NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business—SelectQuote, Inc. (together with its subsidiaries, the “Company” or “SelectQuote”) contracts with insurance carriers to sell senior health, life, and auto and home insurance policies by telephone to individuals throughout the United States through the use of multi-channel marketing and advertising campaigns. The Company obtains leads from, among other sources, InsideResponse, a wholly-owned subsidiary that provides sales leads to the consumer insurance industry. The Company also coordinates various healthcare-related services through its Population Health platform, which includes SelectRx, a closed-door, long-term care pharmacy that offers pharmacy services, including essential prescription medications, OTC medications, customized medication packaging, medication therapy management, and other consultative services under the Patient Centered Pharmacy Home (PCPH) model. SelectQuote’s Senior division sells Medicare Advantage, Medicare Supplement, Medicare Part D, and other ancillary senior health insurance related products, and along with Population Health and InsideResponse, is referred to as “Senior”. SelectQuote’s Life division (“Life”) sells term life, final expense, and other ancillary products, and SelectQuote’s Auto & Home division (“Auto & Home”) primarily sells non-commercial auto and home property and casualty insurance products. SelectQuote’s licensed insurance agents provide comparative rates from a variety of insurance carriers relying on our technology distribution channel with a combination of proprietary and commercially available software to perform its quote service and sell insurance policies on behalf of the insurance carriers. The Company primarily earns revenue in the form of commission payments from the insurance carriers. Commission payments are received both when the initial policy is sold (“first year”) and when the underlying policyholder renews their policy in subsequent years (“renewal”). The Company also receives certain volume-based bonuses from some carriers on first-year policies sold based on attaining various predetermined target sales levels or other agreed upon objectives. These bonuses are referred to as “production bonuses” or “marketing development funds.” Additionally, the Company earns revenue from its Population Health platform, including mail-order prescription revenue from SelectRx, and lead generation revenue from InsideResponse.
Basis of Presentation—The accompanying unaudited condensed consolidated financial statements include the accounts of SelectQuote, Inc. and its wholly owned subsidiaries: SelectQuote Insurance Services, SelectQuote Auto & Home Insurance Services, LLC (“SQAH”), ChoiceMark Insurance Services, Inc., Tiburon Insurance Services, InsideResponse, LLC, and SelectQuote Ventures, Inc. The unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and reflect all normal recurring adjustments that are necessary to present fairly the results for the interim periods presented. All intercompany accounts and transactions have been eliminated in consolidation. Certain information and disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in accordance with those rules and regulations and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended June 30, 2021, as amended by the Form 10-K/A filed with the SEC on February 14, 2022 (the “2021 Annual Report”) and include all adjustments necessary for the fair presentation of our financial position for the periods presented. Our results for the periods presented in our financial statements are not necessarily indicative of the results to be expected for any subsequent period, including for the year ending June 30, 2022, and therefore should not be relied upon as an indicator of future results. The accompanying unaudited condensed consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements for the year ended June 30, 2021. Certain reclassifications have been made to prior periods to conform with current year presentation.
Use of Estimates—The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States 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. The Company regularly assesses 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, the provision for income taxes, share-based compensation, and valuation of intangible assets and goodwill. The impact of changes in estimates is recorded in the period in which they become known.
Seasonality—Medicare-eligible individuals are permitted to change their Medicare Advantage and Medicare Part D prescription drug coverage for the following year during the Medicare annual enrollment period (“AEP”), which runs from October through December each year, and are allowed to switch plans from an existing plan during the open enrollment period (“OEP”), which runs from January through March each year. As a result, commission revenue for our Senior segment is highest in the second quarter and to a lesser extent, the third quarter during OEP. Most policies sold during AEP are effective as of and renew annually on January 1.
Significant Accounting Policies—There have been no material changes to the Company’s significant accounting policies as described in our 2021 Annual Report.
Recent Accounting Pronouncements Not Yet Adopted—In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606 as if the acquirer had originated the contracts. Prior to this ASU, an acquirer generally recognizes contract assets acquired and contract liabilities assumed that arose from contracts with customers at fair value on the acquisition date. The ASU is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The ASU is to be applied prospectively to business combinations occurring on or after the effective date of the amendment (or if adopted early as of an interim period, as of the beginning of the fiscal year that includes the interim period of early application). The Company will continue to evaluate the impact of this guidance, which will depend on the contract assets and liabilities acquired in future business combinations.
Recent Accounting Pronouncements Adopted—In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies and changes the accounting for certain income tax transactions, among other minor improvements. This standard was effective for the Company on July 1, 2021 and did not have a material impact on the condensed consolidated financial statements and related disclosures.
Immaterial Correction of Prior Period Financial Statements—Subsequent to the issuance of the Company’s financial statements as of and for the year ended June 30, 2021, the Company discovered that the provision for first year commission revenue for certain final expense policies offered by one of its insurance carrier partners should have been accrued based on a higher lapse rate. The error in the lapse rate resulted in commission revenue being misstated by $6.1 million and $2.0 million, for the years ended June 30, 2021 and 2020, and $2.4 million for the three months ended September 30, 2021, respectively. Accounts receivable was misstated by $8.1 million and $2.0 million as of June 30, 2021 and 2020, respectively. The impact of the error on net income for the year ended June 30, 2021 was a decrease of $4.8 million. Management has evaluated this misstatement and concluded it was not material to prior periods, individually or in aggregate. However, correcting the cumulative effect of the error in the three and six months ended December 31, 2021 would have had a significant effect on the results of operations. Therefore, the Company is correcting the relevant prior period condensed consolidated financial statements and related footnotes for this error for comparative purposes. The Company will also correct previously reported financial information for such immaterial errors in future filings, as applicable (see “Part II, Item 5. Other Information” below for additional information).
The following table reflects the effects of the correction on all affected line items of the Company’s previously reported condensed consolidated statement of comprehensive income (loss) for the three months ended September 30, 2021, which will be corrected in future filings:
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|
|
|
|
|
|
|
CORRECTED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) (unaudited)
|
|
|
Three Months Ended September 30, 2021
|
|
(in thousands)
|
As Previously Reported
|
|
Adjustment
|
|
As Corrected
|
|
Commission revenue
|
$
|
134,651
|
|
|
$
|
(2,397)
|
|
|
$
|
132,254
|
|
|
Total revenue
|
159,923
|
|
|
(2,397)
|
|
|
157,526
|
|
|
Loss from operations
|
(52,164)
|
|
|
(2,397)
|
|
|
(54,561)
|
|
|
Loss before income tax benefit
|
(60,801)
|
|
|
(2,397)
|
|
|
(63,198)
|
|
|
Income tax benefit
|
(15,436)
|
|
|
(609)
|
|
|
(16,045)
|
|
|
Net loss
|
(45,365)
|
|
|
(1,788)
|
|
|
(47,153)
|
|
|
Net loss per share:
|
|
|
|
|
|
|
Basic
|
(0.28)
|
|
|
(0.01)
|
|
|
(0.29)
|
|
|
Diluted
|
(0.28)
|
|
|
(0.01)
|
|
|
(0.29)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
$
|
(45,371)
|
|
|
$
|
(1,788)
|
|
|
$
|
(47,159)
|
|
The following tables reflect the effects of the correction on all affected line items of the Company’s previously reported condensed consolidated financial statements presented in this Form 10-Q:
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|
|
|
|
|
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|
|
CORRECTED CONDENSED CONSOLIDATED BALANCE SHEET (unaudited)
|
|
|
June 30, 2021
|
|
(in thousands)
|
As Previously Reported
|
|
Adjustment
|
|
As Corrected
|
|
Accounts receivable
|
$
|
113,375
|
|
|
$
|
(8,077)
|
|
|
$
|
105,298
|
|
|
Total current assets
|
493,435
|
|
|
(8,077)
|
|
|
