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Edited Transcript of HIIQ earnings conference call or presentation 2-Mar-17 1:30pm GMT

Thomson Reuters StreetEvents

Q4 2016 Health Insurance Innovations Inc Earnings Call

Tampa Mar 2, 2017 (Thomson StreetEvents) -- Edited Transcript of Health Insurance Innovations Inc earnings conference call or presentation Thursday, March 2, 2017 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Cincy Merluzzi

Health Insurance Innovations, Inc. - Corporate Controller

* Gavin Southwell

Health Insurance Innovations, Inc. - CEO & President

* Mike Hershberger

Health Insurance Innovations, Inc. - CFO

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Conference Call Participants

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* Mike Rondo

- Private Investor

* Mark Argento

Lake Street Capital - Analyst

* Greg Peters

Raymond James - Analyst

* Frank Sparacino

First Analysis - Analyst

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Presentation

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Operator [1]

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Greetings, and welcome to the Health Insurance Innovations' fourth-quarter 2016 conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Cindy Merluzzi, Corporate Controller for Health Insurance Innovations. Please go ahead.

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Cincy Merluzzi, Health Insurance Innovations, Inc. - Corporate Controller [2]

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Thank you, and good morning everyone. We are delighted to have you join us today for a discussion about Health Insurance Innovations' 2016 fourth-quarter and year-end financial results.

By now you should have received a copy of the press release with the financial results. If you don't have a copy and would like one, please visit our website at investor.hiiquote.com.

On the call this morning with me we have Gavin Southwell, HIIQ's CEO and President, and Mike Hershberger, HIIQ's Chief Financial Officer. As a reminder, today's conference call is being recorded and a replay of the call will be available on the investor relations section of our website following the call.

We will be making forward-looking statements on the call. All statements other than statements of historical fact are forward-looking statements.

Such statements may describe future plans, objectives, or goals and these statements are generally identified by words such as anticipate, expect, believe or other similar words. Forward-looking statements are subject to future risks and uncertainties including the risks outlined in the Company's Form 10-K for the year ended December 31, 2016.

These risks and uncertainties include, among other things, the Company's ability to maintain relationships and develop new relationships with health insurance carriers and distributors, its ability to retain its members, the amount of commissions paid to the Company or changes in health insurance plan pricing practices, and changes and developments in the US health insurance system and laws. Actual results could differ materially from those projected or expected in these forward-looking statements.

Listeners are urged to carefully review and consider the various disclosures made by the Company in this conference call and the risk factors disclosed in the Company's annual report on Form 10-K for the year ended December 31, 2016, as well as other reports we have filed with the Securities and Exchange Commission. Copies of the Company's SEC reports are available on our website at www.hiiquote.com and on the SEC's website. The Company disclaims any obligation to update any forward-looking statement after this conference call.

(Caller Instructions)

With that, I'll turn the call over to our CEO and President, Gavin Southwell.

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Gavin Southwell, Health Insurance Innovations, Inc. - CEO & President [3]

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Thanks Cindy, and thank you everyone for joining us today. I'm Gavin Southwell, President and CEO.

As you will recall, I joined the Company in early 2016. I became the President in July and I was appointed CEO and President by a Board of Directors in quarter four. I've met many current and potential investors already, and I look forward to continuing to share our story in the year future.

We have a great team here at HIIQ, and I have been looking forward to reporting our fourth-quarter and year-end 2016 results, as well as laying out our plans for continued growth in 2017 and into the future. I am very excited about the opportunities that are in front of us.

We are pleased with our performance. Record fourth-quarter revenues grew by 53% year over year to $51.4 million.

Additionally, adjusted EBITDA and adjusted earnings per share increased both year over year and sequentially. Adjusted EBITDA for the fourth quarter was $8.9 million, up 246% year over year and 10% sequentially. Adjusted earnings per share for the fourth quarter was $0.35, up from $0.10 in the fourth quarter 2015 and $0.33 in the third quarter of 2016.

For the full year 2016 we reported $184.5 million in revenue, a 76% year-over-year increase that exceeded our revenue guidance of $173 million to $178 million. We ended the year with adjusted earnings per share of $1.12, also exceeding our guidance of $0.88 to $0.95.

During the fourth quarter we had several one-time events occur, including the retirement of our former CEO and the release of our deferred tax asset that originally occurred during our IPO in 2013, and these resulted in a negative EBITDA and GAAP earnings per share for the quarter. Our CFO, Mike Hershberger, will provide more details on the impact of these one-off events.

