Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 ___________________________________________________________
FORM 10-Q  
 ___________________________________________________________
 (Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2019
or
[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from ___________ to __________
Commission File Number: 1-35811
 ___________________________________________________________

http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=13045330&doc=11
Health Insurance Innovations, Inc.
(Exact name of registrant as specified in its charter)
___________________________________________________________
Delaware
 
46-1282634
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
15438 N. Florida Avenue, Suite 201, Tampa FL
 
33613
(Address of Principal Executive Offices)
 
(Zip Code)
(813) 397-1187
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
___________________________________________________________
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A Common Stock, $0.001 par value
HIIQ
Nasdaq Global Market
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 [X] No [  ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes [X] 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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
[  ]
Emerging growth company           
[  ]
Accelerated filer
[X]
Non-accelerated filer
[  ]
(Do not check if a smaller reporting company)
 
Smaller reporting 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 Exchange Act Rule 12b-2). Yes [  ] No [X]
As of August 2, 2019, the registrant had 12,264,880 shares of Class A common stock, $0.001 par value, outstanding and 1,916,667 shares of Class B common stock, $0.001 par value, outstanding.
 
 
 
 
 





CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


3





PART I—FINANCIAL INFORMATION
 
ITEM 1—FINANCIAL STATEMENTS 
HEALTH INSURANCE INNOVATIONS, INC.
Condensed Consolidated Balance Sheets
($ in thousands, except share and per share data)
 
June 30, 2019
 
December 31, 2018
 
(unaudited)
 
 
Assets
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
14,695

 
$
9,321

Restricted cash
18,843

 
16,678

Accounts receivable, net, prepaid expenses and other current assets
2,445

 
2,108

Advanced commissions, net
27,950

 
29,867

Contract asset, net
161,817

 
165,494

Total current assets
225,750

 
223,468

Long-term contract asset, net
138,830

 
132,566

Property and equipment, net
4,969

 
5,134

Goodwill
95,738

 
41,076

Intangible assets, net
15,978

 
4,217

Deferred tax assets
26,230

 
25,967

Other assets
659

 
61

Total assets
$
508,154

 
$
432,489

 
 
 
 
Liabilities and stockholders’ equity
 

 
 

Current liabilities:
 

 
 

Accounts payable and accrued expenses
$
29,383

 
$
32,397

Commissions payable, net
95,325

 
106,608

Income taxes payable
11,847

 
15,586

Short-term debt, net
6,862

 

Due to member
8,213

 
7,978

Contingent consideration
2,449

 

Other current liabilities
511

 
422

Total current liabilities
154,590

 
162,991

Long-term commissions payable, net
76,560

 
84,716

Long-term contingent consideration
10,975

 

Long-term debt, net
141,232

 
15,000

Due to member
26,210

 
25,693

Other liabilities
1,238

 
621

Total liabilities
410,805

 
289,021

Commitments and contingencies


 


Stockholders’ equity:
 

 
 

Class A common stock (par value $0.001 per share, 100,000,000 shares authorized; 15,719,217 and 14,425,824 shares issued as of June 30, 2019 and December 31, 2018, respectively; 11,778,253 and 12,387,349 shares outstanding as of June 30, 2019 and December 31, 2018, respectively)
16

 
14

Class B common stock (par value $0.001 per share, 20,000,000 shares authorized; 2,416,667 and 2,541,667 shares issued and outstanding as of June 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 June 30, 2019 and December 31, 2018)

 

Additional paid-in capital
107,781

 
94,194

Treasury stock, at cost (3,940,964 and 2,038,475 shares as of June 30, 2019 and December 31, 2018, respectively)
(127,979
)
 
(67,185
)
Retained earnings
84,422

 
80,804

Total Health Insurance Innovations, Inc. stockholders’ equity
64,242

 
107,830

Noncontrolling interests
33,107

 
35,638

Total stockholders’ equity
97,349

 
143,468

Total liabilities and stockholders' equity
$
508,154

 
$
432,489


The accompanying notes are an integral part of the condensed consolidated financial statements
4




HEALTH INSURANCE INNOVATIONS, INC.
Condensed Consolidated Statements of Income (unaudited)
($ in thousands, except share and per share data)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Revenues
$
58,356

 
$
71,782

 
$
145,682

 
$
147,713

Operating expenses:
 

 
 

 
 
 
 
Third-party commissions
26,910

 
45,658

 
87,581

 
91,163

Credit card and ACH fees
1,582

 
1,371

 
3,105

 
2,748

Selling, general and administrative
21,373

 
19,724

 
40,032

 
35,937

Depreciation and amortization
1,639

 
1,220

 
2,771

 
2,385

Total operating expenses
51,504

 
67,973

 
133,489

 
132,233

Income from operations
6,852

 
3,809

 
12,193

 
15,480

 
 
 
 
 
 
 
 
Other expense (income):
 

 
 

 
 
 
 
Interest expense (income)
1,349

 
(28
)
 
1,694

 
(54
)
Other expense
(17
)
 
31

 

 
59

Net income before income taxes
5,520

 
3,806

 
10,499

 
15,475

Provision for income taxes
2,290

 
1,279

 
5,087

 
6,296

Net income
3,230

 
2,527

 
5,412

 
9,179

Net income attributable to noncontrolling interests
943

 
728

 
1,794

 
2,772

Net income attributable to Health Insurance Innovations, Inc.
$
2,287

 
$
1,799

 
$
3,618

 
$
6,407

 
 
 
 
 
 
 
 
Per share data:
 

 
 

 
 
 
 
Net income per share attributable to Health Insurance Innovations, Inc.
 

 
 

 
 
 
 
Basic
$
0.22

 
$
0.15

 
$
0.33

 
$
0.54

Diluted
$
0.20

 
$
0.14

 
$
0.30

 
$
0.50

Weighted average Class A common shares outstanding
 

 
 

 
 
 
 
Basic
10,596,833

 
11,934,760

 
10,990,474

 
11,763,221

Diluted
11,487,774

 
13,175,814

 
11,978,065

 
12,917,999

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements
5




HEALTH INSURANCE INNOVATIONS, INC.
Condensed Consolidated Statements of Stockholders’ Equity (unaudited)
($ in thousands, except share data)

 
Health Insurance Innovations, Inc.
 
