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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 September 30, 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)
Delaware94-3339273
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
6800 West 115th StreetSuite 251166211
Overland ParkKansas(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareSLQTNew 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 filerAccelerated 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 166,462,244 shares of common stock as of October 31, 2022.



SELECTQUOTE, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS

PART I FINANCIAL INFORMATIONPAGE
Item 1.
Item 2.
Item 3.
Item 4.
PART II OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.



PART I
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SELECTQUOTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
September 30, 2022June 30, 2022
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$71,083 $140,997 
Accounts receivable, net of allowances of $1.3 million and $0.6 million, respectively
122,978 129,748 
Commissions receivable-current169,965 116,277 
Other current assets14,259 15,751 
Total current assets378,285 402,773 
COMMISSIONS RECEIVABLE—Net704,673 722,349 
PROPERTY AND EQUIPMENT—Net38,178 41,804 
SOFTWARE—Net16,351 16,301 
OPERATING LEASE RIGHT-OF-USE ASSETS28,265 28,016 
INTANGIBLE ASSETS—Net29,802 31,255 
GOODWILL29,136 29,136 
OTHER ASSETS24,624 18,418 
TOTAL ASSETS$1,249,314 $1,290,052 
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable$20,557 $24,766 
Accrued expenses17,093 26,002 
Accrued compensation and benefits38,723 42,150 
Operating lease liabilities—current6,245 5,261 
Current portion of long-term debt17,387 7,169 
Contract liabilities41,847 3,404 
Other current liabilities3,403 4,761 
Total current liabilities145,255 113,513 
LONG-TERM DEBT, NET—less current portion672,872 698,423 
DEFERRED INCOME TAXES37,667 50,080 
OPERATING LEASE LIABILITIES33,058 33,946 
OTHER LIABILITIES3,764 2,985 
Total liabilities892,616 898,947 
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS’ EQUITY:
Common stock, $0.01 par value
1,665 1,644 
Additional paid-in capital558,501 554,845 
Accumulated deficit(219,584)(177,100)
Accumulated other comprehensive income16,116 11,716 
Total shareholders’ equity356,698 391,105 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$1,249,314 $1,290,052 
See accompanying notes to condensed consolidated financial statements.
2

SELECTQUOTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
(In thousands)

Three Months Ended September 30,
20222021
REVENUE:
Commission$106,335 $130,807 
Pharmacy41,093 4,467 
Other15,056 20,805 
Total revenue162,484 156,079 
OPERATING COSTS AND EXPENSES:
Cost of revenue65,164 86,791 
Cost of goods sold—pharmacy revenue42,354 4,871 
Marketing and advertising57,594 90,677 
Selling, general, and administrative30,706 23,895 
Technical development6,182 5,853 
Total operating costs and expenses202,000 212,087 
LOSS FROM OPERATIONS(39,516)(56,008)
INTEREST EXPENSE, NET(16,736)(8,535)
OTHER INCOME (EXPENSE), NET158 (102)
LOSS BEFORE INCOME TAX BENEFIT(56,094)(64,645)
INCOME TAX BENEFIT(13,610)(16,413)
NET LOSS$(42,484)$(48,232)
NET LOSS PER SHARE:
Basic$(0.26)$(0.29)
Diluted$(0.26)$(0.29)
WEIGHTED-AVERAGE COMMON STOCK OUTSTANDING USED IN PER SHARE AMOUNTS:
Basic164,824 163,692 
Diluted164,824 163,692 
OTHER COMPREHENSIVE INCOME (LOSS) NET OF TAX:
Gain (loss) on cash flow hedge4,400 (6)
OTHER COMPREHENSIVE INCOME (LOSS)4,400 (6)
COMPREHENSIVE LOSS$(38,084)$(48,238)
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 September 30, 2022
Common StockAdditional
Paid-In
Capital
Accumulated DeficitAccumulated Other Comprehensive IncomeTotal
Shareholders'
Equity
SharesAmount
BALANCES-June 30, 2022164,452 $1,644 $554,845 $(177,100)$11,716 $391,105 
Net loss— — — (42,484)— (42,484)
Gain on cash flow hedge, net of tax— — — — 5,124 5,124 
Amount reclassified into earnings, net tax— — — — (724)(724)
Exercise of employee stock options, net of shares withheld for cashless exercises and to cover tax withholdings1,116 12 584 — — 596 
Issuance of common stock pursuant to employee stock purchase plan780 8 476 — — 484 
Vesting of restricted stock unit awards net of shares withheld to cover tax withholdings114 1 (34)— — (33)
Share-based compensation expense— — 2,630 — — 2,630 
BALANCES-September 30, 2022166,462 $1,665 $558,501 $(219,584)$16,116 $356,698 

