UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended December 31, 2022

OR

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

For the transition period from   to

001-39295

(Commission File Number)

SelectQuote, Inc.

(Exact name of registrant as specified in its charter)

Delaware		94-3339273
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
6800 West 115th Street	Suite 2511	66211
Overland Park	Kansas	(Zip Code)
(Address of principal executive offices)

(913) 599-9225

(Registrant's telephone number, including area code)

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

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	SLQT	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ☒   No  ☐ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes  ☐   No  ☒

The registrant had outstanding 166,511,722 shares of common stock as of January 31, 2023.

SELECTQUOTE, INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS

	PART I FINANCIAL INFORMATION	PAGE
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets as of December 31, 2022 and June 30, 2022	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended December 31, 2022 and 2021	3
	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended December 31, 2022 and 2021	4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2022 and 2021	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	56
Item 4.	Controls and Procedures	56
	PART II OTHER INFORMATION
Item 1.	Legal Proceedings	58
Item 1A.	Risk Factors	58
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58
Item 3.	Defaults Upon Senior Securities	58
Item 4.	Mine Safety Disclosures	58
Item 5.	Other Information	58
Item 6.	Exhibits	59
	Signatures	60

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SELECTQUOTE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)

	December 31, 2022		June 30, 2022
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	36,097	$	140,997
Accounts receivable, net of allowances of $1.8 million and $0.6 million, respectively	134,912		129,748
Commissions receivable-current	219,990		116,277
Other current assets	13,384		15,751
Total current assets	404,383		402,773
COMMISSIONS RECEIVABLE—Net	733,337		722,349
PROPERTY AND EQUIPMENT—Net	34,786		41,804
SOFTWARE—Net	16,099		16,301
OPERATING LEASE RIGHT-OF-USE ASSETS	27,285		28,016
INTANGIBLE ASSETS—Net	28,411		31,255
GOODWILL	29,136		29,136
OTHER ASSETS	24,476		18,418
TOTAL ASSETS	$	1,297,913	$	1,290,052
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	27,356	$	24,766
Accrued expenses	21,859		26,002
Accrued compensation and benefits	46,065		42,150
Operating lease liabilities—current	6,349		5,261
Current portion of long-term debt	21,400		7,169
Contract liabilities	38,752		3,404
Other current liabilities	2,374		4,761
Total current liabilities	164,155		113,513
LONG-TERM DEBT, NET—less current portion	670,119		698,423
DEFERRED INCOME TAXES	46,896		50,080
OPERATING LEASE LIABILITIES	31,749		33,946
OTHER LIABILITIES	3,229		2,985
Total liabilities	916,148		898,947
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS’ EQUITY:
Common stock, $0.01 par value	1,665		1,644
Additional paid-in capital	561,435		554,845
Accumulated deficit	(197,070)		(177,100)
Accumulated other comprehensive income	15,735		11,716
Total shareholders’ equity	381,765		391,105
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,297,913	$	1,290,052

See accompanying notes to condensed consolidated financial statements.

2

SELECTQUOTE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands)

	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021
REVENUE:
Commission	$	230,033	$	139,957	$	336,368	$	270,764
Pharmacy	51,601		8,770		92,694		13,237
Other	37,554		45,510		52,610		66,315
Total revenue	319,188		194,237		481,672		350,316
OPERATING COSTS AND EXPENSES:
Cost of revenue	91,477		136,189		156,641		222,980
Cost of goods sold—pharmacy revenue	50,096		10,172		92,450		15,043
Marketing and advertising	89,925		193,246		147,519		283,923
Selling, general, and administrative	28,412		21,894		59,118		45,789
Technical development	6,245		6,386		12,427		12,239
Total operating costs and expenses	266,155		367,887		468,155		579,974
INCOME (LOSS) FROM OPERATIONS	53,033		(173,650)		13,517		(229,658)
INTEREST EXPENSE, NET	(21,044)		(10,587)		(37,780)		(19,122)
OTHER INCOME (EXPENSE), NET	(70)		(51)		88		(153)
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT)	31,919		(184,288)		(24,175)		(248,933)
INCOME TAX EXPENSE (BENEFIT)	9,405		(46,725)		(4,205)		(63,138)
NET INCOME (LOSS)	$	22,514	$	(137,563)	$	(19,970)	$	(185,795)
NET INCOME (LOSS) PER SHARE:
Basic	$	0.14	$	(0.84)	$	(0.12)	$	(1.13)
Diluted	$	0.14	$	(0.84)	$	(0.12)	$	(1.13)
WEIGHTED-AVERAGE COMMON STOCK OUTSTANDING USED IN PER SHARE AMOUNTS:
Basic	166,486		163,966		165,655		163,829
Diluted	166,548		163,966		165,655		163,829
OTHER COMPREHENSIVE INCOME (LOSS) NET OF TAX:
Gain (loss) on cash flow hedge	(381)		1,775		4,019		1,769
OTHER COMPREHENSIVE INCOME (LOSS)	(381)		1,775		4,019		1,769
COMPREHENSIVE INCOME (LOSS)	$	22,133	$	(135,788)	$	(15,951)	$	(184,026)