This quarter's strong financial performance reflected robust selling trends, especially during the ACA open enrollment period that began on November 1. We had record policies in force at the end of 2016, 290,100 policies, which represents a 49% year-on-year increase.

During the quarter we also set a new record for submitted policies, 178,900, representing a 17% year-on-year increase. The enhancement of our distribution system, including our direct-to-consumer division, agilehealthinsurance.com, helped us to accelerate sales through the most recent open enrollment period.

Looking forward to 2017, we expect to continue to grow and achieve more scalability in our operations. Our full-year guidance for 2017 for revenue is between $210 million and $220 million, which is a 15% to 20% increase year over year.

Our non-GAAP metric of adjusted EBITDA will grow 20% to 30% year over year, which is $33 million to $36 million. Adjusted earnings per share to grow 20% to 30%, which is $1.35 to $1.45. Throughout 2016 we have exceeded our expectations, and we are optimistic about the future.

The core strength of our Company is our technology platform. The heart of our operating model is a highly scalable technology driven quote-buy-print platform. It provides 24/7 real-time transaction service. This platform drives our scalability as a virtual administrator, fulfilling the needs of the consumer, our agents and our carriers.

It is a foundation of our differentiated distribution model, including call centers and direct-to-consumer capabilities, specifically agilehealthinsurance.com. By adding new products to our portfolio and leveraging our proven technology platform, we remain confident in our ability to continue driving profitable growth.

Improved communication of the benefits of our IFP plans to our consumers and distributors is another key initiative in 2017. We believe that our plans are the best solution for about 40% of the consumers seeking individual plans. That's a $35 billion market and growing. The team at Healthpocket is leading that initiative.

We also plan to expand our call center distribution, and continue to invest in our technology platform in creating agilehealthinsurance.com. This will enhance the scalability and maintain our competitive advantage.

In quarter four 2016, agilehealthinsurance.com powered by the team at Healthpocket sold approximately 22,400 short-term medical policies. This represents 26% of the IFP policies sold during the quarter. Year over year, Agile nearly doubled their sales and grew to be our largest distributor.

We continue to focus on our scalability during the quarter. Quarter four core SG&A was 16.5% of revenue, which is better than 18.1% in quarter three and significantly healthier than a year ago when core SG&A was at 25.6% of revenue. Our improved margins and our technology platform, allowing the consumer, insurance carriers and distributors to efficiently interact, drives our scalability.

During the quarter we also continued our disciplined focus and solid execution on our key strategic levers: product innovation, distributor development, online sales and operating leverage. Working with our strong carriers, we continue to lead the industry in product innovation.

We have a history of creating quality, affordable and efficiently administrated health insurance products to meet the needs of consumers. These products provide important solutions for consumers when they cannot obtain or afford the ACA, and we have the solutions for them. We believe that the current macro-political environment is favorable to our ability to innovate affordable health insurance products. We continue to help support our third-party distributor sales grow in a number of ways including supporting their regulatory compliance by providing a scalable platform that mitigates risk as well as investing in resource and technology in our own customer service, compliance and call center quality teams.

We continue to focus on our direct-to-consumer online business, agilehealthinsurance.com. Our Silicon Valley team of developers and marketers continue to demonstrate phenomenal growth, retention and customer satisfaction while increasing their marketing efficiency. Although there is an upfront cost of acquisition that is included in our SG&A, we expect to continue to drive revenue and profitability.

We also continue to focus on our overall scalability and leverage. We have a sophisticated technology-driven platform with demonstrated operating leverage, limited risk, excellent customer service, strong agent support tools and processes to ensure not only compliance but transparency with our regulatory partners, and we expect to continue to lead our market throughout 2017.

Now I would like to provide an update on the rule issued by the Department of Health and Human Services, or HHS, related to short-term medical insurance under the Obama administration. HHS issued a rule change in 2016 that limits STM policies to be no more than three months in duration and require that specific language be used to explain noncompliance with the ACA, as well as providing a three-month STM, but allowing consumers to reapply. While we are disappointed that HHS has decided to implement changes to this product as it will further limit consumer options for affordable health insurance, we believe strong demand continues to exist for the STM product and other affordable insurance options. And we will continue to provides innovative and affordable health insurance products.

Our fixed indemnity product, which we refer to as hospital indemnity, has become more popular with consumers throughout 2016. We believe that hospital indemnity addresses many of the consumer needs previously filled through STM policies, but now with the HHS imposed limitations on STM the demand for hospital indemnity will likely increase. We believe the total market opportunity may be even greater than that of STM.

