Health Insurance Innovations, Inc. (NASDAQ:HIIQ), a leading
cloud-based technology platform and distributor of affordable
health insurance, life insurance and supplemental products, today
announced financial results for the third quarter ended September
30, 2019. The Company will host a live conference call on Tuesday,
November 12, 2019, at 5:00 P.M. ET.
Commenting on the Company’s third quarter
operating results and early Medicare sales volume indications for
the fourth quarter, Gavin Southwell, President and Chief Executive
Officer of Health Insurance Innovations, Inc. said, "Our third
quarter operating results reflect a business that is executing a
transformation of its product offering and positioning itself for
success ahead of the important fourth quarter Annual Election
Period (AEP).
The results of these efforts are evident in our
preliminary Medicare sales volumes for the first part of the AEP
that began on October 15th, which currently gives us confidence
that we will meet or exceed our earnings forecast for the year
assuming the positive momentum continues for the remainder of the
AEP.”
Mr Southwell continued, “Our third quarter net
income of $4.8 million, up 220% from prior year period, and
adjusted EBITDA of $12.8 million, up 35% from the prior year
period, exceeded our expectations on revenues that were behind our
forecast.
In our newly formed Medicare operations, we
achieved revenues of approximately $10.2 million despite taking a
more measured approach to ramping our investments in personnel and
marketing expenditures ahead of the fourth quarter Annual Election
Period, with significant progress in ramping up investments
occurring towards the end of the third quarter and early fourth
quarter. We started AEP having made significant investments in
building out our captive distribution capabilities, which will have
a positive impact on our margins in the fourth quarter and beyond.
I am pleased to report that as of November 11th, our Medicare sales
volumes in the fourth quarter were already more than double all of
the third quarter, with volumes still accelerating to date during
the quarter and we are only about half-way through AEP.”
“Our consumer demand generation capabilities in
both media and digital channels are currently exceeding our
expectations, and provide an exciting anticipated trajectory for
our business such that Medicare Advantage and Medicare Supplemental
products are now expected to contribute as much as 35% of our
fourth quarter revenues.”
Mr. Southwell added “Our product diversification
investments were prescient as we have seen a shift in the market by
third party distributors that are tilting their focus from the IFP
market to Medicare.
In the IFP space we continue to de-emphasize
sales of HBIP plans and we are seeing a notably positive
development in the increased consumer uptake of longer duration
plans between third and fourth quarters. Plans with durations
longer than 12 months represented approximately 75% of our IFP
policies sold in the third quarter compared with less than 2% in
the prior year period.“
“While we expect to continue to be a leader in
the individual and family plan markets, we plan to intensify our
product diversification strategies such that Medicare products will
potentially represent more than half of our revenues by the end of
next year,” Mr. Southwell said.
Third Quarter
2019 Consolidated Financial
HighlightsAll comparisons are to the three months
ended September 30, 2018
- Revenue was $75.3 million, compared to revenue of $71.5
million, an increase of 5.3%.
- Net income of $4.8 million, compared to net income of $1.5
million, an increase of 220.0%, favorably impacted by an adjustment
to the Company’s deferred tax valuation allowance upon adoption of
new IRS Section 451(b) proposed regulations.
- Adjusted EBITDA (earnings before interest, taxes, depreciation
and amortization) was $12.8 million, compared to adjusted EBITDA of
$9.5 million, an increase of 34.7%.
- GAAP diluted net income per share was $0.40, compared to GAAP
diluted net income per share of $0.08, an increase of 400.0%.
- Adjusted net income per share was $0.66 compared to adjusted
net income per share of $0.40, an increase of 65.0%, favorably
impacted by a reduction in weighted average diluted shares of
approximately 15% from the prior year period.
- Total expected duration units of submitted policies (including
Medicare) of 798,400 compared to 511,700, an increase of
56.0%.
Adjusted EBITDA and adjusted net income per
share are non-GAAP financial measures. See the reconciliations of
these measures to their respective most directly comparable GAAP
measure below in this press release.
2019 Full Year Guidance
The Company reaffirms its 2019 full-year
guidance of adjusted EBITDA in the range of $82 million to $87
million while raising its expected 2019 adjusted net income per
share to a range of $4.10 to $4.35 from its previous guidance of
$4.00 to $4.25 to align the estimate with a lower expected average
diluted share count. The Company now expects 2019 revenues in the
range of approximately $400 million to $410 million as compared
with its previous forecast of $450 million to $460 million, which
reflects its changing product sales mix away from HBIP plans and
towards longer duration STM policies and its rapidly developing
Medicare business, which we now expect to contribute approximately
35% of our fourth quarter revenues. This sales mix shift, along
with changes in the Company’s underlying distribution channels from
third-party to captive and BPO arrangements, is currently expected
to result in higher than previously expected adjusted EBITDA
margins for our business.
2019 Third Quarter Financial
Discussion
Third quarter revenues of $75.3 million
increased 5.3%, compared to revenue of $71.5 million in the third
quarter of 2018. The increase in revenue was due in part to
Medicare sales from the acquisition of TogetherHealth in June 2019.