Three Months Ended September 30, 2021
Common StockAdditional
Paid-In
Capital
Retained EarningsAccumulated Other Comprehensive IncomeTotal
Shareholders'
Equity
SharesAmount
BALANCES-June 30, 2021163,510 $1,635 $544,771 $120,404 $229 $667,039 
Net loss— — — (48,232)— (48,232)
Loss on cash flow hedge, net of tax— — — — (179)(179)
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 withholdings284 3 1,203 —  1,206 
Issuance of common stock pursuant to employee stock purchase plan90 1 988 — — 989 
Vesting of restricted stock unit awards net of shares withheld to cover tax withholdings46 — (143)— — (143)
Share-based compensation expense— — 2,215 — — 2,215 
BALANCES-September 30, 2021163,930 $1,639 $549,034 $72,172 $223 $623,068 
See accompanying notes to the condensed consolidated financial statements.

4

SELECTQUOTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended September 30,
20222021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss$(42,484)$(48,232)
Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities:
Depreciation and amortization6,802 5,103 
Loss on disposal of property, equipment, and software325 350 
Share-based compensation expense2,630 2,215 
Deferred income taxes(13,931)(16,784)
Amortization of debt issuance costs and debt discount1,612 862 
Write-off of debt issuance costs710  
Accrued interest payable in kind1,307  
Non-cash lease expense1,103 994 
Changes in operating assets and liabilities:
Accounts receivable, net34,770 21,180 
Commissions receivable(36,012)(57,775)
Other assets1,271 (2,957)
Accounts payable and accrued expenses(10,496)(6,942)
Operating lease liabilities(1,256)(1,267)
Other liabilities6,479 16,178 
Net cash used in operating activities(47,170)(87,075)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment(298)(7,824)
Purchases of software and capitalized software development costs(2,087)(3,016)
Acquisition of business (6,927)
Net cash used in investing activities(2,385)(17,767)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on Term Loans(8,917) 
Payments on other debt(44)(46)
Proceeds from common stock options exercised and employee stock purchase plan1,079 2,194 
Payments of tax withholdings related to net share settlement of equity awards(32)(142)
Payments of debt issuance costs(10,110) 
Payment of acquisition holdback(2,335) 
Net cash (used in) provided by financing activities(20,359)2,006 
NET DECREASE IN CASH AND CASH EQUIVALENTS(69,914)(102,836)
CASH AND CASH EQUIVALENTS—Beginning of period140,997 286,454 
CASH AND CASH EQUIVALENTS—End of period$71,083 $183,618 
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net$(13,026)$(7,670)
Income taxes paid, net(7)(3)
See accompanying notes to condensed consolidated financial statements.
5

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. For September 30, 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 $0.6 million previously included in Cost of revenue in the condensed consolidated financial statements for September 30, 2021, 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.

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
6

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 three months ended September 30, 2022, and will apply it prospectively to any business acquisitions subsequent to the date of adoption.

