Who powers health insurance exchanges? Connecture files for an $86 million IPO

Connecture, which powers over 30 public and private online health insurance marketplaces, filed on Tuesday with the SEC to raise up to $86 million in an initial public offering.

Business
Connecture's solutions are sold to health insurance marketplace operators (health plans, brokers, exchange operators) and were used by over 20 million shoppers in 2013, facilitating over $130 billion of annual plan premiums. As of June 30, its customer base included more than 70 health plans, including 20 of the top 25 health plans, and it powered over 30 private, state and federal exchanges. The company expects the Patient Protection and Affordable Care Act to be a major driver of growth.

Connecture divides sells across four segments: Enterprise/Commercial (51% revenue; 25% of gross margin), Enterprise/State (20%; 22%), Medicare (22%; 49%) and Private Exchange (7%; 5%). Its software services accounted for 73% of sales and its 3-5 year contract rates are based on the size of the health plan. Its professional services revenue, which generated 24% of sales, includes implementation of customers onto the platform as well as integration, testing and training. Implementation takes about six to fifteen months for a new enterprise customer and one to three months for a new Medicare or Private Exchange.

Shareholders
Primary shareholders include Great Point Partners, Chrysalis Ventures, SSM Partners and LiveOak Venture Partners and CEO Robert Schneider.

Recent financials
Revenue increased 83% to $35 million during the six months ended June 30, 2014 as revenue from commercial enterprise customers spiked and the company began selling to state customers. Adjusted gross margin swung positive to $10 million, up from a loss of $2 million during the prior year period as Connecture gained leverage across segments. Adjusted EBITDA narrowed to -$6 million from -$14 million. Connecture's backlog was $88 million at quarter-end. It had $49 million of debt, which it will pay down with IPO proceeds.

The Brookfield, WI-based company, which was founded in 1999 and booked $74 million in sales for the 12 months ended June 30, 2014, plans to list on the NASDAQ. Connecture initially filed confidentially on August 29, 2014. Morgan Stanley and J.P. Morgan are the joint bookrunners on the deal. No pricing terms were disclosed and the company has not selected a ticker.