Tampa-based Health Insurance Innovations, Inc. (NasdaqGM: HIIQ), a leading cloud-based technology platform and distributor of affordable individual and family health insurance and supplemental plans, has seen its shares rise to all-time new highs this week. The 52-week range is now $12.65/sh to $44.40/sh and Thursday, August 2, 2018’s close was $44.15/share up +16.03%. We have been covering (see our coverage page) HIIQ since the early part of 2016 when the company was trading the $3-$4/share range. It has been an amazing ride so far.
This week’s move seems to be squarely on the backs of a much-anticipated final ruling that is restoring the maximum duration of Short-Term, Limited-Duration Insurance (STLDI) from 3 months to less than 12 months from the original effective date, with the ability to be renewed or extended for a maximum duration of up to 36 months in total. In addition, HIIQ announced its financial results for the second quarter ended June 30, 2018 on August 2nd which beat street estimates and saw the company increase its annual guidance.
|Note that Cantor Fitzgerald Analyst Steven Harper Maintained his Overweight rating and $60 target on HIIQ shares this week.
Mr. Gavin Southwell, Chief Executive Officer and President of HIIQ stated, “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. We also believe that this rule change will improve consumer choice and increase competition and affordability in the individual health insurance market. As result of this final rule, STLDI plans can help decrease the number of currently uninsured Americans while increasing choice and competition in the individual market. We believe these plans make available more coverage options and broader access to providers than current individual ACA health insurance coverage has. In addition, while we continue to analyze the business impacts of this final rule, we expect the expanded market for STLDI plans to yield significant upside in our business including an overall increase in sales and policies in force driven in part by the enhanced persistence of members associated with longer plan durations.”
STLDI plans overview
STLDI plans have lower deductibles on average than exchange plans and are paired with very broad PPO networks. A key feature of typical STLDI plans is that plan benefits are paid for covered expenses incurred from any provider in the U.S. and there is no referral required if a member would like to see a specialist. Members have the added benefit of receiving discounted network rates if they choose to use an in-network provider. In addition to the valuable benefits and broad provider networks, STLDI plans are considerably more affordable than ACA-compliant exchange plans.
HIIQ believes that the April 2017, three-month rule implementation decreased the availability of health benefits for consumers even as the cost of insurance for these same consumers increased. For example, HIIQ’s analysis of plans available for plan year 2018 on the federal exchange found that a family of three with parents age 40, earning the average U.S. household income, would not be able to find an affordable Bronze or Silver plan anywhere in the United States. Looking ahead to plan year 2019, available preliminary rate filings show that benchmark plan premiums will increase by double-digit percentages in many states, with premiums in certain states increasing as much as 36% year over year. Consumers who are ineligible for subsidies are hit hardest by premium increases each year, which has caused unsubsidized enrollment to decrease at an alarming rate. In 2017, unsubsidized enrollment decreased by 20% nationally. Additionally, six state markets experienced a drop in unsubsidized enrollment of more than 40% in 2017.
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.
- 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.
2018 Full Year Guidance
The Company raised 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.
Gavin Southwell, HIIQ’s Chief Executive Officer and President stated, “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.”Second quarter 2018 Financial Discussion
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 hosted an earnings conference call on August 2, 2018, at 8:30 A.M. Eastern time. 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.
Health Insurance Innovations, Inc. Reports Second Quarter 2018 Financial and Operating Results
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 …..