BenefitFocus IPO Just Keeps on Giving

September 13, 2013

(Reprinted from the Sept. 9 issue of Health Plan Market Trends).

BenefitFocus (Charleston, SC), which is seeking to raise up to $127 million in an initial public offering, revealed in a securities filing mounting losses and a few of those uncomfortable disclosures that should make investors think twice.

For starters, the offering is for 4.5 million shares at between $21.50 and $24.50 per share before underwriters’ commissions.  BenefitFocus is offering 3 million of the shares and selling shareholder Goldman Sachs—which owns 66% of the company—is offering 1.5 million.  That means a third of the proceeds from the offering after underwriters’ commissions go to Goldman.  BenefitFocus will use its share for working capital and to fund expansion.

Goldman is also the lead underwriter.  Assuming the sale of another 675,000 shares by the selling shareholder—i.e., Goldman—to cover over-allotments, then about 42% of the proceeds after underwriters’ commission would go to Goldman.

Goldman would still control BenefitFocus after the IPO, with nearly 52% of outstanding shares.  BenefitFocus chairman Mason Holland and chief executive Shawn Jenkins would still own 12% each after the offering, and Oak Park Investments would own 10%.  All told, the directors and executives of the company would own about 82% of shares following the IPO.  Of 24 million outstanding shares after the IPO, 19.8 million would be restricted.

‘Material Weakness’ in BenefiFocus Accounting

Here’s another tidbit.  According to the IPO filing, BenefitFocus “identified a material weakness in connection with preparation of our 2012 financial statements.”  BenefitFocus offers private exchange software and other technology that helps people evaluate health coverage options and manage their benefits.  Its clients are employers and health plans.

Because its platform is sold on a subscription basis, recognition of revenues is spread over the life of a contract or estimated length of a relationship with a client.  In 2011, the company increased the estimated length of certain relationships—forcing it to spread its deferred revenues out over a longer period.  The upshot: lower-than-expected recognized revenues and higher-than-expected losses in 2011 and 2012.

BenefitFocus reported a net loss of $15.2 million though six months of 2013, up from $10.4 million a year earlier.  Combined net loss for 2010 through 2012 topped $32 million.  Without the material weakness, net loss would have improved by $5.8 million in 2011 and $2.8 million in 2012. Accumulated deficit is $187 million.

Here’s more.  BenefitFocus rents office space for its corporate headquarters in Charleston, SC, from Daniel Island Executive Center—with nearly $48 million in payments still due over the life of two 15-year leases expiring in 2021 and 2024.  Holland owns Holland Properties, which owns a majority of Daniel Island Executive Center.  Jenkins owns the rest.  Holland also owns a majority of North American Jet Charter Group, which provides chartered jet service to BenefitFocus.

Insurer and Employer Segments

BenefitFocus has two segments.  Its insurer segment accounts for more than 60% of revenues and was profitable from 2010 through 2012; although it slipped into the red through six months of 2013.  The employer segment, which has been growing at a much faster pace, accounts for the remainder of revenues.  Losses in the employer segment topped $12 million through six months of 2013.

Clearly, this is a company that needs to sell investors on its growth potential. Through six months of 2013, revenues were $48.2 million, up 25%.  For the full year 2012, revenues were $81.7 million, up 19%.  The company had 37 insurer clients, up 12%, including Aetna, Blue Cross Blue Shield of Kansas City, BCBS of South Carolina and WellPoint.  It also had 348 employer clients as of June 30, 2013, up 46% from a year earlier, including Bon Secours Health System, Brooks Brothers, Columbia Sportswear and Fender Musical Instruments.  The company says it had served 20 million consumers on its platform as of June 2013.

It’s a promising market, but also a highly competitive one.  BenefitFocus lists as competitors in the employer space software vendors SAP, Oracle/PeopleSoft and Infor/Lawson; the private exchanges of Aon/Hewitt and Towers Watson; and payroll companies like ADP and Paychex.  In the insurance market, competitors include traditional payer vendors like Trizetto and DST Health Solutions—as well as the plans themselves, many of which have built internal benefit management solutions.

