Connecture Reports Financial Results For Third Quarter 2016

BROOKFIELD, Wis., Nov. 07, 2016 (GLOBE NEWSWIRE) -- Connecture, Inc. (Nasdaq:CNXR), a provider of web-based information systems used to create health insurance marketplaces, today announced financial results for the quarter ended September 30, 2016.

"Our third quarter results were marked by great progress towards meeting our clients' objectives for a successful 2017 AEP and OEP enrollment season. We are particularly encouraged by a number of new marketplace launches for significant clients. We remain focused on efforts to add more new clients, as well as successfully renewing our core base of customers. To that end, during the third quarter, we signed several new broker and provider sponsored health plan customers and achieved a 100% renewal rate for customers with contracts up for renewal during the quarter," remarked Jeff Surges, President and CEO of Connecture. "While our third quarter revenue was better than expected, our profitability was impacted by greater than expected resources required to assist recently implemented customers. In light of these results, we are continuing our focus on cost management and productivity initiatives to lower expenses while ensuring that we continue to meet our clients' expectations. We are confident that these efforts will improve our results as we close out the last quarter and head into 2017." 

Third Quarter 2016 Financial Results
  • Total revenue was $24.7 million, compared to $22.7 million in the third quarter of 2015, representing a year-over-year increase of 9%. The increase in revenue was primarily driven by higher revenue in our Enterprise/Commercial segment from the satisfaction of certain customer obligations during the third quarter of 2016. Excluding revenue from our Enterprise/State segment, which declined by $2.4 million in the third quarter of 2016 compared to the third quarter of 2015, revenue in the third quarter of 2016 increased by approximately 23%, compared to the third quarter of 2015.
  • Gross margin was $8.8 million, or 36% of total revenue, compared to $10.1 million or 44% of total revenue in the third quarter of 2015. Adjusted gross margin was $10.1 million, or 41% of total revenue, compared to $11.4 million, or 50% of total revenue, in the third quarter of 2015. Gross margin and adjusted gross margin for the third quarter of 2016 include the year-on-year impact of having one remaining Enterprise/State segment customer, an increase in outside contractor costs incurred in the third quarter of 2016 related to certain of our Enterprise/Commercial and Private Exchange segment customers, and $0.2 million of costs associated with the integration of the June 2016 ConnectedHealth acquisition. We expect our continued cost management and productivity efforts to decrease our outside contractor costs in the fourth quarter of 2016, which we believe will improve our gross margins.
  • Loss from operations was ($2.5) million, compared to an operating loss of ($0.9) million in the third quarter of 2015.
  • Net loss was ($3.1) million, compared to a net loss of ($2.3) million in the third quarter of 2015.
  • Adjusted EBITDA reflected a loss of ($0.6) million, compared to $1.8 million in the third quarter of 2015. Adjusted EBITDA for the third quarter of 2016 includes the impact of $0.2 million of integration costs related to the June 2016 ConnectedHealth acquisition, as well as $0.5 million of severance costs, primarily related to our former President and Chief Product Officer.
  • Cash and cash equivalents totaled $16.7 million and debt less cash and cash equivalents totaled $18.8 million at September 30, 2016, compared to $19.0 million and $16.4 million, respectively, at June 30, 2016.
  • Cash used in operations for the three months ended September 30, 2016, was $1.7 million, compared to $1.6 million for the same period last year.

Recent Business Highlights 
  • Added four new customers during the third quarter in our broker segment and one new provider sponsored health plan customer.
  • Successfully renewed 100% of our customer contracts up for renewal during the third quarter, including: Blue Cross Blue Shield of Massachusetts, Blue Cross Blue Shield of Nebraska, Independence Blue Cross, Nationwide, SCAN Health and Stanford Health Care.    
  • Total contracted backlog at September 30, 2016, was $82.3 million, compared to $95.7 million at June 30, 2016 and $82.9 million at September 30, 2015. The sequential decrease from June 30, 2016, was anticipated and was primarily due to the completion of customer deliverables during the quarter related to the upcoming open enrollment season.

  Business Outlook

Connecture is reiterating its full year 2016 guidance for total revenue and revising guidance on adjusted EBITDA as indicated below:
  • Total revenue is expected to be in the range of $85.0 million to $88.0 million.
  • Adjusted EBITDA is expected to be in the range of zero to ($2.0) million, down from the previously expected range of zero to $2.0 million, due primarily to the impact of certain one-time severance costs and the impact of higher than expected outside contractor costs in support of implemented customers.

Conference Call

Connecture's management will host a conference call at 5:00 p.m. EDT on Monday, November 7, 2016, to discuss the third quarter 2016 results. The conference call will be accessible by dialing 877-930-8068 and referencing conference ID 6403549. 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, 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 also has 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 reasonable effort.  Therefore Connecture has not provided guidance for GAAP net loss or a reconciliation of the forward-looking adjusted EBITDA guidance to GAAP net loss.

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.

