Health Insurance Innovations, Inc. Reports Record Third Quarter 2016 Financial And Operating Results

Record Q3 2016 Revenue of $46.1 million, up 79 % YOY Record Q3 2016 Earnings per Share of $0. 25 Record Q3 2016 Adjusted Earnings per Share of $0.33 Policies in force totaled approximately 252,100, up 84% YOY Revised 2016 guidance upward

TAMPA, Fla., Nov. 02, 2016 (GLOBE NEWSWIRE) -- Health Insurance Innovations, Inc. (HII) (NASDAQ:HIIQ), a leading developer, distributor, and virtual administrator of affordable health insurance and supplemental plans announced financial results for the third quarter ended September 30, 2016.  The Company will host a live conference call on Thursday, November 3, 2016 at 8:30 A.M. EST.

Third Quarter 2016 Consolidated Financial Highlights
  • Revenue was $46.1 million, an increase of 78.7% over $25.8 million in the third quarter of 2015.
  • Total collections from customers, which our industry refers to as premium equivalents, of $78.5 million, an increase of 81.0% over $43.4 million in the third quarter of 2015.
  • Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $8.1 million, compared to $1.9 million in the third quarter of 2015.
  • GAAP Net Income per diluted share for the third quarter of 2016 was $0.25, compared to $0.10 in the third quarter of 2015.
  • Adjusted EPS, also referred to as Adjusted Net Income per Share, was $0.33 in the third quarter of 2016 compared to $0.08 in the third quarter of 2015. 
  • Policies in force as of September 30, 2016, totaled approximately 252,100, an 84% increase from 136,800 as of September 30, 2015.

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 below in this press release.

Revised 2016 Full Year Guidance

For the full year 2016 we expect Revenue to grow between 60% and 70% year-over-year ($170 million to $175 million) and Adjusted EPS to grow between 210% and 240% ($0.85 to $0.92).

Previously we guided Revenue of $155 million to $165 million and Adjusted EPS of $0.55 to $0.65.

" Our third quarter performance reflects strong demand for our affordable health insurance products while we continued to execute on our plan " said Patrick McNamee, HII's Chief Executive Officer. " Our strong distribution network, including our e-commerce division, AgileHealthInsurance.com, and our diverse product offering continued to drive our sales growth."

Regulatory Update

On October 31, 2016, the Department of Health and Human Services (HHS) published their rule that beginning January 1, 2017, limit short-term, limited-duration insurance is to be effective no more than three months and require notification of non-compliance with the minimum essential coverage standards set forth in the Affordable Care Act (ACA).

"Although we are disappointed that HHS has decided to implement changes that will further limit consumer options for affordable health insurance, despite receiving many comments raising concerns about harmful effects on various consumer groups, we believe strong demand exists for our other affordable health insurance options, and we will focus on providing such products" said Patrick McNamee, HII's Chief Executive Officer. "We are also confident that HII will continue to develop new and innovative products that will meet ever-changing consumer needs. We look forward to working with state and federal insurance regulators to ensure consumers continue to have access to health insurance products that meet their personal and financial needs."

Third Quarter Financial Discussion

Third quarter revenues of $46.1 million increased 78.7%, compared to the third quarter of 2015, driven by an increase in policies in force and continued strong demand for our health insurance and supplemental plans.

Adjusted gross margin in the third quarter, which is defined as revenue less third-party commissions and credit card or ACH fees, was up both year-over-year and sequentially to $19.3 million.  Adjusted gross margin as a percentage of revenues in the third quarter of 2016 was 41.9%, down year-over-year but favorable sequentially.  The year-over-year reduced gross margin percentage was driven by a revenue mix shift in the quarter towards non-owned call centers and away from owned call centers due to the restructuring of two owned call centers in late 2015.

Total selling, general and administrative ("SG&A") expenses were $11.9 million (25.7% of revenues) in the third quarter of 2016, compared to $10.8 million (42.0% of revenues) in the same period in 2015.  Our core SGA for the quarter - total SGA less marketing leads and advertising, stock compensation and non-recurring costs - as a percentage of revenue was 18.1% in third quarter of 2016, compared to 30.8% in the third quarter of 2015.  Improvements in SG&A for the quarter as a percentage of revenue, compared to the same period last year, were the result of continued focus on operational efficiencies and the restructuring of two owned call centers in late 2015. 

