Nov 4, 2015
Executives
Michael Bauer - Director of Investor Relations Shawn Jenkins - Chief Executive Officer Milt Alpern - Chief Financial Officer
Analysts
Nandan Amladi - Deutsche Bank DJ Hynes - Canaccord Genuity John DiFucci - Jefferies Ross MacMillan - RBC Capital Markets Adam Klauber - William Blair Frank Sparacino - First Analysis Securities Stephen Lynch - Wells Fargo Terry Tillman - Raymond James
Operator
Good afternoon. My name is Nancy and I'm your conference operator for today.
At this time, I would like to welcome everyone to the Benefitfocus Q3 2015 Earnings Call. All lines have been placed on mute to prevent any background noise.
After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.
And I would now like to turn the call over to Michael Bauer.
Michael Bauer
Thank you. Good afternoon and welcome to Benefitfocus' third quarter 2015 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 Shawn Jenkins, our Chief Executive Officer and Milt Alpern, our Chief Financial Officer.
Shawn and Milt will offer some prepared remarks and then we will open the call up for Q&A session. As a reminder, today's discussion will include forward-looking statements, such as fourth quarter and full year 2015 guidance and other predictions, expectations and information that might be considered forward-looking under Federal Securities Laws.
These statements reflect our views as of today only, and should not be considered as representing our views of any subsequent date. These statements are subject to a variety of risks and uncertainties, including the fluctuation of our financial results, general economic risks, the early stage of our market, management of growth, and a changing regulatory environment that could cause actual results to differ materially from expectations.
For a further discussion of the material risks and other important factors that could affect our actual results, please refer to our Annual Report on Form 10-K which is on file with the Securities and Exchange Commission, 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. With that, let me turn the call over to Shawn.
Shawn Jenkins
Thanks Mike. Good afternoon, everyone, and thanks you for joining us today.
Before I begin, I’d like to welcome Mike Bauer, our new Director of Investor Relations. Welcome to the team Mike.
The third was an exceptional quarter for the Benefitfocus team as we are experiencing strong demand from new customers and once again, our customer software revenue retention rate was over 95%. As large employers continue to migrate core activities such as benefits management to the cloud, we extended our leadership position through large new contracts, expansion on a PEPM basis with our additional solutions, a new software upgrade add of our busiest time of the year open enrolment.
As employers and carriers look for partners to help them streamline and manage their benefits spending, Benefitfocus continues to standout based on our technology platform, excellent domain expertise and breathe the product offering. As a result, we are meaningfully increasing our 2015 guidance and believe our strong momentum will continue into 2016.
Let me share some quick highlights to put the quarter in perspective. First, we had a record employer sales quarter then included 41 new large employer customers and the largest employer deal in the history of Benefitfocus.
A $46 million three and a half year multi-solution with the North Carolina state health plan. The combination of larger employers, new customers wins and significant add-on product selling to both new customers and our installed base resulted in a significant increase in employer selling activity compared to the third quarter of 2014.
Second, we continue to execute on our land and expand strategy into our existing customer base both in the larger employer and care segments. We see continued adoption across our new solutions offerings driving PEPM growth in both new and existing customers.
We also introduced BENEFITFOCUS ACA Management & Reporting during the third quarter to strong demand from clients and have received certification as an approved transmitter, allowing us to electronically file required ACA compliance documents with the Internal Revenue Service on behalf of our customers. Third, we see an increased customer demand for BenefitStore, which ended the quarter with 88 customers, up tenfold from eight at the beginning of the year.
As clients introduced lower cost health plans such as a high deductible health plan, they are working with Benefitfocus’ BenefitStore to introduce voluntary benefits in wellness programs that help round out the Benefits’ offering for employees and their families. And finally, our partnership channel is experiencing excellent momentum, for example our partnership with SAP is exceeding our expectations.
This was the strongest quarter in Benefitfocus’ history and I am excited about the strategic direction and momentum of our business. Looking specifically at the results for the quarter, revenue and profitability exceeded the high end of our guidance range for the ninth consecutive quarter.
Totally revenue of $45.4 million increased 33% year-over-year and was driven by employer revenue growth of 53% and carrier revenue growth of 17%. Non-GAAP gross margin was 43%, up 1,000 basis points year-over-year.
These are fantastic results that would not have been possible without the hard work and dedication of our Benefitfocus’ associates. I’d like to give a shot out to our entire team.
You all are doing amazing things in creating an incredible company. Thank you for all that you do to serve our customer and each other.
We believe we are in the early stages of an enterprise shift to the cloud for core activities such as Benefits Management. For context, we now work with 703 large employers, yet they are 18,000 in the U.S.
that could benefit from the Benefitfocus platform. A long side shift to the cloud, the consumerization of healthcare is a trend that is growing rapidly and employers are focused on providing their employees with better information to support better decision making.
Our combination of user sender design access to date in insights to improve employee plan and focus on decreasing administrative costs, position Benefitfocus is a leader alternative to all data process and stagnate benefit modules in legacy systems. With approximately 4% of our targeted 18,000 large employer market, we have unique opportunity to further leverage our thought and market share leadership positions.
