Health Insurance Innovations' (HIIQ) CEO Gavin Southwell on Q1 2018 Results - Earnings Call Transcript

Health Insurance Innovations (NASDAQ:HIIQ) Q1 2018 Earnings Conference Call May 3, 2018 8:30 AM ET

Executives

Michael DeVries - Senior Vice President of Finance

Gavin Southwell - Chief Executive Officer and President

Michael Hershberger - Chief Financial Officer

Analysts

Steven Halper - Cantor Fitzgerald

Jason Kreyer - Craig-Hallum Capital Group

Randy Binner - B. Riley FBR

Michael Grondahl - Northland Capital Markets

Mark Argento - Lake Street Capital Markets

Greg Peters - Raymond James

Richard Close - Canaccord Genuity

Frank Sparacino - First Analysis Securities

Operator

Greetings and welcome to the Health Insurance Innovation's First Quarter 2018 Earnings Call. At this time, all participants are in a listen-only-mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to Mike DeVries, Senior Vice President of Finance. Thank you.

Michael DeVries

Thank you, and good morning, everyone. We are pleased to have you join us today about Health Insurance Innovation's 2018 first quarter financial results. By now you should have received a copy of the press release with financial results. If you do not 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; as well as 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.

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

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, state regulatory compliance and changes and developments in the United States 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, 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 hiiquote.com and on the SEC's website. The Company disclaims any obligation to update any forward-looking statements after this conference call.

And with that, I would like to turn the call over to our CEO and President, Gavin Southwell.

Gavin Southwell

Thank you, Mike, and good morning, everyone. I have been looking forward to reporting our first quarter results as well as laying out our plans to continue growth throughout 2018 and beyond. I am pleased to say that our first quarter revenues grew by 21% year-over-year to $67.8 million. Our adjusted EBITDA for the first quarter was $11.9 million, up 23% year-over-year and adjusted earnings per share was $0.52 up from $0.36 in the first quarter 2017.

We also had record earnings and record policies in force. It is a very pleasing performance considering we had a significantly shorter open enrollment period and effectively lost a month. This quarter’s financial performance reflected seasonal changes due mainly from the major change in the Affordable Care Act abbreviated open enrollment period that begun on November 1, 2017 and ran through December 15, 2017.

In prior years, the open enrollment period ran through January 2017, which was 45 days longer and had the impact of increasing sales in Q1 as the last month of open enrollment which was usually January, has historically had the highest sales.

As we discussed in our analysis of the fourth quarter 2017, the impact of the shorten open enrollment period was about in the fourth quarter at higher than usual sales with December having a record performance for our business. And therefore analysis of the first quarter in comparison to prior years needs to include this major change in the timing and seasonality.

Looking forward to the remainder of 2018, we confirm our current guidance. Our full year guidance for 2018 for revenue is between $290 million and $300 million which is a 15% to 20% increase year-over-year. Our non-GAAP metrics of adjusted EBITDA to grow 20% to 25% year-over-year, which is $54 million to $57 million and adjusted earnings per share to grow at a faster pace due to favorable income tax changes to $2.45 to $2.55.

Due to the change in open enrollment, we look at sales in 2018 being a crescendo throughout the year. As we had previously mentioned, these guidance numbers are based on our current method of accounting for revenue as an emerging growth company. We will be adopting the revised revenue recognition standard known as ASC 606 in the fourth quarter of 2018 and our CFO will provide additional color on our implementation and estimations around ASC 606 for 2018.

I think it’s important to remind investors as our total addressable market and the opportunity we have in front of us, it has been widely reported that the proposed change to the Short-Term Medical or STM rule alone could result in an additional 1.9 million people purchasing this product and I think it’s important to put down into perspective in terms of opportunities for our business as the leader in Short-Term Medical.

An additional 1.9 million people would be approximately a ten times or $3 billion increase in revenue. And in the very near-term, however there is potential positive impact is not included in our guidance and this would all be potential upside. It is also worth noting that this number of 1.9 million is based on a fraction of the 7 million people currently purchasing STM without the subsidy and the 30 million people currently uninsured.

And so the impact could be much larger when currently forecasted. We lead the market in Short-Term Medical and over affordable products in the individual market and as the need for affordable products continues to grow, we are in the early stages of our journey. We are a high-growth company with strong organic growth and no debt and we currently trade at approximately at 10 times multiple.

We will always be transparent on guidance. But there is a multi-year opportunity in front us which we will talk more about with investors going forward. We have proven time and time again since I joined the business in 2016, but we are affected at executing the opportunity presented and we are excited with the opportunity ahead.

As a company, we are data-driven and we have access to the vast data on the individual health insurance market, which gives us a level of expertise and understanding but our competition likely does not have. We also provide high-level data to many stakeholders including the White House, HHS and many media outlets.

Given the confusion in this information what exists in the market, when we discussed our fourth quarter results, we provided some analysis of the state of the individual health insurance market and we feel it’s important to build on that analysis and provide some further insight. A CMS analysis of insurer participation in federal and state health insurance exchanges showed over half of the counties in America only had one carrier available in the most recent open enrollment period.

This means that many exchange participants did not have options to compare and choose from. Declining enrollment of 3.8% in the 2018 year, as compared to the previous period may lead to additional carriers exiting the market in the future. We believe the plan year 2019 holds a very strong potential so that the Americans with no ACA plans available to them on the exchange.

