Thread by @CVCResearch

A short thread on $HIIQ. After doing some basic work, 6 things seem obvious to me regarding the overall situation:
1) ST Medical plans (allowed under ACA) are shady & while cheap, cover almost nothing
2) HIIQ sells ST Medical Plans (25% of 2018 revenue) thru their marketplace

1/

3) Simple Health & Dorfman are scam-artists; we don't know how much of $HIIQ ST Medical revenue was through Dorfman exactly
4) FTC and many regulators reviewed the Dorfman situation and none accused $HIIQ itself of wrongdoing

2/

5) $HIIQ overall GM was 31% in 2018, whixh trended down from 50% in 2018 from 50% in 2013 - not clear why or what this may have to do with a mix shift towards or away from ST Medical plans.

3/

6) $HIIQ is a distinct entity from Simple Health/Dorfman - don't conflate the two

4/

So here's my quick and dirty analysis as to why 1) any potential liability that $HIIQ has is very managemeable, 2) $HIIQ is simply too cheap and is a LONG 😲:

5/

- Simple Health and affiliates are accused of essentially lying about wha these cheap (BUT legal under ACA rules) ST health plans offered and the FTC complaint covers 2016-2018
nytimes.com/2018/11/05/us/…
ftc.gov/system/files/d…

$HIIQ

6/

- ST Health Plans were 25% of $HIIQ's revs in 2018
$HIIQ overall GM was 31% in 2018, which trended down from 50% in 2018 from 50% in 2013 - not clear why or what this may have to do with a mix shift towards or away from ST Medical plans.

7/

- I estimate that through full years 2016 -2018 (Simple Fraud was apparently "from January 2016 to April 2018") $HIIQ earned a total of $14M (with a theoretical max of $42M - max from their filings)
- $HIIQ has current liquidity of $39M ($9M cash, $30 unused credit facility)

8/

- $HIIQ made $13M GAAP NI, $16M adj NI, and generated $20M in FCF in 2018
- $HIIQ is forecasting +24% revenue growth and +$15M in EBITDA Y/Y in '19 (even with the "headwind" of dropping Dorfman entities as disty's who were still associated until Nov ''18

9/

- $HIIQ trades at 7x fwd P/E (9x trailing), expect 24% top line growth in '19, even with lapping elimination of Dorfman, who was a dsity for much of '18

Conclusion is bulls 1) are overly-conflating scam-artist Dorfman with $HIIQ, 2) don't realize ST Medical (what's at issue) 10/

is only 25% of $HIIQ consolidated revenues in 2008, 3) even if hit as hard as possible (despite effectively being cleared of wrongdoing by FTC around the Simple/Dorfman case), liquidity is a non-issue given available liquidity and profitability/FCF generation, 11/

, and 4) bulls are either ignoring or don't realize how much in earnings power $HIIQ has:
$HIIQ he following multiples (while growing 20%+ expected in '19:
13x T12 non-GAAP P/E (P/E)
8x T12 NG EPS (NG P/E),
10x T12 FCF

Est 2019 NG EPS is $3.28, FWIW

12/

My conclusion here is that either the bears ie @AureliusValue have this nailed and the issues will extend WELL beyond the Simple/Dorfman-related ones, or the impact will from the known Simple/Dorfman fraud will prove manageable and $HIIQ is growing 20%+ and trading at 5x P/E. 13/

Finally, 72% of $HIIQ float is short. If the worst scenario hits, there will still be a huge amount of short covering. This could be an EPIC squeeze. I'll be honest, while I think @AureliusValue has done solid work, I think the bulk of the shorts have not and are weak hands.

The astronomical SI is gravy though. $HIIQ trades at 8x '18, 5x '19 EPS while growing 20%+. The issues with their association with Dorfman are now 5 month old news. The shorts are missing a lot of nuances here and have leaned in way too heavily. PAIN TRADE IS HIGHER: GO LONG /end

Should add a couple things here on $HIIQ:
- They already settled with 43 states in Dec '18 for $4.3M so that's been accrued and reflected on their B/S as well as settling case with the states
-
latimes.com/politics/la-na…

16/ (sorry, I finished prematurely "that's what CVC said!")

Putting the fears currently hitting insurance companies aside for this discussion, the macro backdrop for ST health plans has incrementally improved in the near term. $HIIQ

17/

latimes.com/politics/la-na…

Personal opinions on these plans and this decision put aside also, the macro backdrop for the market for ST plans has improved after Trump allowed extending time limit for 1 year to 3 years for these ST plans. $HIIQ

latimes.com/politics/la-na…

18/18 (LA Times link again below)

latimes.com/politics/la-na…

Other very relevant points here to all the bears saying these plans are worthless & all premiums should be returned etc
1) These ST plans are legal within the rules of (though not compliant with) ACA
2) Young people esp feel the need (btwn jobs etc) to need ST coverage 19/ $HIIQ

3) Not everyone without coverage who needs it can afford $500+/mo (post-tax) to pay for a fully ACA-compliant plan so they can get SOMETHING for $100/mo (even if it might suck, they can't afford the real plans) $HIIQ 20/20

Last related point is what if someone needs coverage mid-year? Theyve missed the ACA enrollment deadline. Giving them zero options is worse than not giving a ST option. At worst rules around ST get changed (as they probably should), prices for ST go up, and ST market stays

So maybe this is not such a short thread after all (though it is a SHORT thread, thanks I'll be here all weekend)...just so many positives (relative to market's implicit expectations). Here's something else, not major, but relevant.
$HIIQ
21/

https://twitter.com/squirrelburger/status/1070318551288946688

Now let's get serious. John Fichthorn is a member of the $HIIQ BOD. He has 20+ years experience in the investment industry, he owns 3.3% of the company.

Yeah, i'd say that's who you want on your board:
1) meaningful shareholder
$HIIQ

22/

2) he tweets broadly to customers actively asking about issues and says he wants to know about them, if any. Can you imagine Brad Buss, Antonio Gracias, Stephen Jurvetson, and Linda Johnson Rice at $TSLAQ doing something like that?
$HIIQ $TSLAQ
23/

It's almost like he acts like he's an owner of the business!
24/ $HIIQ $TSLAQ $TSLA

I'm done with this thread for now I think, @AureliusValue & @AlderLaneeggs. Holster your weapons guys; they were filled with blanks anyway. BOOM.
25/25 /END

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