-period excess earnings model. This method discounts the amount of excess cash flows generated by the asset. The fair value of the acquired trade names was estimated using the relief from-royalty method which required that the Company estimate hypothetical royalty payments that would be required over the economic life of the asset as if it were to be licensed instead of purchased. These payments were then discounted to their present value. Both developed technology and trade names represent a Level 3 measurement within the fair value hierarchy.

The fair value of the acquired customer relationships was estimated as of the acquisition date of September 13, 2019 and does not represent the fair value as of June 30, 2020. Such fair value was estimated using the distributor method under the income approach, which included Level 3 inputs such as revenue, attrition, margin and contributory asset charges.

The fair value of the contingent consideration liability was measured using a Monte Carlo simulation and is discounted using a rate that appropriately captures the risk associated with the obligation. The weighted average discount rate used to value the contingent consideration as of June 30, 2020 was approximately 8.5% and was based on an analysis of publicly traded peers. Expected volatility was estimated to be 45%, based on an analysis of publicly traded peers that ranged from approximately 9% to 72%. The contingent consideration was part of the acquisition consideration and will be remeasured at each reporting date until settled. The following table sets forth the changes to the fair value of the contingent consideration for the six months ended June 30, 2020.


	Successor
	Six Months Ended June 30, 2020
Balance at December 31, 2019	$	242,700
Settlement of 2019 earnout		(200,000	)
2020 earnout fair value adjustment		19,700

Balance at June 30, 2020	$	62,400

The carrying amount of certain financial instruments, including cash and cash equivalents, accounts receivable, commissions receivable, accounts payable, accrued expenses, and commissions payable approximate fair value due to the short maturity of these instruments. Commissions receivable are recorded at constrained lifetime values. The carrying value of debt approximates fair value due to the variable nature of interest rates.

5. GOODWILL AND INTANGIBLE ASSETS, NET

The gross carrying amounts, accumulated amortization, and net carrying amounts of the Company’s definite-lived amortizable intangible assets, as well as its indefinite-lived intangible trademarks, are presented in the tables below:


	June 30, 2020 (Successor)
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Developed technology	$	496,000	$	56,686	$	439,314
Customer relationships		232,000		18,560		213,440

Total intangible assets subject to amortization	$	728,000	$	75,246	$	652,754

Indefinite-lived trademarks						83,000

Total intangible assets					$	735,754


	December 31, 2019 (Successor)
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Developed technology	$	496,000	$	21,257	$	474,743
Customer relationships		232,000		6,960		225,040

Total intangible assets subject to amortization	$	728,000	$	28,217	$	699,783

Indefinite-lived trademarks						83,000

Total intangible assets					$	782,783

There was no impairment of goodwill or intangible assets for the three or six months ended June 30, 2020.

6. LONG TERM DEBT

The Company’s long-term debt consisted of the following:


	Successor June 30, 2020			Successor December 31, 2019
Credit Facility	$	414,458		$	299,250
Less: unamortized debt discount and issuance costs		(13,053	)		(8,017	)

Total debt		401,405			291,233
Less: current portion		(4,170	)		(3,000	)

Total long-term debt	$	397,235		$	288,233

Successor

General

On September 13, 2019, in connection with the Acquisition, Norvax, or the Borrower, entered into a first lien credit agreement (the “Credit Agreement”) which provides for the following:

•

$300.0 million aggregate principal amount senior secured term loan facility, or the Term Loan Facility; and

•

$30.0 million aggregate principal amount senior secured revolving credit facility, or the Revolving Credit Facility.

On March 20, 2020, the Company entered into an amendment to the Credit Agreement, which provided $117.0 million of incremental term loans, or the “Incremental Term Loan Facility”. On March 23, 2020, the Company issued 6,666,667 Class B Common units to a lender that is party to the Company’s Credit Agreement for $10.0 million in proceeds.

On May 7, 2020, the Company entered into a second amendment to the Credit Agreement, which provided $20.0 million of incremental revolving credit, or the “Incremental Revolving Credit Facility”.

On June 11, 2020, the Company entered into a third amendment to the Credit Agreement, which provided $8.0 million of incremental revolving credit, or the “Incremental No. 3 Revolving Credit Facility.”

The Company collectively refers to the Term Loan Facility, the Revolving Credit Facility, the Incremental Term Loan Facility, the Incremental Revolving Credit Facility, and the Incremental No. 3 Revolving Credit Facility as the “Credit Facilities”.

The Company incurred $9.3 million, $6.0 million, $200 thousand and $80 thousand of debt issuance costs associated with the Term Loan Facility, the Incremental Term Loan Facility, the Incremental Revolving Credit Facility and the Incremental No. 3 Revolving Credit Facility, respectively, which are being amortized over the life of the debt to interest expense on a straight-line basis.

As of June 30, 2020, the Company had a principal amount of $297.8 million and $116.7 million outstanding on the Term Loan Facility and Incremental Term Loan Facility, respectively. The effective interest rate was 7.5% and 8.4% at June 30, 2020 and December 31, 2019, respectively. The Company had no amounts outstanding on the Revolving Credit Facility, Incremental Revolving Credit Facility, or Incremental No. 3 Revolving Credit Facility, which had a remaining capacity of $58.0 million in the aggregate as of June 30, 2020.

Interest Rates and Fees

Borrowings under the Credit Facilities are, at the option of the Borrower, either alternate base rate (“ABR”) loans or LIBOR loans. Term loans and revolving loans comprising each ABR borrowing under the Term Loan Facility accrue interest at the ABR plus an applicable rate of 5.50% per annum. Term loans and revolving loans comprising each LIBOR borrowing bear interest at the LIBOR plus an applicable rate of 6.50% per annum.

In addition to paying interest on the principal amounts outstanding under the Credit Facilities, the Borrower is required to pay a commitment fee of 0.50% per annum under the Revolving Credit Facility, Incremental Revolving Credit Facility, and Incremental No. 3 Revolving Credit Facility in respect of the unutilized commitments thereunder. The Borrower is also subject to customary letter of credit and agency fees.

Mandatory Prepayments

The Credit Agreement requires that the Borrower, following the end of each fiscal year, commencing with the fiscal year ending December 31, 2020, repay the outstanding principal amount of all term loans under the Credit Facilities in an aggregate amount equal to (A) 50.0% of the excess cash flow of the Borrower and its restricted subsidiaries for such fiscal year if the Total Net Leverage Ratio (as defined in the Credit Agreement) is greater than 4.50:1.00, which percentage is reduced to 25% if the Total Net Leverage Ratio is less than or equal to 4.50:1.00 and greater than 4.00:1.00, which percentage is further reduced to 0% if the Total Net Leverage Ratio is less than or equal to 4.00:1.00, minus (B) at the option of the Borrower, (x) the aggregate amount of certain voluntary prepayments of term loans under the Credit Agreement during such fiscal year or after year-end and prior to the time such Excess Cash Flow prepayment is due, (y) the aggregate principal amount of any voluntary prepayments of indebtedness under pari passu incremental facilities, incremental equivalent debt and/or certain refinancing indebtedness, made during such fiscal year or after such fiscal year and prior to the time such prepayment is due.

The Credit Agreement requires the Borrower to repay amounts equal to 100% of the net cash proceeds of certain asset sales or other dispositions of property (including insurance and condemnation proceeds); provided, that, in the case of any prepayment events required in connection with certain dispositions and casualty events, if the net proceeds therefrom are invested (or committed to be invested) within 12 months after the receipt of such net proceeds, then no prepayment shall be required except to the extent such net proceeds have not been so invested (or committed to be invested) by the end of such 12-month period.

The Credit Agreement requires 100% of the net proceeds from the issuance or incurrence of certain indebtedness to be applied to prepay the term loans under the Term Loan Facility and the Incremental Term Loan Facility, except to the extent the indebtedness constitutes refinancing indebtedness.

Voluntary Prepayment

The Borrower may voluntarily prepay outstanding borrowings under the Credit Facilities at any time in whole or in part without premium or penalty; provided, that, with respect to voluntary prepayments of the Term Loan Facility and the Incremental Term Loan Facility and in certain other circumstances, the Borrower may have to pay a prepayment premium.

Amortization and Final Maturity

The Term Loan Facility and Incremental Term Loan Facility are payable in quarterly installments in the principal amount of 0.25% of the original principal amount. The remaining unpaid balance on the Term Loan Facility and Incremental Term Loan Facility, together with all accrued and unpaid interest thereon, is due and payable on or prior to September 13, 2025. Outstanding borrowings under the Revolving Credit Facility, the Incremental Revolving Credit Facility and the Incremental No. 3 Revolving Credit Facility do not amortize and are due and payable on September 13, 2024.

Guarantees and Security

The Borrower’s obligations under the Credit Facilities are guaranteed by Blizzard Midco, LLC and certain of the Borrower’s subsidiaries. All obligations under the Credit Agreement are secured by a first priority lien on substantially all of the assets of the Borrower, including a pledge of all of the equity interests of its subsidiaries.

Covenants and Other Matters

The Credit Agreement contains a number of covenants that, among other things and subject to certain exceptions, restrict the Borrower’s and its restricted subsidiaries’ ability to:

•

incur indebtedness;

•

incur certain liens;

•

consolidate, merge or sell or otherwise dispose of assets;

•

make investments, loans, advances, guarantees and acquisitions;

•

pay dividends or make other distributions on equity interests, or redeem, repurchase or retire equity interests;

•

enter into transactions with affiliates;

•

alter the business conducted by the Company and subsidiaries;

•

change their fiscal year; and

•

amend or modify governing documents.

In addition, the Credit Agreement contains financial and non-financial covenants. The Company is in compliance with all covenants as of June 30, 2020.

The Credit Agreement also contains certain customary representations and warranties and affirmative covenants, and certain reporting obligations. In addition, the lenders under the Credit Facilities will be permitted to accelerate all outstanding borrowings and other obligations, terminate outstanding commitments and exercise other specified remedies upon the occurrence of certain events of default (subject to certain grace periods and exceptions), which include, among other things, payment defaults, breaches of representations and warranties, covenant defaults, certain cross-defaults and cross-accelerations to other indebtedness, certain events of bankruptcy and insolvency, certain judgments and changes of control. Subject to certain limited exceptions, substantially all of the Company’s assets are restricted from distribution.

Predecessor

During 2019, Norvax had a senior secured revolving credit facility (the “Predecessor Credit Facility”) with The Huntington National Bank (formerly FirstMerit Bank N.A.). In connection with the Acquisition, this facility was paid off and retired. The Predecessor Credit Facility provided for borrowings up to a maximum of $16.0 million based upon 80% of eligible trade accounts receivable, plus 40% of certain earned enrollment/commission fees. Norvax paid a variable interest rate on borrowings equal to, at Norvax’s discretion, Prime minus 50 basis points or LIBOR plus 250 basis points. The Predecessor Credit Facility was collateralized by substantially all the assets of Norvax and was subject to certain financial covenants.

7. MEMBERS’ EQUITY

Successor

The GoHealth Holdings, LLC operating agreement (“Operating Agreement”) provides for the classes of units, allocation of profits and losses, and other member rights. The Operating Agreement allows for equity Preferred units (the “Preferred”) and Common units (the “Common”). Preferred units are divided into two classes: Senior Preferred Earnout Units, which are non-voting, and Preferred Units (“Preferred Unit”), which have voting rights. Common units are divided into two classes: Class A Common units (“Class A”), which have voting rights and Class B Common units (“Class B”), which are non-voting. Members of management will be issued profits interests (the “Profit Units,” and together with the Preferred units and the Common units, the “Units”) from an equity pool with an aggregate value equal to 10% of the Company’s fully diluted equity.

Voting Rights

Each Preferred Unit and Class A unit has equal voting rights. The Preferred Unit and Class A unit holders also elect the members of the board of managers of the Company based on the percentage of units held by such investor.

Liquidation Preference

Upon a liquidity event defined as: (a) sale or disposition of all or substantially all of the assets of the Company; or (b) the liquidation, dissolution or winding up of the Company; first, in connection with refinancing or repayment of debt, Senior Preferred Earnout Units, the ceiling of which is the face amount of the Senior Preferred Earnout Units; second, Preferred Unit holders up to 150% of their invested capital; third, to Common holders, up to 150% of their invested capital; fourth, to the Profit Unit holders, pro rata, with the residual to the Common holders, pro rata, up to 150% of their invested capital, inclusive of prior distributions; fifth, to the Profit Unit holders, pro rata, with the residual to all members until each has received an aggregate amount of additional capital contributions, less amounts previously distributed; sixth, to Preferred Unit, Common and Profit Unit holders until Preferred Unit holders have received a cumulative amount equal to 250% of their invested capital; seventh, to Common holders equal to $75.0 million; eighth, pro rata, 100% Common, 100% Profit units, and 90% Preferred Unit/10% Common until Preferred Unit holders have received 300% of their invested capital; ninth, Common holders equal to $75.0 million; tenth, pro rata, 100% Common, 100% Profit units, 85% Preferred Unit/15% Common until Preferred Unit holders receive 400% of their invested capital; and, eleventh, pro rata, 100% Common, 100% Profit units and 80% Preferred Unit/20% Common.

Right of First Offer

Following the fifth anniversary of the Closing, Common units will be freely transferable, subject to customary “prohibited transfer” restrictions and a right of first offer for the benefit of the Company, first, and any non-transferring Investors, second.

Predecessor

The Norvax operating agreement (“Norvax Operating Agreement”) provided for classes of units, allocation of profits and losses, distribution rights, and other member rights. The Norvax Operating Agreement allowed for equity units (Class A units and Class B units) and profits interests units (Class C units). Class A and Class B units had voting rights. Except for board of manager composition, any action taken by the Class A and Class B members required a majority of members holding the outstanding Class A and Class B units, voting together as a single class. Class C units were nonvoting and represented profit interests’ units and entailed no initial capital contribution. Members were limited in their liability to their capital contributions. Immediately prior to the Acquisition described in Note 2 – Acquisition, all Class B units converted to Class A units.

Distribution Rights

Class A and Class B unit holders were entitled to distributions on a pro-rata basis, as approved by the board of managers. To the extent that Norvax had available cash, it distributed to each Class A and Class B unit holder a tax distribution in an amount equal to the product of the aggregate total of all taxable income allocable to the members multiplied by the tax rate. The tax rate is 45% as set forth in the Norvax Operating Agreement.

Voting Rights

Each Class A and Class B unit had equal voting rights and preferences, except Norwest Equity partners (“NEP”) was granted authority to approve certain actions. The Class A and Class B unit holders also elected the members of the board of managers of Norvax.

Antidilution Rights

Class B units contained an antidilution feature that required an adjustment to the conversion ratio in the event of subsequent issuances of securities by Norvax at a price below the conversion price in effect immediately prior to each such issuance. The Class B conversion ratio could be adjusted in the event that grants of options or changes in option prices or conversion rates on convertible securities resulted in prices below the conversion price in effect immediately prior to each such grant or change.

