# SelectQuote, Inc. (SLQT) FY 2023 MD&A Verbatim Item 7 Management's Discussion and Analysis from SelectQuote, Inc.'s 10-K for fiscal year 2023. SEC filing source: https://www.sec.gov/Archives/edgar/data/1794783/000179478323000099/slqt-20230630.htm Accession: 0001794783-23-000099 Filing date: 2023-09-13 Report date: 2023-06-30 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/SLQT/ All MD&A years: /company/SLQT/mda/ Previous year: /company/SLQT/mda/fy2022/ (FY 2022) Next year: /company/SLQT/mda/fy2024/ (FY 2024) ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis of our financial condition and result of operations together with our consolidated financial statements and footnotes included elsewhere in this Annual Report on Form 10-K. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry, business and future financial results. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” in Part I, Item 1A above. Company Overview We are a leading technology-enabled, direct-to-consumer (“DTC”) distribution platform for insurance products and healthcare services. Our insurance distribution business, which has operated continuously for over 35 years, provides consumers with a transparent and convenient venue to shop for complex senior health, life, and automobile & home insurance policies from a curated panel of the nation’s leading insurance carriers. As an insurance distributor, we do not insure the consumer, but rather identify consumers looking to acquire insurance products and place these consumers with insurance carrier partners that provide these products. In return, we earn commissions from our insurance carrier partners for the policies we sell on their behalf. Our proprietary technology allows us to take a broad funnel approach to marketing by analyzing and identifying high quality consumer leads sourced from a wide variety of online and offline marketing channels including search engines, radio, television, and third-party marketing partners. We monitor our acquisition costs to dynamically allocate our marketing spend to the most attractive channels, benefiting from over thirty years of data accumulated through our proprietary, purpose-built technologies. Our advanced workflow processing system scores each acquired lead in real time, matching it with a sales agent whom we determine is best suited to meet the consumer’s need. Our platform then captures and utilizes our experience to further build upon the millions of data points that feed our marketing algorithms, further enhancing our ability to deploy subsequent marketing dollars efficiently and target more high-quality consumer leads. We have built our business model to maximize commissions collected over the life of an approved policy less the cost of acquiring the business, a metric we refer to as policyholder lifetime value and which is a key component to our overall profitability. Our unique platform has enabled us to expand our distribution business in recent years to include additional products beyond insurance policies. In interacting with thousands of consumers over the years, we identified a large opportunity to leverage our existing database and distribution model to improve access to healthcare services for our consumers. In addition to improving consumers’ health outcomes, this service creates deeper relationships with our insurance carrier partners by increasing policy persistency and, in turn, reducing their overall costs. Additionally, we offer pharmacy services through SelectRx, our accredited Patient-Centered Pharmacy Home pharmacy, which offers essential prescription medications, OTC medications, customized medication packaging, medication therapy management, providing long-term pharmacy care that enables patients to optimize medication adherence to drive positive health outcomes while enabling patients to remain at home. We evaluate our business using the following four segments: Senior was launched in 2010 and provides unbiased comparison shopping for Medicare Advantage (“MA”) and Medicare Supplement (“MS”) insurance plans as well as prescription drug and dental, vision, and hearing (“DVH”) plans, and critical illness products. We represent approximately 25 leading, nationally-recognized insurance carrier partners, including UnitedHealthcare (“UHC”), Humana, and Wellcare. MA and MS plans accounted for 89%, 82%, and 78% of our approved Senior policies for the years ended June 30, 2023, 2022, and 2021, respectively, with other ancillary type policies accounting for the remainder. Healthcare Services, launched in 2021, includes SelectRx and Population Health, and was previously included under the Senior segment (refer to Note 16 to the consolidated financial statements for further information 45 Table of Contents on the change in segments). Through SelectRx, we provide simple solutions for prescription drug management and support with a personalized approach to streamline the process of managing multiple medications for seniors with chronic conditions. SelectRx has developed a pill pack solution that is customized to the unique needs of each patient, focusing on individual multi-dosages by day and time. SelectRx uses a high-touch, technology-driven approach to provide superior customer service and achieve improved medication adherence. Population Health helps members understand the benefits available under their health plans, contracts with insurance carriers to complete HRA’s on members, partners with VBC providers for a variety of healthcare-related services, and introduces them to the pharmacy services we offer through SelectRx. We believe that offering these services through SelectRx and Population Health to our existing consumers helps drive customer satisfaction and increase policy persistency, which, in turn, reduces costs for our insurance carrier partners. Life is one of the country’s largest and most established DTC insurance distributors for term life insurance, having sold over 2.2 million policies nationwide since our founding in 1985. Our platform provides unbiased comparison shopping for life insurance products such as term life, final expense, and other ancillary products like critical illness, accidental death, and juvenile insurance. We represent approximately 20 leading, nationally-recognized insurance carrier partners, with many of these relationships exceeding 15 years. Term life policies accounted for 47%, 36%, and 46% of new premium within the Life segment for the years ended June 30, 2023, 2022, and 2021, respectively, with final expense policies accounting for 53%, 64%, and 54% for the years ended June 30, 2023, 2022, and 2021, respectively. Auto & Home was launched in 2011 as an unbiased comparison shopping platform for auto, home, and specialty insurance lines. Our platform provides unbiased comparison shopping for insurance products such as homeowners, auto, dwelling fire, and other ancillary insurance products underwritten by approximately 25 leading, nationally recognized insurance carrier partners. Homeowners and 12-month auto products accounted for 74%, 76%, and 79% of new premium within the Auto & Home segment for years ended June 30, 2023, 2022, and 2021, respectively, with six-month auto, dwelling fire, and other products accounting for a majority of the remainder. Industry Trends We estimate that the total addressable market for the insurance products we distribute is greater than $180 billion. Further, while these markets are already substantial, they are also growing, in part due to a number of highly attractive demographic trends. Our Senior and Healthcare Services segments serve consumers predominantly in the over 65 age category. According to the United States Census Bureau, the over 65 age category grew from 13% of the total population in 2010 to 17% of the total population in 2020, and is expected to reach 21% in 2030. On average, 11,000 “Baby Boomers” are expected to turn 65 every day or nearly 4.2 million per year through the end of the decade. As a result, Medicare enrollment is growing steadily, with the number of Medicare enrollees expected to grow from 63 million in 2021 (up from 59 million in 2018 and 52.5 million in 2013), to approximately 75 million in 2030, according to the Centers for Medicare & Medicaid Services in June 2023. Of this, Medicare Advantage plans are representing an increasing share of the Medicare market. According to the Kaiser Family Foundation, in 2022 there were more than 28 million Medicare Advantage enrollees, representing approximately 48% penetration of the Medicare market. From 2007 to 2022, Medicare Advantage enrollment as a share of the eligible Medicare population has more than doubled from 19% to 48%. According to estimates, Medicare Advantage penetration is likely to surpass 50% penetration for all Medicare-eligible individuals in 2023 and could reach as high as 60% by 2030, highlighting the pace with which this already large segment of the Medicare market is growing. The degree to which we will realize a corresponding increase in revenue will be determined by our ability to continue to successfully place new Medicare policies for this enlarged potential consumer base. Our Life segment is one of the country’s largest DTC insurance distributors for term life insurance and provides unbiased comparison shopping for final expense and ancillary products. The U.S. life insurance market is mature and has experienced annual premium growth of 2.9% since 2013, according to S&P Global. Growth in the life insurance sector is driven by a number of macro-economic factors including population growth, general economic growth and individual wealth accumulation. 46 Table of Contents Our Auto & Home segment predominantly sells automobile and homeowners insurance. The auto insurance industry has grown at an annual rate of 5.3% from 2013—2021 based on Statutory Direct Premiums Written, according to S&P Global, with 2021 written premium totaling $261 billion. Industry growth is driven by growth in the number of registered vehicles, increases in insurance premium rates and general economic growth. The homeowners insurance industry has grown at an annual rate of 4.9% from 2013—2021 based on Statutory Direct Premiums Written, according to S&P Global, with 2021 written premium totaling $120 billion. Industry growth is driven by growth in housing supply, increases in insurance premium rates and general economic growth. Technological innovations, including the development of machine learning for business applications and the proliferation of smart mobile devices as a means of consumer purchasing, are changing the insurance distribution landscape. As the composition of the U.S. population gradually shifts to the mobile-first generation, consumers are becoming more tech-savvy and comfortable shopping online. According to J.D. Power, 90% of customers say they are open to purchasing their auto insurance online. We believe our proprietary technology platform, vast datasets and use of machine learning in all aspects of our business put us in an excellent position to take advantage of these consumer trends. Factors Affecting Our Results of Operations Our primary source of revenue is commission revenue from selling policies in the senior health, life, and auto and home markets on behalf of our insurance carrier partners, the majority of which compensate us through first year and renewal commissions. We use our proprietary technology and processes to generate and obtain consumer leads and allocate those leads to agents who are best suited for those consumers. As a result, one of the primary factors affecting our growth is our total number of agents. We view agents as a critical component of helping consumers through the purchasing process to enable them to identify the most appropriate coverage that suits their needs. Through our years of experience, we have expanded our recruiting efforts and enhanced our training programs, both of which have allowed us to expand our agent force. We have also developed proprietary technologies and processes that enable us to expand our lead acquisition efforts to keep pace with our expanding sales force and maintain agent productivity despite the significant growth in number of agents. The amount of revenue we expect to recognize per policy is based on multiple factors, including our commission rates with our insurance carrier partners and the expected retention rates of different types of policies. The higher our retention rates, the more revenue we expect to generate pursuant to our carrier agreements, which generally entitle us to receive annual renewal commissions for so long as the policyholder renews their policy. Additionally, we earn certain volume-based bonuses from some carriers on first-year policies sold, which we refer to as both production bonuses and marketing development funds, based on attaining various predetermined target sales levels or other agreed upon objectives, as presented in the consolidated statements of comprehensive income (loss) as other revenue. These commissions that we expect to generate over the life of an approved policy less the cost of acquiring the business is a key component to our overall