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): March 3, 2020

 

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))

 

Securities 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 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 March 3, 2020, Health Insurance Innovations, Inc. (the “Company”) issued a press release announcing its financial results for the year ended December 31, 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 March 3, 2020

 

   
 

 

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/ Erik M. Helding
  Name: Erik M. Helding
  Title: Chief Financial Officer

 

Date: March 4, 2020

 

   
 

 

 

Exhibit 99.1

 

FOR IMMEDIATE RELEASE

March 3, 2020

 

 

Health Insurance Innovations, Inc. Reports Fourth Quarter and Fiscal 2019 Results; Also Announces Name Change to Benefytt Technologies to Reflect Go-Forward Business Strategy

 

Full Year Revenue of $381.8 million, up 9% YOY

Full Year Net Income of $36.7 million, up 93% YOY

Full Year Adjusted EBITDA of $82.1 million, up 38% YOY

Full Year GAAP Diluted Net Income per Share of $2.47, up 155% YOY

Full Year Adjusted Net Income per Share of $4.24, up 63% YOY

 

Tampa, FLMarch 3, 2020 — Health Insurance Innovations, Inc. (NASDAQ:HIIQ), a health insurance technology company and leading distributor of Medicare-related health insurance plans, today announced financial results for the fourth quarter and year ended December 31, 2019. The Company will host a live conference call on Wednesday, March 4, 2020, at 9:00 A.M. ET.

 

Commenting on the Company’s fourth quarter operating results, Gavin Southwell, President and Chief Executive Officer, said, “We are pleased with results in the fourth quarter, particularly with our success in the Medicare Annual Election Period. Medicare segment revenues represented approximately 35% of total revenues in the quarter, and full year Adjusted EBITDA and Adjusted Net Income Per Share were in line with expectations. We are excited about the opportunities to continue to scale our Medicare business in 2020 via enhanced digital capabilities, captive distribution and strategic outsourced relationships.”

 

The Company also announced today that its corporate name will change to Benefytt Technologies, Inc. effective Friday, March 6, 2020. In connection with the Company’s new corporate name, the Company’s NASDAQ ticker symbol will change to BFYT effective March 6, 2020. The name change is intended to highlight and emphasize the Company’s go-forward strategy to be a premier health insurance technology company that offers a range of Medicare-related insurance plans as well as other health and life insurance products that meet the needs of customers. Benefytt’s direct-to-consumer site is healthinsurance.com, which offers seniors and Medicare-eligible consumers the ability to access powerful online comparison tools and educational resources that enable efficient self-guided navigation of available Medicare health insurance options.

 

As previously announced, the Company’s Board of Directors commenced in July 2019 a process for exploring, reviewing, and evaluating strategic alternatives focused on maximizing shareholder value. These alternatives could include, among other things, a sale of the Company or a portion thereof, a strategic business combination, changes in the Company’s operations or strategy, or continuing to execute on the Company’s current business plan. This review process is currently ongoing, and the Company is meeting with interested parties, including both strategic and financial institutions (1).

 

 1 
   

 

Fourth Quarter 2019 Consolidated Financial Highlights

All comparisons are to the three months ended December 31, 2018

 

  Revenue was $160.9 million, compared to revenue of $131.9 million, an increase of 22.0%. Revenue from our Medicare segment was $55.9 million and is new to the Company in 2019. Revenue from our Individual and Family Plan (IFP) segment was $105.0 million, a decrease of 20.4%.
     
  ●  Net income of $26.5 million, compared to net income of $8.3 million, an increase of 219.3%.
     
  ●  Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $46.2 million, compared to adjusted EBITDA of $21.6 million, an increase of 113.9%.
     
  ●  Profit from our Medicare segment was $29.7 million. Profit from our IFP segment was $22.2 million.
     
  GAAP diluted net income per share was $1.77, compared to GAAP diluted net income per share of $0.40, an increase of 342.5%.
     