 
 
 
 
Class A Common Stock
 
Class B Common Stock
 
 
 
Treasury Stock
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Additional Paid-in Capital
 
Shares
 
Amount
 
Retained Earnings
 
Noncontrolling Interests
 
Stockholders’ Equity
Balance as of March 31, 2019 (unaudited)
11,512,687

 
$
15

 
2,416,667

 
$
2

 
$
93,340

 
3,288,137

 
$
(108,758
)
 
$
82,135

 
$
32,490

 
$
99,224

Net income

 

 

 

 

 

 

 
2,287

 
943

 
3,230

Issuance of Class A common stock for acquisition consideration
630,000

 
1

 

 

 
11,783

 

 

 

 

 
11,784

Repurchases of Class A common stock
(630,000
)
 

 

 

 

 
630,000

 
(18,644
)
 

 

 
(18,644
)
Issuance of Class A common stock under equity compensation plans
288,393

 

 

 

 

 

 

 

 

 

Class A common stock withheld in treasury from restricted share vesting
(34,845
)
 

 

 

 

 
34,845

 
(971
)
 

 

 
(971
)
Issuances of restricted shares from treasury

 

 

 

 
1

 

 
(1
)
 

 

 

Issuances of Class A common stock from treasury
12,018

 

 

 

 
(395
)
 
(12,018
)
 
395

 

 

 

Stock-based compensation

 

 

 

 
3,052

 

 

 

 

 
3,052

Distributions

 

 

 

 

 

 

 

 
(326
)
 
(326
)
Balance as of June 30, 2019 (unaudited)
11,778,253

 
$
16

 
2,416,667

 
$
2

 
$
107,781

 
3,940,964

 
$
(127,979
)
 
$
84,422

 
$
33,107

 
$
97,349


 
Class A Common Stock
 
Class B Common Stock
 
 
 
Treasury Stock
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Additional Paid-in Capital
 
Shares
 
Amount
 
Retained Earnings
 
Noncontrolling Interests
 
Stockholders’ Equity
Balance as of March 31, 2018 (unaudited)
12,533,874

 
$
13

 
3,841,667

 
$
4

 
$
74,594

 
381,886

 
$
(6,923
)
 
$
72,418

 
$
48,482

 
$
188,588

Net income

 

 

 

 

 

 

 
1,799

 
728

 
2,527

Issuance of Class A common stock in private offering
1,300,000

 
1

 

 

 
9,175

 

 

 

 

 
9,176

Exchange of Series B Membership interest and exchange and cancellation of Class B common stock

 

 
(1,300,000
)
 
(1
)
 

 

 

 

 
(8,047
)
 
(8,048
)
Repurchases of Class A common stock
(115,245
)
 

 

 

 

 
115,245

 
(3,801
)
 

 

 
(3,801
)
Issuance of Class A common stock under equity compensation plans
26,289

 

 

 

 
1

 

 

 

 

 
1

Class A common stock withheld in treasury from restricted share vesting
(37,203
)
 

 

 

 

 
37,203

 
(1,274
)
 

 

 
(1,274
)
Stock-based compensation

 

 

 

 
3,682

 

 

 

 

 
3,682

Contributions (Distributions)

 

 

 

 
17

 

 

 

 
(1,321
)
 
(1,304
)
Balance as of June 30, 2018 (unaudited)
13,707,715

 
$
14

 
2,541,667

 
$
3

 
$
87,469

 
534,334

 
$
(11,998
)
 
$
74,217

 
$
39,842

 
$
189,547



The accompanying notes are an integral part of the condensed consolidated financial statements
6




HEALTH INSURANCE INNOVATIONS, INC.
Condensed Consolidated Statements of Stockholders’ Equity (unaudited)
($ in thousands, except share data)

 
Class A Common Stock
 
Class B Common Stock
 
 
 
Treasury Stock
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Additional Paid-in Capital
 
Shares
 
Amount
 
Retained Earnings
 
Noncontrolling Interests
 
Stockholders’ Equity
Balance as of December 31, 2018
12,387,349

 
$
14

 
2,541,667

 
$
3

 
$
94,194

 
2,038,475

 
$
(67,185
)
 
$
80,804

 
$
35,638

 
$
143,468

Net income

 

 

 

 

 

 

 
3,618

 
1,794

 
5,412

Issuance of Class A common stock in private offering
125,000

 
1

 

 

 
1,848

 

 

 

 

 
1,849

Exchange of Series B Membership interest and exchange and cancellation of Class B common stock

 

 
(125,000
)
 
(1
)
 

 

 

 

 
(1,757
)
 
(1,758
)
Issuance of Class A common stock for acquisition consideration
630,000

 
1

 

 

 
11,783

 

 

 

 

 
11,784

Repurchases of Class A common stock
(1,981,241
)
 

 

 

 

 
1,981,241

 
(63,916
)
 

 

 
(63,916
)
Issuance of Class A common stock under equity compensation plans
538,393

 

 

 

 

 

 

 

 

 

Class A common stock withheld in treasury from restricted share vesting
(68,545
)
 

 

 

 

 
68,545

 
(1,889
)
 

 

 
(1,889
)
Forfeitures of restricted stock held in treasury
(21,939
)
 

 

 

 
587

 
21,939

 
(587
)
 

 

 

Issuances of restricted shares from treasury
157,000

 

 

 

 
(5,196
)
 
(157,000
)
 
5,196

 

 

 

Issuances of Class A common stock from treasury
12,236

 

 

 

 
(402
)
 
(12,236
)
 
402

 

 

 

Stock-based compensation

 

 

 

 
4,967

 

 

 

 

 
4,967

Distributions

 

 

 

 

 

 

 

 
(2,568
)
 
(2,568
)
Balance as of June 30, 2019 (unaudited)
11,778,253

 
$
16

 
2,416,667

 
$
2

 
$
107,781

 
3,940,964

 
$
(127,979
)
 
$
84,422

 
$
33,107

 
$
97,349

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


The accompanying notes are an integral part of the condensed consolidated financial statements
7




HEALTH INSURANCE INNOVATIONS, INC.
Condensed Consolidated Statements of Stockholders’ Equity (unaudited)
($ in thousands, except share data)

 
Class A Common Stock
 
Class B Common Stock
 
 
 
Treasury Stock
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Additional Paid-in Capital
 
Shares
 
Amount
 
Retained Earnings
 
Noncontrolling Interests
 
Stockholders’ Equity
Balance as of December 31, 2017
12,350,981

 
$
13

 
3,841,667

 
$
4

 
$
71,770

 
380,777

 
$
(6,887
)
 
$
19,305

 
$
22,796

 
$
107,001

Adjustments due to the adoption of ASC 606

 

 

 

 

 

 

 
48,505

 
23,866

 
72,371

Net income

 

 

 

 

 

 

 
6,407

 
2,772

 
9,179

Issuance of Class A common stock in private offering
1,300,000

 
1

 