EBITDA was $7.4 million in the third quarter of 2016, compared to $1.5 million in the same period in 2015.  Adjusted EBITDA is calculated as EBITDA adjusted for items that are not part of regular operating activities, including restructuring costs and other non-cash items such as stock-based compensation.  Adjusted EBITDA was $8.1 million in the third quarter of 2016, compared to $1.9 million in the same period in 2015.  Adjusted EBITDA as a percentage of revenue was 17.6% in the third quarter of 2016, compared to 7.3% in the same period in 2015. A reconciliation of net income to EBITDA and adjusted EBITDA for the three and nine months ending September 30, 2016 and 2015 is included within this press release.

GAAP net income per diluted share for the third quarter was $0.25, compared to $0.10 in the third quarter of 2015. Adjusted EPS for the third quarter of 2016 was $0.33, compared to $0.08 in the prior year. Adjusted EPS is a key measure used by management and the investment community to understand and evaluate our core operating performance and trends. A reconciliation of net income to adjusted net income per share is included within this press release.

The company makes short-term loans to our distributors, based on actual sales, that we refer to as advanced commissions.  These advanced commissions assist our distributors with cost-of-lead acquisition and provide working capital.  We recover the loans from future commissions earned on premiums collected over the period in which policies renew.  The third quarter advanced commission balance of $30.7 million is a decrease of $2.1 million from the second quarter of 2016. 

Cash and cash equivalents totaled $14.3 million at the end of the third quarter of 2016. Cash at September 30 th 2016 increased by $5.0 million from June 30 th 2016 which includes reductions for paying down $9.0 million of our bank line of credit.

Conference Call and Webcast

The company will host an earnings conference call on November 3, 2016 at 8:30 A.M. Eastern time.  All interested parties can join the call by dialing (855) 327-6837; or (778) 327-3988; the conference ID is 10001950.  A webcast of the call may be accessed in the Investor Relations section of Health Insurance Innovations' website at http://investor.hiiquote.com/events.com.  An archive of the call will be available for 30 days through the same website.

About Health Insurance Innovations, Inc. (HII)

HII is a market leader in developing innovative health insurance products that are affordable and meet the needs of health insurance plan shoppers. HII develops insurance products through partnerships with best-in-class insurance companies and markets them via its broad distribution network of licensed insurance agents across the nation, its call center network and its unique online capability.  Additional information about HII can be found at HiiQuote.com. HII'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. 

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 HII'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 our products, the amount of commissions paid to us or changes in health insurance plan pricing practices, our ability to integrate our acquisitions, competition, changes and developments in the United States health insurance system and laws, and HII'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 are discussed in HII's most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) as well as other documents that may be filed by HII 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.

              
HEALTH INSURANCE INNOVATIONS, INC.
 
Condensed Consolidated Balance Sheets
($ in thousands, except share and per share data)
 
   September 30, 2016   December 31, 2015
  (unaudited)    
Assets      
Current assets:      
Cash and cash equivalents $   14,259     $   7,695  
Restricted cash     10,457         7,906  
Accounts receivable, net, prepaid expenses and other current assets     1,533         1,778  
Advanced commissions, net     30,693         24,531  
Income taxes receivable           591  
Total current assets     56,942         42,501  
Property and equipment, net     3,681         2,004  
Goodwill     41,076         41,076  
Intangible assets, net     8,419         10,061  
Other assets     257         142  
Total assets $   110,375     $   95,784  
       
Liabilities and stockholders' equity      
Current liabilities:      
Accounts payable and accrued expenses $   21,251     $   17,847  
Deferred revenue     226         384  
Current portion of contingent acquisition consideration           532  
Income taxes payable     1,286        
Due to member     4,287         342  
Other current liabilities     177         203  
Total current liabilities     27,227         19,308  
Revolving line of credit     5,000         7,500  
Deferred tax liability     82         358  
Due to member     361         406  
Other liabilities     185         158  
Total liabilities     32,855         27,730  
Commitments and contingencies      
Stockholders' equity:      
Class A common stock (par value $0.001 per share, 100,000,000 shares authorized; 7,910,086and 7,910,086 shares issued, respectively; and 7,744,497 and 7,759,092 shares outstanding,respectively)     8         8  
Class B common stock (par value $0.001 per share, 20,000,000 shares authorized; 6,841,667shares issued and outstanding, respectively)     7         7  
Preferred stock (par value $0.001 per share, 5,000,000 shares authorized; no shares issued andoutstanding)          
Additional paid-in capital     45,882         44,591  
Treasury stock, at cost (165,588 and 150,993 shares, respectively)     (1,529 )       (1,542 )
Retained earnings (accumulated deficit)     1,608         (3,093 )
Total Health Insurance Innovations, Inc. stockholders' equity     45,976         39,971  
Noncontrolling interests     31,544         28,083  
Total stockholders' equity     77,520         68,054  
Total liabilities and stockholders' equity $   110,375     $   95,784  

              

              
HEALTH INSURANCE INNOVATIONS, INC.
 
