Name Change Not Enough For eBenX

Everyone knows that many Internet companies — as well as wannabe
Internet companies — choose a “.com” name to make themselves more
attractive to customers and investors.

Another increasingly popular naming strategy is to become an “e”
company, especially as the market’s focus shifts from the broader
Internet to the more specific world of e-commerce.

One company expected to go public this week recently has adopted the
latter tack. Network Management Services, a six-year-old Minneapolis
company serving the group health insurance industry, announced on Nov.
15 that it has changed its name to the more cyber-savvy eBenX.

The company is offering 5 million shares in the $10.50 to $12.50 price
range under the Nasdaq ticker symbol EBNX. Lead underwriter is
BancBoston Robertson Stephens.

eBenX’s software is designed to help corporations and the health plans
serving them to streamline the cumbersome process surrounding group
health insurance benefits, including purchasing, the determination of
eligibility and premium payments.

As anyone who recently has been through the Byzantine and confusing
health benefits procedure knows, this is a market crying out for
simplicity and efficiency.

eBenX thinks it has the answer with its proprietary technology, which
automates the data exchange, payment and reconciliation process in a
highly fragmented market complicated by differences in regulations
between federal, state and local jurisdictions.

This essentially makes eBenX a provider of business-to-business
e-commerce software, one of the hottest markets going right now.
Customers include a number of Fortune 1000 players such as Bell
Atlantic, PepsiCo, Northwest Airlines, GE Capital Services and R.R.
Donnelley & Sons.

But eBenX faces some real challenges. Revenue growth slowed in 1998,
while the company’s gross margin continues to shrink. Last year’s
revenue of $10.1 million reflected an annual revenue growth rate of 47 percent,
down from 1997’s growth rate of 62 percent. The company may be on track to
reverse that slide, however, with $11.7 million in revenue through the
first nine months of 1999. That’s a 76 percent increase over sales in the same
period a year ago.

Gross margin, meanwhile, has fallen from 37.3 percent in Q4 ’98 to 29.5 percent in
this year’s first quarter, 23.6 percent in Q2 and 17.3 percent in the quarter ended
Sept. 30. That trend needs to be reversed.

The declining gross margins have led to increased losses. eBenX reported
a $1 million net loss in 1998. This year the net loss has increased each
quarter, from $372,000 in Q1 to $740,000 in Q2 and $1.6 million in the
third quarter.

eBenX also must reduce its dependence on its largest customers. Bell
Atlantic, Pepsi and Northwest accounted for about half of the company’s
$10.1 million in 1998 revenue, while they and nine others comprised 90 percent
of eBenX’s revenue so far in 1999.

With these financial challenges and competition from giants such as
Automatic Data Processing and McKesson HBOC, eBenX needs more than a
name change to warrant investor confidence. Its Q3 revenues show some
movement in the right direction, but if I were an investor, I’d want tosee more before placing my bet.

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