  Adjusted net income per share was $2.48 compared to adjusted net income per share of $0.97, an increase of 155.7%.
     
  Net contract asset (contract asset receivable plus advanced commissions less commission payable) at December 31, 2019 was $258.8 million (2). $185.2 million related to the IFP segment and $73.6 million related to the Medicare segment.

 

Adjusted EBITDA and adjusted net income per share are non-GAAP financial measures. See the reconciliations of these measures to their respective most directly comparable GAAP measure below in this press release.

 

2019 Annual Consolidated Financial Highlights

All comparisons are to the year ended December 31, 2018

 

  Revenue was $381.8 million, compared to revenue of $351.1 million, an increase of 8.7%. Revenue from our Medicare segment was $67.8 million and is new to the Company in 2019. Revenue from our IFP segment was $314.0 million, a decrease of 10.5%.
     
  ●  Net income of $36.7 million, compared to net income of $19.0 million, an increase of 93.2%.
     
  ●  Adjusted EBITDA was $82.1 million, compared to adjusted EBITDA of $59.4 million, an increase of 38.2%.
     
  ●  Profit from our Medicare segment was $32.1 million. Profit from our IFP segment was $66.8 million.
     
  ●  GAAP diluted net income per share was $2.47, compared to GAAP diluted net income per share of $0.97, an increase of 154.6%.
     
  ●  Adjusted net income per share was $4.24 compared to adjusted net income per share of $2.60, an increase of 63.1%.

 

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.

 

 2 
   

 

2019 Fourth Quarter Financial Discussion

 

Fourth quarter revenues of $160.9 million increased 22.0% compared to revenues of $131.9 million in the fourth quarter of 2018.

 

Revenue from our Medicare segment was $55.9 million. We had no Medicare revenue in 2018. Revenue from our IFP segment was $105.0 million, a 20.4% decrease compared to $131.9 million for the fourth quarter of 2018.

 

Third-party commission expense was $66.0 million (62.9% of IFP revenues) in the fourth quarter of 2019, compared to $94.9 million (71.9% of IFP revenues) in the same period in 2018.

 

Total selling, general & administrative expense (“SG&A”) was $31.8 million (19.8% of net revenues) in the fourth quarter, compared to $17.4 million (13.2% of net revenues) in the same period in 2018. The increase is attributable primarily to increased payroll and professional fees.

 

Marketing and Advertising expense was $23.7 million in the fourth quarter, compared to $2.8 million in the same period in 2018. The increased expense is primarily related to investments in Medicare consumer engagement.

 

Net income was $26.5 million in the fourth quarter of 2019, compared to net income of $8.3 million in the same period in 2018.

 

EBITDA was $41.3 million in the fourth quarter of 2019, compared to $14.4 million in the same period in 2018, an increase of 186.8%.

 

Adjusted EBITDA was $46.2 million (28.7% of net revenues) in the fourth quarter of 2019 compared to $21.6 million (16.4% 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, fair value adjustment to contingent consideration and other charges.

 

GAAP diluted net income per share was $1.77 in the fourth quarter in 2019, compared to GAAP diluted net income per share of $0.40 in the same period in 2018.

 

Adjusted net income per share was $2.48 in the fourth quarter in 2019, compared to adjusted net income per share of $0.97 in the same period in 2018.

 

2019 Annual Financial Discussion

 

Revenues in 2019 of $381.8 million increased 8.7% compared to revenue of $351.1 million in 2018.

 

Revenue from our Medicare segment was $67.8 million. We had no Medicare revenue in 2018. Revenue from our IFP segment was $314.0 million, a 10.5% decrease compared to $351.1 million for the year ended December 31, 2018.

 

Third-party commission expense was $188.7 million (60.1% of IFP revenues) in 2019, compared to $234.8 million (66.9% of IFP revenues) in 2018.

 

SG&A was $88.4 million (23.2% of net revenues) in 2019, compared to $68.0 million (19.4% of net revenues) in 2018.

