Raises Annual Guidance
Record Revenues of $71.7 million, up 16.0% YOY
Record Policies in Force totaled approximately 389,600, up 8.4% YOY
GAAP Diluted Earnings per Share of $0.22, down 37.1% YOY
Record Adjusted Earnings per Share of $0.61, up 32.6% YOY
TAMPA, Fla., Aug. 01, 2018 (GLOBE NEWSWIRE) — Health Insurance Innovations, Inc. (NASDAQ:HIIQ), a leading cloud-based technology platform and distributor of affordable individual and family health insurance and supplemental plans, today announced financial results for the second quarter ended June 30, 2018. The Company will host a live conference call on Thursday, August 2, 2018, at 8:30 A.M. EST.
Second quarter 2018 Financial Highlights
- Record revenue was $71.7 million, compared to $61.8 million in the second quarter of 2017, an increase of 16.0%.
- Record total collections from members (premium equivalents) of $111.2 million compared to $98.9 million in the second quarter of 2017, an increase of 12.4%.
- Net income was $4.0 million, compared to $7.0 million in the second quarter of 2017, a decrease of 42.9%. Drivers include severance expense payable to the founder and several other employees and higher stock-based compensation in the second quarter of 2018.
- Record adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $14.2 million, compared to $12.6 million in the second quarter of 2017, an increase of 12.7%.
- GAAP diluted earnings per share was $0.22, compared to $0.35 in the second quarter of 2017, down 37.1% YOY. Drivers include severance expense payable to the founder and several other employees and higher stock-based compensation in the second quarter of 2018.
- Record adjusted earnings per share, also referred to as adjusted net income per share, or adjusted EPS, was $0.61 compared to $0.46 in the second quarter of 2017, an increase of 32.6%.
- Record policies in force as of June 30, 2018, totaled approximately 389,600, compared to 359,500 in the second quarter of 2017, an increase of 8.4%.
Premium equivalents, adjusted EBITDA, and adjusted EPS are non-GAAP financial measures. See the reconciliations of these measures to their respective most directly comparable GAAP measure included within this press release.
2018 Full Year Guidance
The Company raises its annual guidance of revenue for 2018 to be between $293 million and $303 million or grow approximately 17% to 21% year-over-year, adjusted EBITDA to be between $55 million and $58 million or grow approximately 21% to 27% year-over-year, and adjusted EPS to be between $2.47 and $2.57 or grow approximately 50% to 56% year-over-year. These guidance numbers are based on the Company’s current method of accounting for revenue. As an emerging growth company, it will be adopting the revised revenue recognition standard, known as ASC 606, in the fourth quarter of 2018 for the full year ended December 31, 2018.
“Q2 was a strong quarter with record revenue, record earnings and record policies in force. We are pleased to have beaten market expectations and following a strong first half of the year, to be able to raise guidance for the rest of 2018. We look forward to launching the next generation of our technology platform later in the year and we are prepared for the expanding opportunities in our market.” said Gavin Southwell, HIIQ’s Chief Executive Officer and President.
Second quarter 2018 Financial Discussion
Second quarter revenues of $71.7 million increased 16.0%, compared to the second quarter in 2017, driven by an increase in policies in force, favorable commission margins, and improved discount benefit plan offerings.
Total selling, general & administrative expense (“SG&A”) was $19.7 million (27.5% of revenues) in the second quarter of 2018, compared to $14.7 million (23.8% of revenues) in the same period in 2017. Q2 SG&A included cash based severance expense of $3.0 million and $0.8 million of non-cash based severance expense primarily related to the termination of the Company’s founder and several other employees. Core SG&A, defined as total SG&A adjusted for stock-based compensation, transaction costs, indemnity and other related legal costs, severance, restructuring and other costs, and marketing leads and advertising expense, was $10.2 million (14.2% of revenues) in the second quarter of 2018, compared to $11.1 million (18.0% of revenues) in the same period in 2017. A reconciliation of Core SG&A to SG&A is included within this press release.
Net income was $4.0 million in the second quarter of 2018, compared to $7.0 million in the same period in 2017, a decrease of 42.9%. Second quarter 2018 included a cash based severance expense of $3.0 million. Additionally, stock-based compensation was $2.6 million higher in the second quarter of 2018 as compared to the prior year period. EBITDA was $6.7 million in the second quarter of 2018, compared to $10.7 million in the same period in 2017, a decrease of 37.4%.