 

 
9,175

 

 

 

 

 
9,176

Exchange of Series B Membership interest and exchange and cancellation of Class B common stock

 

 
(1,300,000
)
 
(1
)
 

 

 

 

 
(8,047
)
 
(8,048
)
Repurchases of Class A common stock
(115,245
)
 

 

 

 

 
115,245

 
(3,801
)
 

 

 
(3,801
)
Issuance of Class A common stock under equity compensation plans
210,291

 

 

 

 
4

 

 

 

 

 
4

Class A common stock withheld in treasury from restricted share vesting
(38,312
)
 

 

 

 

 
38,312

 
(1,310
)
 

 

 
(1,310
)
Stock-based compensation

 

 

 

 
6,503

 

 

 

 

 
6,503

Contributions (Distributions)

 

 

 

 
17

 

 

 

 
(1,545
)
 
(1,528
)
Balance as of June 30, 2018 (unaudited)
13,707,715

 
$
14

 
2,541,667

 
$
3

 
$
87,469

 
534,334

 
$
(11,998
)
 
$
74,217

 
$
39,842

 
$
189,547




The accompanying notes are an integral part of the condensed consolidated financial statements
8




HEALTH INSURANCE INNOVATIONS, INC.
Condensed Consolidated Statements of Cash Flows (unaudited)
($ in thousands)

 
Six Months Ended June 30,
 
2019
 
2018
Operating activities:
 

 
 

Net income
$
5,412

 
$
9,179

Adjustments to reconcile net income to net cash (used in) provided by operating activities:
 

 
 

Stock-based compensation
4,733

 
6,160

Depreciation and amortization
2,771

 
2,385

Deferred income taxes
346

 
632

Changes in operating assets and liabilities:
 

 
 

(Increase) decrease in accounts receivable, prepaid expenses and other assets
(603
)
 
556

Decrease in advanced commissions
1,916

 
8,004

Increase in income taxes receivable

 

Decrease (increase) in contract asset, net
5,213

 
(7,304
)
(Decrease) increase in income taxes payable
(3,739
)
 
452

(Decrease) increase in accounts payable, accrued expenses and other liabilities
(5,569
)
 
(3,971
)
Decrease in commissions payable, net
(19,439
)
 
47

Net cash (used in) provided by operating activities
(8,959
)
 
16,140

Investing activities:
 

 
 

Business acquisition, net of cash acquired
(47,319
)
 

Capitalized internal-use software
(854
)
 
(880
)
Purchases of property and equipment
(285
)
 
(223
)
Net cash used in investing activities
(48,458
)
 
(1,103
)
Financing activities:
 

 
 

Proceeds from borrowing of debt, net of issuance costs
198,094

 

Repayment on borrowings of debt
(65,000
)
 

Payments related to tax withholding for share-based compensation
(1,889
)
 
(1,310
)
Issuances of Class A common stock under equity compensation plans

 
4

Purchases of Class A common stock pursuant to share repurchase plan
(63,916
)

(3,801
)
Distributions to member
(2,333
)
 
(983
)
Net cash provided by (used in) financing activities
64,956

 
(6,090
)
Net increase in cash and cash equivalents, and restricted cash
7,539

 
8,947

Cash and cash equivalents, and restricted cash at beginning of period
25,999

 
55,827

Cash and cash equivalents, and restricted cash at end of period
$
33,538

 
$
64,774

 


The accompanying notes are an integral part of the condensed consolidated financial statements
9




Health Insurance Innovations, Inc.
Condensed Consolidated Statements of Cash Flows (Continued)
Supplemental Cash Flow Information
($ in thousands)

 
Six Months Ended June 30,
 
June 30, 2019
 
2018
Supplemental cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Income taxes, net
$
8,490

 
$
5,321

Interest
1,328

 
6

Non-cash investing activities:
 
 
 
Business acquisition - equity consideration
$
11,783

 
$

Business acquisition - contingent consideration
13,424

 
 
Business acquisition - cash withheld by HIIQ to fund post-closing adjustments
2,500

 
 
Capitalized stock-based compensation
234

 
343

Non-cash financing activities:
 
 
 
Change in due to member related to Exchange Agreement
$
517

 
$
9,989

Change in deferred tax asset related to Exchange Agreement
(609
)
 
(11,118
)
Issuance of Class A common stock in a private offering related to Exchange Agreement
1,849

 
9,175

Exchange of Class B membership interests related to Exchange Agreement
(1,758
)
 
(8,047
)
Declared but unpaid distribution to member of Health Plan Intermediaries, LLC
235

 
1,200



The accompanying notes are an integral part of the condensed consolidated financial statements
10




HEALTH INSURANCE INNOVATIONS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

1. Organization, Basis of Presentation and Summary of Significant Accounting Policies
 
Health Insurance Innovations, Inc. is a Delaware corporation incorporated on October 26, 2012. In this quarterly report, unless the context suggests otherwise, references to the “Company,” “we,” “us,” and “our” refer to Health Insurance Innovations, Inc. and its consolidated subsidiaries. The terms “HIIQ” and “HPIH” refer to the stand-alone entities Health Insurance Innovations, Inc., and Health Plan Intermediaries Holdings, LLC, respectively. The terms “HealthPocket” or “HP” refer to HealthPocket, Inc., a subsidiary which was acquired by HPIH on July 14, 2014 (and is wholly owned by Health Insurance Innovations Holdings, LLC, or "HIIH," a wholly owned subsidiary of HPIH formed on December 17, 2018). The term "Benefytt" refers to Benefytt, LLC, a subsidiary of HIIH which was formed on May 1, 2019. The term “ASIA” refers to American Service Insurance Agency LLC, a subsidiary which was acquired by HPIH (and is wholly owned by HPIH) on August 8, 2014. The term "TogetherHealth" collectively refers to the three subsidiaries TogetherHealth PAP, LLC, TogetherHealth Insurance, LLC, and Rx Helpline, LLC, which were acquired by HPIH on June 5, 2019, and are all wholly owned subsidiaries of HPIH. HP, HIIH, Benefytt, TogetherHealth, and ASIA are consolidated subsidiaries of HPIH, which is a consolidated subsidiary of HIIQ.

Principles of Consolidation and Basis of Presentation

The accompanying condensed consolidated financial statements for the three and six months ended June 30, 2019 and 2018 have been prepared in accordance with the rules and regulations of the SEC for quarterly reports on Form 10-Q. Accordingly, they do not include all of the financial information and footnotes required by generally accepted accounting principles in the United States of America (“GAAP”) for complete financial statements. The information included in this quarterly report, including the interim condensed consolidated financial statements and the accompanying notes, should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The year-end condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP.