We are currently working with various states as they review our numerous carriers' and distributors' compliance with state insurance regulations. We are proactively communicating and cooperating with all applicable regulatory agencies, and we have provided a detailed action plan to regulators that summarizes our Company's enhanced compliance and control mechanisms.

It's too early to determine whether any of these regulatory examinations will have a material impact on the Company. 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.

Throughout 2016 we have exceeded expectations, and we are optimistic about the future. With the proposed HHS rule as well as regulatory scrutiny in our industry, our strategy for 2017 has not changed. We are a consumer advocate. Our investment in technology and resource to provide market-leading customer service and compliance along with our enhanced use of data and our continued ability to work with leading carriers means we are well positioned for future growth while succeeding in our mission of providing affordable and innovative health insurance and related products to the consumer.

Improved communication of the benefit of our IFP plans to our consumers and distributors is a key initiative. We believe that our plans are the best solution for about 40% of the consumers currently seeking a solution, a $35 billion market and growing. We will continue to expand our distribution and continue to invest in our technology platform, including Agile, to enhance our scalability and maintain our competitive advantage.

We appreciate your time today. Thank you for your interest in our Company, and I would like to turn the call over to Mike Hershberger, our Chief Financial Officer.

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Mike Hershberger, Health Insurance Innovations, Inc. - CFO [4]

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Thanks Gavin, and good morning everyone. As I review the financial results for the fourth quarter and FY16, I would like to highlight a few key points.

We are pleased with our revenue growth, policies in force and adjusted EBITDA during the quarter. As Gavin mentioned, we have several strategic initiatives underway that contributed to the acceleration of sales and profit during the open enrollment period at the end of 2016 and should contribute to sustained growth through 2017 and beyond. We will continue to invest in what we consider to be attractive growth opportunities in 2017.

Our fourth-quarter revenues were a record $51.4 million, increasing by 53% compared to last year and 11.5% sequentially. For the year, our revenues were $184.5 million, an increase of 76% over 2015, exceeding our latest guidance of $173 million to $178 million.

Our total policies of force increased to a record 290,100 at the end of the fourth-quarter, up 48.7% year over year and 15.1% sequentially. We saw strong growth in our IFP plans, as well as supplemental products.

As a reminder, supplemental products are generally included as a bundle along with the IFP products as we continue to meet our members' health insurance needs. Our supplemental products generally have a longer lifespan than the corresponding IFPs.

Total submitted policies for the fourth quarter were up 16.6% year over year and 41.6% sequentially, providing visibility of future revenue in the upcoming quarters. We experienced strong growth from our existing distribution channels in both submitted policies and policies in force sequentially and year over year.

Our fastest-growing distributor during the quarter continued to be our online direct-to-consumer division, agilehealthinsurance.com. Agile begin selling policies during the second quarter of 2015 and our sales through Agile continues to accelerate year over year as consumers sought affordable health insurance online. During the fourth quarter Agile sold 22,400 short-term medical policies, nearly doubling the submitted policies from Q4 2015.

Throughout 2016 we continued to leverage and drive scalability on our operations, and Q4 was no exception. Our core SG&A for the quarter, that is total SG&A less marketing leads and advertising, stock compensation and nonrecurring costs as a percentage of revenue was 16.5% in Q4 2016 compared to 25.6% in Q4 2015 and 18.1% sequentially.

Core SGA for 2016 as a percentage of revenue improved year over year from 31.1% in 2015 to 18.5% in 2016. The driver of this metric continues to be our highly scalable technology platform integrating carriers and distributors while allowing consumers to quote their policy, buy their policy, print their insurance card and electronically secure health insurance coverage.

EBITDA was negative $4.9 million in the fourth quarter of 2016 compared to negative $300,000 in the same period 2015. EBITDA was unfavorably impacted by several one-time events in the fourth quarter including severance related to our former CEO and COO which had a cumulative impact of approximately $2.9 million. This expense was a combination of cash severance of $1.4 million and stock compensation of $1.5 million.

Additionally we had a one-time non-cash release of our valuation allowance related to deferred tax assets. The release was triggered in part by the Company's projections of future taxable income.

Due to this release we recognized a corresponding liability for our tax receivable agreement obligation resulting in a one-time non-cash unfavorable impact of $9.1 million to EBITDA. The cumulative negative impact of EBITDA of these events in the fourth quarter was approximately $12 million. For the year EBITDA was $11.7 million in 2016 compared to $2.5 million in 2015.

