Connecture, Inc. (Nasdaq:CNXR), a provider of web-based
information systems used to create health insurance marketplaces,
today announced financial results for the second quarter 2017.
“In the second quarter, we built upon our first quarter progress
to deliver a significant improvement in our year-over-year first
half operating results,” remarked Jeff Surges, President and CEO of
Connecture. “We executed well in all aspects of our business.
Our sales and marketing activity continue to gain traction in the
market as we posted another solid bookings quarter, growing our
backlog for the third consecutive quarter. In addition, our
sales pipeline has significantly increased since the beginning of
the year. We were especially pleased with this performance in
spite of the headwinds from an uncertain macro environment in the
commercial health insurance market-place as insurance carriers,
including several of our customers, have indicated they are exiting
the Individual and Family Plan market and, in some cases, the
commercial market in total. On the operations and cost front,
our ongoing efficiency initiatives in the first half of the year
have driven improved gross margins and have substantially reduced
our operating losses. Overall, I am very pleased with our
execution and results.”
Surges added, “We are in the midst of the seasonal cycle of our
clients preparing for their annual and open enrollment
periods. Supporting their efforts will remain our primary
focus for the remainder of the year.”
First Half 2017 Financial Results
- Revenue for the six-month period ending June 30, 2017 was $36.6
million, increasing 0.8% compared to $36.3 million for the
six-month period ending June 30, 2016. The increase was due
to revenue growth of $2.9 million, or 32.1%, in our Medicare
segment, $1.4 million, or 34.6%, in Private Exchange segment, and
$0.3, or 18.2%, million in our Enterprise State segment, offset by
a decrease of $4.2 million, or 19.4%, in our Enterprise Commercial
segment. The growth in our Medicare and Private Exchange
segments was primarily due to new customers and the increased usage
of our solutions, including DrugCompare, our drug price
transparency and therapeutic alternatives engagement
solution. The decrease in our Enterprise Commercial segment
was primarily due to a decrease in the recognition of previously
deferred professional service revenue as we completed the
amortization and recognition of the deferred revenue on select
clients, and a decrease in software revenue for clients who did not
renew for 2017.
- Gross margin for the six-month period ending June 30, 2017 was
$12.6 million, or 34.4% of total revenue, compared to $10.3
million, or 28.3% of total revenue, for the same period last
year. Adjusted gross margin was $14.8 million, or 40.5% of
total revenue, compared to $12.5 million, or 34.4% of total
revenue. The increases in gross margin and adjusted gross
margin were primarily due to our operational improvements, cost
reduction initiatives and revenue mix.
- Adjusted EBITDA and net loss from operations for the six-month
period ending June 30, 2017 improved $6.0 million and $6.4 million,
respectively, to an adjusted EBITDA loss of ($3.4) million versus a
loss of ($9.4) million and a loss from operations of ($6.7) million
versus a loss of ($13.1) million last year. The improvement
was primarily due to the increase in our gross margin accompanied
by a decrease in operating expenses of $4.1 million.
Recent Business Highlights
- Total contracted backlog at June 30, 2017 was $95.0 million,
compared to $86.7 million at December 31, 2016. The
sequential increase reflects solid first half 2017 bookings in our
Medicare, Enterprise Commercial and Private Exchange segments.
- During the second quarter, we added multiple new customers, led
by sales of our market-leading Medicare solutions.
- Our DrugCompare solution, a key product in our engagement
product portfolio, secured a significant renewal and a large new
health plan customer, and continues to experience strong
utilization in our customer base.
Business Outlook
Connecture is re-affirming its previously provided guidance for
the full year 2017 as follows:
- Total revenue is expected to be in the range of $73.0 to $78.0
million. The guidance reflects the assumed completion of the
last Enterprise State contract in 2017 and the non-recurrence of
certain deferred revenue recognized in 2016 upon completion of
several contractual obligations. Excluding the impact of
these two items, the guidance is for flat to modest revenue growth
in 2017.
