HIT - NASDAQ

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Health in Tech Fourth Quarter and Full Year of 2024 Earnings Conference Call. [Operator Instructions] As a reminder, we are recording today's call. [Operator Instructions] Now I will turn the call over to Lori Babcock, Chief of Staff of the company. Ms. Babcock, please proceed.

Thank you, operator, and hello, everyone. Welcome to Health in Tech's Fourth Quarter and Full Year of 2024 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-K submission to the SEC, issued after today's -- after markets closed today. These documents are 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 annual report on Form 10-K for the period ending December 31, 2024, 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. Hi, everyone. Welcome to our first earnings call as a public company. Our December IPO marked an exciting milestone for Health In Tech, and I'd like to start off by thanking our customers, partners and investors for your trust and confidence in us. Your belief in our vision drives us to push boundaries, innovate and continuously improve. We recognize that sometimes market fluctuations can be challenging, but our focus remains unwavering, delivering value, executing on our strategy and driving long-term growth. That said, our IPO was not the finish line; it was just the beginning of an even bigger opportunity to transform our healthcare industry through digital innovation, through bringing efficiency and through the options of competitive cost. We are excited that the current administration is focused on cutting out waste and improving efficiency, which would be a great tailwind for our company. Our company is deeply invested in this industry because it's part of who we are; it's in our DNA. Our decades -- for decades, the healthcare industry, particularly for small businesses, has been plagued by inaccessibility, complexity and lack of transparency. Small businesses are often underrepresented due to the limited number of competitive insurance solutions, leaving them with fewer options and higher costs. Traditional quoting processes remain outdated and inefficient, taking anywhere from 12 to 14 days to complete, causing unnecessary delays and administrative burdens. Businesses -- business owners often lack visibility in their healthcare costs, making it difficult to make informed decisions. These challenges have created barriers to affordability and efficient self-funded healthcare, and at Health In Tech, we set out to change that. I started Health In Tech from my living room couch. I didn't even have an office at that time. I was frustrated with how many -- how my own healthcare issue was handled and with the lack of options that I had to try and resolve them. Since I was already in the insurance business, I thought I would try to help people like myself and other small employers. So I quit my job, I started a new company, and off we went. I knew I needed to create programs and products that included all players in the healthcare and insurance cycle to control the entire process so that I could eliminate all the redundancies, cut down on the costs and do the right thing. That took me almost ten years to figure it out, with a technology platform backed by a third-party AI company that brings all participants together in one platform: the insurance company, the TPAs, the brokers, hospitals, clinics, employers, and finally, and most importantly, the employees. Our technology-driven solutions finally make self-funded health plans and stop-loss insurance more accessible, cost-effective and transparent. Our sales platform eDIYBS, which is backed by third-party AI, enables brokers and employers to generate fully bindable proposals in about two minutes, offering 12 plan options with four-tier rates, compared to the traditional two-week quoting process. We also provide real-time access to data and 24/7 transparency, ensuring seamless transactions and updates for all participants. By streamlining workflows, eliminating inefficiencies and empowering businesses with greater control, we are not just improving healthcare accessibility, we are redefining the way small businesses approach self-funded health plans. The market opportunity in front of us is enormous. The U.S. healthcare and insurance industry is a $6-trillion market that has seen very little innovation, creating a vast opportunity for disruption. According to a Frost & Sullivan report, the small business self-funded medical insurance market has grown from $157 billion in 2019 to $186 billion in 2023, with projections reaching $242 billion by 2028, growing at a 5.4% CAGR. As AI, big data and automation reshape the industry, Health In Tech is uniquely positioned to lead this transformation. Our underwriting and automated quoting platform are driven with efficiency, affordability and transparency, unlocking new opportunities in a market that is primed for innovation. 2024 was a pivotal year for our company. We took a strategic approach to moderating our growth to achieve critical milestones. We successfully completed our IPO, made significant investments in IT, InfoSec and cybersecurity, and introduced our new Spec & agg products. Additionally, we launched a transformative technology innovative -- initiative aimed at delivering unique solutions for large-group underwriting. These strategic initiatives have laid a strong foundation for accelerated growth in 2025. I'm excited to share how the groundwork we laid in '24 is driving our momentum and setting the stage for our long-term success. First, we made critical investments in IT infrastructure, functionality enhancements with cybersecurity. We strengthened our internal controls and compliance framework, ensuring a robust foundation for scalable expansion. These efforts enable us to extend our solutions to a broader range of carriers, brokers, TPAs and other businesses. Second, we developed a