Transcript
Good day, everyone. Thank you for joining us for the Health in Tech First Quarter of 2025 Earnings Conference Call. We are recording today's call. Now I will hand it over to Lori Babcock, Chief of Staff of the company. Ms. Babcock, please go ahead.
Thank you, operator, and hello, everyone. Welcome to Health in Tech's First Quarter of 2025 Earnings Conference Call. Joining us today are Mr. Tim Johnson, Chief Executive Officer; and Ms. Julia Qian, Chief Financial Officer. Full details of our results can be found in our earnings press release and in our related Form 10-Q to be filed with the SEC. These documents will be available on our Investor Relations website at healthintech.investorroom.com. As a reminder, today's call is being recorded, and a replay will be available on our IR website as well. Before we continue, please note that today's discussion includes forward-looking statements made pursuant to the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements are based on information available as of today and involve risks, uncertainties, and assumptions that could cause actual results to differ materially from those expressed or implied, including those discussed in our quarterly report on Form 10-Q for the period ending March 31, 2025, to be filed with the SEC. Please review the forward-looking and cautionary statements section at the end of our earnings release for various factors that could cause actual results to differ materially from forward-looking statements made during our call today. We undertake no obligation to update and expressly disclaim the obligation to update these forward-looking statements to reflect events or circumstances after the date of this call or to reflect new information or the occurrence of unanticipated events. We may also refer to certain financial measures not in accordance with generally accepted accounting principles, such as adjusted EBITDA, for comparison purposes only. Our GAAP results and reconciliations of GAAP to non-GAAP measures can be found in our earnings press release. With that, I now turn the call over to our CEO, Mr. Tim Johnson. Tim?
Thanks, Lori. Good afternoon, everyone, and welcome to our first quarter 2025 earnings call. I'm excited to share that Q1 marked a strong start for 2025. We achieved $8 million in revenue, reflecting 56% year-over-year growth, and generated $0.7 million in income before income tax, a 257% increase compared to the same period last year. The number of enrolled employees on our platforms also rose to 24,307, up from 20,802 in Q1 2024. This performance underscores the strength of our platforms, the effectiveness of our strategic initiatives, and the accelerating demand for our innovative self-funded healthcare solutions. One of the most pivotal developments this quarter was the continued advancement of our AI-backed underwriting capabilities within the eDIYBS platform, designed to support mid-to large-sized businesses with over 150 employees. Since initiating beta development of our large-group AI-backed underwriting solution in November '24, we've seen strong interest from the market. Even in its early stages, we successfully delivered solutions to large employers, including those with over 1,000 employees. We're on track for a full-scale rollout in Q3, making a major step forward in expanding our market reach. This launch will not only elevate our technology and product offerings but also positions us to capture an entirely new segment of the self-funded market that often lacks comparable technology solutions. By bringing greater speed, intelligence, and automation to underwriting at scale, we seek to unlock powerful new revenue opportunities and substantially increase our total addressable market in 2025 and beyond. In Q1, we also announced our strategic collaboration with DialCare, a leading provider of telehealth and virtual care solutions. Through this collaboration, DialCare's virtual primary care, therapy, and psychiatric services will be integrated into Health In Tech's self-funded health plan offerings. Members across the U.S. will gain on-demand access to licensed physicians, therapists, and psychiatric providers via phone or video consultation. This collaboration not only enhances our mission to deliver smarter, more accessible healthcare solutions for diverse populations but also strengthens our ability to meet the evolving needs of today's workforce by making high-quality care more convenient, accessible, and responsive. We also made significant progress in expanding our broker network this quarter. The number of active brokers on our platform reached 459, more than doubling the 192 in the same period last year. This growth reflects the increasing interest from the brokerage community that appreciate the value of our platform and the efficiency it brings. Our focus remains on onboarding high-performing brokers who are committed to digital transformation and understanding the competitive advantage of our quoting platform, eDIYBS. By equipping our broker partners with