Also, during the three months ended September 30, 2019, revenue was
lower by $2.8 million compared to expectations for the quarter due
to the classification of customer care and enrollment expenses
related to one of our Medicare BPO partners who is deemed a
customer under ASC 606, which requires that these costs be netted
against revenue. The netting of these expenses did not have an
impact on earnings.
Third-party commission expense was $35.2 million
(46.7% of net revenues) in the third quarter of 2019, compared to
$48.7 million (68.1% of net revenues) in the same period in 2018.
Third-party commission expense continues to benefit from changes in
the Company’s product mix and distribution channels, as well as
structural changes in its third-party distribution arrangements
between prepaid and advance commissions.
Total selling, general & administrative
expense (“SG&A”) was $30.8 million (40.9% of net revenues) in
the third quarter, compared to $18.3 million (25.6% of net
revenues) in the same period in 2018. The increase in SG&A for
the three months ended September 30, 2019, was primarily
attributable to increased spending on staffing, training and
professional fees to build out capacity for fourth quarter annual
enrollment activity and the inclusion of TogetherHealth and other
recently acquired businesses. Our SG&A expenses as a percentage
of net revenues in the fourth quarter are expected to decline
sequentially as we leverage our start-up expenditures during our
seasonally higher revenue period.
Net income was $4.8 million in the third quarter
of 2019, compared to net income of $1.5 million in the same period
in 2018. The increase in net income was primarily the result of a
$3.0 million increase in the income tax benefit related to the
reversal of the IRC Section 481(a) adjustment and the release of
the deferred tax valuation allowance both attributable to the
adoption of IRS Section 451(b) proposed regulations.
EBITDA was $8.1 million in the third quarter of
2019, compared to $2.2 million in the same period in
2018. Adjusted EBITDA was $12.8 million (17.0% of net
revenues) in the third quarter of 2019 compared to $9.5 million
(13.3% of net revenues) in the same period in 2018. Adjusted EBITDA
is calculated by taking EBITDA and adjusting for items that are not
part of regular operating activities, including stock-based
compensation and related costs, transaction costs, tax receivable
adjustments, indemnity and other related legal costs, and
severance, restructuring, and other charges. A reconciliation of
net income to EBITDA and adjusted EBITDA for the three and nine
months ended September 30, 2019 and 2018 is included within this
press release.
GAAP diluted net income per share for the third
quarter in 2019 was $0.40, compared to GAAP diluted net income per
share of $0.08 in the same period in 2018.
Adjusted net income per share for the third
quarter in 2019 was $0.66, compared to adjusted net income per
share of $0.40 in the same period in 2018. Total weighted average
diluted shares used in the calculation of adjusted net income per
share were approximately 2.8 million shares lower than the prior
year period, reflective of share repurchase activity over the past
year. A reconciliation of net income to adjusted net income per
share is included within this press release.
Cash and cash equivalents totaled $9.2 million
as of September 30, 2019, a decrease of $0.1 million from
December 31, 2018. We ended the quarter with $148.1 million
outstanding on our term loan facility and $12.0 million drawn
against our $65.0 million revolving credit facility. Net cash used
in operating activities during the quarter was $5.7 million,
consistent with our expectations to build out capacity for robust
fourth quarter open enrollment activity.
The Company did not repurchase shares of our
common stock during the third quarter of 2019. The Company has
$75.4 million remaining under its $200 million share repurchase
authorization, as part of its previously announced share repurchase
program.
Conference Call and Webcast
The Company will host an earnings conference
call on November 12, 2019 at 5:00 P.M. Eastern time. All interested
parties can join the call by dialing (877) 451-6152 or (201)
389-0879; the conference ID is 13696341. An archive of the call
will be available on Health Insurance Innovations’ website,
HIIQ.com, for 30 days beginning on Tuesday, November 12, 2019, 8:00
PM ET.
About Health Insurance Innovations, Inc.
(HIIQ)
HIIQ is a market leading cloud-based technology
platform and distributor of innovative health and life insurance
products that are affordable and meet the needs of consumers. HIIQ
helps develop insurance products through our relationships with
best-in-class insurance companies and markets them via its broad
distribution network of third-party licensed insurance agents
across the nation, its call center network and its unique online
capabilities. Additional information about HIIQ can be found at
HIIQ.com.
Forward-Looking Statements
This press release contains "forward-looking
statements" within the meaning of the U.S. Private Securities
Litigation Reform Act of 1995. Forward-looking statements are
statements other than historical fact, and may include statements
relating to goals, plans and projections regarding new markets,
products, services, growth strategies, anticipated trends in our
business and anticipated changes and developments in the United
States health insurance system and laws. Forward-looking statements
are based on HIIQ’s current assumptions, expectations and beliefs
are generally identifiable by use of words “may,” “might,” “will,”
“should,” “expects,” “plans,” “anticipates,” “believes,”
“estimates,” “predicts,” “potential” or “continue,” or similar
expressions and involve significant risks and uncertainties that
could cause actual results, developments and business decisions to
differ materially from those contemplated by these statements.