485,358
|
|
|
Total assets
|
1,433,872
|
|
|
(8,077)
|
|
|
1,425,795
|
|
|
Deferred income taxes
|
140,988
|
|
|
(1,748)
|
|
|
139,240
|
|
|
Total liabilities
|
758,983
|
|
|
(1,748)
|
|
|
757,235
|
|
|
Retained earnings (accumulated deficit)
|
128,254
|
|
|
(6,329)
|
|
|
121,925
|
|
|
Total shareholders’ equity
|
674,889
|
|
|
(6,329)
|
|
|
668,560
|
|
|
Total liabilities and shareholders’ equity
|
$
|
1,433,872
|
|
|
$
|
(8,077)
|
|
|
$
|
1,425,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CORRECTED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)
|
|
|
Three Months Ended December 31, 2020
|
|
Six Months Ended December 31, 2020
|
|
(in thousands)
|
As Previously Reported
|
|
Adjustment
|
|
As Corrected
|
|
As Previously Reported
|
|
Adjustment
|
|
As Corrected
|
|
Commission revenue
|
$
|
320,974
|
|
|
$
|
(709)
|
|
|
$
|
320,265
|
|
|
$
|
427,519
|
|
|
$
|
(2,104)
|
|
|
$
|
425,415
|
|
|
Total revenue
|
358,274
|
|
|
(709)
|
|
|
357,565
|
|
|
482,443
|
|
|
(2,104)
|
|
|
480,339
|
|
|
Income (loss) from operations
|
124,154
|
|
|
(709)
|
|
|
123,445
|
|
|
131,428
|
|
|
(2,104)
|
|
|
129,324
|
|
|
Income (loss) before income tax expense (benefit)
|
116,956
|
|
|
(709)
|
|
|
116,247
|
|
|
116,689
|
|
|
(2,104)
|
|
|
114,585
|
|
|
Income tax expense (benefit)
|
26,540
|
|
|
(149)
|
|
|
26,391
|
|
|
25,436
|
|
|
(442)
|
|
|
24,994
|
|
|
Net income (loss)
|
90,416
|
|
|
(560)
|
|
|
89,856
|
|
|
91,253
|
|
|
(1,662)
|
|
|
89,591
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
0.56
|
|
|
(0.01)
|
|
|
0.55
|
|
|
0.56
|
|
|
(0.01)
|
|
|
0.55
|
|
|
Diluted
|
0.55
|
|
|
(0.01)
|
|
|
0.54
|
|
|
0.55
|
|
|
(0.01)
|
|
|
0.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
$
|
90,532
|
|
|
$
|
(560)
|
|
|
$
|
89,972
|
|
|
$
|
91,112
|
|
|
$
|
(1,662)
|
|
|
$
|
89,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CORRECTED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)
|
|
|
|
Three Months Ended December 31, 2020
|
|
(in thousands)
|
|
(Accumulated Deficit)/Retained Earnings
|
|
|
|
Total
Shareholders'
Equity
|
|
As Previously Reported
|
|
|
|
|
|
|
|
BALANCES-September 30, 2020
|
|
$
|
(1,955)
|
|
|
|
|
$
|
544,974
|
|
|
Net income
|
|
90,416
|
|
|
|
|
90,416
|
|
|
BALANCES-December 31, 2020
|
|
88,461
|
|
|
|
|
634,135
|
|
|
Adjustments
|
|
|
|
|
|
|
|
BALANCES-September 30, 2020
|
|
(2,605)
|
|
|
|
|
(2,605)
|
|
|
Net loss
|
|
(560)
|
|
|
|
|
(560)
|
|
|
BALANCES-December 31, 2020
|
|
(3,165)
|
|
|
|
|
(3,165)
|
|
|
As Corrected
|
|
|
|
|
|
|
|
BALANCES-September 30, 2020
|
|
(4,560)
|
|
|
|
|
542,369
|
|
|
Net income
|
|
89,856
|
|
|
|
|
89,856
|
|
|
BALANCES-December 31, 2020
|
|
$
|
85,296
|
|
|
|
|
$
|
630,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CORRECTED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)
|
|
|
|
Six Months Ended December 31, 2020
|
|
(in thousands)
|
|
(Accumulated Deficit)/Retained Earnings
|
|
|
|
Total
Shareholders'
Equity
|
|
As Previously Reported
|
|
|
|
|
|
|
|
BALANCES-June 30, 2020
|
|
$
|
(2,792)
|
|
|
|
|
$
|
545,689
|
|
|
Net income
|
|
91,253
|
|
|
|
|
91,253
|
|
|
BALANCES-December 31, 2020
|
|
88,461
|
|
|
|
|
634,135
|
|
|
Adjustments
|
|
|
|
|
|
|
|
BALANCES-June 30, 2020
|
|
(1,503)
|
|
|
|
|
(1,503)
|
|
|
Net loss
|
|
(1,662)
|
|
|
|
|
(1,662)
|
|
|
BALANCES-December 31, 2020
|
|
(3,165)
|
|
|
|
|
(3,165)
|
|
|
As Corrected
|
|
|
|
|
|
|
|
BALANCES-June 30, 2020
|
|
(4,295)
|
|
|
|
|
544,186
|
|
|
Net income
|
|
89,591
|
|
|
|
|
89,591
|
|
|
BALANCES-December 31, 2020
|
|
$
|
85,296
|
|
|
|
|
$
|
630,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CORRECTED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
|
|
|
Six Months Ended December 31, 2020
|
|
(in thousands)
|
As Previously Reported
|
|
Adjustment
|
|
As Corrected
|
|
Net income (loss)
|
$
|
91,253
|
|
|
$
|
(1,662)
|
|
|
$
|
89,591
|
|
|
Deferred income taxes
|
25,321
|
|
|
(442)
|
|
|
24,879
|
|
|
Accounts receivable
|
(63,355)
|
|
|
2,104
|
|
|
(61,251)
|
|
|
Net cash used in operating activities
|
$
|
(103,148)
|
|
|
$
|
—
|
|
|
$
|
(103,148)
|
|
2.ACQUISITIONS
In accordance with ASC Topic 805, Business Combinations, the Company allocates the purchase price of its acquisitions to the tangible assets, liabilities, and intangible assets acquired based on fair values. Any excess purchase price over those fair values is recorded as goodwill. The fair value assigned to intangible assets acquired is supported by valuations using estimates and assumptions provided by management. Based on the valuation inputs, the Company has recorded assets acquired and liabilities assumed according to the following fair value hierarchy:
|
|
|
|
|
|
|
|
Level 1
|
Unadjusted quoted prices in active markets for identical assets or liabilities
|
|
Level 2
|
Unadjusted quoted prices in active markets for similar assets or liabilities; or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are observable for the asset or liability.
|
|
Level 3
|
Unobservable inputs for the asset or liability
|
Lead distribution company—On February 1, 2021, the Company acquired substantially all of the assets of a lead distribution company for an aggregate purchase price of up to $33.5 million (subject to customary
adjustments), as set forth in the Asset Purchase Agreement, dated February 1, 2021 (the “Asset Purchase Agreement”). The purchase price is comprised of $30.0 million, of which $24.0 million was paid in cash at the closing of the transaction, with an additional $6.0 million of holdback for indemnification claims, net working capital adjustments, and underperformance. Additionally, the purchase price includes an earnout of up to $3.5 million. The primary purpose of the acquisition was to secure and incorporate the exclusive publisher relationships into the lead generation business of InsideResponse. The Company recorded $0.4 million of acquisition-related costs in general and administrative operating costs and expenses in the condensed consolidated statement of comprehensive income.
During calendar year 2021, the lead distribution company did not achieve the minimum earnout target as set forth in the Asset Purchase Agreement; as a result, the earnout payment, which was contingent upon continued employment of certain individuals, will not be paid. However, the remaining holdback was earned in full, as the lead distribution company did not fall below the underperformance thresholds as set forth in the Asset Purchase Agreement. The Company will accrue interest on the remaining holdback of $5.5 million, after the net working capital true-up of $0.5 million, through the 15-month anniversary of the closing date in interest expense, net in the condensed consolidated statement of comprehensive income.
Under the terms of the Asset Purchase Agreement, the total consideration for the acquisition consisted of the following as of the acquisition date (in thousands):
|
|
|
|
|
|
|
|
Base purchase price
|
$
|
30,000
|
|
|
Net working capital true-up
|
(499)
|
|
|
Total Purchase Consideration
|
$
|
29,501
|
|
At the date of acquisition, the fair value of net tangible assets acquired approximated their carrying value. The non-compete agreements were valued using the income approach, and the customer relationships were valued using the multiple period excess earnings method. As such, all aforementioned intangible assets were valued using Level 3 inputs.
Goodwill resulting from the transaction constitutes the excess of the consideration paid over the fair values of the assets acquired and liabilities assumed and primarily represents the benefits of leveraging the exclusive publisher relationships in the business. This acquired goodwill is allocated to Senior (which is also the reporting unit), and is not deductible for tax purposes after adding back acquisition costs and excluding the holdback not yet paid.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Description
|
Estimated Life
|
Amount
|
|
Accounts receivable
|
|
$
|
1,301
|
|
|
Total tangible assets acquired
|
|
1,301
|
|
|
|
|
|
|
Non-compete agreements
|
5 years
|
1,000
|
|
|
Vendor relationships
|
9 years
|
23,700
|
|
|
Goodwill
|
Indefinite
|
3,500
|
|
|
Total intangible assets acquired
|
|
28,200
|
|
|
Net Assets Acquired
|
|
$
|
29,501
|
|
The Company will amortize the intangible assets acquired on a straight-line basis over their estimated remaining lives, ranging from five to nine years.
Express Med Pharmaceuticals—On April 30, 2021, the Company acquired 100% of the outstanding shares of Express Med Pharmaceuticals, Inc., now SelectRx, a closed-door, long term care pharmacy provider, for an aggregate purchase price of up to $24.0 million (subject to customary adjustments), as set forth in the Stock Purchase Agreement dated April 30, 2021 (the “Stock Purchase Agreement”). The aggregate purchase price of up to $24.0 million is comprised of $17.5 million in cash paid at the closing of the transaction, an additional $2.5 million of holdback for indemnification claims, if any, and an earnout of up to $4.0 million, if any. The primary purpose of the acquisition was to take advantage of the Company's technology and customer base to facilitate better patient care through coordination of strategic, value-based care partnerships. The Company recorded $0.3 million of acquisition-related costs in general and administrative operating costs and expenses in the condensed consolidated statement of comprehensive income. In addition, as a result of the acquisition, the Company has entered into an operating lease with the former President and Chief Executive Officer of Express Med Pharmaceuticals, now our Executive Vice President of SelectRx. Refer to Note 6 in the condensed consolidated financial statements for further details.