Liquidation Preference

Upon a liquidity event defined as: (a) sale or disposition of all or substantially all of the assets of Norvax; (b) the liquidation, dissolution or winding up of Norvax; or (c) any consolidation or merger of Norvax in which the Class A and Class B unit holders owned less than 50% of the voting power of the outstanding securities immediately after the consolidation or merger, the Class B units are first to be paid proceeds at a liquidation amount of $10.00 per unit, and from time to time, was decreased by subtracting distributions (other than tax distributions) made in respect of Class B units.

Upon the occurrence of a Dissolution Event, Norvax continued solely for the purposes of winding up its affairs in an orderly manner, liquidating its assets, and satisfying the claims of its creditors and members. A Dissolution Event is an event by the order of a court pursuant to Section 18-802 of the Delaware Code or by action of the members with NEP’s approval. Net income, net losses, and other items of Norvax’s income, gain, loss, or deduction was to continue to be allocated in the manner provided in the Norvax Operating Agreement. In a Dissolution Event, Class B units received the liquidation preference specified above.

Involuntary Transfer Rights

Upon any involuntary transfer, Norvax had the first option, and the purchase option unit holders had the subsequent options, to purchase all or any portion of the units subject to the involuntary transfer.

Right of First Refusal

A unit holder could transfer, sell, or assign any Class A or Class B units in a permitted transfer, given that Norvax first had the option to purchase the units being transferred.

Class B Put Option

Class B units are classified as temporary equity as they were redeemable upon exercise of the Class B put option, which was outside of Norvax’s control, for cash at a put price equal to the greater of the Class B unit fair value or their original cost. Because the Class B units were redeemable, the Company was accreting the change up to the maximum redemption amount. The Company recorded accretion of $15.0 million and $130.0 million in the three and six months ended June 30, 2019, respectively. These amounts appear as Redeemable Class B unit accretion on the condensed consolidated statements of changes in members’ equity.

Immediately prior to the Acquisition described in Note 2 – Acquisition, Norvax adjusted NEP’s Redeemable Class B units to their full redemption amounts and were then converted to Class A units.

8. SHARE-BASED COMPENSATION PLANS

The following table summarizes share-based compensation expense by operating function for the three and six months ended June 30, 2020:


	Successor		Successor
	Three Months Ended June 30, 2020		Six Months Ended June 30, 2020
Marking and advertising	$	61	$	119
Customer care and enrollment		32		58
Technology		83		159
General and administrative		421		741

Total share-based compensation expense	$	597	$	1,077

Successor

Effective September 13, 2019 and in conjunction with the Acquisition, the Company authorized the grants of non-voting Profit Units. The Profits Units are issued by Blizzard Management Feeder, LLC, to employees on behalf of the Company. One-third of the Profit Units granted to each employee will vest in five equal installments on the first through fifth anniversaries of the date of grant, so long as the employee remains employed by the Company through the applicable vesting date (“Time-Vesting Units”). Two-thirds of the Profit Units granted to each individual will vest upon a liquidity event based on the extent to which the distributions received by the Preferred and the Common exceed their investment in the Company (“Performance-Vesting Units”).

Compensation expense for the Time-Vesting Units is recognized on a straight-line basis over the five-year requisite service period. Performance-Vesting Units contain market conditions and an implied performance condition, which results in compensation cost being recognized when the performance condition is considered probable of being satisfied. Performance-Vesting Units vest upon the achievement of a contingent exit event that is defined as a transaction in which the ultimate parent disposes of all or substantially all of its investment in the Company. Such an exit event is not considered probable until it consummates. As such, no share-based compensation expense has been recorded for the Performance-Vesting Units as of June 30, 2020.

In June 2020, the Company modified the terms of the Performance-Vesting Units such that the performance-vesting targets will be measured against the public offering price of the IPO. The completion of the IPO in July 2020 satisfied the implied performance condition and triggered an accelerated vesting of approximately 14,000,000 Performance-Vesting Units. The Company will record the related compensation expense in the third quarter of 2020 with a corresponding increase to additional paid-in capital.

The number of Profit Units eligible for issuance will equal, in the aggregate, approximately 10% of the fully diluted equity of the Company at the closing of the Acquisition. All Profit Units (i.e., issued at closing of the Acquisition or issued thereafter) will have the economic rights and entitlements in relation to other equity interests in the Company under the waterfall described in the Operating Agreement.

The Company granted 7,699,728 Profit Units in the six months ended June 30, 2020, of which 3,681,773 and 4,017,955 were Time-Vesting Units and Performance-Vesting Units, respectively.

Predecessor

Class C Incentive Plan

Norvax had a Class C Incentive Plan (the “Class C Plan”), which Norvax accounted for as a liability award. Class C units granted under the plan represented profit interests’ units and entailed no initial capital contribution. Class C units had no voting rights.

Incentive Share Plan

Norvax had an Incentive Share Plan, which Norvax accounted for as a liability award. The plan consisted of incentive share grants made to employees that provided for cash payments to participants upon the occurrence of a triggering event. Triggering events included a change in control or an employee’s involuntary termination without cause. In the event of a change in control, the triggering event value per share was the average per share purchase price of the common stock giving rise to such change in control. Cash payments were based on the difference between the triggering event value per share and the value per share on the grant date. In the event of an involuntary termination without cause, cash payments were calculated as the positive difference between the book value per share of Norvax’s stock on the date of the triggering event and the value per share on the grant date for each incentive share then triggered, as defined in the Incentive Share Plan.

On September 13, 2019, GoHealth Holdings, LLC acquired a 100% interest in Norvax. Per the Incentive Share Plan, a change in control triggering event occurred and employees granted incentive shares under this plan became eligible for cash payments and as a result, the Company recorded $13.1 million in incentive share expense for the year ended December 31, 2019.

9. PRO FORMA NET (LOSS) PER SHARE

Basic (loss) per share is computed by dividing net (loss) attributable to GoHealth, Inc. by the weighted-average number of shares of Class A common stock outstanding during the period. Diluted (loss) per share is computed giving effect to all potentially dilutive shares. Diluted (loss) per share for all periods presented is the same as basic (loss) per share as the inclusion of potentially issuable shares would be antidilutive.

For purposes of calculating (loss) per share for periods prior to the IPO, the Transactions were treated as a merger of entities under common control. Therefore, (loss) per share is retrospectively reflected as though these transactions had occurred as of the earliest period presented. For all periods prior to the IPO, historical net (loss) is allocated between the Class A stockholders and the non-controlling interest based on their respective share ownership. The weighted average shares of Class A common stock outstanding was based upon the number of the Company’s Class A common stock issued to the Blocker Shareholders directly prior to the consummation of the IPO, while the weighted average shares of Class B common stock outstanding for the non-controlling interest was based upon the LLC Units held by the Continuing Equity Owners directly prior to the consummation of the IPO. These calculations do not consider the 43,500,000 shares of Class A common stock sold or the 2,426,100 shares of Class A common stock issuable pursuant to stock options and 305,068 shares of Class A common stock issuable pursuant to restricted stock units, both of which would have a dilutive effect on the weighted-average shares of Class A common stock outstanding, in the IPO.

A reconciliation of the numerator and denominator used in the calculation of basic and diluted net (loss) per share of Class A common stock is as follows:


	Successor			Successor
	Three Months Ended June 30, 2020			Six Months Ended June 30, 2020
Numerator:
Net (loss)	$	(22,867	)	$	(23,804	)
Less: Net (loss) attributable to non-controlling interests		(20,005	)		(20,825	)

Net (loss) attributable to GoHealth, Inc.	$	(2,862	)	$	(2,979	)

Denominator:
Weighted-average shares of Class A common stock outstanding—basic		40,682,961			40,682,961
Effect of dilutive securities		—			—

Weighted-average shares of Class A common stock outstanding—diluted		40,682,961			40,682,961

Net (loss) per share of Class A common stock—basic and diluted	$	(0.07	)	$	(0.07	)

Shares of Class B common stock do not share in earnings and are not participating securities. Accordingly, separate presentation of (loss) per share of Class B common stock under the two-class method has not been presented. Shares of Class B common stock are, however, considered potentially dilutive shares of Class A common stock. After evaluating the potential dilutive effect, the 284,396,355 shares of Class B common stock outstanding as of June 30, 2020 were determined to be anti-dilutive and have therefore been excluded from the computations of diluted earnings per share of Class A common stock

10. INCOME TAXES

The Company’s effective tax rate for the second quarter of 2020 and 2019 was 0.10% and 0.05%, respectively. The effective tax rate for each period is lower than the statutory tax rate primarily due to the effect of tax-exempt entity status.

11. COMMITMENTS AND CONTINGENCIES

Leases

The Company is party to various non-cancelable operating lease agreements for certain of the Company’s offices and data centers with lease periods expiring in 2030. Certain of these arrangements have free rent periods or escalating rent payment provisions, and the Company recognizes rent expense under such arrangements on a straight-line basis.

Legal Proceedings

From time to time, the Company is party to various litigation matters incidental to the conduct of its business. The Company is not presently party to any legal proceedings the resolution of which it believes would have a material adverse effect on its business, prospects, financial condition, liquidity, results of operation, cash flows or capital levels.

12. RELATED-PARTY TRANSACTIONS

The Company is party to various lease agreements with 214 W Huron LLC, 220 W Huron Street Holdings LLC, and 215 W Superior LLC, each of which are controlled by significant shareholders, to lease its corporate offices in Chicago, Illinois. The Company pays rent, operating expenses, maintenance, and utilities under the terms of the leases. For the three and six months ended June 30, 2020 and 2019, the Company made aggregate lease payments of $0.3 million, $0.6 million, $0.2 million, and $0.5 million, respectively, under these leases.

On January 1, 2020, the Company entered into a non-exclusive aircraft dry lease agreement with an entity wholly-owned and controlled by significant shareholders. The agreement allows the Company to use an aircraft owned by this entity for business and on an as-needed basis. The agreement has no set term and is terminable without cause by either party upon 30 days’ prior written notice. Under the agreement, the Company is required to pay $6,036.94 per flight hour for use of the aircraft. For the three and six months ended June 30, 2020, the Company recorded expense of $34 thousand and $0.8 million under this lease, respectively, all of which was unpaid and recorded as accounts payable in the condensed consolidated balance sheet as of June 30, 2020.

On May 12, 2020, the Company entered into a lease agreement with Wilson Tech 5, which is controlled by significant shareholders, for a proposed site in Lindon, Utah, beginning in 2022. The Company will not have access to the leased premises until construction is complete and is not deemed to be the owner during the construction period. This lease agreement expires on May 11, 2030. The Company did not make any lease payments during the three and six months ended June 30, 2020 under this lease. The initial base annual rent will be approximately $4.6 million beginning in mid-2022.

13. OPERATING SEGMENTS AND SIGNIFICANT CUSTOMERS

Operating Segments

The Company reports segment information based on how the Company’s chief operating decision maker (“CODM”) regularly reviews operating results, allocates resources and makes decisions regarding business operations. The performance measures of the segments include total revenue and profit (loss). The Company’s business structure is comprised of four operating and reportable segments: Medicare Internal, Medicare External, Individual and Family Plan and Other (“IFP and Other”) Internal, and IFP and Other External.

The following table presents summary results of the Company’s operating segments for the three and six months ended June 30, 2020 and 2019:


	Three Months Ended June 30,						Six Months Ended June 30,
	Successor			Predecessor			Successor			Predecessor
	2020			2019			2020			2019
Revenues:
Medicare:
Internal channel	$	87,201		$	32,412		$	182,488		$	53,324
External channel		28,108			19,070			57,053			39,404

Total Medicare		115,309			51,482			239,541			92,728
Individual and Family Plan and Other:
Internal channel		7,019			12,340			15,651			26,780
External channel		4,729			10,689			12,875			24,093

Total Individual and Family Plan and Other		11,748			23,029			28,526			50,873

Total revenues		127,057			74,511			268,067			143,601
Segment profit (loss):
Medicare:
Internal channel		32,746			14,941			74,482			19,806
External channel		495			5,692			173			9,071

Total Medicare segment profit		33,241			20,633			74,655			28,877
Individual and Family Plan and Other:
Internal channel		(54	)		(268	)		427			612
External channel		130			107			642			1,370

Total Individual and Family Plan and Other segment profit (loss)		76			(161	)		1,069			1,982

Total segment profit		33,317			20,472			75,724			30,859
Corporate expense		8,911			4,769			17,576			10,114
Change in fair value of contingent consideration liability		15,300			—			19,700			—
Amortization of intangible assets		23,514			—			47,029			—
Transaction costs		—			299			—			299
Interest expense		8,986			81			15,742			109
Other (income) expense		(505	)		38			(495	)		48

(Loss) income before income taxes	$	(22,889	)	$	15,285		$	(23,828	)	$	20,289

There are no internal revenue transactions between the Company’s operating segments. Substantially all revenue for the three and six months ended June 30, 2020 and 2019 was generated from customers located in the United States. The Company’s CODM does not separately evaluate assets by segment, and therefore assets by segment are not presented. The Company’s assets are primarily located in the United States.

Significant Customers

Carriers representing 10% or more of the Company’s total revenue for the three and six months ended June 30, 2020 and 2019 are presented in the tables below:


	Three Months Ended June 30,
	Successor	Predecessor
	2020	2019
Humana	38%	32%
Anthem	32%	21%
United	10%	11%

	Six Months Ended June 30,
	Successor	Predecessor
	2020	2019
Humana	40%	30%
Anthem	32%	18%
United	8%	14%

14. SUBSEQUENT EVENTS

On July 17, 2020, GoHealth, Inc. completed its IPO of 43,500,000 shares of Class A common stock at a public offering price of $21.00 per share and received approximately $852.0 million in net proceeds, after deducting the underwriting discount and estimated offering expenses. GoHealth Inc. used the net proceeds to purchase 38,679,685 newly-issued LLC interests from GHH, LLC at a price per unit equal to the initial public offering price per share of Class A common stock in the IPO, less the underwriting discount and estimated offering expenses. Immediately following the completion of the IPO and related organizational transactions, GoHealth Inc. held 84,182,961 LLC interests of GHH, LLC, representing an approximately 26.8% economic interest in GHH, LLC.

The Company used the net proceeds from the sale of LLC interests to GoHealth, Inc. (i) to partially redeem certain of the LLC interests held directly or indirectly by certain shareholders of the Company, (ii) to satisfy in full the 2019 Senior Preferred Earnout Units in the amount of $100.0 million, and (iii) for general corporate purposes.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This section presents management’s perspective on our financial condition and results of operations. The following discussion and analysis is intended to highlight and supplement data and information presented elsewhere in this Quarterly Report on Form 10-Q, including the condensed consolidated financial statements and related notes, and should be read in conjunction with the accompanying tables and our annual audited financial statement in our final prospectus for our initial public offering, or IPO, filed with the Securities and Exchange Commission, or the SEC, on July 16, 2020 pursuant to Rule 424(b) under the Securities Act, or the Prospectus. To the extent that this discussion describes prior performance, the descriptions relate only to the periods listed, which may not be indicative of our future financial outcomes. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management’s expectations. Factors that could cause such differences are discussed in the sections titled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors.” We assume no obligation to update any of these forward-looking statements.

