Benefitfocus Announces Fourth Quarter and Full Year 2014 Financial Results and Strategic Investment Transaction

  • Total revenue of $40.2 million, up 33% year-over-year; Employer revenue up 47% year-over-year
  • GAAP Gross margin of 41%, expands 900 basis points sequentially
  • Closes on $74.7 million strategic equity investment with Mercer

Charleston, S.C. – February 24, 2015 – Benefitfocus, Inc. (NASDAQ: BNFT), a leading provider of cloud-based benefits software solutions, today announced financial results for the fourth quarter and full year 2014.

"Benefitfocus delivered a strong fourth quarter performance that capped a record year for the company. We exceeded expectations on both the top and bottom line during the quarter, with 33% total revenue growth driven by 47% growth in employer revenue, and a 900 basis point sequential improvement in gross margin," said Shawn Jenkins, President and Chief Executive Officer of Benefitfocus. "We delivered a number of exciting achievements in 2014, such as supporting dozens of private exchanges, including the nation's largest; adding 160 new large employer customers; and successfully graduating our first class of third-party systems integrators."

Jenkins added, "Today's announcement with Mercer, which includes a long-term commercial contract expansion and a strategic equity investment in Benefitfocus, is further validation of our leadership in the private exchange and cloud-based benefits administration market. As we look ahead to 2015 we are focused on strengthening our position even more, with a specific emphasis on enhancing our marketplace solutions and creating the first significant upsell opportunity in our employer market with the introduction of several new product offerings. We also expect to continue leveraging the investments we made in 2014 and deliver improvements in profitability. We believe our strong growth profile in a dynamic, multi-billion dollar market, coupled with improving profitability, is a powerful combination that will deliver value for our shareholders."

 
Fourth Quarter 2014 Financial Highlights

Revenue

  • Total revenue was $40.2 million, an increase of 33% compared to the fourth quarter of 2013.
  • Software revenue was $36.1 million, an increase of 28% compared to the fourth quarter of 2013.
  • Professional services revenue was $4.1 million, an increase of 107% compared to the fourth quarter of 2013.
  • Employer revenue was $19.5 million, an increase of 47% compared to the fourth quarter of 2013.
  • Insurance carrier revenue was $20.7 million, an increase of 21% compared to the fourth quarter of 2013.

Non-GAAP Net Loss and Adjusted EBITDA

  • Non-GAAP net loss was ($10.0) million, compared to ($7.4) million in the fourth quarter of 2013. Non-GAAP net loss per share was ($0.39), based on 25.6 million basic and diluted weighted average common shares outstanding, compared to ($0.30) in the fourth quarter of 2013 based on 24.5 million basic and diluted weighted average common shares outstanding.
  • Adjusted EBITDA was ($8.0) million, compared to ($5.1) million in the fourth quarter of 2013
  • See important disclosures about non-GAAP measures, and a reconciliation of them to GAAP, below.

Balance Sheet and Cash Flow

  • Cash, cash equivalents and marketable securities at December 31, 2014 totaled $56.2 million, compared with $60.9 million at the end of the third quarter of 2014.
Full Year 2014 Financial Highlights

Revenue

  • Total revenue was $137.4 million, an increase of 31% compared to the full year 2013.
  • Software revenue was $125.1 million, an increase of 28% compared to the full year 2013.
  • Professional services revenue was $12.3 million, an increase of 75% compared to the full year 2013.
  • Employer revenue was $62.0 million, an increase of 53% compared to the full year 2013.
  • Insurance carrier revenue was $75.4 million, an increase of 18% compared to the full year 2013.

Non-GAAP Net Loss and Adjusted EBITDA

  • Non-GAAP net loss was ($53.0) million, compared to ($27.1) million in 2013. Non-GAAP net loss per share was ($2.10), based on 25.2 million basic and diluted weighted average common shares outstanding, compared to ($1.22) in 2013, based on 22.2 million basic and diluted weighted average common shares outstanding.
  • Adjusted EBITDA was ($43.8) million, compared to ($18.9) million in 2013.
Fourth Quarter and Recent Business Highlights
  • In the first quarter of 2015, Mercer purchased newly issued common stock, representing 9.9% post issuance of the outstanding common equity in Benefitfocus, at a price per share of $26.50, for approximately $74.7 million in cash. In addition, Mercer expanded its strategic commercial relationship with Benefitfocus.
  • Entered into an expanded credit facility, led by Silicon Valley Bank, for up to $60 million with an additional $40 million expansion feature over time.
  • Ended the year with 553 large employer customers, up from 393 at the end of the year ago period, and 43 insurance carrier customers, compared to 40 at the end of the year ago period.
  • New employer customer relationships added during the quarter included the State of Delaware, Capella Education Company, Lane Construction Company, Summerwood Corporation, Omnicell, Inc., and Schneider Electric, among others.
  • The first class of third-party system integrators graduated from the Benefitfocus Implementation Program. Graduates of the program include: Deloitte Consulting LLP, ROC Americas, HRrchitect, Aasonn, and Providence Technology Solutions (an affiliate of The HCiGroup).
Business Outlook

Based on information available as of February 24, 2015, Benefitfocus is issuing guidance for the first quarter and full year 2015 as indicated below.

First Quarter 2015:

  • Total revenue is expected to be in the range of $41.0 million to $41.5 million.
  • Non-GAAP net loss is expected to be in the range of ($13.8) million to ($14.3) million, or ($0.51) to ($0.53) per share, based on 26.8 million basic and diluted weighted average common shares outstanding.
  • Adjusted EBITDA is expected to be in the range of ($8.5) million to ($9) million.

Full Year 2015:

  • Total revenue is expected to be in the range of $170.0 million to $174.0 million.
  • Non-GAAP net loss is expected to be in the range of ($59.0) million to ($63.0) million, or ($2.10) to ($2.24) per share, based on 28.1 million basic and diluted weighted average common shares outstanding.
  • Adjusted EBITDA is expected to be in the range of ($35.0) million to ($39.0) million.
Conference Call Details:

In conjunction with this announcement, Benefitfocus will host a conference call today, February 24, 2015 at 5:00 p.m. Eastern Time to discuss the company's preliminary financial results. To access this call, dial (855) 233-6991 (domestic) or (317) 586-4497 (international) with conference ID 65780947. A live webcast, as well as the replay, of the conference call will be available on the Investor Relations page of the company's website at http://investor.benefitfocus.com/. A replay of this conference call can also be accessed by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) until March 24, 2015.

Full financials related to this release can be viewed below or found here.

About Benefitfocus

Benefitfocus, Inc. (NASDAQ: BNFT) is a leading provider of cloud-based benefits software solutions for consumers, employers, insurance carriers and brokers. Benefitfocus has served more than 23 million consumers on its platform that consists of an integrated portfolio of products and services enabling clients to more efficiently shop, enroll, manage and exchange benefits information. With a user-friendly interface and consumer-centric design, the Benefitfocus Platform provides one place for consumers to access all their benefits. Benefitfocus solutions support the administration of all types of benefits including core medical, dental and other voluntary benefits plans as well as wellness programs. For more information, visit https://www.benefitfocus.com.

Non-GAAP Financial Measures

The company uses non-GAAP financial measures in this release and its conference call, including non-GAAP operating loss, net loss, net loss per share, adjusted gross profit, adjusted EBITDA and free cash flow. Generally, a non-GAAP financial measure is a numerical measure of a company's performance, financial position or cash flow, that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP.

Non-GAAP operating loss, net loss and net loss per share exclude stock-based compensation expenses, amortization of acquisition-related intangible assets, offering costs expensed and interest associated with building lease financing obligations. Adjusted gross profit excludes stock-based compensation, amortization of acquisition-related intangible assets, amortization of software development costs, and depreciation. We define adjusted EBITDA as net loss before net interest, taxes, and depreciation and amortization expense, adjusted to eliminate stock-based compensation expense and expense related to the impairment of goodwill and intangible assets. We define free cash flow as cash flow from operations less capital expenditures and capitalized software. Please note that other companies might define their non-GAAP financial measures differently than we do.

The guidance provided for 2015 reflects a change in the definition of the company's non-GAAP measures of non-GAAP net loss and net loss per share as compared to the definition above applied for 2014. For 2015, Non-GAAP net loss and net loss per share exclude stock-based compensation expenses, amortization of acquisition-related intangible assets and offering costs expensed. For comparability purposes with our peer group, we will no longer add back interest expense on building lease obligations to these items.

Management presents these non-GAAP financial measures in this release because it considers them to be important supplemental measures of performance. Management uses these non-GAAP financial measures for planning purposes, including analysis of the company's performance against prior periods, the preparation of operating budgets and determination of appropriate levels of operating and capital investments. Management believes that these non-GAAP financial measures provide additional insight for analysts and investors in evaluating the company's financial and operational performance. Management also intends to provide these non-GAAP financial measures as part of the company's future earnings discussions and, therefore, the inclusion of the non-GAAP financial measures should provide consistency in the company's financial reporting.

Non-GAAP financial measures have limitations as an analytical tool. Investors are encouraged to review the reconciliation of the non-GAAP measures to their most directly comparable GAAP measures provided in this release, including in the accompanying tables.

Forward-Looking Disclaimer

Except for historical information, all of the statements, expectations, and assumptions contained in this press release are forward-looking statements. Actual results might differ materially from those explicit or implicit in the forward-looking statements. Important factors that could cause actual results to differ materially include: fluctuations in our financial results; the immature and volatile market for our products and services; the need to innovate and provide useful products and services; risks related to changing healthcare and other applicable regulations; our ability to maintain our culture and recruit and retain qualified personnel; our ability to compete effectively; our increased reliance on Mercer as a result of the expanded relationship; privacy, security and other risks associated with our business; general economic risks; and the other risk factors set forth from time to time in our SEC filings, copies of which are available free of charge within the Investor Relations section of the Benefitfocus website at http://investor.benefitfocus.com/sec.cfm or upon request from our Investor Relations Department. Benefitfocus assumes no obligation and does not intend to update these forward-looking statements, except as required by law.

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