fast, accurate and customizable quoting tools, we aim to better empower them to close more deals quickly while delivering transparent, tailored plan options to their employers. In addition, we were happy to welcome Sanjay Shrestha to our Board of Directors. Sanjay brings an exceptional track record of scaling platform businesses and driving growth in both the energy and technology sectors. He also brings deep capital markets experience, having previously served as a top-ranked renewables research analyst at Lazard Capital Markets and First Albany Capital. We look forward to leveraging Sanjay's strategic insights and leadership as we continue executing on our vision of removing friction from the U.S. healthcare system. As we continue to build a strong foundation for long-term growth, we remain focused on helping our customers navigate today's challenging environment. In light of current microeconomic challenges, employers' businesses are under growing pressure to manage their costs. We're here to help, providing solutions to manage healthcare costs and improve efficiency. As we move forward, our focus remains on accelerating our growth roadmap. That means continuing to develop innovative programs and enhancing the capabilities of our eDIYBS platform. Our goal is for eDIYBS to become every broker's go-to destination for healthcare insurance, providing fast, intelligent, and customizable solutions that address the industry's most pressing pain points. We believe this commitment will continue to set us apart and deliver lasting value to our customers and partners. Thank you again for being a part of this exciting journey with us. Now I'd like to turn the call over to our Chief Financial Officer, Julia Qian, to walk through our Q1 2025 financial results. Julia?
Thanks, Tim. Good afternoon, everyone. We kicked off '25 with strong momentum. I'd like to highlight two areas where the company truly excelled. First, we accelerated revenue growth to 56% year-over-year, driven by rising market demand and the continued strength of our platform. Second, we delivered $0.7 million in pre-tax income, representing a 257% increase, more than 3.5 times the last year. This performance highlights the scalability of our model, the efficiency of our cost structure, and our ability to drive meaningful profitability as we grow. Now, let's look at our first quarter financial results. Driven by strong demand for our new product offerings and encouraging early results from beta testing with mid- to large-sized employers, total revenue for the first quarter reached $8 million, up 56% year-over-year. This growth was fueled in part by a 17% increase in total billable enrolled employees from our employee customers. The enrolled employees were 24,307, 3,505 more than the same period last year, which was 20,802. Revenue from the underwriting model grew 31.8% to $2.3 million, while program fee revenue surged 69.5% to $5.7 million. Fee-based revenue continues to outpace underwriting revenue as more employers prioritize higher-quality coverage and enhanced service offerings. This shift reflects a growing willingness among our clients to invest in programs that deliver stronger medical networks, richer benefits, and improved employee experiences. Gross profit reached $5.3 million, translating to a strong gross margin of 66.8%. We expect to maintain the margins at this level, supported by our strategic pivot to a channel distribution model. By partnering with established distribution networks, we're expanding our market reach efficiently, without a corresponding rise in marketing costs. This approach positions us for a scalable, sustainable, and cost-effective way to grow. Total operating expenses for the first quarter were $4.9 million, an increase of $1.1 million from the prior year, of which about $0.6 million was related to the public company costs, which include audit, legal fees, and investor relations expenses. The other $0.5 million was driven by share-based compensation vesting. Despite the increase on an absolute dollar basis, operating expenses as a percentage of revenue decreased meaningfully to 61% in Q1 '25, down from 74% a year ago. This 13-point improvement reflects the scalability of our model and the strong operating leverage we achieve in the way we grow. Sales and marketing expenses were $1.1 million in the first quarter, roughly in line with the $1 million reported in the same period last year. As a percentage of revenue, however, these expenses declined significantly to 13.6%, down from 20.4% in Q1 '24, a 6.8% reduction, which underscores the successful pivot to our distribution model, which relies heavily on our channel partners and brokers to drive customer acquisition sales. As a result, many of our associated costs are reflected in the cost of revenue rather than in sales and marketing, enabling us to scale effectively without a corresponding increase in direct sales expenses. Research and development expenses declined to $0.5 million in the first quarter, down from $0.8 million in the same period last year. The decrease reflects the capitalization of development costs relating to the further enhancement of eDIYBS 3.0 as our IT team fully engaged in development of functional features for the next-generation platform. These are the costs being capitalized rather than expensed. Adjusted EBITDA more than doubled to $1.2 million compared to $0.5 million in Q1 last year. Pre-tax income also saw strong growth, rising to $0.7 million from $0.2 million in the prior year quarter. Our balance sheet remains solid, with $7.6 million in cash and cash equivalents at quarter end. Accounts receivable stood at $2.1 million, with an average collection period of 28 days. We continue to maintain a disciplined approach to managing accounts receivable, strategic investments, and operating expenses to support sustainable growth. We are on track for rapid expansion in 2025 and remain focused on evaluating new opportunities with financial rigor. As we scale, operational efficiency remains a core priority, enabling us to reinvest in innovation while delivering sustained profitability. Looking ahead, we expect our strong sales momentum to continue into the second quarter and remain confident in achieving top line growth, operating leverage, and solid bottom line results. This concludes today's remarks. Tim and I will now take your questions.
Thank you. Your first question of the day will come from M Marin with Zacks.
So obviously we saw significant growth in the first quarter, including in the number of enrolled employees. Should we think about that stat in terms of any seasonality there as you continue to grow?
Yes, this is Tim. This is a good question. January 1 is typically our best month. There's a lot of business that comes through. A lot of groups renew their health insurance on January 1 as they renew their financial year. So yes, it does pick up in January, but the percentage increase is what we're noting or trying to note. That percentage increase, if we maintain those percentage increases month over month this year, it will be significantly better than last year.
Okay, great, thank you. And then one other question: Can you give us a little bit more color on how you're thinking about your market, your target market, in terms of how you're segmenting that market? Now that you're looking at potentially providing solutions for employers with 1,000 or more employees, are those types of employers traditionally ones that have not been able to offer self-funded benefits plans in the past?
No, good question. Our purpose for expanding beyond 150 enrolled employees from that 150 to 1,000 and beyond is purely for convenience. It's a little challenging to note this within a short presentation, but I want to mention that there has not been any significant increase or improvement in our market space on how we do business with each other. The technology that we're bringing is allowing brokers and underwriters to communicate much more efficiently and quickly. In other words, everything is within one system. You don't lose e-mails, and the technology that we're bringing allows for more data parsing tools, which will help improve communication speed and efficiency. It's a dramatic shift in that process.
Just one little bit, right? It's still in the beta test, and we are seeing encouraging results. We are looking at the space, and we're approximately expecting a 70% to 80% time reduction. Traditionally, those groups take about two to three months, and the way our system, still in the testing-development stage, has already shown a 70% or 80% improvement in terms of efficiency.
And your next question today will come from Allen Klee with Maxim Group.
When you split your revenues up from underwriting and from fees, could you just explain a little of the difference between the two, what's driving each one? Thank you.
Yes. Hi, Allen, happy to address the question. Our platform has two main structures. One is as a program manager, we create healthcare plans for small business owners. The other role is the underwriter for the insurance company. We earn revenue as a percentage of premiums from the premiums we underwrite for the insurance company. When employers select the healthcare plan, we also earn the program fee. The fees associated with the different program networks and benefits are much more tailored, allowing employers to choose. Both features combined serve small businesses from five to 150 employees. So when we look at our revenue, every sale includes earning the underwriting fee and the program fee revenue. Recently, employers are focusing more on the program, reflecting their willingness to pay more for higher-quality coverage and better benefits, which implies they want to invest in better healthcare plans for their employees.
Thank you. Could you talk a little bit about just the health of the self-funded market from a bigger picture perspective? Do you think there's a trend moving toward it, or are there any other changes that are affecting the attractiveness of being self-funded?
Are you referring to being self-employed or self-funded? I'm sorry, Allen.
I'm sorry, what?
Did you say self-employed or self-funded?
Self-funded is what I meant, although I said the other.
Okay. All right, I just wanted to ensure I got the question right. Yes, most of the larger groups in the country are self-funded currently. They take advantage of many proprietary programs that allow flexibility. If they remain fully insured, they lack flexibility. They basically have to do whatever the carrier tells them. I don't know the market share for groups above 150, but I'd bet that it's over 90% of every company with 150 lives or more on the plan are already self-funded.
But aren't there management teams that are concerned about taking the risk, some of the loss risk?
There is, but what we do is we mitigate the risk. Everyone has a different risk appetite. You're exactly right. But we mitigate it through various layers of coverage limits within the policy, so they do not have to take a lot of risk. They can ease into it. If they're around 200 lives and have not been self-funded before, we'll use a smaller specific deductible and manage claims accordingly. They can see year over year how they can benefit from it. They are essentially deciding between putting their own money into their claim bucket or paying a premium, which they never get back. So if they perform well, the premium is gone. Therefore, we implement many health management programs to improve the health of the group so they can retain that money. Next year, they might choose a higher specific deductible and pay less in premium to retain more profit in the program.
Yes, Allen, we are the platform company. We do not take the risk. What we do is create the program and help employers manage their expenses and exposure by comparing the market against fully insured and self-insured options while evaluating total cost. Using direct contracts and effective cost containment through the programs we create also benefits the employer. That is why we generate more fees, as we provide programs to support employers in managing their costs. Simultaneously, we also support carriers in managing their losses, ensuring profitability.
Thank you. When you talked about your AI-powered underwriting platform, that's in beta now and you hope to roll it out in the third quarter, would that be different on a pricing basis compared to what you sell today?
It will not be. What our new system will do is simply improve the entire process. What Julia was referring to earlier is that with a normal submission from a broker to an underwriter, all the data comes in an e-mail in various formats. What we're going to do is not change the pricing. An underwriter will still review it as they do today. We will automatically parse all data through our system, presenting it in the desired format for the underwriter. Thus, they will be quick, efficient, and have exactly what they need. All they have to do now is their underwriting job, rather than struggling to interpret mixed data from e-mails. Does that make sense?
Yes. So the idea is that you'd be able to grow your market because of the value it has to your customers.
Exactly. The brokers do not want to deal with this, and underwriters do it every month when they have groups renewing. Now, the system is going to do it for them. It will reduce a lot of work on both sides.
Okay, great. I heard you mention while discussing gross margins that you are considering possibly working with distributors. Could you explain what that actually entails?
So Allen, that refers to the channel partners. We have channel partners that are part of critical programs. They bring distribution and customers, which is why we do not heavily invest in sales and marketing. We have seen our top line growth while sales and marketing expenses remain flat or even slightly reduced. This is an effective way for us to reach different parts of the broker community and further streamline distribution.
Thank you. My last question is about your collaboration with DialCare. It seems like you might be doing something a bit different with this offering compared to your standard one. Could you explain how this compares?
Yes. We are utilizing them as an example of our partners. They have a proprietary health program in the marketplace where consumers pay a flat fee for specific services. The physicians in that program accept a flat fee, and you can use it as much as you want. Such programs in the marketplace are growing nationally, and we prefer to partner with people like that since knowing upfront what the cost is for services simplifies our underwriting and budgeting. DialCare is a valuable partner for us. We are just starting with them, and we hope to form a substantial business relationship.
Thank you. Seeing no more questions in the queue, let me turn the call back to Mr. Johnson for closing remarks.
Thank you, operator, and thank all of you. I appreciate everyone joining the call today. If anyone has any follow-up questions, please do not hesitate to reach out to us. We appreciate your interest and look forward to keeping the dialogue open. Thanks, everyone.
Thank you all again. This concludes the call. You may now disconnect.