Marketplace affordability continues to be a major hurdle for individual participants. The second lowest cost silver plan in the marketplace commonly used as a benchmark for pricing and comparison purposes has risen substantially since 2014.

For a 27 year old individual, the average monthly premium had increased 88% since 2014 as time has passed, premium increases have grown reaching a 37% year-over-year increase for plan year 2018. While subsidies mitigate, some of the effective premium increases for individuals and families with incomes of less than 400% of the Federal Poverty Level, those who were not eligible for any subsidies face the full financial burden of any increases.

For plan year 2018, about 2 million people on the exchange and approximately 5 million people in the op exchange individual market were not eligible for any subsidies. In our analysis of final premiums available on the Federal marketplace of plan year 2018, we found that ACA plans were unaffordable for many Americans when calculating based on the individual mandate affordability exemption.

This is 8.05% of household income and the average U.S. household income being $83,143. Based on our analysis and ACA compliant exchange plans, a family of three with parents age 40 earning the average U.S. household income would not be able to find affordable bronze or silver plan in any county in any state.

Similarly, the same family with parents aged 30 would not be able to find affordable silver plan in any county in any state and would only be able find affordable bronze plans in eight counties in the entire United States.

Industry data indicate that as the insurers have been increasingly focusing their marketplace business into plans that offer narrower networks like HMOs and EPOs. These narrower networks allow insurers to control cost thus enabling them to increase profitability of a program. In 2018, about three quarters of the market consisted of plans with restricted networks.

It does not seen in the best interest of the consumer. Over past year, the number of uninsured American adults has grown by 3.2 million. This is an increase of 11.9% year-over-year to over 30 million people. There are more uninsured people in almost every demographic and across all income levels. Recently, data has become available which has given us some preliminary insights into trends that may develop as we look forward to plan year 2019 and beyond.

As in previous years, we expect deductibles now to pocket maximums to increase on ACA plans further exacerbating the financial challenges facing consumer and individual markets. CMS recently issued final cost sharing maximum annual limit which has been revised upward by a factor of about 7%, the largest annual increase since 2014.

We also expect ACA individual market premiums to increase between 12% to 32% in 2019. We will continue our analysis of plan year 2019 as more data becomes available and additional developments unfold in the months leading up to the open enrollment period.

Meanwhile, recent legislative changes will make our plans even more affordable. The individual mandate penalty has been repealed as part of tax reform. So effective 1^st of January, Americans will no longer be required to pay a tax penalty for purchasing an alternative to ACA compliant plan. This change makes the plans we offer even more competitive since Americans will be able to choose to purchase other forms of insurance with no penalty.

We believe that now more than ever, our affordable healthcare solutions provide an important coverage to many Americans who would otherwise not be able to afford healthcare coverage and we remain committed to our present strategy, which is focused on efficiently providing affordable healthcare solutions to consumers who would otherwise not have insurance that meets their needs.

We believe a regulatory tailwind exists in our individual and family plan market. Last week, the comment period on HHS proposed rule that would change the maximum duration of short-term medical policy to less than 12 months as opposed to the current maximum duration of less than three months.

In response to the Department’s request for comments, we’ve submitted our analysis of a potential effects to the proposed rule, as well as our recommendations for the Department’s review in consideration and we expect to hear the outcome of those comments shortly.

We believe that short-term insurance is an important healthcare solution for many consumers and implementation of the new rule will not only benefit many consumers, it will also provide potential significant upside to our business, increasing the total addressable market by approximately $3 billion in additional revenue as a base case.

We will add to our technology platform products that best meet consumers’ demand and needs. Short-Term Medical plans and health benefit plans are not the same as ACA plans and are not suitable for everyone, but they do however provide consumer choice and provides valuable health insurance coverage for consumers who do qualifies to Medicaid or a subsidized ACA plan.

In 2018, we will continue to add new products to our platform as well as new insurance carrier partners. We believe that lack of awareness is still a factor and we have identified various ways we can enhance consumer awareness in general. We will talk more about these initiatives throughout 2018 as we continue to adjust and refine.

As we look forward to the remaining quarters of 2018, we are excited by the opportunities. Third-party license agent call centers continue to be the growth leader and by adding new products to our portfolio and leveraging our proven technology platform, we remain confident in our ability to continue driving profitable growth.

We will continue expanding our highly compliant third-party call center distribution throughout 2018. As an example, in the first quarter, we added over 20 new call centers which we are currently ramping up with 15 having written new business to-date. Some of these are very large opportunities. Others are smaller, but as I have often explained, all of our partners must meet our very high standards to the compliant and consumer satisfaction.

We are also increasing organically sales at existing licensed call centers. We expect our technology platform to continue demonstrating operating leverage, which we will continue to enhance while growing revenue and controlling our cost base.

By adding new products to our portfolio, and leveraging our proven technology platform, we remain confident in our ability to continue driving profitable growth and to execute on the opportunity presented in 2018 and beyond.

Now turning to compliance. We are committed to the highest standards in compliance and customer service and maintaining a high-level of consumer satisfaction. We’ve previously released data to showcase our outstanding compliance performance.

And now I would like to provide some context and comparative perspective and so we’ve analyzed public records about formal Department of Insurance or DOI complaints filed against ACA carriers and that has compared three of the largest national ACA carriers to give as much understanding as possible as to the reality of our performance versus our peers.

And what we can see is that complaints are significantly higher as the ACA carriers then hear at HIIQ. Comparing the number of complaints, versus the number of policies, the ACA carriers have 14 times higher, 22 times higher and 37 times higher or to put it in other way that complaints are 1400%, 2200% and 3700% higher than here at HIIQ.