Fourth-quarter 2016 GAAP earnings per diluted share was a $0.03 loss compared to a $0.02 gain in Q4 of 2015 and a $0.25 gain sequentially. Full-year 2016 GAAP earnings per diluted share of $0.57 compares favorably to $0.08 in 2015.

GAAP earnings per diluted share was also impacted by the one-time events in Q4 including the severance of our former CEO and COO which had a cumulative negative impact of $0.12 per diluted share and the release of our deferred tax asset which had a negative impact of $0.13 per diluted share. The cumulative unfavorable impact of these one-time events in the fourth quarter was approximately negative $0.25 per diluted share.

Turning now to our non-GAAP metrics, adjusted EBITDA and adjusted earnings per share increased both year over year and sequentially. Adjusted EBITDA for the fourth quarter was $8.9 million compared to $2.6 million in Q4 2015 and $8.1 million sequentially.

Full-year 2016 adjusted EBITDA was $27.8 million compared to $6.6 million in 2015. Adjusted EBITDA as a percentage of revenue increased to 17.2% for Q4 compared to 7.6% in Q4 2015. The full-year 2016 adjusted EBITDA as a percentage of revenue was 15% compared to 6.3% in 2015.

Adjusted EPS for the fourth quarter was $0.35 compared to $0.10 in Q4 2015 and $0.33 sequentially. Full-year adjusted EPS was $1.12 compared to $0.27 in 2015. We exceeded our full-year guidance of $0.88 to $0.95 for this metric.

We believe that our non-GAAP metrics of adjusted EBITDA and adjusted earnings per share provide a meaningful measure of our financial performance. We provided a reconciliation of our GAAP metrics to our non-GAAP metrics in our earnings press release that was published last night.

We continue to make secured short-term loans to our distributors based on actual sales that we refer to as advanced commissions. These advanced commissions assist our distributors with their cost of acquisition and provide them with working capital. We recover the advanced commissions from future commissions earned by the distributor on premiums collected over the period in which the policies renew. In the fourth quarter we experienced a $6.3 million increase in advanced commission loans that we provide to our distributors for a total of $37 million outstanding at year end.

Cash and short-term investments totaled $12.2 million at the end of the fourth quarter of 2016, up $4.5 million from the prior year. In 2016 we generated greater than $20 million of cash net of financing. In the fourth quarter we paid off the remaining $5 million of our bank line of credit, ending the year with no debt.

Looking forward to 2017, we expect to generate between $210 million and $220 million of revenue for the full year, which is an expected growth rate of between 15% to 20% year over year. We expect to generate adjusted EBITDA, that's a new metric we are providing guidance on this year, of between $33 million and $36 million, and adjusted earnings per share of $1.35 to $1.45, both expanding faster than our revenue growth. Our earnings reflect continued strong operational results and improved scalability offset by accelerated product development and implementation expenses and our upfront cost of acquisition at agilehealthinsurance.com.

2016 was a very productive year for the Health Insurance Innovations team. The addition of Gavin Southwell as our CEO has provided significant energy and momentum heading into 2017. We expect to deliver strong results through our continued expansion of innovative products, continued expansion of our distribution networks including both existing and new distributors, maximizing our e-commerce opportunity, providing best-in-class customer service, and continued scalability driven by our technology.

Thank you for your time today, and now we would like to open up the call for questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions)

Mike Rondo, Private Investor.

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Mike Rondo, - Private Investor [2]

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Hey, guys. Good morning, and congratulations on the quarter. First question is really can you talk little bit about the competitive environment and what you are seeing as it relates to short-term medical and hospital indemnity or limited medical?

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Gavin Southwell, Health Insurance Innovations, Inc. - CEO & President [3]

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Good morning. Thanks for the question. It is a great opportunity for us in 2017. I think the way that we've positioned our business at the affordable side of the market has proven to be a very wise move.

I think that if you look at health insurance overall, a lot of people who perhaps chose to head a lot more down the ACA route and were perhaps expecting a different administration are now adjusting that position. I think we are very well positioned to have an opportunity to potentially partner with people who want to do more in our side of the market.

I think we are very well positioned to take advantage of potential changes coming from this new administration. We often get asked about if there will be new entrants to our market and if that will impact us.

I am happy for there to be competition. I think we have always been innovated business.