Condensed Consolidated Statements of Operations (unaudited)
($ in thousands, except share and per share data)
 
    Three Months Ended September 30,   Nine Months Ended September 30,
      2016       2015       2016       2015  
Revenues (premium equivalents of $78,548 and $43,404 for the three monthsended September 30, 2016 and 2015, respectively and $226,265 and $120,216for the nine months ended September 30, 2016 and 2015, respectively)   $   46,108     $   25,799     $   133,092     $   71,087  
Operating expenses:                
Third-party commissions       25,860         13,243         77,709         35,337  
Credit card and ACH fees       921         569         2,778         1,581  
Selling, general and administrative        11,853         10,845         35,520         32,360  
Depreciation and amortization       835         687         2,367         2,255  
Total operating expenses       39,469         25,344         118,374         71,533  
Income (loss) from operations       6,639         455         14,718         (446 )
                 
Other (income) expense:                
Interest (income) expense       (102 )       (8 )       53         (25 )
Fair value adjustment to contingent acquisition consideration             (438 )       15         (824 )
Other (income) expense       27         83         459         (170 )
Net income before income taxes       6,714         818         14,191         573  
Provision (benefit) for income taxes       1,580         (701 )       2,501         (664 )
Net income       5,134         1,519         11,690         1,237  
Net income attributable to noncontrolling interests       3,195         788         6,989         779  
Net income attributable to Health Insurance Innovations, Inc.   $   1,939     $   731     $   4,701     $   458  
                 
Per share data:                
Net income per share attributable to Health Insurance Innovations, Inc.                
Basic   $   0.25     $   0.10     $   0.62     $   0.06  
Diluted   $   0.25     $   0.10     $   0.61     $   0.06  
Weighted average Class A common shares outstanding                
Basic       7,614,252         7,531,827         7,590,347         7,521,124  
Diluted       7,723,196         7,571,464         7,724,168         7,613,433  

              

             
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
(unaudited)
($ in thousands)
 
  Three Months Ended September 30,   Nine Months Ended September 30, 
    2016       2015       2016       2015  
Net income $   5,134     $   1,519     $   11,690     $   1,237  
Interest (income) expense     (102 )       (8 )       53         (25 )
Depreciation and amortization     835         687         2,367         2,255  
Provision (benefit) for income taxes     1,580         (701 )       2,501         (664 )
EBITDA     7,447         1,497         16,611         2,803  
Non-cash stock-based compensation     393         314         1,362         1,001  
Fair value adjustment to contingent consideration           (438 )       15         (824 )
Transaction costs                       24  
Tax receivable agreement liability adjustment     29         239         458         345  
Other non-recurring charges     224         273         446         671  
Adjusted EBITDA $   8,093     $   1,885     $   18,892     $   4,020  

             

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,
    2016       2015       2016       2015  
Net income $   5,134     $   1,519     $   11,690     $   1,237  
Interest (income) expense     (102 )       (8 )       53         (25 )
Amortization     527         592         1,642         2,064  
Provision (benefit) for income taxes     1,580         (701 )       2,501         (664 )
Non-cash stock-based compensation     393         314         1,362         1,001  
Fair value adjustment to contingent consideration           (438 )       15         (824 )
Transaction costs                       24  
Tax receivable agreement liability adjustment     29         239         458         345  
Other non-recurring charges     224         273         446         671  
Adjusted pre-tax income     7,785         1,790         18,167         3,829  
Pro forma income taxes     (2,958 )       (680 )       (6,903 )       (1,455 )
Adjusted net income $   4,827     $   1,110     $   11,264     $   2,374  
Total weighted average diluted share count     14,565         14,413         14,566         14,455  
Adjusted net income per share $   0.33     $   0.08     $   0.77     $   0.16  
 

(1) EBITDA is defined as net income before interest expense, 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 generally accepted accounting principles in the United States of America ("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.

(2) To calculate adjusted EBITDA, we calculate EBITDA, which is then further adjusted for items that are not part of regular operating activities, including acquisition costs, and other non-cash items such as non-cash stock-based compensation. 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 and other items that are not part of regular operating activities, including acquisition costs, restructuring costs, contract termination costs, tax receivable agreement liability adjustments, and other non-cash items such as non-cash stock-based compensation and fair value adjustment to contingent consideration. From adjusted pre-tax net income we apply a pro forma tax expense calculated at an assumed rate of 38%. 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 our 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 diluted Class A and 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.

Reconciliation of Premium Equivalents to Revenues & Adjusted Gross Margin
(unaudited)
 ($ in thousands)
 
    Three Months Ended September 30,   Nine Months Ended September 30,
      2016       2015       2016       2015  
Premium equivalents   $    78,548     $    43,404     $    226,265     $    120,216  
Less risk premium       31,056         16,728         88,880         46,596  
Less amounts earned by third party obligors       1,384         877         4,293         2,533  
Revenues       46,108         25,799         133,092         71,087  
Third-party commissions       25,860         13,243         77,709         35,337  
Credit card and ACH fees       921         569         2,778         1,581  
Adjusted gross margin   $    19,327     $    11,987     $    52,605     $    34,169  
 

(1) Premium equivalents is defined as the combination of premiums, fees for discount benefit plans (a non-insurance benefit product that supplements or enhances an insurance product), fees for distributors, our enrollment fees and third-party commissions and referral fees. From premium equivalents, we remit risk premium to carriers and amounts earned by discount benefit plan providers, who we refer to as third-party obligors, such carriers and third-party obligors being the ultimate parties responsible for providing the insurance coverage or discount benefits to the member. Our revenues consist of the balance of the premium equivalents. We have included premium equivalents in this report because it is a key measure used by our management 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 inclusion of premium equivalents can provide a useful measure for period-to-period comparisons of our business. This financial measurement is considered a non-GAAP financial measure and is not recognized under GAAP and should not be used as, and is not an alternative to, revenues as a measure of our operating performance.

(2) Adjusted gross margin is defined as revenues less third party commissions and credit card and ACH fees.  Adjusted gross margin does not represent, and should not be considered as, an alternative to revenues, as determined in accordance with GAAP. Adjusted gross margin is a key measure used by our management to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short-term and long-term operational plans. In particular, adjusted gross margin can provide a useful measure for period-to-period comparisons of our business. Adjusted gross margin 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.

Summary of selected metrics
(unaudited)
($ in thousands)
 
    Submitted Applications during ThreeMonths Ended September 30,      
       
    2016     2015   Change (%)
IFP     66,800       44,900     49 %  
Supplemental products     59,500       44,600     33 %  
Total     126,300       89,500     41 %  

    Policies in Force as of September 30,      
    2016     2015     Change (%)  
IFP     120,900       60,700         99 %  
Supplemental products     131,200       76,200         72 %  
Total     252,100       136,900         84 %  

    Submitted IFP Applications by Channel    
  Q3'15   Q4'15   Q1'16   Q2'16   Q3'16
Agile 5,800   11,300   23,100   16,000   21,100
All Others 39,100     57,900      72,300   49,000   45,700
Total   44,900     69,200     95,400     65,000     66,800

     
  Core SG&A as a Percentage of Revenue
  Q3'15   Q4'15   Q1'16   Q2'16   Q3'16
Total SG&A $   10,845     $   14,964     $   11,970     $   11,697     $   11,853  
Less: Stock-based compensation   313       363       486       482       393  
Less: Other non-recurring charges   273       2,952       119       103       224  
Less: Marketing and Advertising   2,305       3,046       2,820       2,449       2,875  
Core SG&A $   7,954     $   8,603     $   8,545     $   8,663     $   8,361  
% of Revenue   30.8 %     25.6 %     20.1 %     19.5 %     18.1 %

 

Contacts:Health Insurance Innovations, Inc.:Michael HershbergerChief Financial Officer(877) 376-5831 ext. 282mhershberger@hiiquote.comInvestor Contact:Investor Relations office(813) 452-5221IR@hiiquote.comMedia Contact for AgileHealthInsurance.com & HealthPocket.com:Amy Fletcher(720) 350-3144info@afmcommunications.com

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