The earnout of up to $4.0 million is comprised of two separate provisions. The first provision provides for an earnout of up to $3.0 million and is contingent upon achievement of the following within the first 20 months following the acquisition: facility updates that would allow for processing a minimum of 75,000 active patients, the issuance of pharmacy licenses in all 50 states, and active patients of 15,000 or more. The second provision provides for an earnout of up to $1.0 million and is contingent upon achievement of the following within 36 months following the acquisition: construction of a new facility to accommodate the servicing of additional active patients or 75,000 or more active patients as of the last day of any month prior to the end of the second earnout provision period or as of the end of the second earnout provision period. As the earnout payment is contingent upon continued employment of certain individuals, the Company will recognize the earnout as compensation expense in general and administrative operating costs and expenses in the condensed consolidated statement of comprehensive income in the period in which it is earned. As of December 31, 2021, the Company has not accrued an earnout payment based on performance to date. The $2.5 million of holdback will be due upon the 15-month anniversary of the closing date of the acquisition.
Under the terms of the Stock Purchase Agreement, total consideration in the acquisition consisted of the following as of the acquisition date (in thousands):
|
|
|
|
|
|
|
|
Base purchase price
|
$
|
20,000
|
|
|
Net working capital true-up
|
(483)
|
|
|
Closing cash
|
20
|
|
|
Total purchase consideration
|
$
|
19,537
|
|
At the date of acquisition, the fair value of net tangible assets acquired, excluding property and equipment, approximated their carrying value. The property and equipment was valued primarily using the cost and sales comparison approach to value. For the proprietary software acquired, the replacement cost method under the cost approach was used, estimating the cost to rebuild the software. The non-compete agreement was valued using the income approach, and the customer relationships were valued using the multiple period excess earnings method. As such, all aforementioned intangible assets were valued using Level 3 inputs.
Goodwill resulting from the transaction constitutes the excess of the consideration paid over the fair values of the assets acquired and liabilities assumed and primarily represents the additional value of the synergies of combining the SelectRx business with the Company's technology and existing customer base. This acquired goodwill is allocated to Senior (which is also the reporting unit), and the Company expects approximately $16.3 million to be deductible for tax purposes after adding back acquisition costs and excluding the holdback not yet paid.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Description
|
Estimated Life
|
Amount
|
|
Cash and cash equivalents
|
|
$
|
20
|
|
|
Accounts receivable
|
|
613
|
|
|
Other current assets
|
|
28
|
|
|
Property and equipment, net
|
|
287
|
|
|
Accounts payable
|
|
(280)
|
|
|
Accrued expenses, including compensation and benefits
|
|
(45)
|
|
|
Net tangible assets acquired
|
|
623
|
|
|
|
|
|
|
Proprietary Software
|
3 years
|
550
|
|
|
Non-compete agreements
|
5 years
|
100
|
|
|
Customer relationships
|
1 year
|
200
|
|
|
Goodwill
|
Indefinite
|
18,064
|
|
|
Total intangible assets acquired
|
|
18,914
|
|
|
Net assets acquired
|
|
$
|
19,537
|
|
The Company will amortize the intangible assets acquired on a straight-line basis over their estimated remaining lives, ranging from one to five years.
Simple Meds—On August 31, 2021, SelectRx acquired 100% of the outstanding equity interests of Simple Meds, a full-service pharmaceutical distributor, for an aggregate purchase price of $7.0 million (subject to customary adjustments), as set forth in the Membership Interest Purchase Agreement dated August 31, 2021. The aggregate purchase price of $7.0 million was paid in cash at the closing of the transaction. The primary purpose of the acquisition was to accelerate the expansion of the prescription drug management business by combining the operations and existing infrastructure of Simple Meds into SelectRx.
Under the terms of the Membership Interest Purchase Agreement, total consideration in the acquisition consisted of the following as of the acquisition date (in thousands):
|
|
|
|
|
|
|
|
Base purchase price
|
$
|
7,000
|
|
|
Net working capital true-up
|
347
|
|
|
Closing cash
|
61
|
|
|
Total purchase consideration
|
$
|
7,408
|
|
At the date of acquisition, the fair value of net tangible assets acquired approximated their carrying value. The customer relationships were valued using the multiple period excess earnings method, and as such, were valued using Level 3 inputs.
Goodwill resulting from the transaction constitutes the excess of the consideration paid over the fair values of the assets acquired and liabilities assumed and primarily represents the additional value of the synergies of combining the Simple Meds business with the Company's technology and existing customer base. This acquired goodwill is allocated to Senior (which is also the reporting unit), and the Company expects approximately $5.6 million to be deductible for tax purposes after adding back acquisition costs.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Description
|
Estimated Life
|
Amount
|
|
Cash and cash equivalents
|
|
$
|
61
|
|
|
Accounts receivable
|
|
634
|
|
|
Other current assets
|
|
474
|
|
|
Property and equipment, net
|
|
415
|
|
|
Accounts payable
|
|
(259)
|
|
|
Net tangible assets acquired
|
|
1,325
|
|
|
|
|
|
|
Customer relationships
|
1 year
|
370
|
|
|
Goodwill
|
Indefinite
|
5,713
|
|
|
Total intangible assets acquired
|
|
6,083
|
|
|
Net assets acquired
|
|
$
|
7,408
|
|
From the date of acquisition, August 31, 2021, through December 31, 2021, Simple Meds generated $4.0 million of pharmacy prescription revenue.
3.PROPERTY AND EQUIPMENT—NET
Property and equipment—net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31, 2021
|
|
June 30, 2021
|
|
Computer hardware
|
$
|
25,268
|
|
|
$
|
13,351
|
|
|
Machinery and equipment(1)
|
9,074
|
|
|
2,667
|
|
|
Leasehold improvements
|
19,536
|
|
|
18,525
|
|
|
Furniture and fixtures
|
5,229
|
|
|
5,004
|
|
|
Work in progress
|
5,344
|
|
|
7,220
|
|
|
Total
|
64,451
|
|
|
46,767
|
|
|
Less accumulated depreciation
|
(21,775)
|
|
|
(17,257)
|
|
|
Property and equipment—net
|
$
|
42,676
|
|
|
$
|
29,510
|
|
(1) Includes financing lease right-of-use assets.
Work in progress as of December 31, 2021 primarily represents computer equipment and leasehold improvements not yet put into service and not yet being depreciated. Work in progress as of June 30, 2021, primarily represents computer equipment and machinery not yet put into service and not yet being depreciated. Depreciation expense for the three months ended December 31, 2021 and 2020, was $2.9 million and $2.0 million, respectively, and $5.1 million and $3.6 million for the six months ended December 31, 2021 and 2020, respectively.
4.SOFTWARE—NET
Software—net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31, 2021
|
|
June 30, 2021
|
|
Software
|
$
|
22,322
|
|
|
$
|
16,530
|
|
|
Work in progress
|
3,341
|
|
|
3,826
|
|
|
Total
|
25,663
|
|
|
20,356
|
|
|
Less accumulated amortization
|
(10,654)
|
|
|
(7,745)
|
|
|
Software—net
|
$
|
15,009
|
|
|
$
|
12,611
|
|
Work in progress as of December 31, 2021 and June 30, 2021, represents costs incurred for software not yet put into service and are not yet being amortized. For the three months ended December 31, 2021 and 2020, the Company capitalized internal-use software and website development costs of $2.0 million and $1.6 million, respectively, and recorded amortization expense of $1.5 million and $0.8 million, respectively. For the six months ended December 31, 2021 and 2020, the Company capitalized internal-use software and website development costs of $4.5 million and $3.2 million, respectively, and recorded amortization expense of $2.9 million and $1.7 million, respectively.
5.INTANGIBLE ASSETS AND GOODWILL
Intangible assets—The Company's intangible assets include those acquired as part of the acquisitions listed in the table below (refer to Note 2 to the condensed consolidated financial statements for further details). The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. During each of the three and six months ended December 31, 2021 and 2020, there were no such indicators.
Goodwill—The Company recorded as goodwill the excess of the purchase price over the estimated fair values of identifiable assets and liabilities acquired as part of the acquisitions listed in the table below (refer to Note 2 to the condensed consolidated financial statements for further details). The Company performs its annual goodwill impairment assessment as of April 1, or more frequently if it believes that indicators of impairment exist. During each of the three and six months ended December 31, 2021 and 2020 there were no such indicators.