This theme is not just the larger carriers, there are many, many examples. We have also identified that some ACA carriers have seen a large increase in complaints from 2016 to 2017. Whilst here at HIIQ, we have seen our complaints plummet 56% over the same period as a direct result of continued investment in resource and technology.

With our standing compliance performance at HIIQ continued in 2018 with only six Department of Insurance complaints in the entire first quarter of 2018 including zero complaints across all of the U.S. in February 2018 and out of a grand total of six, there was a total of one DOI complaint upheld against the company and this was relating to a refund that wasn’t processed correctly.

I’d also note that with tiny number of items as well as we have record policies in force. We continue to add resource to the compliance team and enhance our controls with the development and implementation of a new verification system to ensure 100% recording compliant and increased third-party site visits, secret shopping and product training webinars and this has resulted in a level of compliance which we believe leads our market.

We feel this independent third-party data from the Department of Insurance and NAIC or National Association of Insurance Commissioners shows clearly and beyond any doubt measurable evidence of our outstanding compliance controls. We now have invested and very interested in our multi-state review. And as we continue to close historic regulatory matters, we look forward to closing our multi-state market conduct review.

We are working closely with the Chief Examiner in the lead state on an agreed timeline and hope to resolve this review at the end of the second quarter or early in the third quarter. As we move through 2018, we plan to talk a lot less around our historic compliance items and more around our technology and the vast addressable market.

Leading me on to technology. Technology is at the core of our business model and not just sales technology, we invest in every element of the consumer experience. We have the new agent training center which will amplify transparency and accountability in our agent training process by leveraging product testing and carrier licensing efficiency whilst utilizing automated data.

We’ve launched a easier online reapply process with an express reapplication experience which uses a smooth and simple interface. Friction during reapplication can be a major contributor to user abandonment and our new proprietary tools means members are more likely to repurchase. Data is the driver of our strategic approach.

Building on our previous work in 2017, and our access to vast market data, our competitors likely do not have we have created a comprehensive data warehouse, which will enable us to provide carrier partners trend and predictive analysis to pinpoint sales and product opportunities including in real-time. The major technology initiative of 2018 is that we also close to launching the next-generation of our technology platform, which will include a brand new member portal and mobile application.

By integrating data sources from various partners, we will provide a user experience far beyond what members currently have access to, we will add the ability to sell multiple products and new product types as well as improve our persistency and we look forward to launching this later in 2018.

As we evolve with the business we continue to strengthen our leadership team. We have recently added in-house regulatory counsel and paralegal support, as well as strengthening our licensing and compliance teams in the management levels.

We have added technology and project delivery leads both new roles being held by senior candidates with significant insurance market experience and we will continue to make strategic enhancements to our senior team throughout 2018.

HIIQ continues to be uniquely positioned to take advantage of the growing demand for affordable health insurance solutions.

We appreciate your time today and we thank you for your interest in our company. Now I’d like to turn the call over to Mike Hershberger, our Chief Financial Officer before ending with some final comments.

Michael Hershberger

Thanks, Gavin, and good morning, everyone. We are pleased with our results for the first quarter of 2018 which met and exceeded our expectations for the quarter. We’ve executed on several strategic initiatives that should contribute to sustained growth throughout the remainder of 2018 and beyond.

We will continue to invest in what we consider to be attractive opportunities throughout the year. We anticipate continued leverage of our SG&A and strong cash flow.

As I review the financial results for the first quarter, I'd like to highlight a few key points. Our first quarter revenues were $67.8 million increasing by 21.3% year-over-year. As expected, first quarter 2018 revenues were slightly lower sequentially driven by the abbreviated affordable care act open enrollment period that ended on December 15, 2017.

As you will recall, last year’s open enrollment period ran through January favorably impacting Q1 2017. Our total policies in force increased to a record 383,200 at the end of the first quarter, up 11.1% year-over-year. We continue to focus on customer satisfaction that we believe contributed to longer durations for our health insurance products.

Total submitted policies for the first quarter were lower by 23.7% year-over-year, also driven by the shortened open enrollment period. Our e-commerce channel continued to be negatively impacted by the Department of Health and Human Service Rule limiting the duration of short-term nature medical to three months that went into effect in 2017.

We continue to focus on scalability for the quarter. Our core SGA for the quarter that is total SG&A, less marketing leads and advertising, stock compensation, and non-re-occurring costs as a percentage of revenue was 16.2% in Q1 2018, an improvement from 17.5% in Q1 2017.

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.

Core SG&A for all of 2017 as a percentage of revenue improved year-over-year from 18.5% in 2016 to 17.2% in 2017. The driver of this metric continues to be our highly scalable technology platform, integrating carriers and distributors we’ll allowing consumers to quote their policy, by their policy, print their insurance card, and electronically secure health insurance coverage.

EBITDA was $8.9 million in the first quarter of 2018 compared to $8 million in the first quarter of2017. First quarter 2018 GAAP earnings per diluted share was $0.33 compared to $0.58 in Q1 of 2017. Last year’s first quarter GAAP diluted EPS included a $3.3 million tax benefit that resulted from the early adoption of an accounting policy related to share-based payment transactions while Q1 2018 experienced higher non-cash stock compensation expense compared to a year ago.