 

 3 
   

 

Marketing and Advertising expense was $37.9 million in 2019, compared to $6.3 million in the same period in 2018. The increased expense is primarily related to investments in Medicare consumer engagement.

 

Net income was $36.7 million in 2019, compared to net income of $19.0 million in 2018.

 

EBITDA was $64.3 million in 2019, compared to $34.5 million in 2018.

 

Adjusted EBITDA was $82.1 million (21.5% of net revenues) in 2019 compared to $59.4 million (16.9% of net revenues) 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, fair value adjustment to contingent consideration and other charges.

 

GAAP diluted net income per share was $2.47 in 2019, compared to GAAP diluted net income per share of $0.97 in 2018.

 

Adjusted net income per share was $4.24 in 2019, compared to adjusted net income per share of $2.60 in 2018.

 

Cash and cash equivalents totaled $3.8 million as of December 31, 2019, a decrease of $5.5 million from December 31, 2018. We ended the quarter with $178.6 million of debt outstanding including $34.0 million drawn against our $65.0 million revolving credit facility. Net cash used in operating activities for the year 2019 was $38.0 million, due to increased marketing and advertising expense and a $16.2 million increase in advanced commissions.

 

The Company did not repurchase shares of common stock during the fourth quarter of 2019. The Company has $75.4 million remaining under its $200 million share repurchase authorization.

 

2020 Full Year Guidance

 

The Company’s guidance for the full year ending December 31, 2020 is based on information available as of March 3, 2020. These expectations are forward-looking statements, and the Company assumes no obligation to update these statements. Actual results may be materially different and are affected by the risk factors and uncertainties identified in this release and in the Company’s annual and quarterly filings with the Securities and Exchange Commission.

 

The following is guidance for the full year ending December 31, 2020.

 

  Total revenue is expected to be in the range of $290 million to $350 million. Revenue from the Medicare segment is expected to be in the range of $190 million to $210 million. Revenue from the IFP segment is expected to be in the range of $100 million to $140 million.
     
  ●  Adjusted net income per share is expected to be in the range of $3.10 to $4.15.
     
  ●  Adjusted EBITDA is expected to be in the range of $65.0 million to $80.0 million.
     
  ●  Profit from the Medicare (3) segment is expected to be in the range of $70.0 million to $80.0 million. Profit from the IFP segment is expected to be in the range of $15.0 million to $20.0 million.
     
  ●  Corporate (4) expense is expected to be approximately $20.0 million.
     
  ●  The company expects cashflow to be approximately breakeven in 2020.

 

 4 
   

 

  (1) The Company’s Board of Directors has not set a timetable for completing the strategic review nor has it made any decisions related to strategic alternatives at this time.  There can be no assurance that the Board’s exploration of strategic alternatives, including the current ongoing discussions with potentially interested strategic and financial institutions, will result in changes in strategy or any transaction or, if a transaction is undertaken, as to its terms, structure or timing. The Company does not expect to make further public comment regarding these matters unless and until the Board has approved a specific transaction or alternative or otherwise concludes its review of strategic alternatives, or the Company otherwise deems disclosure of significant developments to be appropriate.  In connection with the strategic review, BofA Securities is acting as financial advisor and Weil, Gotshal & Manges LLP is acting as legal advisor to the Company.
  (2) The net contract asset includes $45.3 million of advanced commissions that reduce the commissions payable balance but are required to be showed gross under GAAP.
  (3) Segment profit is calculated as total revenue for the applicable segment less direct and allocated marketing and advertising, customer care and enrollment, technology and content and general and administrative operating expenses, excluding stock-based compensation, depreciation and amortization expense and amortization of intangible assets, before Corporate expenses.
  (4) Corporate consists of other indirect General and Administrative operating expenses, excluding stock-based compensation and depreciation and amortization expense, which are managed in a corporate shared services environment and, since they are not the responsibility of segment operating management, are not allocated to the reportable segments.

