Page 19 of 22 – SEC Filing
specific, experienced and credible
investor to you who would have invested through such a structure. However, you refused to meet with them and other interested parties.
| 3. | Absolute Failure on Building the Private Exchange Platform. Management has led the Company to near complete operational failure on the core Private Exchange business. Despite the announcement of numerous client wins, the product clearly remains incomplete, to the evident frustration of both customers and channel partners. This lack of simple execution to extend, as communicated to the public, the already architected SaaS platform inherited from the DRX acquisition into a directly related adjacent market has materially impaired financial performance, slowed the Company’s growth and further damaged shareholder value. |
Underperformance of Connecture’s
Stock Versus Peers and the Market
Based on Wall Street research published
at the time of the Company’s IPO, Connecture was expected to achieve approximately $100M of revenue in 2016 and be on pace
to achieve upwards of $135M of revenue in 2017. In comparison, management is now guiding towards $85M – $88M of revenue in 2016
and Wall Street analysts12 expect 2017 results of approximately $96M of revenue. This deceleration of growth has
obviously, and significantly, impaired the valuation of the business and is a direct result of management’s lack of ability
to execute on its plans.
Connecture is now, as a result, trading
at a significant valuation discount to its peers in the benefit management and HCIT landscape. While many of its peers achieve
valuations that represent multiples of forward revenue in the range of approximately 3.0x, Connecture’s stock trades at approximately
1.0x forward revenue, representing a 65% discount to comparable companies.
| Connecture Comparable Companies | ||||||||||||||||||||||
| Equity | Firm | FV / Revenue | FV / EBITDA | |||||||||||||||||||
| Price | Value | Value | LTM | 2016 | 2017 | 2018 | LTM | 2016 | 2017 | 2018 | ||||||||||||
| Benefit Management | ||||||||||||||||||||||
| BenefitFocus | $30.85 | $918 | $933 | 4.1x | 4.0x | 3.3x | 2.8x | NM | NM | NM | NM | |||||||||||
| Wage Works | $70.40 | $2,580 | $1,992 | 6.1x | 5.4x | 4.2x | 3.8x | 30.9x | 18.4x | 14.3x | 12.4x | |||||||||||
| Health Equity | $40.78 | $2,421 | $2,255 | NM | NM | NM | 8.3x | 43.5x | 36.6x | 28.4x | 22.7x | |||||||||||
| TriNet | $25.65 | $1,765 | $2,073 | 0.7x | 0.7x | 0.6x | 0.5x | 14.4x | 11.3x | 10.4x | 9.3x | |||||||||||
| Mean | 3.7x | 3.4x | 2.7x | 3.8x | 29.6x | 22.1x | 17.7x | 14.8x | ||||||||||||||
| Median | 4.1x | 4.0x | 3.3x | 3.3x | 30.9x | 18.4x | 14.3x | 12.4x | ||||||||||||||
| Healthcare IT | ||||||||||||||||||||||
| athenahealth | $113.96 | $4,497 | $4,658 | 4.4x | 4.2x | 3.6x | 3.1x | NM | 19.2x | 15.0x | 12.4x | |||||||||||
| Medidata | $51.84 | $2,986 | $2,916 | 6.7x | 6.3x | 5.3x | 4.5x | NM | 27.4x | 23.0x | 18.8x | |||||||||||
| The Advisory Board | $34.15 | $1,371 | $1,881 | 2.3x | 2.3x | 2.3x | 2.2x | 16.2x | 10.0x | 9.5x | 8.6x | |||||||||||
| Cerner | $47.65 | $16,177 | $16,057 | 3.5x | 3.3x | 3.1x | 2.8x | 12.4x | 10.2x | 9.1x | 8.4x | |||||||||||
| Castlight | $4.35 | $454 | $337 | 3.6x | 3.3x | 2.7x | 2.2x | NM | NM | NM | NM | |||||||||||
| Mean | 4.1x | 3.9x | 3.4x | 3.0x | 14.3x | 16.7x | 14.1x | 12.0x | ||||||||||||||
| Median | 3.6x | 3.3x | 3.1x | 2.8x | 14.3x | 14.7x | 12.3x | 10.5x | ||||||||||||||
| Overall Mean | 3.9x | 3.7x | 3.1x | 3.3x | 23.5x | 19.0x | 15.7x | 13.2x | ||||||||||||||
| Overall Median | 3.9x | 3.7x | 3.2x | 2.8x | 16.2x | 18.4x | 14.3x | 12.4x | ||||||||||||||
| Connecture | $1.77 | $40 | $109 | 1.2x | 1.3x | 1.1x | 1.0x | NM | NM | 14.3x | 10.1x | |||||||||||
| Discount to Comps Median | -68.8% | -65.6% | -64.2% | -63.5% | NM | NM | 0.2% | -18.2% | ||||||||||||||
It is clear from the relative performance
of the Company versus the general market and the S&P health care index since the date of Connecture’s IPO, that the Company’s
poor operational and market performance has been a result of mismanagement. While the broader market has risen by 14% over this
12 Based on equity research published
by Morgan Stanley, JP Morgan,Raymond James, First Analysis, Wells Fargo and William Blair.
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