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Edited Transcript of BNFT earnings conference call or presentation 1-Nov-18 9:00pm GMT

Q3 2018 Benefitfocus Inc Earnings Call

Charleston Nov 16, 2018 (Thomson StreetEvents) -- Edited Transcript of Benefitfocus Inc earnings conference call or presentation Thursday, November 1, 2018 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jonathon E. Dussault

Benefitfocus, Inc. - CFO & Treasurer

* Michael Bauer

Benefitfocus, Inc. - IR

* Raymond Alexander August

Benefitfocus, Inc. - CEO, President & Director

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Conference Call Participants

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* Brian Christopher Peterson

Raymond James & Associates, Inc., Research Division - Senior Research Associate

* Daniel Harlan Ives

Wedbush Securities Inc., Research Division - MD of Equity Research

* Joseph Anthony Gallo

Jefferies LLC, Research Division - Equity Associate

* Nina D. Deka

Piper Jaffray Companies, Research Division - Research Analyst

* Ross Stuart MacMillan

RBC Capital Markets, LLC, Research Division - Co-Head of Software Sector

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Presentation

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Operator [1]

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Greetings, and welcome to Benefitfocus Third Quarter 2018 Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded. I'd now like to turn the conference over to Mike Bauer, Director of Investor Relations. Please go ahead.

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Michael Bauer, Benefitfocus, Inc. - IR [2]

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Thank you, operator. Good afternoon, and welcome to Benefitfocus' Third Quarter 2018 Earnings Call. We will be discussing the operating results announced in our press release issued after the close of market today. Joining me today are Ray August, our President and Chief Executive Officer; and Jonathon Dussault, our Chief Financial Officer. Ray and Jonathon will offer some prepared remarks, and then we will open the call up for a Q&A session.

Before we begin, let me remind you that today's discussion will include forward-looking statements such as future guidance and other predictions, expectations and information that might be considered forward-looking under federal security laws, including statements about our positioning for the future. These statements reflect our views as of today only and should not be considered representing our views of any subsequent date. These statements are subject to a variety of risks and uncertainties, including our continuing losses and need to achieve GAAP profitability, the fluctuation of financial results, recruitment and retention of key personnel, management of growth, the early stage of our market, cybersecurity risk and changing regulatory environment that could cause actual results to differ materially from expectations. For a further discussion of the material risk and other important factors that could affect our actual results, please refer to our quarterly report on Form 10-Q and our other SEC filings. During the course of today's call, we will also refer to certain non-GAAP financial measures. You can find important disclosures about those measures in our press release.

I'll now turn the call over to Ray.

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Raymond Alexander August, Benefitfocus, Inc. - CEO, President & Director [3]

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Thanks, Mike. Good afternoon, everyone.

Benefitfocus had a great quarter, and I'm really proud of the results we've achieved. This marks the fourth consecutive quarter of meeting or exceeding our targets. The foundation is set for accelerated growth. We finished our 2018 selling season with significant momentum. Our quarterly results exceeded our expectations across all major categories. Specifically, in Q3, we exceeded the top end of our revenue guidance, we exceeded the top end of our profitability guidance, we're pleased with our improved cash flow trajectory, and we remain on track to be cash flow-positive. Our financial performance remains strong. Industry feedback on our solutions across all major segments of our business is very encouraging. In fact, large employer additions grew by 60% compared to those in Q3 2017. And our consumer lives growth on our platform outpaced these employer customer additions on the same year-over-year basis.

Our innovative BenefitsPlace offering welcomed contract signings this quarter with prestigious brands including Aetna and MetLife. They joined 7 other market-leading carriers and 19 specialty product suppliers now under contract and already participating in BenefitsPlace. This underscores the strength and market acceptance of our platform to provide further color on our performance. Today, I will continue discussing how Benefitfocus is improving sales execution, expanding revenue opportunities and strengthening our core.

Beginning with sales execution. Q3 marks the fourth consecutive quarter of improvement. We are gaining efficiencies with our direct and indirect sales teams. They remain focused on increasing the number of consumers on our platform by targeting direct sales to strategic and enterprise accounts, by strengthening our partnership with brokers, and by focusing on our new and existing channel relationships. In Q3 and year-to-date, our direct and indirect sales teams significantly accelerated growth in consumer lives, in logos and in bookings on our platform. Not only did we grow employer logos, more importantly, we also grew employer lives count. We added more consumer lives by signing new employer customers that are larger than our prior average employer size. This reflects the upmarket focus of our direct sales team. In Q3, this resulted in a multiproduct transaction with a well-known national brand that has over 55,000 employees. It's another example of many success stories throughout this year.