Goodwill is assigned to reporting units that are expected to benefit from the synergies of the business combination as of the acquisition date and becomes identified with that reporting unit in its entirety. As such, the reporting unit as a whole supports the recovery of its goodwill. For the following acquisitions, the reporting units to which goodwill has been assigned and the associated reportable segments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
|
|
Reporting Unit
|
|
Reportable Segment
|
|
Auto & Home-controlling interest
|
|
Auto & Home
|
|
Auto & Home
|
|
InsideResponse
|
|
Senior
|
|
Senior
|
|
Lead distribution company
|
|
Senior
|
|
Senior
|
|
Express Med Pharmaceuticals
|
|
Senior
|
|
Senior
|
|
Simple Meds
|
|
Senior
|
|
Senior
|
The carrying amounts, accumulated amortization, net carrying value, and weighted average remaining life of our definite-lived amortizable intangible assets as well as our goodwill are presented in the tables below (dollars in thousands, useful life in years):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021
|
|
June 30, 2021
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Weighted-Average Remaining Useful Life
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Weighted-Average Remaining Useful Life
|
|
Total intangible assets subject to amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
$
|
17,492
|
|
|
$
|
(4,817)
|
|
|
$
|
12,675
|
|
|
|
|
$
|
17,122
|
|
|
$
|
(3,448)
|
|
|
$
|
13,674
|
|
|
|
|
Trade name
|
2,680
|
|
|
(893)
|
|
|
1,787
|
|
|
|
|
2,680
|
|
|
(625)
|
|
|
2,055
|
|
|
|
|
Proprietary software
|
1,592
|
|
|
(601)
|
|
|
991
|
|
|
|
|
1,592
|
|
|
(382)
|
|
|
1,210
|
|
|
|
|
Non-compete agreements
|
1,292
|
|
|
(303)
|
|
|
989
|
|
|
|
|
1,292
|
|
|
(163)
|
|
|
1,129
|
|
|
|
|
Vendor relationships
|
23,700
|
|
|
(2,415)
|
|
|
21,285
|
|
|
|
|
23,700
|
|
|
(1,098)
|
|
|
22,602
|
|
|
|
|
Total intangible assets
|
$
|
46,756
|
|
|
$
|
(9,029)
|
|
|
$
|
37,727
|
|
|
6.6
|
|
$
|
46,386
|
|
|
$
|
(5,716)
|
|
|
$
|
40,670
|
|
|
7.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total indefinite-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill-Auto & Home
|
|
|
|
|
$
|
5,364
|
|
|
|
|
|
|
|
|
$
|
5,364
|
|
|
|
|
Goodwill-Senior
|
|
|
|
|
68,368
|
|
|
|
|
|
|
|
|
62,655
|
|
|
|
|
Total goodwill
|
|
|
|
|
$
|
73,732
|
|
|
|
|
|
|
|
|
$
|
68,019
|
|
|
|
For the three months ended December 31, 2021 and 2020, amortization expense related to intangible assets totaled $1.7 million and $0.8 million, respectively, and $3.3 million and $1.7 million for the six months ended December 31, 2021 and 2020, respectively.
Changes in the balance of goodwill for the six months ended December 31, 2021, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2021
|
|
$
|
68,019
|
|
|
Goodwill from the acquisition of Simple Meds
|
|
5,713
|
|
|
Balance, December 31, 2021
|
|
$
|
73,732
|
|
As of December 31, 2021, expected amortization expense in future fiscal periods is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Name
|
|
Proprietary Software
|
|
Non-compete agreements
|
|
Vendor Relationships
|
|
Customer relationships
|
|
Total
|
|
Remainder fiscal 2022
|
$
|
268
|
|
|
$
|
214
|
|
|
$
|
142
|
|
|
$
|
1,317
|
|
|
$
|
1,415
|
|
|
$
|
3,356
|
|
|
2023
|
536
|
|
|
339
|
|
|
273
|
|
|
2,633
|
|
|
2,385
|
|
|
6,166
|
|
|
2024
|
536
|
|
|
308
|
|
|
220
|
|
|
2,633
|
|
|
2,319
|
|
|
6,016
|
|
|
2025
|
447
|
|
|
130
|
|
|
220
|
|
|
2,633
|
|
|
2,316
|
|
|
5,746
|
|
|
2026
|
—
|
|
|
—
|
|
|
134
|
|
|
2,633
|
|
|
2,313
|
|
|
5,080
|
|
|
Thereafter
|
—
|
|
|
—
|
|
|
—
|
|
|
9,436
|
|
|
1,927
|
|
|
11,363
|
|
|
Total
|
$
|
1,787
|
|
|
$
|
991
|
|
|
$
|
989
|
|
|
$
|
21,285
|
|
|
$
|
12,675
|
|
|
$
|
37,727
|
|
6.LEASES
The majority of the Company’s leases are operating leases related to office space for which the Company recognizes lease expense on a straight-line basis over the respective lease term. The Company leases office facilities in the United States in San Diego, California; Centennial, Colorado; Jacksonville, Florida; Overland Park, Kansas; Wilmington, North Carolina; Des Moines, Iowa; Oakland, California; Indianapolis, Indiana; and Monaca, Pennsylvania (note that SelectRx leases the Monaca facility from an Executive Vice President of SelectRx. The
Company expects to incur $3.6 million in total rental payments over the initial ten-year term plus an additional five-year extension option that it is reasonably certain to exercise.) The Company's operating leases have remaining lease terms of less than one year up to fourteen years.
Lease Costs—The components of lease costs were as follows periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Six Months Ended December 31,
|
|
(in thousands)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Finance lease costs(1)
|
$
|
42
|
|
|
$
|
58
|
|
|
$
|
84
|
|
|
$
|
125
|
|
|
Operating lease costs(2)
|
2,048
|
|
|
1,952
|
|
|
4,058
|
|
|
3,879
|
|
|
Short-term lease costs
|
15
|
|
|
58
|
|
|
28
|
|
|
125
|
|
|
Variable lease costs(3)
|
256
|
|
|
449
|
|
|
469
|
|
|
714
|
|
|
Sublease income
|
(128)
|
|
|
(170)
|
|
|
(465)
|
|
|
(235)
|
|
|
Total net lease costs
|
$
|
2,233
|
|
|
$
|
2,347
|
|
|
$
|
4,174
|
|
|
$
|
4,608
|
|
(1) Primarily consists of amortization of finance lease right-of-use assets and an immaterial amount of interest on finance lease liabilities recorded in operating costs and expenses and interest expense, net in the condensed consolidated statements of comprehensive income.
(2) Recorded in operating costs and expenses in the condensed consolidated statements of comprehensive income.
(3) Variable lease costs are not included in the measurement of the lease liability or right-of-use asset as they are not based on an index or rate and primarily represents common area maintenance charges and real estate taxes recorded in operating costs and expenses in the condensed consolidated statements of comprehensive income.
Maturities of Lease Liabilities—As of December 31, 2021, remaining maturities of lease liabilities for each of the next five fiscal years and thereafter are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Operating leases
|
|
Finance leases
|
|
Total
|
|
Remainder fiscal 2022
|
|
4,552
|
|
|
97
|
|
|
4,649
|
|
|
2023
|
|
8,861
|
|
|
27
|
|
|
8,888
|
|
|
2024
|
|
9,237
|
|
|
—
|
|
|
9,237
|
|
|
2025
|
|
9,254
|
|
|
—
|
|
|
9,254
|
|
|
2026
|
|
7,040
|
|
|
—
|
|
|
7,040
|
|
|
2027
|
|
5,666
|
|
|
—
|
|
|
5,666
|
|
|
Thereafter
|
|
12,884
|
|
|
—
|
|
|
12,884
|
|
|
Total undiscounted lease payments
|
|
57,494
|
|
|
124
|
|
|
57,618
|
|
|
Less: interest
|
|
15,292
|
|
|
2
|
|
|
15,294
|
|
|
Present value of lease liabilities
|
|
$
|
42,202
|
|
|
$
|
122
|
|
|
$
|
42,324
|
|
As of December 31, 2021, the Company had $3.5 million of undiscounted future payments for operating leases expected to commence between the third quarter of fiscal 2022 and the first quarter of fiscal 2023, with lease terms ranging from seven to ten years. These amounts are excluded from the tables above and not yet recognized in the condensed consolidated balance sheets.
7.DEBT
Debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31, 2021
|
|
June 30, 2021
|
|
Term Loans
|
$
|
471,912
|
|
|
$
|
471,912
|
|
|
DDTL Facility
|
245,000
|
|
|
—
|
|
|
Unamortized debt issuance costs
|
(3,469)
|
|
|
(4,081)
|
|
|
Unamortized debt discount
|
(5,924)
|
|
|
(6,428)
|
|
|
Total debt
|
707,519
|
|
|
461,403
|
|
|
Less current portion of long-term debt:
|
(7,169)
|
|
|
(2,360)
|
|
|
Long-term debt
|
$
|
700,350
|
|
|
$
|
459,043
|
|
On November 5, 2019, the Company entered into a credit agreement with UMB Bank N.A. (“UMB”) as a lender and revolving agent and Morgan Stanley Capital Administrators, Inc. as a lender and the administrative agent for a syndicate of lenders party to the agreement. On February 24, 2021, November 2, 2021, and December 23, 2021, the Company entered into amendments to the credit agreement (individually, the “First Amendment”, “Second Amendment”, and “Third Amendment”, together with the original credit agreement and any subsequent amendments, the “Senior Secured Credit Facility”) with certain of its existing lenders and new lenders. The First Amendment provided for an additional $231.0 million in term loans (together with the initial $425.0 million, the “Term Loans”) and added a $145.0 million senior secured delayed draw term loan facility (the "DDTL Facility"). The Second Amendment provided for additional commitments of $25.0 million, in addition to the initial $75.0 million, for the secured revolving loan facility (the “Revolving Credit Facility”) and an additional $200.0 million under the DDTL Facility. The Third Amendment provided for additional commitments of $35.0 million under the Revolving Credit Facility. After giving effect to the amendments, in aggregate, as of December 31, 2021, the Senior Secured Credit Facility provides for (1) an aggregate principal amount of up to $135.0 million under the Revolving Credit Facility (2) Term Loans in an aggregate principal amount of $656.0 million, of which $471.9 million is outstanding as of December 31, 2021, and (3) a $345.0 million DDTL Facility, of which the Company borrowed $245.0 million on December 22, 2021. As of February 7, 2022, the available borrowing capacities under the Revolving Credit Facility and DDTL Facility were $135.0 million and $100.0 million, respectively.