Let me provide some additional color on our recent successes with large accounts. From a market perspective, the Affordable Care Act in last quarter Supreme Court decision regarding King v/s Burwell continued to provide a considerable tailwind to our business.
With greater certainty in future regulatory requirements, we are beginning to find the large employer clients are entering execution loan. Our activity in jumbo employer space continues as we signed three new agreements with jumbo employers in the quarter.
The first is a west coast based technology company with whom we signed an agreement to provide our Benefits Management Solution to their more than 30,000 U.S. based employees.
The second is an existing jumbo account that merges with another jumbo employer creating combined organization with approximately 150,000 employees extending our existing Benefitfocus Marketplace and Benefits Service Center relationship, while ACA Management & Reporting for the combined group was added. Finally, our new North Carolina state health plan agreement is a $46 million, three and a half year multi-product deal that further validates our ability to support large enterprise organizations with the Benefitfocus platform.
With over 300 agencies and 500,000 active and retired members, the North Carolina state health plan is larger than most Fortune 500 companies. The Benefitfocus Marketplace will support online enrolment which consistent more than 15 types of coverage across the complex network of city governments, K-12 public school systems, colleges, universities and other agencies.
In addition to Benefitfocus Marketplace, we will also providing them our Benefit Service Center and our new Benefitfocus ACA Management & Reporting. During the September quarter, we continue to make an impressive progress on our three strategic priorities that we laid out at the beginning of the year, let’s a few minutes to review the progress we made against these priorities.
The first area of focus is expanding our employer product offering. Building off of the momentum from the products introduced earlier this year at One Place, we recently introduced the Benefitfocus ACA Management & Reporting solution.
Organizations facing the first quarter 2015 requirement for filing employee health insurance coverage data on IRS Forms 1094 and 1095-C, this is a timely release that was been very well receive by the market. This new offering is built from the ground up by our engineering team and will serve as the foundation for our future compliance products and services.
We continue to see strong interest in adoption across all of our employer products. We also saw impressive growth on the average number of products per customer for both new and existing relationships during the quarter.
One particular solution that is exceeding our expectations is the BenefitStore, which experience the tenfold increase in adoption less than one year. As employers plays more responsibility on employees through high deductible health plans, our clients are introducing voluntary benefits to help employees cover the deductible gap.
The benefit for our partners is clears. BenefitStores consumer first perspective drives substantially higher than market average voluntary benefits participation rates.
We are very proud of our initial success and look forward to bring additional products to the BenefitStore to help employers, employees and their families live better lives. The secondary focus is to further extend our leadership in the private exchange market.
The private exchange market is dynamic and fast growing part of the Benefits landscape. Our partner Mercer recently announced that the Mercer marketplace which is powered by Benefitfocus will serve an anticipated 1.5 million lives during the 2016 benefit year, a 42% year-over-year increase.
With Mercer’s marketplace demonstrating continued cost savings in companies embracing platforms flexibility that is not surprising to see growing enrolment interest from both new and existing customers. While remains early in terms of private exchange adoption, the interest from large enterprises considering a move private exchanges continues to increase.
Our third area focus for 2015 is scaling the business increasing margins. We continue to execute on meeting our profitability targets as gross margins during the quarter expanded 1,000 basis points.
Our third party system integrated channel is doing very well in taking on an increasing portion of implementation engagements. Across the company, we are focused on additional ways to improve our efficiency, while remaining diligent with our expense management.
We are also excited about the strong start of our SAP partnership which speaks to the significant opportunity within this larger install base. The SAP partnership reflects a significant positive shift in the competitive landscape for Benefitfocus to our ability scale our platform and achieve flexible integration with leading ERP and emerging cloud platforms.
With the our leadership in cloud-based Benefit Management becoming increasing apparent, we anticipate our partner channel will continue to strengthen and grow overtime. Taking closer look at our employer sales performance, wins this quarter include leading brand such as Flowers Foods, Ubisoft Entertainment, Potash Corporation, Sargento Foods and Steve Madden.
Let me highlight a few here. Flowers Foods which operates 41 bakeries around the country has selected Benefitfocus Marketplace to help their more than 9,600 eligible employees manage their healthcare benefits year around.
Pictures in Benefitfocus because of our ability to reduce healthcare costs, automate manual process and simplify the addition of volunteer benefits through the Benefitfocus BenefitStore. Ubisoft Entertainment is a leading creator of interactive entertainment with over 7,400 employees.
The San Francisco based firm selected Benefitfocus because of our step-by-step enrolment experience that is tailored to the individual user. Beyond enrolment Ubisoft will take advantage of our Benefitfocus communication portal and mobile app which will give employees year around on-demand access to the Benefits information.
Potash Corporation, the world’s largest fertilizing company by capacity selected Benefitfocus Core and Advanced Analytics with eligible employees worldwide is important for Potash Corporation to have organized an up to date data, they can generate with a push of a button. They were also using this tool to gain inside in what’s really cost and create more adoptable plans based on historical health plan data.