These risks and uncertainties include, among other things, our
ability to maintain relationships and develop new relationships
with health insurance carriers and distributors, our ability to
retain our members, the demand for products offered through our
platform, regulatory oversight and examinations of us and our
carriers and distributors, legal and regulatory compliance by our
carriers and distributors, the amount of commissions paid to us or
changes in health insurance plan pricing practices, competition,
changes and developments in the United States health insurance
system and laws, and HIIQ’s ability to adapt to them, the ability
to maintain and enhance our name recognition, difficulties arising
from acquisitions or other strategic transactions, and our ability
to build the necessary infrastructure and processes to maintain
effective controls over financial reporting. These and other risk
factors that could cause actual results to differ materially from
those expressed or implied in our forward-looking statements will
be discussed in HIIQ's Annual Report on Form 10-K filed with the
Securities and Exchange Commission (SEC) as well as other documents
that may be filed by HIIQ from time to time with the Securities and
Exchange Commission, which are available at www.sec.gov. Any
forward-looking statement made by us in this press release is based
only on information currently available to us and speaks only as of
the date on which it is made. You should not rely on any
forward-looking statement as representing our views in the future.
We undertake no obligation to publicly update any forward-looking
statement, whether written or oral, that may be made from time to
time, whether as a result of new information, future developments
or otherwise.
Non-GAAP Financial
Information
To supplement HIIQ’s financial information
presented in accordance with generally accepted accounting
principles in the United States of America, or GAAP, HIIQ presents
certain financial measures that are not prepared in accordance with
GAAP, adjusted EBITDA, and adjusted EPS. These non-GAAP financial
measures, which are defined below, should not be considered in
isolation from, or as a substitute for, financial information
prepared in accordance with GAAP. These non-GAAP financial measures
are not based on any standardized methodology prescribed by GAAP
and are not necessarily comparable to similarly-titled measures
presented by other companies.
HIIQ is presenting these non-GAAP financial
measures to assist investors in seeing HIIQ’s operating results
through the eyes of management and because HIIQ’s believes that
these measures provide a useful tool for investors to use in
assessing HIIQ’s operating performance against prior period
operating results and against business objectives. HIIQ uses the
non-GAAP financial measures in evaluating its operating results and
for financial and operational decision-making purposes.
The accompanying tables provide more detail on
the GAAP financial measures that are most directly comparable to
the non-GAAP financial measures described above and the related
reconciliations between these financial measures. HIIQ has not
reconciled adjusted EBITDA guidance or adjusted EPS guidance to
GAAP net income or GAAP net income per diluted share, respectively,
because HIIQ does not provide guidance for the reconciling items
between these measures and GAAP net income or GAAP net income per
diluted share, respectively. As certain of the items that impact
GAAP net income and/or GAAP net income per diluted share cannot be
reasonably predicted at this time, HIIQ is unable to provide such
guidance. Accordingly, a reconciliation to GAAP net income or GAAP
net income per diluted share is not available without unreasonable
effort.
HEALTH INSURANCE INNOVATIONS,
INC.Condensed Consolidated Balance
Sheets($ in thousands, except share and per share
data) |
|
September 30, 2019 |
|
December 31, 2018 |
|
(unaudited) |
|
|
Assets |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
9,160 |
|
|
$ |
9,321 |
|
Restricted cash |
17,607 |
|
|
16,678 |
|
Accounts receivable, net, prepaid expenses and other current
assets |
3,352 |
|
|
2,108 |
|
Advanced commissions, net |
29,233 |
|
|
29,867 |
|
Income taxes receivable |
15,012 |
|
|
— |
|
Contract asset, net |
158,083 |
|
|
165,494 |
|
Total current assets |
232,447 |
|
|
223,468 |
|
Long-term contract asset,
net |
153,193 |
|
|
132,566 |
|
Property and equipment,
net |
4,788 |
|
|
5,134 |
|
Goodwill |
119,399 |
|
|
41,076 |
|
Intangible assets, net |
36,905 |
|
|
4,217 |
|
Deferred tax assets |
