Benefitfocus – A Successful SaaS IPO

An IBISWorld report published for the previous year estimates the human resources benefits administration market in the U.S. to be worth more than $59 billion last year. Researcher Gartner estimates that last year, the U.S. insurance industry spent more than $55 billion on software and related services. Recently listed Benefitfocus is a provider of cloud-based benefits software solutions.

Benefitfocus’ Offerings

Benefitfocus is based out of Charleston, South Carolina, and was founded in 2000 with the mission to help organizations focus on benefits and not on paperwork. The idea of the organization was formed when Mason Holland, Jr., American Pensions, Inc. founder, and Shawn Jenkins met in 1997 to build a software platform that allowed employers to manage their 401(k) plans online. Soon the two realized that a similar product would also help employers and employees manage their health insurance plans, leading to the creation of Benefitfocus.

Today, the company provides cloud-based benefits software solutions for end consumers, employers, insurance carriers, and brokers. Through their platform, both employers and insurance carriers can manage their health plans by shopping across alternatives, enrolling in the required plans, and exchanging benefits information. The web-based platform allows individuals and their dependents to access benefit information including healthcare, dental, life, disability insurance, and voluntary benefits plans, at a single location using the web or mobile devices. Organizations benefit from the platform by being able to streamline benefits processes while ensuring that regulatory requirements are met. Their solutions help insurance carriers to simplify the enrollment process, market offerings, and manage billing.

Benefitfocus’ Financials

Benefitfocus earns revenues by charging subscription fees for its services to employers and insurance carriers. Revenues have grown significantly over the past few years. For the fiscal year 2012, revenues grew 19% to $81.7 million, with employer revenues growing 49% to $23.8 million and carrier revenues growing 10% to $58.0 million. During the same period, losses stayed relatively flat at $14.7 million last year, compared with $14.9 million in 2011.

While revenues have increased, investments in research & development and sales and marketing efforts have increased operating expenses as well. For the six months ended June 2013, Benefitfocus saw revenues grow from $38.7 million to $48.2 million. Net loss during the period increased from $10.4 million to $15.1 million.

In the recently ended quarter, revenues grew 26% over the year to $26.3 million, with employer revenues growing 66% to $9.8 million and insurance carrier revenues growing 11% to $16.5 million. By segment, software revenues for the quarter grew 29% to $24.5 million and professional services revenues grew 1% to $1.8 million. Net loss declined from $0.10 per share a year ago to $0.03 per share during the quarter. The company ended the quarter with 379 large employer customers. As of June 2013, the platform was being used by more than 20 million end consumers and 34 insurance carriers.

For the current quarter, Benefitfocus projects revenues of $28 million-$29 million with a net loss of $0.33-$0.35 per share. It expects to end the year with revenues of $102.5-$103.5 million and a net loss of $1.30-$1.33 per share.

Till recently, Benefitfocus was bootstrapped. Last quarter, it went public by selling 3 million shares at $26.50 each to raise $70.6 million by listing on the Nasdaq under the ticker BNFT. The stock has done well since its listing and is trading at $39.93 with a market capitalization of $975.93 million. It touched a high of $55.87 soon after listing in September.

The HR SaaS space has attracted a lot of interest recently. Taleo and SuccessFactors were high priced acquisitions by bigger tech players. Oracle spent $1.9 billion to acquire Taleo, SAP spent $3.4 billion on SuccessFactors, and Workday managed to stay independent and deliver a very successful IPO. Benefitfocus may not offer pure-play HR SaaS offerings like some of these bigger names, but it surely has a product that has attracted market attention.