Overview

We are a leading health insurance marketplace whose mission is to improve access to healthcare in America. Our proprietary technology platform leverages modern machine-learning algorithms powered by nearly two decades of insurance behavioral data to reimagine the optimal process for helping individuals find the best health insurance plan for their specific needs. Our differentiated combination of a vertically-integrated consumer acquisition platform and highly skilled and trained licensed agents, or agents, has enabled us to enroll millions of people in Medicare and individual and family plans since our inception. With over 10,000 Americans turning 65 years old every day and our track record of significant growth in net revenues in the Medicare space in the past five years, we believe we will continue to be one of the top choices for unbiased insurance advice to help navigate one of the most important purchasing decisions individuals make.

Business Segments

We have four operating segments: (i) Medicare—Internal, (ii) Medicare—External, (iii) Individual and Family Plans, or IFP and Other—Internal and (iv) IFP and Other—External. We organize the segments by product type, Medicare and IFP and Other, as well as by distribution channel, internal and external, as further described below. In addition, we separately report other expenses (classified as “Corporate expenses” in our financial statements), the primary components of which are corporate overhead expenses and shared service expenses that have not been allocated to the operating segments. The segment results provided herein may not be comparable to other companies. We refer to the Medicare—Internal and Medicare—External segments collectively as the “Medicare segments” and the IFP and Other—Internal and IFP and Other—External segments as the “IFP and Other segments.”

• Medicare—Internal. The Medicare—Internal segment relates to sales of products and plans by GoHealth-employed agents offering qualified prospects plans from multiple carriers, GoHealth-employed agents offering qualified prospects plans on a carrier-specific basis, or sales of products and plans through our online platform without the assistance of our agents, which we refer to as DIY. In this segment, we sell Medicare Advantage, Medicare Supplement, Medicare prescription drug plans, and Medicare Special Needs Plans, or SNPs. We earn revenue in this segment through commissions paid by carriers based on sales we generate, as well as enrollment fees, hourly fees and other fees for services performed for specific carriers and other partners.

• Medicare—External. The Medicare—External segment relates to sales of products and plans under GoHealth’s carrier contracts using an independent, national network of agents or external agencies, which are not employed by GoHealth. These agents utilize our technology and platform to enroll consumers in health insurance plans and provide us with a means to earn a return on leads that otherwise may have not been addressed. In this segment, we sell Medicare Advantage, Medicare Supplement, Medicare prescription drug plans, and SNPs. We earn revenue in this segment through commissions paid by carriers as a result of policy sales, as well as sales of consumer leads to external agencies.

• IFP and Other—Internal. The IFP and Other—Internal segment relates to sales of products and plans by GoHealth-employed agents offering qualified prospects plans from multiple carriers, GoHealth-employed agents offering qualified prospects plans on a carrier-specific basis, or DIY. In this segment, we sell individual and family plans, dental plans, vision plans and other ancillary plans to individuals who are not Medicare-eligible. We earn revenue in this segment through commissions paid by carriers based on sales we generate, as well as enrollment fees, and hourly fees and other fees for services performed for specific carriers and other partners.

• IFP and Other—External. The IFP and Other—External segment relates to sales of products and plans under GoHealth’s carrier contracts using external agencies, who use agents that are not employed by GoHealth. These agents utilize our technology and platform to enroll consumers in health insurance plans. We also sell consumer leads generated by us to external agencies. In this segment, we sell individual and family plans, dental plans, vision plans and other ancillary plans to individuals who are not Medicare-eligible. We earn revenue in this segment through commissions paid by carriers as a result of policy sales, as well as sales of consumer leads to external agencies.

The percentages of revenues and profit (loss) generated by each of our operating segments for the three and six months ended June 30, 2020 and 2019 are presented below:


	Three Months Ended June 30,						Six Months Ended June 30,
	Successor			Predecessor			Successor			Predecessor
	2020			2019			2020			2019
Percent of Revenues:
Medicare—Internal		68.6	%		43.5	%		68.1	%		37.1	%
Medicare—External		22.1	%		25.6	%		21.3	%		27.4	%
IFP and Other—Internal		5.5	%		16.6	%		5.8	%		18.6	%
IFP and Other—External		3.7	%		14.3	%		4.8	%		16.8	%

Total		100.0	%		100.0	%		100.0	%		100.0	%

Percent of Profit (Loss):
Medicare—Internal		98.3	%		73.0	%		98.3	%		64.2	%
Medicare—External		1.5	%		27.8	%		0.2	%		29.4	%
IFP and Other—Internal		(0.2)	%		(1.3)	%		0.6	%		2.0	%
IFP and Other—External		0.4	%		0.5	%		0.8	%		4.4	%

Total		100	%		100.0	%		100.0	%		100.0	%

The Transactions

The historical results of operations discussed in this section are those of GoHealth Holdings, LLC prior to the completion of the Transactions, including the IPO, and do not reflect certain items that we expect will affect our results of operations and financial condition after giving effect to the Transactions and the use of proceeds from the IPO.

Following the completion of the Transactions, GoHealth, Inc. became the sole managing member of GoHealth Holdings, LLC. Although we have a minority economic interest in GoHealth Holdings, LLC, we have the sole voting interest in, and control of the business and affairs of, GoHealth Holdings, LLC and its direct and indirect subsidiaries. As a result, GoHealth, Inc. consolidates GoHealth Holdings, LLC and records significant non-controlling interest in a consolidated entity in GoHealth, Inc.’s consolidated financial statements for the economic interest in GoHealth Holdings, LLC held directly or indirectly by the Continuing Equity Owners. As of July 15, 2020, public investors collectively own 51.7% of our outstanding Class A common stock, consisting of 43,500,000 shares of Class A common stock. As of July 15, 2020 GoHealth, Inc. owns 84,182,961 LLC Interests, representing 26.8% of the LLC Interests and the Founders collectively own 96,885,138 LLC Interests, representing 30.9% of the LLC Interests. Accordingly, as of July 15, 2020, net income (loss) attributable to non-controlling interests represents 73.2% of the income (loss) before income tax benefit (expense) of GoHealth, Inc. GoHealth, Inc. is a holding company that conducts no operations and its principal asset is the LLC Interests we purchased from GoHealth Holdings, LLC.

GoHealth, Inc. is subject to U.S. federal, state and local income taxes with respect to our allocable share of any taxable income of GoHealth Holdings, LLC and is taxed at the prevailing corporate tax rates. In addition to tax expenses, we also incur expenses related to our status as a public company, plus payment obligations under the Tax Receivable Agreement, which could be significant. We intend to cause GoHealth Holdings, LLC to make distributions to us in an amount sufficient to allow us to pay these expenses and fund any payments due under the Tax Receivable Agreement.

Response to COVID-19

With social distancing measures having been implemented to curtail the spread of COVID-19, we successfully transitioned our agents and other employees to a work from home working environment. We believe the investments we have made in our technology infrastructure have allowed for a seamless transition to a remote working environment without any material impacts to our business, highlighting the resilience of our business. We believe that a business like ours is well-suited to navigate the current environment in which consumers are particularly focused on healthcare issues and mortality and social distancing requirements push consumers to conduct business remotely, while the underlying demand dynamics for our core products remain unchanged. Additionally, because of our remote agent platform, we believe agents will continue to be attracted to our commission-based agent compensation model and the stable and attractive source of income it can provide, thereby allowing us to continue to retain and recruit agents. Further, as consumers become more comfortable with conducting business remotely, we believe consumer adoption of distribution models such as ours may continue to accelerate long after the COVID-19 pandemic ends.

As a result of the COVID-19 pandemic, we have fully transitioned our existing agents in Chicago, Salt Lake City and Charlotte to work from home, and have since opened four new virtual sites in Tampa, Columbus, Phoenix and Dallas. These locations were selected because of the depth of available licensed sales talent and our ability to work closely with state regulators and their vendors to expedite the licensing process for new agents and resolve delays related to the COVID-19 pandemic.

There are no comparable recent events which may provide guidance as to the effect of the spread of COVID-19 and a global pandemic, and, as a result, the ultimate impact of the COVID-19 outbreak or a similar health epidemic is highly uncertain and subject to change. We do not yet know the full extent of the impacts on our business, our operations or the global economy as a whole. However, the effects could have a material impact on our results of operations. See “Risk Factors—Risks Related to Our Business—The extent to which the COVID-19 outbreak and measures taken in response thereto impact our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted.”

Results of Operations

Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019

The following table sets forth the components of our results of operations for the three months ended June 30, 2020 and 2019:


	Successor					Predecessor
	Three Months Ended June 30, 2020					Three Months Ended June 30, 2019
(in thousands, except percentages)	Dollars		% of Net Revenues			Dollars		% of Net Revenues			$ Change		% Change
Net revenues:
Commission	$	96,606		76.0	%	$	60,077		80.6	%	$	36,529		60.8	%
Other		30,451		24.0	%		14,434		19.4	%		16,017		111.0	%

Net revenues		127,057		100.0	%		74,511		100.0	%		52,546		70.5	%
Operating expenses:
Cost of revenue		36,559		28.8	%		26,561		35.6	%		9,998		37.6	%
Marketing and advertising		21,634		17.0	%		5,026		6.7	%		16,608		330.4	%
Customer care and enrollment		28,394		22.3	%		15,814		21.2	%		12,580		79.5	%
Technology		5,705		4.5	%		4,301		5.8	%		1,404		32.6	%
General and administrative		10,359		8.2	%		7,106		9.5	%		3,253		45.8	%
Change in fair value of contingent consideration liability		15,300		12.0	%		—		—			15,300		NM
Amortization of intangible assets		23,514		18.5	%		—		—			23,514		NM
Transaction costs		—		—			299		0.4	%		(299)		(100.0)	%

Total operating expenses		141,465		111.3	%		59,107		79.3	%		82,358		139.3	%

(Loss) income from operations		(14,408)		(11.3)	%		15,404		20.7	%		(29,812)		(193.5)	%
Interest expense		8,986		7.1	%		81		0.1	%		8,905		NM
Other (income) expense		(505)		(0.4)	%		38		0.1	%		(543)		NM

(Loss) income before income tax expense		(22,889)		(18.0)	%		15,285		20.5	%		(38,174)		(249.7)	%
Income tax (benefit) expense		(22)		0.0	%		9		0.0	%		(31)		(344.4)	%

Net (loss) income	$	(22,867)		(18.0)	%	$	15,276		20.5	%	$	(38,143)		(249.7)	%

Non-GAAP Financial Measures:
EBITDA	$	10,615				$	16,871				$	(6,256)		(37.1)	%
Adjusted EBITDA	$	26,936				$	17,269				$	9,667		56.0	%
Adjusted EBITDA margin		21. 2%					23.2%

*	NM indicates that the percentage is not meaningful.

EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin

The reconciliations of GAAP net (loss) income to EBITDA and Adjusted EBITDA for the three months ended June 30, 2020 and 2019 are as follows:


(in thousands)	Three Months Ended June 30,
	Successor			Predecessor
	2020			2019
Net revenues	$	127,057		$	74,511


Net (loss) income	$	(22,867	)	$	15,276
Interest expense		8,986			81
Income tax (benefit) expense		(22	)		9
Depreciation and amortization expense		24,518			1,505

EBITDA		10,615			16,871
Share-based compensation expense⁽¹⁾		597			—
Change in fair value of contingent consideration liability⁽²⁾		15,300			—
Centerbridge Acquisition costs⁽³⁾		—			299
IPO transaction costs⁽⁴⁾		424			—
Severance costs⁽⁵⁾		—			99

Adjusted EBITDA	$	26,936		$	17,269

Adjusted EBITDA margin		21.2%			23.2%

(1)	Represents non-cash share-based compensation expense in connection with profits interests.

(2)	Represents the change in fair value of the earnout liability due to the predecessor owners of the Company arising from the Centerbridge Acquisition.

(3)	Represents legal, accounting, consulting, and other costs related to the Centerbridge Acquisition.

(4)	Represents legal, accounting, consulting, and other indirect costs associated with the Company’s IPO.

(5)	Represents costs associated with the termination of employment.

Net Revenues

Commission Revenues

Commission revenues were $96.6 million for the three months ended June 30, 2020 compared to $60.1 million for the three months ended June 30, 2019, an increase of 60.8%, which was primarily attributable to increases in commission revenues from (i) the Medicare—Internal segment of $33.2 million driven by a 106.2% increase in Medicare commissionable Approved Submissions due to the implementation of new marketing strategies to generate a greater number of prospects, an improvement in the efficiency of our agents driven by improvements in our technology, and the hiring of additional agents and (ii) the Medicare—External segment of $11.7 million driven by a 57.6% increase in Medicare commissionable Approved Submissions due to our ability to recruit and onboard additional external agents to enroll consumers in Medicare plans using our technology and platform.

Other Revenues

Other revenues were $30.5 million for the three months ended June 30, 2020 compared to $14.4 million for the three months ended June 30, 2019, an increase of 111.0%, which was primarily attributable to an increase of $21.6 million due to the expansion of carrier-specific sponsorships and programs in our Medicare—Internal segment. The increase was partially offset by a decline in consumer lead sales to external third parties in the IFP and Other—External segment and the Medicare—External segment that totaled $5.1 million, as we strategically shifted to generating consumer leads in the internal channels.

See further analysis in “—Segment Information” below.

Operating Expenses

Cost of Revenue

Cost of revenue was $36.6 million for the three months ended June 30, 2020 compared to $26.6 million for the three months ended June 30, 2019, an increase of 37.6%. The increase was primarily due to a 57.6% increase in commissionable Approved Submissions in the Medicare—External segment, which increased the amount of expense we recognized pursuant to our revenue-sharing agreements with external agents and other partners.

Marketing and Advertising

Marketing and advertising expense was $21.6 million for the three months ended June 30, 2020 compared to $5.0 million for the three months ended June 30, 2019, an increase of 330.4%. The increase was primarily due to an increase in our advertising costs for the Medicare—Internal segment to generate more qualified prospects, which contributed to a 106.2% increase in commissionable Approved Submissions in the Medicare—Internal segment.

Customer Care and Enrollment

Customer care and enrollment expense was $28.4 million for the three months ended June 30, 2020 compared to $15.8 million for the three months ended June 30, 2019, an increase of 79.5%. The increase was primarily attributable to the hiring of additional agents in the Medicare—Internal segment in order to drive the conversion of a greater number of qualified prospects into commissionable Approved Submissions. As of June 30, 2020, we had 1,170 full time equivalent agents compared to 324 full time equivalent agents as of June 30, 2019.

Technology

Technology expense was $5.7 million for the three months ended June 30, 2020 compared to $4.3 million for the three months ended June 30, 2019, an increase of 32.6%. The increase was primarily due to the hiring of additional employees in our technology and data science teams, and the expansion of our business intelligence and analytics staffing in order to support the growth of the Medicare-Internal segment.

General and Administrative

General and administrative expense was $10.4 million for the three months ended June 30, 2020 compared to $7.1 million for the three months ended June 30, 2019, an increase of 45.8%. The increase was primarily due to investments in corporate infrastructure, such as legal, human resources, and finance, to support the growth of the business.

Change in Fair Value of Contingent Consideration Liability

Change in fair value of contingent consideration liability was $15.3 million for the three months ended June 30, 2020 and relates to the earnout liability incurred in connection with the Centerbridge Acquisition, in which we agreed to pay additional consideration if certain financial targets are achieved. We had no earnout liability for the three months ended June 30, 2019.