specific and aggregate product, our latest stop-loss healthcare plan product designed to simplify the claims process for TPAs and carriers. This innovation enhances efficiencies and streamlines operational successes, reinforcing our commitment to delivering value-driven solutions. Third, we are advancing our underwriting capabilities in our eDIYBS platform to serve mid-sized businesses with over 150 employees, expanding beyond our traditional focus on small businesses with five to 150 employees. While AI-driven automation has transformed many industries, healthcare insurance has been slow to evolve. We are the leader in this shift, modernizing underwriting to create more efficient, data-driven ecosystems. Traditionally, the underwriting process for larger companies with more than 150 employees takes approximately three months due to the extensive information gathering and prolonged communication cycles between brokers and underwriters. This outdated model creates a bottleneck, delaying access to cost-effective healthcare plans. Our underwriting solution addresses these inefficiencies, reducing processing time, helping employees secure coverage faster, while improving accuracy and pricing competitively. To achieve this breakthrough, our eDIYBS platform integrates data from various third-party vendors that leverage machine learning tools, connecting to our system via API. This real-time data feeds into our proprietary risk-scoring model, which assesses risk, calculates premiums and aligns with carriers' underwriting guidelines and risk acceptance thresholds. While our small-business underwriting solution utilizes third-party AI tools, we have significantly enhanced it with proprietary machine learning algorithms that continuously refine decision making through third-party data feeds and insights. Governed by our internal AI governance framework, this ensures compliance, reliability and continuous optimization. Since launching beta testing in November '24, we have received strong initial feedback, and we are on track for a full-scale rollout of our large-business underwriting platform in 2025, backed by third-party AI, unlocking a significant expansion in our total addressable market. Look, it has never been an easy task to scale up a profitability, sustainable company. After a 4x year-over-year revenue jump in 2023, we realized that $20 million in revenue company requires a different foundation for the next 2x to 3x growth. We started with 41 employees in the beginning of '23, ended with 91 in December of '23. We doubled our workforce in 12 months. We realized that our people and process has to catch up with the growth. In 2024, we moderated our growth to strengthen our organizational structure, reorganized operational departments, expanding IT department, built internal controls and info securities and went through the IPO. With all of that tasks, we reduced the headcount from 91 to 80 as of December 2024. The solid groundwork we laid in 2024 has set the stage for accelerated growth momentum in 2025. Our unaudited total revenue for January and February is around $5.7 million, which has already exceeded the entire first quarter revenue of 2024. To further drive our -- to drive our growth strategy, we have expanded our executive leadership team with highly experienced professionals in sales, operations and cybersecurity. Chris Kurtenbach has been promoted to Chief Operating Officer after serving as Senior Vice President of Operations since 2024. With over 30 years of experience in operations, customer service and process improvement, he will drive scalability with operational efficiencies. Prior to joining Health In Tech, he served as Vice President of Operations at BCS Financial Corporation, a leading provider of insurance and financial solutions for Blue Cross Blue Shield organizations and commercial partners nationwide. He also held senior leadership roles at AIM Specialty Health care, now Carelon, a LifeWatch company, where he led large-scale operational improvements and business transformation initiatives. Dustin Plantholt joins as Chief Growth Officer, bringing two decades of expertise in insurance, emerging technologies and strategic partnerships to accelerate market expansion and revenue growth. He has served as CEO of BlockBuzz, a strategy and media advisory company, and previously led Life's Tough Media as Chief Executive Officer. Additionally, he played a pivotal role in business growth and marketing leadership at Optimed Health and Evergreen Health, where he helped drive innovation and strategic expansion in the healthcare and insurance sectors. Jenni Guerrica has been promoted to Chief Information Security Officer, where she will continue advancing our cybersecurity, risk management and regulatory compliance as we scale. Prior to joining Health In Tech, she was a security architect at Allegiant Air, where she played a crucial role in strengthening cybersecurity frameworks, ensuring regulatory compliance, particularly in Sarbanes-Oxley (SOX) requirements. She also gained extensive experience in regulatory compliance and security architecture at Progressive and IGT, building resilient security infrastructures for highly regulated industries. Del Lockett, our formerly Chief Operating Officer, has been appointed to Chief Strategy Officer, leading high-impact initiatives in business development, SaaS innovation and market expansion. With deep expertise in Managing General Agency, third-party administrators and captive health insurance, he will play a critical role in driving strategic growth. With this leadership team in place, we are poised to accelerate our expansion, optimize our technology-driven platform and continue redefining the self-funded healthcare industry. Now, I'd like to turn the call over to our Chief Financial Officer, Julia Qian, to walk through our fourth quarter and full year 2024 financial results and our expectations for 2025.