Turning to our non-GAAP metrics, adjusted EBITDA for the first quarter was $11.9 million, compared to $9.7 million in Q1 2017. Adjusted EBITDA as a percentage of revenue increased to 17.6% from 17.4% in Q1 2017. Adjusted EPS for the quarter was $0.52 compared to $0.36 in Q1 2017.

The first quarter 2018 adjusted EPS was favorably impacted by increased revenue from greater policies in force as well as the lower pro forma corporate tax rate compared to last year. We believe 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 advances to distributors based on actual sales. These advance commissions assist distributors with working capital. We recover advances on an ongoing basis from future commissions on premiums which are collected over the period in which a policy is renewed.

As expected, in the first quarter, we experienced a sequential decline of $1.4 million in advance commission loans for a total of $38.1 million outstanding at the end of the quarter down from $39.5 million at December 31, 2017.

Cash and short-term investments totaled $41.9 million at the end of the first quarter, up $26.1 million from the prior year. We ended the quarter with no debt.

As you will recall, HIIQ was an emerging growth company. We will be adopting the new revenue recognition standard in Q4 and it will be applied retroactively for at least 2018. We are currently evaluating the impact of the adoption of ASC 606 on our financial statements and we’ll continue to communicate the potential impact of the new revenue recognition standard as the year progresses.

We reaffirm our full year 2018 guidance of revenue between $290 million and $300 million based on our current revenue recognition policy, adjusted EBITDA of between $54 million and $57 million, and adjusted earnings per share of $2.45 to $2.55.

As Gavin mentioned, we are excited about the potential future opportunities of our business including the pending HHS rule that could return – that could extend short-term major medical to a duration of up to 12 months. We believe this change would favorably impact our re-occurring revenues, especially at our e-commerce division.

We also continue to focus on the expansion of our innovative product offerings and expansion of our distribution networks. We believe these opportunities could be incremental to our 2018 guidance. We also believe the elimination of the mandate tax penalty for consumers who do not have the ACA compliant health insurance will be a catalyst in 2019.

We are also committed to maximizing our e-commerce opportunity providing best-in-class compliance and customer service and driving scalability through our technology platform.

Thank you for your time today. With that, I’d like to hand the call back to Gavin for concluding remarks before Q&A. Gavin?

Gavin Southwell

Thanks, Mike. Following the fourth quarter of 2017 that exceeded all expectations, at the end of the first quarter of 2018, we grew revenue 21%, we grew adjusted EBITDA 23% and we have record policies in force coupled with an outstanding compliance performance.

Although we use the vast data we have access to, so we prepare to seasonality, we do not manage our business based on strategy quarter-to-quarter. We’ve been building and preparing for a much bigger multi-year opportunity since I joined the business in 2016.

As the quarter is now behind us and our market continues to evolve, our first quarter provides an excellent foundation with the launch of our next-generation of technology, we are prepared to the potential short-term medical opportunity in the rest of 2018 and beyond.

And with that, we’ll turn over to the operator for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from Steven Halper with Cantor Fitzgerald. Please proceed.

Steven Halper

Good morning and thanks for taking the question. To the extent that you can, can you characterize some of the discussions that you’ve had with the regulators on the multi-state exam and the process that you’ve been going through that gives you confidence that you can resolve the things by the end of the second quarter or early third quarter?

Gavin Southwell

Yes, so we’ve always been very respectful of the process, the chief examiners, the lead state and so we’ve always tried to work very closely with them and so, we are very conscious about working with those guys and agreeing timelines and all that stuff. This is all very important. To-date, we haven’t received any draft issues or draft findings.

But we have agreed timings of resolution. So we are going to be discussing that throughout May and then simply a process follows where if we come to an agreement with a process of the states signing off that resolution that agreement. And we’ve spent a long time speaking to all of the different states and we believe that that should happen efficiently, but, if it takes slightly longer, that’s where we try to give the guidance to say, look, towards the end of Q2, beginning of Q3.

So, we are pretty eminently having those discussions around what resolution looks like. We know that investors are very interested in this. We want that is closed as much as anybody and I believe the appetite is there from the examiner from the lead states. I think everybody is now at the point where we are all working in kind of alignment towards resolution. And that’s – I can give. But we want to try and keep people as informed as possible with that.

Steven Halper

Yes and just as a follow – just two follow-ups, did the process, sort of accelerate a little bit once after HCC apparently settled? And number two, do all the states have to approve it?

Gavin Southwell

Yes, so, it absolutely did accelerate. It’s the same chief examiner. It’s the same lead states. So, with just the practicalities but if calls now they finished that process, there is more focus and attention on those. So, but absolutely helped. We are also started as the second part of that original review. So, it absolutely does.

And secondly, no – you need a majority. So over half the states, and we believe we have good relationships with the vast majority of states that are out there. We know a lot of these guys very well. We’ve built relationships of about two years.

And so, we don’t foresee that being any difficulties if there are, we’ll update everybody. But as it is, we have agreed timelines and that’s what we are working towards. We’ve been wanting to get here. We always want to do it quicker, but it’s great to be able to have some timelines.

Steven Halper

Great. Thank you.

Gavin Southwell

Thank you.

Operator

Our next question is from George Sutton with Craig-Hallum Capital Group. Please proceed.

Jason Kreyer

Good morning, guys. It’s Jason Kreyer on for George. Thank you for taking my questions.

Gavin Southwell

Hi, Jason.