Amortization of Intangible Assets

Amortization of intangible assets expense was $23.5 million for the three months ended June 30, 2020 and relates to the amortization of developed technology and customer relationships that were recognized as part of the purchase price allocation at the date of the Centerbridge Acquisition. There was no amortization of intangible assets expense for the three months ended June 30, 2019.

Interest Expense

Interest expense was $9.0 million for the three months ended June 30, 2020 compared to $81 thousand for the three months ended June 30, 2019. The increase was due to additional debt outstanding on our Credit Facilities in connection with the Centerbridge Acquisition.

Adjusted EBITDA

Adjusted EBITDA was $26.9 million for the three months ended June 30, 2020 compared to $17.3 million for the three months ended June 30, 2019. The increase was primarily due to an increase in commission revenues in the Medicare segments as described above.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

The following table sets forth the components of our results of operations for the six months ended June 30, 2020 and 2019:


	Successor						Predecessor
	Six Months Ended June 30, 2020						Six Months Ended June 30, 2019
(in thousands, except percentages)	Dollars			% of Net Revenues			Dollars		% of Net Revenues			$ Change			% Change
Net revenues:
Commission	$	209,116			78.0	%	$	111,293		77.5	%	$	97,823			87.9	%
Other		58,951			22.0	%		32,308		22.5	%		26,643			82.5	%

Net revenues		268,067			100.0	%		143,601		100.0	%		124,466			86.7	%
Operating expenses:
Cost of revenue		78,693			29.4	%		54,113		37.7	%		24,580			45.4	%
Marketing and advertising		47,708			17.8	%		16,437		11.4	%		31,271			190.2	%
Customer care and enrollment		52,371			19.5	%		29,753		20.7	%		22,618			76.0	%
Technology		10,298			3.8	%		8,457		5.9	%		1,841			21.8	%
General and administrative		20,849			7.8	%		14,096		9.8	%		6,753			47.9	%
Change in fair value of contingent consideration liability		19,700			7.3	%		—		—			19,700			NM
Amortization of intangible assets		47,029			17.5	%		—		—			47,029			NM
Transaction costs		—			—			299		0.2	%		(299	)		(100.0	)%

Total operating expenses		276,648			103.2	%		123,155		85.8	%		153,493			124.6	%

(Loss) income from operations		(8,581	)		(3.2	)%		20,446		14.2	%		(29,027	)		(142.0	)%
Interest expense		15,742			5.9	%		109		0.1	%		15,633			NM
Other (income) expense		(495	)		(0.2	)%		48		0.0	%		(543	)		NM

(Loss) income before income tax expense		(23,828	)		(8.9	)%		20,289		14.1	%		(44,117	)		(217.4	)%
Income tax (benefit) expense		(24	)		0.0	%		11		0.0	%		(35	)		(318.2	)%

Net (loss) income	$	(23,804	)		(8.9	)%	$	20,278		14.1	%	$	(44,082	)		(217.4	)%

Non-GAAP Financial Measures:
EBITDA	$	40,579					$	23,441				$	17,138			73.1	%
Adjusted EBITDA	$	61,857					$	24,405				$	37,452			153.5	%
Adjusted EBITDA margin		23.1%						17.0%

*	NM indicates that the percentage is not meaningful.

The reconciliations of GAAP net (loss) income to EBITDA and Adjusted EBITDA for the six months ended June 30, 2020 and 2019 are as follows:


(in thousands)	Six Months Ended June 30,
	Successor			Predecessor
	2020			2019
Net revenues	$	268,067		$	143,601


Net (loss) income	$	(23,804	)	$	20,278
Interest expense		15,742			109
Income tax (benefit) expense		(24	)		11
Depreciation and amortization expense		48,665			3,043

EBITDA		40,579			23,441
Share-based compensation expense⁽¹⁾		1,077			—
Change in fair value of contingent consideration liability⁽²⁾		19,700			—
Centerbridge Acquisition costs⁽³⁾		—			299
IPO transaction costs⁽⁴⁾		424			—
Severance costs⁽⁵⁾		77			665

Adjusted EBITDA	$	61,857		$	24,405

Adjusted EBITDA margin		23.1%			17.0%

(1)	Represents non-cash share-based compensation expense in connection with profits interests.

(2)	Represents the change in fair value of the earnout liability due to the predecessor owners of the Company arising from the Centerbridge Acquisition.

(3)	Represents legal, accounting, consulting, and other costs related to the Centerbridge Acquisition.

(4)	Represents legal, accounting, consulting, and other indirect costs associated with the Company’s IPO.

(5)	Represents costs associated with the termination of employment.

Net Revenues

Commission Revenues

Commission revenues were $209.1 million for the six months ended June 30, 2020 compared to $111.3 million for the six months ended June 30, 2019, an increase of 87.9%, which was primarily attributable to increases in commission revenue from (i) the Medicare—Internal segment driven by a 179.4% increase in Medicare commissionable Approved Submissions due to the hiring of additional agents, the increased utilization and efficiency of our agents and the implementation of new marketing strategies to generate a greater number of qualified prospects and (ii) the Medicare—External segment driven by a 63.3% increase in commissionable Approved Submissions due to our ability to recruit and onboard additional external agents to enroll consumers in Medicare plans using our technology and platform.

Other Revenues

Other revenues were $59.0 million for the six months ended June 30, 2020 compared to $32.3 million for the six months ended June 30, 2019, an increase of 82.5%, which was primarily attributable to an increase of $41.6 million due to the expansion of carrier-specific sponsorships and programs in our Medicare—Internal segment. The increase was partially offset by a decline in consumer lead sales to external third parties in our IFP and Other—External Segment and the Medicare—External segment that totaled $14.1 million, as we strategically shifted to generating consumer leads in the internal channels.

See further analysis in “—Segment Information” below.

Operating Expenses

Cost of Revenue

Cost of revenue was $78.7 million for the six months ended June 30, 2020 compared to $54.1 million for the six months ended June 30, 2019, an increase of 45.4%. The increase was primarily due to a 63.3% increase in commissionable Approved Submissions in the Medicare—External segment, which increased the amount of expense we recognized pursuant to our revenue-sharing agreements with external agents and other partners.

Marketing and Advertising

Marketing and advertising expense was $47.7 million for the six months ended June 30, 2020 compared to $16.4 million for the six months ended June 30, 2019, an increase of 190.2%. The increase was primarily due to an increase in our advertising costs for the Medicare—Internal segment to generate more qualified prospects, which contributed to a 179.4% increase in Medicare—Internal commissionable Approved Submissions.

Customer Care and Enrollment

Customer care and enrollment expense was $52.4 million for the six months ended June 30, 2020 compared to $29.8 million for the six months ended June 30, 2019, an increase of 76.0%. The increase was primarily attributable to the hiring of additional agents in the Medicare—Internal segment in order to drive the conversion of a greater number of qualified prospects into commissionable Approved Submissions. As of June 30, 2020, we had 1,170 full time equivalent agents compared to 324 full time equivalent agents as of June 30, 2019.

Technology

Technology expense was $10.3 million for the six months ended June 30, 2020 compared to $8.5 million for the six months ended June 30, 2019, an increase of 21.8%. The increase was primarily due to the hiring of additional employees in our technology and data science teams, and the expansion of our business intelligence and analytics staffing in order to support the growth of the Medicare-Internal segment.

General and Administrative

General and administrative expense was $20.8 million for the six months ended June 30, 2020 compared to $14.1 million for the six months ended June 30, 2019, an increase of 47.9%. The increase was primarily due to investments in corporate infrastructure, such as legal, human resources, and finance, to support the growth of the business.

Change in Fair Value of Contingent Consideration Liability

Change in fair value of contingent consideration liability was $19.7 million for the six months ended June 30, 2020 and relates to the earnout liability incurred in connection with the Centerbridge Acquisition, in which we agreed to pay additional consideration if certain financial targets are achieved. We had no earnout liability for the six months ended June 30, 2019.

Amortization of Intangible Assets

Amortization of intangible assets expense was $47.0 million for the six months ended June 30, 2020 and relates to the amortization of developed technology and customer relationships that were recognized as part of the purchase price allocation at the date of the Centerbridge Acquisition. There was no amortization of intangible assets expense for the six months ended June 30, 2019.

Interest Expense

Interest expense was $15.7 million for the six months ended June 30, 2020 compared to $0.1 million for the six months ended June 30, 2019. The increase was due to additional debt outstanding on the Credit Facilities in connection with the Centerbridge Acquisition.

Adjusted EBITDA

Adjusted EBITDA was $61.9 million for the six months ended June 30, 2020 compared to $24.4 million for the six months ended June 30, 2019. The increase was primarily due to an increase in commission revenues in the Medicare segments as described above.

Segment Information

Our operating segments have been determined in accordance with Accounting Standards Codification, or ASC, 280, Segment Reporting. We have four operating segments: Medicare—Internal, Medicare—External, IFP and Other—Internal, and IFP and Other—External. In addition, we separately report other expenses (classified as “Corporate expense” in the following table), the primary components of which are corporate overhead expenses and shared service expenses that have not been allocated to the operating segments, as they are not the responsibility of segment operating management. The segment measurements provided to and evaluated by the chief operating decision maker are described in the notes to the interim condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP.

Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019


	Successor					Predecessor
	Three Months Ended June 30, 2020					Three Months Ended June 30, 2019
(in thousands, except percentages)	Dollars		% of Total Revenues			Dollars		% of Total Revenues			$ Change		% Change
Net revenues:
Medicare—Internal	$	87,201		68.6	%	$	32,412		43.5	%	$	54,789		169.0	%
Medicare—External		28,108		22.1	%		19,070		25.6	%		9,038		47.4	%
IFP and Other—Internal		7,019		5.5	%		12,340		16.6	%		(5,321)		(43.1)	%
IFP and Other—External		4,729		3.7	%		10,689		14.3	%		(5,960)		(55.8)	%

Total revenues		127,057		100.0	%		74,511		100.0	%		52,546		70.5	%
Segment profit:
Medicare—Internal		32,746		25.8	%		14,941		20.1	%		17,805		119.2	%
Medicare—External		495		0.4	%		5,692		7.6	%		(5,197)		(91.3)	%
IFP and Other—Internal		(54)		0.0	%		(268)		(0.4)	%		214		(79.9)	%
IFP and Other—External		130		0.1	%		107		0.1	%		23		21.5	%

Total segment profit		33,317		26.2	%		20,472		27.5	%		12,845		62.7	%
Corporate expense		8,911		7.0	%		4,769		6.4	%		4,142		86.8	%
Change in fair value of contingent consideration liability		15,300		12.0	%		—		—			15,300		NM
Amortization of intangible assets		23,514		18.5	%		—		—			23,514		NM
Transaction costs		—		—			299		0.4	%		(299)		NM
Interest expense		8,986		7.1	%		81		0.1	%		8,905		NM
Other (income) expense		(505)		(0.4)	%		38		0.1	%		(543)		NM

(Loss) income before income taxes	$	(22,889)		(18.0)	%	$	15,285		20.5	%	$	(38,174)		(249.7)	%

*	NM indicates that the percentage is not meaningful.

Net Revenues

Net revenues for the Medicare—Internal segment were $87.2 million for the three months ended June 30, 2020 compared to $32.4 million for the three months ended June 30, 2019, which was primarily driven by the hiring of additional agents and the increased utilization and efficiency of our agents, which contributed to a 106.2% increase in commissionable Approved Submissions. As of June 30, 2020, we had 1,170 full time equivalent agents compared to 324 full time equivalent agents as of June 30, 2019. In addition to increasing our agent count, we were able to increase the efficiency of our agents due to improvements in our technology. Net revenues also increased in this segment due to the implementation of new marketing strategies to generate a greater number of qualified prospects and due to an increase in non-commission revenues. Net revenues for the Medicare—External segment were $28.1 million for the three months ended June 30, 2020 compared to $19.1 million for the three months ended June 30, 2019, which was primarily driven by a 57.6% increase in commissionable Approved Submissions in the Medicare—External segment due to our ability to recruit and onboard additional external agents to enroll consumers in Medicare plans using our technology and platform.

Net revenues for the IFP and Other—Internal segment were $7.0 million for the three months ended June 30, 2020 compared to $12.3 million for the three months ended June 30, 2019. Net revenues for the IFP and Other—External segment were $4.7 million for the three months ended June 30, 2020 compared to $10.7 million for the three months ended June 30, 2019. For each of the IFP and Other segments, the decreases were primarily driven by a change in product mix sold within the IFP and Other segments.

Segment Profit

Segment profit is calculated as total revenue for the applicable segment less direct and allocated cost of revenue, marketing and advertising, customer care and enrollment, technology and general and administrative operating expenses, excluding change in fair value of contingent consideration liability, amortization of intangibles assets, share-based compensation, transaction costs, interest expense, and other expense (income).

Segment profit for the Medicare—Internal segment was $32.7 million for the three months ended June 30, 2020 compared to $14.9 million for the three months ended June 30, 2019. The increase was primarily driven by the increase of Medicare commissionable Approved Submissions, which was primarily attributable to (i) improvements in our LeadScore and call-routing technologies allowing our agents to successfully convert more consumer leads into customers and (ii) an expansion of the diversity and breadth of our omni-channel marketing efforts, which enabled the acquisition of higher quality prospects.

Segment profit for the Medicare—External segment was $0.5 million for the three months ended June 30, 2020 compared to $5.7 million for the three months ended June 30, 2019. The decrease was primarily driven by a 57.6% increase in commissionable Approved Submissions in the Medicare—External segment and agreements with external agents and other partners that had a higher revenue-sharing percentage as compared to prior agreements.

Segment loss for the IFP and Other—Internal segment was $0.1 million for the three months ended June 30, 2020 compared to segment loss of $0.3 million for the three months ended June 30, 2019. The decrease in segment loss was primarily driven by a change in product mix sold by agents for IFP and Other plans and improved marketing efficiencies.

Segment profit for the IFP and Other—External segment was $0.1 million for both the three months ended June 30, 2020 and the three months ended June 30, 2019.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019


	Successor					Predecessor
	Six Months Ended June 30, 2020					Six Months Ended June 30, 2019
(in thousands, except percentages)	Dollars		% of Total Revenues			Dollars		% of Total Revenues			$ Change		% Change
Net revenues:
Medicare—Internal	$	182,488		68.1	%	$	53,324		37.1	%	$	129,164		242.2	%
Medicare—External		57,053		21.3	%		39,404		27.4	%		17,649		44.8	%
IFP and Other—Internal		15,651		5.8	%		26,780		18.6	%		(11,129)		(41.6)	%
IFP and Other—External		12,875		4.8	%		24,093		16.8	%		(11,218)		(46.6)	%

Total revenues		268,067		100.0	%		143,601		100.0	%		124,466		86.7	%
Segment profit:
Medicare—Internal		74,482		27.8	%		19,806		13.8	%		54,176		276.1	%
Medicare—External		173		0.1	%		9,071		6.3	%		(8,898)		(98.1)	%
IFP and Other—Internal		427		0.2	%		612		0.4	%		(185)		(30.2)	%
IFP and Other—External		642		0.2	%		1,370		1.0	%		(728)		(53.1)	%

Total segment profit		75,724		28.2	%		30,859		21.5	%		44,865		145.4	%
Corporate expense		17,576		6.6	%		10,114		7.0	%		7,462		73.8	%
Change in fair value of contingent consideration liability		19,700		7.3	%		—		—			19,700		NM
Amortization of intangible assets		47,029		17.5	%		—		—			47,029		NM
Transaction Costs		—		—			299		0.2	%		(299)		NM
Interest expense		15,742		5.9	%		109		0.1	%		15,633		NM
Other (income) expense		(495)		(0.2)	%		48		0.0	%		543		NM

(Loss) income before income taxes	$	(23,828)		(8.9)	%	$	20,289		14.1	%	$	(44,117)		(217.4)	%

* NM indicates that the percentage is not meaningful.