- Adjusted EBITDA is expected to be in the range of a ($3.0)
million loss to $0.5 million income, and includes the cost
reduction actions taken in 2016 combined with further reductions in
2017 which are expected to decrease our total cost of revenue and
operating expenses in 2017 by at least $15.0 million. This
reflects a substantial improvement from our ($13.6) million loss in
2016, establishing a new base level from which we expect to improve
in subsequent years.
Conference Call
Connecture’s management will host a conference call at 5:00 p.m.
EDT on Monday, August 7, 2017, to discuss the second quarter 2017
results. The conference call will be accessible by dialing
877-930-8068 (U.S.) or 253-336-8043 (international) and referencing
participant code 62393877. A live webcast of the conference
call will also be available on the investor relations section of
the Company’s website at investors.connecture.com.
Use of Non-GAAP Measures
To provide additional information regarding Connecture’s
financial results, Connecture has disclosed in this press release
adjusted gross margin and adjusted EBITDA, each a non-GAAP
financial measure. Connecture defines adjusted gross margin
as gross margin before depreciation and amortization expense, as
well as stock-based compensation expense. Connecture defines
adjusted EBITDA as net income (loss) before net interest, other
expense (income), taxes, depreciation and amortization expense,
adjusted to eliminate stock-based compensation and non-cash changes
in fair value of contingent consideration and impairments of
goodwill, intangible and long-lived assets, if any.
Connecture has included adjusted gross margin and adjusted
EBITDA as supplemental financial measures in this press release
because they are key measures used by its management and board of
directors to understand and evaluate its core operating performance
and trends, to prepare and approve its annual budget and to develop
short- and long-term operational plans, and because management
believes that they provide useful information in understanding and
evaluating Connecture’s operating results. However, use of
adjusted gross margin and adjusted EBITDA as analytical tools has
limitations, and you should not consider them in isolation or as
substitutes for analysis of Connecture’s financial results as
reported under GAAP. A reconciliation to the closest GAAP
measures of these non-GAAP measures is contained in the
accompanying tables.
Connecture has also provided forward-looking guidance on
adjusted EBITDA. Connecture is unable to predict with
reasonable certainty the ultimate outcome of the exclusions to net
income (loss) required to calculate adjusted EBITDA without
unreasonable effort. Therefore, Connecture has not provided
guidance for GAAP net loss or reconciliation of the forward-looking
adjusted EBITDA guidance to GAAP net income (loss).
About Connecture
Connecture (NASDAQ:CNXR) is a leading web-based consumer
shopping, enrollment and retention platform for health insurance
distribution. Connecture offers a personalized health insurance
shopping experience that recommends the best fit insurance plan
based on an individual’s preferences, health status, preferred
providers, medications and expected out-of-pocket costs.
Connecture’s customers are health insurance marketplace operators
such as health plans, brokers and exchange operators, who must
distribute health insurance in a cost-effective manner to a growing
number of insured consumers. Connecture’s solutions automate
key functions in the health insurance distribution process,
allowing its customers to price and present plan options accurately
to consumers and efficiently enroll, renew and manage plan
members.
Forward-Looking Statements
This press release contains forward-looking statements that
involve substantial risks and uncertainties. All statements,
other than statements of historical facts, contained in this press
release, including statements regarding Connecture’s strategy,
future operations, future financial position, future revenues,
projected costs, prospects, plans and objectives of management, are
forward-looking statements. The words “anticipate,” “believe,”
“estimate,” “expect,” “intend,” “may,” “plan,” “predict,”
“project,” “target,” “potential,” “will,” “would,” “could,”
“should,” “continue,” and similar expressions are intended to
identify forward-looking statements, although not all
forward-looking statements contain these identifying words.