Thanks, Tim, and good afternoon, everyone, and thank you for joining today's call. I'd like to walk you through our fourth quarter and full year 2024 financial results. Our fourth quarter performance reflects many of the critical investments and milestones Tim highlighted earlier, as we continue to building a strong foundation for the long-term growth. As of December 31, '24, our cash and cash equivalents stood at $7.8 million, more than three times of $2.4 million at the end of 2023. This increase, mainly driven by our strong liquidity position following with the IPO, as well as disciplined capital management to support our growth initiatives. At the same time, we have strengthened our financial position by reducing total liabilities to $2.6 million as of December 31, '24, compared to $5.4 million in the same period, turn of 2023. Total revenue for Q4 '24 came in at $4.9 million, compared to $5.2 million in the same period, reflecting a small decline. This was mainly driven by the underwriting modeling revenue change, which is $1.7 million in Q4, compared to $2 million in Q4 of '23. This temporary reduction was due to increased offering of A-rated insurance policies, which resulted in lower underwriting fees. In the second half of 2024, we diversified the stop-loss policy offering by adding other new carriers. Small businesses that prefer A-rated carriers generally demonstrated stronger performance and they were willing to pay higher program fees for the better medical network coverage and enhanced health benefits. Revenue from program fees remained relatively flat at $3.2 million. Gross margin in Q4 '24 was 77.4%, compared to 81.8% in the same period of '23. This is driven by an increase in cost of revenue, largely due to the new distribution channel partner fees and captive management fees associated with the new carriers and the new initiative. Turning to our operating costs, total operating expenses for Q4 '24 were $4.1 million, compared to $2.8 million in the same period of time, representing an increase of $1.3 million, of which $1 million was due to the reversal of the compensation accrual in 2023. Turning to our bottom line, income from continuing operations, net of income tax, was a loss of $0.1 million in Q4, compared with a profit of $1 million in Q4 '23. Adjusted EBITDA for Q4 '24 was $0.5 million, down from $1 million in 2023, same period. Turning to the full year results. For the full year 2024, the revenue was $19.5 million, up 1.8% year over the year. This is due to our strategic approach to moderate our growth and allocate resources to foundational initiatives and strengthen our organization. We have shifted our focus toward the customers who prioritize better access and enhanced our programs for all their employees, leading to a transitioning from underwriting fees to higher program fees. Revenue from fees increased by 17.5% to $12.8 million due to the high program fees for the better network in the medical network access. However, this growth was partially offset by the declining in underwriting model revenue, which decreased to $6.6 million. Gross margin for the full year '24 declined to 79.2%, compared to 88% in '23, this mainly due to an increase in cost of revenue, which rose from $2.3 million to $4 million, driven by increased access fees to additional channel partners, captive management activity and the full year software amortization compared to the half-year software amortization in 2023. Total operating expenses for the year were $14.4 million, reflecting a $0.9-million increase from 2023. This increase was mainly due to the expansion of personnel in our underwriting department, claims department and the enrollment department, which was essential to support our business expansion into mid-sized and the large size of business customers in '25. Research and development expenses increased to $2.8 million, up $0.8 million from $2 million in '23. This increase was driven by additional expansion in IT compliance, information security and the development in new products and services, as we continued prioritizing innovation. Our R&D reflects -- our R&D efforts focused on developing the customized features, optimizing systems and service platforms, and enhancing customer experience will continue to give us the competitive edge to the market. Income from continuing operations, net of income tax, was $0.7 million, compared to $2.5 million in the same period of '23. Adjusted EBITDA for the full year '24 was $2.3 million, compared to $4.8 million in '23. We are entering 2025 with strong momentum and a clear path for growth. With the foundation we have built and the strategic investment we have made in '24, we anticipate further investment in automation and expansion into the new markets. Our commitment remains steadfast in delivering innovations, value-driven solutions that transform self-funded healthcare. As we scale, our continued investments in technology, automation and operational efficiency will enhance our value proposition and enable us to provide exceptional service to our customers. Before we move to open Q&A, we have received many inquiries from the investors who are concerned about the recent stock decline. We acknowledge your concerns and frustrations, and we want to share you with our thoughts, and Tim, please go ahead.