Net Revenues

Net revenues for the Medicare—Internal segment were $182.5 million for the six months ended June 30, 2020 compared to $53.3 million for the six months ended June 30, 2019, which was primarily driven by the hiring of additional agents and the increased utilization and efficiency of our agents, which contributed to a 179.4% increase in commissionable Approved Submissions. As of June 30, 2020, we had 1,170 full time equivalent agents compared to 324 full time equivalent agents as of June 30, 2019. In addition to increasing our agent count, we were able to increase the efficiency of our agents due to improvements in our technology. Net revenues also increased in this segment due to the implementation of new marketing strategies to generate a greater number of qualified prospects and due to an increase in non-commission revenues. Net revenues for the Medicare—External segment were $57.1 million for the six months ended June 30, 2020 compared to $39.4 million for the six months ended June 30, 2019, which was primarily driven by a 63.3% increase in commissionable Approved Submissions in the Medicare—External segment due to our ability to recruit and onboard additional external agents to enroll consumers in Medicare plans using our technology and platform.

Net revenues for the IFP and Other—Internal segment were $15.7 million for the six months ended June 30, 2020 compared to $26.8 million for the six months ended June 30, 2019. Net revenues for the IFP and Other—External segment were $12.9 million for the six months ended June 30, 2020 compared to $24.1 million for the six months ended June 30, 2019. For each of the IFP and Other segments, the decreases were primarily driven by a change in product mix sold within the IFP and Other segments.

Segment Profit

Segment profit for the Medicare—Internal segment was $74.5 million for the six months ended June 30, 2020 compared to $19.8 million for the six months ended June 30, 2019. The increase was primarily driven by the increase of Medicare commissionable Approved Submissions, which was primarily attributable to (i) improvements in our LeadScore and call-routing technologies allowing our agents to successfully convert more qualified prospects into Submitted Policies and (ii) improved marketing efficiencies driven by our rapid test-and-learn approach across our marketing channels, as well as an expansion of the diversity and breadth of our omni-channel marketing efforts, which together enabled the acquisition of higher quality prospects.

Segment profit for the Medicare—External segment was $0.2 million for the six months ended June 30, 2020 compared to $9.1 million for the six months ended June 30, 2019. The decrease was primarily driven by a 63.3% increase in commissionable Approved Submissions in the Medicare—External segment and agreements with external agents and other partners that had a higher revenue-sharing percentage as compared to prior agreements.

Segment profit for the IFP and Other—Internal segment was $0.4 million for the six months ended June 30, 2020 compared to $0.6 million for the six months ended June 30, 2019. The decrease was primarily driven by a change in product mix sold by agents for IFP and Other plans.

Segment profit for the IFP and Other—External segment was $0.6 million for the six months ended June 30, 2020 compared to $1.4 million for the six months ended June 30, 2019. The decrease was driven by a change in product mix sold by external agencies.

Key Business and Operating Metrics by Segment

In addition to traditional financial metrics, we rely upon certain business and operating metrics to evaluate our business performance and facilitate our operations. Below are the most relevant business and operating metrics for each segment, except for EBITDA and Adjusted EBITDA, which are not presented on a segment basis.

Medicare Segments

Lifetime Value of Commissions per Consumer Acquisition Cost

Lifetime value of commissions per consumer acquisition cost, or LTV/CAC, represents (i) aggregate commissions estimated to be collected over the estimated life of all commissionable Approved Submissions for the relevant period based on multiple factors, including but not limited to, contracted commission rates, carrier mix and expected policy persistency with applied constraints, or LTV, divided by (ii) the cost to convert a qualified prospect into a Submitted Policy (comprised of cost of revenue, marketing and advertising expenses and customer care and enrollment expenses) less other non-commission carrier revenue for such period, or CAC. CAC is comprised of cost of revenue, marketing and advertising expenses and customer care and enrollment expenses less other revenue and is presented on a per commissionable Approved Submission basis. The estimate of the future renewal commissions is determined by using the contracted renewal commission rates constrained by a persistency-adjusted renewal period. The persistency-adjusted renewal period is determined based on our historical experience and available industry and insurance carrier historical data. Persistency-adjustments allow us to estimate renewal revenue only to the extent probable that a material reversal in revenue would not be expected to occur. These factors may result in varying values from period to period. See “Risk Factors—Risks Related to Our Business—Our operating results may be adversely impacted by factors that impact our estimate of LTV.”

The LTV/CAC for the Medicare—Internal segment decreased to 2.6x (with a CAC of $23.8 million) for the three months ended June 30, 2020 compared to 2.9x (with a CAC of $9.9 million) for the three months ended June 30, 2019. The decrease in LTV/CAC is attributable to the Company scaling up its production to drive approximately 2.7x revenue growth in the Medicare—Internal segment period over period, as well as the hiring of additional agents to drive the conversion of a greater number of qualified prospects into commissionable Approved Submissions and to prepare for the upcoming annual enrollment period in the fourth quarter. As of June 30, 2020, we had 1,170 full time equivalent agents compared to 324 full time equivalent agents as of June 30, 2019.

The LTV/CAC for the Medicare—Internal segment increased to 2.7x (with a CAC of $50.5 million) for the six months ended June 30, 2020 compared to 2.3x (with a CAC of $20.0 million) for the six months ended June 30, 2019. The increase in LTV/CAC is attributable to a decrease in CAC per commissionable Approved Submission due to improvements in our LeadScore and call-routing technologies allowing our agents to successfully convert more qualified prospects into Submitted Policies. Improved marketing efficiencies driven by our rapid test-and-learn approach across our marketing channels and expansion of the diversity and breadth of our omni-channel marketing efforts also contributed to an increase in LTV/CAC by enabling the acquisition of higher quality prospects at a lower effective cost per submission.

Submitted Policies

Submitted Policies represent completed applications that, with respect to each such application, the consumer has authorized us to submit to the carrier. The applicant may need to take additional actions, including providing subsequent information before the application is reviewed by the carrier.

The following table presents the number of Submitted Policies by product for the Medicare segments for the three and six months ended June 30, 2020 and 2019, split between those submissions that are commissionable (compensated through commissions received from carriers) and those that are non-commissionable (compensated via hourly fees and enrollment fees):


	Three Months Ended June 30,				Six Months Ended June 30,
	Successor		Predecessor		Successor		Predecessor
	2020		2019		2020		2019
Medicare Advantage		99,078		47,039		216,413		83,095
Medicare Supplement		2,248		4,260		4,919		8,114
Prescription Drug Plans		1,969		2,766		4,431		5,458

Total Medicare—Commissionable		103,295		54,065		225,763		96,667

Medicare Advantage		7,407		1,404		14,334		1,902
Medicare Supplement		1,734		260		3,546		416
Prescription Drug Plans		955		109		1,753		136

Total Medicare—Non Commissionable		10,096		1,773		19,633		2,454

Total Medicare Submitted Policies		113,391		55,838		245,396		99,121

Total Medicare Submitted Policies increased by 103.1% for the three months ended June 30, 2020 compared to the three months ended June 30, 2019. The increase is attributable to the same factors that contributed to the increase from the six months ended June 30, 2019 to the six months ended June 30, 2020, as described below.

Total Medicare Submitted Policies increased by 147.6% for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. The increase is attributable to improved multichannel marketing strategies that allowed us to generate a greater number of high quality prospects, along with increased efficiency of our agents. Agent efficiency increased due to the implementation of more efficient marketing strategies and improvements in our LeadScore and call-routing technologies, which allowed our agents to increase the number of qualified prospects they are able to talk to and improve the rate at which a qualified prospect converts to a Submitted Policy. Additionally, the expansion of our facilities to accommodate additional agents and the hiring of additional agents also contributed to the increase in Submitted Policies. As of June 30, 2020, we had 1,170 full time equivalent agents compared to 324 full time equivalent agents as of June 30, 2019 in the Medicare—Internal segment. We were also able to drive an increase in total Submitted Policies in the Medicare—External segment due to our ability to recruit and onboard additional external agents to enroll consumers in Medicare plans using our technology and platform.

Approved Submissions

Approved Submissions represent Submitted Policies approved by carriers for the identified product during the indicated period. Not all Approved Submissions will go in force, as some individuals we enroll may not ultimately pay their insurance premiums or may switch out of a policy within the disenrollment period during the first 90 days of the policy. In general, the relationship between Submitted Policies and Approved Submissions has been steady over time. Therefore, factors impacting the number of Submitted Policies also impact the number of Approved Submissions.

The following tables present the number of Approved Submissions by product relating to commissionable policies for each of the Medicare segments for the three and six months ended June 30, 2020 and 2019. Only commissionable policies are used to calculate our LTV.

Medicare—Internal


	Three Months Ended June 30,				Six Months Ended June 30,
	Successor		Predecessor		Successor		Predecessor
	2020		2019		2020		2019
Medicare Advantage		67,818		30,814		151,426		50,274
Medicare Supplement		465		1,185		1,287		2,254
Prescription Drug Plans		1,571		1,882		3,745		3,467

Medicare—Internal Commissionable Approved Submissions		69,854		33,881		156,458		55,995

Medicare—Internal commissionable Approved Submissions increased by 106.2% for the three months ended June 30, 2020 compared to the three months ended June 30, 2019. The increase was attributable to the same factors that contributed to the increase from the six months ended June 30, 2019 to the six months ended June 30, 2020, as described below.

Medicare—Internal commissionable Approved Submissions increased by 179.4% for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. The increase in Medicare—Internal commissionable Approved Submissions was attributable to the hiring of additional agents (including the expansion of our facilities to accommodate additional agents), the increased efficiency of our agents due to technology improvements and improved multichannel marketing strategies that allowed us to generate a greater number of high quality prospects.

Medicare—External


	Three Months Ended June 30,				Six Months Ended June 30,
	Successor		Predecessor		Successor		Predecessor
	2020		2019		2020		2019
Medicare Advantage		28,979		16,176		61,266		32,790
Medicare Supplement		1,633		2,615		3,191		5,213
Prescription Drug Plans		405		884		854		1,991

Medicare—External Commissionable Approved Submissions		31,017		19,675		65,311		39,994

Medicare—External commissionable Approved Submissions increased by 57.6% for the three months ended June 30, 2020 compared to the three months ended June 30, 2019. The increase in Medicare—External commissionable Approved Submissions was attributable to the same factors that contributed to the increase from the six months ended June 30, 2019 to the six months ended June 30, 2020, as described below.

Medicare—External commissionable Approved Submissions increased by 63.3% for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. The increase in Medicare—External commissionable Approved Submissions was attributable to our ability to recruit and onboard additional external agents to enroll consumers in Medicare plans.

Lifetime Value of Commissions per Approved Submission

Lifetime value of commissions per commissionable Approved Submission, or LTV per Approved Submission, represents (i) aggregate commissions estimated to be collected over the estimated life of all commissionable Approved Submissions for the relevant period based on multiple factors, including but not limited to, contracted commission rates, carrier mix and expected policy persistency with applied constraints, divided by (ii) the number of commissionable Approved Submissions for such period. LTV per Approved Submission is equal to the sum of the commission revenue due upon the initial sale of a policy, and when applicable, an estimate of future renewal commissions per commissionable Approved Submissions. The estimate of the future renewal commissions is determined by using the contracted renewal commission rates constrained by a persistency-adjusted renewal period. The persistency-adjusted renewal period is determined based on our historical experience and available industry and carrier historical data. Persistency-adjustments allow us to estimate renewal revenue only to the extent probable that a material reversal in revenue would not be expected to occur. These factors may result in varying values from period to period. LTV per Approved Submission represents commissions only from policies sold during the period, but excludes policies originally submitted in prior periods.

The following table presents the LTV per Approved Submission by product for the Medicare segments for the three and six months ended June 30, 2020 and 2019:


	Three Months Ended June 30,				Six Months Ended June 30,
	Successor		Predecessor		Successor		Predecessor
	2020		2019		2020		2019
Medicare Advantage	$	905	$	873	$	879	$	868
Medicare Supplement	$	937	$	946	$	928	$	936
Prescription Drug Plans	$	215	$	192	$	216	$	192

LTV per Approved Submission for Medicare Advantage increased for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to an increase in CMS-approved commission rates and a more diverse carrier base allowing us to offer more products and plans that could satisfy a diverse range of needs contributing to more long-term customer satisfaction with their policy. LTV per Approved Submission for Medicare Supplement decreased for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 as changes in carrier mix were offset by decreases in the estimates of plan persistency. LTV per Approved Submission for prescription drug plans increased for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to improved persistency rates and carrier mix shifts.

LTV per Approved Submission for Medicare Advantage increased for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to an increase in CMS-approved commission rates and a more diverse carrier base allowing us to offer more products and plans that contributed to more long-term customer satisfaction, slightly offset by a variance in carrier mix. LTV per Approved Submission for Medicare Supplement decreased for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to changes in carrier mix and decreases in the estimates of plan persistency. LTV per Approved Submission for prescription drug plans increased for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to improved persistency rates and carrier mix shifts.

IFP and Other Segments

Submitted Policies

Submitted Policies represent the number of completed applications that, with respect to each such application, the consumer has authorized us to submit to the carrier. The applicant may need to take additional actions, including providing subsequent information before the application is reviewed by the carrier.

Total Submitted Policies for the IFP and Other segments decreased by 50.3% to 26,718 for the three months ended June 30, 2020 compared to 53,752 for the three months ended June 30, 2019 due to a change in strategy to prioritize agents and marketing and advertising spend in the Medicare segments instead of IFP and Other.

Total Submitted Policies for the IFP and Other segments decreased by 41.4% to 63,053 for the six months ended June 30, 2020 compared to 107,638 for the six months ended June 30, 2019 due to a change in strategy to prioritize agents and marketing and advertising spend in the Medicare segments instead of IFP and Other.

