Q4 2019 Earnings Call
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Greetings and welcome to the health insurance innovations fourth quarter 2019 earnings conference. At this time all participants are it'll definitely mode. They question answer session will follow the formal presentation.
What's required operator assistance during the conference. Please press Star Zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host like degrees Senior Vice President Finance. Thank you you may begin.
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Thank you Donna and good morning, everyone. We're excited to have you join us today for a discussion about health insurance innovations fourth quarter and full year 2019 financial results by now you should have received a copy of the earnings release. If you do not have a copy it was like one cheeseburger visit our website at <unk> Dot com.
On the call with me, we have gotten Southwell H.I. accuse CEO and president and Erik Helding H.I. accuse Chief Financial Officer. As a reminder, today's conference call is being recorded in a replay of the call will be available on the Investor Relations section of our website following the call.
We'll be making forward looking statements on the call all statements other than statements of historical facts are forward looking statements such statements made its got future plans objectives. Our go forward looking statements are subject to future risks and uncertainties, including the risks outlined in the company's form 10-K, these risks and uncertainties, including among other things the company's focus on Medicare.
Market doing to maintain relationships and develop new relationships within health insurance carriers and distribution that's ability to retain its members the amount of commissions paid to the company or changes in health insurance plan pricing practices state and federal regulatory compliance and changes in the United States Health insurance systems loves actual results could differ materially from those projected works.
Any forward looking statements.
Listeners are urged to review and consider the various disclosures made by the company on this conference call and the risk factors disclosing the company's annual report on form 10-K as well as other reports we filed with the Securities Exchange Commission the company expects to file its form 10-K tomorrow after market close.
Copies of the company's FCC reports are available on our web site at each I Q dot com and the Fccs website. The company disclaims any obligations to update any forward looking statements. After this conference call.
And with that I'll turn the call over to our CEO Gavin Southwell.
Thank you Mike Good morning, everyone I.
Are they looking forward to reporting fourth quarter and full year 20, I can result.
While this providing an update on our continuing transition towards an emphasis on Medicare related business.
Nicole today I would provide a few key updates regarding our company and I will spend the bulk of my time.
Discussing the progress we've made and growing the Medicare segment and building out our capabilities.
I'm excited about progress we've made so far and I'm optimistic that future growth, but we anticipate lies ahead within the medical segment and what that means for our company and for investors.
To that point, we view this transition to Medicare related business as a key point in our company's history, which marks the beginning of the company's next phase of growth, while becoming death differentiated from its legacy business.
Tomorrow this period as a launch got into a new era for our company as one of the new strategic focus Rob business.
I'm happy to announce what our corporate name will be changed to benefit technologies and affected this Friday March the 620 20 on NASDAQ ticker, what a quarterly be changed to be asked why to add to open up trading on the same date.
The name change it intended to highlight that emphasized a companies go forward strategy to be a premier technology focused company, but off as a range of Medicare related insurance plans as what Oh, the health and life insurance products that meet the demands and needs of consumers.
As we've previously announced we have engaged and ongoing process to explore review and evaluate strategic alternatives focused on maximizing shareholder value and the company is meeting with interested parties, including both strategic and financial institutions well. This review continues and remains open ended in both years.
Question on potential outcome. It is important to note, but our name change at all shifted emphasis towards Medicare is being undertaken in an effort to build shareholder value regardless of the outcome of the strategic review process.
Now onto our results.
We played to result in the fourth quarter, particularly with our success in the Medicare annual election period.
Medicare revenues represented approximately 35% of total revenues in the quarter and full year adjusted EBITDA and EPS were inline with expectations. We're excited about the potential momentum since the opportunities to continue to scale, our Medicare business in Twentytwenty feel enhanced digital capabilities captive distribution and strategic.
Quick outsourced relationships.
We believe <unk> fourth quarter results reflect initial success and all that fits to build up in executing our growth strategy in the Medicare space, but more than 50% of our net income in the quarter coming from our Medicare segment, and what was it the annual election period. Additionally, we recorded 48500 submitted applications in the Medicare.
Segment in the quarter, which we believe is a strong start to build from.
As a reminder, all entrance into the Medicare sales and consumer engagement business was marked by acquisitions in the second half of 2019.