Jason Kreyer

Gavin, you gave a lot of different data and we appreciate that. And just wondering if you can maybe dive into some of the market assumptions a little bit more as you – as the market moves from three months back to 12 months potentially later this year, and the elimination of the mandate and you characterize it as a $3 billion TAM increase. But I was just wondering if there is any more data you can provide on that?

Gavin Southwell

Yes, we provide as comments on the Short-Term Medical rule and various of the people did, many different market commentators have gave estimations of what they think the impact will be. So we really just took that range and picked a midpoint, to say okay, we think this feels like a reasonable assumption and like I say, I think that’s a fraction of what the addressable market really looks like.

If you look at those kind of 7 million individuals purchased an ACA currently with the price increase is being what they are and what the price increases are going to be in the fourth quarter of this year, a large number of those guys are going to be looking other types of products. So we really – we took published data, not our own research is kind of the market consensus as to how many additional people we believe will buy this product and we think people are being conservative.

We don’t build this kind of opportunity into our guidance. We want the final rule to be published. We want to know the implementation there. But we are prepared, if the rule was announced tomorrow and it was live tomorrow, we’d be ready. We are the market leaders for Short-Term Medical. We always have been.

And it’s interesting when the restriction on the rule happens and that was announced – that had a major negative impact on our stock prices. If the rule impacts the way we expect, then, we’d expect people to understand this with other potential major positive impacts. So, yes, there is plenty of information out there. We can kind of summarize it for you.

But, you know, working with HHS, working with departments, working with the new head of the healthcare committee, the NAIC, I think the figures we’ve given are considered pretty reasonable by every kind of informed market commentator, yes.

Jason Kreyer

Two more if I can, just on agile. So some of the improvements that you are seeing in the ask volume there, just wondering if you can give us a sense of this is coming on the STM side or if that’s the health benefit plans? And then, with the technology changes that you are going to roll out in the back half of this year, is there a different outlook on how volume will flow through the contact centers or through the e-commerce channel?

Gavin Southwell

Yes, so to take the agile question first. I mean, the Q1 is, back in the beginning of 2017, 12 month short-term medical policies were available and in the first quarter of 2018, it’s three month policies, which is a major product on Agile. So comparing Q1 to Q1 is even more tricky, also because of the shortened open enrollment period and the rest.

If we look at April, we are not giving full financial information on April, but I am happy to give some color, Agile is about 50% of year-over-year to April in terms of policy count, which I think is a good signal – and it’s pretty most reasonable sort of like-for-like comparison.

The 12 months rule for Short-Term Medical would have a significant impacts of those guys, because the vast majority of the policies sold remain in Short-Term Medical although they do have health benefit plans and overofferings on the platform.

And then secondly, the technology we are implementing is, we have two-parts to our technology. We have the kind of a front-end initial point of sale and then we have our portal which is accessed by all of our consumers and all of our other third-party distribution. That side of it is being relaunched, revamped, next-generation.

So it means that, most consumers who buy our policies, regardless of what channel they purchased it from, they are going to be accessing a next-generation of software and they are going to be able to do that in new and exciting ways. And they are going to be able to purchase a broader range of products whilst they are logged into that platform as well as many of the exciting functionalities which will make a platform more sticky.

It will help with persistency. It will allow us to offer a broader range of products. It’s really a big evolution of our business. Our carriers are very excited about it. We are very excited about it. And we’ll be launching that towards the beginning of Q3 and we look forward to talking a lot more about it through 2018.

Jason Kreyer

Perfect. Thank you.

Gavin Southwell

Thank you.

Operator

Our next question is from Randy Binner with B. Riley FBR. Please proceed.

Randy Binner

Hey, good morning. Thanks. So, I had a question about the comment period that recently closed for the proposed rule from HHS to lengthen the duration for short-term and limited products. Can you share, I guess, kind of how you sought that open comment period when, maybe characterizing the pros and cons that were submitted.

My understanding is there was a lot of submissions and then also any expectations you have for timing around that process? I think you mentioned in the opening comments that you presented an analysis and you expect an outcome shortly. So that the timing piece sort of interests you.

Gavin Southwell

Yes, so, when the initial rule was introduced in 2016 to shorten Short-Term Medical, the comments that were put in were overwhelmingly against that rule. They wanted to keep STM at 12 months and basically everybody, I’d say, over 90% of comments were not to make the rule change. And then the rule change happened anyway.

And so, I think the way to kind of look at it is, we’ve submitted comments that comments follow that comments again, but I think if the department want to push previous rule, based on what happened last time, I’d say that, it’s our intention to publish it, they’ll publish it. So I think we’ll have plenty of comments seeing the benefits that would comment against.

Everybody has a reason and an agenda of why they give those comments. I think that, based on the data available, my understanding from talking to the guys at HHS is they are very motivated to publish this rule as soon as possible. And it’s definitely in the best interest of consumers. If you look at some of the stats we’ve given around this, people who are arguing that the ACA still in good shape on what data they are using.

So, I think that, we are hopeful this rule will happen well in advance of open enrollment. But, if we don’t have a favor update, I will be visiting with HHS towards the end of this month and we’ll be able to get an update then. But we expect an update prior to the end of May.

Randy Binner

Okay. And then just one housekeeping item. I missed the cash level that Mike disclosed?

Michael Hershberger

Yes, so, during this quarter, we reclassified our credit card and ECH deposits and transit to be consistent with our peers in the industry. So we reclassified those deposit and transit to cash from accounts receivable.

Gavin Southwell

Yes, so, year-over-year increase of about $26 million of cash, which is fantastic.

