Benefitfocus

BNFT : NASDAQ : US$46.26
BUY 
Target: US$54.00

COMPANY DESCRIPTION:
Benefitfocus sells a cloud-based benefits software platform for large employers and insurance carriers. The firm’s suite of solutions enables customers to more efficiently shop, enroll, manage, and exchange benefits information. Based in Charleston, SC, Benefitfocus was founded in 2000 and went public in September, 2013.

Technology — Enterprise Software — Software as a Service
INVESTORS LIKELY TO BENEFIT FROM CONTINUED SOLID EXECUTION. BUY, INCREASING TARGET TO $54.
It was green lights across the board for BNFT in its inaugural quarterly report as a public company. Our opinion on the company is unchanged, and positive, from our initiation report published 24 days ago, in which we asserted that BNFT shares should advance almost as fast as the firm’s gradually accelerating revenue growth. More importantly in our opinion, Benefitfocus has the kind of corporate culture that positions the firm for sustained long-term growth. The last three companies we know who had this characteristic were PeopleSoft, Ultimate Software, and SPS Commerce – all three long-lived successes. While it is premature to put BNFT into that pantheon of quality companies, we strongly believe this quarter represents a good step in that direction. Reiterate BUY.
 A good start: upside revenue and EBITDA. BNFT reported revenues and Adjusted EBITDA loss of $26.3M and ($4.5M), which were respectively $1.0M and $2.8M ahead of our estimates. Total revenues increased 26% in the quarter, driven by continued momentum on the Employer side, which grew 66% y-o-y. BNFT generated operating cash flow of $3.0M in the quarter compared to our expectation for a loss of ($5.7M).
 Customer additions. BNFT added 31 new Employer customers in the quarter, bringing the firm’s total to 379, which is up 41% y-o-y. We anticipate that Q4 will be a record “go-live” quarter for Employers. BNFT’s Carrier sales focus remains on getting broader within its 37 customer base.
 Outlook: Q4 revenues inched up, C2013E losses less than expected. BNFT set mid-point Q4 revenue guidance ~$1M ahead of our estimates, which implies sequentially accelerating growth (to 28%). We have modestly increased forward estimates and expect FCF profitability in C2016.

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