 

Conference Call and Webcast

 

The Company will host an earnings conference call on March 4, 2020 at 9:00 A.M. Eastern time. All interested parties can join the call by dialing (877) 451-6152 or (201) 389-0879; the conference ID is 13699483. An archive of the call will be available on Health Insurance Innovations’ website, HIIQ.com, for 30 days beginning on Wednesday, March 4, 2020, 12:00 PM ET.

 

About Health Insurance Innovations, Inc.

 

Health Insurance Innovations, Inc., to be renamed Benefytt Technologies, Inc., is a health insurance technology company that primarily engages in the development and operation of private e-commerce health insurance marketplaces, consumer engagement platforms, agency technology systems, and insurance policy administration platforms. By leveraging existing and emerging platforms and technologies, the Company offers a range of Medicare-related insurance plans from many of the nation’s leading carriers as well as other types of health insurance and supplemental products that meet the needs of consumers.

 

 5 
   

 

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 Health Insurance Innovations, Inc.’s (the “Company’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 focus on the Medicare market, 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 the Company’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 the Company’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 the Company 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 the Company’s financial information presented in accordance with generally accepted accounting principles in the United States of America, or GAAP, the Company presents certain financial measures that are not prepared in accordance with GAAP, which are adjusted EBITDA, and adjusted net income per share. 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.

 

The Company is presenting these non-GAAP financial measures to assist investors in seeing the Company’s operating results through the eyes of management and because the Company believes that these measures provide a useful tool for investors to use in assessing the Company’s operating performance against prior period operating results and against business objectives. The Company 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. The Company has not reconciled adjusted EBITDA guidance or adjusted net income per share guidance to GAAP net income or GAAP net income per diluted share, respectively, because the Company 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, the Company 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.

 

 6 
   

 

HEALTH INSURANCE INNOVATIONS, INC.

Consolidated Balance Sheets

($ in thousands, except share and per share data)

 

   December 31, 
   2019   2018 
Assets          
Current assets:          
Cash and cash equivalents  $3,771   $9,321 
Restricted cash   17,788    16,678 
Accounts receivable, net, prepaid expenses and other current assets   2,911    2,108 
Income taxes receivable   18,210     
Advanced commissions, net   45,250    29,867 
Contract asset   184,474    165,494 
Total current assets   272,404    223,468 
Long-term contract asset   209,239    132,566 
Property and equipment, net   5,415    5,134 
Goodwill   135,182    41,076 
Intangible assets, net   28,963    4,217 
Deferred tax assets, net       25,967 
Other assets   655    61 
Total assets  $651,858   $432,489 
Liabilities and stockholders' equity          
Current liabilities:          
Accounts payable and accrued expenses  $51,477   $32,397 
Commissions payable   97,785    106,608 
Income taxes payable, net       15,586 
Short-term debt   10,684     
Due to member       7,978 
Other current liabilities   794    422 
Total current liabilities   160,740    162,991 
Long-term commissions payable   82,369    84,716 
Long-term contingent consideration   65,171     
Long-term debt, net   167,947    15,000 
Due to member   29,121    25,693 
Deferred tax liability, net   5,722     
Other liabilities   814    621 
Total liabilities   511,884    289,021 
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 December 31, 2019 and 2018, respectively; 12,273,630 and 12,387,349 shares outstanding as of December 31, 2019 and 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 December 31, 2019 and 2018, respectively)   2    3 
Preferred stock (par value $0.001 per share, 5,000,000 shares authorized; no shares issued and outstanding as of December 31, 2019 and 2018, respectively)        
Additional paid-in capital   118,465    94,194 
Treasury stock, at cost (3,945,587 and 2,038,475 shares as of December 31, 2019 and 2018, respectively)   (127,400)   (67,185)
Retained earnings   110,418    80,804 
Total Health Insurance Innovations, Inc. stockholders' equity   101,501    107,830 
Noncontrolling interests   38,473    35,638 
Total stockholders' equity   139,974    143,468 
Total liabilities and stockholders' equity  $651,858   $432,489 

 

 7 
   

 

Health Insurance Innovations, Inc.