Key channel partnerships also continue to strengthen. SAP posted another strong quarter, and traction within the broker community continues at an impressive pace. Our go-to-market strategy drives meaningful investments in our partner distribution channel, in our indirect sales community, in our vertical presence and in our direct team, especially building out capabilities to support larger transactions. All of this leads to more consumers on our platform and expansion of average revenue per user, or ARPU.

In the third quarter, we had 16 large employer customers, up from 10 in the prior year period. This represents a year-over-year increase of 60%, bringing our total large employer logo count over 1,000. We believe we are the only benefits technology platform with over 1,000 large employer customers. We are very proud of this important company and industry milestone.

And we're even more energized by the overall growth in the average size of our new large employer customers, both this quarter and this year, and the significant addition of new lives on our platform. While we've increased our net logo adds by 33% this year, we are actively shifting to a new life-based metric in 2019, as indicated in our last quarterly earnings call. However, for the remainder of 2018, we will continue to provide large employer and carrier logos as a measurement. We plan to stop providing logo count in 2019 and plan to introduce the new metric. We believe this will provide better insight into the drivers of our business.

Now let's turn to our second priority, expanding revenue opportunities. In this quarter, we experienced strong year-over-year growth in existing customer bookings. We also expanded revenue opportunities through our BenefitsPlace offering, both increase ARPU. BenefitsPlace optimizes our platform offering, connecting employers and brokers and carriers with consumers. Through BenefitsPlace, we have curated the highest quality benefits offering, giving consumers and employers better choices and easier access to the industry's flagship brands. In Q3, we continued our impressive progress and added agreements with 2 of our country's largest health insurance companies, including Aetna. We also signed our country's largest group life insurance company, MetLife. We are driving value for every participant on this platform. In return for this value, Benefitfocus receives repeatable transaction revenue from carriers and suppliers, generates referrals from brokers, and develops more valuable partnerships with all members of our ecosystem. With over 20 million consumers on our platform and growing, sellers want to be part of the BenefitsPlace offering to reach more consumers.

Our 9 core BenefitsPlace carriers comprise one of the largest networks and represents a huge percentage of the disability, life and voluntary insurance policies managed in the United States.

In addition to contracting with Aetna, MetLife, and the largest health care insurance carrier in the United States during the third quarter, Aflac, Allstate and Cigna, as well as The Hartford, Genworth and Transamerica, use the Benefitfocus Platform to more easily connect with a large number of consumers.

During the quarter, we added 7 more specialty products. We now have 19 of the best available specialty product suppliers under agreement and on our platform. Together, these seller offerings will provide consumers and their families with leading, cost-effective benefits options through every stage of life, bringing peace of mind and helping them better manage their health, finances and well-being.

During the months of October and November, most companies conduct open enrollment. While still early in the process, BenefitsPlace initial engagement levels have been strong. In this year alone, we have added over 1 million policies to BenefitsPlace, confirming what we anticipated at our March 2018 launch. We are early in capitalizing on an emerging and significant opportunity. We are pleased with our initial success and poised to make significant acceleration in our revenue growth.

Our third priority is to strengthen the core of our business. Our strong performance is driven by focused investments in data, improved operational efficiencies and our purposeful shift from professional services to high-margin recurring and repeatable revenue streams. Collectively, these strategic decisions have materially improved our Q3 and year-to-date results, increasing gross margins, increasing EBITDA and improving our free cash flow trajectory. We have maintained our strong software revenue retention rate above 95%, both for the quarter and year-to-date. Our sales and marketing teams are improving every single day. We also continue investing in innovation that will further strengthen our platform. Our recent membership in the MIT initiative on the digital economy highlights our learning focus and our ability to bring the most advanced technological thinking to our platform strategy.