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 expected 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; (9) litigation related to intellectual property and other matters and any related claims, negotiations and settlements; and (10) 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 Loss
  (In thousands, except share and per share data)
  (unaudited)
                 
    Three Months Ended September 30,   Nine Months Ended September 30,
      2016       2015       2016       2015  
  Revenue $ 24,729     $ 22,667     $ 61,015     $ 66,708  
  Cost of revenue (1)   15,891       12,598       41,907       37,938  
  Gross margin   8,838       10,069       19,108       28,770  
  Operating expenses:              
  Research and development (1)   5,824       5,274       17,188       17,858  
  Sales and marketing (1)   2,446       2,329       7,876       7,514  
  General and administrative (1)   3,079       3,360       9,616       10,823  
  Total operating expenses   11,349       10,963       34,680       36,195  
  Loss from operations   (2,511 )     (894 )     (15,572 )     (7,425 )
  Other expenses:              
  Interest expense   584       1,438       2,851       4,275  
  Other expense (income), net   56       (1 )     1,939       8  
  Loss before income taxes   (3,151 )     (2,331 )     (20,362 )     (11,708 )
  Income tax benefit   85       23       60       42  
  Net loss ($ 3,066 )   ($ 2,308 )   ($ 20,302 )   ($ 11,666 )
  Comprehensive loss ($ 3,066 )   ($ 2,308 )   ($ 20,302 )   ($ 11,666 )
  Net loss per common share:              
  Basic and diluted $ (0.18 )   $ (0.11 )   $ (0.99 )   $ (0.54 )
  Weighted-average common shares outstanding:              
  Basic and diluted   22,343,142       21,879,414       22,224,804       21,764,869  
                 
    Three Months Ended September 30,   Nine Months Ended September 30,
      2016       2015       2016       2015  
  (1) Cost of revenue and operating expenses include following stock-based compensation expense:              
  Cost of revenue $ 210     $ 314     $ 559     $ 738  
  Research and development   117       358       360       900  
  Sales and marketing   30       185       225       373  
  General and administrative   341       575       965       1,307  
                 

Connecture, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(unaudited)
       
  As of September 30, 2016   As of December 31, 2015
Assets      
Current assets:      
Cash and cash equivalents $ 16,693     $ 5,424  
Accounts receivable - net of allowances   10,852       10,792  
Prepaid expenses and other current assets   1,292       652  
Total current assets   28,837       16,868  
Property and equipment, net   2,211       2,109  
Goodwill   30,838       26,779  
Other intangibles, net   10,039       11,392  
Deferred implementation costs   23,128       24,565  
Other assets   1,122       976  
Total assets $ 96,175     $ 82,689  
Liabilities, redeemable preferred stock and stockholders' deficit      
Current liabilities:      
Accounts payable $ 8,794     $ 6,853  
Accrued payroll and related liabilities   4,813       3,560  
Other liabilities   1,271       2,188  
Current maturities of debt   2,708       1,441  
Deferred revenue   33,025       34,049  
Total current liabilities   50,611       48,091  
Deferred revenue   12,369       18,529  
Deferred tax liability   23       23  
Long-term debt   32,813       46,964  
Other long-term liabilities   225       262  
Total liabilities   96,041       113,869  
Redeemable preferred stock   50,883       -  
Total stockholders' deficit   (50,749 )     (31,180 )
Total liabilities, redeemable preferred stock and stockholders' deficit $ 96,175     $ 82,689  
       

Connecture, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
       
  Nine Months Ended September 30,
    2016       2015  
Cash flows from operating activities:      
Net loss ($ 20,302 )   ($ 11,666 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization   3,456       3,797  
Stock-based compensation expense   2,109       3,318  
Other   2,710       788  
Changes in operating assets and liabilities:      
Accounts receivable   435       (1,956 )
Prepaid expenses and other assets   (560 )     299  
Deferred implementation costs   1,437       (652 )
Accounts payable   1,352       2,211  
Accrued expenses and other liabilities   (101 )     586  
Deferred revenue   (7,701 )     (11,534 )
Net cash used in operating activities   (17,165 )     (14,809 )
Cash flows from investing activities:      
Purchases of property and equipment   (670 )     (1,177 )
Business acquisition, net of cash acquired   (4,683 )     -  
Net cash used in investing activities   (5,353 )     (1,177 )
Cash flows from financing activities:      
Borrowings of debt   19,706       -  
Repayments of debt   (34,268 )     (4,084 )
Proceeds from Preferred Stock, net   49,280       -  
Other   (931 )     (766 )
Net cash provided by (used in) financing activities   33,787       (4,850 )
Net increase (decrease) in cash and cash equivalents   11,269       (20,836 )
Cash and cash equivalents - beginning of period   5,424       28,252  
Cash and cash equivalents - end of period $ 16,693     $ 7,416  
       

  Connecture, Inc.
  Reconciliation of GAAP to Non-GAAP Measures
  (In thousands)
  (unaudited)
                 
    Three Months Ended September 30,   Nine Months Ended September 30,
      2016       2015       2016       2015  
  Reconciliation from Gross Margin to Adjusted Gross Margin:              
  Gross margin $ 8,838     $ 10,069     $ 19,108     $ 28,770  
  Depreciation and amortization   1,004       972       2,866       2,872  
  Stock-based compensation expense   210       314       559       738  
  Adjusted gross margin $ 10,052     $ 11,355     $ 22,533     $ 32,380  
                 
  Reconciliation from Net Loss to Adjusted EBITDA:              
  Net loss $ (3,066 )   $ (2,308 )   $ (20,302 )   $ (11,666 )
  Depreciation and amortization   1,179       1,247       3,456       3,797  
  Interest expense   584       1,438       2,851       4,275  
  Other expense (income), net   56       (1 )     1,939       8  
  Income tax benefit   (85 )     (23 )     (60 )     (42 )
  Stock-based compensation expense   698       1,432       2,109       3,318  
  Total net adjustments $ 2,432     $ 4,093     $ 10,295     $ 11,356  
  Adjusted EBITDA $ (634 )   $ 1,785     $ (10,007 )   $ (310 )
                 

 
Investor Contact:James PurkoConnecture, Inc.jpurko@connecture.comPhone: 262-432-8210Media Contact:Matt SchlossbergAmendola Communicationsmschlossberg@acmarketingpr.comPhone: 630-935-9136

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