Turing to the care business, we had a strong third quarter adding three new care customers, bringing our total care account to 55, up from 44 last year. We continue to see an uptick of care customers purchasing our Advanced Analytics solution to meet their client reporting needs.
For example when you care a customer select Benefitfocus to help solve the challenges it faced integration it’s medical and pharmacy claims as well as member eligibility data into the consolidate data warehouse. We will meet this care as extensive data integration needs and provide an easy-to-use reporting solution that will put health plan information at the fingertips of many internal and external stakeholders.
We’ve remained committed to delivering innovation during the year with our quarterly product release cycle. During the third quarter, we continue to accelerate our pace of innovation with a Benefitfocus platform autumn release.
The benefit of our model is frequent software updates and our autumn release is critical for our clients as it’s the big release to precede open enrolment. Included in this recent release was the general availability of Core and Analytics offering which we previewed One Place Conference in March.
The Core and Analytics solution powers administrators to make smarter decisions about their benefits programs through visualize the analytics dashboards and inside and to what their data means to them. This new product offering illustrates another way the Benefitfocus is expanding its value in the market by addressing its customer need in new and innovative ways.
The Analytics team also achieved ICD-10 certification ahead of schedule and important accomplishment as we begin to sell in market our Advanced Analytics solution to more large employers and now insurance carrier clients. In addition to our investment in the platform, we continue to make progress in our company wide client experience initiative which we call customers at the heart.
One example is our ramping six sigma project which is improving processes that we expect to drive continued improved customer metrics in addition to creating efficiencies that will result in cost savings. Further, we were particularly pleased with the inaugural season of our client road show One Place Local.
Feedback has been overwhelmingly positive as our power users embrace the idea of having a venue to share best practices, discuss opportunities and network with our product leaders. We’re thrilled with our progress in 2015 and excited about expanding this great customer platform to engage clients and generate new leads for our products around the country.
Finally, I’d like to welcome Kevin Hamilton, our Senior Vice President of Marketing. Kevin joins us from CEB in Opower where he led sales and marketing teams.
He is responsible for the company’s overall marketing strategy and will focus on brand awareness, demand generation and product marketing. I’d also like to congratulate Chris Shee, who is recently appointed to Senior Vice President of Employer Sales after six years with Benefitfocus and 14 years as a sales leader at ADP.
In summary, we had a very strong third quarter. We continue to execute well against our strategic objective and benefit from the secular shift to the cloud.
We are incredibly excited about the opportunities to further help our expanding customer base. Additionally, we believe we are well positioned to become significantly larger and more profitable company overtime as we extend our leadership in the multi-billion market opportunity.
Before I turn over to Milt, please market your calendars for One Place 2016, which will held in beautiful Orlando, Florida on Tuesday March 8 through Thursday March 10th. One Place 2016 is bringing together the brightest minds and Benefits administration.
As registrations are already tracking well ahead of last year’s event, One Place 2016 promises to be must see show. With that let me turn it over to Milt.
Milt, take it away.
Milt Alpern
Thanks Shawn. Once again I am pleased with our quarterly results which exceeded our expectations from both the revenue and profitability perspective.
I’ll begin by reviewing the details of our financial performance and then I’ll finish with an updated guidance for the full year 2015 and outlook for the fourth quarter. And additionally, I’ll provide a preliminary 2016 revenue outlook.
Total revenue for the third quarter was $45.4 million, an increase of 33% compared to the third quarter of 2014, and above the high end of our guidance range of $42.9 million to $43.4 million. Driving the revenue outperformance was a combination of new customer wins and significant add-on product selling to both new customers and our installed base.
Breaking revenue down further, software subscription revenue was 39.3 million representing 87% of total revenue and growing 28% year-over-year, while professional services revenue was 6.1 million representing 13% of total revenue and up 74% year-over-year. As a reminder, our professional services revenues is being positively impacted by the change in customer relationship period to seven years from ten years which we instituted at the beginning of 2015 for both the carrier and employer segments and by the establishment of standalone value at the beginning of the third quarter for a certain professional service in the employer segment.
Looking at revenue by segment, employer revenue for the quarter was 22.8 million, up 53% compared to the year ago period, while carrier revenue of 22.6 million was up 17% from the year ago period. Let me now review the supplemental metrics we report on a quarterly basis.
We ended the third quarter with 703 large employer customers, an increase of 41 compared to 662 at the end of last quarter and up from 540 in the third quarter of 2014. Year-to-date, we had 150 large employer customers, up from 147 during the same period in 2014.
Overall, we see a good deal activity in the third quarter and experienced strong demand throughout 2015. Additionally, with a lots of our add-on products for the employer business, we are seeing PEPM growth in both new and existing customers.
As a reminder, the second and third quarters were typically our largest selling quarters as customers looked ahead to the upcoming open enrolment season. We ended the quarter with 55 carrier customers, up from 52 at the end of last quarter and 44 in the third quarter of 2014.
Our software revenue retention rate was once again greater than 95% in the third quarter, which we believed strong evidence with significant value our platform generates to our customers. Moving down P&L, our non-GAAP gross profit was 19.7 million or 43% non-GAAP gross margin.
This represents a 1,000 basis points improvement from the year ago period. Software margins were up 500 basis points year-over-year and down 100 basis points sequentially.
The year-over-year improvement reflects more discipline spending as well as the increase scale in our business among both our direct and indirect customers. Additionally, we are realizing the impact of increased efficiency in our professional services organization and accelerated revenue due to the change to our customer relationship period and the establishment of standalone value in the employer segment, the sequential margin decline as a result of seasonality regarding open enrolment.
Adjusted EBITDA was negative 8.8 million or negative 19% of revenue and is better than our guidance with an adjusted EBITDA loss of 10.1 million to 10.6 million and an improvement from negative 13.5 million in the third quarter of 2014. We continue to believe that we can achieve our long term adjusted EBITDA margin of 20% overtime and we’re confident in our ability to scale our margins due to the increased use of third party implementation partners and increasing percentage of our sales that we expect to come through our partner sales channel and greater up sell activity with our new employer offerings particularly BenefitStore.
Non-GAAP net loss was $0.46 based on 28.8 million weighted average shares outstanding significantly better than our guidance of a loss of $0.53 to $0.55 per share and year ago period per share loss of $0.66 on 25.5 million weighted average shares outstanding. Looking at our GAAP results, gross profit was 19.2 million, operating loss was 14.8 million and our net loss per share was $40.58.
Cash used in operations was 9 million as we ended the quarter with cash, cash equivalents and marketable securities of 85.2 million. Turing to guidance, for the fourth quarter 2015, we are targeting revenue of 51.2 million to 52.2 million which represents year over growth of 27% to 30%.
From a profitability perspective, we expected an adjusted EBITDA loss of 8.2 million to 7.7 million and a non-GAAP net loss per share of $0.47 to $0.46 based on 29 million weighted average shares outstanding. During the fourth quarter, we expect incremental revenue, an initial implementation expenses associated with the North Carolina state health plan to both be approximately 3.2 million.
For the full year, we now expect revenue of 182 million to 183 million, which equates to year-over-year growth of 32% to 33%. We are targeting an adjusted EBITDA loss of 35.5 million to 35 million and a non-GAAP net loss per share of $1.94 to a $1.93 based on 28.3 million weighted average shares outstanding.
While we don’t expect to provide preliminary next year’s guidance on our Q3 calls a matter of practice. Given our strong results, ramping new employer solutions and the signing of the largest employer transaction in the company’s history, we thought it would be beneficial to provide some early direction on 2016 top line growth.
Our preliminary top line guidance takes into account the following. Strong momentum of the employer business, expected participation rates for BenefitStore products in its first full year of adoption, approximately $7 million to $8 million of incremental revenue from the North Carolina state health plan agreement and carrier growth that is expected to be slightly below our long term mid-teens growth rates due to a very difficult compare resulting from a strong performance in 2015.
Taking all of this into account, we anticipate 2016 revenue to grow approximately 25% over the midpoint of our updated 2015 guidance. Further, I want to reiterate our commitment to a path to profitability and achieving EBITDA breakeven at the midpoint of 2017.
We plan to provide detailed full year guidance on our fourth quarter and full year 2015 earnings call. In summary, Benefitfocus delivered strong third quarter results that exceeded our expectations on both the top and bottom lines.
As evidenced by our results, we are benefiting from strong demand for our cloud-based marketplace solution as sure demand are comprehensive and efficient approach to simplify the complexity with Benefits Management. Given our expanded distribution and product portfolio, we are increasing the confident in our ability to continue delivering strong growth and long term shareholder value.
With that we’re now ready to take your questions. Operator, please begin the Q&A.
Operator
Thank you. [Operator Instructions] And our first question comes from Nandan Amladi.
Nandan?
Nandan Amladi
Yeah, thank you. Thanks for taking my question.
Hi Shawn and Milt. The first question is on the ACA filings, what sort of incremental PEPM are you getting from this automated new feature?
Shawn Jenkins
Yeah, great question, Nandan. Thanks.
And we’re excited about delivering the new ACA management reporting solutions built by Benefitfocus for our customers and this ISR 1094 and 1095-C filings do in the first quarter next year and there is enormous amount of activity and we’re excited about the results. We’re not breaking out the PEPM on yet.
Actually what we are doing in many of the cases is on annualized solutions and many of our customers are looking actually multiyear agreements. So it does have an incremental lift of the PEPM, but we’re not able to publish the price as of yet, might be something we do on the next call.
Nandan Amladi
Okay. And then the next question is on the BenefitStore, clearly a lot of success going from 8 to 88 customers.
What does the commission structure there because I know I think you’ve talked about this at One Place where you are expecting basically to get a sort of a sales commission which should be fairly a high margin relative to even the subscription line in your income statement, so can you provide some framework on how we should think about that?
Shawn Jenkins
Sure, yeah, great question. We are really excited about the first full year results of the BenefitStore.
We mentioned we have 88 customers now signed up so far this year, the BenefitStore up from eight at the beginning of the year. And just in context for everybody, what we’re doing with the BenefitStore is we’re providing voluntary benefits, benefits that an employee and their family can slacked in pay for out of their payroll deduction or credit card or direct deposit from their checking account.
And these products of things that help them as they shifted more high deductable health plans things such as critical illness policies or disability programs, another life insurance programs. We’re in the open enrolment season now and so as employees go through if their employer has selected the BenefitStore, they will see one, two, three, maybe as many as four additional benefits that they can purchase.
When they purchase those programs, they are buying them from our partners that are in the BenefitStore, we now have 13 different insurance companies providing products in the BenefitStore up from three last year, so the whole host of the top names in the industry. And then Benefitfocus will actually receive commission compensation on those purchases and they come in different form depending on the product.
The way it will work into our financials is in 2016, these are policies that are really start in January 1st, 2016 and so the company will recognize that revenue on a monthly basis in 2016.
Nandan Amladi
Thank you.
Shawn Jenkins
Thank you.
Operator
Our next question will come from Richard Davis. Rich?
DJ Hynes
Hey, thanks guys, it’s actually DJ Hynes for Rick. Shawn, I was hoping you could give us a sense of what percent of bookings are coming from selling new products back into the install base?
I mean when you just kind of step back and look at the year-to-date customer outs versus a year ago, it’s not great - it’s fine but you know the customers are getting bigger, but I presume a lot of the bookings are coming from selling Analytics and eBilling in this ACA stuff back into the base. Can you help us think about how those adjacent products are contributing the bookings now?
Shawn Jenkins
Yeah, great question. You know this is really our strategy and it was at the beginning of the year when we laid out expanded adding products to the employer mix.
And as we’ve - we went really from one main product that our employer sales team was selling for the last couple of years and to beginning of the year, we added four more at One Place and now five with ACA reporting. So our sales team now has six things to see to a customer and the result have just been fantastic.
So for example we mentioned on the prepared comments that the third quarter was actually a record sales quarter for our employer sales team and I know that the second quarter we had a 90 some employers, this quarter we added 40 - 41 or so. But actually the selling was bigger, our record quarter bigger than the third quarter last year and actually bigger than the second quarter.
So it’s a combination of multiproduct sales. We’re getting much higher EPM with multiple products into both new customers as well as additional, existing customers are buying our products at accelerating rate such as a BenefitStore and the ACA management reporting.
So it’s had a significant impact as you can see on the quarter from those numbers. The other thing that happening is we’re signing mush larger employers as you saw the record employer, although we signed with the state health plan, we also had several other jumbo employers in the quarter and there is some really significant there that also are multiproduct deal.
So it’s really great because it helps contribute to margin improvement as you can imagine, customers are seeing more value out of our platform overall. The number that we gave on the last call, we’re seeing about a third of the new deals coming in and having one or more of these add-on products is holding steady maybe even a little bit better than that in this quarter, but - on the new deal.
And then the existing customers are attaching a lot of these additional products as well.
DJ Hynes
Yeah. Got it.
And then talking about the jumbo employers, its segment into - kind of a follow-up question around the implementation channel. You know what’s the philosophy on pushing these larger implementation to partners, I mean is it - is that something that you want to keep control of and then make sure it goes smoothly or you are comfortable pushing them to those newly trained partners who are in the field, just how are you thinking about managing those rollouts?
Shawn Jenkins
Yeah, it’s actually - it’s a very natural process for us. As we interact with the perspective employer and then we win that deal, some percentages of those employers are already working with our system integrator.
For example in our SAP partnership, those SAP customers often have you know one of the premier consultants and they are doing a lot of other cloud work with them. I those cases it’s very natural even in several of our wins, the SI is bringing us into the deal.
So in the segment I would say of the selling, the customer actually would prefer in that side, they work with them already and they have that happening. There is some other fact patterns where some of the customers will be moving from say one vendor or one legacy system on to another one and they are engaging the SI community in that and they are kind of natural lead.
When it’s a more modest size employer, I would say you know several thousand employers up to 5,000-6,000-7,000 in there. It’s just a short time window.
We can do those implementations ourselves. Our team is doing fantastic.
Our excellent implementations are faster this year than they were last year and the performance has been wonderful. So we’re lining them up nicely, the SI community is really doing a fantastic job and we’re really proud of the way that they are working together with our own resources.
DJ Hynes
Got it, okay. Thanks guys, I’ll pass the line.
Shawn Jenkins
Sure. Thank you.
Operator
Thank you. Our next question will be from John DiFucci.
John?
John DiFucci
Thank you. And welcome to board Mike to the Benefitfocus team.
So Shawn and Milt, the employer revenue growth accelerated in the quarter 53% as you point out, but new adds as someone pointed out just a while ago and Shawn you said it too year-over-year declined, I mean the number of new adds was lower this year, but it is a difficult comp too. And even though we don’t have an exact breakout yet between software services and product services for the employer group.
It looks like you saw higher employer software services per customer. And then there is a lot of moving parts here I know and the timing is obviously important.
But I just wanted to sure that I am thinking about this right and that you recently signed largest deal ever with employer deal and the other jumbo deals that are not includes in this quarters employer revenue I would assume and should we expect sort of a new trend here of growing revenue per employer customers at least over the next few quarter?
Shawn Jenkins
Yeah, I’ll take the first part and then I’ll let Milt talk about the actual timing of the revenue. The employers add numbered us because of the SAAS nature of the business and because of the seasonality of the customer selling is - in our incentive system and in our timing and everything is probably important than maybe obviously traditional software companies where signing at the end of the quarter is a big deal.
We don’t do discounting at the end of the quarter. Our guys are tied necessarily to a logo, so logoed us in September and in October is kind of the same thing because you are going to take four or five months to implement.
And whether they move particularly this late in the season, many of the logos that we signed in the third period don’t go live until first part of next year. So it’s not, I don’t - for us to see ten or 15 logos in a quarter be different than a year before.
In this particular quarter, it’s interesting because as you point out, we had ten or so less than last year but the selling was so much bigger, I mean it’s bigger than the 92 that we did in the second period. So it’s just a - it’s just stellar quarter and I think it just might be the timing of some of the logos, some of the smaller logos that you’ll probably see show up in the next couple of quarter.
From the timing of when you’ll see the revenue, let Milt talk about that.
Milt Alpern
Hi John. I mean certainly what John said I mean the 41 net new customers adds that certainly contributes the revenue growth but also significantly greater add-on product sales to existing customers as well as the new customer has the effective increase in the PEPM and the revenue that drives the result of that.
Also the state health plan deal that we mentioned. That - most of that will show up will show up post Q3, it was about a million dollars of revenue recognition in Q3 from the state health plan deal would contribute to the growth.
But certainly the vast majority of it will show up later unless we move through Q4 and into 2016. I think as I’d said on the call that the - in 2016, we expect to about $7 to $8 million of revenue contribution, incremental revenue contribution I should say from state health plan under this new contract.
One think I do want to point out as well as Shawn said the selling activity in the third quarter of 2015 outpaced pretty significantly that of the third quarter of 2014. But also another important to know is that the selling activity in the third quarter of 2015 actually grew at a faster rate than our revenue growth in the third quarter of 2015.
So I think that’s an indication that you know the selling activity in spite of you know what you point out is 41 net new adds, the selling activity was quite considerable in overall in the third quarter.
John DiFucci
And so Milt, when you say selling activity, I assume you are talking about the amount of business that was actually sold in the quarter versus the revenue recognized in the quarter?
Milt Alpern
Yeah, absolutely I am talking about this, the selling activity that took place in that quarter.
John DiFucci
Okay. And then if I could just the follow-up of that large deal, I was actually surprised to hear that do you actually recognized from revenue in this particular quarter and so that’s a little different right, because typically you signed a deal in the quarter and it takes somewhere four to five months for implementation and then you usually don’t start recognizing revenue until that time.
Am I correct on that? And then I guess you mentioned three jumbo deals including that one large deal, but should we be expecting that similar four to five months to implementation or would it be - might it take longer for such large implementations?
Shawn Jenkins
Yeah, so all three of the jumbos will be live this year. You will see the bulk of it in the fourth quarter.
The one with the largest one, the reason there was some revenue in the period was, it was just a fat pattern where they were coming off of a nation consulting one of the outsourcing consulting firms. It was a bit of a speedy need to get the thing up and running.
So worked very quickly much faster than normal to get components of the system up and running very quickly and we’ll be able - therefore we’re able to recognize some revenue. So on the typical model, particularly for that larger customers but it worked out great for them and our team just did a fantastic job.
John DiFucci
Okay, great. And then - I am sorry - just kind of go back to the - my - an I am sorry, I was of a multipart question but just in our model the way remodel you guys, it seems like we should be thinking about the amount of revenue per customer going up a little bit here in group?
Shawn Jenkins
Yeah.
John DiFucci
Okay. Okay, great.
Shawn Jenkins
Yeah.
John DiFucci
Okay. Okay, great.
Thanks a lot, nice job guys.
Shawn Jenkins
Thank you.
Milt Alpern
Thanks John.
Operator
Our next question is from Ross MacMillan. Ross?
Ross MacMillan
Thanks. Shawn and Milt, can you just on the North Carolina state deal the 46 million, can you help us understand how you’d expect that ultimately to split between software versus professional services?
And assuming the revenue taken up fund is mostly services, but how would you expect the 46 million to get up overtime?
Shawn Jenkins
Yeah, I mean certainly some of the upfront stuff is the implementation cost that getting them up and running in the third and fourth quarters. So certainly when you look at the three and a half year deals with that $46 million over that period of time and the large majority, the large majority of that revenue certainly once we get pass the third and fourth quarters of ‘15 is monthly recurring revenues.
Ross MacMillan
Yeah. Great and thank you.
Shawn Jenkins
Okay.
Ross MacMillan
Sorry, did you say a percentage 90%?
Shawn Jenkins
Yeah, I mean probably 90%, so is what the monthly recurring revenues will be once we get pass the first quarter and two and beginning them up and running as the third and fourth quarters of 2015.
Ross MacMillan
So that’s maybe 3 million or 4 million of services and then most of the procedure was then software recurring?
Shawn Jenkins
Yeah, we call it 4 million, 4.5 million of implementation and the balance is recurring.
Ross MacMillan
Great, that’s great. And then on the employer side, anyway we can frame the magnitude, you got 41 new employers signed versus 52 last year which is down about 20%, but it sounds like the bookings values was up, any sense of the magnitude of how much that was up year-over-year to help us understand just sort of average filed size shift?
Shawn Jenkins
So selling - the employer selling in this quarter was double the employer selling in the third quarter of 2014.
Ross MacMillan
Wow, that’s impressive. And then finally just Milt, just wanted to clarify something on the long term differed revenue that step down, was that just a function this quarter if the ERP or is there anything else includes that number particularly this quarter?
Milt Alpern
No, it’s primarily the result of standalone value increasing at a percentage team done right, implementation partners and ERP obviously creating a faster, speedier recognition of differed revenue on to the P&L.
Ross MacMillan
Great, thanks a lot. Congrats.
Milt Alpern
Thank you.
Operator
Our next question is from Adam Klauber. Adam?
Adam Klauber
Thanks. Good afternoon.
On the BenefitStore, I think you mentioned you’re up to 80 clients. It’s a pretty good number.
Could you give us an idea of how many members that would be or potential members, I know all them in that by that how many potential members do you have there?
Shawn Jenkins
That’s a great question. Yeah a couple of things, I don’t have a breakout of the actual numbers, just using some historical kind of public data, our average employer size to the last couple of quarters has been around 3,000, a little over 3,000 lives is you add 88 customers actually and there will be 270 or so thousand just using that average.
I think the BenefitStore customers are fitting into that in that kind of mold to get you in that ballpark, it’s - if we plus or minus that a little bit. But what’s exciting about it is you know the uptick from rolling it out in the pilot mode last year and then adding tenfold the customer.
As we’re in the open enrolment period, what would be nice about the BenefitStore for visibility purposes on the Benefitfocus model is by the time we close out the year, we’ll have these open enrolments done, we’ll know what all the purchasing was by these individuals and we’ll have a very clear sense of what the revenue impact will be for 2016. So when we provide guidance for next year on the next call, the Benefitfocus - that BenefitStore line item inside the employer business obviously will be great visibility which is just a wonderful aspect to the overall visibility of Benefitfocus.
Adam Klauber
Great, okay. And then on the ACA compliance, I think you mentioned you just beginning to roll out, so obviously there is big demand for that product and clients need to take care the next year too.
Would you say next year could be much bigger sales given that you rolled out?
Shawn Jenkins
Yeah, so it’s - I’d characterize it’s very brisk right now in that area. I think all employers are really just realizing that this is right around the corner.
So we some every adopters that help us design the solution, some of our great top customers. And then once we’ve rolled out this quarter, we just had an immediate uptick.
There is still an enormous amount of selling happening in this quarter. I would expect it to work even happening in the first quarter of next year as possibly employers who thought they might have another way to handle it, you know spreadsheets or whatever come back to us.
So it’s just really a great solution, our engineering team built it internally and Adam we intend to use that really as a platform for additional compliance products that will be rolling out as the Affordable Care Act matures as it suggested, as things happen, we think it’s just a really wonderful news substandard product that will help us expand our additional compliance offerings going forward.
Adam Klauber
Okay, thanks. And then finally in SAP, again it’s still very early but have you had some early ones there this year?
Milt Alpern
On the SAP transaction, yes, I mean we have I mean we talked about it and that was announced at the end of the first quarter beginning of the second quarter and we talked about having a few wins in Q2 of this year and then we’ve had some additional wins in Q3 as well. So we are getting some good early traction from SAP relationship and I think that’s certainly is a - will give us an opportunity overtime to be a significant contributed revenue.
Adam Klauber
Okay, thank you.
Milt Alpern
Thank you.
Operator
And that concludes the Q&A session for the call. Closing remarks?
Shawn Jenkins
Excellent, well, thanks everybody for joining the call and again just to share out to our team when the busiest season we’re having our record open enrolment and we’re really proud of the results. So thanks for joining us today.
Operator
I do have one question, do you like to take it from Frank Sparacino.
Shawn Jenkins
Yeah, sure.
Operator
Go ahead, Frank.
Frank Sparacino
Hi guys, thanks. I thought I was in queue but I guess not.
But real quick Shawn and Milt, as you are curious to give you thoughts on the private exchange things most of the day they are coming out of the consulting firms as well as some of the more independent vendors, just so relatively modest growth I think, but continues growth, that be curious to get your perspective on what you see ‘16 and really what drives perhaps in a fraction point I that?
Shawn Jenkins
Yeah, great question, Frank. I saw from our internal plan, if you look at our 2015 plan that the management team put together and you know how it’s playing out for Benefitfocus in our store where actually on track a little bit ahead of the plan with the adoption.
We actually added another carrier during the quarter. One of carrier wins actually was an additional private exchange.
In the exchanges we have in the market are doing as well as we thought that there were maybe a little bit better. Now we have a long due in this market, we’ve been in the Benefits Management and working with insurance carriers employers for 15 years now.
So I think the long term promise and the size and the scale that folks have been talking about in 2017, 2017, 2018, 2019 is a very likely outcome. The fact that you know you had a kind of huge surge last year and then this is maybe the growth is maybe more 40%-50% as opposed to 100% last year.
I think that’s kind of how you would expect this to play as early adopters move and then the early majorities begins to come online. I will say that the cost savings that employers that are seeing on the private exchanges that we operate are fantastic, significant decrease in their medical spend, very good retention of the employees in those programs, good feedback, good customer satisfaction.
So I think it’s a - it’s definitely a big part of the change in the industry and the way it’s sort of paying out this year is almost exactly what we would have thought and what we have break into our model and you can tell we’re actually increasing our guidance here significantly. So anything is upside.
Frank Sparacino
Thank you.
Shawn Jenkins
Thank you.
Operator
And we do have a question from Stephen Lynch from Wells Fargo. Stephen?
Stephen Lynch
Hey guys, thanks for squeezing me. Like Frank, I also thought I joined the queue but I guess not, no problem at all.
So Milt, I know that you mentioned that the plan is still to achieve EBITDA breakeven in the middle of 2017, but given the lift in 2015 guidance and how well things are going right now. Would you consider accelerating the past profitability if you had the chance to do so or would you rather stick with the timeline and continue to reinvest in the business?
Milt Alpern
Yeah, I mean, I think at this point you know Stephen, I think we are comfortable, I mean we - at the beginning of 2015 publically stated that we would be EBITDA profitable at the middle of 2017. And I think we are going to stick with that, okay.
I think that you certainly as things play out over the course of the next you know 18 months or so, we’ll make adjustments as necessary to our plans and to our business, but right now I think it’s still, that’s our - we’re marching to that, we have a plan to achieve an EBITDA breakeven in the midpoint of 2017 and right now that’s what we’re going to stick with.
Stephen Lynch
Thanks and then just one more in the same vein as Frank was asking about the private exchanges, wondering if you could give us an update on the number private exchanges you are powering currently? And then also could you give us a sense for what portion of the revenue base is currently driven by private exchange relationships?
Thanks.
Milt Alpern
Yeah, we added one new private exchange in the quarter, so up to 27 private exchanges and they are combination of large employer private exchange mid and small market and even some individual ones for some of our blue plan partners and some great activity. We don’t breakout the revenue or the - we don’t segment it out on a separate basis, but it’s growing, it’s a very healthy part of our tailwind story.
Stephen Lynch
Thanks guys.
Milt Alpern
Great, thanks so much.
Shawn Jenkins
Thanks Stephen, I appreciate it.
Operator
And we have a question from Terry Tillman. Terry?
Terry Tillman
Yeah, can you all hear me?
Shawn Jenkins
Yes. Hey Terry, just fine.
Terry Tillman
Okay. It’s a risk of asking something repetitive because there’s been bunch of earnings call that’s close.
But I was just wanted to ask a bigger picture question. Again I am sorry if this has been touched on.
But is this market matures and evolves, you know I am curious what kind of strategic partnership opportunities are relevant or maybe it’s still more offing in terms of you know whether it’s large SIs obviously you have a queue that you are working with and then some boutique firms in term of helping you install software, but are you seeing the broader landscape of IT service companies or system integrators, you know where you they in terms of kind of waking up and realizing the significance of this market opportunity, is that something near term of more in medium term, is that still more of a longer term dynamic?
Shawn Jenkins
I think it’s coming closer Terry. I think it’s a great questing.
We probably have like Deloitte in our initial SI group along with some other great firms that focus on human capital management. And we are seeing increased interest even from some of the big national firms.
We have announced another partnership yet. But just specifically like if you look inside the SAP community, they - many of their Sis is actually are reseller for SAP and now that then if it focuses on the SAP price list, those SIs is going to actually sell our product as they would any other SAP product.
So I think there is some interesting near term upside force there going deeper into those, clear face out bundle of SAP cloud solutions and we are part of that, they’d be doing the implantations which would bring into our SI program. So a lot of good momentum there and we actually have a growing interest on our carrier side of our businesses.
Well we have not certified size yet on the carrier side, don’t have any value there yet, but I think there is something that we’ll be talking about in 2016. Whether it happens in ‘16 or ‘17, we are sure yet, but I think we have a growing interest in large - the larger SI firms to work with our insurance carrier as their business models really changed substantially.
Terry Tillman
Okay, thanks Shawn.
Shawn Jenkins
Yeah, thank you.
Operator
Thank you. And once again that concludes the Q&A for the call.
Shawn Jenkins
Super. Thank you.
Operator
Thank you, any closing remark? Thank you.
And this concludes today’s conference call. You may now disconnect.