Liquidity and Capital Resources

Overview

Our liquidity needs primarily include working capital and debt service requirements. As of June 30, 2020, cash and cash equivalents totaled $118.4 million. On July 17, 2020, we completed our IPO, which resulted in the issuance and sale of 43,500,000 shares of common stock at the IPO price of $21.00, and generating net proceeds of approximately $852.0 million after deducting underwriting discounts and other offering costs. We believe that our current sources of liquidity, which include cash and funds available under the Credit Facilities, as described further below, will be sufficient to meet our projected operating and debt service requirements for at least the next 12 months. Short-term liquidity needs will primarily be funded through the Aggregate Revolving Credit Facility, as described further below, portion of the Credit Facilities. As of June 30, 2020, we had no amounts outstanding under the Aggregate Revolving Credit Facility and had a remaining capacity of $58.0 million. To the extent that our current liquidity is insufficient to fund future activities, we may need to raise additional funds, which may include the sale of equity securities or through debt financing arrangements. The incurrence of additional debt financing would result in debt service obligations, and any future instruments governing such debt could provide for operating and financing covenants that could restrict our operations.

The following table presents a summary of cash flows for the six months ended June 30, 2020 and 2019:


	Six Months Ended June 30,
	Successor			Predecessor
(in thousands)	2020			2019
Net cash (used in) provided by operating activities	$	(4,169	)	$	12,979
Net cash used in investing activities	$	(7,764	)	$	(4,783	)
Net cash provided by (used in) financing activities	$	117,900		$	(4,856	)

Operating Activities

Cash provided by operating activities primarily consists of net income (loss) adjusted for certain non-cash items including share-based compensation; depreciation and amortization; amortization of intangible assets; change in the fair value of contingent consideration and internally developed software and the effect of changes in working capital and other activities.

Collection of commissions receivable depends upon the timing of the receipt of commission payments. If there were to be a delay in receiving a commission payment from a carrier within a quarter, the operating cash flows for that quarter could be adversely impacted.

A significant portion of marketing and advertising expense is driven by the number of qualified prospects required to generate the insurance applications submitted to carriers. Marketing and advertising costs are expensed and generally paid as incurred and since commission revenue is recognized upon approval of a submission but commission payments are paid to us over time, there are working capital requirements to fund the upfront cost of acquiring new policies.

Net cash used in operating activities was $4.2 million for the six months ended June 30, 2020, which consisted of $23.8 million in net loss and adjustments for non-cash items of $70.0 million, offset by the effect of changes in operating assets and liabilities representing a $50.4 million use of cash. The change in operating assets and liabilities was primarily driven by an increase in commissions receivable of $58.7 million, a decrease in deferred revenue of $14.2 million, an increase in prepaid expenses and other assets of $1.3 million, a decrease in accounts payable of $3.5 million, and a decrease in accrued liabilities of $7.6 million, partially offset by a decrease in accounts receivable of $15.5 million and an increase in commissions payable of $18.1 million.

Net cash provided by operating activities was $13.0 million for the six months ended June 30, 2019, which consisted of $20.3 million in net income and adjustments for non-cash items of $3.9 million, offset by the effect of changes in operating assets and liabilities representing a $11.2 million use of cash. The change in operating assets and liabilities was primarily driven by an increase in commissions receivable of $33.9 million, partially offset by increases in commissions payable and deferred revenue of $12.4 million and $12.2 million, respectively.

Investing Activities

Net cash used in investing activities was $7.8 million for the six months ended June 30, 2020 and $4.8 million for the six months ended June 30, 2019 and consisted of purchases of office equipment and furniture, leasehold improvements and software in both periods.

Financing Activities

Prior to completion of our IPO, financing activities primarily consist of borrowings under the Credit Facilities, as defined below, and the issuance of preferred and common units.

Net cash provided by financing activities of $117.9 million for the six months ended June 30, 2020 was due to borrowings under the Incremental Term Loan Facility, which comprised $117.0 million of net cash provided by financing activities and the issuance of common units, which comprised $10.0 million of net cash provided by financing activities, and was partially offset by payments of existing debt and debt issuance costs associated with the Incremental Term Loan Facility and deferred offering costs incurred in connection with the IPO.

Net cash used by financing activities of $4.9 million for the six months ended June 30, 2019 was due to net payments under our predecessor revolving credit facility.

Credit Facilities

On September 13, 2019, in connection with the Centerbridge Acquisition, Norvax entered into a first lien credit agreement (the “Credit Agreement”) which provides for a (i) $300.0 million aggregate principal amount senior secured term loan facility (the “Term Loan Facility”) and (ii) $30.0 million aggregate principal amount senior secured revolving credit facility (the “Revolving Credit Facility”).

On March 20, 2020, the Company entered into an amendment to the Credit Agreement, which provided $117.0 million of incremental term loans (the “Incremental Term Loan Facility”).

On May 7, 2020, the Company entered into a second amendment to the Credit Agreement, which provided $20.0 million of incremental revolving credit, (the “Incremental Revolving Credit Facility”).

On June 11, 2020, the Company entered into a third amendment to the Credit Agreement, which provided $8.0 million of incremental revolving credit, (the “Incremental No. 3 Revolving Credit Facility”).

We collectively refer to the Term Loan Facility, the Revolving Credit Facility, the Incremental Term Loan Facility, the Incremental Revolving Credit Facility, and the Incremental No. 3 Revolving Credit Facility as the “Credit Facilities”.

As of June 30, 2020, we had principal amounts totaling $414.4 million outstanding under the Term Loan Facility and the Incremental Term Loan Facility (collectively the “Aggregate Term Loan Facility”). We had no amounts outstanding under the Revolving Credit Facility, the Incremental Revolving Credit Facility, or the Incremental No. 3 Revolving Credit Facility (collectively the “Aggregate Revolving Credit Facility”). The Aggregate Revolving Credit Facility had a remaining capacity of $58.0 million as of June 30, 2020.

Contractual Obligations

There have been no material changes to our contractual obligations from those described in the Prospectus.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements, as defined in Regulation S-K.

Recent Accounting Pronouncements

For a discussion of new accounting pronouncements recently adopted and not yet adopted, see the Note 1 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Seasonality

The Medicare annual enrollment period occurs from October 15th to December 7th. As a result, we experience an increase in the number of submitted Medicare-related applications during the fourth quarter and an increase in expense related to the Medicare segments during the third and fourth quarters. Additionally, as a result of the annual Medicare Advantage open enrollment period that occurs from January 1st to March 31st, commission revenue is typically second-highest in our first quarter. The individual and family health insurance open enrollment period runs from November 1st through December 15th of each year for most states, and we expect the number of approved applications for individual and family health insurance to be higher in the fourth quarter compared to other quarters of the year as a result. A significant portion of our marketing and advertising expenses is driven by the number of health insurance

applications submitted through us. Marketing and advertising expenses are generally higher in the fourth quarter during the Medicare annual enrollment period, but because commissions from approved customers are paid to us over time, our operating cash flows could be adversely impacted by a substantial increase in marketing and advertising expenses as a result of a higher volume of applications submitted during the fourth quarter or positively impacted by a substantial decline in marketing and advertising expenses as a result of lower volume of applications submitted during the fourth quarter.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets, and liabilities and disclosure of contingent assets and liabilities in our financial statements. We regularly assess these estimates; however, actual amounts could differ from those estimates. The most significant items involving management’s estimates include estimates of revenue recognition, commissions receivable, and commissions payable. The impact of changes in estimates is recorded in the period in which they become known.

An accounting policy is considered to be critical if the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and the effect of the estimates and assumptions on financial condition or operating performance. The accounting policies we believe to reflect our more significant estimates, judgments and assumptions that are most critical to understanding and evaluating our reported financial results are: revenue recognition, commissions receivable, and commissions payable.

Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in our Prospectus and the notes to the unaudited interim consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. During the three months ended June 30, 2020, there were no material changes to our critical accounting policies from those discussed in Prospectus.

JOBS Act

We qualify as an “emerging growth company” pursuant to the provisions of the JOBS Act, enacted on April 5, 2012. Section 102 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, our consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if as an emerging growth company we choose to rely on such exemptions, we may not be required to, among other things, (1) provide an auditor’s attestation report on our systems of internal controls over financial reporting pursuant to Section 404, (2) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, (3) comply with the requirement of the PCAOB regarding the communication of critical audit matters in the auditor’s report on the financial statements, and (4) disclose certain executive compensation-related items, such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation. These exemptions will apply until we no longer meet the requirements of being an emerging growth company. We will remain an emerging growth company until the earlier of (a) the last day of the fiscal year (i) following the fifth anniversary of the completion of our IPO, (ii) in which we have total annual gross revenue of at least $1.07 billion or (iii) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the last business day of our prior second fiscal quarter, and (b) the date on which we have issued more than $1.0 billion in non-convertible debt over a rolling 36-month period.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

In the normal course of business, we are subject to market risks. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Financial instruments that are exposed to concentrations of credit risk primarily consist of accounts and commissions receivable. We do not require collateral or other security for receivables, but believe the potential for collection issues with any customers was minimal as of June 30, 2020, based on the lack of collection issues in the past and the high financial standards we require of customers. As of June 30, 2020, three customers each represented 10% or more of the Company’s total accounts receivable and, in aggregate, represented 88%, or $8.7 million of the Company’s total accounts receivable. As of December 31, 2019, five customers each represented 10% or more of the Company’s total accounts receivable and, in aggregate, represented 87%, or $21.2 million, of the Company’s total accounts receivable. No other customers represented 10% or more of the Company’s total accounts receivable at June 30, 2020 and December 31, 2019.

Interest Rate Risk

As of June 30, 2020, we had cash of $118.4 million deposited in non-interest bearing accounts with major banks with limited to no-interest rate risk. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage interest rate risk exposure.

See “Risk Factors—Risks Related to Our Indebtedness—Developments with respect to LIBOR may affect our borrowings under our Credit Facilities” for additional information.

Item 4. Controls and Procedures.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2020.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended June 30, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

We are, from time to time, party to various claims and legal proceedings arising out of our ordinary course of business, but we do not believe that any of these claims or proceedings will have a material effect on our business, consolidated financial condition or results of operations.

Item 1A. Risk Factors.

Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Quarterly Report on Form 10-Q, including our consolidated financial statements and the related notes, before deciding to invest in our Class A common stock. The occurrence of any of the events described below could harm our business, operating results and financial condition. In such an event, the market price of our Class A common stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business. See “Cautionary Note Regarding Forward-Looking Statements.”

Risks Related to Our Business

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.

Our business and operating results are heavily dependent on marketing and selling Medicare plans. The marketing and sale of Medicare Advantage and Medicare Part D prescription drug plans are principally regulated by CMS, but are also subject to state laws. The marketing and sale of Medicare Supplement plans are principally regulated on a state-by-state basis by state departments of insurance or equivalent state departments. The laws and regulations applicable to the marketing and sale of Medicare plans are numerous, ambiguous and complex, and, particularly with respect to regulations and guidance issued by CMS for Medicare Advantage and Medicare Part D prescription drug plans are frequently changing. We have and will continue to take steps to ensure compliance with laws, regulations and guidelines applicable to the sale and marketing of Medicare plans. For example, we have tailored our websites and sales processes for Medicare plans to comply with several requirements that are solely applicable to the sale and marketing of Medicare-related health insurance plans. Many aspects of our online platforms and our marketing material and processes, as well as changes to these platforms, materials and processes, including call center scripts, must be filed with CMS and reviewed and approved by carriers in light of CMS requirements. In addition, certain aspects of our Medicare plan marketing partner relationships have been in the past, and will be in the future, subjected to CMS review and carrier review. Changes to the laws, regulations and guidelines relating to the sale and marketing of Medicare plans, their interpretation or the manner in which they are enforced could be incompatible with these relationships, the manner in which we conduct our business, our platforms or our sale of Medicare plans, which could harm our business, operating results and financial condition.

CMS scrutinizes Medicare carriers and Medicare carriers may be held responsible for actions that we and our agents take. As a result, carriers may terminate their relationship with us or take other corrective action against us if our Medicare product sales, marketing or operations are not in compliance with Medicare or other requirements or give rise to too many complaints. See “—Our business may be harmed if we lose our relationship with carriers or if our relationships with carriers change, particularly if we or our contracted carriers temporarily or permanently lose the ability to market and sell Medicare plans.”

Due to potential changes in CMS guidance, enforcement, interpretation or, in light of the COVID-19 pandemic, waivers, of existing laws, regulations and guidance applicable to our marketing and sale of Medicare products, or as a result of new laws, regulations and guidelines, CMS, state departments of insurance or carriers may object to or not approve aspects of our online platforms or marketing materials and processes and determine that certain existing aspects of our Medicare-related business are not in compliance with the applicable laws, regulations and guidance. As a result, the progress of our Medicare operations could be slowed or we could be prevented from operating aspects of our Medicare revenue generating activities altogether, which would harm our business, operating results and financial condition, particularly if it occurred during the Medicare annual enrollment period.

Our business may be harmed if we lose our relationship with carriers or if our relationships with carriers change, particularly if we or our contracted carriers temporarily or permanently lose the ability to market and sell Medicare plans.

Our contractual relationships with carriers, including those with whom we have carrier-branded sales arrangements, are typically non-exclusive and terminable on short notice by either party for any reason. Carriers may be unwilling to allow us to sell their insurance products for a variety of reasons, including competitive or regulatory reasons, dissatisfaction with the insureds that we place with them or because they do not want to be associated with our brand. Additionally, in the future, an increasing number of carriers may decide to rely on their own internal distribution channels, including traditional in-house agents and their own websites, to sell their own products, which could limit or prohibit us from distributing their products. Also, because we do not have exclusive relationships with carriers, carriers can and do use our competitors to sell their products.

If a carrier is not satisfied with our services, it could cause us to incur additional costs and impact our profitability. For example, a carrier could terminate our services, decrease our commissions going forward or restrict our ability to market their products. Moreover, if we fail to meet our contractual obligations to any of our carriers, we could be subject to legal liability or lose our carrier relationships. In addition, these claims against us may produce negative publicity that could hurt our reputation and business and adversely affect our ability to retain business, find new consumers to sell products to or secure new business with other carriers.

In addition, with respect to the plans we sell in the IFP and Other segments and Medicare Supplement plans, carriers periodically change the criteria they use for determining whether they are willing to insure individuals. Future changes in carrier underwriting criteria could negatively impact sales of, or the renewal or approval rates of, insurance policies on our platform, which could negatively impact our revenue.

We may decide to terminate our relationship with a carrier for a number of reasons and the termination of our relationship with a carrier could reduce the variety of insurance products we distribute. In connection with such a termination, we would lose a source of commissions for future sales, and, in a limited number of cases, future commissions for past sales. Our business could also be harmed if we fail to develop new carrier relationships or offer customers a wide variety of insurance products.

We may also lose the ability to market and sell Medicare plans for one or more Medicare carriers. The regulations for selling Medicare health insurance are complex and can change frequently and may change in response to the COVID-19 pandemic. If we, our agents, or a carrier violate any of the requirements imposed by CMS, or federal or state laws or regulations, a carrier may terminate our relationship, or CMS may penalize a carrier by suspending, limiting, or terminating that carrier’s ability to market and sell Medicare plans. Moreover, if any of our carriers terminate its relationship with us for cause, we may have to disclose such termination to other carriers, which may result in termination of additional carrier relationships. Because the Medicare products we sell are sourced from a relatively small number of carriers, if we lose the ability to market one of those carrier’s Medicare plans, even temporarily, or if one of those carriers loses its Medicare product membership, our business, operating results and financial condition could be harmed.