These forward-looking statements include, among other things,
statements about management’s estimates regarding future market
growth, revenues and financial performance and other statements
about management’s beliefs, intentions or goals. Connecture
may not actually achieve the plans, intentions or expectations
disclosed in the forward-looking statements, and you should not
place undue reliance on Connecture’s forward-looking
statements. These forward-looking statements involve risks
and uncertainties that could cause actual results or events to
differ materially from the expectations disclosed in the
forward-looking statements, including, but not limited to, risks
related to (1) Connecture’s ability to manage its anticipated
long-term growth, including accurately planning and forecasting its
financial results and hiring, retaining and motivating employees;
(2) the competitive environment for Connecture’s business and the
market for Connecture’s solutions; (3) Connecture’s ability to
maintain historical contract terms; (4) Connecture’s ability to
operate its proprietary software, transition to new platforms and
provide innovative and high quality software and services; (5)
errors, interruptions or delays in Connecture’s services; (6)
breaches of Connecture’s security measures; (7) Connecture’s
ability to comply with regulatory requirements; (8) technological
and regulatory developments, including developments with respect to
the potential repeal and replacement of Patient Protection and
Affordable Care Act; (9) litigation related to intellectual
property and other matters and any related claims, negotiations and
settlements; (10) Connecture’s compliance with requirements for
continued listing on the Nasdaq Global Market; (11) concentration
of ownership of Connecture’s securities with one significant
stockholder and Connecture’s status as a “controlled company” under
Nasdaq rules as a result thereof; (12) the existence of senior
preferred stock and the rights, preferences and privileges granted
to the holders of that stock; and (13) other risks and potential
factors that could affect Connecture’s business and financial
results identified in Connecture’s filings with the Securities and
Exchange Commission (the “SEC”), including Connecture’s Annual
Report on Form 10-K and its quarterly reports on Form 10-Q.
The forward-looking statements contained in this press release
reflect Connecture’s current views with respect to future events,
and Connecture assumes no obligation to update or revise any
forward-looking statements except as required by applicable
law.
|
|
|
| Connecture, Inc. |
|
| Condensed Consolidated Statements of
Operations and Comprehensive Income (Loss) |
|
| (In thousands, except share and per share data) |
|
| (unaudited) |
|
|
|
|
| |
Three Months EndedJune
30, |
|
|
Six Months EndedJune
30, |
|
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
| Revenue |
$ |
18,302 |
|
|
$ |
18,729 |
|
|
$ |
36,574 |
|
|
$ |
36,286 |
|
| Cost of revenue
(1) |
|
12,514 |
|
|
|
13,663 |
|
|
|
23,988 |
|
|
|
26,016 |
|
| Gross margin |
|
5,788 |
|
|
|
5,066 |
|
|
|
12,586 |
|
|
|
10,270 |
|
| Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Research
and development (1) |
|
4,238 |
|
|
|
5,860 |
|
|
|
8,699 |
|
|
|
11,364 |
|
| Sales and
marketing (1) |
|
2,444 |
|
|
|
3,092 |
|
|
|
4,630 |
|
|
|
5,430 |
|
| General
and administrative (1) |
|
3,089 |
|
|
|
3,273 |
|
|
|
5,918 |
|
|
|
6,537 |
|
| Total
operating expenses |
