UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported): November 12, 2019

 

Health Insurance Innovations, Inc.

(Exact name of registrant as specified in its charter)

 

 Delaware   001-35811   46-1282634

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

 

15438 N. Florida Avenue, Suite 201

Tampa, Florida

  33613
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (813) 397-1187

 

Not Applicable

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

[  ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
   
[  ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
   
[  ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
   
[  ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

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 is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

 

Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

 

 

   
   

 

Item 2.02. Results of Operations and Financial Condition.

 

On November 12, 2019, Health Insurance Innovations, Inc. (the “Company”) issued a press release announcing its financial results for the nine months ended September 30, 2019. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

 

The information furnished in this Item 2.02, including Exhibit 99.1, is not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section. This information will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

 

Item 9.01. Financial Statements and Exhibits.

 

(d) Exhibits.

 

Exhibit No.   Description
99.1   Press Release, dated November 12, 2019

 

   
   

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  HEALTH INSURANCE INNOVATIONS, INC.
     
  By: /s/ Michael D. Hershberger
  Name:  Michael D. Hershberger
  Title: Chief Financial Officer

 

Date: November 12, 2019

 

   
   

 

 

FOR IMMEDIATE RELEASE

November 12, 2019

 

 

 

Health Insurance Innovations, Inc. Reports Third Quarter 2019 Results

 

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, FLNovember 12, 2019 — 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.”

 

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“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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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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 

 

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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 

 

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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 

 

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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.

 

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(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.

 

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Disaggregated Revenue

 

The 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.

 

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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 (2)   774    7,800         
Total  $552    115,700   $502    132,300 

 

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   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 DeVries

SVP Finance

(813) 906-5314

mhershberger@hiiq.com

 

Investor Contact:

Westwicke

Bob East

Jordan Kohnstam

Asher Dewhurst

(443) 213-0500

hiiq@westwicke.com

 

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