Investments in BenefitsPlace leverage and build upon recent and ongoing data investments. For example, we are streamlining our platform infrastructure and improving automation for our BenefitsPlace sellers. This is significant. By increasing automation and reducing file transfers, we deliver more timely and more accurate data for our customers. It also reduces operational cost for the entire ecosystem. This, and the increasing use of APIs, deepens our differentiation, improves the customer experience and strengthens our ability to leverage our platform, thereby improving customer satisfaction, profitability and further growth. Our new leadership team is working seamlessly to strengthen and improve all aspects of our business.

When we relaunched our internal company core values earlier this year, we made every associate a shareholder in Benefitfocus. Across the entire organization, we are aligned to support our business and customer priorities. We are proud of our Q3 and year-to-date results. By strengthening our core, improving sales execution and building demand for BenefitsPlace, our foundation and fundamentals are as strong as ever. We are well positioned for 2019. We've unlocked significant growth drivers in our business. We've aligned the entire organization to further strengthen our operational expansion. We're driving increased demand for our platform. We're creating the largest, most relevant benefits network with the industry's most respected brands. All this will drive revenue acceleration and cause our 2019 total revenue to improve to the mid to high teens compared to 2018.

This accelerated revenue growth, fueled by BenefitsPlace, and coupled with our continued progress on efficiencies, will drive margin expansion and meaningful, positive free cash flow in the upcoming year.

To build off of this year's success and continue our strong momentum, next week, we will host our 2019 Sales Kickoff Conference. For the first time, our entire direct sales team will come together with our channel partners, resellers and influencers to collaborate, learn and prepare to win in 2019.

We have delivered 4 consecutive quarters of strong performance. We are confident that our business is stronger than ever. And we believe our platform strategy will drive increased sustainable and long-term shareholder value.

I'd like to close by thanking our Benefitfocus community of sellers, employers, brokers and our dedicated associates for helping us achieve our success.

Now I would like to turn the call over to Jonathon to review our financial results. Jonathon?

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Jonathon E. Dussault, Benefitfocus, Inc. - CFO & Treasurer [4]

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Thank you, Ray. I'll begin by reviewing the details of our third quarter financial results and then provide guidance.

Total revenue for the third quarter was $61 million, an increase of 8% compared to the third quarter of 2017 and was above our previous guidance range. Third quarter revenue growth was driven by our subscription and transaction line item and our platform's software revenue retention exceeding 95%. The revenue in excess of the high end of our prior guidance was primarily driven by BenefitsPlace outperformance and the timing of professional services.

Breaking Q3 revenue down further. Employer revenue of $38 million was up 3% compared to the prior year period. This was in line with our expectations as 10% software services growth was partially offset by the timing of professional service revenue.

Carrier revenue was $23 million, up 19% compared to the third quarter 2017. The accelerated carrier revenue growth reflects the combination of strong BenefitsPlace activity, subscription renewals and the timing of professional services revenue.

Total software services revenue was $46.9 million, an increase of 11% year-over-year and reflective of the momentum in our recurring revenue base.

Employer software services revenue was $28.7 million, an increase of 10% as compared to the third quarter of 2017. Carrier software services was $18.1 million, an increase of 11% as compared to the prior-year period. Total professional services revenue was $14.1 million, an increase of 2% over Q3 2017.

GAAP results for the quarter include gross profit of $29.3 million, representing a margin of 48%. Software gross profit of $30.5 million, representing a margin of 65%; and an operational loss of $8.3 million, contributing to a net loss per share of $0.36.

Recall in the third quarter, we invest in open enrollment readiness. The majority of this added expense is reflected in our cost of revenue and results in a seasonally softer, consolidated end software services gross margin in the quarter.

Non-GAAP gross profit totaled $29.8 million or a 49% non-GAAP gross margin. This compares favorably to the 46% non-GAAP gross margin in Q3 2017. Non-GAAP software gross profit was $30.8 million or 66% non-GAAP gross margin. This is up from the 65% non-GAAP gross margin in Q3 2017.

For the quarter and year-to-date, consolidated non-GAAP gross margin improved over 325 basis points and over 420 basis points, respectively. Non-GAAP software gross margin improved nearly 80 basis points in the quarter and over 180 basis points year-to-date. This improvement reflects the combination of our purposeful shift towards high-margin subscription and BenefitsPlace transaction revenue; improved operational efficiencies, driven by our focused data investment in increased automation; and our platform's inherent operational scale. We also continue to drive consistent year-over-year and sequential improvement in our adjusted EBITDA results. Q3 adjusted EBITDA was nearly breakeven. This significantly exceeded our guidance and compares favorably to the negative 4% of revenue in Q3 2017. Our adjusted EBITDA continues to be favorably impacted by the combination of recurring revenue growth, gross margin expansion, increasing operational scale and improved efficiencies throughout our company. To support our accelerating revenue trajectory, we are making targeted investments to support our future growth, which is reflective in our Q4 outlook.

