Health Insurance Innovations (HIIQ) Tops Q4 EPS by 21c, Revenues Beat; Offers FY19 EPS/Revenue Guidance Above Consensus

Health Insurance Innovations (NASDAQ: HIIQ) reported Q4 EPS of $0.98, $0.21 better than the analyst estimate of $0.77. Revenue for the quarter came in at $131.9 million versus the consensus estimate of $83.12 million.

• Revenue was $131.9 million, compared to revenue of $69.5 million (which excludes the impact of ASC 606) in the fourth quarter of 2017.
• Net income of $8.3 million was unfavorably impacted by a $3.6 million increase in indemnity and other related legal costs associated with closing the market conduct examination, compared to net income of $5.0 million (which excludes the impact of ASC 606) in the fourth quarter of 2017.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $21.6 million, compared to adjusted EBITDA of $10.5 million (which excludes the impact of ASC 606) in the fourth quarter of 2017.
• GAAP diluted net income per share was $0.40, compared to GAAP diluted net income per share of $0.30 (which excludes the impact of ASC 606) in the fourth quarter of 2017.
• Adjusted net income per share was $0.98 compared to adjusted net income per share of $0.37 (which excludes the impact of ASC 606) in the fourth quarter of 2017.
• Expected duration units of submitted IFP sold of 1,022,400 compared to 957,300 in the fourth quarter of 2017, an increase of 6.8%.

"We had a strong finish to 2018 and business trends have accelerated in the first two months of 2019 with expected total months sold, or expected duration units, increasing 24% year-over-year. During 2018 we shifted our strategic focus towards longer duration products with significantly higher lifetime value (LTV). In the fourth quarter, expected duration units from third-party distribution partners were up 19% year over year, reflecting a record open enrollment period, despite terminating a large distributor early in the fourth quarter,” said Gavin Southwell, HIIQ's Chief Executive Officer and President.

Mr. Southwell continued, “After the HHS Rule change in October 2018, we focused more resources on eCommerce partners, which includes Agile, our own eCommerce channel, as well as other new partners. Our decision to de-emphasize lower cost, lower margin plans to instead focus on longer duration, higher LTV plans and eCommerce penetration exceeded our expectations. Despite the year-over-year decline in Agile’s submitted applications in the fourth quarter, total eCommerce expected duration units grew 68% year-over-year. We believe the successful strategic shift towards higher LTV plans and eCommerce will have a positive financial impact in 2019 and beyond.”

Effective December 31, 2018, Health Insurance Innovations, Inc. adopted Accounting Standards Update 2014-09, Revenue from Contracts with Customers (ASC 606), using the modified retrospective method. Prior period information presented has not been adjusted to reflect the adoption of this new revenue recognition standard.

“Our approach to ASC 606 has been a detailed effort between the Company, consultants and our Audit Committee. With our adoption of the new accounting standard, all costs associated with acquiring customers are recognized upfront. This effectively creates a mismatch that pushes approximately 5% of the expected LTV of a plan into future periods while 100% of our third party commission expense is recognized upfront. As a result of this ASC 606 application, approximately $7 million of what would otherwise be Adjusted EBITDA in 2018 will now be effectively deferred into 2019. Specific to 2019, we expect high margin revenue to be deferred into 2020, which makes our strong 2019 financial guidance even more impressive. As part of ASC 606, we have made prudent initial assumptions for the lifetime value of longer duration and higher LTV plans. As such, we expect to reassess the performance of our longer duration and higher LTV plans as we move through 2019 and believe potential exists for greater revenue as the longer duration plans season,” said Mr. Southwell.

Mr. Southwell concluded, “2018 was a strong year and we are gratified our momentum has accelerated into 2019. Reflecting our confidence in the pace of business and HIIQ’s strategic opportunities ahead, we bought back $55.9 million of stock in 2018, including $36.4 million in the fourth quarter alone. With $39.2 million remaining at year end on the increased $100 million authorization announced in December, we have sufficient capacity to continue to acquire our stock and believe it represents a compelling component of our capital allocation strategy. I am also pleased to announce that on February 28, 2019, we expanded our current credit facility to $75 million with the ability to increase the revolving commitment to $100 million with our lender’s consent. The term of the credit facility was extended out 3 years, through February 2022. This new credit facility adds flexibility to pursue a range of initiatives to enhance shareholder value."

GUIDANCE:

Health Insurance Innovations sees FY2019 EPS of $3.20-$3.35, versus the consensus of $3.05. Health Insurance Innovations sees FY2019 revenue of $430-440 million, versus the consensus of $353.41 million.

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