In accordance with ASC 470-50-40 “Debt Modification and Extinguishments,” the Second and Third Amendments were accounted for as debt modifications, and the $3.0 million original issue discount paid to the two lenders of the DDTL Facility was capitalized and is being amortized on a straight-line basis over the remaining life of the agreement through interest expense. Additionally, the Company paid $1.2 million in costs as part of the transaction that were included in general and administrative expense in the condensed consolidated statements of comprehensive income. As a result of the Third Amendment, the Company incurred $0.3 million of costs related to the new commitments, which costs were capitalized and are being amortized on a straight-line basis over the remaining life of the agreement through interest expense.
The Revolving Credit Facility accrues interest on amounts drawn at a rate per annum equal to either (a) LIBOR plus 4.0% or (b) a base rate plus 3.0%, at the Company’s option, and the Company pays an unused commitment fee of 0.15% in respect of the unutilized commitments under the Revolving Credit Facility. The Term Loans and any loans under the DDTL Facility bear interest on the outstanding principal amount thereof at a rate per annum equal to either (a) LIBOR (subject to a floor of 0.75%) plus 5.00% or (b) a base rate plus 4.00%, at the Company’s option, and the Company pays a ticking fee based on the average daily balance of the unused amount of the aggregate DDTL Facility commitments during the preceding fiscal quarter, multiplied by 1% per annum. The Senior Secured Credit Facility has a maturity date of November 5, 2024, with the Term Loans being mandatorily repayable beginning March 31, 2022, in equal quarterly installments in an aggregate annual amount equal to 1% of the original principal amount of the Term Loans, with the remaining balance payable on the maturity date. The DDTL Facility is also mandatorily repayable beginning March 31, 2022, in equal quarterly installments equal to 0.25% of all DDTL facility loans that have been outstanding for a full fiscal quarter prior to each such repayment date, with the remaining balance payable on the maturity date. The remaining $100.0 million of the DDTL Facility may be drawn from time to time, subject to certain conditions, until January 15, 2023.
The Senior Secured Credit Facility contains customary affirmative and negative covenants and events of default and a financial covenant requiring the Company and certain of its subsidiaries to maintain a minimum asset coverage ratio. As of December 31, 2021, the Company was in compliance with all of the required covenants. The obligations of the Company are guaranteed by certain of the Company’s subsidiaries and secured by a security interest in all assets of the Company, subject to certain exceptions.
The Company has incurred a total of $27.1 million in debt issuance costs and debt discounts related to the Senior Secured Credit Facility, of which $22.9 million was capitalized and is being amortized on a straight-line basis over the remaining life of the Senior Secured Credit Facility. Total amortization was $2.1 million and $0.8 million for the three months ended December 31, 2021 and 2020, respectively, and $3.0 million and $1.6 million for the six months ended December 31, 2021 and 2020, respectively, which was included in interest expense, net in the Company’s condensed consolidated statements of comprehensive income.
The Company uses derivative financial instruments to hedge against its exposure to fluctuations in interest rates associated with the Term Loans. As of December 31, 2021, the Company had an outstanding receive-variable, pay-fixed interest rate swap on the notional amount of $325.0 million of the Company’s total outstanding Term Loans balance with a fixed rate of 5.00% plus 1.03% (the “Amended Interest Rate Swap”), which terminates on November 5, 2024. The Company classifies its Amended Interest Rate Swap as a Level 2 on the fair value hierarchy as the majority of the inputs used to value it primarily includes other than quoted prices that are observable, and it uses standard calculations and models that use readily observable market data as their basis. As of December 31, 2021, the Company estimates that $0.6 million will be reclassified into interest expense during the next twelve months.
8.COMMITMENTS AND CONTINGENCIES
Lease Obligations—Refer to Note 6 to the condensed consolidated financial statements for commitments related to our operating leases.
Legal Contingencies and Obligations—From time to time, the Company is subject to legal proceedings and claims in the ordinary course of business. The Company currently is not aware of any legal proceedings or claims that it believes will have, individually or in the aggregate, a material adverse effect on its business, financial condition, operating results, or cash flows.
On August 17, 2021, a putative securities class action lawsuit was filed against the Company and two of its executive officers in the U.S. District Court for the Southern District of New York. The complaint, captioned Hartel v. SelectQuote, Inc., et al., Case No. 1:21-cv-06903, asserts securities fraud claims on behalf of a putative class of plaintiffs who purchased or otherwise acquired shares of the Company’s common stock between February 8, 2021 and May 11, 2021 (the “Hartel Relevant Period”). Specifically, the complaint alleges the defendants violated Sections 10(b) and 20(a) and Rule 10b-5 of the Exchange Act by making materially false and misleading statements and failing to disclose material adverse facts about the Company’s business, operations, and prospects, allegedly causing the Company’s common stock to trade at artificially inflated prices during the Hartel Relevant Period. The plaintiffs seek unspecified damages and reimbursement of attorneys’ fees and certain other costs.
On October 7, 2021, a putative securities class action lawsuit was filed in the U.S. District Court for the Southern District of New York against the Company, two of its executive officers, and six current or former members of the Company’s Board of Directors, along with the underwriters of the Company’s initial public offering of common stock (the “Offering”). The complaint, captioned West Palm Beach Police Pension Fund v. SelectQuote, Inc., et al., Case No. 1:21-cv-08279, asserts claims for securities law violations on behalf of a putative class of plaintiffs who purchased shares of the Company’s common stock (i) in or traceable to the Offering or (ii) between May 20, 2020 and August 25, 2021 (the “WPB Relevant Period”). Specifically, the complaint alleges the defendants violated Sections 10(b) and 20(a) and Rule 10b-5 of the Exchange Act by making materially false and misleading statements and failing to disclose material adverse facts about the Company’s financial well-being and prospects, allegedly causing the Company’s common stock to trade at artificially inflated prices during the WPB Relevant
Period. The complaint also alleges the defendants violated Sections 11, 12(a)(2), and 15 of the Securities Act by making misstatements and omissions of material facts in connection with the Offering, allegedly causing a decline in the value of the Company’s common stock. The plaintiffs seek unspecified damages, rescission, and reimbursement of attorneys’ fees and certain other costs.
The Company believes the allegations in the complaints are without merit and intends to defend the cases vigorously. Accordingly, we currently believe that these matters will not have a material adverse effect on any of our results of operations, financial condition or liquidity. However, depending on how the matters progress, they could be costly to defend and could divert the attention of management and other resources from operations. The Company has not concluded that a loss is probable and, therefore, has not accrued a liability related to these matters.
9.SHAREHOLDERS' EQUITY
Common Stock—As of December 31, 2021, the Company has reserved the following authorized, but unissued, shares of common stock:
|
|
|
|
|
|
|
|
|
|
|
Employee Stock Purchase Plan (“ESPP”)
|
|
1,253,575
|
|
|
Stock awards outstanding under 2020 Plan
|
|
3,603,818
|
|
|
Stock awards available for grant under 2020 Plan
|
|
10,721,627
|
|
|
Options outstanding under 2003 Plan
|
|
1,717,264
|
|
|
|
|
|
|
Total
|
|
17,296,284
|
|
Share-Based Compensation Plans
The Company has awards outstanding from two share-based compensation plans: the 2003 Stock Incentive Plan (the “2003 Stock Plan”) and the 2020 Omnibus Incentive Plan (the “2020 Stock Plan” and, collectively with the 2003 Stock Plan, the “Stock Plans”). However, no further awards will be made under the 2003 Stock Plan. The 2020 Stock Plan provides for the grant of incentive stock options (“ISO's”), nonstatutory stock options (“NSO's”), stock appreciation rights, restricted stock awards, restricted stock unit awards (“RSU's”), performance-based restricted stock units (“PSU's”), and other forms of equity compensation (collectively, “stock awards”). All awards (other than ISOs, which may be granted only to current employees of the Company) may be granted to employees, non-employee directors, and consultants of the Company and its subsidiaries and affiliates.
The number of shares of common stock available for issuance as of December 31, 2021, pursuant to future awards under the Company's 2020 Stock Plan is 10,721,627. The number of shares of the Company's common stock reserved under the 2020 Stock Plan is subject to an annual increase on the first day of each fiscal year, beginning on July 1, 2021, equal to 3% of the total outstanding shares of common stock as of the last day of the immediately preceding fiscal year. The maximum number of shares of common stock that may be issued upon the exercise of ISO's will be 4,000,000. The shares of common stock covered by any award (including any award granted pursuant to the 2003 Stock Plan) that is forfeited, terminated, expired, or lapsed without being exercised or settled for cash will again become available for issuance under the 2020 Stock Plan. With respect to any award, if the exercise price and/or tax withholding obligations are satisfied by delivering shares to the Company (by actual delivery or attestation), or if the exercise price and/or tax withholding obligations are satisfied by withholding shares otherwise issuable pursuant to the award, the share reserve shall nonetheless be reduced by the gross number of shares subject to the award.
