SEC Filing | Benefitfocus, Inc.

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bnft-10q_20200930.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 001-36061

Benefitfocus, Inc.

(Exact name of registrant as specified in its charter)

Delaware

46-2346314

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

100 Benefitfocus Way

Charleston, South Carolina 29492

(Address of principal executive offices and zip code)

(843) 849-7476

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 Par Value	BNFT	Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

☐	Large accelerated filer	☒	Accelerated filer	☐	Non-accelerated filer

☐	Smaller reporting company	☐	Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 6, 2020, there were approximately 32,201,280 shares of the registrant’s common stock outstanding.

Benefitfocus, Inc.

Form 10-Q

For the Quarterly Period Ended September 30, 2020

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS	3

Unaudited Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	3

Unaudited Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2020 and 2019	4

Unaudited Consolidated Statements of Changes in Stockholders' Deficit for the Three and Nine Months Ended September 30, 2020 and 2019	5

Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019	7

Notes to Unaudited Consolidated Financial Statements	8

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	21

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	34

ITEM 4. CONTROLS AND PROCEDURES	35

PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS	36

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	36

ITEM 6. EXHIBITS	37

SIGNATURES	38

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Benefitfocus, Inc.

Unaudited Consolidated Balance Sheets

(in thousands, except share and per share data)

	As of September 30, 2020			As of December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	108,240		$	130,976
Marketable securities		67,807			–
Accounts receivable, net		29,899			33,754
Contract, prepaid and other current assets		14,021			21,523
Total current assets		219,967			186,253
Property and equipment, net		30,502			28,669
Financing lease right-of-use assets		70,970			78,520
Operating lease right-of-use assets		1,467			1,715
Intangible assets, net		10,962			12,667
Goodwill		12,857			12,857
Deferred contract costs and other non-current assets		9,987			11,002
Total assets	$	356,712		$	331,683
Liabilities and stockholders' deficit
Current liabilities:
Accounts payable	$	2,475		$	9,563
Accrued expenses		8,116			10,526
Accrued compensation and benefits		15,736			15,246
Deferred revenue, current portion		28,239			33,429
Lease liabilities and financing obligations, current portion		6,297			6,871
Total current liabilities		60,863			75,635
Deferred revenue, net of current portion		4,543			5,079
Convertible senior notes		181,486			187,949
Lease liabilities and financing obligations, net current portion		80,885			88,572
Other non-current liabilities		3,582			92
Total liabilities		331,359			357,327
Commitments and contingencies
Redeemable preferred stock:
Series A preferred stock, par value $0.001, 5,000,000 shares authorized, 1,777,778 and 0 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively, liquidation preference $45 per share as of September 30, 2020		79,193			–
Stockholders' deficit:
Common stock, par value $0.001, 50,000,000 shares authorized, 32,288,044 and 32,788,980 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively		32			33
Additional paid-in capital		425,283			426,025
Accumulated deficit		(479,155	)		(451,702	)
Total stockholders' deficit		(53,840	)		(25,644	)
Total liabilities, redeemable preferred stock and stockholders' deficit	$	356,712		$	331,683

The accompanying notes are an integral part of the Unaudited Consolidated Financial Statements.

Benefitfocus, Inc.

Unaudited Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Revenue	$	63,583		$	71,665		$	191,911		$	208,543
Cost of revenue		30,113			35,588			94,422			101,242
Gross profit		33,470			36,077			97,489			107,301
Operating expenses:
Sales and marketing		12,405			18,527			39,863			57,464
Research and development		11,439			14,088			34,252			41,639
General and administrative		9,424			10,772			29,320			34,353
Restructuring costs		–			–			5,616			–
Total operating expenses		33,268			43,387			109,051			133,456
Income (loss) from operations		202			(7,310	)		(11,562	)		(26,155	)
Other income (expense):
Interest income		40			673			563			2,095
Interest expense		(5,771	)		(5,926	)		(17,524	)		(17,577	)
Gain on repurchase of convertible senior notes		1,138			–			1,138			–
Other income (expense)		1			3			8			(61	)
Total other expense, net		(4,592	)		(5,250	)		(15,815	)		(15,543	)
Loss before income taxes		(4,390	)		(12,560	)		(27,377	)		(41,698	)
Income tax expense		6			17			17			26
Net loss		(4,396	)		(12,577	)		(27,394	)		(41,724	)
Preferred dividends		(1,600	)		–			(2,062	)		–
Net loss available to common stockholders	$	(5,996	)	$	(12,577	)	$	(29,456	)	$	(41,724	)
Comprehensive loss	$	(5,996	)	$	(12,577	)	$	(29,456	)	$	(41,724	)
Net loss per common share:
Basic and diluted	$	(0.19	)	$	(0.38	)	$	(0.91	)	$	(1.29	)
Weighted-average common shares outstanding:
Basic and diluted		32,263,876			32,703,723			32,320,201			32,460,494

The accompanying notes are an integral part of the Unaudited Consolidated Financial Statements.

Benefitfocus, Inc.

Unaudited Consolidated Statements of Changes in Stockholders’ Deficit

(in thousands, except share and per share data)

	Common Stock,						Additional						Total
	$0.001 Par Value						Paid-in			Accumulated			Stockholders'
	Shares			Par Value			Capital			Deficit			Deficit
Balance, December 31, 2019		32,788,980		$	33		$	426,025		$	(451,702	)	$	(25,644	)
Cumulative effect adjustment from adoption of credit standard		–			–			–			(59	)		(59	)
Exercise of stock options		13,584			–			73			–			73
Issuance of common stock upon vesting of restricted stock units		43,315			–			–			–			–
Stock-based compensation expense		–			–			3,677			–			3,677
Common stock repurchased		(1,070,665	)		(1	)		(9,382	)		–			(9,383	)
Net loss		–			–			–			(11,136	)		(11,136	)
Balance, March 31, 2020		31,775,214		$	32		$	420,393		$	(462,897	)	$	(42,472	)
Exercise of stock options		10,685			–			69			–			69
Issuance of common stock upon vesting of restricted stock units		416,848			–			–			–			–
Issuance of common stock under Employee Stock Purchase Plan, or ESPP		8,205			–			83			–			83
Stock-based compensation expense		–			–			3,323			–			3,323
Common stock repurchased		(35,508	)		–			(284	)		–			(284	)
Preferred dividends		–			–			(462	)		–			(462	)
Net loss		–						–			(11,862	)		(11,862	)
Balance, June 30, 2020		32,175,444		$	32		$	423,122		$	(474,759	)	$	(51,605	)
Exercise of stock options		38,000			–			288			–			288
Issuance of common stock upon vesting of restricted stock units		78,251			–			–			–			–
Cancellation of convertible senior note capped call hedge		(3,651	)		–			26			–			26
Equity component of repurchased convertible senior notes		–			–			(412	)		–			(412	)
Stock-based compensation expense		–			–			3,859			–			3,859
Preferred dividends		–			–			(1,600	)		–			(1,600	)
Net loss		–			–			–			(4,396	)		(4,396	)
Balance, September 30, 2020		32,288,044		$	32		$	425,283		$	(479,155	)	$	(53,840	)


	Common Stock,						Additional						Total
	$0.001 Par Value						Paid-in			Accumulated			Stockholders'
	Shares			Par Value			Capital			Deficit			Deficit
Balance, December 31, 2018		32,017,773		$	32		$	403,631		$	(413,873	)	$	(10,210	)
Cumulative effect adjustment from adoption of lease standard		–			–			–			7,687			7,687
Exercise of stock options		18,600			–			89			–			89
Issuance of common stock upon vesting of restricted stock units		34,255			–			–			–			–
Stock-based compensation expense		–			–			6,253			–			6,253
Net loss		–			–			–			(14,209	)		(14,209	)
Balance, March 31, 2019		32,070,628		$	32		$	409,973		$	(420,395	)	$	(10,390	)
Exercise of stock options		6,200			–			45			–			45
Issuance of common stock upon vesting of restricted stock units		565,878			1			–			–			1
Stock-based compensation expense		–			–			6,203			–			6,203
Net loss		–			–			–			(14,938	)		(14,938	)
Balance, June 30, 2019		32,642,706		$	33		$	416,221		$	(435,333	)	$	(19,079	)
Issuance of common stock upon vesting of restricted stock units		60,676			–			–			–			–
Issuance of common stock under ESPP		6,650			–			172			–			172
Stock-based compensation expense		–			–			4,415			–			4,415

Net loss			–				–				–				(12,577	)			(12,577	)
Balance, September 30, 2019			32,710,032			$	33			$	420,808			$	(447,910	)		$	(27,069	)

The accompanying notes are an integral part of the Unaudited Consolidated Financial Statements.

Benefitfocus, Inc.

Unaudited Consolidated Statements of Cash Flows

(in thousands)

	Nine Months Ended September 30,
	2020			2019
Cash flows from operating activities
Net loss	$	(27,394	)	$	(41,724	)
Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities:
Depreciation and amortization		18,479			16,629
Stock-based compensation expense		10,859			14,501
Accretion of interest on convertible senior notes		8,834			8,377
Interest accrual on finance lease liabilities		71			25
Rent expense less than payments		(24	)		(6	)
Non-cash interest income for short-term investments		16			–
Gain on extinguishment of debt		(1,138	)		–
Provision for doubtful accounts		111			108
Changes in operating assets and liabilities:
Accounts receivable, net		3,685			(12,791	)
Accrued interest on short-term investments		(38	)		–
Contract, prepaid and other current assets