Adjusted EBITDA was $14.2 million in the second quarter of 2018, an increase of 12.7% compared to $12.6 million in the same period in 2017. Adjusted EBITDA as a percentage of revenue was 19.8% in the second quarter of 2018, compared to 20.3% in the same period in 2017. Adjusted EBITDA is calculated by taking EBITDA and adjusting for items such as stock-based compensation and related costs and items that are not part of regular operating activities, including indemnity and other related legal costs, severance, restructuring, and acquisition costs. A reconciliation of net income to EBITDA and adjusted EBITDA for the three and six months ended June 30, 2018 and 2017 is included within this press release.
GAAP diluted EPS for the second quarter of 2018 was $0.22, compared to $0.35 in the same period in 2017. Second quarter 2018 GAAP diluted EPS was unfavorably impacted by the previously described severance expense. Additionally, the higher stock-based compensation in the second quarter of 2018 had an unfavorable impact on GAAP diluted EPS.
Adjusted EPS for the second quarter of 2018 was $0.61, compared to $0.46 in 2017. The increase in Adjusted EPS was driven by higher revenue from greater policies in force, continued scalability as well as a lower pro-forma statutory tax rate of 24%, compared to 38% used in the prior period. A reconciliation of net income to adjusted net income per share is included within this press release.
The Company makes advances to distributors based on actual sales. These advanced commissions assist distributors with working capital. The Company recovers advances on an ongoing basis from future commissions on premiums, which are collected over the period in which policies renew. At June 30, 2018, the short- and long-term advanced commission balance was $37.6 million, a $1.9 million decrease from the December 31, 2017 year-end balance of $39.5 million.
Cash and cash equivalents as of June 30, 2018 totaled $49.2 million, an increase of $8.3 million from the December 31, 2017 year-end balance. The Company repurchased 115,245 shares of its common stock in the second quarter of 2018 for $3.8 million as part of its previously announced share repurchase program. The company expects to continue to execute on its buyback authorization for the remainder of 2018 and beyond.
On June 7, 2018, the Company terminated without cause Michael Kosloske, founder and Chief of Product Innovation. Mr. Kosloske will continue to serve as a director of the Company. Additionally, on June 7, 2018 the Company was informed by Mr. Kosloske that entities controlled by Mr. Kosloske sold an aggregate of 1,300,000 shares of the Company’s Class A common stock.
Today the departments of Health and Human Services, Labor and the Treasury issued a final rule to help Americans struggling to afford health coverage find new and more affordable options. The rule allows, starting October 1st, 2018, for the sale and renewal of short-term, limited duration plans to cover an initial period of less than 12 months. Additionally, carriers will be able to make these plans renewable for up to 36 months. Previously, the rule limited duration to less than three months. “HIIQ shares the Departments’ concern with respect to the rising cost of health insurance in the individual market and welcomes any measures taken to improve the availability of insurance products that meet consumer demands and needs,” Mr. Gavin Southwell said. “We also believe that this rule change will improve consumer choice and increase competition and affordability in the individual health insurance market.”
As previously disclosed, the Company is the subject of a multistate market conduct examination. The Company has been cooperating with all regulatory inquiries and is engaged in ongoing discussions towards resolution.
Conference Call and Webcast
The Company will host an earnings conference call on August 2, 2018 at 8:30 A.M. Eastern time. All interested parties can join the call by dialing (877) 407-9039 or (201) 689-8470; the conference ID is 13681866. A webcast of the call may be accessed in the Investor Relations section of Health Insurance Innovations’ website at http://investor.hiiquote.com/events-and-presentations. An archive of the call will be available for 30 days through the same website.
About Health Insurance Innovations, Inc. (HIIQ)
HIIQ is a market leading cloud-based technology platform and distributor of innovative health insurance products that are affordable and meet the consumer’s needs. 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 capability. Additional information about HIIQ can be found at HiiQuote.com. HIIQ’s Consumer Division includes AgileHealthInsurance.com, a website for researching, comparing and purchasing short-term health insurance products online and HealthPocket.com, a free website that compares and ranks all health insurance plans, and uses objective data to publish unbiased health insurance market analyses and other consumer advocacy research.