The Company accounts for its share-based compensation awards in accordance with ASC 718, Compensation—Stock Compensation (“ASC 718”) which requires all share-based compensation to be recognized in the income statement based on fair value and applies to all awards granted, modified, canceled, or repurchased after the effective date.
Total share-based compensation for stock awards included in general and administrative expense in the condensed consolidated statements of comprehensive income was as follows for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Six Months Ended December 31,
|
|
(in thousands)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Share-based compensation related to:
|
|
|
|
|
|
|
|
|
|
Equity classified stock options
|
|
$
|
884
|
|
|
$
|
455
|
|
|
$
|
1,624
|
|
|
$
|
818
|
|
|
Equity classified RSU's
|
|
1,127
|
|
|
545
|
|
|
2,080
|
|
|
960
|
|
|
Equity classified PSU's
|
|
(305)
|
|
|
194
|
|
|
87
|
|
|
322
|
|
|
Total
|
|
$
|
1,706
|
|
|
$
|
1,194
|
|
|
$
|
3,791
|
|
|
$
|
2,100
|
|
Stock Options—The stock options outstanding under the 2003 Stock Plan vest as to one-third after the vesting commencement date and as to 1/24 of the remaining shares subject to the stock option monthly thereafter, subject to the award recipient’s continued employment through the applicable vesting date. Upon a termination of employment for any reason other than for “Cause” (as defined in the 2003 Stock Plan), any unvested and outstanding stock options would generally be forfeited for no consideration, and any vested and outstanding stock options would remain exercisable for 90 days following the date of termination (and, in the case of a termination of employment due to death or disability, for 12 months following the date of termination). Stock options expire 10 years from the date of grant. The terms for ISO's and NSO's awarded in the 2020 Stock Plan are the same as in the 2003 Stock Plan with the exception that the options generally shall vest and become exercisable in four equal installments on each of the first four anniversaries of the grant date, subject to the award recipient’s continued employment through the applicable vesting date. Stock options are granted with an exercise price that is no less than 100% of the fair market value of the underlying shares on the date of the grant.
The fair value of each option (for purposes of calculation of share-based compensation expense) is estimated using the Black-Scholes-Merton option pricing model that uses assumptions determined as of the date of the grant. Use of this option pricing model requires the input of subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (“expected term”), the estimated volatility of the Company's common stock price over the expected term (“volatility”), the number of options that will ultimately not complete their vesting requirements (“assumed forfeitures”), the risk-free interest rate that reflects the interest rate at grant date on zero-coupon United States governmental bonds that have a remaining life similar to the expected term (“risk-free interest rate”), and the dividend yield assumption which is based on the Company's dividend payment history and management's expectations of future dividend payments (“dividend yield”). Changes in the subjective assumptions can materially affect the estimate of the fair value of share-based compensation and, consequently, the related amount recognized in the condensed consolidated statements of comprehensive income.
The Company used the following weighted-average assumptions for the stock options granted during the periods presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31,
|
|
|
2021
|
|
2020
|
|
|
|
Volatility
|
30.2%
|
|
25.0%
|
|
|
|
Risk-free interest rate
|
0.9%
|
|
0.4%
|
|
|
|
Dividend yield
|
—%
|
|
—%
|
|
|
|
Assumed forfeitures
|
—%
|
|
—%
|
|
|
|
Expected term (in years)
|
6.25
|
|
6.24
|
|
|
|
Weighted-average fair value (per share)
|
$5.52
|
|
$4.86
|
|
|
The following table summarizes stock option activity under the Stock Plans for the six months ended December 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Options
|
Weighted- Average Exercise Price
|
Weighted- Average Remaining Contractual Term (in Years)
|
Aggregate Intrinsic Value (in Thousands)
|
|
Outstanding—June 30, 2021
|
3,398,513
|
|
$
|
8.60
|
|
|
|
|
Options granted
|
1,254,089
|
|
17.61
|
|
|
|
|
Options exercised
|
(339,670)
|
|
3.81
|
|
|
|
|
Options forfeited/expired/cancelled
|
(34,068)
|
|
17.12
|
|
|
|
|
Outstanding—December 31, 2021
|
4,278,864
|
|
$
|
11.54
|
|
6.78
|
$
|
13,904
|
|
|
Vested and exercisable—December 31, 2021
|
2,009,390
|
|
$
|
3.89
|
|
4.16
|
$
|
13,759
|
|
As of December 31, 2021, there was $10.2 million in unrecognized compensation cost related to unvested stock options granted, which is expected to be recognized over a weighted-average period of 3.10 years.
The Company received cash of $0.1 million and $0.1 million in connection with stock options exercised during the three months ended December 31, 2021 and 2020, respectively, and $2.3 million and $0.4 million in connection with stock options exercised, net of cashless exercises, during the six months ended December 31, 2021 and 2020, respectively.
Restricted Stock—The following table summarizes restricted stock unit activity under the 2020 Stock Plan for the six months ended December 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Restricted Stock Units
|
|
Weighted-Average Grant Date Fair Value
|
|
Unvested as of June 30, 2021
|
356,285
|
|
|
$
|
19.12
|
|
|
Granted
|
453,679
|
|
|
16.78
|
|
|
Vested
|
(82,689)
|
|
|
19.61
|
|
|
Cancelled
|
(14,058)
|
|
|
17.84
|
|
|
Unvested as of December 31, 2021
|
713,217
|
|
|
$
|
17.61
|
|
As of December 31, 2021, there was $10.7 million of unrecognized compensation cost related to unvested restricted stock units granted, which is expected to be recognized over a weighted-average period of 2.96 years.
Performance Stock—The following table summarizes performance stock unit activity under the 2020 Stock Plan for the six months ended December 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Performance Stock Units
|
|
Weighted-Average Grant Date Fair Value
|
|
Unvested as of June 30, 2021(1)
|
132,921
|
|
|
$
|
17.97
|
|
|
Granted(1)
|
196,080
|
|
|
17.80
|
|
|
Vested
|
—
|
|
|
—
|
|
|
Performance adjustment(2)
|
(164,500)
|
|
|
|
|
Cancelled
|
—
|
|
|
—
|
|
|
Unvested as of December 31, 2021
|
164,501
|
|
|
$
|
17.87
|
|
(1) Reflects PSU’s at 100% achievement of predefined financial performance targets. If performance metrics are met, PSU’s will vest, at the end of a three-year performance period. The number of shares that could be earned for the fiscal year 2021 tranche will range from 0% to 150% of the target, and the number of shares that could be earned for the fiscal year 2022 tranche will range from 0% to 200% of the target.
(2) Represents adjustments to previously granted PSU’s to reflect changes in estimates of future financial performance against targets.
As of December 31, 2021, there was $2.1 million of unrecognized compensation cost related to unvested performance stock units granted, which is expected to be recognized over a weighted-average period of 2.31 years.
ESPP—The purpose of the ESPP is to provide the Company's eligible employees with an opportunity to purchase shares of its common stock through accumulated payroll deductions at 95% of the fair market value on the exercise date, but no less than the lesser of 85% of the fair market value of a share of common stock on the date the offering period commences or 85% of the fair market value of the common stock on the exercise date. For the six months ended December 31, 2021, the Company issued 89,985 shares to its employees and as of December 31, 2021, there are 1,253,575 shares reserved for future issuance under the plan. The Company recorded share-based compensation expense of $0.2 million and $0.1 million with respect to the ESPP for the three months ended December 31, 2021 and 2020, respectively, and recorded share-based compensation expense of $0.3 million and $0.1 million with respect to the ESPP for the six months ended December 31, 2021 and 2020, respectively.