Consolidated Statements of Income

($ in thousands, except share and per share data)

 

  

Three Months Ended

December 31,

  

Year Ended

December 31,

 
   2019   2018   2019   2018 
   (unaudited)         
Revenues  $160,854   $131,917   $381,808   $351,097 
Operating expenses:                    
Third-party commissions   65,974    94,945    188,742    234,777 
Selling, general and administrative   31,763    17,386    88,393    68,043 
Marketing and Advertising   23,730    2,768    37,896    6,307 
Credit card and ACH fees   1,572    1,591    6,150    5,909 
Depreciation and amortization   4,266    1,144    11,842    4,799 
Total operating expenses   127,305    117,834    333,023    319,835 
Income from operations   33,549    14,083    48,785    31,262 
Other expense (income):                    
Interest expense   1,953    64    5,646    25 
Fair value adjustment to contingent acquisition consideration   (3,472)       (3,472)    
TRA expense (income)       750    (212)   1,471 
Other expense       42        130 
Net income before income taxes   35,068    13,227    46,823    29,636 
Provision for income taxes   8,590    4,935    10,093    10,672 
Net income   26,478    8,292    36,730    18,964 
Net income attributable to noncontrolling interests   5,283    2,845    7,116    5,970 
Net income attributable to Health Insurance Innovations, Inc.  $21,195   $5,447   $29,614   $12,994 
                     
Per share data:                    
Net income per share attributable to Health Insurance Innovations, Inc.                    
Basic  $1.89   $0.44   $2.67   $1.07 
Diluted  $1.77   $0.40   $2.47   $0.97 
Weighted average Class A common shares outstanding                    
Basic   11,196,665    12,408,169    11,084,356    12,200,654 
Diluted   12,002,983    13,594,340    11,966,542    13,376,265 

 

 8 
   

 

Health Insurance Innovations, Inc.

Consolidated Statements of Cash Flows

($ in thousands)

 

  

Three Months Ended

December 31,

  

Year Ended

December 31,

 
   2019   2018   2019   2018 
                 
Operating activities:                    
Net income   26,479    8,293    36,730    18,964 
Adjustments to reconcile net income to net cash provided by operating activities:                    
Stock-based compensation   2,875    2,080    10,595    12,583 
Fair value adjustment to contingent acquisition consideration   (3,472)       (3,472)    
Provision for allowance for doubtful accounts   1,200        1,200    137 
Depreciation and amortization   4,266    1,144    11,842    4,799 
Deferred financing costs   307        307     
Deferred income taxes   11,766    (14,595)   34,665    (14,135)
Deferred income taxes related to the Tax Act       (250)       (250)
Changes in operating assets and liabilities:                    
Decrease (increase) in accounts receivable, prepaid expenses and other assets   308    569    (1,565)   171 
(Increase) decrease in advanced commissions   (17,217)   (1,762)   (17,427)   6,288 
(Increase) decrease in income taxes receivable   (3,198)   2,542    (18,210)    
Increase in contract asset   (82,437)   (54,296)   (82,147)   (59,989)
Increase (decrease) in accounts payable, accrued expenses and other liabilities   18,250    (3,298)   16,818    3,078 
Increase (decrease) in commission payable   18,908    45,914    (10,148)   33,856 
Increase (decrease) in income taxes payable, net       14,606    (15,586)   14,799 
(Decrease) increase in due to member pursuant to tax receivable agreement   (1,047)   750    (1,259)   1,471 
Net cash (used in) provided by operating activities   (23,012)   1,697    (37,657)   21,772 
Investing activities:                    
Business acquisitions, net of cash acquired           (49,895)    
Acquisition of domain name           (8,133)    
Capitalized internal-use software and website development costs   (384)   (311)   (1,616)   (1,601)
Purchases of property and equipment   (801)   (79)   (1,160)   (613)
Net cash used in investing activities   (1,185)   (390)   (60,804)   (2,214)
Financing activities:                    
Proceeds from borrowings under credit agreement   23,713    15,000    234,000    15,000 
Payments on borrowings under credit agreement   (3,801)       (70,676)    
Payments related to tax withholding for share-based compensation   (691)   (945)   (2,820)   (4,415)
Issuances of Class A common stock under equity compensation plans               6 
Purchases of Class A common stock pursuant to share repurchase plan       (36,381)   (63,916)   (55,883)
Distributions to member   (232)   (1,257)   (2,567)   (4,094)
Net cash provided by (used in) financing activities   18,989    (23,583)   94,021    (49,386)
Net decrease in cash and cash equivalents, and restricted cash   (5,208)   (22,276)   (4,440)   (29,828)
Cash and cash equivalents, and restricted cash at beginning of period   26,767    48,275    25,999    55,827 
Cash and cash equivalents, and restricted cash at end of period   21,559    25,999    21,559    25,999 