I think we are ambitious in terms of what we want to achieve and so competition is okay. I think if people out there are making strategic decisions, a good way to do more in this market is to partner with a business like ourselves, and I think that brings a great opportunity that hopefully we can execute on throughout 2017.

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Mike Rondo, - Private Investor [4]

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Got it. In terms of your outlook for margins, how are you thinking about driving further scale in the business? What does it need to do that? Is it just revenue growth, policy growth?

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Gavin Southwell, Health Insurance Innovations, Inc. - CEO & President [5]

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There are a couple parts to that. Of course we are very satisfied with the progress we have made to date.

The first thing is we talk a lot about our scalable model. The investment we've made in technology here means that for the growth that we've created, we have not had to add a lot of additional people and additional resources in order to administrate those additional volumes. So that scalability really just shines through.

As we look through to 2017, the investments in resources have already been made. They were made in 2016. We added significantly to customer service and compliance because we want to lead the market in both support functions. That was a deliberate strategic choice, but in 2017 we don't need to add any cost in order to handle bigger volumes.

The second part is as we continue to grow, our ability to work with our carriers and unlock some of the value that is within this business will also allow us to keep enhancing those margins, and that is very exciting. My background is I've worked for carriers and I've worked a lot in delegating authority from both the sides from an intermediary and from the carrier side. As far as enhancing our use of data will help us to work a lot better with our carriers and really try to unlock some of that value, and all of that will help our margins.

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Mike Rondo, - Private Investor [6]

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Got you. Last question. I believe with open enrollment recently here that December 15 is one of the strongest days in that 2016 period, just because that is the day you need to sign up to get coverage January 1. Assuming the fourth quarter, the December quarter, was pretty back-end loaded, in looking at your guidance for 2017, does it embed in there that the first quarter could be the strongest quarter of the year?

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Gavin Southwell, Health Insurance Innovations, Inc. - CEO & President [7]

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Well, quarter four was a fantastic quarter for us as a business. We use the word record a lot in our release, and we're very proud of what happened in that quarter and the year overall.

Quarter one historically if you look in previous years has been a big quarter for this business. I think with the change in administration, going into December there was a question as to would that impact consumer choice and consumer behavior, and ultimately it did not and December was great.

I think what we've try to do is -- we were asked a lot in 2016 about regulatory change. The STM rule was a surprise to our market, and everybody had to really work with that. I think we've got a great answer and I think we are very well positioned.

So aware that we see a real potential for tailwinds to our business and we see a lot of positive signs from the administration around regulatory change that will benefit our business. We are not baking that into our numbers until we've cross the T's and dotted the I's because we've spent a long time talking about regulatory change in 2016, and I know we're going to be talking about it in 2017.

I think we can show really good, solid growth particularly around adjusted EBITDA. I think we got the potential for some real favorable tailwinds, but let's confirm that and let's get this quarter under our belt. Then if we need to adjust and provide more information, then of course we will. To us, having been through this in 2016 and we feel it we're coming to the end of it, it feels like that was the right way to approach it.

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Mike Hershberger, Health Insurance Innovations, Inc. - CFO [8]

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I would like to add something. That was a good summary, Gavin. I would like to add that you are exactly right, Mike.

The strong fourth quarter, especially at the end, does provide visibility into the future of our revenues as we recognize the revenue as a consumer pays on their policies. It certainly provides us with a really strong visibility going into 2017.

What we have decided as a Company is not to provide guidance by quarter. Certainly as a whole for 2017, we are very comfortable with our guidance numbers.

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Mike Rondo, - Private Investor [9]

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Got it, okay. Thanks a lot, guys.

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Operator [10]

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Mark Argento, Lake Street Capital.

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Mark Argento, Lake Street Capital - Analyst [11]

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Good morning. A couple questions. First off, I know as you referred to earlier that the shift in regulatory environment, one of the things you guys were contemplating last year was the addition of more products into the portfolio. How are you thinking about the product portfolio going into 2017? Are you -- have you launched or are you planning on launching some new products?

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Gavin Southwell, Health Insurance Innovations, Inc. - CEO & President [12]

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Great question. We worked very hard in 2016 with a number of new carriers, big globally recognized carriers we're very happy to partner with and we built out a number of new products, some which launched towards the end of 2016, one of which is launching in the next 7 to 10 days.

Where this gets very exciting for us is on the hospital indemnity side. We have some products which have broader coverages than these products have historically had over the last 20 years.

