Summary of Business and Significant Accounting Policies | SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Description of Business —SelectQuote, Inc. (together with its subsidiaries, the “Company” or “SelectQuote”) contracts with insurance carriers to sell senior health, life, and auto and home insurance policies by telephone to individuals throughout the United States through the use of multi-channel marketing and advertising campaigns. The Company obtains leads from, among other sources, InsideResponse, a wholly-owned subsidiary that provides sales leads to the consumer insurance industry. The Company also coordinates various healthcare-related services through its Population Health platform, which includes SelectRx, a closed-door, long-term care pharmacy that offers pharmacy services, including essential prescription medications, OTC medications, customized medication packaging, medication therapy management, and other consultative services under the Patient Centered Pharmacy Home (PCPH) model. SelectQuote’s Senior division sells Medicare Advantage, Medicare Supplement, Medicare Part D, and other ancillary senior health insurance related products, and along with Population Health and InsideResponse, is referred to as “Senior”. SelectQuote’s Life division (“Life”) sells term life, final expense, and other ancillary products, and SelectQuote’s Auto & Home division (“Auto & Home”) primarily sells non-commercial auto and home property and casualty insurance products. SelectQuote’s licensed insurance agents provide comparative rates from a variety of insurance carriers relying on our technology distribution channel with a combination of proprietary and commercially available software to perform its quote service and sell insurance policies on behalf of the insurance carriers. The Company primarily earns revenue in the form of commission payments from the insurance carriers. Commission payments are received both when the initial policy is sold (“first year”) and when the underlying policyholder renews their policy in subsequent years (“renewal”). The Company also receives certain volume-based bonuses from some carriers on first-year policies sold based on attaining various predetermined target sales levels or other agreed upon objectives. These bonuses are referred to as “production bonuses” or “marketing development funds.” Additionally, the Company earns revenue from its Population Health platform, including mail-order prescription revenue from SelectRx, and lead generation revenue from InsideResponse. Basis of Presentation —The accompanying unaudited condensed consolidated financial statements include the accounts of SelectQuote, Inc. and its wholly owned subsidiaries: SelectQuote Insurance Services, SelectQuote Auto & Home Insurance Services, LLC (“SQAH”), ChoiceMark Insurance Services, Inc., Tiburon Insurance Services, InsideResponse, LLC, and SelectQuote Ventures, Inc. The unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and reflect all normal recurring adjustments that are necessary to present fairly the results for the interim periods presented. All intercompany accounts and transactions have been eliminated in consolidation. Certain information and disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in accordance with those rules and regulations and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements in our A nnual Report on Form 10-K for the year ended June 30, 2021, as amended by the Form 10-K/A filed with the SEC on February 14, 2022 (the “2021 Annual Report”) and include all adjustments necessary for the fair presentation of our financial position for the periods presented. Our results for the periods presented in our financial statements are not necessarily indicative of the results to be expected for any subsequent period, including for the year ending June 30, 2022, and therefore should not be relied upon as an indicator of future results. The accompanying unaudited condensed consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements for the year ended June 30, 2021. Certain reclassifications have been made to prior periods to conform with current year presentation. Use of Estimates —The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets, and liabilities and disclosure of contingent assets and liabilities. The Company regularly assesses these estimates; however, actual amounts could differ from those estimates. The most significant items involving management’s estimates include estimates of revenue recognition, commissions receivable, the provision for income taxes, share-based compensation, and valuation of intangible assets and goodwill. The impact of changes in estimates is recorded in the period in which they become known. Seasonality —Medicare-eligible individuals are permitted to change their Medicare Advantage and Medicare Part D prescription drug coverage for the following year during the Medicare annual enrollment period (“AEP”), which runs from October through December each year, and are allowed to switch plans from an existing plan during the open enrollment period (“OEP”), which runs from January through March each year. As a result, commission revenue for our Senior segment is highest in the second quarter and to a lesser extent, the third quarter during OEP. Most policies sold during AEP are effective as of and renew annually on January 1. Significant Accounting Policies —There have been no material changes to the Company’s significant accounting policies as described in our 2021 Annual Report. Recent Accounting Pronouncements Not Yet Adopted —In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , which requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606 as if the acquirer had originated the contracts. Prior to this ASU, an acquirer generally recognizes contract assets acquired and contract liabilities assumed that arose from contracts with customers at fair value on the acquisition date. The ASU is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The ASU is to be applied prospectively to business combinations occurring on or after the effective date of