Health In Tech, Inc. (HIT) Earnings Call Transcript & Summary

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Health In Tech Second Quarter of 2025 Earnings Conference Call. [Operator Instructions] As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. 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 the Health In Tech's Second Quarter of 2025 Earnings Conference Call. Joining us today are Mr. Tim Johnson, Chief Executive Officer; Mr. Dustin Plantholt, Chief Growth 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 ended June 30, 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 purpose only. Our GAAP results and reconciliations of GAAP to non-GAAP measures can be found in our earnings release. With that, I now turn the call over to our CEO, Mr. Tim Johnson. Tim?

Thank you, Lori. Good afternoon, everyone, and thank you for joining us. I'm incredibly proud to share the results of another truly exceptional quarter for Health In Tech. Our performance in Q2 2025 underscores the power of our strategic vision and the relentless execution of our team. We delivered a remarkable $9.3 million in total revenue for the quarter, an 86% year-over-year increase. This isn't just growth. It's an acceleration that positions us for a monumental year. To put this in perspective, our first half revenues of $17.3 million already represent a staggering 89% of our entire 2024 fiscal year total. We are not only meeting our goals, we are redefining our trajectory. This success is a direct result of our innovative approach to market expansion. We've strategically broadened our distribution network, reaching 778 partners, an impressive 87% increase year-over-year. This expansion goes far beyond traditional broker channels. We are actively forging partnerships with cutting-edge third-party administrators, offering technology-driven solutions, forward-thinking regional healthcare benefit providers and service platforms that cater to unique needs of small businesses. This diversified approach is rapidly expanding our market reach and more importantly, delivering exceptional value to our customers. The demand for our differentiated services is evident in the 30% increase in billed enrolled employees now at 24,839. This goes beyond adding numbers. It's just -- it's about deep adoption across our growing network. Our partners are increasingly leveraging our AI-powered platform to bundle health care and insurance seamlessly with their existing services, offering integrated end-to-end solutions that truly empower small business employers. This is the future of benefits, and we are leading the charge. We've moved beyond just providing services. We are enabling our partners to become comprehensive solution providers. Our platform's ease of implementation and intuitive design make it an indispensable tool for our partners seeking efficiency, scalability and significantly competitive edge. With dramatically broader distribution footprint and multiple high-impact new relationships firmly in place, we are pleased with the growth momentum in low sales seasons. As most businesses change their health insurance in January, first quarter or December fourth quarter, the second quarter and third quarter are typically slow seasons. We are able to make significant stride in the strategic partnership expansion in TPA broker agencies and large benefit platform companies. In the second quarter, we have welcomed multiple large high-profile brokerage firms and TPAs regional employer benefit providers and service platforms focusing on serving small businesses. We're able to create some specialized services that save costs for the small businesses through leveraging the distribution partners' significant ecosystem. For example, one of our TPAs, Verdegard is owned by MedImpact, the largest independent pharmacy benefit manager in the U.S. MedImpact manages prescription benefits for more than 20 million members, processing $40 billion in annual drug transactions, which benefits our customers by providing lower drug costs. Our enhanced EDIS platform with automated large group underwriting tools is on track to be fully launched in Q3. We are excited to get partners trained as soon as the enhanced platform is developed. In parallel, we are gearing up to develop a few new product offerings that are expected to be beta testing at the end of third quarter. The service offering will be a breakthrough in healthcare insurance market. With strategic partnership expansion, continued technology enhancement and product innovation, we're confident in our ability to maintain a strong growth momentum. Now I'll turn it over to our Chief Growth Officer, Dustin Plantholt, to provide more color on our strategic partnerships. Dustin?

Thank you so much, Tim, and good afternoon, everyone. I really appreciate you being here with us today. I want to speak to you not as a public company executive, but as someone who's been in the field, I was once a broker myself. I've run businesses of my own. So I know what it's like to sit across the table from a business owner who's trying to figure out health insurance without losing their minds or their margin. It's confusing, it's expensive, and it hasn't gotten any easier. But let's be honest, a lot of employers are feeling helpless, trapped, like they have to pick the least bad option. No real control, no real choices, and that's where we come in. At Health In Tech, we're changing it. Our platform enables brokers to create customized health plans for those employers. Employers are controlling their healthcare plan. The customized health plans are underwritten by our platform in about 2 minutes. We made all these possible through internal proprietary technology and seamless integration of our third-party AI. But let me paint a picture. Imagine helping a small employer design a better health plan, custom fit for their employees. Now imagine that the same plan lowers the cost for the business and lowers the payroll deduction of healthcare costs for their employees. Now imagine it takes about 2 minutes to do that instead of 12 or even 14 days that I saw on the brokerage side. Now imagine not having to imagine any of it because it's real. It's what we do. And we're doing it through the partnerships that have extensive networks and cost-saving solutions. Recently, as Tim mentioned, we teamed up with Verdegard Administrators, an integrated concierge level TPA owned by MedImpact, the largest independent pharmacy benefit manager in the U.S. This collaboration is monumental. MedImpact manages prescription benefits for more than 20 million members. That's about $40 billion in annual drug transactions. So partnering with Verdegard allows us to leverage their purchasing power to provide reduced drug prices to our customers. This is about deep integration and scale and unlocking value. We've also partnered this past quarter with Unified Health Plans, a premier TPA recognized for its extensive provider network across Kansas. Unified dominates several niche business sectors, and they are laser-focused on controlling cost drivers and improving care quality. And because of that partnership, we've already started bringing on schools as clients this past month. We're also thrilled about our alliance with Hill Group, one of Insurance Journal's top 25 ranked U.S. insurance brokers with over 2,400 employees across more than 125 locations in all 50 states. We're partnering with Hill to co-develop and distribute smarter, more transparent, self-funded health benefit solutions to a much broader base of small and midsized employers. And this alignment with a top-tier national broker significantly amplifies our reach and credibility. Bailey Insurance is another one. They're a fourth-generation agency established in 1880 with over 200 years of team experience and licensed advisers partnering with multiple carriers. [indiscernible] Bailey is a co-founder of Infusion Health. They're also a partner of ours. And they're dedicated to providing better care, better service and tech-enabled solutions. I believe that our collaboration with Bailey will deliver more efficiently. And these partnerships, they're not opportunistic. They're the result of a deliberate strategy from sales and marketing across all of our company's divisions to align with the market leaders who recognize that transformative power only happens when we come together. They underscore our ability to attract and integrate with the most influential players in the healthcare and benefits ecosystem. We're also continuing to develop our relationships with other large insurance brokerages across the country like Marsh McLellan, USI and Gallagher. But what I appreciate most is that they don't all see us as just another vendor. Many of them see us as friends, trusted partners. And together, we're building better solutions for employers and families from coast to coast. Each of these relationships and the hundreds more like them are part of a bigger story, a better way forward. Let's face it. Health care got too expensive, too complex, too out of reach. We all know it. If nothing changes, nothing changes. So while we can't fix it overnight, we believe that we are making meaningful changes as our platform gives people the right tools, the right partners, the right solutions, tailored plans and a system that is very intuitive, easy to use. So with that, I'll turn the call over to our Chief Financial Officer, Julia, to walk you through the financial details.

Thanks, Dustin. Good afternoon, everyone. I'm delighted to provide you the details of the financial results that underpin the exceptional operational achievement you have just heard from Tim and Dustin. Our second quarter and the first half year of 2025 financial performance reflects not only strong execution, but also disciplined financial management that is fundamental to our sustainability and profitable growth. For the second quarter, total revenue reached $9.3 million, bringing our first half year revenue to an impressive $17.3 million. As Tim highlighted, this already represents 89% of our entire 2024 revenue total, '24 revenue was $19.4 million. So this is a very clear indication of our growth momentum continued and the effectiveness of our strategy expansion and customer acquisition. Beyond the top line growth, our profitability metrics demonstrate significant positive operating leverage. Adjusted EBITDA for the first quarter was $1.6 million, an outstanding 134% increase year-over-year. For the first half year, adjusted EBITDA reached $2.8 million, which is 1.2x of our entire full year 2024. This growth in adjusted EBITDA demonstrates our ability to scale up and manage our operation cost effectively as we expand. Pretax income for the quarter more than doubled year-over-year to $0.8 million. Our first half year pretax income was $1.5 million. The entire 2024, we delivered $1.0 million pretax income. So that means the first half year is about 1.7x of the entire 2024. Critically, our first half year income represent 8.8% of the revenue. This is nearly 300 basis points improvement year-over-year. This enhanced -- this showcase our enhanced ability to maintain the expense discipline and the strategy allocation to the resource that drives both top line expansion and the bottom line profitability. Let me turn to the expenses. Sales and marketing expenses were $1.2 million for the quarter, 13.2% of the revenue, a 6.3% reduction year-over-year. This board and the strategic partnership are adding significant value resulting us to adding huge internal sales force. So we are turning on our system to the agencies that has hundreds of thousands of broker is free for them to use. General admin expenses were $3.8 million for the quarter, 40.5% of the revenue, a 4.2% increase compared to 36.3% in the same period of last year. This is mainly driven by the cost associated with being a public company. For instance, the D&O insurance, Board of Director compensation, legal audit and Investor Relations, all other expenses that amounting to $0.8 million for the quarter, that is about 9% of the revenue. Lease cost wasn't a part of 2024 expenses. That's why actual admin -- general admin expenses as a cost of revenue is 31.5%, a 4.8% reduction from apple-to-apple comparison perspective. We understand this is a part of the cost of doing business being a public company. Research and development expenses were 6.3% of the revenue, a 7.7% reduction from 14% of the revenue in the same period of last year, thanks to the full deployment and the time spent in the system development stage and the fully use our tax results, which is in the CapEx and software. We generated $1.5 million positive cash flow from operating activity in the second quarter, and we used $0.9 million in the tax software development. The total cash flow for all activities was a positive $0.6 million. For the first half year, the operating cash flow was positive $2 million, and we used $1.6 million in tax software development. As of the June 30, 2025, the second quarter end, we have $8.1 million in cash. We keep rigorous discipline in managing the cash flow. We will continue to ensure the accounts receivable days are way below 30 days. The accounts receivable was $1.3 million, a 12% reduction year-over-year, while revenue growth in the second quarter was 86% growth year-over-year. This reduction even with faster revenue growth that demonstrates our diligence and ability to focus on the working capital, manage accounts receivable and the health of the financial operations. In summary, our financial results are a testament to the strength of our business model, the effectiveness of our growth strategy and our unwavering commitment to deliver shareholder value. We are not only just growing, we are growing profitably and sustainably, and we are very well positioned and capitalized to continue this momentum. Thank you. I will now turn back over to the operator for Q&A.

[Operator Instructions] And your first question today will come from Allen Klee with Maxim Group LLC.

Tremendous quarter. Congratulations. So my understanding is typically, I mean, you were able to sequentially grow lives and revenues. And so you're really benefiting from all these partnerships. And so I wanted to go through a little of like the new business that's coming in, how you're thinking about where it's coming in from? And do you -- I mean, renewals are usually really the big time is January 1, but is it -- do you think that with all the partnerships you have, that can give you momentum before then?

Yes. Allen, this is Tim. Thanks for the question. In small group, most of these groups, the opportunities that we are looking at are fully insured. And in the fully insured market, Allen, they can move -- a lot of these people move off of effective dates because they find that our products and they have been looking for this flexibility to do anything that they want with their plan basically and get the right vendors and be really proactive around medical management. So the fully insured group can move off of their effective date at any point, there's no penalty. It's just the way the fully insured products are set up. So we have more sales during the year than you would think because people are moving off their effective date. And small groups also don't really run their medical plan along with the financial year, the January to January. They just don't do it as often as the larger companies do.

Yes, Allen. And also -- just adding a little bit of color. Also those new relationships, we start to build in. That's why we called out a few large relationships we start to work with them, and we should be able to see quite a lot of traction even during the low season. Obviously, always December, January is a high season, but we are able to build up more momentum now.

That's great. For your target of midsized -- moving to the midsized employers and you're rolling out an AI-backed underwriting platform. How are you thinking about the rollout in the education? And how you -- do you target those customers -- those employers like the same way with your partners? Or how do you think about that?

Tim, do you want to take a stab at it? Or would you like me to jump in?

No, go ahead. Go ahead.

Okay. So by the way, you're asking some really great questions, and I appreciate you taking this time. As we kind of going upstream and working with more national agencies or some of the larger brokerage firms, they're starting to really trust us to bring us some of their larger groups to take a look at. So we're noticing an uptick in 1,000-plus life cases. I mean this past month, we got a request for 1,400-plus life case. We're seeing lots in the 100 range, 200, 300. And I think we're going to see more of that going forward as Health In Tech continually earns the respect and earns the trust of our brokerage partners across the country. So we're not going out actively and marketing to large employers. That isn't something we're doing today. Our broker partners, however, and our TPA partners, that's a market that a number of them are in. So I do see us getting exposed to more and more of those cases and getting an opportunity to work with those corporations.

We continually get asked if we can do what we're doing on the small group and if we can do that with the large group and what we call -- we call it our EBU system, which means these larger groups, Allen have experience -- claims experience that we could work from. So we call that experience-based underwriting, which is the way it's normally done for larger groups that are already self-funded. And this system that we were talking about just a few minutes ago that we're rolling out, it doesn't necessarily change the way you underwrite. It just makes it way more efficient. You turn it this process that takes typically a month in a larger group. Now we're doing it within 5 days, maybe shorter. It's just way, way, way more efficient.

Yes. Allen, as we also announced on the last quarterly earnings call, on the beta test, we did on January employ year with 1,100 lives and our system is still on track to be fully launched on the third quarter. Yes, I think it's a huge differentiation. On that over 1,000 employees business traditionally take about 3 months. It took us about 2 weeks. Now we further enhance that. And Tim just mentioned about now we can take about 5 days. So once the system fully deployed and we will think about that will be the game changing for the medium-sized employer. Now you don't need to take that much time to do all the manual work. That's just the first step of the automation.

I have a lot of questions, but I want to be respectful of anyone else is on the call. So I'm going to get it back in the queue, and I'm going to ask questions. If there's no other people for questions, please hit me again so I can follow up on my question.

I think yes, we also can catch up after the call. If you have more questions, we can address more detail. So you don't need to feel be rushed. If you have other very important question and may have a similar question other people has and feel free to ask for it.

Well, yes, if there's another -- I don't know if there's another person in the call. If not, I'll keep talking.

Currently, we have no one else in the queue. [Operator Instructions]. Allen you can proceed.

I just wanted to not be a jerk if other people were raising hands.

No worries.

So the partnerships you mentioned that you called out, the three or four, definitely, you mentioned how they can make you provide an offering more effectively, lower cost or improved health care outcomes. But is it also -- and that's fantastic. But can you also talk about how -- if they can also bring you potentially new employers?

Yes, Allen, that's the goal, right? The more distribution, the more opportunities that we have because brokers are assigned to every group. There's very few people going direct. And every broker we bring in, we bring them in because they look at the system and they can -- it immediately shows them just how much more efficient they can be. They don't need to have -- they can have less staff and do more work. It's that much better. And then it's the natural progression on to the large group. So they -- every broker has the small group and the large group, and then they want us to bring them another solution that they can be as efficient on the large group. So some of these partnerships, and I'll let Dustin talk about this, some of these partnerships are pretty large. Some of the names that we're rattling off here, these are the largest brokers in the country. And they have hundreds and thousands of self-funded employer groups in that medium to large group range. And this system that we're talking about, it's really going to benefit them. So Dustin, if you got more to add, go ahead.

Yes. So regarding our two newest TPA partners from Verdegard to Unified Health Plans, they're bringing us their business as well. I mean Unified, we had a really phenomenal month with them on the TPA side. So they have a unique niche in supporting schools. So we're able to -- I mean, this month alone, in July, we've been writing lots of business with them. It's going to keep getting stronger in that relationship. And Verdegard as well, we picked up our first case with them for July 1. So -- it's a great question. Our partnerships are going to be bringing us business as well. I mean, as Tim just said, the goal is that their distribution, their relationships that they have will be coming into Health In Tech. And that's typically how it is when we work with TPAs is that we're tapping into a distribution channel that we didn't have access to before. I mean there may be some overlap at times. But for the most part, they are a trusted partner with a number of brokers, some smaller agencies perhaps that have been coming to them to be their resource. So we expect to be rolled out in the coming months, even more so to their different broker distribution channels that they have in place.

Sorry, I'm just trying to -- okay. Last quarter, you made the statement that your revenue was split with underwriting fees and program fees with larger employers willing to pay more for enhanced benefits. Could you maybe explain that and what that -- maybe how we could think about that as you do get more larger employers?

Allen, so the underwriting fee is a percentage of premium. When you have more employees, normally average premium is a little bit lower. And the PEPM is a flat fee and it's based on the choice and what service you choose for and different selection of the service, you have different fee. And naturally, more employees, the company with more employees, their average premium is a little bit lower, so your underwriting fee is a little bit lower. But however, they may choose more services they want to care for their employees. That's why the fee can be higher. It's really a mix. So that's we often observed our underwriting fee revenue is a little bit smaller, but still growing, but not grow at the same pace as the other fees because it just represents the different choices the employee make for the employees.

That's helpful. So I mean, you guys are kind of the textbook case of like with operating leverage. I mean, the degree that you're controlling your expenses while your top line is growing is very positive for the bottom line. Does that ability to control the things outside of cost of goods sold, how do you feel about that over time?