See accompanying notes to the condensed consolidated financial statements.

3

SELECTQUOTE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Unaudited)

(In thousands)

Three Months Ended December 31, 2022
	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Shareholders' Equity
	Shares	Amount
BALANCES-September 30, 2022	166,462	$	1,665	$	558,501	$	(219,584)	$	16,116	$	356,698
Net income	—	—		—		22,514		—		22,514
Gain on cash flow hedge, net of tax	—	—		—		—		1,255		1,255
Amount reclassified into earnings, net tax	—	—		—		—		(1,636)		(1,636)
Exercise of employee stock options, net of shares withheld for cashless exercises and to cover tax withholdings	—	—		—		—		—		—
Issuance of common stock pursuant to employee stock purchase plan	—	—		—		—		—		—
Vesting of restricted stock unit awards net of shares withheld to cover tax withholdings	49	—		(2)		—		—		(2)
Share-based compensation expense	—	—		2,936		—		—		2,936
BALANCES-December 31, 2022	166,511	$	1,665	$	561,435	$	(197,070)	$	15,735	$	381,765

Three Months Ended December 31, 2021
	Common Stock			Additional Paid-In Capital		Retained Earnings/(Accumulated Deficit)		Accumulated Other Comprehensive Income		Total Shareholders' Equity
	Shares	Amount
BALANCES-September 30, 2021	163,930	$	1,639	$	549,034	$	72,172	$	223	$	623,068
Net loss	—	—		—		(137,563)		—		(137,563)
Gain on cash flow hedge, net of tax	—	—		—		—		1,602		1,602
Amount reclassified into earnings, net of tax	—	—		—		—		173		173
Exercise of employee stock options, net of shares withheld for cashless exercises and to cover tax withholdings	55	—		76		—		—		76
Issuance of common stock pursuant to employee stock purchase plan	—	—		—		—		—		—
Vesting of restricted stock unit awards net of shares withheld to cover tax withholdings	28	1		(2)		—		—		(1)
Share-based compensation expense	—	—		1,894		—		—		1,894
BALANCES-December 31, 2021	164,013	$	1,640	$	551,002	$	(65,391)	$	1,998	$	489,249

See accompanying notes to the condensed consolidated financial statements.

4

Six Months Ended December 31, 2022
	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Shareholders' Equity
	Shares	Amount
BALANCES-June 30, 2022	164,452	$	1,644	$	554,845	$	(177,100)	$	11,716	$	391,105
Net loss	—	—		—		(19,970)		—		(19,970)
Gain on cash flow hedge, net of tax	—	—		—		—		6,379		6,379
Amount reclassified into earnings, net of tax	—	—		—		—		(2,360)		(2,360)
Exercise of employee stock options, net of shares withheld for cashless exercises and to cover tax withholdings	1,116	12		584		—		—		596
Issuance of common stock pursuant to employee stock purchase plan	781	8		476		—		—		484
Vesting of restricted stock unit awards net of shares withheld to cover tax withholdings	162	1		(36)		—		—		(35)
Share-based compensation expense	—	—		5,566		—		—		5,566
BALANCES-December 31, 2022	166,511	$	1,665	$	561,435	$	(197,070)	$	15,735	$	381,765