Our failure to grow our customer base or retain our existing customers could adversely impact our business, operating results and financial condition.

We receive commissions from carriers for health insurance plans sold through us. When one of these plans is canceled, or if we otherwise do not remain the agent on the plan, we no longer receive the related commission payment and do not receive any commissions from renewals. Our customers may choose to discontinue their health insurance plans for a variety of reasons. Any decrease in the amount of time we retain our customers could adversely impact the estimated LTV we use for purposes of recognizing revenue. See “—Our operating results may be adversely impacted by factors that impact our estimate of LTV.” Moreover, if we are not able to successfully retain existing customers and limit health insurance plan turnover, our cash flows from operations will be adversely impacted and our business, operating results and financial condition would be harmed.

In addition, in certain circumstances, the Medicare-related commission rates that we receive may be higher in the first calendar year of a plan if the plan is the first Medicare Advantage plan issued to the customer. Similarly, the individual and family plans commission rates that we receive are typically higher in the first twelve months of a policy. After the first twelve months, they generally decline significantly. As a result, if we do not add a sufficient number of customers to new plans, our business, operating results and financial condition would be harmed.

Our business primarily generates revenue through the sale of Medicare Advantage plans. In some instances, traditional Medicare may be more attractive than Medicare Advantage because, for example, potential provider network restrictions imposed by Medicare Advantage plans do not exist in traditional Medicare, allowing patients with traditional Medicare to visit any doctor that accepts Medicare. In those instances, consumers may opt not to purchase a Medicare Advantage plan from us.

In general, the growth in our customer base is highly dependent upon our success in attracting new customers during the Medicare annual enrollment period. In 2019, approximately 61% of our Medicare Advantage and Medicare Supplement policies were submitted during the three months ended December 31, 2019. If our ability to market and sell Medicare-related health insurance and individual and family plans is constrained during an enrollment period for any reason, such as technology failures, reduced allocation of resources, any inability to timely employ, license, train, certify and retain our employees and our contractors and their agents to sell plans, interruptions in the operation of our website or systems, disruptions caused by other external factors, such as the COVID-19 pandemic, or issues with government-run health insurance exchanges, we could acquire fewer customers or suffer a reduction in our existing customer base and our business, operating results and financial condition could be harmed.

Carriers may reduce the commissions paid to us and change their underwriting practices in ways that reduce the number of, or impact the renewal or approval rates of, insurance policies sold through our platform, which could harm our business, operating results and financial condition.

Our commission rates from carriers are either set by each carrier or negotiated between us and each carrier. The commission rates we are paid are, for any given plan for a given customer, based on a number factors, including the carriers offering those plans, the state of residence of customers, the laws and regulations in the jurisdictions where the customer is located, and the customer’s previous Medicare enrollment history (if any). Carriers have the right to alter these commission rates with relatively short notice and have altered, and may in the future alter, the contractual relationships we have with them, including, in certain instances by unilateral amendment of our contracts relating to commission rates or otherwise. For example, CMS could reduce the amount paid by CMS to Medicare Advantage plans or change the regulations and/or timelines applicable to the Medicare Advantage program, particularly in response to the COVID-19 pandemic, which could result in decreased commission rates or reduce carrier participation in the Medicare Advantage program. Changes of this nature could result in reduced commissions, or could impact our relationship with such carriers and potentially lead to contract termination. Because revenue in the Medicare segments is concentrated in a relatively small number of carriers, we are particularly vulnerable to changes in commission rates and changes in the competitiveness of our carriers’ Medicare products.

Significant consolidation in the health insurance industry could adversely alter our relationships with carriers and harm our business, operating results and financial condition.

The health insurance industry in the United States has experienced a substantial amount of consolidation, resulting in a decrease in the number of carriers. Consolidation in the health insurance industry, particularly involving one of our key carriers, could cause a loss of, or changes in, our relationship with that carrier and may reduce our commission or other revenue from that carrier. In the future, due to this consolidation, we may be forced to offer health insurance from a reduced number of carriers or to derive a greater portion of our revenue from a more concentrated number of carriers as our business and the health insurance industry evolve.

Additionally, mergers among carriers or an acquisition of one carrier by another carrier may trigger changes to our agreements with such carriers. For example, carriers may unilaterally amend or terminate our agreements on short notice, which could adversely impact or terminate the commission payments that we receive from these carriers. Our revenue could be adversely impacted if we are unable to maintain currently existing levels of business with any of our significant carriers if we are unable to offset any loss of business with alternative carriers. We expect that a small number of carriers will account for a significant portion of our revenue for the foreseeable future and any impairment of our relationship with, or the material financial impairment of, these carriers could adversely affect our business, operating results and financial condition. See “—We currently depend on a small group of carriers for a substantial portion of our revenue.”

Information technology system failures could interrupt our operations and have a material adverse effect on our business, financial condition and results of operations.

Our ability to sell insurance is dependent upon our information technology systems. In connection with sales of Medicare plans, CMS rules require that our health insurance agent employees utilize CMS-approved scripts and that we record and maintain the recording of telephonic interactions. We rely on telephone, call recording, customer relationship management and other systems and technology in our sales operations to sell Medicare plans, and we are dependent upon third parties for some of these systems and technologies, including our telephone services, which are provided by Five9, call recording systems and other communications systems. Carriers often audit these recordings for compliance purposes and listen to them in connection with investigating complaints. We have had in the past, and may in the future, experience failures of certain of our systems, including our telephone and call recording systems. For example, we have experienced failures of our systems due to power outages, which have negatively impacted our ability to sell plans. The effectiveness and stability of our systems and technology are critical to our ability to sell Medicare plans, particularly during the Medicare enrollment periods and the failure or interruption of any of these systems and technologies or any inability to handle increased business volume may have a material adverse effect on our business, operating results and financial condition and subject us to litigation or to actions by regulatory authorities.

Our operating results may be adversely impacted by factors that impact our estimate of LTV.

As a result of the adoption of Accounting Standards Codification, or ASC, 606, Revenue from Contracts with Customers, we recognize revenue at the time a Submitted Policy becomes an Approved Policy by applying the latest estimated LTV for that product. We estimate commission revenue for each product by using a portfolio approach to a group of approved customers that are organized based on a variety of attributes, which we refer to as “cohorts.” We estimate the cash commissions we expect to collect for each approved customer cohort by evaluating various factors, including, but not limited to, commission rates, carriers, estimated average plan duration, the regulatory environment, and historic cancellations of health insurance plans offered by carriers with which we have a relationship. On a quarterly basis, we recompute LTV at a cohort level for all outstanding cohorts, review and monitor changes in the data used to estimate LTV as well as the cash received for each cohort as compared to our original estimates. The fluctuations of cash received for each cohort and LTV may be significant and may or may not be indicative of the need to adjust LTVs for prior period cohorts. Management analyzes these fluctuations and, to the extent we see changes in our estimates of the cash commission collections that we believe are indicative of an increase or decrease to prior period LTVs, we will adjust LTVs for the affected cohorts at the time such determination is made. Changes in LTV may result in an increase or a decrease to revenue and a corresponding increase or decrease to commissions receivable, accordingly. We refer to the net commission revenue from customers approved in prior periods as “adjustment revenue” and our revenue can fluctuate significantly from period to period as a result of adjustment revenue.

As we continue to evaluate our LTV estimation models, we may in the future make further changes based on a number of factors and such changes could result in significant increases or decreases in revenue. LTVs are estimates and are based on a number of assumptions, which include, but are not limited to, estimates of the conversion rates of commissionable Approved Submissions into customers, forecasted average plan duration and forecasted commission rates we expect to receive per approved customer’s plan. These assumptions are based on historical trends and require significant judgment by our management in interpreting those trends. Changes in our historical trends will result in changes to our LTV estimates in future periods and, therefore, could adversely affect our revenue and financial results in those future periods. As a result, negative changes in the factors upon which we estimate LTVs, such as reduced conversion of commissionable Approved Submissions to customers, increased health insurance plan termination or a reduction in the lifetime commission amounts we expect to receive for selling the plan to a customer or other changes could harm our business, operating results and financial condition. In addition, if we ultimately receive commission payments that are less than the amount we estimated when we recognized commission revenues, we would need to write off the remaining commissions receivable balance, which could materially adversely impact our operating results and financial condition.

The forecasted average plan duration is another important factor in our estimation of LTV. We receive commissions from carriers for policies sold through us that go on to become customers of those carriers. When one of these plans is canceled, or if we otherwise do not remain the agent on the policy, we no longer receive the related commission payment. Our forecasted average plan duration and health insurance plan termination rates are calculated based on our historical data by plan type and for certain products, such as our Medicare Advantage products which constitute the majority of our revenue, and if we are unable to produce an accurate forecasted average plan duration, our business, operating results and financial condition may be adversely impacted.

Additionally, from time to time, carriers may stop offering products in a geographic area. While in many cases, carriers will still support existing customers in those geographic areas, because they are no longer offering new plans, the retention of those customers may be adversely impacted, thereby impacting our expected LTV.

Commission rates are also a factor in estimating our LTVs, which are impacted by a variety of factors, including the particular health insurance plans chosen by our customers, the carriers offering those plans, our customers’ states of residence, the laws and regulations in those jurisdictions, the average premiums of plans purchased through us and healthcare reform. Any reduction in our average commission revenue per customer could harm our business, operating results and financial condition.

System failures or capacity constraints could harm our business, financial condition and operating results.

The performance, reliability and availability of our technology platform and underlying network infrastructures are critical to our financial results, our brand and our relationship with customers, marketing partners and carriers. Although we regularly attempt to enhance our technology platform and system infrastructure, system failures and interruptions may occur if we are unsuccessful in these efforts, if we are unable to accurately project the rate or timing of increases in our website traffic or inbound call volume or for other reasons, some of which are completely outside our control. Additionally, we are also reliant on the systems of our carriers to submit plan enrollment applications from potential customers. We have in the past, and could in the future, experience significant failures and interruptions of our systems and the systems of our carriers, which would harm our business, operating results and financial condition. If these failures or interruptions occurred during the Medicare annual enrollment period or during the open enrollment period under healthcare reform, the negative impact on us would be particularly pronounced.

We rely in part upon third-party vendors, including data center and bandwidth providers, to operate our technology platform. We cannot predict whether additional network capacity will be available from these vendors as we need it, and our network or our suppliers’ networks might be unable to achieve or maintain a sufficiently high capacity of data transmission to allow us to process health insurance applications in a timely manner or effectively download data, especially if our website traffic increases. For example, a rapid expansion of our business could affect the service levels at our data centers or cause such data centers and systems to fail. Any system failure or service level reduction that causes an interruption to, or decreases the responsiveness of, our services would impair our revenue-generating capabilities and damage our reputation. In addition, any loss of data could result in loss of customers and subject us to potential liability. Our databases and systems are vulnerable to damage or interruption from human error, fire, floods, power loss, telecommunications failures, physical or electronic break-ins, computer viruses, acts of terrorism, other attempts to harm our systems and similar events. In addition, our operations are vulnerable to earthquakes, fires, severe weather, pandemics and other natural disasters in Illinois, North Carolina, Utah, Honduras, Slovakia and other parts of the world where we, our agents and vendors operate.

The owners of our data center facilities and our other third-party vendors have no obligation to renew their agreements with us on commercially reasonable terms, or at all. If we are unable to renew these agreements on commercially reasonable terms, or if one of our data center operators is acquired, we may be required to transfer our servers and other infrastructure to new data center facilities, and we may incur significant costs and possible service interruption in connection with doing so. Problems faced by our third-party data center locations with the telecommunications network providers with whom we or they contract, or with the systems by which our telecommunications providers allocate capacity among their clients, including us, could adversely affect the experience of our clients and consumers. Our third-party data center operators could decide to close their facilities without adequate notice. In addition, any financial difficulties, such as bankruptcy faced by our third-party data centers, operators or any of the service providers with whom we or they contract may have negative effects on our business, the nature and extent of which are difficult to predict.

Our ability to sell Medicare-related health insurance plans is largely dependent on our licensed health insurance agents.

The success of our operations is largely dependent on our licensed health insurance agents, upon whom we rely to sell insurance. In order to sell Medicare-related health insurance plans, agents must be licensed by the states in which they are selling plans and certified and appointed with the carrier that offers the plans in each applicable state. Because a significant number of Medicare plans are sold in the fourth quarter each year during the Medicare annual enrollment period, we retain and train a significant number of additional employees in a limited period of time. We must also ensure that our agents are timely licensed in a significant number of states and certified and appointed with the carriers whose products we sell. We depend upon our employees, state departments of insurance and carriers for the licensing, certification and appointment of our agents. We may not be successful in timely hiring or sourcing a sufficient number of additional agents or other employees needed to operate our business. Even if we are successful in hiring or sourcing a sufficient number of agents, we may experience temporary shortages of agents due to illness, poor weather conditions or other natural disasters, personal emergencies and other events outside our control. See “—The extent to which the COVID-19 outbreak and measures taken in response thereto impact our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted.”

We have recently implemented a work from home program for our agents, partly in response to the effects from the COVID-19 pandemic. It may be more difficult for us to manage and monitor our agents in remote settings and we may have to expend more management time and incur more costs to do so. Agents may also face additional distractions working from home that may prevent them from efficiently selling plans. If our agents are not able to effectively work from home, we may not be able to sell as many plans, which would negatively impact our business, financial condition and results of operations.

Our success in recruiting highly skilled and qualified agents can depend on factors outside of our control, including the strength of the general economy and local employment markets and the availability of alternative forms of employment. During periods when we are unable to recruit high-performing agents, we tend to experience higher turnover rates. The productivity of our agents is influenced by their average tenure. Without qualified individuals to serve in customer facing roles, we may produce less commission revenue, which could have a material adverse effect on our business, operating results and financial condition.

Changes and developments in the health insurance system and laws and regulations governing the health insurance markets in the United States could materially adversely affect our business, operating results, financial condition and qualified prospects.

Our business depends upon the public and private sector of the U.S. insurance system, which is subject to a changing regulatory environment. Accordingly, the future financial performance of our business will depend in part on our ability to adapt to regulatory developments, including changes in laws and regulations or changes to interpretations of such laws or regulations, especially laws and regulations governing Medicare. For example, in March 2010, the ACA became law. The ACA substantially changed the way healthcare is financed by both commercial and government payers and contains a number of provisions that impact our business and operations, including the expansion of Medicaid eligibility to additional categories of individuals. Since its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA, and we expect there will be additional challenges and amendments to the ACA in the future. On December 14, 2018, a Texas U.S. District Court Judge ruled that the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Cuts and Jobs Act. On December 18, 2019, the U.S. Court of Appeals for the 5th Circuit ruled that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the ACA are invalid as well. On March 2, 2020, the U.S. Supreme Court granted the petitions for writs of certiorari to review the case, although it is unclear when a decision will be made or how the Supreme Court will rule.