 

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Reconciliation of Net Income to EBITDA and Adjusted EBITDA

(unaudited)

($ in thousands)

 

  

Three Months Ended

December 31,

  

Year Ended

December 31,

 
   2019   2018   2019   2018 
Net income  $26,479   $8,293   $36,730   $18,964 
Interest expense   1,953   $64    5,646    25 
Depreciation and amortization   4,266    1,144    11,842    4,799 
Provision for income taxes   8,590    4,935    10,093    10,672 
EBITDA   41,288    14,436    64,311—    34,460 
Non-cash stock-based compensation   2,895    2,112    10,731    12,878 
Fair value adjustment to contingent consideration   (3,472)       (3,472)    
Transaction costs   295    38    1,986    321 
Tax receivable agreement liability adjustment       750    (212)   1,471 
Indemnity and other related legal costs   4,531    4,280    7,721    6,614 
Severance, restructuring and other charges   702    29    1,043    3,687 
Adjusted EBITDA  $46,239   $21,645   $82,108   $59,431 

 

Reconciliation of Net Income to Adjusted Net Income per Share

(unaudited)

($ in thousands except per share data)

 

  

Three Months Ended

December 31,

  

Year Ended

December 31,

 
   2019   2018   2019   2018 
Net income  $26,479   $8,293   $36,730   $18,964 
Interest expense   1,953    64    5,646    25 
Amortization   3,481    334    8,704    1,725 
Provision for income taxes   8,590    4,935    10,093    10,672 
Stock-based compensation and related costs   2,895    2,112    10,731    12,878 
Fair value adjustment to contingent consideration   (3,472)       (3,472)    
Transaction costs   295    38    1,986    321 
Tax receivable agreement liability adjustment       750    (212)   1,471 
Indemnity and other related legal costs   4,531    4,280    7,721    6,614 
Severance, restructuring and other charges   702    29    1,043    3,687 
Adjusted pre-tax income   45,454    20,835    78,970    56,357 
Pro forma income taxes   (10,909)   (5,001)   (18,953)   (13,526)
Adjusted net income  $34,545   $15,834   $60,017   $42,831 
Total weighted average diluted share count   13,920    16,393    14,161    16,477 
Adjusted net income per share  $2.48   $0.97   $4.24   $2.60 

 

  (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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The following table presents revenues and profit from our operating segments for the three months and year ended December 31, 2019 ($ in thousands):

 

  

Three Months Ended

December 31, 2019

  

Year Ended

December 31, 2019

 
Revenue          
Medicare (1)  $55,868   $67,770 
IFP   104,986    314,038 
Total Revenue  $160,854   $381,808 
           
Segment profit          
Medicare segment profit  $29,669   $32,078 
IFP segment profit   22,231    66,784 
Total segment profit   51,900    98,862 
           
