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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

or

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

 

 

2


 

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.

 

 

3


 

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.

 

 

4


 

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

 

5


 

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.

 

 

6


 

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