Immaterial Correction of Prior Period Financial StatementsSubsequent 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 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,
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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 STATEMENT OF COMPREHENSIVE INCOME (LOSS) (unaudited)
Three Months Ended September 30, 2021
(in thousands)As Previously ReportedAdjustmentAs Corrected
Commission revenue$134,651 (3,844)$130,807 
Total revenue159,923 (3,844)156,079 
Loss from operations(52,164)(3,844)(56,008)
Loss before income tax benefit(60,801)(3,844)(64,645)
Income tax benefit(15,436)(977)(16,413)
Net loss(45,365)(2,867)(48,232)
Net loss per share:
Basic(0.28)(0.01)(0.29)
Diluted(0.28)(0.01)(0.29)
Comprehensive loss$(45,371)$(2,867)$(48,238)

8

CORRECTED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)
Three Months Ended September 30, 2021
(in thousands)(Accumulated Deficit)/Retained EarningsTotal
Shareholders'
Equity
As Previously Reported
BALANCES-June 30, 2021$128,254 $674,889 
Net loss(45,365)(45,365)
BALANCES-September 30, 202182,889 633,785 
Adjustments
BALANCES-June 30, 2021(7,850)(7,850)
Net loss(2,867)(2,867)
BALANCES-September 30, 2021(10,717)(10,717)
As Corrected
BALANCES-June 30, 2021120,404 667,039 
Net loss(48,232)(48,232)
BALANCES-September 30, 2021$72,172 $623,068 

CORRECTED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
Three Months Ended September 30, 2021
(in thousands)As Previously ReportedAdjustmentAs Corrected
Net loss$(45,365)(2,867)$(48,232)
Deferred income taxes(15,807)(977)(16,784)
Accounts receivable17,336 3,844 21,180 
Net cash used in operating activities$(87,075)$ $(87,075)

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 1Unadjusted quoted prices in active markets for identical assets or liabilities
Level 2Unadjusted 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 3Significant 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
9

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 three months ended September 30, 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 of September 30, 2022, the Company has accrued $2.0 million for the first earnout provision based on the forecasted level of achievement, which has been recorded to compensation expense in selling, general, and administrative operating costs and expenses in the condensed consolidated statement of comprehensive income.

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 cash20 
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 not yet paid.

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

10

DescriptionEstimated LifeAmount
Cash and cash equivalents$20 
Accounts receivable613 
Other current assets28 
Property and equipment, net287 
Accounts payable(280)
Accrued expenses, including compensation and benefits(45)
Net tangible assets acquired623 
Proprietary Software3 years550 
Non-compete agreements5 years100 
Customer relationships1 year200 
GoodwillIndefinite18,064 
Total intangible assets acquired18,914 
Net assets acquired$19,537 

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

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

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

Base purchase price$7,000 
Net working capital true-up347 
Closing cash61 
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):

11

DescriptionEstimated LifeAmount
Cash and cash equivalents$61 
Accounts receivable634 
Other current assets474 
Property and equipment, net415 
Accounts payable(259)
Net tangible assets acquired1,325 
Customer relationships1 year370 
GoodwillIndefinite5,713 
Total intangible assets acquired6,083 
Net assets acquired$7,408 

3.PROPERTY AND EQUIPMENT—NET

Property and equipment—net consisted of the following:

(in thousands)
September 30, 2022June 30, 2022
Computer hardware$24,326 $23,303 
Machinery and equipment(1)
15,001 15,051 
Leasehold improvements20,128 20,269 
Furniture and fixtures4,344 4,605 
Work in progress1,825 2,810 
Total65,624 66,038 
Less accumulated depreciation(27,446)(24,234)
Property and equipment—net$38,178 $41,804 
(1) Includes financing lease right-of-use assets.

Work in progress as of September 30, 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 September 30, 2022 and 2021, was $3.5 million and $2.1 million, respectively.

4.SOFTWARE—NET

Software—net consisted of the following:

(in thousands)
September 30, 2022June 30, 2022
Software$27,444 $26,049 
Work in progress4,419 4,162 
Total31,863 30,211 
Less accumulated amortization(15,512)(13,910)
Software—net$16,351 $16,301 

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Work in progress as of September 30, 2022 and June 30, 2022, represents costs incurred for software not yet put into service and not yet being amortized. For the three months ended September 30, 2022 and 2021, the Company capitalized internal-use software and website development costs of $2.0 million and $2.4 million, respectively, and recorded amortization expense of $1.8 million and $1.4 million, respectively.