In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the financial position, results of operations, stockholders' equity, and cash flows of the Company. The condensed consolidated results for the three and six months ended June 30, 2019 are not necessarily indicative of the results to be expected for any subsequent interim period or for the year ending December 31, 2019.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements. These estimates also affect the reported amounts of revenues and expenses during the reporting periods. Actual results could materially differ from those estimates.

Reclassifications

The Company previously presented deferred revenue as a separate line item in the consolidated balance sheets however, as of June 30, 2019 the Company now presents deferred revenue as a component of other current liabilities.

Summary of Significant Accounting Policies

The following is an update to our significant accounting policies described in Note 1, Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies, in our audited consolidated financial statements for the year ended December 31, 2018 included in our 2018 Annual Report on Form 10-K.

Lease Accounting

The Company determines if an arrangement contains a lease at inception. For arrangements where the Company is the lessee, operating leases are included in other assets, other current liabilities, and other liabilities on the condensed consolidated balance sheet as of June 30, 2019. The Company currently does not have any finance leases.



11





Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. Right-of-use assets also include any initial direct costs incurred and any lease payments made at or before the lease commencement date, less lease incentives received. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the lease liabilities as the Company’s leases generally do not provide an implicit rate. Lease terms may include options to extend or terminate when the Company is reasonably certain that the option will be exercised. Lease expense is recognized on a straight-line basis over the lease term. The Company applied the transition method retrospectively at the beginning of the period of adoption however there was no cumulative-effect adjustment to retained earnings.

Practical expedients

The Company has lease arrangements with lease and non-lease components. The Company elected the practical expedient not to separate non-lease components from lease components for the Company’s operating leases. Additionally, the Company applied the package of practical expedients to forgo reassessing certain conclusions reached under legacy GAAP. The Company elected to apply the short-term lease measurement and recognition exemption in which right-of-use assets and lease liabilities are not recognized for short-term leases.

Recent Accounting Pronouncements

Recently adopted accounting pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), further updated by ASU No. 2018-10, No. 2018-20 and No. 2019-01, which modifies lease accounting for lessees to increase transparency and comparability by requiring organizations to recognize lease assets and lease liabilities on the balance sheet and increasing disclosures about key leasing arrangements. The amendment updates the critical determinant from capital versus operating to whether a contract is or contains a lease because lessees are required to recognize lease assets and lease liabilities for all leases - financing and operating - other than short term. We adopted this guidance on January 1, 2019. See the preceding section within this Note 1 titled "Lease Accounting" and Note 3 for additional details regarding the adoption of this standard.
 
Accounting pronouncements not yet adopted

The Company has reviewed all other issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on our financial statements.

2. Business Acquisitions

TogetherHealth

On June 5, 2019, the Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with RxHelpline, LLC (“RXH”), TogetherHealth PAP, LLC (“THP”), TogetherHealth Insurance, LLC (“THI” and, collectively with RXH and THP, “TogetherHealth”), TogetherHealth Soup, L.P. (“Seller”) and certain principals of TogetherHealth, pursuant to which HPIH purchased 100% of the outstanding limited liability company interests of TogetherHealth (the “Interests”). The closing of the transactions contemplated by the Purchase Agreement occurred on June 5, 2019, simultaneous with the signing of the Purchase Agreement.
 
The purchase price for the Interests under the Purchase Agreement was approximately $50.0 million in cash, subject to certain closing and post-closing adjustments (the “Cash Consideration”), the issuance of 630,000 shares of the Company’s Class A common stock, and an earn-out agreement pursuant to which the Seller will receive payments over a 5-year post closing period equal to a percentage of the TogetherHealth’s gross margin above specified thresholds. Pursuant to the Purchase Agreement, a portion of the Cash Consideration consisting of $2.5 million is being held back by HPIH in order to fund payment of post-closing adjustments to the Cash Consideration and post-closing indemnification obligations of the parties. The shares issued pursuant to the Purchase Agreement are subject to lock-up agreements pursuant to which the holders thereof are restricted from selling or transferring such shares for a three-year period, subject to a release from the lock-up of one-third of the subject shares on each of the first three anniversary dates of the Purchase Agreement and subject to other release-acceleration provisions and customary exceptions.
 
During the three and six months ended June 30, 2019, respectively, we recognized $424,000 in transaction costs related to the acquisition of TogetherHealth. Transaction costs were expensed as incurred and are included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income.


12






This transaction is expected to provide us with additional benefits such as increased and ongoing sales referrals that we will own, which will help facilitate our entry into new markets and revenue streams, such as the market for the sale of Medicare insurance products to individuals 65 years of age or older.

The following table summarizes the fair value of the consideration paid for the acquisition as of June 5, 2019 ($ in thousands):
Cash consideration(1)
$
50,000

Class A common stock, at fair value(2)(4)
11,783

Earnout consideration, at fair value(3)(4)
13,424

Total consideration
$
75,207


(1)
Cash consideration was $50.0 million, of which $2.5 million was withheld by HPIH for the payment of post-closing adjustments.
(2)
The fair value of the Class A common stock derived from the market price of the stock, adjusted to include a discount for lack of marketability due to the trading restrictions pursuant to the Agreement.
(3)
Represents the initial fair value estimate of income-based contingent consideration, which may be realized by the sellers incrementally over five years after the closing date of the acquisition. The preliminary fair value of the contingent consideration arrangement at the acquisition date was estimated using a risk-adjusted probability analysis as of the acquisition date. Management estimates the undiscounted payout to be approximately $38.0 million over the five years however the maximum cash payout is unlimited.
(4) 
Management is currently awaiting additional information to complete the valuation of these assets. As additional information, as of the purchase date, becomes available and as management completes its evaluation, the preliminary purchase price allocation may be revised during the remainder of the re-measurement period (which will not exceed 12 months from the purchase acquisition date). Any such revisions or changes to the fair values of tangible and intangible assets acquired or liabilities assumed could be material.

The following table summarizes the preliminary allocation of the total purchase price for the acquisition as of June 5, 2019 ($ in thousands):
Cash
$
179

Accounts receivable and other assets(1)
333

Contract asset(2)
7,800

Property, plant and equipment(1)
34

Intangible asset - brand(2)
760

Intangible asset - BPO relationship(2)
12,200

Goodwill(2)
54,662

Accounts payable, accrued expenses, and other liabilities(1)
(761
)
Total
$
75,207


(1) 
The carrying value of accounts receivable, accounts payable, accrued expenses, and property and equipment approximated fair value; as such, no adjustments to the accounts were recorded in association with the acquisition.
(2) 
Management is currently awaiting additional information to complete the valuation of these assets. As additional information, as of the purchase date, becomes available and as management completes its evaluation, the preliminary purchase price allocation may be revised during the remainder of the re-measurement period (which will not exceed 12 months from the purchase acquisition date). Any such revisions or changes to the fair values of tangible and intangible assets acquired or liabilities assumed could be material.