10.REVENUES FROM CONTRACTS WITH CUSTOMERS
Disaggregation of Revenue from Contracts with Customers—The disaggregation of revenue by segment and product is depicted for the periods presented below, and is consistent with how the Company evaluates its financial performance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Six Months Ended December 31,
|
|
(in thousands)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Senior:
|
|
|
|
|
|
|
|
|
|
Commission revenue:
|
|
|
|
|
|
|
|
|
|
Medicare advantage
|
|
$
|
99,262
|
|
|
$
|
263,975
|
|
|
$
|
179,345
|
|
|
$
|
312,705
|
|
|
Medicare supplement
|
|
2,332
|
|
|
12,743
|
|
|
3,936
|
|
|
20,735
|
|
|
Prescription drug plan
|
|
732
|
|
|
1,102
|
|
|
1,001
|
|
|
1,717
|
|
|
Dental, vision, and health
|
|
4,920
|
|
|
5,647
|
|
|
8,136
|
|
|
8,370
|
|
|
Other commission revenue
|
|
1,954
|
|
|
743
|
|
|
2,854
|
|
|
1,203
|
|
|
Total commission revenue
|
|
109,200
|
|
|
284,210
|
|
|
195,272
|
|
|
344,730
|
|
|
Production bonus and other revenue
|
|
48,767
|
|
|
31,300
|
|
|
69,015
|
|
|
43,979
|
|
|
Total Senior revenue
|
|
157,967
|
|
|
315,510
|
|
|
264,287
|
|
|
388,709
|
|
|
Life:
|
|
|
|
|
|
|
|
|
|
Commission revenue:
|
|
|
|
|
|
|
|
|
|
Term
|
|
16,126
|
|
|
20,028
|
|
|
32,372
|
|
|
39,772
|
|
|
Final expense
|
|
10,886
|
|
|
9,816
|
|
|
35,473
|
|
|
26,274
|
|
|
Total commission revenue
|
|
27,012
|
|
|
29,844
|
|
|
67,845
|
|
|
66,046
|
|
|
Production bonus and other revenue
|
|
5,768
|
|
|
5,822
|
|
|
12,366
|
|
|
11,048
|
|
|
Total Life revenue
|
|
32,780
|
|
|
35,666
|
|
|
80,211
|
|
|
77,094
|
|
|
Auto & Home:
|
|
|
|
|
|
|
|
|
|
Total commission revenue
|
|
5,657
|
|
|
6,491
|
|
|
12,649
|
|
|
15,104
|
|
|
Production bonus and other revenue
|
|
478
|
|
|
750
|
|
|
955
|
|
|
1,675
|
|
|
Total Auto & Home revenue
|
|
6,135
|
|
|
7,241
|
|
|
13,604
|
|
|
16,779
|
|
|
Eliminations:
|
|
|
|
|
|
|
|
|
|
Total commission revenue
|
|
(1,168)
|
|
|
(280)
|
|
|
(2,810)
|
|
|
(465)
|
|
|
Production bonus and other revenue
|
|
(733)
|
|
|
(572)
|
|
|
(2,784)
|
|
|
(1,778)
|
|
|
Total Elimination revenue
|
|
(1,901)
|
|
|
(852)
|
|
|
(5,594)
|
|
|
(2,243)
|
|
|
Total commission revenue
|
|
140,701
|
|
|
320,265
|
|
|
272,956
|
|
|
425,415
|
|
|
Total production bonus and other revenue
|
|
54,280
|
|
|
37,300
|
|
|
79,552
|
|
|
54,924
|
|
|
Total revenue
|
|
$
|
194,981
|
|
|
$
|
357,565
|
|
|
$
|
352,508
|
|
|
$
|
480,339
|
|
Contract Balances—After a policy is sold, the Company has no material additional or recurring obligations to the policyholder or the insurance carrier. As such, there are no contract liabilities recorded in the condensed consolidated balance sheets. During the six months ended December 31, 2020, there was no activity in the contract asset balances other than the movement over time between long-term and short-term commissions receivable and accounts receivable as the policy is renewed, as shown on the balance sheet. A roll forward of commissions receivable (current and long term) is shown below for the six months ended December 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Balance as of June 30, 2021
|
|
$
|
845,897
|
|
|
|
|
|
Commission revenue from revenue recognized
|
|
212,976
|
|
|
|
|
|
Net commission revenue adjustment from change in estimate
|
|
(149,174)
|
|
|
|
|
|
Amounts recognized as accounts receivable
|
|
(23,894)
|
|
|
|
|
|
Balance as of December 31, 2021
|
|
$
|
885,805
|
|
|
|
|
The $149.2 million adjustment from change in estimate includes adjustments from the Company’s reassessment of each of its cohorts’ transaction prices. $145.0 million of the total adjustment is due to the increase in actual lapse rates for Senior MA policies during calendar year 2021 and overall lower persistency from early data received for the January 2022 renewals. Therefore, it was determined that a downward adjustment to Senior MA revenue was probable, and commission revenue was reduced during the three months ended December 31, 2021. Approximately 62%, 28%, and 8% of the adjustment from the change in estimate were from approved policies sold in fiscal years 2021, 2020, and 2019, respectively.
Production Bonuses and Other—During the six months ended December 31, 2021, the Company received advance payments of marketing development funds, which will be amortized over the course of the appropriate fiscal year based on policies sold. As of December 31, 2021, there was an unamortized balance remaining of $2.3 million of fiscal year 2022 marketing development funds recorded in other current liabilities in the condensed consolidated balance sheet.
11.INCOME TAXES
For the three months ended December 31, 2021 and 2020, we recognized income tax benefit of $46.5 million and income tax expense of $26.4 million, respectively, representing effective tax rates of 25.4% and 22.7%, respectively. The differences from our federal statutory tax rate to the effective tax rate for the three months ended December 31, 2021, were primarily related to state income taxes. The differences from our federal statutory tax rate to the effective tax rate for the three months ended December 31, 2020, were primarily related to state income taxes, partially offset by state tax credits such as the Kansas High Performance Incentive Program (“HPIP”) and discrete items for the period related to the exercise of non-qualified stock options.
For the six months ended December 31, 2021 and 2020, we recognized income tax benefit of $62.6 million and income tax expense of $25.0 million, respectively, representing effective tax rates of 25.4% and 21.8%, respectively. The differences from our federal statutory tax rate to the effective tax rate for the six months ended December 31, 2021, were primarily related to state income taxes. The differences from our federal statutory tax rate to the effective tax rate for the six months ended December 31, 2020, were primarily related to state income taxes, partially offset by state tax credits such as HPIP and discrete items for the period related to the exercise of non-qualified stock options.
Assessing the realizability of the Company’s deferred tax assets is dependent upon several factors, including the likelihood and amount, if any, of future taxable income in relevant jurisdictions during the periods in which those temporary differences become deductible. The Company forecasts taxable income by considering all available positive and negative evidence, including historical data and future plans and estimates. These assumptions require significant judgment about future taxable income. As a result, the amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income change. The Company continues to recognize its deferred tax assets as of December 31, 2021, as it believes it is more likely than not that the net deferred tax assets will be realized. The Company recognizes a significant deferred tax liability due to the difference in the timing of revenue recognition for financial statement and tax purposes. For financial statement purposes, revenue is recognized when a policy is sold, while revenue recognition for tax purposes occurs when future renewal commission payments are received. This deferred tax liability is a source of income that can be used to support the realizability of the Company’s deferred tax assets. As such, the Company does not believe a valuation
allowance is necessary as of December 31, 2021, and will continue to evaluate in the future as circumstances may change.
12.NET INCOME (LOSS) PER SHARE
The Company calculates net income (loss) per share as defined by ASC Topic 260, “Earnings per Share”. Basic net income (loss) per share (“Basic EPS”) is computed by dividing net income (loss) attributable to common shareholders by the weighted-average common stock outstanding during the respective period. Diluted net income (loss) per share (“Diluted EPS”) is computed by dividing net income (loss) attributable to common and common equivalent shareholders by the total of the weighted-average common stock outstanding and common equivalent shares outstanding during the respective period. For the purpose of calculating the Company’s Diluted EPS, common equivalent shares outstanding include common shares issuable upon the exercise of outstanding employee stock options, unvested RSU's, PSU’s assuming the performance conditions are satisfied as of the end of the reporting period, and common shares issuable upon the conclusion of each ESPP offering period. The number of common equivalent shares outstanding has been determined in accordance with the treasury stock method for employee stock options, RSU's, PSU’s, and common stock issuable pursuant to the ESPP to the extent they are dilutive. Under the treasury stock method, the exercise price paid by the option holder and future share-based compensation expense that the Company has not yet recognized are assumed to be used to repurchase shares.
The following table sets forth the computation of net income (loss) per share for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Six Months Ended December 31,
|
|
(in thousands, except per share amounts)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Basic:
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(137,008)
|
|
|
$
|
89,856
|
|
|
$
|
(184,161)
|
|
|
$
|
89,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common shareholders
|
(137,008)
|
|
|
89,856
|
|
|
(184,161)
|
|
|
89,591
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average common stock outstanding
|
163,966
|
|
|
162,645
|
|
|
163,829
|
|
|
162,546
|
|
|
Net income (loss) per share—basic:
|
$
|
(0.84)
|
|
|
$
|
0.55
|
|
|
$
|
(1.12)
|
|
|
$
|
0.55
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common shareholders
|
$
|
(137,008)
|
|
|
$
|
89,856
|
|
|
$
|
(184,161)
|
|
|
$
|
89,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common and common equivalent shareholders
|
(137,008)
|
|
|
89,856
|
|
|
(184,161)
|
|
|
89,591
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average common stock outstanding
|
163,966
|
|
|
162,645
|
|
|
163,829
|
|
|
162,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding to purchase shares of common stock including unvested RSU's and from the ESPP(1)
|
—
|
|
|
2,918
|
|
|
—
|
|
|
2,831
|
|
|
|
|
|
|
|
|
|
|
|
Total common and common equivalent shares outstanding
|
163,966
|
|
|
165,563
|
|
|
163,829
|
|
|
165,377
|
|
|
Net income (loss) per share—diluted:
|
$
|
(0.84)
|
|
|
$
|
0.54
|
|
|
$
|
(1.12)
|
|
|
$
|
0.54
|
|
(1) Excluded from the computation of net income (loss) per share-diluted for the three and six months ended December 31, 2021, because the effect would have been anti-dilutive.