We understand that last week's sharp decline in our stock price has been concerning for our investors. As management, we share your frustration. The abrupt nature of this movement was unexpected. Last week, while we were focused on preparing for this earning call, conducting board meetings and reviewing our 2025 growth strategy, external market forces drove volatility, factors beyond our direct control. What we can control is our execution. We remain committed to building innovative products and services for our customers, driving revenue growth and maintaining profitability. In the first two months of 2025 alone, our unaudited revenue reached approximately $5.7 million, representing over 50% year-over-year growth and exceeding our total revenue for the entire first quarter of last year. Our financial position remains strong, with $7 million in cash and a 29-day accounts receivable turnover with no debt. More importantly, we are steadfast in our mission to transform the healthcare and insurance industries. We are bringing competitive, cost-effective solutions to underserved small and medium-sized businesses. Our Exchange platform will enable employers to purchase healthcare, workers' compensation and P&C insurance all in one place, with full re-pricing transparency. Additionally, our Health Intelligence Card will empower individuals by giving them control over their own health data, eliminating the need for multiple logins across various providers. We are confident that over time, the market and investors will recognize our true value. We deeply appreciate your ongoing support and patience. With that, I will now turn the call back over to the operator.

Thank you. [Operator Instructions] Our first question is from Allen Klee with the Maxim Group.

Congratulations on your first quarter as a public company. I have a bunch of questions, so if I ask too many, you can kick me off and I'll go back in if there's other people. To start off with, I had -- I was trying to -- you talked about the change in the underwriting model. Could you just help us -- help me understand what that -- what happened, what you changed?

Yes. The -- our underwriting model, DIYBS, is what we call Do It Yourself Benefit Systems. That system needed more features. Our clients and customers have given us some excellent advice of some features that they would like to have added to it, so we are constantly improving that, and our new -- our CTO started, I believe it was in October of last year, October or November, and he comes with an extensive background, and he has looked at our tool and is improving it so that we can make changes to eDIYBS faster and more efficiently; rather than waiting for a big change, we can continually make these changes. So he's kind of re-underwriting, if you will, re-molding our tool to move quicker.

Okay, thank you. And then when you talked about some -- you mentioned some collaborations with MARPAI and Vitable DPC. What -- can you explain what you mean by -- you said the strength of Vitable's Direct Primary Care model, and adding that to some other things you do?