Also for us as a business, because of a lot of the good work we've done around our use of data and the value proposition we can give to carriers, it means that on a per-policy basis we are better off than we were with previous hospital indemnity products. You put those things together, I think that is very useful for us.

We have a number of other add-on products, ancillary products which we refer to. We now sell more ancillaries then we do core products, and that has really been a phenomenon in 2016 and that will really prove out in 2017.

Again, choosing the right ancillary products to match to the core product and being able to bundle that together using our proprietary technology is a real benefit to this business. I think we will see those benefits really coming through as we move through the year, because obviously as margins improve the impact, as Hersh nicely described, if we do a lot of sales in Q4 that (inaudible) us free throughout the year.

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Mark Argento, Lake Street Capital - Analyst [13]

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Great. Dovetailing off of that, obviously again a lot of regulatory change. Trump's speech the other night to Congress he talked about really opening the borders to healthcare across state lines. When you look at your platform, and particular the Agile platform, the online platform and the technology there, is that flexible enough? Could you pivot, could you go after even a bigger opportunity if it presented itself given how quickly things are changing in the regulatory environment?

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Gavin Southwell, Health Insurance Innovations, Inc. - CEO & President [14]

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Absolutely. We have compared every proposal that has been put forward and we have tried to look for commonality. If we pick potential changes that would be an advantage to us, that we think we would provide a provided a material benefit, we can monetize, opening up those borders is certainly very helpful and we'd find that a real tailwind.

The platform, the Agile platform, we want to talk about it in two ways. We are very pleased with its performance 2016, it grew very quickly. It has doubled in size, but there is so much more we can do with that platform.

We've deliberately built that platform on very new and very modern technology to allow us to be able to add products and adjust products very quickly. We are already looking at adding additional types of products, and I think you will see that continuing as we go through 2017.

I've worked for bigger organizations and I have been happy with how quickly we can make IT changes, but in this business we can make same-day changes in terms of turning things in or off, and we can get entirely new product up and running and we can have our distribution trained on it very, very nimbly. So for us, as we transition through this year, that is an exciting time for us.

I am happy to be sat in the seat as we go through any transition that is out there. I hope that answers the question.

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Mark Argento, Lake Street Capital - Analyst [15]

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That is helpful. My last question in regards to, I think you said in your prepared remarks that you have expanded, or at least are investing in, your third-party distribution platform. Maybe you can talk a little bit about if you've added the number of seats or the number of parties that you are working with there, and how big of a focus will that be here going forward?

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Gavin Southwell, Health Insurance Innovations, Inc. - CEO & President [16]

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Well, we have both sides of the coin. Good news here. We worked with first of all our top 10 and then our top 20 distributors. Then we picked our up-and-coming existing people, and we saw some really great organic growth.

A lot of our distribution is exclusive to us. They use our proprietary system. They use our advanced commissions to really drive their own acquisition costs, and so it is a great partnership.

On the first side of it, we had great organic growth that we are very happy with and we see that continuing because as we get a better understanding and a deeper understanding of our partners, we can pick and choose where we want to focus our time, and that is very valuable to us. Also I think as we've really invested in our customer service and our compliance along with our technology, and a lot of those compliance and customer service things are technology based in terms of a control point, that is a real value add. So we are able to add additional distribution.

We have an opportunity this year where we have the potential to add additional distribution to our network. There are some great businesses out there who we don't currently partner with who we look to do more with throughout the year, and if we can that's fantastic, and if not that is okay, too. There's a -- both sides of the coin, from an organic side and from adding new distribution, we have had good news on both sides in 2016 and we see that continuing through 2017.

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Mark Argento, Lake Street Capital - Analyst [17]

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Great. Thanks, guys. Congrats on a solid quarter.

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Gavin Southwell, Health Insurance Innovations, Inc. - CEO & President [18]

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Thanks so much.

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Operator [19]

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Greg Peters, Raymond James.

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Greg Peters, Raymond James - Analyst [20]

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Good morning, everyone. Thanks for the call, taking our questions. I just wanted to step back, Gavin.

In your comments you talked about as the investment in compliance you made last year and it seemed like you were suggesting you did not have any incremental expense on a year-over-year basis that really need to be made. Can you provide some color around the type of investment you made in compliance and why really there is no incremental need for that investment going forward?

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Gavin Southwell, Health Insurance Innovations, Inc. - CEO & President [21]

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Yes. Part of my background is I was a Chief Risk Officer on both a carrier side and on a broker side. Throughout my career and in my previous role as a COO, I've always had risk management and compliance and operations, customer service all reporting to me. I really understand the importance of those functions.