5.INTANGIBLE ASSETS AND GOODWILL

Intangible assetsThe carrying amounts, accumulated amortization, and net carrying value of our definite-lived intangible assets are presented in the table below (dollars in thousands):

September 30, 2022June 30, 2022
Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying Amount
Impairment Charges (1)
Accumulated AmortizationNet Carrying Amount
Customer relationships$17,492 $(6,874)$10,618 $17,492 $ $(6,232)$11,260 
Trade name2,680 (1,295)1,385 2,680  (1,161)1,519 
Proprietary software1,042 (641)401 1,592 (336)(816)440 
Non-compete agreements1,292 (516)776 1,292  (445)847 
Vendor relationships20,400 (3,778)16,622 23,700 (2,811)(3,700)17,189 
Total intangible assets$42,906 $(13,104)$29,802 $46,756 $(3,147)$(12,354)$31,255 
(1) During the year ended June 30, 2022, the Company recorded impairment charges for several of its long-lived intangible assets. Refer to the consolidated financial statements in our Annual Report on Form 10-K for additional details.

The Company's intangible assets include those long-lived intangible assets which were recognized at their estimated acquisition date fair values. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. There were no impairment triggers identified with respect to the Company’s long-lived assets during the three months ended September 30, 2022 and 2021.

For the three months ended September 30, 2022 and 2021, amortization expense related to intangible assets totaled $1.5 million and $1.6 million, respectively, recorded in selling, general, and administrative expense in the condensed consolidated statements of comprehensive income. The weighted-average remaining useful life of intangible assets was 6.0 and 6.2 years as of September 30, 2022 and June 30, 2022, respectively.

As of September 30, 2022, expected amortization expense in future fiscal periods were as follows (in thousands):

Trade NameProprietary SoftwareNon-Compete AgreementsVendor RelationshipsCustomer relationshipsTotal
Remainder fiscal 2023$402 $117 $202 $1,700 $1,743 $4,164 
2024536 156 220 2,267 2,319 5,498 
2025447 128 220 2,267 2,316 5,378 
2026  134 2,267 2,313 4,714 
2027   2,267 1,927 4,194 
Thereafter   5,854  5,854 
Total$1,385 $401 $776 $16,622 $10,618 $29,802 

Goodwill—The Company recorded as goodwill the excess of the purchase price over the estimated fair values of identifiable assets and liabilities acquired as part of the acquisitions discussed in Note 2 to the condensed consolidated financial statements. Goodwill is assigned to reporting units that are expected to benefit from the synergies of the business combination as of the acquisition date and becomes identified with that reporting unit in its
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entirety. As such, the reporting unit as a whole supports the recovery of its goodwill. As of September 30, 2022, the Company’s goodwill balance of $29.1 million was related to the acquisitions of Express Meds and Simple Meds and is all assigned to the Healthcare Services reporting unit and reportable segment.

The Company performs its annual goodwill impairment testing as of April 1, or more frequently if it believes that indicators of impairment exist. During the three months ended September 30, 2022 and 2021, there were no indicators of impairment.

6.LEASES

The majority of the Company’s leases are operating leases related to office space for which the Company recognizes lease expense on a straight-line basis over the respective lease term. The Company leases office facilities in the United States in San Diego, California; Centennial, Colorado; Overland Park, Kansas; Oakland, California; Indianapolis, Indiana; and Monaca, Pennsylvania (note that SelectRx leases the Monaca facility from an Executive Vice President of SelectRx. The Company expects to incur $3.6 million in total rental payments over the initial ten-year term plus an additional five-year extension option that it is reasonably certain to exercise). The Company's operating leases have remaining lease terms of less than one year up to thirteen years.

During the three months ended September 30, 2022, operating leases commenced in San Diego, California and Indianapolis, Indiana, resulting in new right-of-use assets obtained in exchange for new lease liabilities of $1.6 million. In addition, the Company exercised an early termination option for a portion of its office facilities in Overland Park, Kansas, with a new termination date of July 31, 2023, resulting in an early termination penalty of $0.9 million. The early termination penalty was recorded as part of the remeasurement of the operating lease liability and resulted in accelerated amortization of the right-of-use asset over the shortened remaining term of the lease.

Lease CostsThe components of lease costs were as follows for the periods presented:

Three Months Ended September 30,
(in thousands)20222021
Finance lease costs(1)
$44 $42 
Operating lease costs(2)
2,092 2,011 
Short-term lease costs31 13 
Variable lease costs(3)
214 213 
Sublease income(418)(337)
Total net lease costs$1,963 $1,942 
(1) Primarily consists of amortization of finance lease right-of-use assets and an immaterial amount of interest on finance lease liabilities recorded in operating costs and expenses and interest expense, net in the condensed consolidated statements of comprehensive income.
(2) Recorded in operating costs and expenses in the condensed consolidated statements of comprehensive income.
(3) Variable lease costs are not included in the measurement of the lease liability or right-of-use asset as they are not based on an index or rate and primarily represents common area maintenance charges and real estate taxes recorded in operating costs and expenses in the condensed consolidated statements of comprehensive income.

Maturities of Lease Liabilities—As of September 30, 2022, remaining maturities of lease liabilities for each of the next five fiscal years and thereafter are as follows:

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(in thousands)Operating leasesFinance leasesTotal
Remainder fiscal 20237,215 98 7,313 
20249,151 38 9,189 
20258,948 38 8,986 
20267,412 38 7,450 
20276,105 32 6,137 
Thereafter14,608  14,608 
     Total undiscounted lease payments53,439 244 53,683 
Less: interest14,136 23 14,159 
     Present value of lease liabilities$39,303 $221 $39,524 

The Company executed noncancelable subleases for portions of its office facilities in Overland Park, Kansas and Centennial, Colorado, which commenced March 23, 2022; June 9, 2022; July 1, 2022; and September 2, 2022, and run through the remaining terms of the primary leases. Sublease income is recorded on a straight-line basis as a reduction of lease expense in the condensed consolidated statements of comprehensive income. The Company may consider entering into additional sublease arrangements in the future.

Sublease Income—As of September 30, 2022, the future minimum fixed sublease receipts under non-cancelable operating lease agreements are as follows:

(in thousands)Total
Remainder fiscal 2023890 
20242,808 
20253,039 
20262,433 
20272,102 
Thereafter4,024 
Total sublease income$15,296 

7.DEBT

Debt consisted of the following:

(in thousands)September 30, 2022June 30, 2022
Term Loans (effective interest rate 13.3%)
$705,718 $713,327 
Unamortized debt issuance costs and debt discount(15,459)(7,735)
Total debt690,259 705,592 
Less current portion of long-term debt:(17,387)(7,169)
Long-term debt$672,872 $698,423 