Six Months Ended December 31, 2021
	Common Stock			Additional Paid-In Capital		Retained Earnings/(Accumulated Deficit)		Accumulated Other Comprehensive Income		Total Shareholders' Equity
	Shares	Amount
BALANCES-June 30, 2021	163,510	$	1,635	$	544,771	$	120,404	$	229	$	667,039
Net loss	—	—		—		(185,795)		—		(185,795)
Gain on cash flow hedge, net of tax	—	—		—		—		1,423		1,423
Amount reclassified into earnings, net tax	—	—		—		—		346		346
Exercise of employee stock options, net of shares withheld for cashless exercises and to cover tax withholdings	339	3		1,279		—		—		1,282
Issuance of common stock pursuant to employee stock purchase plan	90	1		988		—		—		989
Vesting of restricted stock unit awards net of shares withheld to cover tax withholdings	74	1		(145)		—		—		(144)
Share-based compensation expense	—	—		4,109		—		—		4,109
BALANCES-December 31, 2021	164,013	$	1,640	$	551,002	$	(65,391)	$	1,998	$	489,249

See accompanying notes to the condensed consolidated financial statements.

5

SELECTQUOTE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Six Months Ended December 31,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(19,970)	$	(185,795)
Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities:
Depreciation and amortization	13,990		11,278
Loss on disposal of property, equipment, and software	376		355
Share-based compensation expense	5,566		4,109
Deferred income taxes	(4,572)		(63,498)
Amortization of debt issuance costs and debt discount	3,919		2,974
Write-off of debt issuance costs	710		—
Accrued interest payable in kind	4,920		—
Non-cash lease expense	2,082		2,040
Changes in operating assets and liabilities:
Accounts receivable, net	14,036		(41,237)
Commissions receivable	(114,701)		(39,908)
Other assets	1,578		(5,555)
Accounts payable and accrued expenses	950		15,135
Operating lease liabilities	(2,460)		(2,676)
Other liabilities	18,002		(2,963)
Net cash used in operating activities	(75,574)		(305,741)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(598)		(17,904)
Purchases of software and capitalized software development costs	(3,870)		(5,231)
Acquisition of business	—		(6,927)
Investment in equity securities	—		(1,000)
Net cash used in investing activities	(4,468)		(31,062)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Revolving Credit Facility	—		50,000
Payments on Revolving Credit Facility	—		(50,000)
Proceeds from Term Loans	—		242,000
Payments on Term Loans	(13,375)		—
Payments on other debt	(83)		(93)
Proceeds from common stock options exercised and employee stock purchase plan	1,078		2,271
Payments of tax withholdings related to net share settlement of equity awards	(33)		(144)
Payments of debt issuance costs	(10,110)		(328)
Payment of acquisition holdback	(2,335)		—
Net cash (used in) provided by financing activities	(24,858)		243,706
NET DECREASE IN CASH AND CASH EQUIVALENTS	(104,900)		(93,097)
CASH AND CASH EQUIVALENTS—Beginning of period	140,997		286,454
CASH AND CASH EQUIVALENTS—End of period	$	36,097	$	193,357

SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net	$	(27,872)	$	(15,447)
Income taxes paid, net	(12)		(19)

See accompanying notes to condensed consolidated financial statements.

6

SELECTQUOTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Description of Business—SelectQuote, Inc. (together with its subsidiaries, the “Company” or “SelectQuote”) is a leading technology-enabled, direct-to-consumer distribution platform for insurance products and healthcare services. We contract with insurance carriers to sell senior health, life, and auto and home insurance policies by telephone to individuals throughout the United States through the use of multi-channel marketing and advertising campaigns. SelectQuote’s Senior division (“Senior”) sells Medicare Advantage, Medicare Supplement, Medicare Part D, and other ancillary senior health insurance related products. SelectQuote’s Life division (“Life”) sells term life, final expense, and other ancillary products, and SelectQuote’s Auto & Home division (“Auto & Home”) primarily sells non-commercial auto and home, property and casualty insurance products. The Healthcare Services division (“Healthcare Services”) includes SelectRx and Population Health. SelectRx is a closed-door, long-term care pharmacy, which offers essential prescription medications, OTC medications, customized medication packaging, medication therapy management, and other consultative services. Population Health contracts with insurance carriers to perform health risk assessments (“HRA”) on potential new members to determine how Population Health’s value-based care (“VBC”) partners can help members improve health outcomes.