On the bright side, BenefitFocus has very little debt.  But all-in-all, this is an IPO that’s hard to get excited about.




EMR Adoption Is Rising — But You Knew That

December 5, 2011

A Centers for Disease Control and Prevention survey shows that adoption of electronic medical records and electronic health records is rising among office-based physicians.  Keep in mind that the word “adoption” means different things to different people (see the definitions used by CDC), and we still lag other nations by a lot.


U.S. Lags in Electronic Medical Record Use

October 19, 2011

From the Commonwealth Fund:

Aetna to Use Medicity to Push ActiveHealth Apps to Providers

March 30, 2011

Aetna Inc. (Hartford, CT) will use the acquisition of health information exchange company Medicity as a platform for pushing clinical decision-support applications to providers – a cornerstone of the company’s ACO strategy – according to Meg McCarthy, executive vice president of innovation.  McCarthy made the comments at the Next Generation in Managed Care IT forum in New York this week, noting that while Medicity has a “good, strong core business,” the strategy is to leverage the Medicity platform to offer applications from Aetna’s ActiveHealth clinical decision-support division.  Expanded coverage appears in this month’s ACO Market News.

Why IT Will Rule the Future of Health Plans

January 13, 2011

It is my view that managed care information technology will play an increasingly important role in the future survival and success of health plans.  That’s why I’m happy to announce such a strong agenda of speakers for our second annual Next Generation in Managed Care IT conference, Monday, March 28, 2011 in New York City.  (Yes, I know, this is basically an ad I’m writing here; but last year’s event was sold out, so I thought I’d give you all a heads up).

Here’s the line-up of speakers and the agenda.  I’ll be moderating the day’s proceedings.  (Despite that, you really should attend; it’s going to be an information-packed day).  Click here to register.

Keynote Speakers

Joseph Brand, Chief Technology Officer, Horizon BCBS of New Jersey

Meg McCarthy, EVP of Innovation, Aetna Inc.

Bill Wray, CIO, BCBS of Rhode Island


Featured Speakers

Anne-Marie Audet, VP, Quality, Improvement , Efficiency, Commonwealth Fund

Peter Goff, Acting Senior Director, IT, Alameda Alliance For Health

Pamela Larson, Director, Consumer Health, Kaiser Permanente

Tom Lutzow, CEO, Independent Health Plan

Carl Mercurio, President, Corporate Research Group

John Moore, Managing Partner, Chilmark Research

Jeffrey Pankow, Director IT, Excellus BCBS

Troy Stillwagon, Director of Information Systems, Scott & White Health Plan
Jessica Zabbo, Provider Technology Supervisor, BCBS of Rhode Island 

mHealth in 2011?

January 6, 2011

mHealth is #49 on JWT’s list of 100 Things to Watch Out for in 2011 (Hat tip: Infectious Greed), right between #48 Matcha (i.e., Japanese green tea powder, which isn’t nearly as unpalatable as natto, but still not high on my list of treats) and #50 Michael Jackson Lives On.  Notes JWT:

Look for mobile health apps to help improve health care and change the way patients and their physicians interact (think doctors using smartphones to access patients’ medical histories, patients monitoring their own blood pressure and glucose levels)….With 500 million people forecast to be using mobile health apps by 2015, global opportunities in this market are valued at as much as $60 billion.

I’ll watch.  But with mobile browser usage at just 3% of total browser usage — and healthcare a subset of that — my guess is 2011 is way too early for mHealth.  Of course, given that I still can’t figure out if my mobile phone has a speakerphone feature, perhaps I’m not the best guy to make this call.

What’s Availity Worth?

December 13, 2010

Assuming the going rate for healthcare information exchanges (e.g., Medicity, Axolotl) is eight to 10 times revenues, Carl McDonald of Citi posits that Availity could be worth about $1 billion.  Aetna announced it was acquiring Medicity for a fat $500 million, while UnitedHealth bought Axolotl for a undisclosed sum.  Humana owns 22% of Availity, which suggests its stake could be worth more than $200 million, McDonald says, or about 2% of Humana’s market cap.

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