It's marked our strategic shift toward Medicare as the co product line and during the fourth quarter. We concluded that we require a two segment reporting to you to better measure performance and profitability of the two segments of business.
Therefore, we are now reporting results biomedical segment, and all legacy IP segment.
So far we believe we have only start to scratched the surface on on Medicare segment, and we will continue to build out on Medicare segment for out 2020, and 2021, and we will provide additional updates on our progress throughout the yet.
In the IP segment, we have seen the effects of intentional de emphasis leading to a decrease of submitted applications. In the segment. We expect supposed to continue into the IP segment to become a smaller part of the overall business as we shift more towards Medicare.
As we have previously announced.
We are deemphasizing the segment what this means that we will continue doing new policies and then on existing book of business and that new product distribution will be concentrated on a smaller number of high quality E. Commerce focus distributed by decreasing off folks on the IP business, we're able to use the strong cash flow from our existing.
At the book of business and remaining IP business to invest an accelerating growth of the Medicare segment.
I'd now like to take a moment to provide a brief update on our operations. So I invested a better informed as to how we are progressing in the transformation of our business and the execution of our strategy.
Our Medicare business is centered around two activities consumer engagement and Medicare related insurance enrollment.
I guess fumigation business operates from a direct to consumer platform, which connects individuals with licensed insurance agent said in the medical insurance market true inbound life telephone calls they were third party telephony platform, which transfers inbound calls in real time.
<unk> medical insurance business, we route inbound calls to both our internal captive distribution channel as well as to why outsourced BP or distribution channels you provide.
He can't related health insurance plans and all the house Medicare products offered include Medicare advantage, Medicare supplement and Medicare part D prescription drug plans.
As we generate more demand for Medicaid related insurance products to the consumer engagement business, we're increasing our capacity to internalize a larger amount of inbound calls you know medical insurance business by expanding both outsource BPL captive distribution channels.
On the Beep your side, we're working a lot of existing partners to increase the number of agents at each location and we've added additional BPL partners in both.
The fourth quarter 2019, as well as in early 2020.
We intend to continue evaluating and adding BPL pause as necessary to handle the increased demand being generated by our television print and digital marketing efforts in 2020.
As I mentioned in the Q3 conference call a captive distribution was fully integrated significantly ahead of what we plan, which gives us additional strengthen ability to grow for out twentytwenty.
Our captive distribution is becoming larger and more efficient and is anticipated to be much more impactful as we move towards.
We live free Twentytwenty towards the next annual election buried.
In addition, we recently expanded the physical footprint of our captive distribution channel by moving into a much larger office space with more capacity for growth.
We're also expanding two additional locations to increase our captive distribution capabilities and also increased the percentage of Medicare business that has submitted free the captive channel.
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We announced we had a quiet we anticipate could be an important did just last that and domain name.
I'm excited to announce our new digital asset will offer seniors and Medicare eligible consumers the ability to access powerful online comparison tools and educational resources that will enable efficient self guided navigation and enrollment at available Medicare health insurance options.
This has the potential to become a significant growth driver within on Medicare segment generating a large amount the consumer demand, which will flow for all distribution channels. While also significantly contributing fully self guided online enrollments.
We continue to build out on Medicare business will be leveraging our digital assets to seek to increase the percentage of medical applications submitted online.
To supplement our digital assets and technologies and support on Medicare growth. We've added a number of management highest with vast experience at the Medicare market.
One example, as we continue to build our digital marketing in E. Commerce teams is our new VP of E Commerce, Travis led with your joint who joins us from Aon.
We're continuing to recreate.
They're not top talent as we continue to expand and ramp up on this front.
In conclusion.
As highlighted some of the exciting progress as they made so far in our initial strategic shift towards Medicare as well as on name change and repositioning of the company I'd like to note that this is just beginning for us.
We are proud of what we've accomplished in such a short period of time and excited about the opportunity ahead. We believe the company's business is now in a much stronger position with an excellent foundation for growth. How do you continue to develop powerful technology focused on the fast growing Medicare market, we look forward to keeping you updated.
With that I'd like to hand, the call all that to our CFO Erik Helding.
Thank you Evan and good morning, everyone.
Fourth quarter 2019 financial results reflect what we consider to be of since our successful rollout of our Medicare distribution platform as well as the continued de emphasis of our individual and family plan business.
Revenues for the fourth quarter were $161 million, representing a 22% year over year increase our Medicare and consumer engagement segment accounted for $56 million or approximately 35% of overall revenues.
Our eye of P. segment, including supplemental revenues were $105 million.
For the year total revenues were $382 million up 9% over the prior year.
Medicare and consumer engagement was $68 million and I M. P and supplemental revenue was 314 million, which was down 11% over the prior year as expected.
In the quarter adjusted EBITDA was 46.2 million compared to 21.6 million in the prior year and GAAP diluted net income per share was $1.77 compared to 40 cents.
For the year adjusted EBITDA was 82 million, which was in line with our previous guidance and up 38% over the prior year.
In the quarter adjusted earnings per share was $2.48 compared to 97 cents in the prior year.
For the year adjusted earnings per share was $4 in 24 cents inline with prior guidance and up 63% over the prior year.
We ended the quarter with cash and cash equivalents of approximately $4 million had $146 million outstanding on our Tom term loan facility and having drawn a total of 34 million against our revolving line of credit, which leaves $31 billion Undrawn and available.
During the quarter, we used approximately 23 million in our operating activities consistent with our expectation to increase media and advertising spend to fund lead generation in the Medicare annual election period for which we do not receive commission payments until the first quarter of 2020.
Looking ahead to 2020, we're expecting overall revenues to be in the $290 million to $350 million range with Medicare segment revenues being at a $190 million to $210 million range and I have p. segment revenues decreasing year over year to $100 million to $140 million.
Adjusted EBITDA.
Is expected to be in the range of $65 million to $80 million with Medicare segment profits of 70 to 80 million I S. P segment profits of 15 to 20 million and corporate expenses of approximately $20 million.
A few comments on seasonality.
Because we will be ramping up our Medicare captive distribution as we go through the year in order to be ready for the annual election period.
Expect 8% to 10% of Medicare revenues to be right realized in the first quarter would that number going to be approximately 50% to 60% in the fourth quarter.
As we recently also made changes to our IP distribution agreements, we would expect approximately 35% to 40% on full year revenues to be realized in the first quarter to year for this segment.
From an earnings perspective, we would expect overall adjusted EBITDA to be in the mid single digit millions and each of the first three quarters of the year and increasing substantially in the fourth quarter.
Lastly, adjusted earnings per share are expected to be in the $3.10 to $4 and 15% range for 2020.
Okay.
With respect to cash flows for the year, we expect to be breakeven as approximately $100 million of cash inflows from our IP net contract asset are expected to be collected over the course of the year, an additional $85 million is expected to be collected from Medicare related production and approximately $18 million up tax refunds or.
Affected to be collected.
These anticipated positive cash flows would be used to fund growth in 2020, and our Medicare business to cover SGN, a and to service our debt.
With that I'd like to hand, the call back to given for concluding remarks.
Thank you Eric.
We're excited about the trajectory we're now on as we continue to execute well continue to invest in what we consider to be attractive growth opportunities probably yet.
So is that we will now open the lines for for Q1 day operator.
Thank you the floor is now open for questions and answers if you would like to ask a question. Please press star one on your telephone keypad at this time they confirmation Tom will indicate your line is and the question Q you May press star to if she would like to remove your question from the Q for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
Once again that is star one tool that just your questions at this time.
Our first question is coming from Randy Binner of B. Riley FBR. Please go ahead.
Hi, This is a it's gone Johnson on for Randy at your I'll ask the are you guys. Thanks.
Good morning, Thanks Jody.
Good morning. So first question me I was just kind of.
If you have like 47000 application room fourth quarter and open enrollment would be kind of like.
Bull and bear case, perhaps for enrollment in 2020.
Yeah. This is Eric let me, let me take that when I'd say.
I'm not going to comment on bearable cases, or that we're going to comment specifically on the guidance that we've provided.
And so I think you can do the math yourself based on the midpoint of the range being $200 million on Medicare revenues.
That's about a 170 to 175000 submitted apps.
And again, referring back to my prepared remarks, we're expecting 50% to 60% of the production to be in the fourth quarter. So.
You can do the math from there.
Okay. Thank you appreciate that.
Just back to the captive workforce build up could you maybe walk through the 800 person the build out you know, how it's gone and kind of discuss them.
One thing or the hiring and training process.
So we've we've we've we've moved into a a big location also likely as we as we commented on it we're opening additional locations as well a 2019, we added a lot of the infrastructure and in the first part of 2020, we added so many powerful technology into the captive.
And so really now frozen twentytwenty, it's a process trading and and adding the number of agents a oh, we feel like a lot of the hard and set up work is being completed.
And so now we're.
We really in the sort of you know day to day week to week.
Ramp up let me go plenty of time between now and the next ATP. So we feel liberty Liberty well position to keep growing by side out and this is Eric just some follow on comments that.
No. We haven't we haven't really talked about an absolute number of total agents. So.
But we have sort of directionally spoken about how we're thinking about that so.
So we're expecting to grow the total number of agents.
With special emphasis on growing captive distribution such that.
During the fourth quarter last year, we had mentioned that we were about 80 20 bps captive.
So as we move through the course of 2020, we're expecting that mix by the fourth quarter easy to be a little closer to 50 70.
Okay. Yes. Thank you appreciate that could you perhaps walk through the new ecommerce platform health insurance side, I'm a little bit.
Yes happy to we.
We acquired Viasat and in 2019, a and we've been working on a build out.
There's two parts about it which were excited about one is as <unk> as a domain its ability to simply just generate demand.
Yeah.
So from a consumer engagement demand generation side, but secondly of course to build it to be a comparison at an enrollment tool.
It's something we put a lot of all of time and effort into and I said, that's a pretty exciting thing for us to have so we're looking to talk about a lot more as the goal for 2020, but I think having such a powerful domain and or the ability to build on it and having this comparison and enrollment case.
Ability.
Is it really exciting thing for us so we've been investing and not just in the asset but in in adding resource around it.
We have leadership and key hires.
So it's something when you talk a lot more about as we go free of 2020 set up as I said, thanks for asking him.
Thank you.
Thank you. Our next question is coming from Mike Grondahl of Northland Capital markets. Please go ahead.
Yeah. Thanks, guys.
At a high level can you just walk us through how the Medicare business sorta tripled or quadrupled in 2020, what's gonna be easy way to think about that.
So just to remind everyone. You know, we we came into Medicare in the in the second part you know the late deposit at 29, Dane and so this year.
We benefit from having a a full year we started 2020.
In a in a similar position to how we how we ended 2019 and 20 ideas about about scaling up so so as that.
A big benefit simply from having the full year.
I think that we we could learn a lot of important lessons from 2019.
We always described 2019 radius best assets and and Twentytwenty.
We're able to.
Two toeighty filled on.
What we achieved in 19 I think that.
Expanding out.
Oh outsourced relationships and our captive relationships.
Finally being able to.
Bring outdoor digital assets.
As a number that.
Tailwinds, we have that but but.
I really nice part of it is simply having more time, we have its March now we've got plenty of time before will be important fourth quarter and ATP last year.
I think was was ready best assets.
Got it and and could you talk a little bit about together health.
How that did for you kind of number of leads in 2019, and what you expected to do in 2020.
It's been a a great a great asset for us I mean, those guys are being in the Medicare market for us for a long time, they used to dealing with a lot of the large an important plays.
So we knew it would be a great asset when we reinvested in incentives and it's proven to do that it outperformed our expectations and in the fourth quarter.
And I were excited about its potential full for 2020. So so really that we we did get a lot of experience and demand generation and now taking about experience and you know demand generation consumer acquisition and being able to increase all kind of enrollment capabilities our abilities to consumers.
Last.
So that's our execution.
For 2020, and that's something we feel we feel really good about but yeah. They continue to outperform and and we're excited to keep keep building on that success.
Got it then just lastly, what are you assuming for LTV for Medicare advantage. Your Medicare supplement policies can you kinda talk about that.
Yes, yes, we can I mean, we we look at over the.
Comparable people in the market at least at various.
Professional advice as when we do when devaluation. So we we certainly try to be consistent.
Each quarter, we get a additional information.
Which builds into that to the valuations which have that.
We certainly try to provide local inflammation in the in the notes add to allow people to pick out some key metrics that modeling.
So.
Yeah, Hi, Mike This is Eric I think.
Yes, I think our assumption for 2020 is going to be pretty comparable to that wasn't 2019 now from quarter to quarter moves around a little bit based on who enrolled but overall on the course, the your should be pretty comparable to what we saw.
Mainly in the fourth quarter and so there's a lot of assumptions that go into it and as Gavin mentioned, we you know.
Really went out of our way this quarter to enhance our disclosure around Medicare because we know that's on top of investors' minds.
And so we've done that and you can see some of the assumptions that were using.
Such as the constraint, which we had a 10%, which we think is over a reasonable number if not slightly conservative.
Our approved to submit is about 92% Ken.
It's based on historical activity.
Oh and other comps out there, but again, we think that might be a little conservative. So I feel like we're in a good place and we're being judicious about the assumptions that go into LTV.
Great. Okay. Thanks, guys.
Thank you. Our next question is coming from Steve Halper of Cantor Fitzgerald. Please go ahead.
Good morning, when you think about the guidance for the IP business.
It's a pretty wide range. So can you just walk us through the puts and takes.
In terms of.
Low end versus buying.
Yeah, Steve This is Eric so so there's a little bit of an unknown this you're right.
Because we're really sort of making the changes at the I'd segment effectively last week and so.
In essence, what we did was to remove all advances from all bought a select few strategic distributors, who as Gavin mentioned are focused on.
Ecommerce in technology and so.
We expect production to be down.
And I think we took a best efforts stab at how much is going to be down in.
Just to kind of let you know him and we're basically assuming the in essence, there's no production from anybody that's not getting an advance that maybe the case that may not be the case.
And we're expecting production to be down slightly for.
The partners that we continue with and that maybe the case may not be the case. So only time will tell whether that number is conservative or aggressive.
Thank you.
Thank you. Our next question is coming from Mark Argento of Lake Street Capital. Please go ahead.
Hi, good morning, guys.
Good question around the captive distribution and refocusing captive distribution, so when you're saying captive distribution there are only selling for you guys.
Assuming and are they are they wholly owned or are they are full employees or what's the economic arrangement with the captive.
Yes, I'll try to take out in parts. So so yes. The they then they will only be.
Doing enrollments.
Yes.
It's a fully owned.
Which is which is great.
And then with the staff there it's a.
It's a mixture.
Between.
Full time employees.
And.
The others.
I just consistent with other people in the.
In the space.
As with scaling up a you know we were looking at it has a lot of all key hires intend to sort of infrastructure.
It's trading or quality control, a whatever else we've done a little bit I've already.
And so this year for us is really scaling up the number of agents available.
And having more people available to answer the phone calls.
So there's a there's a very detailed plan around wrapping that up.
As it infrastructure, we built around that.
So it it should be a I really exciting year for us as we watch that scale overtime.
And then there is you've got to.
Business now from more familiar with the numbers and everything what.
Can you quantify kind of capex investment into the into the Medicare business I'm trying to differentiate that kind of the build out capex, we got a run rate cap, but in terms of just better thinking about what this model looks like at scale.
Yes, Steve I think.
Thanks for the question I didn't most of our Capex as.
Largely been spent already so you think about the dollars.
That were used to acquire a three assets in 2019 that was the vast vast majority of what was going to be needed from Capex perspective. So I think most of what we're doing now really is really.
Funding SGN, a on an operating basis.
Understood and then lastly in terms of ensures you have on the platform where are you out with a you know the roster of insurers you'd need or do you need to bring additional guys on how you're feeling about that.
We are feeling great about it.
I mean people can can see on a on health insurance Dot com carries available to its a lot of a very well known brands.
Brand names and we've been really encouraged as we move from 19 to 20.
The type of contracts, we've been able to negotiate so so we've already we feel really good about last it's a.
It's a it's already exciting time for us.
Thanks, guys.
Thank you. Our next question is coming from Richard close of Canaccord Genuity. Please go ahead.
Yeah I wanted to go back to together, how you said it outperformed expectations, but that it necessarily Gibbs.
The number of leads and 29 team and what you're expecting the important 20. So if you could give some specifics there that would be great and then I think I'm together helps when you did that transaction and there was some sort of are now or performance goals that led to an additional.
Hey, Matt on that acquisition, and just remind us what that was and whether that spending bad.
No. Thank you for those guys great great question. So.
And 29 thing is it to kind of key parts of the business. One is the amount. This demand you can generate the amount as you know consume as you can acquire and then the second part is is how many agents are available to help us people enrolled so in 19 at we did very well add.
I am having the demand the conveyor belt consumers that we really wanted him that site outperformed but because we didn't have enough time, and we weren't able to get is as as many agencies as we would've life to it to be able to lead to meet that demand and that's that's a good thing it gives us a nice runway a 20. So so we've been 20.
Out our challenge is an execution challenge of adding more and more agents in order to meet that demand and being able to consume more of it that gives us a nice visibility a little that over run way. It gives us a significant runway for expansion and what is a growing and Medicare market. So.
Together health is about creating the demanding and our challenge for 20 is is around increasing.
The amount of agents to be able to to consume that demand and then now its complemented by a digital asset as something but we didnt have until very very recently.
They level, we've been working on it for some time.
So I hope I hope that answers the question and then the second part around the earn out the waiver deal with structure. It is it said in performance targets or exceeded.
They receive additional payments essentially out of a profit but is that has made so thats great alignment.
Of interest.
And we'll wait we're happy with how that how that is playing out.
So what is the specifics on bad they earned or achieve good targets or is that something that is considered and 2020 or what is the level of the payment the performance payment.
So the so so that payments so each based on on each year and we believe about they'll hit the targets and so the first year as a Alaska, we want we want them to hit each of the targets.
Yes.
In terms of a specific targets.
I don't have those to hand, we can we can follow that up and last but but I I believe that as part of the disclosures.
Might be something thats that specific available, but but it's not something I have in front of may but again, we do believe Dolby meeting the targets, which which is good. So that's that's what we what we want to have good alignment.
Okay. Thank you.
Thank you. Our next question is coming from Brian Hoffman of Canaccord Genuity. Please go ahead.
Hey, thanks for taking the questions.
If you take the revenue from the consumer engagement piece, which is about 7.4 million.
Sure I assume that you're selling the leads for 40 to $50 that implies that about 166000 leads were sold.
So then or if we compare that to the number of Medicare approved applications and implies that you're keeping about 20% of the leads in house with BP over the captive distributors is that accurate.
So I don't this is our head I don't believe so I think we.
In dollar terms I think for the year, we ended up or selling was about $13 million to $15 million, which.
I believe was actually closer to 20% of the leads that were generated in so that's something that we would look to improve upon as we go through 2020.
Kevin and I and my remarks, right. So we want to build out our CTO relationships and our captive agents. So that we have more agents, who are able to consume more on the calls.
And so I think obviously on Kevins point was we just didn't have enough agents with some of those calls in the fourth quarter and that's something that you would look to improve upon in 2000 Twentys.
Okay and then.
In 2020 do you expect together helps to grow the number of leads that they're generating.
We do yes.
Okay, and then lastly can you give us an update on Spanish speaking market, what you've been targeting.
Yes, we have completed.
The full translation of the technology.
We had a a small number of products, which at what you're ready to go we were working on a on several right now so.
Hey, it's something we continue to work on there's a visit that we've ever remains at a great opportunity in that in that space, particularly on the E Commerce site.
So we did it assuming we continue to.
Continue to work on has a and we'll keep we'll keep building out.
The main focus initially was put on the technology pace.
And I'm getting the right mix of products.
Alright, thank you.
Thank you at this time I'd like to turn the floor back over to management for closing comments.
Okay.
Thanks, Keith and thank you everybody for the questions. We appreciate your interest in the company.
Now we're in 2020 and we have what we believe is an excellent foundation in the Medicare segment to build on its satisfied satisfying for us to be able to update you on our progress and the successful conclusion of office ATP.
We look forward to being able to provide you further updates on this as we are able have a great day and thank you very much.
Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect. Your lines at this time and have a wonderful day.
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