|
9,771 |
|
|
|
12,225 |
|
|
|
19,247 |
|
|
|
23,331 |
|
| Loss from
operations |
|
(3,983 |
) |
|
|
(7,159 |
) |
|
|
(6,661 |
) |
|
|
(13,061 |
) |
| Other expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest
expense |
|
842 |
|
|
|
858 |
|
|
|
1,565 |
|
|
|
2,267 |
|
| Other
expense, net |
|
186 |
|
|
|
1,883 |
|
|
|
485 |
|
|
|
1,883 |
|
| Loss before income
taxes |
|
(5,011 |
) |
|
|
(9,900 |
) |
|
|
(8,711 |
) |
|
|
(17,211 |
) |
| Income tax
provision |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(25 |
) |
| Net loss |
$ |
(5,011 |
) |
|
$ |
(9,900 |
) |
|
$ |
(8,711 |
) |
|
$ |
(17,236 |
) |
| Comprehensive loss |
$ |
(5,011 |
) |
|
$ |
(9,900 |
) |
|
$ |
(8,711 |
) |
|
$ |
(17,236 |
) |
| Net loss per common
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic and
diluted |
$ |
(0.30 |
) |
|
$ |
(0.47 |
) |
|
$ |
(0.51 |
) |
|
$ |
(0.81 |
) |
| Weighted-average common
shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic and
diluted |
|
22,660,108 |
|
|
|
22,217,696 |
|
|
|
22,615,406 |
|
|
|
22,164,984 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Three Months EndedJune
30, |
|
|
Six Months EndedJune
30, |
|
| |
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
| (1) Cost of revenue and
operating expenses include following stock-based compensation
expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of revenue |
$ |
129 |
|
|
$ |
187 |
|
|
$ |
258 |
|
|
$ |
349 |
|
| Research and
development |
|
50 |
|
|
|
56 |
|
|
|
99 |
|
|
|
243 |
|
| Sales and
marketing |
|
23 |
|
|
|
79 |
|
|
|
63 |
|
|
|
195 |
|
| General and
administrative |
|
319 |
|
|
|
277 |
|
|
|
590 |
|
|
|
624 |
|
| |
|
| Connecture, Inc. |
|
| Condensed Consolidated Balance
Sheets |
|
| (In thousands) |
|
| (unaudited) |
|
| |
|
|
|
|
As ofJune 30,
2017 |
|
|
As ofDecember 31,
2016 |
|
|
Assets |
|
|
|
|
|
|
|
|
| Current assets: |
|
|
|
|
|
|
|
|
| Cash and
cash equivalents |
|
$ |
9,294 |
|
|
$ |
6,208 |
|
| Accounts
receivable - net of allowances |
|
|
10,086 |
|
|
|
8,390 |
|
| Prepaid
expenses and other current assets |
|
|
1,122 |
|
|
|
1,153 |
|
| Total
current assets |
|
|
20,502 |
|
|
|
15,751 |
|
| Property and equipment,
net |
|
|
1,597 |
|
|
|
1,957 |
|
| Goodwill |
|
|
31,072 |
|
|
|
31,072 |
|
| Other intangibles,
net |
|
|
7,594 |
|
|
|
9,188 |
|
| Deferred implementation
costs |
|
|
23,107 |
|
|
|
23,257 |
|
| Other assets |
|
|
1,050 |
|
|
|
1,263 |
|
| Total
assets |
|
$ |
84,922 |
|
|
$ |
82,488 |
|
| Liabilities,
redeemable preferred stock and stockholders' deficit |
|
|
|
|
|
|
|
|
| Current
liabilities: |
|
|
|
|
|
|
|
|
| Accounts
payable |
|
$ |
5,531 |
|
|
$ |
7,387 |
|
| Accrued
payroll and related liabilities |
|
|
4,091 |
|
|
|
4,945 |
|
| Other
liabilities |
|
|
1,607 |
|
|
|
1,950 |
|
| Current
maturities of debt |
|
|
2,643 |
|
|
|
578 |
|
| Deferred
revenue |
|
|
28,872 |
|
|
|
31,606 |
|
| Total
current liabilities |
|
|
42,744 |
|
|
|
46,466 |
|
| Deferred revenue |
|
|
8,554 |
|
|
|
9,310 |
|
| Deferred tax
liability |
|
|
23 |
|
|
|
23 |
|
| Long-term debt |
|
|
29,567 |
|
|
|
31,944 |
|
| Other long-term
liabilities |
|
|
345 |
|
|
|
235 |
|
| Total
liabilities |
|
|
81,233 |
|
|
|
87,978 |
|
| Redeemable preferred
stock |
|
|
71,565 |
|
|
|
51,894 |
|
| Total stockholders'
deficit |
|
|
(67,876 |
) |
|
|
(57,384 |
) |
| Total
liabilities, redeemable preferred stock and stockholders'
deficit |
|
$ |
84,922 |
|
|
$ |
82,488 |
|
| |
|
| Connecture, Inc. |
|
| Condensed Consolidated Statements of Cash
Flows |
|
| (In thousands) |
|
| (unaudited) |
|
| |
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2017 |
|
|
2016 |
|
| Cash flows from
operating activities: |
|
|
|
|
|
|
|
| Net loss |
$ |
(8,711 |
) |
|
$ |
(17,236 |
) |
| Adjustments to
reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
2,248 |
|
|
|
2,277 |
|
|
Stock-based compensation expense |
|
1,010 |
|
|
|
1,411 |
|
|
Other |
|
181 |
|
|
|
2,115 |
|
| Changes
in operating assets and liabilities: |
|
|
|
|
|
|
|
| Accounts
receivable |
|
(1,696 |
) |
|
|
1,529 |
|
| Prepaid
expenses and other assets |
|
(45 |
) |
|
|
(444 |
) |
| Deferred
implementation costs |
|
150 |
|
|
|
189 |
|
| Accounts
payable |
|
(1,910 |
) |
|
|
748 |
|
| Accrued
expenses and other liabilities |
|
(1,111 |
) |
|
|
(339 |
) |
| Deferred
revenue |
|
(3,490 |
) |
|
|
(5,718 |
) |
|
Net cash used in operating activities |
|
(13,374 |
) |
|
|
(15,468 |
) |
| Cash flows from
investing activities: |
|
|
|
|
|
|
|
| Purchases
of property and equipment |
|
(315 |
) |
|
|
(643 |
) |
| Business
acquisition, net of cash acquired |
|
82 |
|
|
|
(4,683 |
) |
|
Net cash used in investing activities |
|
(233 |
) |
|
|
(5,326 |
) |
| Cash flows from
financing activities: |
|
|
|
|
|
|
|
|
Borrowings of debt |
|
— |
|
|
|
19,706 |
|
|
Repayments of debt |
|
— |
|
|
|
(33,831 |
) |
| Proceeds
from preferred stock, net |
|
16,924 |
|
|
|
49,286 |
|
|
Other |
|
(231 |
) |
|
|
(811 |
) |
|
Net cash provided by financing activities |
|
16,693 |
|
|
|
34,350 |
|
| Net increase in cash
and cash equivalents |
|
3,086 |
|
|
|
13,556 |
|
| Cash and cash
equivalents - beginning of period |
|
6,208 |
|
|
|
5,424 |
|
| Cash and cash
equivalents - end of period |
$ |
9,294 |
|
|
$ |
18,980 |
|
| |
|
| Connecture, Inc. |
|
| Reconciliation of GAAP to Non-GAAP
Measures |
|
| (In thousands) |
|
| (unaudited) |
|
|
|
|
| |
Three Months EndedJune
30, |
|
|
Six Months EndedJune
30, |
|
| |
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
| Reconciliation
from Gross Margin to Adjusted Gross Margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross margin |
|
5,788 |
|
|
|
5,066 |
|
|
|
12,586 |
|
|
|
10,270 |
|
|
Depreciation and amortization |
|
976 |
|
|
|
921 |
|
|
|
1,962 |
|
|
|
1,862 |
|
|
Stock-based compensation expense |
|
129 |
|
|
|
187 |
|
|
|
258 |
|
|
|
349 |
|
| Adjusted gross
margin |
$ |
6,893 |
|
|
$ |
6,174 |
|
|
$ |
14,806 |
|
|
$ |
12,481 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Reconciliation
from Net Loss to Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
(5,011 |
) |
|
|
(9,900 |
) |
|
|
(8,711 |
) |
|
|
(17,236 |
) |
|
Depreciation and amortization |
|
1,129 |
|
|
|
1,092 |
|
|
|
2,248 |
|
|
|
2,277 |
|
| Interest
expense |
|
842 |
|
|
|
858 |
|
|
|
1,565 |
|
|
|
2,267 |
|
| Other
expense, net |
|
186 |
|
|
|
1,883 |
|
|
|
485 |
|
|
|
1,883 |
|
| Income
tax provision |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
25 |
|
|
Stock-based compensation expense |
|
521 |
|
|
|
599 |
|
|
|
1,010 |
|
|
|
1,411 |
|
| Total net
adjustments |
|
2,678 |
|
|
|
4,432 |
|
|
|
5,308 |
|
|
|
7,863 |
|
| Adjusted EBITDA |
$ |
(2,333 |
) |
|
$ |
(5,468 |
) |
|
$ |
(3,403 |
) |
|
$ |
(9,373 |
) |
Investor Relations Contact:
Vincent Estrada
Chief Financial Officer
Connecture, Inc.
Phone: 262-432-8210
vestrada@connecture.com
Media Contact:
Jeff Hyman
Channel Marketing Director
Connecture, Inc.
Phone: 818-415-2569
jhyman@connecture.com