The goodwill allocated to the purchase price was calculated as the fair value of the consideration less the assets acquired and liabilities assumed. This value is primarily related to the expected results of future operations of TogetherHealth and the operational synergies we expect to realize as a result of the acquisition. The amount of goodwill that is expected to be deductible for tax purposes is $42.0 million.

As a result of acquiring TogetherHealth, our condensed consolidated results of income include the results of TogetherHealth since the acquisition date. TogetherHealth’s revenues were $1.7 million and pre-tax net income of $72,000 for the three and six


13





months ended June 30, 2019 are included in our results of income since the acquisition. Pre-tax net income includes $530,000 of amortization expense associated with the preliminary valuations of the acquired intangible assets noted above.             

The following unaudited pro forma financial information represents the consolidated financial information as if the acquisition had been included in our consolidated results beginning on the first day of the fiscal year prior to the acquisition date. The pro forma results have been calculated after adjusting the results of the acquired entities to remove intercompany transactions and transaction costs incurred and to reflect the additional amortization that would have been charged assuming the fair value adjustments to intangible assets had been applied on the first day of the fiscal year prior to the acquisition, together with the consequential tax effects. The pro forma results do not reflect any cost savings, operating synergies or revenue enhancements that the combined company may achieve as a result of the acquisitions; the costs to combine the companies' operations; or the costs necessary to achieve these costs savings, operating synergies and revenue enhancements. The pro forma results do not necessarily reflect the actual results of operations of the combined companies under our ownership and operation.

 
($ in thousands, except per share data)
Unaudited
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Revenues
$
65,370

 
$
77,924

 
$
161,817

 
$
159,253

Net income before income taxes
7,016

 
4,091

 
13,678

 
15,775

Net income
4,472

 
2,744

 
7,933

 
9,407

Net income attributable to Health Insurance Innovations, Inc.
3,102

 
1,953

 
5,213

 
6,569

Weighted average Class A common shares outstanding
 
 
 
 
 
 
 
Net income per share - basic
0.28

 
0.16

 
0.45

 
0.53

Net income per share - diluted
0.26

 
0.14

 
0.41

 
0.48

Weighted average Class A common shares outstanding
 
 
 
 
 
 
 
Basic
11,226,833

 
12,564,760

 
11,620,474

 
12,393,221

Diluted
12,117,774

 
13,805,814

 
12,608,065

 
13,547,999


Benefytt, LLC
  
On January 7, 2019, the Company formed Benefytt, LLC, a registered Arkansas corporation (“Benefytt”), which is wholly owned by HIIH. On May 1, 2019, the Company received approval from the Arkansas Department of Insurance (“ADOI”) to operate as a special purpose reinsurance captive to reinsure select hospital indemnity products (a component of the Company’s supplemental product offering). The Company’s goal is to create an alignment of interest between our market partners and HIIQ by sharing produced risk on a quota share basis, and to develop a flexible program that provides scalability and change as the underlying reinsurance business develops.

State insurance laws and regulations require Benefytt as a reinsurance entity to file financial statements with state insurance regulators everywhere it is licensed and the operations of Benefytt and its accounts are subject to examination by those regulators at any time. Benefytt prepares statutory financial statements in accordance with accounting practices and procedures prescribed or permitted by these regulators. The National Association of Insurance Commissioners (“NAIC”) has approved a series of uniform statutory accounting principles ("SAP") that have been adopted, in some cases with minor modifications, by all state insurance regulators.

On May 1, 2019, the Company contributed $1.0 million in capital to Benefytt to support ADOI collateral requirements. The Company has restricted $600,000 of cash per state regulation. As of June 30, 2019, there were no other material transactions or reinsurance activities reported by Benefytt.



14





3. Leases

The Company has operating leases for real estate and certain equipment. The Company has lease assets of approximately $625,000, reported within other assets on the condensed consolidated balance sheet as of June 30, 2019. Current lease liabilities of approximately $287,000 are reported within other current liabilities and non-current lease liabilities of approximately $257,000 are reported in other liabilities on the condensed consolidated balance sheet as of June 30, 2019. Operating lease expense was $173,000 and $347,000, respectively, for the three and six months ended June 30, 2019. Short-term lease expense for the three and six months ended June 30, 2019, respectively, was not material. The difference between the undiscounted cash flows and the operating lease liabilities recorded on the condensed consolidated balance sheet as of June 30, 2019 is approximately $28,000.

Supplemental cash flow information, as of June 30, 2019, related to operating leases was as follows ($ in thousands):
Cash paid within operating cash flows
$
370


The weighted-average remaining lease term and discount rates are as follows:
Weighted-average remaining lease term
1.7 years

Weighted-average discount rate
4.6
%

As of December 31, 2018, the future minimum lease payments under noncancellable operating leases under Accounting Standard Codification Topic 840, the predecessor to Topic 842, are as follows ($ in thousands): 
2019
$
615

2020

2021

2022

2023

Total minimum lease payments
$
615

 
As of June 30, 2019, the Company did not have any significant additional operating leases that had not yet commenced.

4. Goodwill and Intangible Assets

Goodwill

Our goodwill balance as of June 30, 2019 includes the TogetherHealth acquisition described in Note 2 as well as goodwill from previous acquisitions as described in our Form 10-K for the year ended December 31, 2018.

The changes in the carrying amounts of goodwill were as follows ($ in thousands):
Balance as of December 31, 2018
$
41,076

Goodwill acquired
54,662

Balance as of June 30, 2019
$
95,738


Other Intangible Assets
 
Our other intangible assets as of June 30, 2019 arose from the TogetherHealth acquisition described in Note 2 as well as previously reported amounts from previous acquisitions as described in Note 5 of our Form 10-K for the year ended December 31, 2018. Intangible assets consist of a brand, a carrier network, distributor relationships, non-competition arrangements, customer relationships, and capitalized software. Finite-lived intangible assets are amortized over their useful lives from two to fifteen years.
 