Basis of Presentation—The accompanying unaudited condensed consolidated financial statements include the accounts of SelectQuote, Inc. and its wholly owned subsidiaries: SelectQuote Insurance Services, SelectQuote Auto & Home Insurance Services, LLC (“SQAH”), ChoiceMark Insurance Services, Inc., Tiburon Insurance Services, InsideResponse, LLC (“InsideResponse”), and SelectQuote Ventures, Inc. The unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and reflect all normal recurring adjustments that are necessary to present fairly the results for the interim periods presented. All intercompany accounts and transactions have been eliminated in consolidation. Certain information and disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in accordance with those rules and regulations and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended June 30, 2022, filed with the Securities and Exchange Commission on August 29, 2022 (the “Annual Report”), and include all adjustments necessary for the fair presentation of our financial position for the periods presented. Our results for the periods presented in our financial statements are not necessarily indicative of the results to be expected for any subsequent period, including for the year ending June 30, 2023, and therefore should not be relied upon as an indicator of future results. The accompanying unaudited condensed consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements for the year ended June 30, 2022. During the six months ended December 31, 2022, the Company created a new liability line item on the condensed consolidated balance sheets for “Contract liabilities” which was previously included in “Other current liabilities” in the Company’s Annual Report. The Company created a new revenue line item on the condensed consolidated statements of comprehensive income for “Pharmacy revenue” which was previously included in “Other revenue” in the Company’s Annual Report. Production bonus revenue, which was previously presented separately within Revenue in the Annual Report, is now included in Other revenue. Additionally, the Company created a new operating costs and expenses line item for “Cost of goods sold-pharmacy revenue” related to “Pharmacy revenue” which was previously included in “Cost of revenue” in the Company’s Annual Report. The Company updated its accounting policy related to the classification of SelectRx cost of goods sold which resulted in $1.7 million and $2.3 million previously included in Cost of revenue in the condensed consolidated financial statements for the three and six months ended December 31, 2021, respectively, now included in Selling, general, and administrative expenses. Prior year financial statements and disclosures were reclassified to conform to these changes in presentation. These reclassifications had no impact on net income, shareholders’ equity or cash flows as previously reported.

7

Use of Estimates—The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets, and liabilities and disclosure of contingent assets and liabilities. The Company regularly assesses these estimates; however, actual amounts could differ from those estimates. The most significant items involving management’s estimates include estimates of revenue recognition, accounts receivable, net, commissions receivable, the provision for income taxes, share-based compensation, and valuation of intangible assets and goodwill. The impact of changes in estimates is recorded in the period in which they become known.

Seasonality—Medicare-eligible individuals are permitted to change their Medicare Advantage and Medicare Part D prescription drug coverage for the following year during the Medicare annual enrollment period (“AEP”) in October through December and are allowed to switch plans from an existing plan during the open enrollment period (“OEP”) in January through March each year. As a result, the Company’s Senior segment’s commission revenue is highest in the second quarter and to a lesser extent, the third quarter during OEP.

Significant Accounting Policies—There have been no material changes to the Company’s significant accounting policies as described in our 2022 Annual Report, other than the changes to the policies below as discussed above:

Cost of Revenue—Cost of revenue represents the direct costs associated with fulfilling the Company’s obligations to its customers to sell insurance policies and other healthcare services in the Senior, Life, Auto & Home, and Population Health divisions. Such costs primarily consist of compensation, benefits, and licensing for sales agents, customer success agents, fulfillment specialists, and others directly engaged in serving customers, in addition to certain facilities overhead costs such as rent, maintenance, and depreciation.

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.