Senior Secured Credit Facility— On November 5, 2019, the Company entered into a credit agreement with UMB Bank N.A. (“UMB”) as a lender and revolving agent and Morgan Stanley Capital Administrators, Inc. as a lender and the administrative agent for a syndicate of lenders party to the agreement (replaced by Wilmington Trust as administrative agent effective February 24, 2022). On February 24, 2021, November 2, 2021, December 23, 2021, and August 26, 2022, the Company entered into amendments to the credit agreement (individually, the “First Amendment”, “Second Amendment”, “Third Amendment”, and “Fourth Amendment”, together with the original
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credit agreement and any subsequent amendments, the “Senior Secured Credit Facility”) with certain of its existing lenders and new lenders. The First Amendment provided for an additional $231.0 million in term loans (together with the initial $425.0 million, the “Term Loans”) and added a $145.0 million senior secured delayed draw term loan facility (the "DDTL Facility"). The Company recognized a $3.3 million loss on debt extinguishment in the condensed consolidated statement of comprehensive income for the year ended June 30, 2021, as part of the First Amendment. The Second Amendment provided for additional commitments of $25.0 million, in addition to the initial $75.0 million, for the secured revolving loan facility (the “Revolving Credit Facility”) and an additional $200.0 million under the DDTL Facility. The Third Amendment provided for additional commitments of $35.0 million under the Revolving Credit Facility. The Fourth Amendment (1) amended the Company’s existing financial covenant to better align with its business plan and added an additional minimum liquidity covenant, (2) terminated certain DDTL commitments and reduced the Revolving Credit Facility from $135.0 million to $100.0 million, (3) introduced a minimum asset coverage ratio for any borrowing on the Revolving Credit Facility that would result in a total revolving exposure of more than $50.0 million, and (4) provided certain lenders with the right to appoint a representative to observe meetings of the Company’s board of directors and certain of its committees. Note that pursuant to the Fourth Amendment, upon termination of the outstanding DDTL commitments, when referring to Term Loans, it will now include the outstanding balance of the previously defined Term Loans and also the outstanding balance of the DDTL, and “DDTL” will no longer be referenced. After giving effect to the amendments, in aggregate, the Senior Secured Credit Facility provides for (1) an aggregate principal amount of up to $100.0 million under the Revolving Credit Facility, of which all was available to borrow as of September 30, 2022 and (2) Term Loans outstanding in an aggregate principal amount of $705.7 million as of September 30, 2022.

Pursuant to the terms of the Fourth Amendment, each consenting lender received an amendment fee equal to 1.00% of the Term Loans held by such consenting lender and 0.50% of the Revolving Credit Facility commitments held by such consenting lender, in each case immediately after giving effect to the Fourth Amendment. In addition, the Fourth Amendment provides for the Company to pay a revolving credit termination fee of $0.5 million for the ratable account of each revolving lender upon the termination of all revolving loan commitments.

Following the Fourth Amendment, the Term Loans will bear interest on the outstanding principal amount thereof at a rate per annum equal to either (a) SOFR (subject to a floor of 0.75%) plus 6.00% in cash plus 2.00% payable in kind or (b) a base rate plus 5.00% in cash plus 2.00% payable in kind, at the Company’s option. From and after October 1, 2023, the cash and paid in kind interest rate with respect to the Term Loans will rise 0.50% and 1.00% respectively. The Revolving Credit Facility will accrue interest on amounts drawn at a rate per annum equal to either (a) SOFR (subject to a floor of 1.0%) plus 5.0% or (b) a base rate plus 4.0%, at the Company’s option.

The Senior Secured Credit Facility has a maturity date of November 5, 2024, and pursuant to the Fourth Amendment the Term Loans are mandatorily repayable in equal quarterly installments in an aggregate annual amount equal to 2.5% of the outstanding principal amount of the Term Loans as of the Fourth Amendment effective date, increasing to 4.75% on July 1, 2023, with the remaining balance payable on the maturity date. As of September 30, 2022, the Company has made principal payments of $12.5 million on the Term Loans.

The Senior Secured Credit Facility contains customary affirmative and negative covenants and events of default and financial covenants requiring the Company and certain of its subsidiaries to maintain a minimum asset coverage ratio and minimum liquidity requirements. As of September 30, 2022, the Company was in compliance with all of the required covenants. The obligations of the Company are guaranteed by the Company’s subsidiaries and secured by a security interest in all assets of the Company, subject to certain exceptions.