15





Major classes of intangible assets, net consisted of the following ($ in thousands):
 
Weighted-Average Useful Lives Amortization (years)
 
June 30, 2019
 
December 31, 2018
 
 
Gross Carrying Amount
 
Accumulated Amortization
 
Intangible Assets, net
 
Gross Carrying Amount
 
Accumulated Amortization
 
Intangible Assets, net
Brand(1)
10.4
 
$
2,061

 
$
(469
)
 
$
1,592

 
$
1,377

 
$
(481
)
 
$
896

Carrier network
 

 

 

 
40

 
(40
)
 

Distributor relationships
0.6
 
4,059

 
(3,937
)
 
122

 
4,059

 
(3,896
)
 
163

Noncompete agreements
 
45

 
(45
)
 

 
987

 
(987
)
 

Customer relationships(1)
5.2
 
12,896

 
(918
)
 
11,978

 
1,484

 
(1,183
)
 
301

Capitalized software
7.0
 
8,000

 
(5,714
)
 
2,286

 
8,571

 
(5,714
)
 
2,857

Total intangible assets
 
 
$
27,061

 
$
(11,083
)
 
$
15,978

 
$
16,518

 
$
(12,301
)
 
$
4,217


(1) 
Amounts reported as of June 30, 2019 are subject to measurement period adjustments for intangible assets acquired in the TogetherHealth acquisition described in Note 2.

Amortization expense for the three months ended June 30, 2019 and 2018 was $858,000 and $463,000, respectively, and for the six months ended June 30, 2019 and 2018 was $1.2 million and $927,000, respectively.

Estimated annual pretax amortization for intangibles assets in for the remainder of 2019 and each of the next five years and thereafter are as follows ($ in thousands): 
Remainder of 2019
$
2,685

2020
3,991

2021
2,807

2022
2,660

2023
2,554

2024
940

Thereafter
341

Total
$
15,978


5. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following as of ($ in thousands):
 
June 30, 2019
 
December 31, 2018
Carriers and vendors payable
$
17,240

 
$
17,352

Accrued wages
3,073

 
5,045

Accounts payable
1,773

 
688

Accrued professional fees
2,363

 
1,676

Accrued interest
54

 
28

Accrued credit card/ACH fees
520

 
550

Other accrued expenses
4,360

 
7,058

Total accounts payable and accrued expenses
$
29,383

 
$
32,397


Accrued wages decreased due to payment of accrued executive bonuses and continued severance payments for former HPIH and HP executives, offset by additional amounts accrued for 2019 bonus payments. Other accrued expenses decreased primarily due to the payment of $3.4 million related to the multistate Regulatory Settlement Agreement as discussed in Note 14 of our 2018 Annual Report on Form 10-K.



16





6. Debt
    
On June 5, 2019 (the “Closing Date”), the Company, through its subsidiary, HPIH, entered into a Credit Agreement (the “Credit Agreement”) among HPIH, as the Borrower, the Company and certain of the Company’s affiliates as guarantors (the “Guarantors”), Bank of America, N.A., as Administrative Agent, Swingline Lender and L/C Issuer (the “Administrative Agent”), SunTrust Bank, as Syndication Agent, Royal Bank of Canada, as Co-Documentation Agent, and the other parties identified therein as Lenders (the “Lenders”).

The Credit Agreement provides for an aggregate principal amount of up to $215 million, which consists of: (i) a $65 million, three-year revolving credit facility (the “Revolving Credit Facility”), which includes a $10 million sublimit for the issuance of standby letters of credit (each, a “Letter of Credit”) and a $5 million sublimit for swingline loans (each, a “Swingline Loan”), and (ii) a $150 million term loan facility, all of which was drawn on the Closing Date (the “Term Loan Facility” and, together with the Revolving Credit Facility, the “Senior Credit Facility”).
 
The proceeds of the Senior Credit Facility shall be used for: (i) general corporate purposes, including to fund ongoing working capital needs, capital expenditures, and other lawful corporate purposes, (ii) to refinance the Company's previous Credit Agreement, dated as of July 17, 2017, and (iii) to finance permitted acquisitions. On June 5, 2019, the Company used approximately $65.0 million of the proceeds to refinance the prior credit facility with SunTrust and approximately $50.0 million to fund the cash portion of the purchase price under the TogetherHealth acquisition as detailed in Note 2.
 
The Revolving Credit Facility matures on the third anniversary of the Closing Date, June 5, 2022 (the “Maturity Date”), and the Term Loan Facility is subject to quarterly amortization of principal, with 5% of the initial aggregate term loan to be payable in the first year, 7.5% of the initial aggregate term loan to be payable in the second year, 10% of the initial aggregate term loan to be payable in the final year, and final payment of all amounts outstanding, plus accrued interest, due on the Maturity Date.
 
Borrowings under the Senior Credit Facility (other than for Swingline Loans) can either be, at HPIH’s election: (i) at the Base Rate (which is the highest of the Bank of America prime rate, the federal funds rate plus 0.50%, and LIBOR index rate plus 1.00%) plus the Applicable Margin, or (ii) at LIBOR (as defined in the Credit Agreement) plus the Applicable Margin. The “Applicable Margin” as defined under the Credit Agreement means, (a) until receipt by the Administrative Agent of the compliance certificate for the fiscal quarter ending September 30, 2019, 2.00% per annum, in the case of LIBOR loans, and 1.00% per annum, in the case of Base Rate loans, and (b) thereafter, a percentage determined based upon HPIH’s Consolidated Total Leverage Ratio (as defined in the Credit Agreement) ranging from 1.50% to 2.00%, in the case of LIBOR loans, and .50% to 1.00%, in the case of Base Rate loans. Interest accrued on each Base Rate Loan (as defined in the Credit Agreement) is payable in arrears on the last day of each calendar quarter and on the Maturity Date. Interest accrued on each LIBOR Loan (as defined in the Credit Agreement) is payable on the last day of the applicable interest period, or every three months, whichever comes sooner, and on the Maturity Date. Interest accrued on the unused Revolving Credit Facility is 0.30% per annum.
 
The Senior Credit Facility is secured by a valid and perfected first priority lien and security interest in each of the following: (i) all present and future shares of capital stock of (or other ownership or profits interests in) each of HPIHs’ present and future subsidiaries (subject to certain exceptions), (ii) all present and future intercompany debt of HPIH and each Guarantor, (iii) all of the present and future personal property and assets of HPIH and each Guarantor, and (iv) all proceeds and products of the property and assets described in clauses (i), (ii) and (iii) above.

The Credit Agreement contains customary covenants, including, but not limited to, (i) a minimum consolidated interest coverage ratio and a maximum consolidated leverage ratio and (ii) restrictions on the incurrence of debt, investments, fundamental changes, sale and leaseback transactions, transactions with affiliates, hedging transactions, restrictive agreements, mergers, consolidations, and sales of assets. The Credit Agreement also includes customary representations and warranties and events of default.