Recent Accounting Pronouncements Adopted—In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606 as if the acquirer had originated the contracts. Prior to this ASU, an acquirer generally recognizes contract assets acquired and contract liabilities assumed that arose from contracts with customers at fair value on the acquisition date. The ASU is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The ASU is to be applied prospectively to business combinations occurring on or after the effective date of the amendment (or if adopted early as of an interim period, as of the beginning of the fiscal year that includes the interim period of early application). The Company early adopted this guidance during the six months ended December 31, 2022, and will apply it prospectively to any business acquisitions subsequent to the date of adoption.

Immaterial Correction of Prior Period Financial Statements—Subsequent to the issuance of the Company’s financial statements as of and for the year ended June 30, 2021, the Company determined that the provision for first year commission revenue for certain final expense policies offered by certain of its insurance carrier partners should have been accrued based on a higher lapse rate. This misstatement was initially thought to be isolated to an error in the lapse rate for one of its insurance carrier partners, as disclosed in the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2021. However, during the three months ended June 30, 2022, it was determined that the lapse rate for other insurance carrier partners were also incorrect, resulting in an

8

additional misstatement being identified. The cumulative effect of the error in the lapse rates resulted in commission revenues being misstated by $7.8 million and $2.2 million for the years ended June 30, 2021 and 2020, respectively, and $3.8 million, $0.7 million, and $0.8 million for the three months ended September 30, 2021, December 31, 2021, and March 31, 2022, respectively. Accounts receivable was misstated by $10.0 million and $2.2 million as of June 30, 2021 and 2020, respectively. The impact of the cumulative misstatements on net income for the years ended June 30, 2021 and 2020, were decreases of $6.2 million and $1.7 million, respectively. Management evaluated the cumulative misstatements and concluded they were not material to prior periods, individually or in aggregate. However, correcting the cumulative effect of the misstatements during any three month period within the year ended June 30, 2022, would have had a significant effect on the results of operations for these respective reporting periods. Therefore, the Company is correcting the relevant prior period condensed consolidated financial statements and related footnotes for this error for comparative purposes.

The following tables reflect the effects of the correction on all affected line items of the Company’s previously reported condensed consolidated financial statements presented in this Form 10-Q:

CORRECTED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited)
	Three Months Ended December 31, 2021						Six Months Ended December 31, 2021
(in thousands)	As Previously Reported		Adjustment		As Corrected		As Previously Reported		Adjustment		As Corrected
Commission revenue	$	140,701	$	(744)	$	139,957	$	272,956	$	(2,192)	$	270,764
Total revenue	194,981		(744)		194,237		352,508		(2,192)		350,316
Loss from operations	(172,906)		(744)		(173,650)		(227,466)		(2,192)		(229,658)
Loss before income tax benefit	(183,544)		(744)		(184,288)		(246,741)		(2,192)		(248,933)
Income tax benefit	(46,536)		(189)		(46,725)		(62,580)		(558)		(63,138)
Net loss	(137,008)		(555)		(137,563)		(184,161)		(1,634)		(185,795)
Net loss per share:
Basic	(0.84)		—		(0.84)		(1.12)		(0.01)		(1.13)
Diluted	(0.84)		—		(0.84)		(1.12)		(0.01)		(1.13)
Comprehensive loss	$	(135,233)	$	(555)	$	(135,788)	$	(182,392)	$	(1,634)	$	(184,026)

9

CORRECTED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)
	Three Months Ended December 31, 2021
(in thousands)	(Accumulated Deficit)/Retained Earnings		Total Shareholders' Equity
As Previously Reported
BALANCES-September 30, 2021	$	74,772	$	625,668
Net loss	(137,008)		(137,008)
BALANCES-December 31, 2021	(62,236)		492,404
Adjustments
BALANCES-September 30, 2021	(2,600)		(2,600)
Net loss	(555)		(555)
BALANCES-December 31, 2021	(3,155)		(3,155)
As Corrected
BALANCES-September 30, 2021	72,172		623,068
Net loss	(137,563)		(137,563)
BALANCES-December 31, 2021	$	(65,391)	$	489,249