Additionally, ongoing health reform efforts and measures may expand the role of government-sponsored coverage, including single payer or so called “Medicare-for-All” proposals, which could have far-reaching implications for the insurance industry if enacted. Some proposals would seek to eliminate the private marketplace, whereas others would expand a government-sponsored option to a larger population. We are unable to predict the full impact of healthcare reform initiatives on our operations in light of the uncertainty of whether initiatives will be successful and the uncertainty regarding the terms and timing of any provisions enacted and the impact of any of those provisions on various healthcare and insurance industry participants. In particular, because our platform provides customers with a venue to shop for insurance policies from a curated panel of the nation’s leading carriers, the expansion of government-sponsored coverage through “Medicare-for-All” or the implantation of a single payer system may materially and adversely impact our business, operating results, financial condition and prospects. We expect there will be continuing efforts to challenge, repeal, or replace the ACA, which may have a material impact on our business by eliminating Medicaid eligibility for certain patients and reducing the size of the SNP-eligible population.

Changes in laws, regulations and guidelines governing health insurance may also be incompatible with various aspects of our business and require that we make significant modifications to our existing technology or practices, which may be costly and time-consuming to implement and could also harm our business, operating results and financial condition.

We have received, and may in the future receive, inquiries from regulators regarding our marketing and business practices and compliance with laws and regulations. We may be required to modify our practices in connection with the inquiries. Failure to adequately respond to such inquiries could result in adverse regulatory action that could harm our business, operating results and financial condition. See “—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.”

Additionally, some carriers provide us with marketing development funds, consistent with CMS regulations. If regulatory developments limit or remove the ability for carriers to compensate us through these funds, or the government determines that our arrangements do not meet the regulatory requirements, the compensation we receive from carriers would decline, which would materially and adversely impact our business, operating results and financial condition.

Various aspects of healthcare reform could also cause carriers to discontinue certain health insurance products or prohibit us from distributing certain health insurance products in particular jurisdictions. Our business, operating results, financial condition and prospects may be materially and adversely affected if we are unable to adapt to developments in healthcare reform in the United States.

Our business could be harmed if we are unable to effectively advertise our products on a cost-effective basis or market the availability of our products through specific channels.

We use the Internet, television, radio, mail, e-mail and the telephone, among other channels, to market our services and to communicate with qualified prospects or our existing customers. Some of our competitors have greater financial resources, which enable them to purchase significantly more advertising than we are able to purchase. Further, the cost of marketing and advertising may fluctuate significantly based on demand. If the cost of marketing and advertising increases for any reason, we may not be able to purchase as many advertisements as we typically would or would have to incur greater costs to do so. For example, we expect a significant increase in the demand for television and radio advertisements as we approach the U.S. presidential election in November 2020. The election coincides with the Medicare annual enrollment period, which is a period of heightened television and radio advertising for our business. As a result of this increase in demand and costs, we may not be able to purchase all of the television and radio advertising we typically purchase during a Medicare annual enrollment period or we may have to pay more to purchase television and radio advertisements, which could materially and adversely impact our business, financial condition and results of operations.

Additionally, we derive a significant portion of our website traffic from consumers who search for health insurance through Internet search engines and through social media. A critical factor in attracting consumers to our website is whether we are prominently displayed in response to an Internet search relating to health insurance or on a social media platform. Search engines typically provide two types of search results, algorithmic listings and paid advertisements. We rely primarily on paid advertisements to attract consumers to our websites and otherwise generate demand for our services. To the extent the competition for advertising is high, we may experience increases in the cost of paid Internet search advertising and social media advertising. Further, the competition for search engine placement and social media presence increases substantially during the enrollment periods for Medicare-related health insurance and for individual and family health insurance. If paid search advertising costs or social media advertising costs increase or become cost prohibitive, whether as a result of competition, algorithm changes or otherwise, our advertising expenses could rise significantly or we could reduce or discontinue our paid search advertisements or social media advertisements, in either case which would harm our business, operating results and financial condition.

Our ability to advertise is also dependent on the laws and regulations governing the advertising and marketing of health insurance products and our other products or services, which continue to evolve and carry significant penalties for violations of law. Changes in technology, the marketplace or consumer preferences may lead to the adoption of additional laws or regulations or changes in interpretation of existing laws or regulations. If new laws or regulations are adopted, or existing laws and regulations are interpreted or enforced, to impose additional restrictions on our ability to advertise to our customers or qualified prospects, we may not be able to communicate with them in a cost-effective manner.

For example, Internet service providers, e-mail service providers and others attempt to block the transmission of unsolicited e-mail, commonly known as “spam.” Many Internet and e-mail service providers have relationships with organizations whose purpose it is to detect and notify the Internet and e-mail service providers of entities that the organization believes are sending unsolicited e-mail. If an Internet or e-mail service provider identifies e-mail from us as “spam” as a result of reports from these organizations or otherwise, we can be placed on a restricted list that will block our e-mail to customers or qualified prospects. Further, we are subject to the CAN-SPAM Act, which regulates commercial e-mail messages and specifies penalties for the transmission of commercial e-mail messages that do not comply with certain requirements, such as providing an opt-out mechanism for stopping future e-mails from senders.

We also use telephones to communicate with and market to customers and prospective customers and some of these communications may be subject to the Telephone Consumer Protection Act, or TCPA, and other telemarketing laws. The TCPA and other laws, including state laws, relating to telemarketing restrict our ability to market and engage in other communications using the telephone in certain respects. For instance, the TCPA prohibits us from using an automatic telephone dialing system to make certain telephone calls or transmit text messages to wireless telephone numbers without prior express consent or without consulting the FTC’s national “Do Not Call” registry. We have policies and technical controls in place to comply with the TCPA and other telemarketing laws, including processes and procedures to consult the “Do Not Call” registry and to ensure that automated telephone calls are not performed without obtaining prior consent. However, despite our legal compliance, we have in the past and may in the future become subject to claims that we have violated the TCPA and/or other telemarketing laws. See “—From time to time we are subject to various legal proceedings which could adversely affect our business, financial condition or results of operations.” The TCPA provides for private rights of action and potential statutory damages for each violation and additional penalties for each willful violation, and other telemarketing laws may entail additional remedies. In the event that we are found to have violated the TCPA and/or other telemarketing laws, our business, operating results and financial condition could be harmed and liability incurred. In addition, telephone carriers may block or put customer warnings on calls originating from call centers. Customers increasingly screen their incoming e-mails, telephone calls, and text messages, including by using screening tools and warnings, and, therefore, our customers or qualified prospects may not reliably receive our communications. If we are unable to communicate effectively by e-mail or telephone with our customers and qualified prospects as a result of legislation, blockage, screening technologies or otherwise, our business, operating results and financial condition would be harmed.

We currently depend on a small group of carriers for a substantial portion of our revenue.

We derive a large portion of our revenue from a limited number of carriers. Carriers owned by Humana and Anthem accounted for (i) approximately 40% and 32%, respectively, of net revenues for the six months ended June 30, 2020 and 30% and 18%, respectively, of net revenues for the six months ended June 30, 2019; (ii) approximately 42% and 37%, respectively, of Medicare—Internal segment revenue for the six months ended June 30, 2020, and 56% and 25%, respectively, of Medicare—Internal segment revenue for the six months ended June 30, 2019; and (iii) approximately 55% and 31%, respectively, of Medicare—External segment revenue for the six months ended June 30, 2020 and 35% and 31%, respectively, of Medicare—External segment revenue for the six months ended June 30, 2019. In addition, carriers owned by UnitedHealth Group represented approximately 38% and 36% of IFP and Other—Internal segment revenue for the six months ended June 30, 2020 and for the six months ended June 30, 2019, respectively.

Our agreements with carriers to sell policies are typically terminable by our carriers without cause. Should we become dependent on fewer carrier relationships (whether as a result of the termination of carrier relationships, carrier consolidation or otherwise), we may become more vulnerable to adverse changes in our relationships with carriers, particularly in states where we distribute insurance from a relatively smaller number of carriers or where a small number of carriers dominate the market, and our business, operating results and financial condition could be harmed.

If investments we make in enrollment periods do not result in a significant number of Approved Submissions, our business, operating results and financial condition would be harmed.

In an attempt to attract and enroll a large number of individuals during the Medicare annual enrollment period and the healthcare reform open enrollment period, we may invest in areas of our business, including technology and content, customer care and enrollment, and marketing and advertising. We have in the past made investments in areas of our business in advance of enrollment periods that have not yielded the results we expected when making those investments. Any investment we make in any enrollment period may not result in a significant number of Approved Submissions to offset the investments we make. To the extent our investment does not yield a significant number of Approved Submissions, our business, operating results and financial condition would be harmed.

We rely on carriers to prepare accurate commission reports and send them to us in a timely manner.

Our carriers typically pay us a specified percentage of the premium amount collected by the carrier or a flat rate per policy during the period that a consumer maintains coverage under a policy. We rely on carriers to report the amount of commissions we earn accurately and on time. We use carriers’ commission reports to calculate our revenue, prepare our financial reports, projections, and budgets and direct our marketing and other operating efforts. It is often difficult for us to independently determine whether carriers are reporting all commissions due to us, primarily because the majority of the purchasers of our insurance products who terminate their policies do so by discontinuing their premium payments to the carrier instead of informing us of the cancellation. For example, there have been instances where we have determined that policy cancellation data reported to us by a carrier has not been accurate. To the extent that carriers inaccurately or belatedly report the amount of commissions due to us, we may not be able to collect and recognize revenue to which we are entitled, which would harm our business, operating results and financial condition. In addition, the technological connections of our systems with the carriers’ systems that provide us up-to-date information about coverage and commissions could fail or carriers could cease providing us with access to this information, which could impede our ability to compile our operating results in a timely manner.

Changes in the health insurance market or in the variety, quality and affordability of the insurance products offered by carriers could harm our business, operating results and financial condition.

The demand for our agency services is impacted by the variety, quality and price of the insurance products we distribute. If insurance carriers do not continue to provide us with a variety of insurance products, or if as a result of consolidation in the insurance industry or for any other reason the choices of carrier products that we are able to offer are limited, our sales may decrease and our business, operating results and financial condition could be harmed.

Our quarterly results of operations may fluctuate significantly due to seasonality.

The Medicare annual enrollment period occurs from October 15^th to December 7^th each year. As a result, we experience an increase in the number of submitted Medicare-related applications during the fourth quarter and an increase in expense related to the Medicare segments during the third and fourth quarters. Additionally, as a result of the annual Medicare Advantage open enrollment period that occurs from January 1^st to March 31^st, commission revenue is typically second-highest in our first quarter. The individual and family health insurance open enrollment period runs from November 1^st through December 15^th of each year for most states, and we expect the number of approved applications for individual and family health insurance to be higher in the fourth quarter compared to other quarters of the year as a result. A significant portion of our marketing and advertising expenses is driven by the number of health insurance applications submitted through us. Marketing and advertising expenses are generally higher in the fourth quarter during the Medicare

annual enrollment period, but because commissions from approved customers are paid to us over time, our operating cash flows could be adversely impacted by a substantial increase in marketing and advertising expense as a result of a higher volume of applications submitted during the fourth quarter or positively impacted by a substantial decline in marketing and advertising expenses as a result of lower volume of applications submitted during the fourth quarter.

The seasonality of our business could change in the future due to other factors, including as a result of changes in timing of the Medicare or individual and family health plan enrollment periods and changes in the laws and regulations that govern the sale of health insurance. We may not be able to timely adjust to changes in the seasonality of our business. If the timing of the enrollment periods for Medicare-related health insurance or individual and family health insurance changes, we may not be able to timely adapt to changes in customer demand. If we are not successful in responding to changes in the seasonality of our business, our business, operating results and financial condition could be harmed.

Pressure from existing and new competitors may adversely affect our business, operating results and financial condition.

Our competitors provide services designed to help customers shop for insurance. Some of these competitors include:

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companies that operate insurance search websites or websites that provide quote information or the opportunity to purchase insurance products online, including aggregators and lead generators;

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companies that advertise primarily through the television;

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individual insurance carriers, including through the operation of their own websites, physical storefront operations and broker arrangements;

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traditional insurance agents or brokers; and

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field marketing organizations.

New competitors may enter the market for the distribution of insurance products with competing insurance platforms, which could have an adverse effect on our business, operating results and financial condition. Our competitors could significantly impede our ability to maintain or increase the number of policies sold through our platform and may develop and market new technologies that render our platform less competitive or obsolete. In addition, if our competitors develop platforms with similar or superior functionality to ours and we are not able to produce certain volumes for our carriers, we may see a reduction in our production bonuses or marketing payments and our revenue would likely be reduced and our business, operating results and financial condition would be adversely affected.

If we do not successfully compete with government-run health insurance exchanges, our business may be harmed.

Our business competes with government-run health insurance exchanges with respect to our sale of Medicare-related health insurance and individual and family plans. Consumers can shop for and purchase Medicare Advantage and Medicare Part D Prescription Drug plans through a website operated by the federal government and can also obtain plan selection assistance from the federal government in connection with their purchase of a Medicare Advantage and Medicare Part D Prescription Drug plan. Competition from government-run health insurance exchanges could increase our marketing costs, reduce our revenue and could otherwise harm our business, operating results and financial condition.

If we fail to comply with certain healthcare laws, including fraud and abuse laws, we could face substantial penalties and our business, results of operations and financial condition could be adversely affected.

Our arrangements with carriers, particularly those that contract with federal healthcare care programs, are highly regulated and subject us to broadly applicable federal and state fraud and abuse and other federal and state healthcare laws and regulations. These laws may constrain the business or financial arrangements and relationships through which we conduct our operations, including the following:

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the federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving or providing any remuneration (including any kickback, bribe or certain rebates), directly or indirectly, overtly or covertly, in cash or in kind, in return for, either the referral of an individual or the purchase, lease, or order, or arranging for or recommending the purchase, lease, or order of any good, facility, item or service, for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare and Medicaid. The term remuneration has been interpreted broadly to include anything of value. The federal Anti-Kickback Statute has been interpreted to apply to, among others, financial arrangements between entities that have the ability to refer and generate business that is subject to reimbursement under federal healthcare programs. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from

prosecution. The exceptions and safe harbors are drawn narrowly and practices that involve remuneration that may be alleged to be intended to induce prescribing, purchasing, ordering, or recommending may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of an applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the federal Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and circumstances. Our practices may not in all cases meet all of the criteria for protection under a statutory exception or regulatory safe harbor. A person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it in order to have committed a violation, and a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act (described immediately below);

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the federal false claims, including the civil False Claims Act, which, among other things, impose criminal and civil penalties against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment or approval that are false or fraudulent, knowingly making, using or causing to be made or used, a false record or statement material to a false or fraudulent claim, or from knowingly making or causing to be made a false statement to avoid, decrease or conceal an obligation to pay money to the federal government. The False Claims Act can be enforced by private citizens through civil qui tam actions. A claim includes “any request or demand” for money or property presented to the U.S. government;

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the federal beneficiary inducement civil monetary laws, which generally prohibit giving something of value to an individual if the remuneration is likely to influence that beneficiary’s choice of a particular provider, supplier or practitioner for services covered by applicable federal healthcare programs. There are a number of exceptions, such as, remuneration that “promotes access to care and poses a low risk of harm to patients and federal healthcare programs.” A violation of this statute includes fines or exclusion from federal healthcare programs;

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The Health In