17





The debt maturity schedule for our long-term debt is as follows ($ in thousands):
 
 
 
 
 
As of
 
 
 
Issuance Date
 
Maturity Date
 
June 30, 2019
 
December 31, 2018
 
Rate
Line of credit
July 2017
 
2020
 
$

 
$
15,000

 
6.25
%
Non-current portion of term loan
June 2019
 
2020 - 2022
 
142,500

 

 
4.33
%
Non-current portion of unamortized debt issuance costs
 
 
 
 
(1,268
)
 

 
 
 
 
 
 
 
$
141,232

 
$
15,000

 
 
Current portion of term loan
June 2019
 
2019 - 2020
 
7,500

 

 
4.33
%
Current portion of unamortized debt issuance costs
 
 
 
 
(638
)
 

 
 
 
 
 
 
 
$
148,094

 
$
15,000

 
 

The aggregate contractual maturities of debt for the remainder of 2019 and each of the five fiscal years thereafter are as follows ($ in thousands):
 
Remainder of 2019
 
2020
 
2021
 
2022
 
2023
 
2024
Debt repayments
$
3,750

 
$
9,375

 
$
13,125

 
$
123,750

 
$

 
$


As of June 30, 2019, and December 31, 2018, there was $54,000 and $28,000, respectively, of accrued interest included in accounts payable and accrued expenses on the condensed consolidated balance sheets. As of June 30, 2019, we had a $150.0 million outstanding balance from borrowings under the Term Loan Facility and there was $65.0 million available upon under the Revolving Credit Facility. As of December 31, 2018, we had a $15.0 million outstanding balance from draws on the prior credit facility. The Company is in compliance with all debt covenants.

7. Stockholders’ Equity

Except for the items detailed below, there have been no material changes to Stockholders' Equity as reported in the Company’s Annual Report on Form 10-K at December 31, 2018:

Tax Obligation Settlements and Treasury Stock Transactions

Treasury stock is recorded pursuant to the surrender of shares by certain employees to satisfy statutory tax withholding obligations on vested restricted stock awards. In addition, certain forfeited stock-based awards are transferred to and recorded as treasury stock, and certain restricted stock awards have been granted from shares in treasury.

During the three and six months ended June 30, 2019 there were 34,845 and 68,545 shares, respectively, transferred to treasury for statutory tax withholding obligations as a result of exercises of stock appreciation rights and vested restricted stock awards.

During the three and six months ended June 30, 2018, respectively, there were 37,203 and 38,312 shares transferred to treasury for statutory tax withholding obligations as a result of vested restricted stock awards.

During the three months ended June 30, 2019, no shares were forfeited to treasury. During the six months ended June 30, 2019, there were 21,939 restricted shares transferred to treasury as a result of forfeitures. During the three and six months ended June 30, 2018, there were no restricted shares forfeited to treasury.

For the three and six months ended June 30, 2019, there were cash outflows of $972,000 and $1.9 million, respectively, for shares redeemed to cover the tax obligations for the settlement of vested restricted stock and exercise of stock appreciation rights. During the three and six months ended June 30, 2018, there was $1.3 million of cash outflow for such net settlements.


18






Share Repurchase Program 

During the three and six months ended June 30, 2019, respectively, we repurchased 630,000 and 1,981,241 shares of our registered Class A common stock under the current share repurchase program at an average price per share of $29.57 and $32.23, respectively. During the year ended December 31, 2018, we repurchased 1,550,136 shares of our registered Class A common stock at an average price per share of $36.05.

Exchange Agreement
    
Under the Exchange Agreement, dated February 13, 2013, between the Company and HPI and HPIS (the “Exchange Agreement”), on March 22, 2019, HPI exchanged 123,750 shares of Class B common stock of HIIQ and 123,750 membership interests of HPIH for 123,750 shares of Class A common stock of HIIQ. On that same date, HPIS exchanged 1,250 shares of Class B common stock of HIIQ and 1,250 membership interests of HPIH for 1,250 shares of Class A common stock of HIIQ. See Note 8 of our 2018 Annual Report on Form 10-K for further information on the Exchange Agreement.

8. Revenue

The following provides updates to our revenue disclosures as provided in our Annual Report on Form 10-K for the year ended December 31, 2018.

TogetherHealth - Consumer Engagement Business

TogetherHealth's primary business is direct-to-consumer platform connecting individuals with U.S. insurance carriers through consumer acquisition and engagement primarily serving the Medicare insurance market through inbound live telephone calls. THP utilizes a third-party telephony platform which transfers inbound calls to distributors in real time. The Company typically receives a fixed rate for each inbound call that meets agreed upon standards. THP also routes inbound calls to THI's business process outsourcing partner ("BPO"), who sells Medicare-related health insurance plans on our behalf, which include Medicare Advantage, Medicare Supplement, and Medicare Part D prescription drug plans. The Company recognizes revenue for Medicare and consumer engagement sales up front, at the point in time in which the performance obligations are satisfied.

Remaining Performance Obligations

As of June 30, 2019, approximately $15.5 million of member management revenue is expected to be recognized over the next 60 months from the remaining performance obligations for Individual Family Plan ("IFP") and supplemental contracts.

IFP and Supplemental Products - Reassessment of Variable Consideration

After our initial estimate and constraint of variable consideration is made, in accordance with ASC 606, the Company reassesses its estimate and constraint at the end of each reporting period. As more information about the underlying uncertainties becomes known, the Company will make adjustments as required.

For all IFP and Supplemental product sales, the Company recognizes approximately 95% of the estimated constrained lifetime value of the product at the point-in-time that the sales and marketing services performance obligation is completed. During the three months ended June 30, 2019, we recognized an $11.9 million reversal of revenue for a reassessment of variable consideration related to the cancellations of a portion of the in-force policies sold by Simple Health. In November 2018, the Company was notified that Simple Health, an independent distributor at the time, was being sued by the Federal Trade Commission ("FTC"). The Company is not a party to the lawsuit however the Company worked with the FTC and the appointed Receiver to complete a multi-phase communication plan that advised Simple Health’s customers of their insurance options and provided them the ability to change or cancel insurance coverages. The plan was implemented in July 2019 and the affected consumers were notified about their options. For more information on the Simple Health matter, see the section in Note 12 titled "Health Benefits One, LLC (Simple Health)."

Commissions Expense - In connection with the reassessment of variable consideration, the Company also had a change in estimate which decreased previously recorded commissions expense by $20.1 million of which $9.5 million related to commissions recorded for sales made by Simple Health. The remaining commissions adjustment related in part to a favorable negotiation of a distributor's contract and a reassessment of certain commission arrangements.