the amendment (or if adopted early as of an interim period, as of the beginning of the fiscal year that includes the interim period of early application). The Company will continue to evaluate the impact of this guidance, which will depend on the contract assets and liabilities acquired in future business combinations. Recent Accounting Pronouncements Adopted —In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes , which simplifies and changes the accounting for certain income tax transactions, among other minor improvements. This standard was effective for the Company on July 1, 2021 and did not have a material impact on the condensed consolidated financial statements and related disclosures. Immaterial Correction of Prior Period Financial Statements —Subsequent to the issuance of the Company’s financial statements as of and for the year ended June 30, 2021, the Company discovered that the provision for first year commission revenue for certain final expense policies offered by one of its insurance carrier partners should have been accrued based on a higher lapse rate. The error in the lapse rate resulted in commission revenue being misstated by $6.1 million and $2.0 million, for the years ended June 30, 2021 and 2020, and $2.4 million for the three months ended September 30, 2021, respectively. Accounts receivable was misstated by $8.1 million and $2.0 million as of June 30, 2021 and 2020, respectively. The impact of the error on net income for the year ended June 30, 2021 was a decrease of $4.8 million. Management has evaluated this misstatement and concluded it was not material to prior periods, individually or in aggregate. However, correcting the cumulative effect of the error in the three and six months ended December 31, 2021 would have had a significant effect on the results of operations. Therefore, the Company is correcting the relevant prior period condensed consolidated financial statements and related footnotes for this error for comparative purposes. The Company will also correct previously reported financial information for such immaterial errors in future filings, as applicable (see “Part II, Item 5. Other Information” below for additional information). The following table reflects the effects of the correction on all affected line items of the Company’s previously reported condensed consolidated statement of comprehensive income (loss) for the three months ended September 30, 2021, which will be corrected in future filings: CORRECTED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) (unaudited) Three Months Ended September 30, 2021 (in thousands) As Previously Reported Adjustment As Corrected Commission revenue $ 134,651 $ (2,397) $ 132,254 Total revenue 159,923 (2,397) 157,526 Loss from operations (52,164) (2,397) (54,561) Loss before income tax benefit (60,801) (2,397) (63,198) Income tax benefit (15,436) (609) (16,045) Net loss (45,365) (1,788) (47,153) Net loss per share: Basic (0.28) (0.01) (0.29) Diluted (0.28) (0.01) (0.29) Comprehensive loss $ (45,371) $ (1,788) $ (47,159) The following tables reflect the effects of the correction on all affected line items of the Company’s previously reported condensed consolidated financial statements presented in this Form 10-Q: CORRECTED CONDENSED CONSOLIDATED BALANCE SHEET (unaudited) June 30, 2021 (in thousands) As Previously Reported Adjustment As Corrected Accounts receivable $ 113,375 $ (8,077) $ 105,298 Total current assets 493,435 (8,077) 485,358 Total assets 1,433,872 (8,077) 1,425,795 Deferred income taxes 140,988 (1,748) 139,240 Total liabilities 758,983 (1,748) 757,235 Retained earnings (accumulated deficit) 128,254 (6,329) 121,925 Total shareholders’ equity 674,889 (6,329) 668,560 Total liabilities and shareholders’ equity $ 1,433,872 $ (8,077) $ 1,425,795 CORRECTED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited) Three Months Ended December 31, 2020 Six Months Ended December 31, 2020 (in thousands) As Previously Reported Adjustment As Corrected As Previously Reported Adjustment As Corrected Commission revenue $ 320,974 $ (709) $ 320,265 $ 427,519 $ (2,104) $ 425,415 Total revenue 358,274 (709) 357,565 482,443 (2,104) 480,339 Income (loss) from operations 124,154 (709) 123,445 131,428 (2,104) 129,324 Income (loss) before income tax expense (benefit) 116,956 (709) 116,247 116,689 (2,104) 114,585 Income tax expense (benefit) 26,540 (149) 26,391 25,436 (442) 24,994 Net income (loss) 90,416 (560) 89,856 91,253 (1,662) 89,591 Net income (loss) per share: Basic 0.56 (0.01) 0.55 0.56 (0.01) 0.55 Diluted 0.55 (0.01) 0.54 0.55 (0.01) 0.54 Comprehensive income (loss) $ 90,532 $ (560) $ 89,972 $ 91,112 $ (1,662) $ 89,450 CORRECTED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited) Three Months Ended December 31, 2020 (in thousands) (Accumulated Deficit)/Retained Earnings Total As Previously Reported BALANCES-September 30, 2020 $ (1,955) $ 544,974 Net income 90,416 90,416 BALANCES-December 31, 2020 88,461 634,135 Adjustments BALANCES-September 30, 2020 (2,605) (2,605) Net loss (560) (560) BALANCES-December 31, 2020 (3,165) (3,165) As Corrected BALANCES-September 30, 2020 (4,560) 542,369 Net income 89,856 89,856 BALANCES-December 31, 2020 $ 85,296 $ 630,970 CORRECTED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited) Six Months Ended December 31, 2020 (in thousands) (Accumulated Deficit)/Retained Earnings Total As Previously Reported BALANCES-June 30, 2020 $ (2,792) $ 545,689 Net income 91,253 91,253 BALANCES-December 31, 2020 88,461 634,135 Adjustments BALANCES-June 30, 2020 (1,503) (1,503) Net loss (1,662) (1,662) BALANCES-December 31, 2020 (3,165) (3,165) As Corrected BALANCES-June 30, 2020 (4,295) 544,186 Net income 89,591 89,591 BALANCES-December 31, 2020 $ 85,296 $ 630,970 CORRECTED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited) Six Months Ended December 31, 2020 (in thousands) As Previously Reported Adjustment As Corrected Net income (loss) $ 91,253 $ (1,662) $ 89,591 Deferred income taxes 25,321 (442) 24,879 Accounts receivable (63,355) 2,104 (61,251) Net cash used in operating activities $ (103,148) $ — $ (103,148) |