Non-GAAP net loss was $7.2 million and was better than our prior guidance.

Moving to the balance sheet. We ended Q3 with cash of $51.1 million. Total deferred revenue declined $3.4 million sequentially to $47.6 million. This sequential decline reflects the ongoing shift away from our traditional large carrier service contracts and our strategic focus on driving repeatable transaction-based revenue.

Onto the cash flow statement. We generated positive cash flow from operations in the quarter and materially improved our use of free cash flow on both a quarterly and year-to-date perspective. Q3 2018 cash flow from operations totaled $0.8 million.

Free cash, a non-GAAP measure that we define as cash provided by or used in operations, plus purchases of property and equipment, was negative $1.5 million in Q3 and is a significant improvement from the negative $11 million in the prior year period. We continue to make solid progress towards achieving positive free cash flow as year-to-date, we have improved our use of free cash flow by $11.4 million.

Now let's move to guidance. Reflective of our solid execution of adding consumer lives to our platform and increasing ARPU, we are raising the midpoint of our 2018 revenue guidance and are well positioned for accelerated revenue growth and steady margin expansion in 2019. For full year 2018, we are targeting total revenue of $255 million to $258 million, which at the midpoint represents approximately 8% growth compared to full year 2017. We expect adjusted EBITDA of $7 million to $10 million, a non-GAAP net loss of $21 million to $18 million, and a non-GAAP net loss per share of $0.66 to $0.57 based on 31.7 million weighted shares outstanding.

For full year 2019, we anticipate total revenue growth to accelerate to the mid to high teens, and for our business to generate meaningful positive free cash flow. We will provide formal 2019 guidance at a later date. We are very pleased with our year-to-date performance and the 4 consecutive quarters of solid execution.

To better educate investors about the positive transformation within our business, in Q4, we plan to present at the RBC Capital Markets 2018 Technology Internet, Media and Telecommunications Conference.

In closing, we are proud of our quarter and year-to-date results. We are confident that by our continued improvement in sales execution, expansion of revenue opportunities and strengthening of our core, we have positioned the business to accelerate our revenue growth in 2019, generate meaningful free cash flow and drive significant shareholder value.

With that, we are now ready to take your questions. Operator, please begin the question-and-answer session at this time.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from the line of Brian Peterson with Raymond James.

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Brian Christopher Peterson, Raymond James & Associates, Inc., Research Division - Senior Research Associate [2]

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So it looks like the bookings should translate into a much faster-than-expected revenue growth rate in 2019. Ray, maybe help us understand, as you've gone through this 2018 sales cycle, what have been the biggest improvements that you've seen? And do you feel like this has really set up to drive a more sustainable end bookings and revenue trajectory going forward?

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Raymond Alexander August, Benefitfocus, Inc. - CEO, President & Director [3]

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Yes. Thanks, Brian. We appreciate it very much. Simply stated, we're executing the plan we laid out earlier this year. We've had 4 quarters of consistent performance. We've exceeded all of our targets during that period of time. And as we looked at our business, we feel like we're really at an inflection point right now, and our business is taking on a new shape, a new dimension. It's been really great. The market is truly embracing our overall strategy, particularly the BenefitsPlace and what BenefitsPlace does for everybody in the entire ecosystem. The way we look at our business as we think about ARPU and we think about lives and maximizing both of those, from an ARPU perspective what we saw out of the market, this quarter was -- we now have 9 carriers who have signed up to be part of BenefitsPlace. Every one of them writing a check to us for -- every time somebody selects one of their products. We have 19 different specialty providers who have signed up for BenefitsPlace. We have many different solutions that are all contributing in a very positive direction. The consumers have been really excited by it. This quarter -- this year so far, we have over 1 million policies on BenefitsPlace where a consumer has clicked on a selection, bought a product from one of our BenefitsPlace providers. So the consumers are really excited about what they're seeing on the platform and they're truly selecting the products that we're offering. From a lives perspective, as we said earlier, our logos are up 60% year-over-year. What we saw a year ago, we spoke about, which was we had a headwind from our broker community, brokers are not recommending Benefitfocus. Last quarter, we characterized it as we eliminated that headwind. Now we truly have a tailwind where brokers are recommending us to their customers, they're recommending Benefitfocus, they're putting their -- our lives on their platforms and then they're all participating in the advantages of BenefitsPlace and the advantage it brings to everybody in the ecosystem. Carriers are selling more products. Brokers are getting paid every time those products are sold. Employers are offering more benefits to their employees, and employees are getting better and more effective products for them to take care of their family. So really pleased with the activity. We're pleased with where this is going. And all these factors enabled us to really get to a point where we're seeing our revenue accelerating and we can up our guidance for '19. So it's been -- we're getting great signals from the market.

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Brian Christopher Peterson, Raymond James & Associates, Inc., Research Division - Senior Research Associate [4]

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That's good to hear, Ray. And on the 1 million members that you referenced on BenefitsPlace, that's a lot higher than I had at this point in the product evolution. Is there anything that you could share on what products are really seeing the highest levels of adoption? And maybe help us understand what the balance might look like on an ARPU basis so we can try to triangulate what that might mean for 2019?

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Raymond Alexander August, Benefitfocus, Inc. - CEO, President & Director [5]

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Yes -- no, thanks, Brian. So yes, the 9 carriers representing over 1 million different policies being selected on BenefitsPlace, were -- we've just started open enrollment recently and we're starting to see the trends happen right now. But we do know that consumers are selecting these products, and the fact that they're selecting these products is one of the things that really gave us the confidence to give visibility into next year. Because products that are selected this year on BenefitsPlace from our carriers are revenue for next year. So now we're getting increased visibility into what will happen for next year, but we're seeing the placement from across the board.

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Operator [6]

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The next question comes from the line of Ross MacMillan with RBC Capital Markets.

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Ross Stuart MacMillan, RBC Capital Markets, LLC, Research Division - Co-Head of Software Sector [7]

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Just on the lives, the employer -- well, the employer logos are up 33% year-to-date, I guess. And last quarter, you commented that lives were growing double digits faster than logos. I just wondered, is that still the case against that 33% growth rate?

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Raymond Alexander August, Benefitfocus, Inc. - CEO, President & Director [8]

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Yes, the -- this quarter, as we said, is up 60%. Year-to-date, it's up, as you said, over 30%. What we're really pleased about is lives are growing faster than logos. And as you know, next year, we're going to be talking about we're going to use lives as a metric for our business. But I can tell you that we're seeing some of very interesting phenomenons. This year, we added 2 enterprise customers this quarter, which is not typically a big quarter for enterprise customers to sign versus 0 in the year-ago period. So if you look at the 60% increase, it's not that we're selling less smaller companies, it's the fact that we're selling more overall, the pie is getting bigger, and the average number of lives is growing significantly. What we love about that is when we look at the total number of lives and then look at our ever-growing ARPU, given BenefitsPlace, what that means for us is increasing and accelerating revenue going into 2019 and beyond.

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Ross Stuart MacMillan, RBC Capital Markets, LLC, Research Division - Co-Head of Software Sector [9]

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And just on that maybe, Jonathon, it's obviously a big number in terms of incremental revenue. Even to get to 15% growth, it's a big jump in the incremental revenue. I wondered, is there any color you can provide on how to think about software services versus pro services in the growth mix for next year? And I don't know if there's anything else you'd sort of highlight in terms of above just the logo growth, kind of what do you think are the major drivers for that very large incremental revenue uplift?

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Jonathon E. Dussault, Benefitfocus, Inc. - CFO & Treasurer [10]

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Yes, sure, Ross. Thanks for the question. So as you know, we don't guide specifically to segments or revenue type, but allow me to provide a little bit more color on some of the components. I think first and foremost, if you look at our software services growth in the quarter, on a year-over-year basis, it's up 11%. So that's a good starting point as we head into 2019. But really, when you break down our performance in the quarter and year-to-date, and you think about the drivers of that future revenue, the 33% increase from the logos, the quality of some of those underlying deals like UTS and the one that Ray mentioned in his prepared remarks today that had 55,000 employees, provides the real catalyst to driving that revenue line in 2019. But importantly, the embracement that we've gotten from the market from a BenefitsPlace perspective not only is contributing to this year, but it provides a great launchpad for our expectations in 2019. So when you combine the quality of our base business and the growth in those lives with the adoption that we're seeing in BenefitsPlace, that's what provides the confidence in the guidance range that we provided for '19.

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Ross Stuart MacMillan, RBC Capital Markets, LLC, Research Division - Co-Head of Software Sector [11]

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Great. And maybe just one last one, Jonathon, if I could. Just on the Q4 guide, it's a little lower. The full year maintained at the high end. Are there just some shifts of revenues? And maybe you could just talk to that vis-à-vis Q4. Was there anything that came out of Q4 either earlier into Q3 or shifts into next year?

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Jonathon E. Dussault, Benefitfocus, Inc. - CFO & Treasurer [12]

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Yes, sure. Absolutely, Ross. So we're very proud of the year-to-date performance from a revenue perspective. We've exceeded our beginning-of-the-year expectations. Midpoint of our beginning of the year was [254]. With our guidance that we just provided, we've raised it to the high end of our previous guidance, the midpoint being [256 5]. So we're tracking above where we originally thought we would be. With that said, there's been some timing issues that I've referenced throughout my comments today, and a little bit I mentioned in Q2 as well where some revenue moved, in particular, some pro services moved throughout the year a little bit from a timing perspective. But overall, we are where we thought we'd be, if not better, for the full year, and we find it to be a great catalyst to where we're heading in 2019.

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Operator [13]

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Next question comes from the line of John DiFucci with Jefferies.

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Joseph Anthony Gallo, Jefferies LLC, Research Division - Equity Associate [14]

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This is Joe on for John. I was just hoping you guys could dive a little bit deeper into the business environment. It was great to see the guidance for mid- to high-teens growth. I think last quarter you said the business opportunities were flat, but the win rate had increased. So I was just wondering if this meant things had improved, or you guys are just better monetizing the platform?

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Raymond Alexander August, Benefitfocus, Inc. - CEO, President & Director [15]

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Yes. Great question, Joe. Thank you. The -- we're seeing all of the above. So the business environment is improving. We're seeing more people buying our product; obviously, 60% more than a year ago. We're seeing larger companies looking at our product. We're seeing the number of people enrolling in benefits and what their spending continuing to increase. And our pipeline is very robust going into next year, much more robust than it was the year-ago period. So all those factors are coming together, and we're seeing improved lives growth, improved ARPU growth and just more activity in the market. And the real important part of this is that with the BenefitsPlace proposition, we're creating an environment where employers are not just getting a platform for operational efficiency, they're getting a platform now which allows them to provide more benefits to their employees and get those benefits at a much lower cost because they have access to this platform. So they're seeing a strategic weapon that they can use to attract more people to their company, and we think that's a real important part of our platform and a real important part of the appeal as what we're told by our customers and prospects towards Benefitfocus.

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Joseph Anthony Gallo, Jefferies LLC, Research Division - Equity Associate [16]

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That's helpful. And then for Jonathon, you also guided next year to increased positive free cash flow. Just diving into that a little bit more. How much leverage can we see? Or I guess phrased differently, how much investment is needed to drive that growth, that revenue growth in 2019?

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Jonathon E. Dussault, Benefitfocus, Inc. - CFO & Treasurer [17]

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Yes. Thanks for the question, Joe. So a couple components of what's going to drive that cash flow. Certainly, we feel good about where we're headed from a revenue perspective. We still have opportunities to drive margin expansion as well. We've made targeted investments to improve automation throughout our platform, which will result in a more efficient system to drive our solution and, ultimately, drive margins. And as we continue to mature the organization, there continues to be operational scale expansion. So all of that combined, we feel, will drive our EBITDA margin and result in meaningful cash flow generation in 2019.

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Operator [18]

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Our next question is coming from the line of Daniel Ives with Wedbush.

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Daniel Harlan Ives, Wedbush Securities Inc., Research Division - MD of Equity Research [19]

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So let me ask on -- with Aetna, in terms of the Bswift acquisition, obviously, the carrier customer. Maybe you could talk about competitively in terms of the market, how that sort of changed the dynamics in terms of them acquiring that for you?

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Raymond Alexander August, Benefitfocus, Inc. - CEO, President & Director [20]

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Yes, thanks. Yes, Aetna, a very, very important customers of ours, both as a medical carrier and a life and ancillary carrier and somebody we worked very closely with several years ago. They bought a company that competes with us in benefit enrollment called Bswift, great company, to be a key part of their portfolio and a key benefit solution for them. However, as we spoke that Aetna is one of the newest participants in BenefitsPlace, and clearly, they see our distribution channel to be very special and unique and something that they want to be part of. They see it as a way for them to grow revenue at Aetna, and we're very pleased that they selected us to be part of this platform. So they're just a great partner of ours.

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Operator [21]

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The next question is from the line of Nina Deka with Piper Jaffray.

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Nina D. Deka, Piper Jaffray Companies, Research Division - Research Analyst [22]

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You mentioned in Q4, you were looking to make some targeted investments. Could you maybe just elaborate on that a little bit?

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Jonathon E. Dussault, Benefitfocus, Inc. - CFO & Treasurer [23]

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Yes. So there's a few things that are coming down the pipe here in Q4, Nina, from an investment perspective. We continue to invest in sales and marketing, of course. We're holding a big kickoff event next year with our team. And as we continue to just operationalize the business for 2019 and for our BenefitsPlace platform strategy, we're making some targeted investments there. All told, we fully expect our EBITDA margin for the year to expand pretty robustly. It should be over 500 basis points when the dust settles in the year.

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Nina D. Deka, Piper Jaffray Companies, Research Division - Research Analyst [24]

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Okay. Okay, that's helpful. And then with regards to BenefitsPlace, you mentioned that you've seen some strengths revenue from the BenefitsPlace platform, but that the 1 million new policies that are on the platform, that revenue isn't going to kick in until next year. So what's driving the strength in that revenue stream this year? Is it the legacy business that was already on from the Benefitstore? Or is it coming from the carrier transitioning in the type of contracting that you do with them?

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Jonathon E. Dussault, Benefitfocus, Inc. - CFO & Treasurer [25]

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Yes. So I think what you're getting at is the strength in our base from our employer and carrier segment. I wouldn't call them legacy, they're both still very core and strategic to us. And as we look at our bookings performance this year, we've talked about the strength in the logos and the lives count, those are just fundamental strength of ours still and they will be as we head into 2019.

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Nina D. Deka, Piper Jaffray Companies, Research Division - Research Analyst [26]

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Okay. And then just one more. To get from mid to high teens, I understand that you're still only partially way through your open enrollment season. Is it -- what type of coverage do you have on the mid to high teens guidance for next year? Is it what you think is trending, and it would take what happens in November to get to the higher portion of that? Could you maybe give us a little bit more clarity on that?

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Jonathon E. Dussault, Benefitfocus, Inc. - CFO & Treasurer [27]

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Yes. So we have -- we're -- we've done a lot of planning for 2019 already, so we have very solid visibility into the year. And when you break it down to the 3 primary components that are driving it, I'll start with the strong selling season that we just completed and the visibility that the number of lives that we've added to the platform brings to the table, taking account like UTS that we signed earlier in the year that will go live next year and start contributing to revenue next year, we have a high confidence in those new lives turning into revenue. And then with the BenefitsPlace momentum, the adoption that we're seeing already, even though just early through open enrollment, really strong adoption, the strength of the 9 carriers, the 19 specialty providers that we have. And then the real strong momentum they have with our channel partners like SAP and the broker community. We have 50-or-so brokers signed up for our Premier Broker program, all of which creates quality pipeline as we head into 2019, combined with the stuff that we have in the books in this year's selling season.

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Operator [28]

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(Operator Instructions) Thank you. At this time, I will turn the floor back to President and CEO, Mr. Ray August, for closing remarks.

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Raymond Alexander August, Benefitfocus, Inc. - CEO, President & Director [29]

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Great. Thank you very much, and we appreciate all the great questions and support. I'd like to once again thank all the Benefitfocus associates for their contribution for this inflection point for us as a company. We're excited for -- to close out this year very strongly, and we're even more excited for 2019 and beyond. So thank you for everybody for everything that you've done to put us in this position.

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Operator [30]

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Thank you, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.