profitability. Our goal is to maximize policyholder lifetime value by increasing retention rates, which starts by providing consumers with a transparent, valuable and best-in-class consumer experience and making sure consumers are buying a policy that meets their specific needs. The additions of SelectRx and Population Health has driven our increased revenue, and costs in the short-term as we scale the business, by utilizing leads transferred from Senior, thus not incurring additional customer acquisition costs. Pharmacy revenue includes revenue from the sale of prescription and OTC medications from SelectRx, while Population Health revenue is included with other revenue in the consolidated statements of comprehensive income (loss). Key Business and Operating Metrics by Segment In addition to traditional financial metrics, we rely upon certain business and operating metrics to estimate and recognize revenue, evaluate our business performance and facilitate our operations. In Senior, our primary product, Medicare Advantage, pays us flat commission rates based on the number of policies we sell on behalf of our insurance carrier partners. Therefore, we have determined that units and unit metrics are the most appropriate 47 Table of Contents measures to evaluate the performance of Senior. For Healthcare Services, our primary source of revenue is pharmacy revenue from SelectRx, so the total number of SelectRx members is the most appropriate measure used to evaluate the performance of Healthcare Services. In Life and Auto & Home, we are typically paid a commission that is a percent of the premium that we generate for our insurance carrier partners. Therefore, we have determined that premium-based metrics are the most relevant measures to evaluate the performance of these segments. Below are the most relevant business and operating metrics for each segment: Senior Submitted Policies Submitted policies are counted when an individual completes an application with our licensed agent and provides authorization to them to submit it to the insurance carrier partner. The applicant may have additional actions to take before the application will be reviewed by the insurance carrier. The following table shows the number of submitted policies for the years ended June 30: [[GREPCENT_TABLE]] [["","","2023","","2022","","2021"],["Medicare Advantage","","652,630","","","808,116","","","550,321"],["Medicare Supplement","","3,444","","","7,208","","","26,785"],["Dental, Vision and Hearing","","74,181","","","145,716","","","132,106"],["Prescription Drug Plan","","2,433","","","6,842","","","11,436"],["Other","","7,501","","","14,776","","","16,487"],["Total","","740,189","","","982,658","","","737,135"]] [[/GREPCENT_TABLE]] 2023 compared to 2022—Total submitted policies for all products decreased 25% for the year ended June 30, 2023, compared to the year ended June 30, 2022, in line with our updated operating strategy to reduce the Senior distribution business and focus resources on Healthcare Services. The number of average productive agents decreased 55% during the year ended June 30, 2023, compared to the year ended June 30, 2022; however, due to a higher mix of tenured agents and an increased focus on agent training and development, productivity per agent increased 25% and overall close rates increased 24%. 2022 compared to 2021—Total submitted policies for all products increased by 33% for the year ended June 30, 2022, compared to the year ended June 30, 2021. The increase was driven primarily by a 47% increase in MA submitted policies and a 10% increase in DVH submitted policies, partially offset by a 73% decrease in MS submitted policies. The overall increase in submitted policies for Senior products was primarily due to increases in the number of agents we employ, partially offset by lower agent productivity. During the year ended June 30, 2022, we increased the number of average productive agents by 100% and average productivity per agent declined by 29%. Approved Policies Approved policies represents the number of submitted policies that were approved by our insurance carrier partners for the identified product during the indicated period. Not all approved policies will go in force. The following table shows the number of approved policies for the years ended June 30: 48 Table of Contents [[GREPCENT_TABLE]] [["","","2023","","2022","","2021"],["Medicare Advantage","","577,567","","","661,738","","","467,585"],["Medicare Supplement","","2,619","","","5,461","","","21,911"],["Dental, Vision and Hearing","","60,824","","","124,989","","","111,015"],["Prescription Drug Plan","","2,144","","","6,124","","","10,747"],["Other","","5,288","","","12,407","","","14,089"],["Total","","648,442","","","810,719","","","625,347"]] [[/GREPCENT_TABLE]] In general, the relationship between submitted policies and approved policies has been steady over time. Therefore, factors impacting the number of submitted policies also impact the number of approved policies. 2023 compared to 2022—Total approved policies for all products decreased by 20% for the year ended June 30, 2023, compared to the year ended June 30, 2022, in line with our updated operating strategy to reduce the policy growth in our Senior distribution business and focus additional resources on growing members for Healthcare Services. Fluctuations in approved policies are normally in direct correlation to submitted policies; however, due to our increased focus on agent training and development and a higher mix of tenured agents, we experienced a 6% improvement in the submitted-to-approved conversion rates for the year ended June 30, 2023, compared to the year ended June 30, 2022. 2022 compared to 2021—Total approved policies for all products increased by 30% for the year ended June 30, 2022, compared to the year ended June 30, 2021. The increase was driven primarily by a 42% increase in MA approved policies and a 13% increase in DVH approved policies, partially offset by a 75% decrease in MS approved policies. Fluctuations in approved policies are normally in direct correlation to submitted policies; however, we experienced a 4% decrease in MA submitted-to-approved conversion rates for the year ended June 30, 2022, compared to the year ended June 30, 2021, driven by higher consumer switching behavior. This resulted in MA approved policies growing at a slower rate than MA submitted policies. Lifetime Value of Commissions per Approved Policy The lifetime value of commissions (the “LTV”) per approved policy represents commissions estimated to be collected over the estimated life of an approved policy based on multiple factors, including but not limited to, contracted commission rates, carrier mix and expected policy persistency with applied constraints. The LTV per approved policy is equal to the sum of the commission revenue due upon the initial sale of a policy, and when applicable, an estimate of future renewal commissions. The estimate of the future renewal commissions is determined using contracted renewal commission rates constrained by a persistency-adjusted 10-year renewal period based on a combination of our historical experience and available insurance carrier historical experience to estimate renewal revenue only to the extent probable that a significant reversal in revenue would not be expected to occur. These factors may result in varying values from period to period. The LTV per approved policy represents commissions only from policies sold during the period; it does not include any updated estimates of prior period variable consideration based on actual policy renewals in the current period. The following table shows the LTV per approved policy for the years ended June 30: [[GREPCENT_TABLE]] [["","","2023","","2022","","2021"],["Medicare Advantage","","$","877","","","$","925","","","$","1,260"],["Medicare Supplement","","1,030","","","1,270","","","1,269"],["Dental, Vision and Hearing","","100","","","123","","","136"],["Prescription Drug Plan","","207","","","234","","","224"],["Other","","101","","","73","","","113"]] [[/GREPCENT_TABLE]] 49 Table of Contents 2023 compared to 2022—The LTV per MA approved policy decreased 5% for the year ended June 30, 2023, compared to the year ended June 30, 2022. The LTV per MA approved policy was negatively impacted by carrier mix and lower persistency rates, which includes a higher provision for renewal year lapse rates, somewhat offset by higher commission rates. 2022 compared to 2021—The LTV per MA approved policy decreased 27% for the year ended June 30, 2022, compared to the year ended June 30, 2021. The LTV per MA approved policy was negatively impacted by lower MA persistency rates, which includes an increase in constraint and higher provision for renewal year lapse rates; higher provision for first year lapse rates; carrier mix; and the switch to policy level persistency, somewhat offset by higher commission rates. Healthcare Services The total number of SelectRx members represents the amount of active customers to which an order has been shipped, as this is the primary key driver of revenue for Healthcare Services. The following table shows the total number of SelectRx members as of the periods presented: [[GREPCENT_TABLE]] [["","","June 30, 2023","","June 30, 2022"],["Total SelectRx Members","","49,044","","25,503"]] [[/GREPCENT_TABLE]] The total number of SelectRx members increased by 92% as of June 30, 2023, compared to June 30, 2022, due to our operating strategy to grow the Healthcare Services segment. Combined Senior and Healthcare Services - Consumer Per Unit Economics The opportunity to leverage our existing database and distribution model to improve access to healthcare services for our consumers has created a need for us to review our key metrics related to our per unit economics. As we think about the revenue and expenses for Healthcare Services, we note that they are derived from the marketing acquisition costs associated with the sale of an MA or MS policy, some of which costs are allocated directly to Healthcare Services, and therefore determined that our per unit economics measure should include components from both Senior and Healthcare Services. See details of revenue and expense items included in the calculation below. Combined Senior and Healthcare Services consumer per unit economics represents total MA and MS commissions; other product commissions; other revenues, including revenues from Healthcare Services; and operating expenses associated with Senior and Healthcare Services, each shown per number of approved MA and MS policies over a given time period. Management assesses the business on a per-unit basis to help ensure that the revenue opportunity associated with a successful policy sale is attractive relative to the marketing acquisition cost. Because not all acquired leads result in a successful policy sale, all per-policy metrics are based on approved policies, which is the measure that triggers revenue recognition. The MA and MS commission per MA/MS policy represents the LTV for policies sold in the period. Other commission per MA/MS policy represents the LTV for other products sold in the period, including DVH prescription drug plan, and other products, which management views as additional commission revenue on our agents’ core function of MA/MS policy sales. Pharmacy revenue per MA/MS policy represents revenue from SelectRx, and other revenue per MA/MS policy represents revenue from Population Health, production bonuses, marketing development funds, lead generation revenue, and adjustments from the Company’s reassessment of its cohorts’ transaction prices. Total operating expenses per MA/MS policy represents all of the operating expenses within Senior and Healthcare Services. The revenue to customer acquisition cost (“CAC”) multiple represents total revenue as a multiple of total marketing acquisition costs, which represents the direct costs of acquiring leads. These costs are included in marketing and advertising expense within the total operating expenses per MA/MS policy. 50 Table of Contents The following table shows combined Senior and Healthcare Services consumer per unit economics for the periods presented. Based on the seasonality of Senior and the fluctuations between quarters, we believe that the most relevant view of per unit economics is on a rolling 12-month basis. All per MA/MS policy metrics below are based on the sum of approved MA/MS policies, as both products have similar commission profiles. [[GREPCENT_TABLE]] [["","Twelve Months Ended June 30,"],["(dollars per approved policy):","2023","","2022","","2021"],["MA and MS approved policies","580,186","","","667,199","","","489,496"],["MA and MS commission per MA / MS policy","$","877","","","$","928","","","$","1,260"],["Other commission per MA/MS policy","12","","","27","","","39"],["Pharmacy revenue per MA/MS policy","413","","","89","","","4"],["Other revenue per MA / MS policy (1)","149","","","(147)","","","186"],["Total revenue per MA / MS policy","1,451","","","897","","","1,489"],["Total operating expenses per MA / MS policy","(1,224)","","","(1,187)","","","(991)"],["Adjusted EBITDA per MA / MS policy (2)","$","227","","","$","(290)","","","$","498"],["Adjusted EBITDA Margin per MA / MS policy (2)","16","%","","(32)","%","","33","%"],["Revenue / CAC multiple","4.1X","","1.7X","","3.1X"]] [[/GREPCENT_TABLE]] (1) Other revenue shown in this table includes adjustments from the Company’s reassessment of its cohorts’ transaction prices, while they’re included within commission revenue in the consolidated statements of comprehensive income (loss). (2) These financial measures are not calculated in accordance with GAAP. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” for information regarding our use of these non-GAAP financial measures and a reconciliation of such measures to their nearest comparable financial measures calculated and presented in accordance with GAAP. 2023 compared to 2022—Total revenue per policy increased 62% for the twelve months ended June 30, 2023, compared to the twelve months ended June 30, 2022, primarily due to the increase in pharmacy revenue. Total operating expenses per MA/MS policy increased 3% for the twelve months ended June 30, 2023, compared to the twelve months ended June 30, 2022, driven by an increase in cost of goods sold-pharmacy revenue for Healthcare Services due to the growth of the business, offset by a decrease in our marketing and advertising costs. 2022 compared to 2021—Total revenue per policy decreased 40% for the twelve months ended June 30, 2022, compared to the twelve months ended June 30, 2021, with the decrease driven by the lower LTV of MA policies, the $193.3 million adjustment from a change in estimate of MA cohort transaction prices, and the decrease in overall MS revenue, somewhat offset by higher marketing development funds received per approved MA/MS policy and the addition of revenue from SelectRx. Total costs per policy increased 20% for the twelve months ended June 30, 2022, compared to the twelve months ended June 30, 2021, due to higher fulfillment costs associated with scaling Healthcare Services, higher sales expenses driven by a reduction in agent productivity during AEP, and an increase in our marketing and advertising expense driven by lower close rates during AEP. Life Life premium represents the total premium value for all policies that were approved by the relevant insurance carrier partner and for which the policy document was sent to the policyholder and payment information was received by the relevant insurance carrier partner during the indicated period. Because our commissions are earned based on a percentage of total premium, total premium volume for a given period is the key driver of revenue for Life. The following table shows term and final expense premiums for years ended June 30: 51 Table of Contents [[GREPCENT_TABLE]] [["(in thousands):","","2023","","2022","","2021"],["Term Premiums","","$","68,941","","","$","62,364","","","$","76,833"],["Final Expense Premiums","","77,725","","109,218","","90,878"],["Total","","$","146,666","","","$","171,582","","","$","167,711"]] [[/GREPCENT_TABLE]] 2023 compared to 2022—Total term premiums increased 11% for the year ended June 30, 2023, compared to the year ended June 30, 2022, due to an 8% increase in the average premium per policy sold and a 3% increase in the number of policies sold. Final expense premiums decreased 29% for the year ended June 30, 2023, compared to the year ended June 30, 2022. The number of policies sold declined 36% driven by a lower average agent headcount, which was somewhat offset by a 12% increase in the average premium per policy sold. 2022 compared to 2021—Total term premiums decreased 19% for the year ended June 30, 2022, compared to the year ended June 30, 2021. The number of policies sold declined 27%, driven by lower agent headcount, which was somewhat offset by a 12% increase in the average premium per policy sold. Final expense premiums increased 20% for the year ended June 30, 2022, compared to the year ended June 30, 2021, due to an increase in the number of agents selling final expense policies. Auto & Home Auto & Home premium represents the total premium value of all new policies that were approved by our insurance carrier partners during the indicated period. Because our commissions are earned based on a percentage of total premium, total premium volume for a given period is the key driver of revenue for our Auto & Home segment. The following table shows premiums for the years ended June 30: [[GREPCENT_TABLE]] [["(in thousands):","","2023","","2022","","2021"],["Premiums","","$","50,917","","","$","50,114","","","$","55,596"]] [[/GREPCENT_TABLE]] 2023 compared to 2022—Total premiums increased 2% for the year ended June 30, 2023, compared to the year ended June 30, 2022, due to a 5% increase in the average premium per policy sold, offset by a 3% decrease in the number of policies sold. 2022 compared to 2021—Total premiums decreased 10% for the year ended June 30, 2022, compared to the year ended June 30, 2021, primarily due to our strategy to reduce the growth in Auto & Home. Non-GAAP Financial Measures To supplement our financial statements presented in accordance with GAAP and to provide investors with additional information regarding our GAAP financial results, we have presented in this Annual Report on Form 10-K Adjusted EBITDA and Adjusted EBITDA Margin, which are non-GAAP financial measures. These non-GAAP financial measures are not based on any standardized methodology prescribed by GAAP and are not necessarily comparable to similarly titled measures presented by other companies. Adjusted EBITDA. We define Adjusted EBITDA as income (loss) before interest expense, income tax expense (benefit), depreciation and amortization, and certain add-backs for transaction costs and non-cash or non-recurring expenses, including restructuring, share-based compensation expenses, and any impairment charges. The most directly comparable GAAP measure is net income (loss). We monitor and have presented in this Annual Report on Form 10-K Adjusted EBITDA because it is a key measure used by our management and Board of Directors to understand and evaluate our operating performance, to establish budgets, and to develop operational goals for managing our business. In particular, we believe that excluding the impact of these expenses in calculating 52 Table of Contents Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core operating performance. We believe that this non-GAAP financial measure helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude in the calculations of this non-GAAP financial measure. Accordingly, we believe that this financial measure provides useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects. Adjusted EBITDA is not prepared in accordance with GAAP and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. There are a number of limitations related to the use of this non-GAAP financial measure rather than net income (loss), which is the most directly comparable financial measure calculated and presented in accordance with GAAP. These limitations include the fact that Adjusted EBITDA excludes interest expense, depreciation and amortization expense, share-based compensation expense, income tax expense (benefit), and other non-recurring expenses that are one-time in nature. In addition, other companies may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. The following tables reconcile Adjusted EBITDA and net income (loss), the most directly comparable financial measure calculated and presented in accordance with GAAP, for the periods presented: Year Ended June 30, 2023: [[GREPCENT_TABLE]] [["(in thousands)","Senior","","Healthcare Services","","Life","","Auto & Home","","Corp & Elims","","Consolidated"],["Net loss","","","","","","","","","","","$","(58,544)"],["Share-based compensation expense","","","","","","","","","","","11,310"],["Transaction costs(1)","","","","","","","","","","","5,569"],["Depreciation and amortization","","","","","","","","","","","27,881"],["Loss on disposal of property, equipment, and software, net","","","","","","","","","","","749"],["Impairment of long-lived assets","","","","","","","","","","","17,332"],["Interest expense, net","","","","","","","","","","","80,606"],["Income tax benefit","","","","","","","","","","","(10,600)"],["Adjusted EBITDA","$","155,077","","","$","(22,769)","","","$","23,073","","","$","81","","","$","(81,159)","","","$","74,303"]] [[/GREPCENT_TABLE]] (1) These expenses primarily consist of costs related to the Fourth Amendment to the Senior Secured Credit Facility, financing transaction costs, and non-restructuring severance expenses. 53 Table of Contents Year Ended June 30, 2022: [[GREPCENT_TABLE]] [["","Senior","","Healthcare Services","","Life","","Auto & Home","","Corp & Elims","","Consolidated"],["Net loss","","","","","","","","","","","$","(297,504)"],["Share-based compensation expense","","","","","","","","","","","7,052"],["Non-recurring expenses (1)","","","","","","","","","","","4,730"],["Depreciation and amortization","","","","","","","","","","","24,724"],["Loss on disposal of property, equipment, and software","","","","","","","","","","","1,456"],["Goodwill impairment","","","","","","","","","","","44,596"],["Impairment of long-lived assets","","","","","","","","","","","3,147"],["Interest expense, net","","","","","","","","","","","43,595"],["Income tax benefit","","","","","","","","","","","(92,302)"],["Adjusted EBITDA","$","(161,702)","","","$","(32,097)","","","$","(129)","","","$","5,433","","","$","(72,011)","","","$","(260,506)"]] [[/GREPCENT_TABLE]] (1) These expenses primarily consist of costs incurred for amendments to the Senior Secured Credit Facility, costs related to acquisitions, and severance expenses.. Year Ended June 30, 2021: [[GREPCENT_TABLE]] [["","Senior","","Healthcare Services","","Life","","Auto & Home","","Corp & Elims","","Consolidated"],["Net income","","","","","","","","","","","$","124,859"],["Share-based compensation expense","","","","","","","","","","","5,165"],["Non-recurring expenses (1)","","","","","","","","","","","6,065"],["Fair value adjustments to contingent earnout obligations","","","","","","","","","","","1,488"],["Depreciation and amortization","","","","","","","","","","","16,142"],["Loss on disposal of property, equipment, and software","","","","","","","","","","","686"],["Interest expense, net","","","","","","","","","","","29,320"],["Loss on extinguishment of debt","","","","","","","","","","","3,315"],["Income tax expense","","","","","","","","","","","33,156"],["Adjusted EBITDA","$","245,165","","","$","(1,388)","","","$","22,542","","","$","8,178","","","$","(54,301)","","","$","220,196"]] [[/GREPCENT_TABLE]] (1) These expenses primarily consist of costs incurred for the First Amendment to the Senior Secured Credit Facility, acquisitions, re-designation of the hedge, and the Secondary Offering. 54 Table of Contents Key Components of our Results of Operations The following table sets forth our operating results and related percentage of total revenues for the years ended June 30: [[GREPCENT_TABLE]] [["(in thousands)","","2023","","2022","","2021"],["Revenue"],["Commission","","$","653,470","","","65","%","","$","587,518","","","77","%","","$","818,772","","","88","%"],["Pharmacy","","239,547","","","24","%","","59,460","","","8","%","","1,791","","","\u2014","%"],["Other","","109,831","","","11","%","","117,067","","","15","%","","109,418","","","12","%"],["Total revenue","","1,002,848","","","100","%","","764,045","","","100","%","","929,981","","","100","%"],["Operating costs and expenses"],["Cost of revenue","","301,524","","","30","%","","391,528","","","51","%","","269,071","","","29","%"],["Cost of goods sold\u2014pharmacy revenue","","225,963","","","23","%","","64,172","","","8","%","","1,644","","","\u2014","%"],["Marketing and advertising","","301,245","","","29","%","","484,084","","","64","%","","385,291","","","41","%"],["Selling, general, and administrative","","136,518","","","14","%","","100,945","","","13","%","","63,114","","","7","%"],["Technical development","","26,015","","","3","%","","24,729","","","3","%","","18,623","","","2","%"],["Goodwill impairment","","\u2014","","","\u2014","%","","44,596","","","6","%","","\u2014","","","\u2014","%"],["Total operating costs and expenses","","991,265","","","99","%","","1,110,054","","","145","%","","737,743","","","79","%"],["Income (loss) from operations","","11,583","","","1","%","","(346,009)","","","(45)","%","","192,238","","","21","%"],["Interest expense, net","","(80,606)","","","(8)","%","","(43,595)","","","(5)","%","","(29,320)","","","(3)","%"],["Loss on extinguishment of debt","","\u2014","","","\u2014","%","","\u2014","","","\u2014","%","","(3,315)","","","\u2014","%"],["Other income (expense), net","","(121)","","","\u2014","%","","(202)","","","\u2014","%","","(1,588)","","","\u2014","%"],["Income (loss) before income tax expense (benefit)","","(69,144)","","","(7)","%","","(389,806)","","","(50)","%","","158,015","","","18","%"],["Income tax expense (benefit)","","(10,600)","","","(1)","%","","(92,302)","","","(12)","%","","33,156","","","5","%"],["Net income (loss)","","$","(58,544)","","","(6)","%","","$","(297,504)","","","(38)","%","","$","124,859","","","13","%"]] [[/GREPCENT_TABLE]] Revenue We earn revenue in the form of commission payments from our insurance carrier customers, for the initial year the policy is in effect (“first year”) and, where applicable, for each subsequent year the policy renews (“renewal year”), as presented in our consolidated statements of comprehensive income (loss) as commission revenue. After an insurance policy is sold, we have no material additional or recurring obligations to the policyholder or the insurance carrier partner. Therefore, we do not incur any additional expense related to our receipt of future renewal commissions. All of the costs associated with the sale of an individual policy are incurred prior to or at the time of the initial sale of an individual policy. We also receive 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” and are included in other revenue in the consolidated statements of comprehensive income (loss). Pharmacy revenue includes revenue from the sale of prescription and OTC medications from SelectRx. Other revenue includes production bonuses and marketing development funds, revenue from Population Health (excluding SelectRx pharmacy revenue), and external lead generation revenue from InsideResponse. 