Randy Binner

Okay. Got it. Thank you.

Gavin Southwell

Thank you.

Operator

Our next question is from Mike Grondahl with Northland Capital Markets. Please proceed.

Michael Grondahl

Hi, yes, thanks guys and good morning. You mentioned a little bit the duration and retention of policies is sort of increasing. Can you just talk a little bit about what you are doing there? And how you think that can continue?

Gavin Southwell

Yes, so, of course, we are coming from a carrier background, we don’t just look at daily sales. We are analyzing the performance of the blocks and the reasons behind it. So, improving retention is great for the consumer, but it’s also is fantastic for our financials. So it’s been a big focus throughout 2017. We, for the first time, we hired specific resource looking at retention.

It’s called the benefit team, but a good way to think of it is, it’s the retention team. So this is a very well educated and qualified licensed agent, who can speak to consumers at a kind of a customer service level around the benefits of that plans and kind of guide them for how to access those benefits. That’s been very successful at improving retention.

We’ve seen that team kind of very quickly pay for itself and be kind of accreditive to our company. And so we are rolling out that initiative. There is also a direct link. If you have happy consumers and you have a low number of complaints, then it means that you have better retention. We invested back in 2016, early 2017 in a very large number of customer service agents.

I often give the stat. We added – we went from 26, to 230 people answering the phones. So if you go from taking an hour to a couple of seconds, it means those people aren’t going to get bored and cancel that policy. So a lot of it is kind of building blocks with technical elements too.

As we roll out better enhanced products, it means that there is more chance, it will meet the demand and needs of the consumer at the point they come to make a claim or they need to access the products. And so, over time, as we keep enhancing the products and we keep rolling out new carriers, we will see that improve as well.

The things drive us 2018 beyond is going to be this next-generation of our software. What we’ve seen is the vast majority of our consumers access the portal, but they are accessing at a relatively small number of times and w are still having this increase in retention. If we can make that portal more helpful and we spent with – we’ve worked with leading firms, the guys who previously did the Wall Street Journal’s technology, they did the technology behind Netflix.

These are the people we have redesigning our consumer portal. So we are very excited about launching that. The impact it will have will be additional sales, broader products, but also for the existing blocks, it should really help of that retention piece as well. So, there is lots of different projects. We have a whole initiative here with the business, that’s a cross business initiative.

We track that on a project management application and we’re being very satisfied with the progress to-date. It flows through the financials. But a lot more we can do. And so we look forward to that.

Michael Grondahl

Great. And then, you guys called out, I think it was 20 new distributors and 15 had written business so far in 2018. Any range that this – these new distributors could make-up 5% to 10% of the business this year? How do we think about that gross number 20?

Gavin Southwell

Yes, so, we’ve previously talked about having new distribution and we thought we had success past in the first quarter at adding distribution that has the potential, but it was – we are kind of people an insight into kind what that looks like. So we currently have over 80 – about 80 different types of distribution right now.

So adding 20 could – can potentially be pretty significant. Some of these guys could end up being – some always not our largest ever distribution point. The point that we always add in is, if anybody we deal we’ve have to go from a process of trailing, meeting, and constantly hitting our compliance metrics. Our market-leading compliance, the reason we outperformed the ACA guys so dramatically is because we have such high levels of compliance and consumer satisfaction.

So, we can’t build these guys into our guidance until they prove in a track record of not just writing business, but doing it the right way. So as we ramp these guys up and we go through this quarter and the next quarter, once we see them perform the way that we expect, then we can go back and revisit what impact that would have on our financials.

We kind of wanted to use this opportunity this quarter to say, look, there is a huge addressable opportunity here. We have this potential – we’ve got the tools to do this. We are doing various – through the year. We’ve got all of the blocks in place. So we want people to kind of focus on that, that opportunity a little more than we had in the past.

Michael Grondahl

Got it. Thank you.

Operator

Our next question is from Mark Argento with Lake Street Capital Markets. Please proceed.

Mark Argento

Yes, just a couple quick ones. Gavin, maybe you could talk a little bit more about the new technology platform and how you see that rolling out in particular. How quickly you could see some leverage and benefit from that?

And then, for Mike, maybe talk, if you could just broadly the 606 impact, if you could give us a little bit of a sneak peak as that your thoughts on the impact. And then lastly, obviously, you guys are generating at these amount of cash, you mentioned on the call you are trading at ten times. Any thoughts on, maybe getting a little more aggressive in terms of the capital structure? Thanks.

Gavin Southwell

Thanks. Yes, the technology piece, we’ve been working on for a long time rolling of a next-generation of the software is a major initiative for us. We’ve positioned it in the prior quarter. We are talking about a little bit more now. When we launch it, there will be a real evolution of our business.

I’d see as the platform for retaking us to the next level. As a business, it allows us to broaden out our product offering. It allows us to enable the consumer in ways we haven’t before, which is certainly have a big impact on things like retention. So, we are really excited about it. Our carriers are excited, because we are linking it to a number of different third-parties.

We’ve had the kind of built that into our timelines what we wanted to be able to do like the some obvious things there. So, being able to find a provider. So one of the good selling points of our products is you are generally able to access any provider anywhere, as opposed to these very restrictive networks that you find on ACA products.

So it would make a lot of sense if our technology allow people to simplify that process of finding and booking and all of that good stuff. So there will be – when we launch it, we wanted to make the impact it deserves and we’ll be doing it around the midpoint of the year, I think early Q3 is a good point. And so, really, for us, this is a really exciting year.

