Page 18 of 22 – SEC Filing
The below table illustrates Connecture’s
performance on a quarterly basis versus Wall Street11 estimates since the Company went public.
| Financial Performance vs. Estimates | ||||||||||||||||||||||||
| Q4 ’14 | Q1 ’15 | Q2 ’15 | Q3 ’15 | Q4 ’15 | Q1 ’16 | Q2 ’16 | Q3 ’16 | |||||||||||||||||
| Reported Financials | ||||||||||||||||||||||||
| Revenue | $27.8 | $20.6 | $23.4 | $22.7 | $29.1 | $17.6 | $18.7 | $24.7 | ||||||||||||||||
| Adj. EBITDA | $6.3 | ($1.7 | ) | ($0.6 | ) | $1.8 | $8.6 | ($3.9 | ) | ($5.5 | ) | ($0.6 | ) | |||||||||||
| Median Consensus Estimates | ||||||||||||||||||||||||
| Revenue | N/A | $19.7 | $23.2 | $22.0 | $31.0 | $20.7 | $20.3 | $21.3 | ||||||||||||||||
| Adj. EBITDA | N/A | ($1.8 | ) | ($0.8 | ) | $1.3 | $10.1 | ($1.2 | ) | ($1.9 | ) | ($1.9 | ) | |||||||||||
| Variance | ||||||||||||||||||||||||
| Revenue | ||||||||||||||||||||||||
| Dollars | N/A | $0.9 | $0.2 | $0.7 | ($1.9 | ) | ($3.1 | ) | ($1.5 | ) | $3.5 | |||||||||||||
| Percent | N/A | 4.7% | 0.8% | 3.1% | -6.1% | -15.2% | -7.6% | 16.4% | ||||||||||||||||
| Adj. EBITDA | ||||||||||||||||||||||||
| Dollars | N/A | $0.1 | $0.2 | $0.5 | ($1.5 | ) | ($2.7 | ) | ($3.6 | ) | $1.2 | |||||||||||||
| Percent | N/A | NM | NM | 37.1% | -14.6% | NM | NM | NM | ||||||||||||||||
Examples of Poor Executive
Decisions and Operational Execution
| 1. | Push Into “Consumer Health Care”. Management’s proposed consumer health care strategy not only lies far afield from the Company’s core strengths and operating capabilities, but also the articulated strategy has been largely opaque and incoherent. Based on the market’s reaction, it does not appear that the strategy is viewed as either well-conceived or planned. We advised management against this strategy when it was first explained to us. The energies and resources committed to this strategic folly have failed to contribute any positive financial performance and clearly diluted the time and attention that the management team has to focus on core operations and clients. |
| 2. | Filing Shelf Registration in January 2016. Despite the plethora of examples of the negative impact on stock prices of small cap companies filing sizeable shelfs, and the input against a large equity capital raise provided by us and other shareholders, the Company still proceeded to file a $50M shelf registration on January 8, 2016 (representing approximately 65% of market cap) without disclosing the purpose of the shelf or the expected use of proceeds. This error in strategy, and even worse, in judgment, was, in our view, the major causal factor in the already depressed share price plummeting further by 22.7% in one day, from $3.52 to $2.72. Since the announcement, Connecture’s share price has failed to ever again broach the $3.52 level, an indication that investor confidence in the judgment of management continued to deteriorate. Additionally, in the eventual financing that the Company did pursue, management purposefully fashioned a very limited process despite our input to broaden it. This poorly constructed financing led management to choose to issue preferred stock with an accruing dividend. We advised you to solicit an investor that would agree to acquire common stock with warrants without the liquidation preference, and referred at least one such |
11 Estimates based on equity research published by Morgan Stanley, JP Morgan, Raymond James, First Analysis, Wells Fargo and William
Blair.
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