Yes. Vitable's is a direct primary care facility, if you will. It's a company that you will pay them a fee rather than -- and they'll see everybody. You don't pay when you come in to the doctor; they're already paid a fee, and that fee covers them for whatever the list of services is. And that is a very quick-growing industry within our business. And so the doctor gets almost a guaranteed income every month, depending upon how many people are in his geography and are participating in the program. So Vitable's is growing their company very quickly and we're proud to be a part of that, because it really -- when I can set a fee and I know what I can budget to in my underwriting, it makes the underwriting much more predictable.

That's helpful. Thank you. I know that the broker business signs most of the contracts -- January 1 is a big time.

Yes.

Does that affect you, or do you get more visibility as a result of that, or any commentary on how -- what happened there? A - Julia Qian I can take this question, Allen, and so yes, as the team -- and as we shared on the earnings release, in January and February, you can see this is already now into March, and we look at the result, is $5.7 million revenue, it's already 50% year over the year versus last year, '24, right? So it's a very strong momentum, and driven by various products went into the market, including the beta test of the underwriting offering to medium-sized subgroups with employing more than 150 employees. So it's really strong, and we're very pleased with this result. And Tim, sorry, please add on.

Yes. No, I -- yes, if I was understanding your question, Allen, we -- a lot of our business today obviously comes from small groups, as their effective dates don't necessarily line up like some of the larger groups do with that 1/1 effective date. So we're able to write more business and have more opportunities every month of the year.

That's helpful. So when -- the $5.7 million, can we think of that, to a degree, as a run rate of -- or is some of that one-time, or how -- I mean, is it fair to multiply that by six and that's the year, or is that the wrong way to look at it?

Well, I can tell you, Allen, it is -- for our business, our accounting is based on accrual, so this number is just one month, right? So think about if we have another 11 months, another 10 months accumulative, and obviously we cannot give a projection on this earnings call, but we can talk about the history versus last year, so first two months we did give more than last year first quarter combined total three months. When we get the clearance, which with our council, and I think we should be able to, when the company gets a few quarters down the road, we will be able to have some guidance to the market. But now, we can comfortably share with you the actual result, what has happened, and soon I'm expecting the Q1, and the analysts and investors come back to this in the earnings, they will get an update to look at the quarter.

Got it. For -- I'm sorry, I'm trying find my next -- oh, I had a question on your AI that you're looking to do for underwriting. Could you just expand on how you're using that and the benefits you're seeing as a result of that?

Sure. There's a couple of AI tools that we use, and again, everybody throws out AI, machine learning, whatever we want to call it. There are some third-party vendors that are gathering medical data and they're organizing it in such a way that we can access it very quickly to find out what the health and well-being is of the group, because we get a census, and from that census, we get a full census that includes not only the employee but the spouses and the dependents, so we're able to run it through those AI vendors and get that information back, and we can use that data in the risk-scoring methodology that we have, our own risk-scoring methodology and our own real underwriting tool that we apply those to. And it's very quick. It goes out, it comes back. It all is this engine; it moves very smoothly. We also have our own proprietary -- we call it data parsing, where we're pulling information out of all of these submissions that we get from these brokers, and it comes in, and today it takes a person -- someone manually has to go through all of this paperwork to find the information that the underwriter needs to do their job. Now we just have the brokers upload that information into our system, and this is what our new technology is that we have coming out. It hasn't launched yet; we're finishing up our testing. But that's where we're going with it, so that it'll drastically reduce the time spent on working on those submissions.

That's great. I won't tell you which year, but my first job out of school, I was an underwriter, and I had an adding machine on my desk. There weren't computers back then.

Yes, some still do, yes.

Yes, and we did some beta tests in the Q4 last year; the feedback is really very positive. So we're pretty excited to move forward and this year, we think, is going to be, for us, is going to be game-changing.

That's great. And two -- a few things -- well, these are separate. One, moving to the middle-sized customers, is it -- I know you said you were early in that, but do you think it's reasonable to think that most of the opportunity came on January 1, or do you think that there's potential to also add midsized companies throughout the year?