I don't see it as just a cost of doing business. I think if you are really good at this, especially in such a highly regulated market, I think that is a real value add. I think that can really help with your sales, and I think that all of our partners, our carriers certainly appreciate that.

We are protecting their brand, and I think our distributions, the more we can support them with that, I think that is useful. So from a compliance side we've brought in some very high quality people.

We are working with an ex-insurance commissioner since the beginning of 2017. We have added a higher quality, more expensive type of staff to that team to really show the importance we see in that area.

Now we've done that, we don't need to build on that further in 2017. 2017's cost will be consistent with what we did in 2016.

I think it is partly because I have been around for about a year and my view is that being able to say that our customer service has gone from 10 minutes to a couple seconds in terms of answering the phone, I think that is an impressive thing and something that helps us from a commercial point of view, and also it is the right thing to do in this type of market. From an investor point of view there isn't going to be significant additional cost in 2017. I think we made those in 2016 and we still ended up with a great result.

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Greg Peters, Raymond James - Analyst [22]

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Excellent. From your past experience, the multi-state examination, this is not a multi-year process. They don't take very long, correct? Should we get resolution of that quickly or am I misreading that?

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Gavin Southwell, Health Insurance Innovations, Inc. - CEO & President [23]

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In 2016 we did want this process to conclude. It is a process that's focus on a carrier we used to deal with and who we no longer deal with. Our involvement is specifically relating to that carrier.

There's two meetings in 2017, one at the beginning of quarter two and one in quarter three. We are anticipating that resolution will absolutely be within 2017, but it is taking longer than we had hoped.

From our side we have a great story to tell and we've shared that. We are working very closely with everybody to try and expedite the process as best as we can.

I think the fact that we have been able to attract a very well-known visible insurance commissioner to work with us and really represent our business shows how we think this is going to evolve and conclude. So I think it is what it is.

We're in a very highly regulated industry and we are doing our best. But of course it is in everyone's interest to try and conclude this as quickly as we can. You are right, it should not be too much longer.

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Greg Peters, Raymond James - Analyst [24]

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Right. Perfect. Then switching over, the revenue. When you talk about the new products, when we think about the commission revenue from the IFP products versus the supplemental products, can you talk about the balance of which has higher margins?

When you bring on these new products, is the commission revenue comparable with the existing or is that lower commission revenue? Just give us sort of us state of the union on the revenue mix.

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Mike Hershberger, Health Insurance Innovations, Inc. - CFO [25]

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Sure. Mike Hershberger here, CFO. Really good question, Greg.

As we look at our sales of our IFPs, and Gavin talked about this, that we bundle in a supplemental product that we believe is an advantage to the consumer. What we are able to do really as a Company, and this is really a competitive advantage, is to go and identify those best products for the consumers.

What we try to do is come up with a whole plate of options for the consumers. Generally when you think about our IFPs, if you think about maybe our IFPs as our core products It is about the supplemental products are about a 1 to 4 or 1 to 3 ratio with respect to the premiums that we collect, in that ballpark. Certainly we have all different kinds of products and we are continually driving, continually trying to drive increase margins on there.

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Gavin Southwell, Health Insurance Innovations, Inc. - CEO & President [26]

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I would also add in that a big focus of 2016 as we have really drilled into our numbers is we very much are focused on trying to unlock the value in the product. So I would say the premium to the consumer is remaining pretty static in terms of what they are going to be paying in 2017 versus 2016. I think that what our business mix, the policy is improving in 2017 versus in 2016.

The way we do that is a combination of the IFP products having new deals in enhanced way versus prior year and looking very closely at how we bundle these products together, because we have several options. If you take a dental product, we have several options for that.

If we can select, having done this for several years, a product that is better for the consumer, and because of the larger volumes we can negotiate and we can unlock some value in there, then that is a win/win for everybody, everybody in the chain. Some of this information we talk about and others is fairly commercially sensitive because we are in a chain with our distribution and our carriers, but hopefully that gives some good insight into how we've approached in 2016.

Throughout 2017 what I'd say the data analytics we are investing, what our CapEx costs, small moderate CapEx costs are at in enhancing software to really continue that process and keep trying to unlock that value, which is where you see adjusted EBITDA growing faster than our revenue. We think that is a trend we will see in 2017 and 2018.

