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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 June 30, 2021

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 August 2, 2021, there were approximately 33,346,288 shares of the registrant’s common stock outstanding.

 


 

 

Benefitfocus, Inc.

Form 10-Q

For the Quarterly Period Ended June 30, 2021

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

3

 

 

Unaudited Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020

3

 

 

Unaudited Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2021 and 2020

4

 

 

Unaudited Consolidated Statements of Changes in Stockholders' Deficit for the Three and Six Months Ended June 30, 2021 and 2020  

5

 

 

Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020

6

 

 

Notes to Unaudited Consolidated Financial Statements

7

 

 

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

20

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

31

 

 

ITEM 4. CONTROLS AND PROCEDURES

32

 

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

33

 

 

ITEM 1A. RISK FACTORS

33

 

 

 

 

ITEM 6. EXHIBITS

34

 

 

SIGNATURES

36

 

 

 

 

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

June 30,

2021

 

 

As of

December 31,

2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

98,062

 

 

$

90,706

 

Marketable securities

 

 

95,107

 

 

 

95,085

 

Accounts receivable, net

 

 

20,886

 

 

 

22,240

 

Contract, prepaid and other current assets

 

 

18,838

 

 

 

21,354

 

Total current assets

 

 

232,893

 

 

 

229,385

 

Property and equipment, net

 

 

27,001

 

 

 

29,701

 

Financing lease right-of-use assets

 

 

60,291

 

 

 

68,670

 

Operating lease right-of-use assets

 

 

986

 

 

 

1,107

 

Intangible assets, net

 

 

9,257

 

 

 

10,393

 

Goodwill

 

 

12,857

 

 

 

12,857

 

Deferred contract costs and other non-current assets

 

 

9,011

 

 

 

10,259

 

Total assets

 

$

352,296

 

 

$

362,372

 

Liabilities, redeemable preferred stock and stockholders' deficit

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,639

 

 

$

2,160

 

Accrued expenses

 

 

8,177

 

 

 

6,262

 

Accrued compensation and benefits

 

 

14,223

 

 

 

19,129

 

Deferred revenue, current portion

 

 

28,202

 

 

 

27,782

 

Lease liabilities and financing obligations, current portion

 

 

7,104

 

 

 

5,959

 

Total current liabilities

 

 

61,345

 

 

 

61,292

 

Deferred revenue, net of current portion

 

 

3,387

 

 

 

4,422

 

Convertible senior notes

 

 

190,089

 

 

 

184,308

 

Lease liabilities and financing obligations, net current portion

 

 

78,344

 

 

 

79,282

 

Other non-current liabilities

 

 

2,629

 

 

 

2,470

 

Total liabilities

 

 

335,794

 

 

 

331,774

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Redeemable preferred stock:

 

 

 

 

 

 

 

 

Series A preferred stock, par value $0.001, 5,000,000 shares

  authorized, 1,777,778 and 1,777,778 shares issued and outstanding

  at June 30, 2021 and December 31, 2020, respectively,

  liquidation preference $45 per share as of June 30, 2021 and December 31, 2020, respectively

 

 

79,193

 

 

 

79,193

 

Stockholders' deficit:

 

 

 

 

 

 

 

 

Common stock, par value $0.001, 95,000,000 and 50,000,000 shares authorized,

   33,234,786 and 32,327,439 issued and outstanding at June 30, 2021 and December 31, 2020, respectively

 

 

33

 

 

 

32

 

Additional paid-in capital

 

 

430,451

 

 

 

427,431

 

Accumulated deficit

 

 

(493,175

)

 

 

(476,058

)

Total stockholders' deficit

 

 

(62,691

)

 

 

(48,595

)

Total liabilities, redeemable preferred stock and stockholders' deficit

 

$

352,296

 

 

$

362,372

 

 

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

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenue

 

$

60,904

 

 

$

62,174

 

 

$

125,967

 

 

$

128,328

 

Cost of revenue

 

 

28,030

 

 

 

30,397

 

 

 

56,623

 

 

 

64,309

 

Gross profit

 

 

32,874

 

 

 

31,777

 

 

 

69,344

 

 

 

64,019

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

10,921

 

 

 

11,828

 

 

 

21,812

 

 

 

27,458

 

Research and development

 

 

11,103

 

 

 

11,045

 

 

 

21,935

 

 

 

22,813

 

General and administrative

 

 

17,574

 

 

 

9,381

 

 

 

27,436

 

 

 

19,896

 

Restructuring costs

 

 

2,727

 

 

 

5,616

 

 

 

4,127

 

 

 

5,616

 