Corporate  $(5,662)  $(16,754)
Interest expense   (1,953)   (5,646)
Depreciation and amortization   (4,266)   (11,842)
Provision for income taxes   (8,590)   (10,093)
Stock-based compensation and related costs   (2,895)   (10,731)
Fair value adjustment to contingent consideration   3,472    3,472 
Transaction costs   (295)   (1,986)
Tax receivable agreement liability adjustment       212 
Indemnity and other related legal costs   (4,531)   (7,721)
Severance, restructuring and other   (702)   (1,043)
Net income  $26,479   $36,730 

 

  (1) Medicare revenue is net of Customer Care and Enrollment (CC&E) expenses with certain Medicare Business Process Outsourcing (BPO) partners who are deemed a customer under ASC 606. CC&E netted against revenue for the three months ended December 31, 2019 was $5.8 million and for the year ended December 31, 2019 was $8.5 million.

 

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Disaggregated Revenue

 

The following table presents our revenue, disaggregated by major product type and timing of revenue recognition ($ in thousands):

 

   Three Months Ended
December 31, 2019
   Three Months Ended
December 31, 2018
 
   Sales and marketing services   Member management   Total   Sales and marketing services   Member management   Total 
Revenue by Source                              
Commission revenue(1)                              
STM  $35,765   $1,040   $36,805   $45,257   $742   $45,999 
HBIP   30,641    1,687   $32,328    48,608    2,064   $50,672 
Supplemental   33,984    1,106   $35,090    32,012    1,184   $33,196 
Medicare   48,086       $48,086           $ 
Other          $        17   $17 
Services revenue       736   $736    251    1,666   $1,917 
Consumer engagement revenue   7,486       $7,486    116       $116 
Other revenues   323       $323           $ 
Total revenue  $156,285   $4,569   $160,854   $126,244   $5,673   $131,917 
                               
Timing of Revenue Recognition                              
Transferred at a point in time  $156,285   $    156,285   $126,244   $   $126,244 
Transferred over time       4,569    4,569        5,673   $5,673 
Total revenue  $156,285   $4,569   $160,854   $126,244   $5,673   $131,917 

 

   For the Year Ended
December 31, 2019
   For the Year ended
December 31, 2018
 
   Sales and marketing services   Member management   Total   Sales and marketing services   Member management   Total 
Revenue by Source                              
Commission revenue(1)                              
STM(2)  $111,239   $3,934   $115,173   $87,489   $2,824   $90,313 
HBIP   92,343    6,619    98,962    149,986    8,202    158,188 
Supplemental(2)   90,592    4,434    95,026    92,523    4,568    97,091 
Medicare   57,087        57,087             
Other                   74    74 
Services revenue       3,715    3,715        4,762    4,762 
Consumer engagement revenue   11,306        11,306    669        669 
Other revenues   539        539             
Total revenue  $363,106   $18,702   $381,808   $330,667   $20,430   $351,097 
                               
Timing of Revenue Recognition                              
Transferred at a point in time  $363,106   $   $363,106   $330,667   $   $330,667 
Transferred over time       18,702    18,702        20,430    20,430 
Total revenue  $363,106   $18,702   $381,808   $330,667   $20,430   $351,097 

 

(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.
(2) The Company changed its presentation of brokerage revenue during the fourth quarter of 2019. Previously brokerage revenue was reported as a separate line item with the disaggregated revenue table however the Company has reclassified the revenue into the respective STM or supplemental category that the brokerage sales were associated with.