We get the lead behind these kind of historic regulatory questions. And we get to really move on and look forward and this multi-year vast opportunity based on our next-generation technology. And distribution that frankly, we didn’t have the opportunity to win back in 2016. These are guys who have done a vast numbers of other types of products, mainly ACA, who have now seen the way of the market is shifted and now there is a potential for them to form a great partnership with us.

The second question, I mean, was more on cash.

Michael Hershberger

Sure, the ASC – the impact of ASC 606, Mark, is that the question you had?

Mark Argento

Yes.

Michael Hershberger

So, with respect to HIIQ, of course we are an emerging growth company and the ASC 606 has many facets that we are taking a collaborative approach with our consultants and our auditors and we are evaluating every component of our income stream. And as I said, we are going to adopt it in the fourth quarter and it will be retroactive for 2018.

Currently, it’s too early to know the full impact. But I can tell you that it will not impact our cash flows. So, as you think about our company, you think about the dynamic in the basis of our company, there will not be a significant change. But a difference maybe for us and some of the public companies that have reported that our insurance brokers is that we have many other performance obligations.

We are essentially an outsource for insurance companies for many of the processes. We have identified those pieces that are scalable and built technology around them, such as billing, accounting, and our customer service. So we have multiple performance obligations that’s different than, for instance a point of sale where a broker makes a point of sale, and then has no ongoing relationship. So, we’ve got various revenue streams and I would say that one thing for certain is we will have more disclosures.

Mark Argento

Great. And then in terms of the cash and the relative valuation of where the stock is trading, have you guessed on anymore about trying to take advantage?

Gavin Southwell

Yes, I mean, we can see clearly, we believe our stock is very significantly undervalued. We understand the opportunity in front of us. So it would be a good use of our cash to support our stock price, absolutely.

Mark Argento

And just last, I know you had spoken there is some data in regards to your performance relative to some of the ACA guys, but also I think there is some data out there linking at your performance relative to other short-term. Could you guys make that data available or at least point us to where we could find that data, that would be helpful.

Gavin Southwell

Yes, we will do. So the National Association of Insurance Commissioners has a section where they kind of how to get together all of the Department of Insurance compliance. So there is probably be available information. People can go on and find this. And yes, I think it’s really just a fantastic illustration. We are not going to – we don’t need to kind of defend this business anymore around sort of regulatory or compliance.

We’ve proven beyond any reasonable doubt according to independent third-party data that we are outstanding at compliance, because we’ve invested it in terms of resource, controls, and look at the comparisons. I mean, we are not just 10% or 20%, we are 3700%. That’s – than some of the larger ACA carriers.

And I think – I think it’s time for us to focus on the technology, the opportunity. We will resolve a final historic matter and then we’ll really focus on the true story of this business and what we are capable of.

Mark Argento

Thanks, guys.

Gavin Southwell

Thanks. Appreciate it.

Operator

Our next question is from Greg Peters of Raymond James. Please proceed.

Greg Peters

Good morning. Thanks for taking my question. I was wondering, Gavin, given your carrier background, if you could spend a minute and talk about the actual profitability of the products that you are selling to the insurance industry.

Gavin Southwell

Yes.

Greg Peters

And I am sure you have a perspective on that and you are monitoring the profitability for your insurance partners?

Gavin Southwell

Yes, so, every product that is filed, when it’s a Short-Term Medical or a dental or whatever it is. Each state looks very closely at how it’s priced, what the profitability looks like. And so, they are interested. So, I think people are very aware around ACA and different levels. But that just happen on other products as well.

We track it incredibly closely. We do a lot of this work on behalf of our carriers. They do the same thing, but we tend to be able to offer a lot of insight and comparative data that they simply don’t have. And we view this both ways. If we see the performance of the book going it’s too profitable, then we – it’s adjusted. If it’s not as profitable as it’s needed or it’s loss-making, then we adjust that as well.

So, we are constantly refining rate increases, rate changes, benefit updates and we work very closely kind of state-by-state. We have a team of people here. We have a team of actuaries that we work with. And really, the insight we’ll get from our data warehouse is, we’ve always got access to this information, but how you kind of surface it and present it to the carriers is very important.

I mentioned very certainly, we have the ability to do this real-time. A lot of people look at very historic information often several months later. I never like that when I sat in a carrier. We can see very, very quickly and a lot quicker than other partners, these large carriers often deal with exactly where the book is going and why.

We don’t just do historic analysis, we do predictive analysis as well. We look at where the hockey puck is going, not just where it is. So we are really excited about that. And it might be – it might have been a most exciting topic. But it’s very important to our carriers and it’s really important. I do increase in size and you get bigger and bigger blocks of business to carriers. They are very interested in this, which means we are very interested in it too. I hope that’s helpful.

Greg Peters

Thanks for your answer.

Operator

Our next question is from Richard Close with Canaccord Genuity. Please proceed.

Richard Close

Great. Thanks for slipping me in. Just want to really be clear on the 2018 annual guidance. I know, when you were talking about these 20 new distributors, you said those guys are not included in guidance. So, I want to get your opinion, how much do you think this distributors are potentially incremental business versus maybe any cannibalism with existing distributors, so on that front?

And then also new products that you’ve talked about, how much do you think new products is incremental to potential guidance as well?

Gavin Southwell

Yes, so the first part is, we haven’t included the impacts of new distribution in our guidance at all. So we’ve included zero potential impacts from that. But that’s all potential upside. In terms of scale, some of the guys we have added could become our largest distributors. What we’ve seen is back in 2017, we have some distributors who used to do some ACA, some over 65 and then some of our products.

And so the shift in 2017 was people saying okay, we are going to focus more on the HIIQ types of products and maybe less on these other areas. And then there was some large players out there who still remains focused on ACA. I think what we are seeing in 2018 is people in the individual markets are now changing their approach away from ACA and so we are getting opportunities of people we didn’t have before.

So that means is that, they have access to consumers that we didn’t have access to before. So I only will see that that cannibalism point. I also think that, as we add distribution, it gives us the ability to access more and more consumers. Accessing the consumers and consumer awareness, that’s the key. The individual market is the individual market, they are written ahead of AHR or an insurance broker telling people what their coverage is.

They have to go out and find it. They have to be aware of it. So, if people don’t understand the benefits of a health benefit plan or a Short-Term Medical or some other kind of discount benefit products, they need someone to find them and explain it to them. So greater distribution, generally adds to greater consumer awareness and that’s a really good thing for us.

So we are excited about the guys we’ve added. We think it gives us new ways of accessing consumers that we haven’t had before. But we have to add them, check them, test them, ramp them up, track them, but before we can build it in. So, this year, it’s a crescendo. Q1 was about building a solid foundation and that’s what we have done and we should crescendo as we go through the year.

Richard Close

And then, with respect to new products that have been added to the platform. Are those all incremental as well or?

Gavin Southwell

Yes, we haven’t – so, we plan for sometime incremental products. So, for the people who are buying that kind of core health insurance products and then supplemental products, there are other products that are very valuable to them. This is well proven in my previous lives and with other businesses.

There were some very logical things within that accidents and health space that we should be offering consumers and that we will soon be offering consumers. But again, it’s not built into our guidance. It’s all potential upside to get if we need to launch the platform. We need to prove out the concept.

We need to see the behavior and then we’ll build that in. So, it’s an exciting time for us. We are looking at a great opportunity ahead of us. We are trying to be as transparent as possible and just give as much color as we can.

Richard Close

And on supplemental policies, Mike, maybe can you talk a little bit about the attach rate there? I guess, in the first quarter supplemental policies declined more so than anything else year-over-year. Was there anything to that maybe that you could provide some information on?

Michael Hershberger

Sure. I’ll take the first part of that and Gavin, if you want to add something, I’ll pass that. As we work with many of our distributors, especially some of these newer distributors, we are really focused on the individual and family plan products.

So, as we think about the distribution and getting them on our platform focusing on that piece is really our priority. As we continue to have these distributors mature, then we have the supplemental products in there. And I would say it’s both of that.

Gavin Southwell

Yes, I mean, we don’t tend to give specific information in individual distributors. But in terms of our top ten, we have always some people in there. We started doing lot of business within 2017. And to Mike’s point, if you have people who are now very good at selling the core products and they are doing that with outstanding compliance.

The next stage is, saying okay, well it’s actually really good for the consumer if they have dental, vision, critical illness and all that, this just – this gives them much more comprehensive coverage. And so, with the dynamic there of as you add people, it’s really our expertise. It’s our team who kind of help to train them and educate them. So, it’s a good thing to have some of our top ten being newer guys and then it gives us that potential upside, right.

Richard Close

Thank you.

Gavin Southwell

Thank you. Appreciate it.

Operator

And our final question is from Frank Sparacino of First Analysis. Please proceed.

Frank Sparacino

Hi guys. I’ll make it quick given the time. Just real quick, Mike, in the quarter and the submitted applications, what were the mix of Short-Term Medical and health benefits?

Michael Hershberger

For this latest quarter, about 65% health benefit insurance plans, 35% short-term nature medical.

Frank Sparacino

Great. And lastly, Gavin, I just want to clarify the comment you made with respect to April being up 50%. So, this is submitted applications on the e-commerce Agile side, correct?

Gavin Southwell

Yes, that’s right. We are not saying it applies to the whole business. But Agile, because it’s behaved differently in the last quarter 2017 versus this, we wanted to really give that color to say, look, we were selling a 100% Short-Term Medical in the first quarter of 2017 and the rest of our business was more kind of 50-50 Short-Term Medical health benefit plans.

So the impact of going from 12 months to three months was more significant on that e-commerce side, because it’s harder to explain. Remember, we have this solution of being able to sell multiple three month policies together with pre-ex ways. So that’s easy to explain on the phone and with the rest of our distribution is online.

So, before simply – for kind of fairness and to be able to try to compare, looking at Agile, the best comparison will be kind of April-to-April. So, showing, look, they had about a 50% increase April-to-April. Just gives some good color over sort of the impact of a real change and what it can do. And so since we are talking about rule changes and stuff like that, we thought that was a useful guide, but it doesn’t apply to our whole business. So, the answer to your question, yes.

Frank Sparacino

Perfect, thank you guys.

Operator

Ladies and gentlemen, that is the end of our question and answer session. I would like to turn the conference back over to management for closing remarks.

Gavin Southwell

Great. Well, thank you everyone. We appreciate your time today and your interest in our company and as we go through 2018, I look forward to talking to you all further and keeping you updated on our progress through the year and the exciting opportunity we have ahead and our ability to execute on it.

So, thanks again and we’ll talk soon.

Operator

This concludes today's conference. You may disconnect your lines at this time and thank you for your participation.