Yes, surprisingly enough, there are a lot of midsized companies that are still fully insured, for example, that are not self-funded, and a lot of them, we're now looking at more and more of those opportunities. And those people have effective dates throughout the year. But you are right; 1/1 is clearly, especially for the larger groups, is clearly the biggest month of the year, and we really didn't do much in the large-group space for this year. We just looked at a few, and actually I don't even know how many we picked up; it wasn't a significant amount. But we need to get prepared by June and July, because that's when they're going to start looking for other options. And so our systems and everything need to be in place by then.

Got it, okay. And then the number of lives going down, I know the nature when you had small customers that the brokers represent that you naturally have a churn. Was there anything you would point to that factored into the decline in the number of lives?

Yes, I can take this question, Allen. And '24, honestly, we really just take a little bit strategic pause, to moderate the growth. We look at the various infrastructures and other things we need to strengthen, so when the business grows four or five times, our people and process needed catching up. It's same as the customer and the supporters. So the headcount we build, we carry through to '25, which we even reduced from '23 to pick, and it stabilized, and just to carry, really, the scalable growth in '25. So I would not say '25 performance is much more, you looking to January and February speak to the performance. Not the '24, because '24 we know we go through IPO. We know we intentionally reorganized ourselves, as Tim shared. We're adding our management team, many experienced people joining us this year, and also, we did a lot of investment in the InfoSec and IT. So this year, '25, and with these two months' revenue growth, 50% year-over-year, and definitely the number of lives has increased dramatically, and we can only report to the market when we cross the first quarter.

Okay, great. So when you think about 2025, how do you think about your initiatives for spending on software development?

Yes. So one of the unique things this company does is, we -- our deployment of the lead time for the new products/service is about six months. It means we started the inception of the conception inception to the design to our system to development, it's about six months. And then we started to do a beta test to the small population, then we roll out to the large population. So a lot of groundwork we did in '24 start to harvest the good result in '25. In the meantime, the '25, when we mentioned about there are a few key things we're going to do for a little bit of large sizes of the employers, which Tim also mentioned, probably somewhere middle second half of the year, we could get that launched, and then once that's rolling, it hopefully will capture even bigger opportunity at the end of the year, and this is where a lot of companies change their insurance. That's one of the very critical initiatives. And then we also have other few things we do. We will be able to look at and assess, as a service. There are many things, very exciting, which do not including in the January and February number. Again, January and February number is based on '24 investment and we look at the result, and then there are other things we do which we'll gradually share with the investment community once we think it's ready this year. And a lot of result will come in early next year. That's just the nature of the cycle when we look at this program.

Got it. That's great. Okay, so as you're thinking about planning to expand your customer reach, how do you go about that? Is it through the brokers? Or how do you think about how you -- how do you grow the customer reach?

Tim?

Yes, sure. So the -- a little bit of everything, okay? Because the system, we call it the Exchange, Allen, the tools that we're building, they're very unique in that the amount of data that we're putting in them and the amount of things and the features that we're building into them, you can be a healthcare system that needs to have an insurance product to better underwrite; just the fact that DIYBS stands for Do It Yourself Benefit Systems, it allows the brokers and the people, the distribution, the sales force, if you will, within the marketplace, to use the tool itself and get all the data into the system, versus somebody else. You have MGUs, underwriters all over. You have -- there's all sorts of other people that are looking at using our tool, for enrollment, for example. Several large insurance companies are challenged with enrollment, and our tool really helps out with a lot of those -- that functionality. It took us a long time to build it. We really didn't understand, to be honest with you, what we were building; we were building this for our services and to help us, and to become efficient, because I wanted -- that's the type of company that I wanted. But next thing I know, others were asking, could they use it? So that's when we came up with the SaaS idea and started building that out in a much quicker fashion.

That's great. Well, I cover SaaS companies, and with the great gross margins, if you scale, there can be great operating leverage.

Yes.

Okay, that's it for my questions. Congratulations, and look forward to tracking your progress. Thank you.

Thanks, Allen.

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 you all for participating in today's call and for your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress.