PART I FINANCIAL INFORMATION Financial Statements (unaudited) The unaudited condensed consolidated financial statements for Q1 2020 reflect significant year-over-year revenue growth, a shift from net loss to net income, and substantial increases in total assets and stockholders' equity, primarily due to a public equity offering Condensed Consolidated Balance Sheets As of March 31, 2020, total assets increased to $941.5 million from $741.6 million, driven by higher cash and marketable securities, while total stockholders' equity rose to $791.7 million due to an equity offering Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $941,519 | $741,634 | | Cash and cash equivalents | $184,167 | $23,466 | | Contract assets – commissions receivable (current & non-current) | $560,717 | $589,222 | | Total Liabilities | $149,833 | $214,470 | | Total Stockholders' Equity | $791,686 | $527,164 | Condensed Consolidated Statements of Comprehensive Income (Loss) For Q1 2020, the company achieved a net income of $3.5 million, a significant turnaround from a $5.2 million net loss in Q1 2019, driven by a 55% increase in total revenue to $106.4 million Q1 2020 vs. Q1 2019 Performance (in thousands, except per share data) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Total Revenue | $106,408 | $68,773 | | Commission Revenue | $99,669 | $64,227 | | Income (Loss) from Operations | $1,031 | ($9,183) | | Net Income (Loss) | $3,452 | ($5,159) | | Diluted EPS | $0.13 | ($0.24) | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity increased from $527.2 million to $791.7 million, primarily driven by the issuance of 2,070,000 common shares in an equity offering, contributing $228.0 million to additional paid-in capital - The company completed an equity offering, issuing 2,070,000 shares and raising $228.0 million in additional paid-in capital during Q1 202012 - Stock-based compensation expense for the quarter was $9.0 million12 Condensed Consolidated Statements of Cash Flows For Q1 2020, net cash provided by operating activities was $8.9 million, while investing activities used $64.1 million and financing activities provided $215.9 million, resulting in a $160.7 million net increase in cash Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $8,907 | $12,749 | | Cash used in investing activities | ($64,136) | ($2,996) | | Net cash provided by financing activities | $215,931 | $112,571 | | Net increase in cash | $160,700 | $122,386 | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, revenue recognition, and financial instruments, highlighting significant Medicare segment revenue growth, the adoption of new credit loss accounting standards, ongoing legal proceedings, and an increased, undrawn revolving credit facility - The company operates as a health insurance marketplace, offering Medicare, individual and family, small business, and ancillary plans from over 180 carriers16 - On January 1, 2020, the company adopted ASU 2016-13 (Financial Instruments – Credit Losses), resulting in a $1.1 million decrease to retained earnings, net of tax2728 Q1 2020 Commission Revenue by Product (in thousands) | Product Category | Q1 2020 Revenue | Q1 2019 Revenue | | :--- | :--- | :--- | | Total Medicare | $89,178 | $50,776 | | Medicare Advantage | $68,347 | $39,843 | | Medicare Supplement | $15,170 | $8,597 | | Total Individual and Family | $2,656 | $6,137 | | Total Commission Revenue | $99,669 | $64,227 | - In March 2020, the company issued 2,070,000 shares of common stock for net proceeds of approximately $228.0 million67 - Two purported class action lawsuits were filed in April 2020 against the company and certain officers, alleging false and misleading statements regarding accounting, member churn, and profitability, which the company believes are without merit85 - The company's revolving credit facility was increased from $40.0 million to $75.0 million in December 2019, with no outstanding principal amount as of March 31, 2020105113 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong Q1 2020 performance to significant Medicare segment growth, driven by increased approved members and revenue, leading to overall profitability and strengthened liquidity from a $228 million equity offering, with the COVID-19 pandemic's impact continuously monitored Summary of Selected Metrics Key operating metrics for Q1 2020 demonstrate strong Medicare business momentum, with total approved Medicare members growing 46% and estimated Medicare membership increasing 44%, despite declines in other segments Approved Members Growth (Q1 2020 vs Q1 2019) | Product | Q1 2020 | Q1 2019 | % Change | | :--- | :--- | :--- | :--- | | Total Medicare | 84,702 | 57,899 | 46% | | Medicare Advantage | 64,898 | 40,741 | 59% | | Total Individual and Family | 9,365 | 11,598 | (19)% | Estimated Membership Growth (as of March 31) | Product | 2020 | 2019 | % Change | | :--- | :--- | :--- | :--- | | Total Medicare | 725,943 | 503,877 | 44% | | Medicare Advantage | 404,262 | 280,763 | 44% | | Individual and Family | 113,483 | 130,297 | (13)% | - Total Medicare cost per approved member increased 5% YoY to $713, driven by higher variable marketing and customer care costs154155 Results of Operations Total revenue for Q1 2020 increased 55% to $106.4 million, primarily from a 75% rise in Medicare segment revenue, leading to a $1.0 million operating income despite a 35% increase in operating expenses