CORRECTED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)
	Six Months Ended December 31, 2021
(in thousands)	(Accumulated Deficit)/Retained Earnings		Total Shareholders' Equity
As Previously Reported
BALANCES-June 30, 2021	$	121,925	$	668,560
Net loss	(184,161)		(184,161)
BALANCES-December 31, 2021	(62,236)		492,404
Adjustments
BALANCES-June 30, 2021	(1,521)		(1,521)
Net loss	(1,634)		(1,634)
BALANCES-December 31, 2021	(3,155)		(3,155)
As Corrected
BALANCES-June 30, 2021	120,404		667,039
Net Income	(185,795)		(185,795)
BALANCES-December 31, 2021	$	(65,391)	$	489,249

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CORRECTED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
	Six Months Ended December 31, 2021
(in thousands)	As Previously Reported		Adjustment		As Corrected
Net loss	$	(184,161)	$	(1,634)	$	(185,795)
Deferred income taxes	(62,940)		(558)		(63,498)
Accounts receivable	(43,429)		2,192		(41,237)
Net cash used in operating activities	$	(305,741)	$	—	$	(305,741)

2.ACQUISITIONS

In accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”), the Company allocates the fair value of purchase consideration to the tangible assets, liabilities, and intangible assets acquired based on fair values. Any excess purchase price over those fair values is recorded as goodwill. The fair value assigned to intangible assets acquired is supported by valuations using estimates and assumptions provided by management. Based on the valuation inputs, the Company has recorded assets acquired and liabilities assumed according to the following fair value hierarchy:

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

    

Express Med Pharmaceuticals—On April 30, 2021, the Company acquired 100% of the outstanding shares of Express Med Pharmaceuticals, Inc., which is included in SelectRx, a closed-door, long term care pharmacy provider, for an aggregate purchase price of up to $24.0 million (subject to customary adjustments), as set forth in the Stock Purchase Agreement dated April 30, 2021 (the “Stock Purchase Agreement”). The aggregate purchase price of up to $24.0 million is comprised of $17.5 million in cash paid at the closing of the transaction, an additional $2.5 million of holdback for indemnification claims, if any, and an earnout of up to $4.0 million, if any. The primary purpose of the acquisition was to take advantage of the Company's technology and customer base to facilitate better patient care through coordination of strategic, value-based care partnerships. The Company recorded $0.3 million of acquisition-related costs in selling, general, and administrative operating costs and expenses in the condensed consolidated statement of comprehensive income. In addition, as a result of the acquisition, the Company has entered into an operating lease with the former President and Chief Executive Officer of Express Med Pharmaceuticals, now the Company’ Executive Vice President of SelectRx. Refer to Note 6 in the condensed consolidated financial statements for further details.

The earnout of up to $4.0 million is comprised of two separate provisions. The first provision provides for an earnout of up to $3.0 million and is contingent upon achievement of the following within the first 20 months following the acquisition: facility updates that would allow for processing a minimum of 75,000 active patients, the issuance of pharmacy licenses in all 50 states, and active patients of 15,000 or more. The second provision provides for an earnout of up to $1.0 million and is contingent upon achievement of the following within 36 months following the acquisition: construction of a new facility to accommodate the servicing of additional active patients or 75,000 or more active patients as of the last day of any month prior to the end of the second earnout provision period or as of the end of the second earnout provision period. As the earnout payment is contingent upon continued employment of certain individuals, the Company will recognize the earnout as compensation expense in selling, general, and administrative operating costs and expenses in the condensed consolidated statement of comprehensive income in the period in which it is earned. During the six months ended December 31, 2022, the Company paid the second earnout provision of $1.0 million, as well as the remaining holdback, net of adjustments, of $2.3 million. As the

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maximum range of outcomes for the first earnout provision was achieved, the Company accrued $3.0 million as of December 31, 2022, in compensation expense in selling, general, and administrative operating costs and expenses in the condensed consolidated statement of comprehensive income, which was subsequently paid in January 2023.

Under the terms of the Stock Purchase Agreement, total consideration in the acquisition consisted of the following as of the acquisition date (in thousands):

Base purchase price	$	20,000
Net working capital true-up	(483)
Closing cash	20
Total purchase consideration	$	19,537

At the date of acquisition, the fair value of net tangible assets acquired, excluding property and equipment, approximated their carrying value. The property and equipment was valued primarily using the cost and sales comparison approach to value. For the proprietary software acquired, the replacement cost method under the cost approach was used, estimating the cost to rebuild the software. The non-compete agreement was valued using the income approach, and the customer relationships were valued using the multiple period excess earnings method. As such, all aforementioned intangible assets were valued using Level 3 inputs.

Goodwill resulting from the transaction constitutes the excess of the consideration paid over the fair values of the assets acquired and liabilities assumed and primarily represents the additional value of the synergies of combining the SelectRx business with the Company's technology and existing customer base. This acquired goodwill is allocated to the Healthcare Services reporting unit, which is also a reportable segment, and $16.3 million is deductible for tax purposes after adding back acquisition costs and excluding the holdback.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date (in thousands):

Description	Estimated Life	Amount
Cash and cash equivalents		$	20
Accounts receivable		613
Other current assets		28
Property and equipment, net		287
Accounts payable		(280)
Accrued expenses, including compensation and benefits		(45)
Net tangible assets acquired		623
Proprietary Software	3 years	550
Non-compete agreements	5 years	100
Customer relationships	1 year	200
Goodwill	Indefinite	18,064
Total intangible assets acquired		18,914
Net assets acquired		$	19,537

The Company will amortize the intangible assets acquired on a straight-line basis over their estimated remaining lives, ranging from one to five years.    

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Simple Meds—On August 31, 2021, SelectRx acquired 100% of the outstanding equity interests of Simple Meds, a full-service pharmaceutical distributor, for an aggregate purchase price of $7.0 million (subject to customary adjustments), as set forth in the Membership Interest Purchase Agreement dated August 31, 2021. The aggregate purchase price of $7.0 million was paid in cash at the closing of the transaction. The primary purpose of the acquisition was to accelerate the expansion of the prescription drug management business by combining the operations and existing infrastructure of Simple Meds into SelectRx.

Under the terms of the Membership Interest Purchase Agreement, total consideration in the acquisition consisted of the following as of the acquisition date (in thousands):

Base purchase price	$	7,000
Net working capital true-up	347
Closing cash	61
Total purchase consideration	$	7,408

At the date of acquisition, the fair value of net tangible assets acquired approximated their carrying value. The customer relationships were valued using the multiple period excess earnings method, and as such, were valued using Level 3 inputs.

Goodwill resulting from the transaction constitutes the excess of the consideration paid over the fair values of the assets acquired and liabilities assumed and primarily represents the additional value of the synergies of combining the Simple Meds business with the Company's technology and existing customer base. This acquired goodwill is allocated to the Healthcare Services reporting unit, which is also a reportable segment, and $5.6 million is deductible for tax purposes after adding back acquisition costs.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date (in thousands):

Description	Estimated Life	Amount
Cash and cash equivalents		$	61
Accounts receivable		634
Other current assets		474
Property and equipment, net		415
Accounts payable		(259)
Net tangible assets acquired		1,325
Customer relationships	1 year	370
Goodwill	Indefinite	5,713
Total intangible assets acquired		6,083
Net assets acquired		$	7,408

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3.PROPERTY AND EQUIPMENT—NET

Property and equipment—net consisted of the following:

(in thousands)	December 31, 2022		June 30, 2022
Computer hardware	$	25,228	$	23,303
Machinery and equipment(1)	14,756		15,051
Leasehold improvements	20,100		20,269
Furniture and fixtures	4,551		4,605
Work in progress	951		2,810
Total	65,586		66,038
Less accumulated depreciation	(30,800)		(24,234)
Property and equipment—net	$	34,786	$	41,804

(1) Includes financing lease right-of-use assets.

Work in progress as of December 31, 2022, primarily represents computer equipment not yet put into service and not yet being depreciated. Work in progress as of June 30, 2022, primarily represents computer equipment and machinery not yet put into service and not yet being depreciated. Depreciation expense for the three months ended December 31, 2022 and 2021, was $3.7 million and $2.9 million, respectively, and $7.2 million and $5.1 million for the six months ended December 31, 2022 and 2021, respectively.

4.SOFTWARE—NET

Software—net consisted of the following:

(in thousands)	December 31, 2022		June 30, 2022
Software	$	32,880	$	26,049
Work in progress	856		4,162
Total	33,736		30,211
Less accumulated amortization	(17,637