Total operating expenses

 

 

42,325

 

 

 

37,870

 

 

 

75,310

 

 

 

75,783

 

Loss from operations

 

 

(9,451

)

 

 

(6,093

)

 

 

(5,966

)

 

 

(11,764

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

54

 

 

 

97

 

 

 

111

 

 

 

523

 

Interest expense

 

 

(5,646

)

 

 

(5,862

)

 

 

(11,201

)

 

 

(11,753

)

Other income

 

 

64

 

 

 

2

 

 

 

22

 

 

 

7

 

Total other expense, net

 

 

(5,528

)

 

 

(5,763

)

 

 

(11,068

)

 

 

(11,223

)

Loss before income taxes

 

 

(14,979

)

 

 

(11,856

)

 

 

(17,034

)

 

 

(22,987

)

Income tax expense

 

 

41

 

 

 

6

 

 

 

83

 

 

 

11

 

Net loss

 

 

(15,020

)

 

 

(11,862

)

 

 

(17,117

)

 

 

(22,998

)

Preferred dividends

 

 

(1,600

)

 

 

(462

)

 

 

(3,200

)

 

 

(462

)

Net loss available to common stockholders

 

$

(16,620

)

 

$

(12,324

)

 

$

(20,317

)

 

$

(23,460

)

Comprehensive loss

 

$

(15,020

)

 

$

(11,862

)

 

$

(17,117

)

 

$

(22,998

)

Net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.50

)

 

$

(0.38

)

 

$

(0.62

)

 

$

(0.73

)

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

33,080,257

 

 

 

32,058,387

 

 

 

32,787,162

 

 

 

32,348,673

 

 

 

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, 2020

 

 

32,327,439

 

 

$

32

 

 

$

427,431

 

 

$

(476,058

)

 

$

(48,595

)

Exercise of stock options

 

 

15,000

 

 

 

1

 

 

 

154

 

 

 

 

 

 

155

 

Issuance of common stock upon vesting of restricted stock units

 

 

173,731

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,523

 

 

 

 

 

 

1,523

 

Preferred dividends

 

 

 

 

 

 

 

 

(1,600

)

 

 

 

 

 

(1,600

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(2,097

)

 

 

(2,097

)

Balance, March 31, 2021

 

 

32,516,170

 

 

$

33

 

 

$

427,508

 

 

$

(478,155

)

 

$

(50,614

)

Exercise of stock options

 

 

9,250

 

 

 

 

 

 

102

 

 

 

 

 

 

102

 

Issuance of common stock upon vesting of restricted stock units

 

 

704,543

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock under Employee Stock Purchase Plan, or ESPP

 

 

4,823

 

 

 

 

 

 

65

 

 

 

 

 

 

65

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

4,376

 

 

 

 

 

 

4,376

 

Preferred dividends

 

 

 

 

 

 

 

 

(1,600

)

 

 

 

 

 

(1,600

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

(15,020

)

 

 

(15,020

)

Balance, June 30, 2021

 

 

33,234,786

 

 

$

33

 

 

$

430,451

 

 

$

(493,175

)

 

$

(62,691

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 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

)

 

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

 

 

5


 

 

Benefitfocus, Inc.

Unaudited Consolidated Statements of Cash Flows

(in thousands)

 

 

 

Six Months Ended

June 30,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(17,117

)

 

$

(22,998

)

Adjustments to reconcile net loss to net cash and cash

   equivalents provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

12,525

 

 

 

12,105

 

Stock-based compensation expense

 

 

5,899

 

 

 

7,000

 

Accretion of interest on convertible senior notes

 

 

5,780

 

 

 

5,894

 

Interest accrual on finance lease liabilities

 

 

3,244

 

 

 

44

 

Rent expense less than payments

 

 

(27

)

 

 

(16

)

Non-cash interest income on short-term investments

 

 

506

 

 

 

 

Impairment or loss on disposal of right-of-use assets and property and equipment

 

 

4,048

 

 

 

 

Provision for doubtful accounts

 

 

 

 

 

111

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

1,354

 

 

 

3,711

 

Accrued interest on short-term investments

 

 

(101

)

 

 

 

Contract, prepaid and other current assets

 

 

2,410

 

 

 

3,672

 

Deferred costs and other non-current assets

 

 

1,249

 

 

 

740

 

Accounts payable and accrued expenses

 

 

3,520

 

 

 

(7,318

)

Accrued compensation and benefits

 

 

(4,907

)

 

 

(4,139

)

Deferred revenue

 

 

(615

)

 

 

(2,850

)

Other non-current liabilities

 

 

159

 

 

 

1,910

 

Net cash and cash equivalents provided by (used in) operating activities

 

 

17,927

 

 

 

(2,134

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of short-term investments held to maturity

 

 

(48,427

)

 

 

 

Proceeds from short-term investments held to maturity

 

 

48,000

 

 

 

 

Purchases of property and equipment

 

 

(4,483

)

 

 

(7,075

)

Net cash and cash equivalents used in investing activities

 

 

(4,910

)

 

 

(7,075

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Draws on revolving line of credit

 

 

 

 

 

10,000

 

Payments on revolving line of credit

 

 

 

 

 

(10,000

)

Payments of debt issuance costs

 

 

 

 

 

(154

)

Proceeds from issuance of preferred stock, net of issuance costs

 

 

 

 

 

79,840

 

Payments of preferred dividends

 

 

(3,200

)

 

 

(462

)

Repurchase of common stock

 

 

 

 

 

(9,667

)

Proceeds from exercises of stock options and ESPP

 

 

322

 

 

 

225

 

Payments on financing obligations

 

 

(224

)

 

 

(416

)

Payments of principal on finance lease liabilities

 

 

(2,559

)

 

 

(7,637

)

Net cash and cash equivalents (used in) provided by financing activities

 

 

(5,661

)

 

 

61,729

 

Net increase in cash and cash equivalents

 

 

7,356

 

 

 

52,520

 

Cash and cash equivalents, beginning of period

 

 

90,706

 

 

 

130,976

 

Cash and cash equivalents, end of period

 

$

98,062

 

 

$

183,496

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

 

 

 

 

Property and equipment purchases in accounts payable and accrued expenses

 

$

 

 

$

37

 

 

 

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

 

 

6


 

 

BENEFITFOCUS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

 

1. Organization and Description of Business

Benefitfocus, Inc. (the “Company”) provides a leading cloud-based benefits management platform for consumers, employers, health plans (also known as insurance carriers) and brokers that is designed to simplify how organizations and individuals transact benefits. The financial statements of the Company include the financial position and operations of its wholly owned subsidiaries, Benefitfocus.com, Inc. and BenefitStore, Inc.

2. Summary of Significant Accounting Policies

Principles of Consolidation

These consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in the consolidation. The Company is not the primary beneficiary of, nor does it have a controlling financial interest in, any variable interest entity. Accordingly, the Company has not consolidated any variable interest entity.

Interim Unaudited Consolidated Financial Information

The accompanying unaudited consolidated financial statements and footnotes have been prepared in accordance with GAAP as contained in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (the “Codification” or “ASC”) for interim financial information, and with Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the results of operations and comprehensive loss, financial position, changes in stockholders’ deficit and cash flows. The results of operations and comprehensive loss for the three- and six-month period ended June 30, 2021 are not necessarily indicative of the results for the full year or for any other future period. These unaudited consolidated financial statements should be read in conjunction with the audited financial statements and related footnotes for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K, as amended.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Such estimates include allowances for doubtful accounts and returns, valuations of deferred income taxes, long-lived assets, capitalizable software development costs and the related amortization, incremental borrowing rate used in lease accounting, the determination of the useful lives of assets, and the impairment assessment of acquired intangibles and goodwill. Additionally as described in revenue and deferred revenue below, estimates are utilized in association with revenue recognition, in particular the estimation of variable consideration using the expected value method from insurance broker commissions reported in Platform revenue. Determination of these transactions and account balances are based on, among other things, the Company’s estimates and judgments. These estimates are based on the Company’s knowledge of current events and actions it may undertake in the future as well as on various other assumptions that it believes to be reasonable. Actual results could differ materially from these estimates.

Restructuring Costs

During January 2021, the Company recorded restructuring costs of $1,400 from a reduction to its workforce. In June 2021, the Company recorded restructuring costs of $2,727 from the elimination of the office of the executive chairman of the board of directors. Restructuring costs are comprised of one-time severance charges, continuation of health benefits and outplacement services and are presented separately in operating expenses in the consolidated statements of operations and comprehensive loss.

Revenue and Deferred Revenue

The Company derives its revenue primarily from fees for subscription services and professional services sold to employers and health plans as well as platform revenue derived from the value of products sold on its platform. Revenue is recognized when control of these services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. Taxes collected from customers relating to services and remitted to governmental authorities are excluded from revenue.

The Company determines revenue recognition through the following steps:

 

Identification of each contract with a customer;

 

Identification of the performance obligations in the contract;

 

Determination of the transaction price;

 

Allocation of the transaction price to the performance obligations in the contract; and