Facing ‘Headwinds,’ Connecture Raises Another $17.5M From PE Firms

The uncertainty surrounding the Affordable Care Act and the private, state, and federal health insurance marketplaces launched following the law’s passage has created “market headwinds” for the Brookfield, WI-based software developer Connecture, the company’s CEO said earlier this week.

Connecture (NASDAQ: CNXR), which sells Web-based software designed to aid consumers shopping for health plans, reported fourth-quarter earnings on Tuesday. In addition to sharing information on its financial performance, the company announced it had raised $17.5 million from two private equity firms in exchange for shares of stock in Connecture.

Both groups had invested in Connecture prior to the latest stock sale, which took place last week, the company said in a press release. San Francisco-based Francisco Partners led the financing, and now controls about 56 percent of Connecture’s common stock equivalents, the company said. The other participant was Chrysalis Ventures, based in Louisville, KY.

Connecture reported a loss of $6.2 million, or 32 cents a share, for the quarter ended Dec. 31. That fell well short of forecasts from analysts, some of whom projected a profit of 18 cents a share for the fourth quarter.

The company reported earnings shortly after markets closed on Tuesday. Shares in Connecture closed at $1.40 apiece on Wednesday, down more than 26 percent from the previous day’s close of $1.91 a share. Its stock price closed at $1.39 a share Thursday.

“The fourth quarter of 2016 capped a year of challenges and transitions for the company,” Jeff Surges, president and CEO of Connecture, said in a prepared statement. “The uncertain political status of the Affordable Care Act and proposed health plan merger activity created market headwinds, which impacted our growth expectations.”

Connecture reported a net loss of $26.5 million in 2016. Revenues for the year were $81.9 million, down from $95.8 million in 2015. That downward trend in total sales is expected to continue; Connecture projects revenues for 2017 will be between $73 million and $78 million.

Originally founded as SimplyHealth in Atlanta in 1999, Connecture has gone through several evolutions over the years. The company relocated to Wisconsin in 2012, and went public in 2014.

Surges said in Tuesday’s press release that the $17.5 million cash investment from the private equity groups will allow Connecture to expand the commercial, private exchange, and Medicare segments of its business.

Private investment in public equity—or PIPE—deals like this one often involve companies running low on cash, according to reporting by the Wall Street Journal. (Connecture said it had $6.2 million in cash and cash equivalents at the end of 2016.) Such transactions can be viewed as unfavorable for existing stockholders, whose shares are diluted.

The company’s market cap is currently about $31 million.

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