HIIQ second time around

HIIQ - Health Insurance Innovations

I am writing this review after Q4 earnings call. And after I read CMFSwift’s review last August (http://discussion.fool.com/hiiq-the-good-and-the-ugly-32800544.a…)

Health Insurance Innovations, Inc. is a developer, distributor and virtual administrator of affordable individual and family health insurance plans and supplemental products. The company sells individual and family insurance plans that include short-term medical insurance plans and hospital indemnity plans. It also offer a variety of additional insurance and non-insurance products such as pharmacy benefit cards, dental plans, vision plans, cancer & critical illness plans, deductible and gap protection plans and life insurance policies that are frequently purchased as supplements to IFP. The company was founded by Michael W. Kosloske in 2008 and is headquartered in Tampa, FL. HIIQ is a third-party billing administrator and a technology resource.

Conference earning call is worth reading, especially if you are interested in the health insurance market. “We improved our technology infrastructure and set the stage for the next generation of our technology platform. As a Company, we are data driven and having health insure millions of consumers we have access to vast data on the individual health insurance market which gives us an insight and understanding that our competition likely did not have.”

Not a whole lot on Glassdoor, 15 reviews, but all positive. https://www.glassdoor.com/Overview/Working-at-Health-Insuran…

-New CEO has the company moving in the right direction product growth and financially.
-Growth: I don’t know what the average is for the sector, but they are increasing growth and currently sitting at 35% rev growth from 26-31% (Q1 2015 rev of $22.5M; Q1 2016 rev of 42.5M; Q1 2017 of $55.87M OR Q4 2016 $51.4M to Q4 2017 $69.5M). From the call “500 basis point improvement year-over-year in terms of what we were attain and what we what we passed on to carriers.” Seems really good.
-Share price 52 week performance is +75%, it’s moving up and has the potential to move up a lot more (my opinion).
-A healthy 4.83% held by insiders. IMO that’s about right to keep their skin in the game but not keep shareholders out of the profits (stay liquid).
-P/S: .95 (what the heck? Is this because it is so small? Or does it speak to the revenue growth in the past year?) >+30% rev growth for <1x the price to sales? Compared to paying >+16 P/S for >+50% growth for AYX I think HIIQ is a steal. Which makes me suspicious, but SA has good things to say and the analysts are covering it.
-EBITDA is growing FAST. -4.9M in Q4 2016 to $18.7M in Q4 2017, and $11.7M in 2016 to $47.3M in 2017.
-“In 2017, we generated $39 million in cash (up from $27M) and we ended the year with no debt.”

-Benefits from the HSS new tax reform law. Corporate taxes went from 38% in 2017 to 24% in 2018. ACA individual mandate went away, which was a penalty for their products previously.

Future: Management seems to know their business and does not build into guidance any potential upside that isn’t in place (think of the new law, new carriers, new products, new distributors, basis points, etc.). So they are conservative. Not sure the market will love that, but for an insurance company growing at 30%, I am ok with it.

If you read Swift’s you’d see the F rating by the BBB. I read the site as well, and it seems the company is aware of their issues and is trying to address the misconceptions. I wouldn’t give them a pass, and it is concerning, but it isn’t a show stopper for me.
Maybe the biggest factor for me is that the ACA individual mandate is gone, so the issues brought up by the BBB complaints are mostly negated.

2016-17 was hard on customer relations because of the rule changes, misunderstandings of what a short term medical policy was, what qualified, policies being forced by law to stop being offered, retention of customers, etc. I think 2018 will be a lot different for HIIQ.

Is being small a con? 376M Market Cap and 199 employees. They are covered by 7 analysts in their Q4 2017 earning call https://seekingalpha.com/article/4152455-health-insurance-in…
Multi-state investigation around insurance regulation and HIIQ practice (I perceive that what they are doing is new (perhaps disruptive?) and state regulators don’t have a checklist for them so they are working with HIIQ to develop that checklist. Some states have already come back favorably, others are still waiting. But the CEO sounds positive, and encourages the dialogue, if only to shed light on the health insurance market and how they are trying to change it to be more affordable.

My thoughts:
Since listening to Saveent Singh (who wants to be the BH of SaaS) and how Buffet loves insurance because of float, I looked into SaaS/FinTech for the insurance market. So I looked at GuideWire (GWRE) before I wrote this for HIIQ, and I got kinda down afterwards because I found that it wasn’t a good investment today. GWRE looks decent on paper at >+41% rev growth and a P/S at 11.6, but rev is slowing and earnings weren’t there. I got the opposite feeling with HIIQ. The more I dug the better I felt about it. The CEO on the call seemed reserved or conservative, but felt that their business model is needed badly and that they were providing a good service to our society. And while they didn’t want to guide for unknown futures, luck is on their side in 2018. They are successful at being disruptive. It is one of those opportunities that you hope they don’t get bought out because the EPS could do really well.

I know it’s a small company, but how concerned should I be really about that?
Anyone in Tampa or that region ever use this company?