The weighted average potential shares of common stock that were excluded from the calculation of net income (loss) per share-diluted for the periods presented because including them would have been anti-dilutive are as follows for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Six Months Ended December 31,
|
|
(in thousands)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding to purchase shares of common stock including unvested RSU's and from the ESPP
|
5,133
|
|
|
—
|
|
|
4,908
|
|
|
—
|
|
|
Shares subject to outstanding PSU's(1)
|
165
|
|
|
—
|
|
|
247
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
5,298
|
|
|
—
|
|
|
5,155
|
|
|
—
|
|
(1) The weighted-average number of shares excluded from the computation of net income (loss) per share-diluted because the performance conditions associated with these awards were not met.
13.SEGMENT INFORMATION
The Company’s reportable segments have been determined in accordance with ASC 280, Segment Reporting (“ASC 280”). The Company currently has three reportable segments: i) Senior, ii) Life, and iii) Auto & Home. Senior primarily sells senior Medicare-related health insurance products and also includes Population Health and InsideResponse. Life primarily sells term life and final expense products, and Auto & Home primarily sells individual automobile and homeowners’ insurance. In addition, the Company accounts for non-operating activity, share-based compensation expense, certain intersegment eliminations, and the costs of providing corporate and other administrative services in its administrative division, Corporate & Eliminations. These services are not directly identifiable with the Company’s reportable segments and are shown in the tables below to reconcile the reportable segments to the condensed consolidated financial statements. The Company has not aggregated any operating segments together to represent a reportable segment.
The Company reports segment information based on how its chief operating decision maker (“CODM”) regularly reviews its operating results, allocates resources, and makes decisions regarding business operations. The performance measures of the segments include total revenue and Adjusted EBITDA because management believes that such information is the most relevant in evaluating the results of the respective segments relative to other entities that operate in the same industries.
Costs of revenue, marketing and advertising, and technical development operating expenses that are directly attributable to a segment are reported within the applicable segment. Indirect costs of revenue, marketing and advertising, and technical development operating expenses are allocated to each segment based on varying metrics such as headcount. Adjusted EBITDA is calculated as total revenue for the applicable segment less direct and allocated costs of revenue, marketing and advertising, technical development, and general and administrative operating costs and expenses, excluding depreciation and amortization expense; gain or loss on disposal of property, equipment, and software; share-based compensation expense; restructuring expenses; and non-recurring expenses such as severance payments and transaction costs. Our CODM does not separately evaluate assets by segment; therefore, assets by segment are not presented.
The following table presents information about the reportable segments for the three months ended December 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Senior
|
|
Life
|
|
Auto & Home
|
|
Corp & Elims
|
|
Consolidated
|
|
Revenue
|
$
|
157,967
|
|
|
$
|
32,780
|
|
|
$
|
6,135
|
|
|
$
|
(1,901)
|
|
|
$
|
194,981
|
|
|
Operating expenses
|
(306,602)
|
|
|
(30,930)
|
|
|
(4,700)
|
|
|
(15,979)
|
|
(1)
|
(358,211)
|
|
|
Other expenses, net
|
—
|
|
|
—
|
|
|
—
|
|
|
(51)
|
|
|
(51)
|
|
|
Adjusted EBITDA
|
$
|
(148,635)
|
|
|
$
|
1,850
|
|
|
$
|
1,435
|
|
|
$
|
(17,931)
|
|
|
(163,281)
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
(1,894)
|
|
|
Non-recurring expenses (2)
|
|
|
|
|
|
|
|
|
(1,602)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
(6,175)
|
|
|
Loss on disposal of property, equipment, and software
|
|
|
|
|
|
|
|
|
(5)
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
(10,587)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
46,536
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
$
|
(137,008)
|
|
(1) Operating expenses in the Corp & Elims division primarily include $11.2 million in salaries and benefits for certain general, administrative, and IT related departments, and $4.3 million in professional services fees.
(2) These expenses primarily consist of debt issuance costs incurred for the Second Amendment.
The following table presents information about the reportable segments for the three months ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Senior
|
|
Life
|
|
Auto & Home
|
|
Corp & Elims
|
|
Consolidated
|
|
Revenue
|
$
|
315,510
|
|
|
$
|
35,666
|
|
|
$
|
7,241
|
|
|
$
|
(852)
|
|
|
$
|
357,565
|
|
|
Operating expenses
|
(180,955)
|
|
|
(29,961)
|
|
|
(5,091)
|
|
|
(12,746)
|
|
(1)
|
(228,753)
|
|
|
Other expenses, net
|
—
|
|
|
—
|
|
|
—
|
|
|
(21)
|
|
|
(21)
|
|
|
Adjusted EBITDA
|
$
|
134,555
|
|
|
$
|
5,705
|
|
|
$
|
2,150
|
|
|
$
|
(13,619)
|
|
|
128,791
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
(1,336)
|
|
|
Non-recurring expenses (2)
|
|
|
|
|
|
|
|
|
(362)
|
|
|
Fair value adjustments to contingent earnout obligations
|
|
|
|
|
|
|
|
|
(395)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
(3,590)
|
|
|
Loss on disposal of property, equipment, and software
|
|
|
|
|
|
|
|
|
(79)
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
(6,782)
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
(26,391)
|
|
|
Net income
|
|
|
|
|
|
|
|
|
$
|
89,856
|
|
(1) Operating expenses in the Corp & Elims division primarily include $8.4 million in salaries and benefits for certain general, administrative, and IT related departments and $3.3 million in professional services fees.
(2) These expenses primarily consist of non-recurring compensation to a former executive and expenses related to business continuity in response to the COVID-19 pandemic.
The following table presents information about the reportable segments for the six months ended December 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Senior
|
|
Life
|
|
Auto & Home
|
|
Corp & Elims
|
|
Consolidated
|
|
Revenue
|
$
|
264,287
|
|
|
$
|
80,211
|
|
|
$
|
13,604
|
|
|
$
|
(5,594)
|
|
|
$
|
352,508
|
|
|
Operating expenses
|
(445,893)
|
|
|
(76,058)
|
|
|
(10,796)
|
|
|
(29,330)
|
|
(1)
|
(562,077)
|
|
|
Other expenses, net
|
—
|
|
|
—
|
|
|
—
|
|
|
(153)
|
|
|
(153)
|
|
|
Adjusted EBITDA
|
$
|
(181,606)
|
|
|
$
|
4,153
|
|
|
$
|
2,808
|
|
|
$
|
(35,077)
|
|
|
(209,722)
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
(4,109)
|
|
|
Non-recurring expenses (2)
|
|
|
|
|
|
|
|
|
(2,155)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
(11,278)
|
|
|
Loss on disposal of property, equipment, and software
|
|
|
|
|
|
|
|
|
(355)
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
(19,122)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
62,580
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
$
|
(184,161)
|
|
(1) Operating expenses in the Corp & Elims division primarily include $21.6 million in salaries and benefits for certain general, administrative, and IT related departments, and $9.0 million in professional services fees.
(2) These expenses primarily consist of costs incurred for the Second Amendment and costs related to the acquisitions of Express Med Pharmaceuticals and Simple Meds.
The following table presents information about the reportable segments for the six months ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Senior
|
|
Life
|
|
Auto & Home
|
|
Corp & Elims
|
|
Consolidated
|
|
Revenue
|
$
|
388,709
|
|
|
$
|
77,094
|
|
|
$
|
16,779
|
|
|
$
|
(2,243)
|
|
|
$
|
480,339
|
|
|
Operating expenses
|
(245,252)
|
|
|
(62,307)
|
|
|
(11,012)
|
|
|
(22,264)
|
|
(1)
|
(340,835)
|
|
|
Other expenses, net
|
—
|
|
|
—
|
|
|
—
|
|
|
(43)
|
|
|
(43)
|
|
|
Adjusted EBITDA
|
$
|
143,457
|
|
|
$
|
14,787
|
|
|
$
|
5,767
|
|
|
$
|
(24,550)
|
|
|
139,461
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
(2,259)
|
|
|
Non-recurring expenses (2)
|
|
|
|
|
|
|
|
|
(822)
|
|
|
Fair value adjustments to contingent earnout obligations
|
|
|
|
|
|
|
|
|
(1,153)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
(6,937)
|
|
|
Loss on disposal of property, equipment, and software
|
|
|
|
|
|
|
|
|
(162)
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
(13,543)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
(24,994)
|
|
|
Net income
|
|
|
|
|
|
|
|
|
$
|
89,591
|
|
(1) Operating expenses in the Corp & Elims division primarily include $15.0 million in salaries and benefits for certain general, administrative, and IT related departments and $6.3 million in professional services fees.
(2) These expenses primarily consist of non-recurring compensation to a former executive, non-restructuring severance expenses, costs related to our IPO, and expenses related to business continuity in response to the COVID-19 pandemic.
Revenues from each of the reportable segments are earned from transactions in the United States and follow the same accounting policies used for the Company’s condensed consolidated financial statements. All of the Company’s long-lived assets are located in the United States. For the three months ended December 31, 2021, three insurance carrier customers from Senior accounted for 24%, 15%, and 11% of total revenue, respectively. For the three months ended December 31, 2020, three insurance carrier customers from Senior, accounted for 30%, 22%,
and 18% of total revenue, respectively. For the six months ended December 31, 2021, three insurance carrier customers from Senior, accounted for 21%, 14%, and 13% of total revenue, respectively. For the six months ended December 31, 2020, three insurance carrier customers from Senior, accounted for 27%, 20%, and 15% of total revenue, respectively.