Market Overview

Health Insurance Innovations, Inc. Reports Third Quarter 2019 Results

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Revenue $75.3 million, up 5% YOY
Net Income of $4.8 million, up 220% YOY
Adjusted EBITDA of $12.8 million, up 35% YOY
GAAP Diluted Net Income per Share of $0.40, up 400% YOY
Adjusted Net Income per Share of $0.66, up 65% YOY

TAMPA, Fla., Nov. 12, 2019 (GLOBE NEWSWIRE) -- 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 Highlights
All 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
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