5,959 |
|
|
25,967 |
|
Other assets |
522 |
|
|
61 |
|
Total assets |
$ |
553,213 |
|
|
$ |
432,489 |
|
|
|
|
|
Liabilities and
stockholders’ equity |
|
|
|
Current liabilities: |
|
|
|
Accounts payable and accrued expenses |
$ |
33,136 |
|
|
$ |
32,397 |
|
Commissions payable, net |
85,652 |
|
|
106,608 |
|
Income taxes payable |
— |
|
|
15,586 |
|
Short-term debt, net |
7,795 |
|
|
— |
|
Due to member |
1,312 |
|
|
7,978 |
|
Other current liabilities |
359 |
|
|
422 |
|
Total current liabilities |
128,254 |
|
|
162,991 |
|
Long-term commissions payable,
net |
75,594 |
|
|
84,716 |
|
Long-term contingent
consideration |
57,176 |
|
|
— |
|
Long-term debt, net |
150,617 |
|
|
15,000 |
|
Due to member |
29,091 |
|
|
25,693 |
|
Other liabilities |
1,340 |
|
|
621 |
|
Total liabilities |
442,072 |
|
|
289,021 |
|
Commitments and
contingencies |
|
|
|
Stockholders’ equity: |
|
|
|
Class A common stock (par value $0.001 per share, 100,000,000
shares authorized; 16,219,217 and 14,425,824 shares issued as of
September 30, 2019 and December 31, 2018, respectively; 12,287,657
and 12,387,349 shares outstanding as of September 30, 2019 and
December 31, 2018, respectively) |
16 |
|
|
14 |
|
Class B common stock (par value $0.001 per share, 20,000,000 shares
authorized; 1,916,667 and 2,541,667 shares issued and outstanding
as of September 30, 2019 and December 31, 2018 respectively) |
2 |
|
|
3 |
|
Preferred stock (par value $0.001 per share, 5,000,000 shares
authorized; no shares issued and outstanding as of September 30,
2019 and December 31, 2018) |
— |
|
|
— |
|
Additional paid-in
capital |
116,203 |
|
|
94,194 |
|
Treasury stock, at cost (3,931,560 and 2,038,475 shares as of
September 30, 2019 and December 31, 2018, respectively) |
(127,489 |
) |
|
(67,185 |
) |
Retained earnings |
89,222 |
|
|
80,804 |
|
Total Health Insurance Innovations, Inc. stockholders’ equity |
77,954 |
|
|
107,830 |
|
Noncontrolling interests |
33,187 |
|
|
35,638 |
|
Total stockholders’ equity |
111,141 |
|
|
143,468 |
|
Total liabilities and stockholders' equity |
$ |
553,213 |
|
|
$ |
432,489 |
|
HEALTH INSURANCE INNOVATIONS,
INC.Condensed Consolidated Statements of Income
(unaudited)($ in thousands, except share and per
share data) |
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
Revenues |
$ |
75,272 |
|
|
$ |
71,467 |
|
|
$ |
220,954 |
|
|
$ |
219,180 |
|
Operating expenses: |
|
|
|
|
|
|
|
Third-party commissions |
35,187 |
|
|
48,669 |
|
|
122,768 |
|
|
139,832 |
|
Credit card and ACH fees |
1,473 |
|
|
1,570 |
|
|
4,578 |
|
|
4,318 |
|
Selling, general and administrative |
30,765 |
|
|
18,260 |
|
|
70,797 |
|
|
54,197 |
|
Depreciation and amortization |
4,805 |
|
|
1,270 |
|
|
7,576 |
|
|
3,655 |
|
Total operating expenses |
72,230 |
|
|
69,769 |
|
|
205,719 |
|
|
202,002 |
|
Income from operations |
3,042 |
|
|
1,698 |
|
|
15,235 |
|
|
17,178 |
|
|
|
|
|
|
|
|
|
Other expense (income): |
|
|
|
|
|
|
|
Interest expense (income) |
1,999 |
|
|
15 |
|
|
3,693 |
|
|
(39 |
) |
TRA (income) expense |
(212 |
) |
|
721 |
|
|
(212 |
) |
|
721 |
|
Other expense |
— |
|
|
29 |
|
|
— |
|
|
88 |
|
Net income before income
taxes |
1,255 |
|
|
933 |
|
|
11,754 |
|
|
16,408 |
|
(Benefit) provision for income taxes |
(3,584 |
) |
|
(559 |
) |
|
1,503 |
|
|
5,737 |
|
Net income |
4,839 |
|
|
1,492 |
|
|
10,251 |
|
|
10,671 |
|
Net income attributable to noncontrolling interests |
39 |
|
|
353 |
|
|
1,833 |
|
|
3,125 |
|
Net income attributable to
Health Insurance Innovations, Inc. |
$ |
4,800 |
|
|
$ |
1,139 |
|
|
$ |
8,418 |
|
|
$ |
7,546 |
|
|
|
|
|
|
|
|
|
Per share
data: |
|
|
|
|
|
|
|
Net income per share
attributable to Health Insurance Innovations, Inc. |
|
|
|
|
|
|
|
Basic |
$ |
0.43 |
|
|
$ |
0.09 |
|
|
$ |
0.74 |
|
|
$ |
0.62 |
|
Diluted |
$ |
0.40 |
|
|
$ |
0.08 |
|
|
$ |
0.68 |
|
|
$ |
0.57 |
|
Weighted average Class
A common shares outstanding |
|
|
|
|
|
|
|
Basic |
11,156,747 |
|
|
12,853,739 |
|
|
11,404,200 |
|
|
12,130,722 |
|
Diluted |
11,903,992 |
|
|
14,060,453 |
|
|
12,311,676 |
|
|
13,302,811 |
|
HEALTH INSURANCE INNOVATIONS,
INC.Condensed Consolidated Statements of Cash
Flows (unaudited)($ in
thousands)
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
Operating
activities: |
|
|
|
|
|
|
|
Net income |
$ |
4,839 |
|
|
$ |
1,492 |
|
|
$ |
10,251 |
|
|
$ |
10,671 |
|
Adjustments to reconcile net
income to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
|
Stock-based compensation |
2,987 |
|
|
4,343 |
|
|
7,720 |
|
|
10,503 |
|
Depreciation and amortization |
4,805 |
|
|
1,270 |
|
|
7,576 |
|
|
3,655 |
|
Deferred income taxes |
22,553 |
|
|
(172 |
) |
|
22,899 |
|
|
460 |
|
Changes in operating assets
and liabilities: |
|
|
|
|
|
|
|
Increase in accounts receivable, prepaid expenses and other
assets |
(1,270 |
) |
|
(954 |
) |
|
(1,873 |
) |
|
(398 |
) |
(Increase) decrease in advanced commissions |
(2,126 |
) |
|
183 |
|
|
(210 |
) |
|
8,187 |
|
Increase in income taxes receivable |
(15,012 |
) |
|
(2,542 |
) |
|
(15,012 |
) |
|
(2,542 |
) |
Decrease (increase) in contract asset |
(4,923 |
) |
|
1,611 |
|
|
290 |
|
|
(5,693 |
) |
(Decrease) increase in income taxes payable |
(11,847 |
) |
|
(259 |
) |
|
(15,586 |
) |
|
193 |
|
Increase (decrease) in accounts payable, accrued expenses and other
liabilities |
4,137 |
|
|
10,347 |
|
|
(1,432 |
) |
|
6,376 |
|
(Decrease) increase in commissions payable, net |
(9,617 |
) |
|
(12,105 |
) |
|
(29,056 |
) |
|
(12,058 |
) |
(Decrease) increase in due to member pursuant to tax receivable
agreement |
(212 |
) |
|
721 |
|
|
(212 |
) |
|
721 |
|
Net cash (used in) provided by
operating activities |
(5,686 |
) |
|
3,935 |
|
|
(14,645 |
) |
|
20,075 |
|
Investing
Activities: |
|
|
|
|
|
|
|
Business acquisitions, net of cash acquired |
(2,576 |
) |
|
— |
|
|
(49,895 |
) |
|
— |
|
Acquisition of digital asset |
(8,133 |
) |
|
— |
|
|
(8,133 |
) |
|
— |
|
Capitalized internal-use software |
(378 |
) |
|
(410 |
) |
|
(1,232 |
) |
|
(1,290 |
) |
Purchases of property and equipment |
(74 |
) |
|
(311 |
) |
|
(359 |
) |
|
(534 |
) |
Net cash used in investing
activities |
(11,161 |
) |
|
(721 |
) |
|
(59,619 |
) |
|
(1,824 |
) |
Financing
Activities: |
|
|
|
|
|
|
|
Proceeds from borrowing of debt, net of issuance costs |
10,318 |
|
|
— |
|
|
208,412 |
|
|
— |
|
Repayment of borrowings on debt |
— |
|
|
— |
|
|
(65,000 |
) |
|
— |
|
Payments related to tax withholding for share-based
compensation |
(240 |
) |
|
(2,160 |
) |
|
(2,129 |
) |
|
(3,470 |
) |
Issuances of Class A common stock under equity compensation
plans |
— |
|
|
2 |
|
|
— |
|
|
6 |
|
Purchases of Class A common stock pursuant to share repurchase
plan |
— |
|
|
(15,701 |
) |
|
(63,916 |
) |
|
(19,502 |
) |
Distributions to member |
(2 |
) |
|
(1,854 |
) |
|
(2,335 |
) |
|
(2,837 |
) |
Net cash provided by (used in)
financing activities |
10,076 |
|
|
(19,713 |
) |
|
75,032 |
|
|
(25,803 |
) |
Net (decrease) increase in
cash and cash equivalents, and restricted cash |
(6,771 |
) |
|
(16,499 |
) |
|
768 |
|
|
(7,552 |
) |
Cash and cash equivalents, and
restricted cash at beginning of period |
33,538 |
|
|
64,774 |
|
|
25,999 |
|
|
55,827 |
|
Cash and cash equivalents, and
restricted cash at end of period |
$ |
26,767 |
|
|
$ |
48,275 |
|
|
$ |
26,767 |
|
|
$ |
48,275 |
|
Reconciliation of Net Income to EBITDA
and Adjusted EBITDA(unaudited)($
in thousands)
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
Net income |
$ |
4,839 |
|
|
|
$ |
1,492 |
|
|
|
$ |
10,251 |
|
|
|
$ |
10,671 |
|
Interest expense (income) |
1,999 |
|
|
|
15 |
|
|
|
3,693 |
|
|
|
(39 |
) |
Depreciation and
amortization |
4,805 |
|
|
|
1,270 |
|
|
|
7,576 |
|
|
|
3,655 |
|
Provision for income
taxes |
(3,584 |
) |
|
|
(559 |
) |
|
|
1,503 |
|
|
|
5,737 |
|
EBITDA |
8,059 |
|
|
|
2,218 |
|
|
|
23,023 |
|
|
|
20,024 |
|
Stock-based compensation and
related costs |
2,987 |
|
|
|
4,500 |
|
|
|
7,836 |
|
|
|
10,766 |
|
Transaction costs |
331 |
|
|
|
64 |
|
|
|
1,691 |
|
|
|
283 |
|
Tax receivable agreement
liability adjustment |
(212 |
) |
|
|
721 |
|
|
|
(212 |
) |
|
|
721 |
|
Indemnity and other related
legal costs |
1,615 |
|
|
|
1,301 |
|
|
|
3,190 |
|
|
|
2,334 |
|
Severance, restructuring and
other charges |
— |
|
|
|
706 |
|
|
|
341 |
|
|
|
3,658 |
|
Adjusted EBITDA |
$ |
12,780 |
|
|
|
$ |
9,510 |
|
|
|
$ |
35,869 |
|
|
|
$ |
37,786 |
|
Reconciliation of Net Income to Adjusted
Net Income per
Share(unaudited) ($ in
thousands except per share data)
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
Net income |
$ |
4,839 |
|
|
|
$ |
1,492 |
|
|
$ |
10,251 |
|
|
|
$ |
10,671 |
|
Interest expense (income) |
1,999 |
|
|
|
15 |
|
|
3,693 |
|
|
|
(39 |
) |
Amortization |
4,024 |
|
|
|
464 |
|
|
5,223 |
|
|
|
1,391 |
|
Provision for income
taxes |
(3,584 |
) |
|
|
(559 |
) |
|
1,503 |
|
|
|
5,737 |
|
Stock-based compensation and
related costs |
2,987 |
|
|
|
4,500 |
|
|
7,836 |
|
|
|
10,766 |
|
Transaction costs |
331 |
|
|
|
64 |
|
|
1,691 |
|
|
|
283 |
|
Tax receivable agreement
liability adjustment |
(212 |
) |
|
|
721 |
|
|
(212 |
) |
|
|
721 |
|
Indemnity and other related
legal costs |
1,615 |
|
|
|
1,301 |
|
|
3,190 |
|
|
|
2,334 |
|
Severance, restructuring and
other charges |
— |
|
|
|
706 |
|
|
341 |
|
|
|
3,658 |
|
Adjusted pre-tax income |
11,999 |
|
|
|
8,704 |
|
|
33,516 |
|
|
|
35,522 |
|
Pro forma income taxes |
(2,880 |
|
) |
|
(2,089 |
) |
|
(8,044 |
|
) |
|
(8,525 |
) |
Adjusted net income |
$ |
9,119 |
|
|
|
$ |
6,615 |
|
|
$ |
25,472 |
|
|
|
$ |
26,997 |
|
Total weighted average diluted
share count |
13,832 |
|
|
|
16,602 |
|
|
14,242 |
|
|
|
16,592 |
|
Adjusted net income per
share |
$ |
0.66 |
|
|
|
$ |
0.40 |
|
|
$ |
1.79 |
|
|
|
$ |
1.63 |
|
(1) EBITDA is defined as net income before
interest, income taxes and depreciation and amortization. We have
included EBITDA in this report because it is a key measure used by
our management and board of directors to understand and evaluate
our core operating performance and trends, to prepare and approve
our annual budget and to develop short- and long-term operational
plans. In particular, the exclusion of certain expenses in
calculating EBITDA can provide a useful measure for
period-to-period comparisons of our business. However, EBITDA does
not represent, and should not be considered as, an alternative to
net income or cash flows from operations, each as determined in
accordance with GAAP. Other companies may calculate EBITDA
differently than we do. EBITDA has limitations as an analytical
tool, and you should not consider it in isolation or as a
substitute for analysis of our results as reported under GAAP.
(2) To calculate adjusted EBITDA, we
calculate EBITDA, which is then further adjusted for items such as
stock-based compensation and related costs, and items that are not
generally a part of regular operating activities, including tax
receivable adjustments, indemnity and other related legal costs,
and severance, restructuring, and acquisition costs. Adjusted
EBITDA does not represent, and should not be considered as, an
alternative to net income or cash flows from operations, each as
determined in accordance with GAAP. We have presented adjusted
EBITDA because we consider it an important supplemental measure of
our performance and believe that it is frequently used by analysts,
investors and other interested parties in the evaluation of
companies. Other companies may calculate adjusted EBITDA
differently than we do. Adjusted EBITDA has limitations as an
analytical tool, and you should not consider it in isolation or as
a substitute for analysis of our results as reported under
GAAP.
(3) To calculate adjusted net income, we
calculate net income then add back amortization (but not
depreciation), interest, tax expense, items such as stock-based
compensation and related costs, and other items that are not
generally a part of regular operating activities, including, tax
receivable adjustments, indemnity and other related legal costs,
severance, restructuring, and acquisition costs. From adjusted
pre-tax net income, we apply a pro forma tax expense calculated at
an assumed rate of 24%, which consists of the maximum federal
corporate rate of 21%, with an assumed 3% state tax rate. We
believe that when measuring Company and executive performance
against the adjusted net income measure, applying a pro forma tax
rate better reflects the performance of the Company without regard
to the Company’s organizational tax structure. We have included
adjusted net income in this report because it is a key performance
measure used by our management to understand and evaluate our core
operating performance and trends and because we believe it is
frequently used by analysts, investors, and other interested
parties in their evaluation of the Company. Other companies may
calculate this measure differently than we do. Adjusted net income
has limitations as an analytical tool, and you should not consider
it in isolation or substitution for earnings per share as reported
under GAAP.
(4) Adjusted net income per share is
computed by dividing adjusted net income by the total number of
weighted-average diluted Class A and weighted-average Class B
shares of our common stock for each period. We have included
adjusted net income per share in this report because it is a key
measure used by our management to understand and evaluate our core
operating performance and trends and because we believe it is
frequently used by analysts, investors and other interested parties
in the evaluation of companies. Other companies may calculate this
measure differently than we do. Adjusted net income per share has
limitations as an analytical tool, and you should not consider it
in isolation or as a substitute for earnings per share as reported
under
GAAP.
Disaggregated RevenueThe following table
presents our revenue, disaggregated by major product type and
timing of revenue recognition, for the three months ended September
30, 2019 ($ in thousands):
|
|
Three Months Ended September 30, 2019 |
|
Three Months Ended September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing services |
|
Member management |
|
Total |
|
Sales and marketing services |
|
Member management |
|
Total |
|
Revenue by
Source |
|
|
|
|
|
|
|
|
|
|
|
|
Commission
revenue(1) |
|
|
|
|
|
|
|
|
|
|
|
|
STM |
$ |
21,617 |
|
|
$ |
996 |
|
|
$ |
22,613 |
|
|
$ |
12,083 |
|
|
$ |
665 |
|
|
$ |
12,748 |
|
|
HBIP |
19,222 |
|
|
1,443 |
|
|
20,665 |
|
|
33,009 |
|
|
2,074 |
|
|
35,083 |
|
|
Supplemental |
19,471 |
|
|
1,073 |
|
|
20,544 |
|
|
18,756 |
|
|
1,144 |
|
|
19,900 |
|
|
Medicare |
7,798 |
|
|
— |
|
|
7,798 |
|
|
— |
|
|
— |
|
|
— |
|
|
Other |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
19 |
|
|
19 |
|
|
Services
revenue |
— |
|
|
855 |
|
|
855 |
|
|
— |
|
|
2,209 |
|
|
2,209 |
|
|
Brokerage
Revenue |
— |
|
|
— |
|
|
— |
|
|
1,210 |
|
|
— |
|
|
1,210 |
|
|
Consumer
engagement revenue |
2,581 |
|
|
— |
|
|
2,581 |
|
|
— |
|
|
— |
|
|
— |
|
|
Other revenue |
216 |
|
|
— |
|
|
216 |
|
|
298 |
|
|
— |
|
|
298 |
|
|
Total revenue |
$ |
70,905 |
|
|
$ |
4,367 |
|
|
$ |
75,272 |
|
|
$ |
65,356 |
|
|
$ |
6,111 |
|
|
$ |
71,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing of
Revenue Recognition |
|
|
|
|
|
|
|
|
|
|
|
|
Transferred at a
point in time |
$ |
70,905 |
|
|
$ |
— |
|
|
$ |
70,905 |
|
|
$ |
65,356 |
|
|
$ |
— |
|
|
$ |
65,356 |
|
|
Transferred over
time |
— |
|
|
4,367 |
|
|
4,367 |
|
|
— |
|
|
6,111 |
|
|
6,111 |
|
|
Total revenue |
$ |
70,905 |
|
|
$ |
4,367 |
|
|
$ |
75,272 |
|
|
$ |
65,356 |
|
|
$ |
6,111 |
|
|
$ |
71,467 |
|
|
|
Nine Months Ended September 30, 2019 |
|
Nine Months Ended September 30, 2018 |
|
Sales and marketing services |
|
Member management |
|
Total |
|
Sales and marketing services |
|
Member management |
|
Total |
Revenue by
Source |
|
|
|
|
|
|
|
|
|
|
|
Commission revenue(1) |
|
|
|
|
|
|
|
|
|
|
|
STM |
$ |
75,474 |
|
|
$ |
2,894 |
|
|
$ |
78,368 |
|
|
$ |
40,955 |
|
|
$ |
2,082 |
|
|
$ |
43,037 |
|
HBIP |
61,702 |
|
|
4,932 |
|
|
66,634 |
|
|
101,378 |
|
|
6,138 |
|
|
107,516 |
|
Supplemental |
56,608 |
|
|
3,328 |
|
|
59,936 |
|
|
58,716 |
|
|
3,384 |
|
|
62,100 |
|
Medicare |
9,001 |
|
|
— |
|
|
9,001 |
|
|
— |
|
|
— |
|
|
— |
|
Other |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
57 |
|
|
57 |
|
Services revenue |
— |
|
|
2,979 |
|
|
2,979 |
|
|
— |
|
|
3,096 |
|
|
3,096 |
|
Brokerage revenue |
— |
|
|
— |
|
|
— |
|
|
2,821 |
|
|
— |
|
|
2,821 |
|
Customer engagement
revenue |
3,820 |
|
|
— |
|
|
3,820 |
|
|
553 |
|
|
— |
|
|
553 |
|
Other |
216 |
|
|
— |
|
|
216 |
|
|
|
|
|
|
|
Total revenue |
$ |
206,821 |
|
|
$ |
14,133 |
|
|
$ |
220,954 |
|
|
$ |
204,423 |
|
|
$ |
14,757 |
|
|
$ |
219,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing of Revenue
Recognition |
|
|
|
|
|
|
|
|
|
|
|
Transferred at a point in
time |
$ |
206,821 |
|
|
$ |
— |
|
|
$ |
206,821 |
|
|
$ |
204,423 |
|
|
$ |
— |
|
|
$ |
204,423 |
|
Transferred over time |
— |
|
|
14,133 |
|
|
14,133 |
|
|
— |
|
|
14,757 |
|
|
14,757 |
|
Total revenue |
$ |
206,821 |
|
|
$ |
14,133 |
|
|
$ |
220,954 |
|
|
$ |
204,423 |
|
|
$ |
14,757 |
|
|
$ |
219,180 |
|
(1) For the purposes of disaggregated
revenue presentation, when additional Discount Benefit products are
sold with an STM, HBIP, or supplemental product, the associated
revenue for the Discount Benefit products are reported within the
STM, HBIP, or supplemental product category depicted within the
table.
Summary of Selected
Metrics(unaudited)($ in
thousands, except duration units and revenue per submitted
applications)
|
Expected Duration Units by Product Type (1) |
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2019 |
|
2018 |
|
Change (%) |
|
2019 |
|
2018 |
|
Change (%) |
IFP |
496,700 |
|
|
511,700 |
|
|
(3 |
)% |
|
1,693,200 |
|
|
1,600,400 |
|
|
6 |
% |
Medicare |
301,700 |
|
|
— |
|
|
— |
% |
|
385,400 |
|
|
— |
|
|
— |
% |
Total |
798,400 |
|
|
511,700 |
|
|
56 |
% |
|
2,078,600 |
|
|
1,600,400 |
|
|
30 |
% |
(1) Excludes de-emphasized products where the Company
outsourced all sales and marketing obligations and some member
management services.
|
Submitted Applications by Product Type (1) |
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2019 |
|
2018 |
|
Change (%) |
|
2019 |
|
2018 |
|
Change (%) |
IFP |
56,700 |
|
|
75,300 |
|
|
(25 |
)% |
|
192,800 |
|
|
232,000 |
|
|
(17 |
)% |
Medicare |
7,800 |
|
|
— |
|
|
— |
% |
|
10,000 |
|
|
— |
|
|
— |
% |
Total |
64,500 |
|
|
75,300 |
|
|
(14 |
)% |
|
202,800 |
|
|
232,000 |
|
|
(13 |
)% |
(1) Excludes de-emphasized products where the Company
outsourced all sales and marketing obligations and some member
management services.
The following tables present the Constrained
Lifetime Value per Submitted Application (LVSA), by product type
($, except # of submitted applications):
|
Three Months Ended September 30, 2019 |
|
Three Months Ended September 30, 2018 |
|
Revenue per Submitted Application |
|
# of Submitted Applications |
|
Revenue per Submitted Applications |
|
# of Submitted Applications |
Short Term Medical <12 months |
$ |
346 |
|
|
7,500 |
|
|
$ |
509 |
|
|
29,700 |
|
Short Term Medical ≥12
months |
|
881 |
|
|
22,300 |
|
|
|
469 |
|
|
500 |
|
Total STM |
|
747 |
|
|
29,800 |
|
|
|
508 |
|
|
30,200 |
|
Health Benefit Plans |
|
727 |
|
|
25,500 |
|
|
|
711 |
|
|
45,100 |
|
Supplemental |
|
324 |
|
|
52,600 |
|
|
|
333 |
|
|
57,000 |
|
Medicare (1) |
|
774 |
|
|
7,800 |
|
|
|
— |
|
|
— |
|
Total |
$ |
552 |
|
|
115,700 |
|
|
$ |
502 |
|
|
132,300 |
|
(1) Revenue per submitted application for Medicare is net
of CC&E expenses related to one of our Medicare BPO partners
who is deemed a customer under ASC 606.
|
Nine Months Ended September 30, 2019 |
|
Nine Months Ended September 30, 2018 |
|
Revenue per Submitted Application |
|
# of Submitted Applications |
|
Revenue per Submitted Applications |
|
# of Submitted Applications (1) |
Short Term Medical <12 months |
$ |
343 |
|
|
26,900 |
|
|
$ |
256 |
|
|
100,700 |
|
Short Term Medical ≥12
months |
|
948 |
|
|
72,000 |
|
|
|
305 |
|
|
1,100 |
|
Total STM |
|
784 |
|
|
98,900 |
|
|
|
256 |
|
|
101,800 |
|
Health Benefit Plans |
|
760 |
|
|
91,600 |
|
|
|
577 |
|
|
130,100 |
|
Supplemental |
|
324 |
|
|
176,200 |
|
|
|
288 |
|
|
179,700 |
|
Medicare (2) |
|
828 |
|
|
10,000 |
|
|
|
— |
|
|
— |
|
Total |
$ |
564 |
|
|
376,700 |
|
|
$ |
371 |
|
|
411,600 |
|
(1) Excludes policies from the block of business that the
Company obtained in June 2018. These policies were excluded as the
revenue was recognized as part of the member management obligation
only.(2) Revenue per submitted application for Medicare is net
of CC&E expenses related to one of our Medicare BPO partners
who is deemed a customer under ASC 606.
Contacts:
Health Insurance Innovations, Inc.:Michael DeVriesSVP
Finance(813) 906-5314mhershberger@hiiq.com
Investor Contact:WestwickeBob EastJordan KohnstamAsher
Dewhurst(443) 213-0500hiiq@westwicke.com
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