 

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Summary of Selected Metrics

(unaudited)

 

The following table presents submitted applications by product type:

 

  

Submitted Applications by Product Type

During the Three Months Ended December 31,

  

Submitted Applications by Product Type

During the Year Ended December 31,

 
   2019   2018   Change (%)   2019   2018   Change (%) 
Medicare                        
Medicare Advantage   44,500            53,900         
Medicare Supplement   1,000            1,200         
Medicare Part D   2,700            3,000         
Supplementals   300            300         
Total Medicare   48,500            58,400         
IFP                              
STM <12 Months   8,500    15,500    (45)%   38,000    117,200    (68)%
STM ≥ 12 Months   34,100    34,600    (1)%   105,800    35,600    197%
Total STM   42,600    50,100    (15)%   143,800    152,800    (6)%
HBP   34,900    53,600    (35)%   126,400    190,100    (34)%
Supplementals   81,100    92,500    (12)%   257,400    278,700    (8)%
Total IFP   158,600    196,200    (19)%   527,600    621,600    (15)%
Total Submitted Applications   207,100    196,200    6%   

586,000

    621,600    (6)%

 

The following table presents approved applications by product type:

 

   Approved Applications by Product Type   Approved Applications by Product Type 
   During the Three Months Ended December 31,   During the Year Ended December 31, 
   2019   2018   Change (%)   2019   2018   Change (%) 
Medicare                              
Medicare Advantage   40,900            49,600         
Medicare Supplement   900            1,100         
Medicare Part D   2,500            2,800         
Supplementals   300            300         
Total Medicare   44,600            53,800         
IFP                              
STM <12 Months   8,500    15,500    (45)%   38,000    117,200    (68)%
STM ≥ 12 Months   34,100    34,600    (1)%   105,800    35,600    197%
Total STM   42,600    50,100    (15)%   143,800    152,800    (6)%
HBP   34,900    53,600    (35)%   126,400    190,100    (34)%
Supplementals   81,100    92,500    (12)%   257,400    278,700    (8)%
Total IFP   158,600    196,200    (19)%   527,600    621,600    (15)%
Total Approved Applications   203,200    196,200    4%   581,400    621,600    (6)%

 

Approved applications represent the number of submitted applications that were approved by the relevant insurance carrier for the identified product during the relevant period. Medicare approved applications are calculated assuming a 92% conversion of submitted applications.

 

The following tables present the Constrained Lifetime Value (CLTV) per approved application, by product type:

 

  

CLTV per Approved Application by Product Type

During the Three Months Ended December 31,

  

CLTV per Approved Application by Product Type

During the Year Ended December 31,

 
   2019   2018   Change (%)   2019   2018   Change (%) 
Medicare (1)  $1,148   $    %  $1,155   $    %
Short Term Medical <12 months   367    359    2%   342    437    (22)%
Short Term Medical ≥12 months   947    1,241    (24)%   934    1,203    (22)%
Total STM   838    968    (14)%   787    625    26%
Health Benefit Plans   809    926    (13)%   759    829    (8)%
Supplemental   387    358    8%   350    340    3%

 

  (1) CLTV per approved application for Medicare is presented gross of CC&E expenses. Including CC&E, Medicare CLTV per approved application for the three months ended December 31, 2019 was $1,019 and for the year ended December 31, 2019 was $996.

 

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The following tables present expense metrics per approved application, by product type:

 

   Medicare Variable Cost per Approved Application 
  

Three Months Ended

December 31, 2019

  

Year Ended

December 31, 2019

 
Medicare variable marketing cost per approved application (1)  $375   $374 
Medicare variable CC&E cost per approved application (2)   209    246 
Total Medicare cost per approved member  $584   $620 

 

  (1) Medicare variable marketing cost per approved application includes direct costs incurred in member acquisition for all Medicare products from our direct marketing partners and online advertising channels divided by Medicare approved applications in each period.
  (2) Medicare CC&E cost per approved application includes compensation and benefits costs for personnel engaged in assistance to applicants during the enrollment process divided by Medicare approved applications in each period. CC&E costs include amounts netted against revenue for certain Medicare BPO relationships.

 

Contacts:

 

Health Insurance Innovations, Inc.:

Michael DeVries

Senior Vice President Finance

(813) 906-5314

mdevries@bfyt.com

 

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