Benefitfocus ($BNFT) believes it is a leading provider of cloud-based benefits software solutions for consumers, employers, insurance carriers, and brokers.
BNFT is one of nine IPOs are scheduled for this week, 11 for next week. The full IPO calendar can be found at IPOpremium
BNFT is based in Charleston, SC, Benefitfocus ($BNFT) scheduled a $104 million IPO with a market capitalization of $559 million at a price range mid-point of $23, for Wednesday September 18, 2013.
The S-1 was filed September 4, 2013
Managers & joint managers are Goldman and Deutsche; Jefferies.
Co-Managers: Canaccord Genuity; Piper Jaffray; Raymond James
Summary
BNFT believes it is a leading provider of cloud-based benefits software solutions for consumers, employers, insurance carriers, and brokers.
Financial analysis negatives
Moderate sales growth for the six months ended June '13 vs June '12 of 30%. Sales growth for 2012 vs 2011 was lower, only 19%.
Relatively low gross margin of 44%
Consistent money loser, with an accumulated deficit of -$187 million.
Loss % of sales went to -32% from -27% for six months ended June '13 vs June '12
High price-to-book value of 33.
BNFT is a subsidiary of The Goldman Sachs Group. Goldman owns 66% pre-IPO. Shareholders are selling 33% on the IPO.
Valuation
|
Valuation Ratios |
Mrkt |
Price / |
Price / |
Price / |
Price / |
% offered |
|
Annualized June '13 6 mos |
Cap (MM) |
Sls |
Erngs |
BkVlue |
TanBV |
in IPO |
|
Benefitfocus |
$559 |
5.8 |
-18.6 |
32.9 |
40.4 |
19% |
Conclusion
Looks like Goldman intends to use the current good IPO market for a liquidity event, for a money-losing subsidiary that did not meet its business plan numbers. Goldman will probably promote BNFT to their clients.
Because the IPO market likes cloud-based software companies with a subscription-based revenue stream the BNFT rating is neutral to positive — also because it may be promoted by Goldman.
However, BNFT showed consistent losses, ran up an accumulated deficit of -$187 million, only showed relatively modest recent percentage increases in top line revenue, and is priced at 33 times book value, at the price range mid-point..
Business
BNFT believes it is a leading provider of cloud-based benefits software solutions for consumers, employers, insurance carriers, and brokers.
The Benefitfocus platform provides an integrated suite of solutions that enables employer and insurance carrier customers to more efficiently shop, enroll, manage, and exchange benefits information.
BNFT's web-based platform is designed to enable the insured consumers to access all of their benefits in one place. Comprehensive solutions support core benefits plans, including healthcare, dental, life, and disability insurance, and voluntary benefits plans, such as critical illness, supplemental income, and wellness programs.
As the number of employer benefits plans has increased, with each plan subject to many different business rules and requirements, demand for the Benefitfocus platform has grown.
BNFT was founded in 2000, and currently employs 853 associates.
Market segments
Employer market
THe fastest growing market segment, the employer market, consists of employers offering benefits to their employees. Within this segment, BNFT mainly target large employers with more than 1,000 employees, of which there are 18,000 in the United States.
Insurance carriers
BNFT also sells solutions to insurance carriers, enabling BNFT to expand its overall footprint in the benefits marketplace by aggregating many key constituents, including consumers, employers, and brokers.
BNFT's business model capitalizes on the close relationship between carriers and their members, and the carriers' ability to serve as lead generators for potential employer customers. Carriers pay for services at a rate reflective of the aggregated nature of their customer base on a per application basis.
Carriers can then deploy their applications to employer groups and members. As employers become direct customers through BNFT's employer segment, BNFT provides them a platform offering that bundles many software applications into a comprehensive benefits solution through HR InTouch.
BNFT believes its presence in both the employer and insurance carrier markets gives the company a strong position at the center of the benefits ecosystem.
Subscription-based revenue
BNFT sells its software solutions and related services primarily through a direct sales force.
Most of the revenue from subscription fees for access to and usage of BNFT's cloud-based benefits software solutions, and related professional services.
Subscription revenue accounted for approximately 89%, 95%, and 93% of total revenue during the years ended December 31, 2010, 2011, and 2012, respectively, and for 93% of total revenue during the six months ended June 30, 2012 and 2013
Subscription fees paid from our employer customers are generally based on the number of employees covered by the relevant benefits plans at contracted rates for a specified period of time, which is usually one year.
Subscription fees paid from carrier customers are based on the number of members contracted to use solutions at contracted rates for a specified period of time, which usually ranges from three to five years. Carrier contracts are generally only cancellable by the carrier in an instance of an uncured breach, although some carrier customers are able to terminate their respective contracts without cause or for convenience.
Professional services
Professional services support revenue accounted 11%, 5%, and 7% of total revenue during the years ended December 31, 2010, 2011, and 2012, respectively, and for 7% of total revenue during the six months ended June 30, 2012 and 2013.
Competition
BNFT believes no single competitor offers similarly expansive software solutions.
Competition in employer segment includes:
ERP software companies, including SAP, Oracle (PeopleSoft) and Infor (Lawson), each offering a cloud-based benefits administration software solution;
HR outsourcing companies, including Aon/Hewitt and Towers Watson, both of which have recently launched benefits exchange solutions;
Payroll service providers, including ADP and Paychex, both of which have expanded their core payroll services to include some form of cloud-based benefits administration services; and various niche software vendors.
Competitors in the carrier segment include:
Insurance carriers that have invested in internally developed benefit management solutions;
Member services companies, including those providing web-based subscriber enrollment and claims adjudication services, such as Trizetto and DST Health Solutions; and various niche software vendors.
5% stockholders pre-IPO
The Goldman Sachs Group, Inc., 66%
Oak Investment Partners XII, L.P., 11.5%
Use of proceeds
BNFT expects to net $61 million from selling 3 million shares. Shareholders intend to sell 1.5 million shares.
Proceeds are allocated to working capital and general corporate purposes.
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