driven by marketing and customer care investments Segment Performance (in thousands) | Segment | Q1 2020 Revenue | Q1 2019 Revenue | Q1 2020 Profit | Q1 2019 Profit | | :--- | :--- | :--- | :--- | :--- | | Medicare | $96,151 | $54,901 | $21,960 | $10,826 | | Individual, Family and Small Business | $10,257 | $13,872 | $2,603 | $6,024 | - Marketing and advertising expenses increased by $13.8 million (58%) due to higher variable advertising costs and headcount supporting Medicare initiatives174 - Customer care and enrollment expenses increased by $10.6 million (53%) due to higher headcount, consulting, and facilities costs176 Liquidity and Capital Resources The company's liquidity significantly strengthened, with cash and cash equivalents increasing to $184.2 million due to $228.0 million in net proceeds from a public equity offering, and it maintains an undrawn $75 million revolving credit facility - The company's cash and cash equivalents increased to $184.2 million as of March 31, 2020205 - Net cash provided by financing activities was $215.9 million, primarily from a $228.0 million public equity offering219224 - The company has a $75 million secured asset-backed revolving credit facility with RBC, which was undrawn as of March 31, 2020221223 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks include credit risk concentrated in commissions receivable, interest rate risk from its investment portfolio, and foreign currency exchange risk from China-based operations - The company is exposed to credit risk from its contract assets (commissions receivable) of $560.7 million as of March 31, 2020234 - As of March 31, 2020, the company held $58.1 million in short-term and long-term marketable securities, primarily commercial paper and agency bonds, exposing it to interest rate risk236 - The company has exposure to foreign currency exchange risk from its operations in China, where expenses are denominated in Chinese Yuan Renminbi237 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2020, with no material changes in internal control over financial reporting during the quarter, despite the shift to remote work - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period240 - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting241 PART II OTHER INFORMATION Legal Proceedings The company is subject to various legal proceedings and regulatory inquiries in the ordinary course of business, with specific details on current matters provided in Note 7 of the financial statements - The company receives inquiries from state and federal regulators and may become involved in litigation in the ordinary course of business, with specific details referred to Note 7 – Commitments and Contingencies244245 Risk Factors The company identifies numerous material risks, including complex Medicare regulations, intense competition, reliance on concentrated carriers, sensitivity to LTV estimates, potential COVID-19 impacts, cybersecurity threats, and stock ownership risks like price volatility and anti-takeover provisions Risks Related to Our Business The company faces significant business risks, including complex and changing Medicare regulations, intense competition, reliance on concentrated carriers, volatility in LTV estimates, potential COVID-19 impacts, seasonality, cybersecurity threats, and operational challenges in China - The marketing and sale of Medicare plans are subject to numerous, complex, and frequently changing laws and regulations by CMS and state bodies, and non-compliance could harm the business248249 - Operating results are impacted by factors affecting the estimate of constrained lifetime value (LTV) of commissions, including plan duration, cancellation rates, and commission rates, which can cause significant revenue fluctuations256258 - The business is concentrated with a few health insurance carriers; for Q1 2020, UnitedHealthcare, Humana, and Aetna represented approximately 22%, 19%, and 15% of total revenue, respectively280 - The COVID-19 pandemic presents risks including disruption to call centers, challenges in hiring and licensing agents, and uncertainty in consumer demand and carrier payments273275 - The business is subject to security risks, and a compromise of confidential data could damage its reputation, terminate relationships with partners, and result in liability348350 Risks Related to Ownership of Our Common Stock Risks related to common stock ownership include potential divergence from management guidance, stock price volatility due to market fluctuations, and anti-takeover provisions that could deter a change in control - The company's stock price has been and may continue to be volatile, with the closing price fluctuating from $85.70 to $146.09 per share during Q1 2020403 - Anti-takeover provisions, such as a classified board and authorized preferred stock, could delay or prevent a change in control, potentially limiting stockholder opportunities for a premium on their shares406407 Exhibits This section lists exhibits filed with or incorporated by reference into the Quarterly Report on Form 10-Q, including an amended lease agreement, an employment agreement, and CEO/CFO certifications - The exhibits filed with the report include an amendment to a lease agreement, an employment agreement with Robert Hurley, and CEO/CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906411
eHealth(EHTH) - 2020 Q1 - Quarterly Report