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, state regulatory oversight and examinations of us and our carriers and distributors, legal and regulatory compliance by our carriers and distributors, the amount of commissions paid to us or changes in health insurance plan pricing practices, competition, changes and developments in the United States health insurance system and laws, and HIIQ’s ability to adapt to them, the ability to maintain and enhance our name recognition, difficulties arising from acquisitions or other strategic transactions, and our ability to build the necessary infrastructure and processes to maintain effective controls over financial reporting. These and other risk factors that could cause actual results to differ materially from those expressed or implied in our forward-looking statements will be discussed in HIIQ’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) as well as other documents that may be filed by HIIQ from time to time with the Securities and Exchange Commission, which are available at www.sec.gov. Any forward-looking statement made by us in this press release is based only on information currently available to us and speaks only as of the date on which it is made. You should not rely on any forward-looking statement as representing our views in the future. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.
Non-GAAP Financial Information
To supplement HIIQ’s financial information presented in accordance with generally accepted accounting principles in the United States of America, or GAAP, HIIQ presents certain financial measures that are not prepared in accordance with GAAP, including premium equivalents, adjusted EBITDA, adjusted EPS, and Core SG&A. 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 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.
|HEALTH INSURANCE INNOVATIONS, INC.|
|Condensed Consolidated Balance Sheets|
|($ in thousands, except share and per share data)|
|June 30, 2018||December 31, 2017|
|Cash and cash equivalents||$||49,220||$||40,907|
|Accounts receivable, net, prepaid expenses and other current assets||1,692||2,227|
|Advanced commissions, net||34,844||39,549|
|Income taxes receivable||1,766||—|
|Total current assets||103,076||97,603|
|Long-term advanced commissions||2,773||—|
|Property and equipment, net||5,396||5,408|
|Intangible assets, net||5,015||5,942|
|Deferred tax assets||25,445||14,960|
|Liabilities and stockholders’ equity|
|Accounts payable and accrued expenses||$||37,173||$||39,725|
|Income taxes payable||—||787|
|Due to member||2,337||1,775|
|Other current liabilities||8||5|
|Total current liabilities||39,757||42,954|
|Due to member||25,085||15,096|
|Commitments and contingencies|
|Class A common stock (par value $0.001 per share, 100,000,000 shares authorized; 14,242,049 and 12,731,758 shares issued as of June 30, 2018 and December 31, 2017, respectively; 13,707,715 and 12,350,981 shares outstanding as of June 30, 2018 and December 31, 2017, respectively)||14||13|
|Class B common stock (par value $0.001 per share, 20,000,000 shares authorized; 2,541,667 and 3,841,667 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively)||3||4|
|Preferred stock (par value $0.001 per share, 5,000,000 shares authorized; no shares issued and outstanding as of June 30, 2018 and December 31, 2017)||—||—|
|Additional paid-in capital||87,469||71,770|
|Treasury stock, at cost (534,334 and 380,777 shares as of June 30, 2018 and December 31, 2017, respectively)||(11,998||)||(6,887||)|
|Total Health Insurance Innovations, Inc. stockholders’ equity||101,805||84,205|
|Total stockholders’ equity||118,008||107,001|
|Total liabilities and stockholders’ equity||$||182,873||$||165,085|
|HEALTH INSURANCE INNOVATIONS, INC.|
|Condensed Consolidated Statements of Income (unaudited)|
|($ in thousands, except share and per share data)|
|Three Months Ended
|Six Months Ended
|Revenues (premium equivalents of $111,159 and $98,896 for the three months ended June 30, 2018 and 2017, respectively and $216,135 and $189,836 for the six months ended June 30, 2018 and 2017, respectively)||$||71,724||$||61,783||$||139,474||$||117,651|
|Credit card and ACH fees||1,371||1,232||2,748||2,415|
|Selling, general and administrative||19,724||14,697||35,937||29,954|
|Depreciation and amortization||1,220||992||2,385||1,930|
|Total operating expenses||66,200||52,029||126,167||100,842|
|Income from operations||5,524||9,754||13,307||16,809|
|Other (income) expense:|
|Interest (income) expense||(28||)||1||(54||)||—|
|Net income before income taxes||5,521||9,752||13,302||16,805|
|Provision for income taxes||1,495||2,800||3,291||1,331|
|Net income attributable to noncontrolling interests||1,160||2,569||2,999||5,257|
|Net income attributable to Health Insurance Innovations, Inc.||$||2,866||$||4,383||$||7,012||$||10,217|
|Per share data:|
|Net income per share attributable to Health Insurance Innovations, Inc.|
|Weighted average Class A common shares outstanding|
|HEALTH INSURANCE INNOVATIONS, INC.|
|Condensed Consolidated Statements of Cash Flows (unaudited)|
|($ in thousands, except share and per share data)|
|Six Months Ended June 30,|