19





Disaggregated Revenue

The following table presents our revenue, disaggregated by major product type and timing of revenue recognition, for the three and six months ended June 30, 2019 ($ in thousands):
 
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2019
 
Sales and marketing services
 
Member management
 
Total
 
Sales and marketing services
 
Member management
 
Total
Revenue by Source
 
 
 
 
 
 
 
 
 
 
 
Commission revenue(1)
 
 
 
 
 
 
 
 
 
 
 
STM
$
21,758

 
$
1,014

 
$
22,772

 
$
53,857

 
$
1,898

 
$
55,755

HBIP
14,152

 
1,691

 
15,843

 
42,480

 
3,488

 
45,968

Supplemental
15,522

 
1,143

 
16,665

 
37,137

 
2,255

 
39,392

Medicare revenue
1,203

 

 
1,203

 
1,203

 

 
1,203

Services revenue

 
957

 
957

 

 
2,125

 
2,125

Consumer engagement revenue
916

 

 
916

 
1,239

 

 
1,239

Total revenue
$
53,551

 
$
4,805

 
$
58,356

 
$
135,916

 
$
9,766

 
$
145,682

 
 
 
 
 

 
 
 
 
 
 
Timing of Revenue Recognition
 
 
 
 
 
 
 
 
 
 
 
Transferred at a point in time
$
53,551

 
$

 
$
53,551

 
$
135,916

 
$

 
$
135,916

Transferred over time

 
4,805

 
4,805

 

 
9,766

 
9,766

Total revenue
$
53,551

 
$
4,805

 
$
58,356

 
$
135,916

 
$
9,766

 
$
145,682


The following table presents our revenue, disaggregated by major product type and timing of revenue recognition, for the three and six months ended June 30, 2018 ($ in thousands):
 
Three Months Ended June 30, 2018
 
Six Months Ended June 30, 2018
 
Sales and marketing services
 
Member management
 
Total
 
Sales and marketing services
 
Member management
 
Total
Revenue by Source
 
 
 
 
 
 
 
 
 
 
 
Commission revenue(1)
 
 
 
 
 
 
 
 
 
 
 
STM
$
15,894

 
$
701

 
$
16,595

 
$
28,872

 
$
1,417

 
$
30,289

HBIP
31,608

 
2,079

 
33,687

 
68,369

 
4,064

 
72,433

Supplemental
18,580

 
1,138

 
19,718

 
39,960

 
2,240

 
42,200

Other

 
19

 
19

 

 
28

 
28

Services revenue

 
887

 
887

 

 
887

 
887

Brokerage revenue
711

 

 
711

 
1,611

 

 
1,611

Other revenues
165

 

 
165

 
265

 

 
265

Total revenue
$
66,958

 
$
4,824

 
$
71,782

 
$
139,077

 
$
8,636

 
$
147,713

 
 
 
 
 
 
 
 
 
 
 
 
Timing of Revenue Recognition
 
 
 
 
 
 
 
 
 
 
 
Transferred at a point in time
$
66,958

 
$

 
$
66,958

 
$
139,077

 
$

 
$
139,077

Transferred over time

 
4,824

 
4,824

 

 
8,636

 
8,636

Total revenue
$
66,958

 
$
4,824

 
$
71,782

 
$
139,077

 
$
8,636

 
$
147,713

(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.



20





9. Stock-based Compensation

No stock appreciation rights ("SARs") or stock options were granted during the three and six months ended June 30, 2019.

The following table summarizes restricted shares granted (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019

2018
 
2019
 
2018
Restricted shares
224

 
13

 
484

 
13

 
The following table summarizes stock-based compensation expense ($ in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019

2018
 
2019

2018
Restricted shares
$
2,857

 
$
2,506

 
$
4,624

 
$
4,775

SARs
195

 
1,176

 
343

 
1,728

Less amounts capitalized for internal-use software
(135
)
 
(155
)
 
(234
)
 
(343
)
Total
$
2,917

 
$
3,527

 
$
4,733

 
$
6,160

 
The following table summarizes unrecognized stock-based compensation expense and the remaining weighted average period over which such stock-based compensation expense is expected to be recognized as of June 30, 2019 ($ in thousands):
 
Unrecognized Expense
 
Weighted Average Remaining Years
Restricted shares
$
15,234

 
2.2
SARs
626

 
1.5
Total
$
15,860

 
 
 
The amounts in the table above do not include the cost of any additional awards that may be granted in future periods nor any changes in our forfeiture rate.

During the three and six months ended June 30, 2019, there were 152,007 and 152,632 SARs exercised, respectively, resulting in respective increases of 74,195 and 74,334 issued shares of Class A common stock, net of shares withheld for taxes. During the three and six months ended June 30, 2018 there were 17,500 and 19,875 SARs exercised, respectively, resulting in an increase of 12,639 and 14,633 shares of issued Class A common stock, respectively. During the three and six months ended June 30, 2019 there were 1,500 and 9,000 SARs forfeited, respectively. During the three and six months ended June 30, 2018 there were no outstanding SARs forfeited.

During the three and six months ended June 30, 2019, there were no options exercised. During the three and six months ended June 30, 2018 there were 610 and 3,242 options exercised, respectively. During the three and six months ended June 30, 2019 and 2018 there were no options forfeited.

During the three months ended June 30, 2019 and 2018, there were no restricted stock awards issued for performance restricted shares. During the six months ended June 30, 2019 and 2018, there were 147,000 and 179,376 shares of restricted stock issued for performance restricted shares, respectively. These awards were previously granted in which the performance metrics were contractually satisfied during the period. No performance restricted stock awards were issued in the three months ended June 30, 2019 or 2018. During the three and six months ended June 30, 2019 and 2018, there were no performance restricted stock awards forfeited.

We recognized $293,000 and $367,000 of income tax benefits from stock-based activity for the three and six months ended June 30, 2019, respectively. We recognized $358,000 in income tax benefits from stock-based activity for the three and six months ended June 30, 2018.



21





10. Net Income per Share

The computations of basic and diluted net income per share attributable to HIIQ for the three and six months ended June 30, 2019 and 2018 were as follows ($ in thousands, except share and per share data):
<
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Basic net income attributable to Health Insurance Innovations, Inc.
$
2,287

 
$
1,799

 
$
3,618

 
$
6,407

Weighted average shares—basic
10,596,833

 
11,934,760

 
10,990,474

 
11,763,221

Effect of dilutive securities: