Health In Tech, Inc.

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. Currently, all participants are in listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. 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 for the company. Ms. Babcock, please proceed.

Thank you, Operator, and hello, everyone. Welcome to Health and 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 Chin, Chief Financial Officer. Full details of our results can be found in our earnings press release, and in a related form, 10-K submission to the SEC issued after markets closed today. These documents are available on our investor relations website at healthandtech.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 US 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 31st, 2024, filed with the SEC. Please review the forward-looking and cautionary statement 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 and 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. 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. 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 and Tech, we are set out to change that. I started Health and Tech from my living room couch. I didn't even have an office at the 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 cost, and do the right thing. That took me almost 10 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, eDIBS, which is backed by a 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 US 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 and 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 and 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 the 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 specific, and ag 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 stage for a long-term success. First, we make critical investments in IT infrastructure, functionally enhancements with cybersecurity. We strengthen 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 design, 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 eDIBS platform to serve midsize 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 large 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 eDIPS 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 full-scale rollout of our large business underwriting platform in 2025. backed by third-party AI, unlocking significant expansion in our total addressable market. Look, it has never been an easy task to scale up profitable and sustain a viable company. After a four-times year, year-over-year revenue jump in 2023, we realized that $20 million in revenue company requires a different foundation for the next two to three times 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 our 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 24 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 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 & 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, especially healthcare, now Clairon, a life watch company where he led large-scale operational improvements and business transformation initiatives. Dustin Plantholt joins as Chief Growth Officer bringing two decades of experience 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 healthcare and insurance sectors. Jenny Garica 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 and Tech, she was a security architect at Allegiant Air, where she played a crucial role in strengthening cybersecurity frameworks, ensuring regulatory compliance, particularly in surveying the Oxley 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 Chief Strategy Officer, leading high-impact initiatives in business development. SaaS innovation, and market expansion. With deep expertise in managing general agencies, third-party administrators, and captive health insurance, he will play a critical role in driving strategic growth. With his 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 Chen, to walk through our fourth quarter and four-year 2024 financial results and our expectations for 2025.

Thanks, Tim. Good afternoon, everyone, and thank you for joining today's call. I'd like to walk you through our fourth quarter and the four-year 2024 financial results. Our fourth quarter performance reflects many of the critical investments in the milestone Tim highlighted earlier. As we continue to building a strong foundation for the long-term growth, as of December 31st, 24, our cash and cash equivalent 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 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 liability to 2.6 million as December 31st, 24, compared to 5.4 million in the same period time of 23. 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 model revenue change, which is 1.7 million in Q4 compared to 2 million in Q4 of 23. This temporary reduction due to increased offering of A-rated insurance policies, which resulting in lower underwriting fee. In the second half of 2024, we diversified the stop-loss policy offering by adding other new carriers. Small business that prefer A-rated carrier generally demonstrates strong performance and they were willing to pay higher program fee for the better medical network coverage and enhanced health benefits. Revenue from program fees remained relative flat at the 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 policy, capital management fee associated with the new carriers and the new initiative. Turning to our operating cost, 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, after which $1 million was due to the reversal of the compensation accrual in 23. Turning to our bottom line, income from continued 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 23. 2022-3, same period. Turning to the four-year result, for the four-year 2024, the revenue was $19.5 million, up 1.8% year-over-year. This is due to our strategic approach to moderate our growth and allocate the resource to a foundational initiative and strengthen our organization. We have shifted our focus towards the customer who prioritized better access and enhanced our programs for other employees, leading to a transition from underwriting fee to a high program fees. Revenue fund fees increased by 17.5% to $12.8 million due to the high program fees for the network and 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 fee to the additional channel partners captain management activity and the four-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 meaning due to the expansion of personnel in our underwriting department, planning department, and the enrollment department. which was essential to support our business expansion into mid-size 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 product and services. As we continued prioritize our innovations, our R&D efforts focused on developing the customized features, optimizing system and the service platforms, enhancing our customer experience will continue give us the competitive edge to the market. Income from continued operations net our 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 market Our commitment remains steadfast in delivering innovations, value-driven solutions that transform self-funded healthcare. As we scale, our continued investment in technology automation and operational efficiency will enhance our value proposition and enable us to provide exceptional service to our customer. Before we move to open Q&A, we received many inquiries from the investor who are concerning about the recent stock decline. We acknowledge your concerns and frustration, and then we want to share with you 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 industry. 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 PNC insurance all in one place with full repricing 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. If you have different questions, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question is from Alan Klee with the Maxim Group. Please go ahead.

Yes, hi. Congratulations on your first quarter as a public company. um 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 um to start off with i had i was trying to you talked about the change in the underwriting model um could you just um help us help me understand what that what happened what you changed yeah the our underwriting model uh dibs 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. Our new, our CTO started, I believe it was in October of last year, October, 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 E-Dev 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, remolding our tool to move quicker.

Okay. Thank you. And then when you talked about some – mentioned some collaborations with Marpe and VitaBull DPC. Can you explain what you mean by you said the strength of VitaBull's direct primary care model and adding that to some other things you do?

Yeah, VitaBull 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 Vitables 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 1st is big time. Yeah. Does that affect you, or do you get more visibility as a result of that, or any commentary on what happened there?

I can take this question, Alan.

Okay.

So, yes, as Tim and as we share on the earnings release, in the January and the February, you can see this is already now in March, and we look at the result is 5.7 million revenue is already 50% year over the year versus last year, 24. So it's a very strong momentum and driven by various product within the market, including the beta test of the underwriting offering to million sites of the group with employing more than 150 employees. So it's really strong and we are very, please with least result. And Tim, sorry, please add on.

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

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

Well, I can tell you, Alan, for our business, our accounting is based on the accrual. So this number is just one month, right? So think about if we have another 11 months, another 10 months cumulative. And obviously, we cannot give a projection on this earnings call, but we can talk about the history versus the last year. So first two months we did is more than last year first quarter combined, total three months. When we get the clearance, which was our council, and I think we should be able to, when the company get 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 in the Q1, and the analyst investor come back to listen the earnings. They will gather the updates, look at the quarter.

Got it. We're... I'm sorry, trying to 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 that AI. We could, you know, 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 but 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 in our own real underwriting tool that we apply those two and it's very quick it goes out it comes back it all is this engine and 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 we And it comes in, and today it takes a person, a man you only have 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. Yeah.

Yeah, and we did some beta test, the Q4 last year. The feedback is really very positive. So we're pretty excited to move forward. And this year, we think it's going to be for us. It's going to be a game-changing.

That's great. Then two things. Well, these are separate. One, moving to the middle size, uh customers um is is it i i know you said you were 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 mid-size um companies throughout the year yeah surprisingly enough there are a lot of mid-sized 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 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 of when you had small customers that the brokers represented, you naturally have churn. Was there anything you would point to that factored into the decline in the number of lives?

Yeah, I can take this question, Alan, and 24. Honestly, we really just take a little bit strategy pause, the moderate to the growth. We look at the various infrastructure and other things we need to strengthen. So when the business grow four or five times, our people process need a catching up. As same as the customer and as the partners. So the headcount we build, we carry through to 25. which we even reduced from 23, the peak, and it stabilized and just to carry really the scalable growth on 25. So I would not say 25 performance is much more. You look at the January and the February, speak to the performance, not the 24, because 24, we know we go through IPO. We know we intentionally reorganized Ourself, 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 the difference to the number of lives is increased dramatically. And we can only report to the market when we close the first quarter.

OK, 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 product service is about six months. Means we started the inception of the conceptual inception to the design, to our system, to development, it's about six months. And then we started to do beta tests 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 few key things we're going to do for a little bit of large size of the employees, where Tim also mentioned probably somewhere middle or second half of the year, we could get that launched. And then once that's rolling, it hopefully will capture even big opportunity at the end of the year. And this is where a lot of companies change the 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 the SAS 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 on this year. And a lot of results will come in early next year. That is 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 do you grow the customer reach?

Yeah, sure. A little bit of everything, okay, because the system, when we call it the exchange, Alan, 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 DIBS stands for do-it-yourself benefit systems, it allows the brokers and the people, the distribution, the sales force, as 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. 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 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 it for our services and to help us and to become efficient, because 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 SAS 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. Yeah. OK, that's it for my questions. Congratulations, and I look forward to tracking your progress. Thank you.

Thanks, Alan.

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.

Thank you all again. This concludes the call. You may now disconnect.