55 Table of Contents Revenue is recognized at different milestones for Senior, Life, and Auto & Home and is based on the contractual enforceable rights, our historical experience, and established customer business practices. Lead generation revenue is recognized when the generated lead is accepted by our customers, which is the point of sale, and we have no performance obligation after the delivery. Revenues generated from SelectRx are recognized upon shipment. At the time of shipment, we have performed substantially all of our performance obligations and control has been transferred to the customer. There are no future revenue streams associated as patients have the option to cancel their service at any time with no further payments due. Revenue from Population Health is recognized when the HRA has been performed or the agreed-upon task has been completed for a VBC partner, the transaction price is known based on volume and contractual prices, and we have no further performance obligation. The following table presents our revenue for the periods presented and the percentage changes from the prior year: [[GREPCENT_TABLE]] [["","","","","","","","Percent Change"],["(dollars in thousands)","2023","","2022","","2021","","2023 vs. 2022","","2022 vs. 2021"],["Commission","$","653,470","","","$","587,518","","","$","818,772","","","11%","","(28)%"],["Pharmacy","239,547","","","59,460","","","1,791","","","303%","","3220%"],["Other","109,831","","","117,067","","","109,418","","","(6)%","","7%"],["Total revenue","$","1,002,848","","","$","764,045","","","$","929,981","","","31%","","(18)%"]] [[/GREPCENT_TABLE]] 2023 compared to 2022—Commission revenue increased $66.0 million, or 11%, and included increases in Senior commission revenue of $72.2 million, offset by decreases in Life and Auto & Home commission revenue of $7.3 million and $5.4 million, respectively. For Senior, excluding the $193.3 million downward adjustment from a change in estimate of MA cohort transaction prices during the year ended June 30, 2022, commission revenue decreased $121.1 million, which was driven by a 20% decrease in approved policies and a 5% decrease in MA LTV’s, slightly offset by higher commission rates. Life’s revenue decline was primarily driven by an $11.8 million decrease in final expense revenue, partially offset by a $4.6 million increase in term revenue. The $180.1 million increase in pharmacy revenue was due to the increase in members from June 30, 2023, due to the expansion of the SelectRx business. The $7.2 million decrease in other revenue was primarily driven by a $12.3 million decrease in external lead generation revenue, partially offset by a $1.8 million increase in production bonus revenue and an increase in Population Health revenue of $2.8 million. 2022 compared to 2021—Commission revenue decreased $231.3 million, or 28%, which included decreases in Senior, Life, and Auto & Home commission revenues of $203.9 million, $21.0 million, and $1.8 million, respectively. For Senior, the revenue decline was driven by the 27% reduction in LTV’s of approved MA policies and a $193.3 million downward adjustment from a change in estimate of Senior MA cohort transaction prices. Life’s revenue decline was driven by a $15.0 million decrease in term life revenue, driven by lower agent headcount, and a $5.9 million decrease in final expense revenue, driven by an $9.5 million downward adjustment from provision for loss and a change in estimate of cohort transaction price, which was partially offset by an increase in the number of agents selling final expense policies. The revenue decline for Auto & Home was driven by our strategy to reduce the growth in that division. Production bonus revenue increased $18.4 million, which was primarily driven by a $22.4 million increase in marketing development funds received for Senior, partially offset by decreases of $2.7 million and $1.3 million for Life and Auto & Home, respectively. The $46.9 million increase in other revenue was primarily driven by $65.8 million of new revenue from Healthcare Services, partially offset by a reduction of $18.3 million in external lead generation revenue from InsideResponse, as more of their leads were consumed within Senior than in the prior year. Operating Costs and Expenses Cost of Revenue 56 Table of Contents Cost of revenue represents the direct costs associated with fulfilling our obligations to our customers in the Senior, Life, Auto & Home, and Population Health divisions, primarily compensation, benefits, and licensing for sales agents, customer success agents, fulfillment specialists, and others directly engaged in serving customers. It also includes allocations for facilities, telecommunications, and software maintenance costs, which are all based on headcount. Facilities costs include rent and utilities expenses and other costs to maintain our office locations. Telecommunications and software maintenance costs includes costs related to the internal phone systems and various software applications that our agents use to make sales. These costs directly correlate to the number of agents we have as we are primarily charged based on per person usage for the phone systems and software applications. The following table presents our cost of revenue for the years ended June 30 and the percentage changes from the prior year: [[GREPCENT_TABLE]] [["","","","","","","","Percent Change"],["(dollars in thousands)","2023","","2022","","2021","","2023 vs. 2022","","2022 vs. 2021"],["Cost of revenue","$","301,524","","","$","391,528","","","$","269,071","","","(23)%","","46%"]] [[/GREPCENT_TABLE]] 2023 compared to 2022—Cost of revenue decreased $90.0 million, or 23%, in 2023 compared to 2022, primarily due to a $66.8 million decrease in compensation costs, a $13.0 million decrease in licensing costs, and a $10.5 million decrease in allocations for facilities, telecommunications, and software maintenance costs, all of which is due to the reduction in our agent headcount. 2022 compared to 2021—Cost of revenue increased $122.5 million, or 46%, in 2022 compared to 2021, primarily due to a $97.5 million increase in compensation costs driven by the growth in the number of employees within Senior. The increase in headcount also drove increases in the allocations of $13.7 million for facilities, telecommunications, and software maintenance costs, and $8.4 million for licensing costs. Cost of Goods Sold-Pharmacy Revenue Cost of goods sold-pharmacy revenue represents the direct costs associated with fulfilling pharmacy patient orders for SelectRx. Such costs primarily consist of medication costs and compensation and related benefit costs for licensed pharmacists, pharmacy technicians, and other employees directly associated with fulfilling orders such as packaging and shipping clerks. It also includes shipping, supplies, other order fulfillment costs including part of the one-time customer onboarding costs, and certain facilities overhead costs such as rent, maintenance, and depreciation related to the pharmacy production process. The following table presents our cost of goods sold-pharmacy revenue for the periods presented and the percentage change from the prior year: [[GREPCENT_TABLE]] [["","","","","","","","Percent Change"],["(dollars in thousands)","2023","","2022","","2021","","2023 vs. 2022","","2022 vs. 2021"],["Cost of goods sold\u2014pharmacy revenue","$","225,963","","","$","64,172","","","$","1,644","","","252%","","3803%"]] [[/GREPCENT_TABLE]] 2023 compared to 2022–Cost of goods sold-pharmacy revenue increased $161.8 million, or 252%, in 2023 compared to 2022, due to a $134.8 million increase in medication costs, a $6.6 million increase in shipping and fulfillment costs, and a $15.3 million increase in compensation costs as the number of SelectRx members increased 92% over the prior year. 2022 compared to 2021–Cost of goods sold-pharmacy revenue increased $62.5 million, or 3803%, in 2022 compared to 2021, due to a $43.8 million increase in medication costs, a $3.7 million increase in shipping and 57 Table of Contents fulfillment costs, and a $15.0 million increase in compensation costs as the number of SelectRx members increased 923% over the prior year. Marketing and Advertising Marketing and advertising expenses consist primarily of the direct costs associated with marketing and advertising of our services, such as television and radio commercials and online advertising. These direct costs generally represent the vast majority of our marketing and advertising expenses. Other costs consist of compensation and other expenses related to marketing, business development, partner management, public relations, carrier relations personnel who support our offerings, and allocations for facilities, telecommunications, and software maintenance costs. Our marketing and advertising costs increase during AEP and OEP to generate more leads during these high-volume periods. The following table presents our marketing and advertising expenses for the years ended June 30 and the percentage changes from the prior year: [[GREPCENT_TABLE]] [["","","","","","","","Percent Change"],["(dollars in thousands)","2023","","2022","","2021","","2023 vs. 2022","","2022 vs. 2021"],["Marketing and advertising","$","301,245","","","$","484,084","","","$","385,291","","","(38)%","","26%"]] [[/GREPCENT_TABLE]] 2023 compared to 2022—Marketing and advertising expenses decreased $182.8 million, or 38%, in 2023 compared to 2022, due to a $173.9 million decrease in lead costs due to the decrease in volume associated with the Company’s updated operating strategy, as well as an $8.6 million decrease in compensation and benefits. However, we’ve seen an increase in marketing efficiency as our CAC per approved policy has decreased due to improved agent close rates as a result of increased focus on agent training and development. 2022 compared to 2021—Marketing and advertising expenses increased $98.8 million, or 26%, in 2022 compared to 2021, primarily due to a $88.4 million increase in lead costs associated with generating more leads for our larger agent base to consume and lower overall close rates which impacted our marketing efficiency, and a $7.7 million increase in compensation costs, as we increased the number of employees supporting our marketing organization to produce more leads. Additionally, there was a $2.1 million increase in depreciation and amortization expense due to additional fixed assets and software in service. Selling, General, and Administrative Selling, general, and administrative expenses include compensation and benefits costs for staff working in our executive, finance, accounting, recruiting, human resources, administrative, business intelligence, data science, and part of the SelectRx customer onboarding departments. These expenses also include fees paid for outside professional services, including audit, tax and legal fees and allocations for facilities, telecommunications, and software maintenance costs. The following table presents our selling, general, and administrative expenses for the years ended June 30 and the percentage changes from the prior year: [[GREPCENT_TABLE]] [["","","","","","","","Percent Change"],["(dollars in thousands)","2023","","2022","","2021","","2023 vs. 2022","","2022 vs. 2021"],["Selling, general and administrative","$","136,518","","","$","100,945","","","$","63,114","","","35%","","60%"]] [[/GREPCENT_TABLE]] 2023 compared to 2022—Selling, general, and administrative expenses increased $35.6 million, or 35%, in 2023 compared to 2022, primarily due to a $18.9 million increase in compensation costs, mostly related to the 58 Table of Contents expansion of SelectRx, and a $14.2 million increase in charges related to the impairment of long-lived assets as described in Notes 3, 4, and 7 to the consolidated financial statements. 2022 compared to 2021—Selling, general, and administrative expenses increased $26.7 million, or 42%, in 2022 compared to 2021, primarily due to $13.7 million in higher compensation costs due to additional headcount to support the growth in the business; $4.3 million in depreciation and amortization expenses due to additional fixed assets and software in service; $4.5 million in professional services fees due to increases in recruiting, accounting and legal, and insurance costs; and $3.1 million of charges related to the impairment of long-lived intangible assets as described in Note 7 to the consolidated financial statements. Technical Development Technical development expenses consist primarily of compensation and benefits costs for internal and external personnel associated with developing, maintaining and enhancing our applications, infrastructure and other IT-related functions as well as allocations for facilities, telecommunications and software maintenance costs. The following table presents our technical development expenses for the years ended June 30 and the percentage changes from the prior year: [[GREPCENT_TABLE]] [["","","","","","","","Percent Change"],["(dollars in thousands)","2023","","2022","","2021","","2023 vs. 2022","","2022 vs. 2021"],["Technical development","$","26,015","","","$","24,729","","","$","18,623","","","5%","","33%"]] [[/GREPCENT_TABLE]] 2023 compared to 2022—Technical development expenses increased $1.3 million, or 5%, in 2023 compared to 2022, primarily due to a $2.3 million increase in compensation costs related to our technology personnel. 2022 compared to 2021—Technical development expenses increased $6.1 million, or 33%, in 2022 compared to 2021, primarily due to a $3.4 million increase in compensation costs related to our technology personnel as we increased the number of people in our desktop support and development efforts to support the increase in total headcount. The increase in headcount also drove increases in the allocations of $1.6 million for facilities, telecommunications, and software maintenance costs. Interest Expense, Net The following table presents our interest expense, net for the years ended June 30 and the percentage changes from the prior year: [[GREPCENT_TABLE]] [["","","","","","","","Percent Change"],["(dollars in thousands)","2023","","2022","","2021","","2023 vs. 2022","","2022 vs. 2021"],["Interest expense, net","$","(80,606)","","","$","(43,595)","","","$","(29,320)","","","85%","","49%"]] [[/GREPCENT_TABLE]] 2023 compared to 2022—Interest expense increased $37.0 million, or 85%, in 2023 compared to 2022, as a result of interest incurred on the Term Loans due to additional principal outstanding and changes under the Fourth Amendment, the amortization and write-off of additional deferred financing costs associated with the amendments to the Senior Secured Credit Facility, as well as higher interest rates during the period. The increase was partially offset by interest income received from the interest rate swap and on our money market account. 2022 compared to 2021—Interest expense increased $14.3 million, or 49%, in 2022 compared to 2021, primarily as a result of the increase in our outstanding balances on the Term Loans and DDTL Facility, amortization 59 Table of Contents of additional deferred financing costs associated with the amendments to the Senior Secured Credit Facility, and the ticking fee interest assessed on the remaining available borrowing capacity of the DDTL Facility. Income Tax Expense (Benefit) The following table presents our provision for income taxes for the years ended June 30 and the percentage changes from the prior year: [[GREPCENT_TABLE]] [["","","","","","","","Percent Change"],["(dollars in thousands)","2023","","2022","","2021","","2023 vs. 2022","","2022 vs. 2021"],["Income tax expense (benefit)","$","(10,600)","","","$","(92,302)","","","$","33,156","","","(89)%","","(378)%"],["Effective tax rate","15.3","%","","23.7","%","","21.0","%"]] [[/GREPCENT_TABLE]] 2023 compared to 2022—Income tax benefit increased $81.7 million, or 89%, in 2023 compared to 2022. For the year ended June 30, 2023, we recognized an income tax benefit of $10.6 million, representing an effective tax rate of 15.3%. The differences from our federal statutory tax rate to the effective tax rate were primarily related to state income taxes, RSU vestings, executive officer compensation, and the recording of a valuation allowance for state tax attributes that the Company does not expect to utilize prior to expiration. For the year ended June 30, 2022, we recognized an income tax benefit of $92.3 million, representing an effective tax rate of 23.7%, with the differences from our federal statutory tax rate to the effective tax rate primarily related to state income taxes. 2022 compared to 2021—Income tax expense (benefit) decreased $125.5 million, or (378)%, in 2022 compared to 2021. For the year ended June 30, 2022, we recognized an income tax benefit of $92.3 million, representing an effective tax rate of 23.7%, with the differences from our federal statutory tax rate to the effective tax rate primarily related to state income taxes. For the year ended June 30, 2021, we recognized an income tax expense of $33.2 million, representing an effective tax rate of 21.0%, with the differences from our federal statutory tax rate to the effective tax rate primarily due to the net effects of state income taxes partially offset by Kansas High Performance Incentive Program (“HPIP”) tax credits and the exercise of non-qualified stock options. Segment Information The Company’s operating and reportable segments have been determined in accordance with ASC 280, Segment Reporting (“ASC 280”). Prior to the first quarter of fiscal 2023, the Company had reported financial results under three reportable segments: i) Senior, ii) Life, and iii) Auto & Home. Effective July 1, 2022, as a result of a change in strategic direction established for fiscal year 2023, the financial information available and the operating results that are regularly reviewed by the Company’s chief operating decision maker (“CODM”) to make decisions about resources to be allocated to the segments and assess its performance have also changed with the financial information related to Healthcare Services, which includes SelectRx and Population Health, now available and reviewed by our CODM separately from the remainder of the Senior reportable segment. As a result, the Company now reflects four reportable segments: i) Senior, ii) Healthcare Services, iii) Life, and iv) Auto & Home, and all prior periods have been restated to reflect four reportable segments. The Company includes non-operating activity, share-based compensation expense, certain intersegment eliminations, and the costs of providing corporate and other administrative services in its administrative division in Corporate & Eliminations. These services and activities are not directly identifiable with the Company’s reportable segments and are shown in the tables below to reconcile the reportable segments to the consolidated financial statements. The Company has not aggregated any operating segments into a reportable segment. Costs of revenue, cost of goods sold-pharmacy revenue, marketing and advertising, selling, general, and administrative, 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, selling, general, and administrative, and technical development operating expenses are allocated to each segment based on varying 60 Table of Contents metrics such as headcount. Adjusted EBITDA is calculated as total revenue for the applicable segment less direct and allocated costs of revenue, cost of goods sold, marketing and advertising, technical development, and selling, 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; and non-recurring expenses such as severance payments and transaction costs. Our CODM does not separately evaluate assets by segment, with the exception of commissions receivable, and therefore assets by segment are not presented. The following tables present information about the reportable segments for the periods presented: Year Ended June 30, 2023 [[GREPCENT_TABLE]] [["(in thousands)","Senior","","Healthcare Services","","Life","","Auto & Home","","Corp & Elims","","Consolidated"],["Revenue","$","590,131","","","$","252,075","","","$","145,832","","","$","21,862","","","$","(7,052)","","(1)","$","1,002,848"],["Operating expenses","(435,054)","","","(274,844)","","(122,759)","","","(21,782)","","","(73,985)","","(2)","(928,424)"],["Other income (expenses), net","\u2014","","","\u2014","","\u2014","","","1","","","(122)","","","(121)"],["Adjusted EBITDA","$","155,077","","","$","(22,769)","","","$","23,073","","","$","81","","","$","(81,159)","","","74,303"],["Share-based compensation expense","","","","","","","","","","","(11,310)"],["Transaction costs (3)","","","","","","","","","","","(5,569)"],["Depreciation and amortization","","","","","","","","","","","(27,881)"],["Loss on disposal of property, equipment, and software, net","","","","","","","","","","","(749)"],["Impairment of long-lived assets","","","","","","","","","","","(17,332)"],["Interest expense, net","","","","","","","","","","","(80,606)"],["Income tax benefit","","","","","","","","","","","10,600"],["Net loss","","","","","","","","","","","$","(58,544)"]] [[/GREPCENT_TABLE]] (1) Revenue in the Corp & Elims division represents intercompany revenue eliminated between segments, including for lead generation referrals from InsideResponse (within Senior) and referrals between the other segments. (2) Operating expenses in the Corp & Elims division primarily include $51.4 million in salaries and benefits for certain general, administrative, and IT related departments, and $19.5 million in professional services fees. (3) These expenses primarily consist of costs related to the Fourth Amendment to the Senior Secured Credit Facility, financing transaction costs, and non-restructuring severance expenses. Year Ended June 30, 2022 61 Table of Contents [[GREPCENT_TABLE]] [["","Senior","","Healthcare Services","","Life","","Auto & Home","","Corp & Elims","","Consolidated"],["Revenue","$","527,907","","","$","70,035","","","$","153,973","","","$","27,881","","","$","(15,751)","","(1)","$","764,045"],["Operating expenses","(689,609)","","","(102,132)","","(154,102)","","","(22,448)","","","(56,058)","","(2)","(1,024,349)"],["Other expenses, net","\u2014","","","\u2014","","\u2014","","","\u2014","","","(202)","","","(202)"],["Adjusted EBITDA","$","(161,702)","","","$","(32,097)","","","$","(129)","","","$","5,433","","","$","(72,011)","","","(260,506)"],["Share-based compensation expense","","","","","","","","","","","(7,052)"],["Non-recurring expenses (3)","","","","","","","","","","","(4,730)"],["Depreciation and amortization","","","","","","","","","","","(24,724)"],["Loss on disposal of property, equipment, and software","","","","","","","","","","","(1,456)"],["Goodwill impairment","","","","","","","","","","","(44,596)"],["Impairment of long-lived assets","","","","","","","","","","","(3,147)"],["Interest expense, net","","","","","","","","","","","(43,595)"],["Income tax benefit","","","","","","","","","","","92,302"],["Net loss","","","","","","","","","","","$","(297,504)"]] [[/GREPCENT_TABLE]] (1) Revenue in the Corp & Elims division represents intercompany revenue eliminated between segments, including for lead generation referrals from InsideResponse (within Senior) and referrals between the other segments. (2) Operating expenses in the Corp & Elims division primarily include $44.2 million in salaries and benefits for certain general, administrative, and IT related departments, and $18.2 million in professional services fees. (3) These expenses primarily consist of costs incurred for amendments to the Senior Secured Credit Facility, costs related to acquisitions, and severance expenses. Year Ended June 30, 2021 [[GREPCENT_TABLE]] [["","Senior","","Healthcare Services","","Life","","Auto & Home","","Corp & Elims","","Consolidated"],["Revenue","$","724,811","","","$","3,890","","","$","177,669","","","$","30,913","","","$","(7,302)","","(1)","$","929,981"],["Operating expenses","(479,646)","","","(5,280)","","(155,127)","","","(22,735)","","","(46,899)","","(2)","(709,687)"],["Other income (expenses), net","\u2014","","","2","","\u2014","","","\u2014","","","(100)","","","(98)"],["Adjusted EBITDA","$","245,165","","","$","(1,388)","","","$","22,542","","","$","8,178","","","$","(54,301)","","","220,196"],["Share-based compensation expense","","","","","","","","","","","(5,165)"],["Non-recurring expenses (2)","","","","","","","","","","","(6,065)"],["Fair value adjustments to contingent earnout obligations","","","","","","","","","","","(1,488)"],["Depreciation and amortization","","","","","","","","","","","(16,142)"],["Loss on disposal of property, equipment and software","","","","","","","","","","","(686)"],["Interest expense, net","","","","","","","","","","","(29,320)"],["Loss on extinguishment of debt","","","","","","","","","","","(3,315)"],["Income tax expense","","","","","","","","","","","(33,156)"],["Net income","","","","","","","","","","","$","124,859"]] [[/GREPCENT_TABLE]] 62 Table of Contents (1) Revenue in the Corp & Elims division represents intercompany revenue eliminated between segments, including for lead generation referrals from InsideResponse (within Senior) and referrals between the other segments. (2) Operating expenses in the Corp & Elims division primarily include $34.0 million in salaries and benefits for certain general, administrative, and IT related departments, and $13.4 million in professional services fees. (3) These expenses primarily consist of costs incurred for the First Amendment to the Senior Secured Credit Facility, recent acquisitions, re-designation of the hedge, and the secondary public offering completed on March 8, 2021 (“Secondary Offering”). The following table depicts the disaggregation of revenue by segment and product for the years ended June 30: [[GREPCENT_TABLE]] [["(dollars in thousands)","2023","","$","","%","","2022","","$","","%","","2021"],["Senior:"],["Commission revenue:"],["Medicare advantage","$","500,501","","","$","91,411","","","22","%","","$","409,090","","","$","(186,042)","","","(31)","%","","$","595,132"],["Medicare supplement","1,668","","","(3,556)","","","(68)","%","","5,224","","","(18,207)","","","(78)","%","","23,431"],["Prescription drug plan","513","","","683","","","(402)","%","","(170)","","","(1,822)","","","(110)","%","","1,652"],["Dental, vision, and health","3,855","","","(11,201)","","","(74)","%","","15,056","","","(913)","","","(6)","%","","15,969"],["Other commission revenue","2,697","","","(5,127)","","","(66)","%","","7,824","","","5,668","","","263","%","","2,156"],["Total commission revenue","509,234","","","72,210","","","17","%","","437,024","","","(201,316)","","","(32)","%","","638,340"],["Total other revenue","80,897","","","(9,986)","","","(11)","%","","90,883","","","4,412","","","5","%","","86,471"],["Total Senior revenue","590,131","","","62,224","","","12","%","","527,907","","","(196,904)","","","(27)","%","","724,811"],["Healthcare Services:"],["Total pharmacy revenue","239,547","","","180,087","","","303","%","","59,460","","","57,669","","","3220","%","","1,791"],["Total other revenue","12,528","","","1,953","","","18","%","","10,575","","","8,476","","","404","%","","2,099"],["Total Healthcare Services revenue","252,075","","","182,040","","","260","%","","70,035","","","66,145","","","1700","%","","3,890"],["Life:"],["Commission revenue:"],["Term","70,094","","","4,555","","","7","%","","65,539","","","(15,049)","","","(19)","%","","80,588"],["Final expense","56,488","","","(11,807)","","","(17)","%","","68,295","","","(5,932)","","","(8)","%","","74,227"],["Total commission revenue","126,582","","","(7,252)","","","(5)","%","","133,834","","","(20,981)","","","(14)","%","","154,815"],["Total other revenue","19,250","","","(889)","","","(4)","%","","20,139","","","(2,715)","","","(12)","%","","22,854"],["Total Life revenue","145,832","","","(8,141)","","","(5)","%","","153,973","","","(23,696)","","","(13)","%","","177,669"],["Auto & Home:"],["Total commission revenue","20,450","","","(5,401)","","","(21)","%","","25,851","","","(1,770)","","","(6)","%","","27,621"],["Total other revenue","1,412","","","(618)","","","(30)","%","","2,030","","","(1,262)","","","(38)","%","","3,292"],["Total Auto & Home revenue","21,862","","","(6,019)","","","(22)","%","","27,881","","","(3,032)","","","(10)","%","","30,913"],["Eliminations:"],["Total commission revenue","(2,796)","","","6,395","","","(70)","%","","(9,191)","","","(7,187)","","","359","%","","(2,004)"],["Total other revenue","(4,256)","","","2,304","","","(35)","%","","(6,560)","","","(1,262)","","","24","%","","(5,298)"],["Total Elimination revenue","(7,052)","","","8,699","","","(55)","%","","(15,751)","","","(8,449)","","","116","%","","(7,302)"],["Total commission revenue","653,470","","","65,952","","","11","%","","587,518","","","(231,254)","","","(28)","%","","818,772"],["Total pharmacy revenue","239,547","","","180,087","","","303","%","","59,460","","","57,669","","","3220","%","","1,791"],["Total other revenue","109,831","","","(7,236)","","","(6)","%","","117,067","","","7,649","","","7","%","","109,418"],["Total revenue","$","1,002,848","","","$","238,803","","","31","%","","$","764,045","","","$","(165,936)","","","(18)","%","","$","929,981"]] [[/GREPCENT_TABLE]] Revenue by Segment 63 Table of Contents 2023 compared to 2022—Revenue from our Senior segment was $590.1 million for the year ended June 30, 2023, a $62.2 million, or 12%, increase compared to revenue of $527.9 million for the year ended June 30, 2022. The increase was due to a $72.2 million, or 17%, increase in commission revenue, offset by a $14.6 million decrease in lead generation revenue. Revenue from Healthcare Services was $252.1 million for the year ended June 30, 2023, a $182.0 million, or 260%, increase compared to revenue of $70.0 million for the year ended June 30, 2022, primarily due to a $180.1 million increase in SelectRx pharmacy revenue. Revenue from our Life segment was $145.8 million for the year ended June 30, 2023, a $8.1 million, or 5%, decrease compared to revenue of $154.0 million for the year ended June 30, 2022, primarily due to a $7.3 million decrease in commission revenue. Revenue from our Auto & Home segment was $21.9 million for the year ended June 30, 2023, a $6.0 million, or 22%, decrease compared to revenue of $27.9 million for the year ended June 30, 2022. The decrease was primarily due to a $5.4 million decrease in commission revenue which was a result of a $10.4 million change in estimate related to the mutual termination of a contract with a certain Auto & Home carrier to restructure the book of business for that carrier. 2022 compared to 2021—Revenue from our Senior segment was $527.9 million for the year ended June 30, 2022, a $196.9 million, or 27%, decrease compared to revenue of $724.8 million for the year ended June 30, 2021. The decrease was primarily due to a $186.0 million, or 31%, decrease in MA commission revenue driven by a $193.3 million downward adjustment from the change in estimate of cohort transaction prices, a $18.2 million decrease in MS commission revenue, and a reduction of $18.3 million in external lead generation revenue from InsideResponse, partially offset by a $22.4 million increase in marketing development funds received. Revenue from Healthcare Services was $70.0 million for the year ended June 30, 2022 a $66.1 million, or 1700%, increase compared to revenue of $3.9 million for the year ended June 30, 2021, primarily due to a $57.7 million increase in SelectRx pharmacy revenue. Revenue from our Life segment was $154.0 million for the year ended June 30, 2022, a $23.7 million, or 13%, decrease compared to revenue of $177.7 million for the year ended June 30, 2021. The decrease was primarily due to a $15.0 million decrease in term life revenue, driven by lower agent headcount, and a $5.9 million decrease in final expense revenue, which was the result of an $9.5 million downward adjustment from provision for loss and a change in estimate of cohort transaction price, which was partially offset by an increase in the number of agents selling final expense policies. Revenue from our Auto & Home segment was $27.9 million for the year ended June 30, 2022, a $3.0 million, or 10%, decrease compared to revenue of $30.9 million for the year ended June 30, 2021, primarily due to our strategy to reduce the growth in Auto & Home. Adjusted EBITDA by Segment 2023 compared to 2022—–Adjusted EBITDA from our Senior segment was $155.1 million for the year ended June 30, 2023, a $316.8 million, or 196%, increase compared to Adjusted EBITDA of $(161.7) million for the year ended June 30, 2022. The increase was due to a $62.2 million increase in revenue and a $254.6 million decrease in operating costs and expenses primarily due to a $157.1 million reduction in marketing and advertising costs, a $73.4 million reduction in compensation costs, and a $11.2 million reduction in licensing fees, all of which support our updated operating strategy. Adjusted EBITDA from Healthcare Services was $(22.8) million for the year ended June 30, 2023, a $9.3 million increase compared to Adjusted EBITDA of $(32.1) million for the year ended June 30, 2022. The increase was due to a $182.0 million increase in revenue, offset by a $172.7 million increase in operating costs and expenses 64 Table of Contents primarily as a result of a $134.8 million increase in medication costs, a $27.0 million increase in compensation costs, and a $6.4 million increase in fulfillment costs, due to the growth of Healthcare Services. Adjusted EBITDA from our Life segment was $23.1 million for the year ended June 30, 2023, a $23.2 million, or 17986%, increase compared to Adjusted EBITDA of $(0.1) million for the year ended June 30, 2022. The increase in Adjusted EBITDA was due to a $31.3 million decrease in operating costs and expenses primarily due to a $26.8 million reduction in marketing and advertising costs and a $3.7 million reduction in compensation costs, all of which support our updated operating strategy. The decrease in operating costs and expenses was offset by a $8.1 million decrease in revenue as discussed above. Adjusted EBITDA from our Auto & Home segment was $0.1 million for the year ended June 30, 2023, a $5.4 million, or 99%, decrease compared to Adjusted EBITDA of $5.4 million for the year ended June 30, 2022. The decrease in Adjusted EBITDA was due to a $6.0 million decrease in revenue as a result of a $10.4 million change in estimate related to the mutual termination of a contract with a certain Auto & Home carrier to provide for the ability to migrate the book of business to other carriers. The decrease was offset by a $0.7 million decrease in operating costs and expenses due to a $1.1 million reduction in marketing and advertising costs, offset by an increase in fulfillment costs of $0.4 million. 2022 compared to 2021—Adjusted EBITDA from our Senior segment was $(161.7) million for the year ended June 30, 2022, a $406.9 million, or 166%, decrease compared to Adjusted EBITDA of $245.2 million for the year ended June 30, 2021. The decrease in Adjusted EBITDA was primarily due to a $210.0 million increase in operating costs and expenses, driven by a $97.1 million increase in variable marketing expenses as discussed above, and a $95.1 million increase in personnel costs associated with additional headcount. In addition, there was a $196.9 million decrease in Senior revenue, driven by the $193.3 million downward adjustment from a change in estimate of MA cohort transaction prices discussed above. Adjusted EBITDA from Healthcare Services was $(32.1) million for the year ended June 30, 2022, a $30.7 million decrease compared to Adjusted EBITDA of $(1.4) million for the year ended June 30, 2021. The decrease in Adjusted EBITDA was primarily due to a $96.9 million increase in operating costs and expenses, driven by $25.4 million higher fulfillment costs in support of the growth of Healthcare Services, and $43.8 million in pharmaceutical costs for SelectRx The increase in operating costs and expenses was offset by the $66.1 million increase in revenue as discussed above. Adjusted EBITDA from our Life segment was $(0.1) million for the year ended June 30, 2022, a $22.7 million, or 101%, decrease compared to Adjusted EBITDA of $22.5 million for the year ended June 30, 2021. The decrease in Adjusted EBITDA was primarily due to a $23.7 million decrease in revenue as a result of the decreases in term life and final expense revenue discussed above. Adjusted EBITDA from our Auto & Home segment was $5.4 million for the year ended June 30, 2022, a $2.7 million, or 34%, decrease compared to Adjusted EBITDA of $8.2 million for the year ended June 30, 2021. The decrease in Adjusted EBITDA was due to a $3.0 million decrease in revenue partially offset by a $0.3 million decrease in operating costs and expenses. The revenue decline for Auto & Home was driven by our strategy to reduce the growth in that division. Liquidity and Capital Resources Our liquidity needs primarily include working capital and debt service requirements. We believe that the cash available under the Senior Secured Credit Facility will be sufficient to meet our projected operating and debt service requirements for at least the next 12 months. Additionally, we are required under the Senior Secured Credit Facility to maintain compliance with certain debt covenants, as discussed further in Note 10 to the consolidated financial statements. Based on our financial projections, we believe we will remain in compliance with the debt covenants through the 12 months following the date of issuance of our consolidated financial statements. Our future compliance with these covenants is dependent on our ability to restructure our existing debt or secure additional financing from other sources, thus we are actively exploring various financing options, including, but not limited to 65 Table of Contents securitization. Failure to comply with these covenants or make payments under the Senior Secured Credit Facility could result in an event of default. As of June 30, 2023 and June 30, 2022, our cash and cash equivalents totaled $83.2 million and $141.0 million, respectively. Additionally, the following table presents a summary of our cash flows for the years ended June 30: [[GREPCENT_TABLE]] [["(in thousands)","2023","","2022","","2021"],["Net cash used in operating activities","$","(19,377)","","","$","(338,314)","","","$","(115,442)"],["Net cash used in investing activities","(9,125)","","","(42,576)","","","(64,016)"],["Net cash (used in) provided by financing activities","(29,339)","","","235,433","","","97,042"]] [[/GREPCENT_TABLE]] Operating Activities Net cash used in operating activities primarily consists of net income, adjusted for certain non-cash items including depreciation; amortization of intangible assets and internally developed software; deferred income taxes; share-based compensation expense; impairment charges; and the effect of changes in working capital and other activities. Collection of commissions receivable depends upon the timing of our receipt of commission payments and associated commission statements from our insurance carrier partners. If we were to experience a delay in receiving a commission payment from an insurance carrier partner within a quarter, our operating cash flows for that quarter could be adversely impacted. A significant portion of our marketing and advertising expenses is driven by the number of leads required to generate the insurance applications we submit to our insurance carrier partners. Our marketing and advertising costs are expensed and generally paid as incurred and since commission revenue is recognized upon approval of a policy but commission payments are paid to us over time, there are working capital requirements to fund the upfront cost of acquiring new policies. During AEP, we experience an increase in the number of submitted Senior insurance applications and marketing and advertising expenses compared to periods outside of AEP. The timing of AEP affects the positive or negative impacts of our cash flows during each quarter. Year Ended June 30, 2023—Net cash used in operating activities was $19.4 million, consisting of net loss of $58.5 million, adjustments for non-cash items of $71.7 million, and cash used in operating assets and liabilities of $32.5 million. Adjustments for non-cash items primarily consisted of $27.9 million of depreciation and amortization, $17.3 million of charges for impairment of long-lived assets, $11.3 million of share-based compensation expense, $12.0 million of accrued interest payable in kind on the Term Loans, $8.7 million of amortization of debt issuance costs and debt discount, and $4.2 million of non-cash lease expense, offset by $11.2 million in deferred income taxes. The cash decrease resulting from changes in net operating assets and liabilities primarily consisted of an increase of $24.8 million in accounts receivable, net, an increase of $1.9 million in commissions receivable, and a decrease of $3.6 million in accounts payable and accrued expenses, partially offset by an increase of $3.3 million in other liabilities. Year Ended June 30, 2022—Cash used in operating activities was $338.3 million, consisting of net loss of $297.5 million, adjustments for non-cash items of $2.2 million, and cash used in operating assets and liabilities of $38.6 million. Adjustments for non-cash items primarily consisted of $92.7 million in deferred income taxes as the Company defers revenue related to certain commissions receivable into following years until it is collected, partially offset by $44.6 million of goodwill impairment charges, $24.7 million of depreciation and amortization related to additional fixed assets purchases to accommodate our growth in headcount and internally developed software in service, $7.1 million of share-based compensation expense, $5.5 million in amortization of debt issuance costs and debt discount, and $4.1 million of non-cash lease expense. The cash decrease resulting from changes in net operating assets and liabilities primarily consisted of increases of $25.7 million in accounts receivable, net related to the 66 Table of Contents increase in approved policies, increases of $10.9 million in other assets primarily related to increases in prepaid balances and SelectRx inventory, and decreases of $5.1 million in operating lease liabilities, partially offset by a decrease of $7.3 million in commissions receivable. Year Ended June 30, 2021—Cash used in operating activities was $115.4 million, consisting of net income of $124.9 million and adjustments for non-cash items of $66.2 million, offset by cash used in operating assets and liabilities of $306.5 million. Adjustments for non-cash items primarily consisted of $33.0 million in deferred income taxes as the Company defers revenue related to certain commissions receivable into following years until it is collected, $16.1 million of depreciation and amortization related to additional fixed assets purchases to accommodate our growth in headcount and internally developed software in service, $5.2 million of share-based compensation expense, and $3.8 million of non-cash lease expense. The cash decrease resulting from changes in net operating assets and liabilities primarily consisted of increases of $332.9 million in commissions receivable and $20.0 million in accounts receivable, net related to the increase in approved policies, partially offset by increases of $19.7 million in accounts payable and accrued expenses and $25.6 million in other liabilities, which consists primarily of commission advances and accrued compensation and benefits, all driven by the increased marketing and personnel costs required to produce our increased revenue. Investing Activities Our investing activities primarily consist of purchases of property, equipment, and software and capitalized salaries related to the development of internal-use software. Year Ended June 30, 2023—Net cash used in investing activities of $9.1 million was due to $1.4 million of purchases of property and equipment, primarily to support the growth of SelectRx infrastructure, and $7.7 million in purchases of software and capitalized internal-use software development costs. Year Ended June 30, 2022—Net cash used in investing activities of $42.6 million was primarily due to $24.8 million of purchases of property and equipment primarily to support AEP and OEP and the growth of SelectRx infrastructure, $9.9 million in purchases of software and capitalized internal-use software, $6.9 million of net cash paid to acquire Simple Meds, and a $1.0 million non-controlling interest equity investment. Year Ended June 30, 2021—Net cash used in investing activities of $64.0 million was primarily due to $41.0 million of cash paid net of the cash acquired for the acquisitions of a lead distribution company and Express Med Pharmaceuticals as well as $14.9 million of purchases of property and equipment and $8.1 million in purchases of software and capitalized internal-use software spent to develop and enhance new and existing systems to efficiently accommodate our increased volumes. Acquisitions On February 1, 2021, we 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), comprised of $24.0 million in cash paid at the closing of the transaction, $6.0 million of holdback for, if any, indemnification claims, net working capital adjustments, and underperformance, and an earnout of up to $3.5 million. The minimum earnout target was not achieved; however, the remaining holdback was earned in full, and the Company paid the remaining holdback of $5.5 million, with interest, after the net working capital true-up of $0.5 million, during the year ended June 30, 2022. On April 30, 2021, we acquired 100% of the outstanding shares of Express Med Pharmaceuticals for an aggregate purchase price of up to $24.0 million (subject to customary adjustments), 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. During the year ended June 30, 2023, the Company paid the first and second earnout provisions of $3.0 million and $1.0 million, respectively, as well as the remaining holdback, net of adjustments, of $2.4 million. 67 Table of Contents On August 31, 2021, SelectRx acquired 100% of the outstanding equity interests of Simple Meds for an aggregate purchase price of $7.0 million (subject to customary adjustments). The aggregate purchase price of $7.0 million was paid in cash at the closing of the transaction. Refer to Note 2 to the consolidated financial statements for further details concerning acquisitions. Financing Activities Our financing activities primarily consist of proceeds from the issuance of debt and equity and proceeds and payments related to stock-based compensation. Year Ended June 30, 2023—Net cash used in financing activities of $29.3 million was primarily due to $10.1 million of debt issuance costs related to the Fourth Amendment, $17.8 million of principal payments on the Term Loans, and $2.4 million of holdback remitted as part of the Express Med acquisition, partially offset by $1.2 million in proceeds from common stock options exercised and the employee stock purchase plan. Year Ended June 30, 2022—Net cash provided by financing activities of $235.4 million was primarily due to $242.0 million in net proceeds from the DDTL Facility and $3.2 million in proceeds from common stock options exercised and the employee stock purchase plan, partially offset by a holdback settlement of $5.5 million for acquisition of a lead distribution company, principal payments of $2.4 million and $1.2 million on the Term Loans and DDTL Facility, respectively, and $0.3 million in debt issuance costs related to the amendments to the Senior Secured Credit Facility. Year Ended June 30, 2021—Net cash provided by financing activities of $97.0 million was primarily due to $228.8 million in net proceeds from the Term Loans as a result of the First Amendment, partially offset by payments of $84.1 million related to the partial extinguishment of the Term Loans prior to the First Amendment, $32.3 million of earnout for the InsideResponse acquisition, and $10.4 million for withholding taxes related to net share settlements of employee stock option awards. Senior Secured Credit Facility We entered into the Senior Secured Credit Facility to provide access to cash, in a variety of methods, when necessary to fund the operations of the business. There were no amounts outstanding under the Revolving Credit Facility as of June 30, 2023. As of June 30, 2023, there was $707.5 million outstanding under the Term Loans. Refer to Note 10 to the consolidated financial statements for further details. Our risk management strategy includes entering into interest rate swap agreements to protect against unfavorable interest rate changes relating to forecasted debt transactions. The Company's Amended Interest Rate Swap is designated as a cash flow hedge of the interest payments on $325.0 million in principal of the Term Loans. Refer to Note 9 to the consolidated financial statements for further details. Contractual Obligations Our principal commitments consist of obligations under our outstanding operating leases for office facilities; our Senior Secured Credit Facility which includes the Term Loans and Revolving Credit Facility (as defined in Note 10 to the consolidated financial statements); and our Amended Interest Rate Swap (as defined in Note 9 to the consolidated financial statements). In addition, we have outstanding service and licensing agreements with various vendors for connectability, maintenance, and other services, including minimum purchase requirements for pharmaceuticals. We believe that we will be able to fund these obligations through our existing cash and cash equivalents and cash generated from operations. Recent Accounting Pronouncements 68 Table of Contents For a discussion of new accounting pronouncements recently adopted and not yet adopted, see the notes to our consolidated financial statements. Critical Accounting Policies and Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets, and liabilities and disclosure of contingent assets and liabilities in our financial statements. We regularly assess these estimates; however, actual amounts could differ from those estimates. The impact of changes in estimates is recorded in the period in which they become known. An accounting policy is considered to be critical if the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and the effect of the estimates and assumptions on financial condition or operating performance. The accounting policies we believe to reflect our more significant estimates, judgments and assumptions that are most critical to understanding and evaluating our reported financial results are: revenue recognition for commissions revenue, commissions receivable, accounting for income taxes, share-based compensation, the valuation of assets and liabilities acquired from acquisitions, and the impairment of intangible assets and goodwill. Commission Revenue Recognition and Commissions Receivable In accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”), revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration that an entity expects to receive in exchange for those goods or services. We apply the following five-step model in order to determine this amount: (i) identification of the promised goods in the contract; (ii) determination of whether the promised goods are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) we satisfy each performance obligation. Significant management judgments and estimates must be made in connection with determination of the revenue to be recognized in any accounting period. If we made different judgments or utilized different estimates for any period, material differences in the amount and timing of revenue recognized could result. The accounting estimates and judgments related to the recognition of revenue require us to make assumptions about numerous factors such as the determination of performance obligations and determination of the transaction price. The estimate of renewal commission revenue is considered variable consideration and requires significant judgment to determine the renewal commission revenue to be recognized at the time the performance obligation is met and in the reassessment of the transaction price each reporting period. This includes determining the number of periods in which a renewal will occur and the value of those renewal commissions to be received if renewed, which includes estimating persistency, the renewal year provision, and an additional product specific constraint applied to account for trends such as industry volatility or uncertainty of consumer behavior patterns. Persistency is the estimate of policies expected to renew each year and renewal year provision is the estimate of policies expected to lapse during each renewal period. The estimated average duration of expected renewals for our cohorts used in the calculation of LTV is ten years. Effective for policies sold during the three months ended December 31, 2021, and thereafter, the Company increased the product specific constraint for our largest product, Medicare Advantage, from 6% to 15%. The assumptions used in the Company’s calculation of renewal commission revenue are based on a combination of the Company’s historical experience for renewals, lapses, and payment data; available insurance carrier data; other industry or consumer behavior patterns; and expectations for future retention rates. The estimate of variable consideration is recognized only to the extent it is probable that a material reversal in revenue would not be expected to occur when the uncertainty associated with future commissions receivables is subsequently resolved when the policy renews or lapses. The Company is continuously reviewing and monitoring the assumptions and inputs into the Company’s calculation of renewal commission revenue, including reviewing changes in the data used to estimate LTV’s as well as monitoring the cash received for each cohort as compared to the original estimates at 69 Table of Contents the time the policy was sold. The Company assesses the actual renewal data and historical data to identify trends and updates assumptions when a sufficient amount of evidence would suggest that the expectation underlying the assumption has changed and a change in estimate of the transaction price is warranted. The differences in actual cash received for current period renewals may result in an adjustment by cohort (“cohort adjustment”) to revenue and commissions receivable. Cohort adjustments can be positive or negative and are recognized using actual experience from policy renewals. The Company analyzes cohort adjustments to determine if they are indicative of changes needed in our estimates of future renewal commissions (“tail adjustments”) that remain unresolved as of the reporting period. The Company recognizes revenue when it has completed its performance obligation, which is at different milestones for each segment based on the contractual enforceable rights, the Company’s historical experience, and established customer business practices: •Senior—Commission revenue is recognized at the earliest of when the insurance carrier has approved the policy sold, when a commission payment is received from the insurance carrier, or when the policy sold becomes effective. •Life—Term commission revenue is recognized when the insurance carrier has approved the policy sold and payment information has been obtained from the policyholder. Final expense commission revenue is recognized when the carrier provides confirmation the policy is active. •Auto & Home—Commission revenue is recognized when the policy sold becomes effective. Commissions receivable are contract assets that represent estimated variable consideration for performance obligations that have been satisfied but payment is not due as the underlying policy has not renewed yet and are therefore subject to the same assumptions, judgements, and estimates used when recognizing revenue as noted above. The current portion of commissions receivable are future renewal commissions expected to be renewed and collected in cash within one year, while the non-current portion of commissions receivable are expected to be collected beyond one year. Contract assets are reclassified as accounts receivable, net when the rights to the renewal commissions become unconditional, which is primarily upon renewal of the underlying policy, typically on an annual basis. Income Taxes The Company applies ASC 740, Income Taxes (“ASC 740”), in accounting for uncertainty in income taxes recognized in the Company’s consolidated financial statements. ASC 740 requires a “more-likely-than-not” (“MLTN”) threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. The Company records a liability for the difference between the benefit recognized and measured pursuant to ASC 740 and the tax position taken or expected to be taken on the Company’s tax return. To the extent that the assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. In accordance with ASC 740, we account for income taxes using an asset and liability approach. Deferred income tax assets and liabilities result from temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements that will result in taxable or deductible amounts in future years. The Company continues to recognize a majority of its deferred tax assets as of June 30, 2023, as it believes it is more likely than not that the deferred tax assets will be realized. The Company recognizes a significant deferred tax liability due to the timing of recognizing revenue when a policy is sold, while revenue for tax purposes is not recognized until future renewal commission payments are received. This deferred tax liability is an objective source of future income that can be used to support the realizability of the Company’s deferred tax assets. During the year ended June 30, 2023, the Company recorded a valuation allowance on deferred tax balances related to state tax attributes the Company determined would not be utilized prior to expiration and for which there are not sufficient deferred tax liabilities to objectively demonstrate the ability to utilize certain state NOLs. The Company believes all other deferred tax assets are more likely than not to be recognized. 70 Table of Contents Share-Based Compensation We recognize share-based compensation expense in the consolidated statements of comprehensive income (loss) based on the fair value of our stock-based awards over their respective vesting periods, depending on the plan. The estimated grant date fair value of our stock options is determined using the Black-Scholes-Merton pricing model. The expected term for stock options granted is determined using the simplified method, which deems the expected term to be the midpoint between the vesting date and the contractual life of the stock-based awards. The dividend yield is determined by dividing the expected per share dividend during the coming year by the grant date stock price, however, we do not expect to pay any dividends in the foreseeable future. We base the risk-free interest rate on the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term of our stock options. Expected volatility is determined using historical stock prices for a combination of publicly traded peer group companies and our stock price. The estimated grant date fair value of our PVU’s are estimated using a Monte Carlo simulation valuation model that uses assumptions determined as of the date of the grant. These assumptions include estimating the volatility of the Company's common stock price over the expected term, 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, the cost of equity, and the dividend yield assumption which is based on the Company's dividend payment history and management's expectations of future dividend payments. The estimated attainment of performance-based awards and related expense is based on the expectations of target achievement. The assumptions used in calculating the fair value of stock-based payment awards and expected attainment of performance or market based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. We will continue to use judgment in evaluating the expected term and volatility related to our own stock-based awards on a prospective basis, and incorporating these factors into the model. Changes in key assumptions could significantly impact the valuation of such instruments. Impairment of Long-Lived Assets and Goodwill The Company accounts for long-lived assets in accordance with the provisions of ASC 360, Property, Plant and Equipment (“ASC 360”). ASC 360 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset or asset group may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to its expected future undiscounted cash flows. If the carrying amount exceeds its expected future undiscounted cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset or asset group exceeds its fair value. For purposes of this test, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. For the years ended June 30, 2023 and June 30, 2022, the Company recorded impairment charges of $17.3 million and $3.1 million, respectively, in general and administrative expense in the consolidated statements of comprehensive income (loss) related to write-offs of previously acquired definite-lived intangible assets from which the Company does not expect to receive future economic benefit. There were no impairment charges recorded on the Company’s long-lived assets for the year ended June 30, 2021. Refer to Note 7 to the consolidated financial statements for additional details. Goodwill represents the excess of the purchase price over the estimated fair values of identifiable assets and liabilities acquired in a business combination as of the acquisition date. Goodwill is not amortized in accordance with the requirements of ASC 350, Intangibles-Goodwill and Other (“ASC 350”), rather, goodwill is tested for impairment on an annual basis and whenever events or circumstances indicate that the asset may be impaired. Further, goodwill is allocated, and evaluated for impairment, at the reporting unit level, which is defined as an operating segment or one level below an operating segment. We have the option to perform a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit has declined below its carrying value. This assessment considers various financial, 71 Table of Contents macroeconomic, industry and segment specific qualitative factors. If we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying value, a quantitative test is then performed by estimating the fair value of the reporting unit and comparing it with its carrying value, including goodwill. If the carrying amount of a reporting unit is greater than its estimated fair value, goodwill is written down by the excess amount, limited to the total amount of goodwill allocated to that reporting unit. The Company estimates the fair value of reporting units under ASC 350 by using an income approach, a market approach, or a combination thereof, which involves the use of significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy of ASC 820, Fair Value Measurement (“ASC 820”), and require us to make various judgmental assumptions around future revenues and operating costs, growth rates, and discount rates which consider our budgets, business plans, and economic projections. As such, these estimates are uncertain and may vary from actual results. Under the income approach, we utilize the discounted cash flow method while under the market approach, we utilize a peer-based guideline public company method based on published multiples of earnings of comparable entities with similar operations and economic characteristics. There were no goodwill impairment charges recorded for the year end June 30, 2023. As a result of our annual goodwill impairment test as of April 1, 2022, the Company recorded goodwill impairment charges of $44.6 million in goodwill impairment in the consolidated statement of comprehensive income (loss) for the year ended June 30, 2022. There were no goodwill impairment charges recorded for the year ended June 30, 2021. Refer to Note 7 to the consolidated financial statements for additional details. 72 Table of Contents