The Company has incurred a total of $40.1 million in debt issuance costs and debt discounts related to the Senior Secured Credit Facility, of which $33.0 million was capitalized. The costs associated with the Revolving Credit Facility are being amortized on a straight-line basis over the remaining life of the Senior Secured Credit Facility and the costs associated with the Term Loans are being amortized using the effective interest method over the same term. Total amortization of debt issuance costs was $1.6 million and $0.9 million, for the three months ended September 30, 2022 and 2021, respectively, which was included in interest expense, net in the Company’s condensed consolidated statements of comprehensive income.
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The Company uses derivative financial instruments to hedge against its exposure to fluctuations in interest rates associated with the Term Loans. On September 30, 2022, as a result of the Fourth Amendment, the Company terminated its existing interest rate swap indexed to 1-month LIBOR and executed a new interest rate swap indexed 1-month SOFR. In accordance with ASC 848, Reference Rate Reform, the Company did not de-designate the interest rate swap when it was amended from LIBOR to SOFR as the Company is permitted to maintain the designation as part of the transitional relief. As of September 30, 2022, the Company’s interest rate swap is a receive-variable, pay-fixed interest rate swap on the notional amount of $325.0 million of the Company’s total outstanding Term Loans balance with a fixed rate of 6.00% plus 0.931% (the “Amended Interest Rate Swap”), which terminates on November 5, 2024. As of September 30, 2022, the Amended Interest Rate Swap had a fair value of $21.1 million and was recorded in other assets in the condensed consolidated balance sheet. The Company classifies its Amended Interest Rate Swap as a Level 2 on the fair value hierarchy as the majority of the inputs used to value it primarily includes other than quoted prices that are observable and it uses standard calculations and models that use readily observable market data as their basis. The Company estimates that $10.5 million will be reclassified into interest expense during the next twelve months.

8.COMMITMENTS AND CONTINGENCIES

Lease Obligations—Refer to Note 6 to the condensed consolidated financial statements for commitments related to our operating leases.

Legal Contingencies and Obligations—From time to time, the Company is subject to legal proceedings and governmental inquiries in the ordinary course of business. Such matters may include insurance regulatory claims; commercial, tax, employment, or intellectual property disputes; matters relating to competition and sales practices; claims for damages arising out of the use of the Company’s services. The Company may also become subject to lawsuits related to past or future acquisitions, divestitures, or other transactions, including matters related to representations and warranties, indemnities, and assumed or retained liabilities. The Company is not currently aware of any legal proceedings or claims that it believes will have, individually or in the aggregate, a material adverse effect on its business, financial condition, operating results, or cash flows; however, in the event of unexpected developments, it is possible that the ultimate resolution of certain ongoing matters, if unfavorable, could be materially adverse to our business, prospects, financial condition, liquidity, results of operation, cash flows, or capital levels.

Securities Class Actions and Stockholder Derivative Suit

On August 17, 2021, a putative securities class action lawsuit captioned Hartel v. SelectQuote, Inc., et al., Case No. 1:21-cv-06903 (“the Hartel Action”) was filed against the Company and two of its executive officers in the U.S. District Court for the Southern District of New York. The complaint asserts securities fraud claims on behalf of a putative class of plaintiffs who purchased or otherwise acquired shares of the Company’s common stock between February 8, 2021 and May 11, 2021 (the "Hartel Relevant Period"). Specifically, the complaint alleges the defendants violated Sections 10(b) and 20(a) and Rule 10b-5 of the Exchange Act by making materially false and misleading statements and failing to disclose material adverse facts about the Company’s business, operations, and prospects, allegedly causing the Company’s common stock to trade at artificially inflated prices during the Hartel Relevant Period. The plaintiffs seek unspecified damages and reimbursement of attorneys’ fees and certain other costs.

On October 7, 2021, a putative securities class action lawsuit captioned West Palm Beach Police Pension Fund v. SelectQuote, Inc., et al., Case No. 1:21-cv-08279 (“the WPBPPF Action”), was filed in the U.S. District Court for the Southern District of New York against the Company, two of its executive officers, and six current or former members of the Company’s Board of Directors, along with the underwriters of the Company’s initial public offering of common stock (the "Offering"). The complaint asserts claims for securities law violations on behalf of a putative class of plaintiffs who purchased shares of the Company’s common stock (i) in or traceable to the Offering or (ii) between May 20, 2020 and August 25, 2021 (the "WPB Relevant Period"). Specifically, the complaint alleges the defendants violated Sections 10(b) and 20(a) and Rule 10b-5 of the Exchange Act by making materially false
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and misleading statements and failing to disclose material adverse facts about the Company’s financial well-being and prospects, allegedly causing the Company’s common stock to trade at artificially inflated prices during the WPB Relevant Period. The complaint also alleges the defendants violated Sections 11, 12(a)(2), and 15 of the Securities Act by making misstatements and omissions of material facts in connection with the Offering, allegedly causing a decline in the value of the Company’s common stock. The plaintiffs seek unspecified damages, rescission, and reimbursement of attorneys’ fees and certain other costs. On October 15, 2021, a motion to consolidate the Hartel Action and the WPBPPF Action (together, the “Securities Class Actions”) was filed. Certain plaintiffs and their counsel have moved to be appointed lead plaintiff. Those motions are pending before the court.

On March 25, 2022, a stockholder derivative action captioned Jadlow v. Danker, et al., Case No. 1:22-cv-00391 (“the Jadlow Action”) was filed in the U.S. District Court for the District of Delaware by an alleged stockholder of the Company, purportedly on the Company’s behalf. The lawsuit was brought against certain of the Company’s current and former directors and officers, and against the Company, as nominal defendant. The complaint alleges that certain of the defendants violated Section 14(a) of the Exchange Act by making materially false and misleading statements and failing to disclose material adverse facts about the Company’s business, operations, and prospects. The complaint also asserts claims against all defendants for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets based on the same general underlying conduct and seeks contribution under Sections 10(b) and 21D of the Exchange Act and Section 11(f) of the Securities Act from the individual defendants named in the Securities Class Actions. The complaint seeks unspecified damages for the Company, restitution, reformation and improvement of its corporate governance and internal procedures regarding compliance with laws, and reimbursement of costs and attorneys’ fees. On July 25, 2022, the Jadlow action was transferred to the U.S. District Court for the Southern District of New York, where it was assigned Case No. 1:22-cv-06290 and referred to Judge Alvin K. Hellerstein as possibly related to the Hartel Action. On August 4, 2022, Judge Hellerstein accepted the Jadlow action as related to the Hartel Action and, on August 10, 2022, granted the parties’ joint stipulation to stay the Jadlow action pending the resolution of an anticipated motion to dismiss the Securities Class Actions.

The Company currently believes that these matters will not have a material adverse effect on any of its results of operations, financial condition or liquidity; however, depending on how the matters progress, they could be costly to defend and could divert the attention of management and other resources from operations. The Company has not concluded that a loss related to these matters is probable and, therefore, has not accrued a liability related to these matters.

9.SHAREHOLDERS' EQUITY

Common StockAs of September 30, 2022, the Company has reserved the following authorized, but unissued, shares of common stock:

Employee Stock Purchase Plan97,146 
Stock awards outstanding under 2020 Plan11,570,349 
Stock awards available for grant under 2020 Plan7,504,724 
Options outstanding under 2003 Plan584,616 
Total19,756,835 

Share-Based Compensation Plans

The Company has awards outstanding from two share-based compensation plans: the 2003 Stock Incentive Plan (the “2003 Stock Plan”) and the 2020 Omnibus Incentive Plan (the “2020 Stock Plan” and, collectively with the 2003 Stock Plan, the “Stock Plans”). However, no further awards will be made under the 2003 Stock Plan. The Company's Board of Directors adopted, and shareholders approved, the 2020 Stock Plan in connection with the IPO, which provides for the grant of incentive stock options (“ISO's”), nonstatutory stock options (“NSO's”), stock appreciation rights, restricted stock awards, restricted stock unit awards (“RSU's”), performance-based restricted
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stock units (“PSU's”), price-vested restricted stock units (“PVU’s”), and other forms of equity compensation (collectively, “stock awards”). All awards (other than ISOs, which may be granted only to current employees of the Company) may be granted to employees, non-employee directors, and consultants of the Company and its subsidiaries and affiliates.

The number of shares of common stock available for issuance as of September 30, 2022, pursuant to future awards under the Company's 2020 Stock Plan is