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Greg Peters, Raymond James - Analyst [27]

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Great. Thanks for the color, guys.

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Gavin Southwell, Health Insurance Innovations, Inc. - CEO & President [28]

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Thanks very much. Great question, thanks.

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Operator [29]

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Frank Sparacino, First Analysis.

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Frank Sparacino, First Analysis - Analyst [30]

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Hi, guys. Maybe following up on an earlier question as it relates to margins. Given the Agile business model with the upfront expenses, I am trying to get a sense of where that businesses is relative to the overall business from an EBITDA margin standpoint. I assume it is much lower, but just wanted to get some color there.

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Gavin Southwell, Health Insurance Innovations, Inc. - CEO & President [31]

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Thank you for the question. Where we present our numbers, we don't segment out the Agile business on that basis. What we did in 2016 is we focused on growing that business in a very controlled manner, and I think in 2017 we anticipate that growth continuing and we are going to focus on the profitability of that business because as it keeps growing that's a logical, strategic areas to focus on.

The great thing about that business and where we don't see a conflict with the distribution it the demographic of people who buy online versus the demographic of people who by through our other distribution channels does differ. It means we are getting access to a whole new group of people.

So for us a huge opportunity in 2017 is getting to the consumer. I often get asked [whether] people understand the price point of these products and the coverages that are there, why aren't they buying them? It is because they don't know about it.

Try to educate the consumer through our Healthpocket brand, trying to reach the consumer through Agile. You'll notice on Agile there is significantly more carriers on there now then there was at the same time last year.

That will continue to increase. The types of products I think will continue to increase. I think as we go through 2017, we will look internally at potentially if we need to give any additional information on that, and in that's something that is going to be helpful.

It's not something we currently provide. I hope that color is useful in trying to answer the question as best I can. But it is not something that we currently split out.

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Frank Sparacino, First Analysis - Analyst [32]

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Thank you, Gavin. Maybe lastly, coming back, I guess I want to better understand. You talked about this in terms of one of the proposed Republican ideas is to sell insurance across state lines. Just trying to figure out how that positively impacts the business and what really changes for you?

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Gavin Southwell, Health Insurance Innovations, Inc. - CEO & President [33]

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First of all state-by-state insurance as a theme I think can make a lot of sense for a lot of good reasons. Somewhere like Oklahoma is very different to somewhere like New York.

I am stating the obvious, but I understand why there would be different approaches to such a giant disparate place. Along with that, the other side of it, is there's a big administrative burden in terms of the state-by-state approach in terms of the admin, the paperwork and costs associated, and all the different one-off type changes and nuances you have to make.

Any kind of simplification of that is certainly helpful. I think that -- it is a helpful change. That happens for us -- we have very powerful proprietary technology, and right now it works just fine but anything that simplifies that would be helpful.

Some of the other things coming out which are worth highlighting is, if you look at what has been talked around with tax. Currently there is a tax penalty for buying non-ACA products. There is a lot of information out there and it looks very likely that tax penalty is going away, but it is not 100% certain exactly how that will work and exactly how that will impact our business, very similar to the state line piece.

My view on this is I see both of these as a potential benefit and a potential tailwind, but until we understand exactly what the impact's going to be and how much of a benefit it would be, because the state line thing could be okay, that makes our lives a little bit easier or actually that's something a bit more fundamental. Let's bottom that out before we bake that into our numbers. That is the approach that we've took.

Our view is whether this change occurs or not, we think that we have great opportunity to meet and hopefully exceed expectations as we did through 2016. You are absolutely right, it is a great example.

We are watching all this stuff very closely. We have as much information as I think anybody can have.

We have as many people advising us as I think is possible. We just want to be as sure of the impact before we give a final answer. I hope that is helpful.

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Frank Sparacino, First Analysis - Analyst [34]

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It certainly is. Thank you, guys. Great results.

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Gavin Southwell, Health Insurance Innovations, Inc. - CEO & President [35]

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Thank you very much. Appreciate it.

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Operator [36]

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Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

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Gavin Southwell, Health Insurance Innovations, Inc. - CEO & President [37]

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I wanted to thank everybody for joining us. We're very happy to talk about quarter four and 2016 and our expectations for 2017.

I think what we are creating here is very exciting, and we enjoy and we welcome the opportunity to share our story. I look forward to working with you all and continuing this conversation throughout the year. Thanks for the time. We really appreciate it, and anything you need, let us know.

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Operator [38]

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Thank you. That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.