May 4, 2016
Executives
Michael Bauer - IR Shawn Jenkins - CEO Joel Wilhite - SVP of Finance
Analysts
Nadan Amladi - Deutsche Bank Stephen Lynch - Wells Fargo Securities Terry Tillman - Raymond James Ross MacMillan - RBC Capital Markets DJ Hynes - Canaccord Genuity Nina Deka - Piper Jaffray Frank Sparacino - First Analyst
Operator
Good afternoon. My name is Sherlyn and I will be your conference operator today.
At this time, I would like to welcome everyone to the Benefitfocus Q1 2016 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] I would now like to turn the conference over to Michael Bauer.
Please go ahead, sir.
Michael Bauer
Thank you, operator. Good afternoon and welcome to Benefitfocus' first quarter 2016 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 Joel Wilhite, our Senior Vice President of Finance.
Shawn and Joel will offer some prepared remarks and then we will open the call up for a Q&A session. As a reminder, today's discussion will include forward-looking statements, such as second-quarter and full-year 2016 guidance and other predictions, expectations and information that might be considered forward-looking under federal security laws.
These statements reflect our views as of today only, and should not be considered as representing our views as of any subsequent date. These statements are subject to a variety of risks and uncertainties, including the fluctuation of our financial results, recruitment and retention of key personnel, general economic risk, 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 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 and thank you all for joining us today.
Benefitfocus continued its significant momentum into 2016 with excellent first-quarter results driven by strong demand for both new and existing customers. For the quarter, total revenue increased to $54.8 million and we remain on track to achieve adjusted EBITDA profitability in the fourth quarter of this year.
Revenue growth during the quarter was 28% and once again, our software revenue retention rate exceeded 95%. The first quarter was also the 11th consecutive quarter that Benefitfocus exceeded the high end of our revenue and profitability guidance.
During the quarter, large employer revenue increased an impressive 54% and our large employer customer count increased to 741. With 18,000 large employers in the United States, we are in the early stages of growth while we are building our leadership position.
We are very excited about the many opportunities in front of us and what the future holds for Benefitfocus. The rapid growth of our employer business, coupled with an expanding leadership position in a young market in a loyal customer base, as evidenced by our strong revenue retention rates, are all leading indicators of the tremendous market opportunity in front of us.
The secular shift of large employers moving core operational activities such as benefits management to the cloud continues to drive new customer additions on our platform. As large employers navigate many of the new requirements associated with the Affordable Care Act, such as the recently completed form 1094 and 1095 reporting, it has become increasingly clear to them that legacy benefit modules are no longer sufficient.
Simply put, they find themselves at a crossroad where they must manage healthcare costs, improve plan fit for employees and differentiate their employment value proposition in an increasingly competitive labor market. As a result, they are shifting to our enterprise benefit management platform to provide employees with better information and enable better decisions, all while engaging employees in many new ways.
This continued growth enables us to invest more, innovate faster, attract more partners to our ecosystem and deliver a superior customer experience. During the first quarter we extended our leadership position through strong employer customer adds and continued PEPM expansion from our additional products.
This was also the first full quarter of pipeline development for our new inside sales team focused on selling back into our installed base of customers. During the quarter this new team experienced strong initial traction as sales representatives started working hand-in-hand with our customer success organization to generate additional pipeline and close deals.
During the quarter we made significant progress on the three strategic priorities that I outlined at the start of 2016. First, as we have discussed, we're in the early stages of a market transition to cloud-based enterprise benefits management and our focus continues to be on captioning a large percentage of this market.
During the quarter we grow our large employer installed blaze to 741 customers. While our direct sales force closed the quarter strong, we also saw increased momentum through our partnership with SAP.
On average, transactions closed by SAP added larger enterprises in terms of employee count to our platform. We believe the combination of our increased focus on larger employers and the momentum with SAP will contribute meaningfully to our growth.
Our second area of focus is to expand the adoption of the new employer solutions introduced over the last 16 months. During the quarter we saw excellent demand across our entire portfolio resulting in continued PEPM expansion.
Benefitfocus has had a particularly strong quarter, excuse me, Benefitstore had a particularly strong quarter with the addition of 18 new customers. We've seen dramatic growth in this new solution as the customer count has increased from 8 at the start of 2015 to 121 Benefitstore customers at the end of Q1 2016.
Our third area of focus for the year is to scale the business and increase margins. We continued to execute on our profitability targets and remain on track to achieve adjusted EBITDA profitability in the fourth quarter of this year.
In Q1 we outperformed our adjusted EBITDA guidance as we continue to improve our scale and drive strong top-line growth. Additionally, to help accelerate the implementation of our software and increase our mix of high-margin software revenue, during the quarter we added another system integrator to our expanding ecosystem.
Finally, to improve operational efficiency, we completed our ERP rollout during the quarter. Taking a closer look at our employer sales performance, wins this quarter included leading brands such as Atria Senior Living, GROWMARK and KLX Inc.
Within our carrier segment, we completed two sizable multi-year renewals and invested in a market adoption team whose focus is to help our 54 carrier customers accelerate adoption of our platform. I would like to highlight a few customer winds during the quarter.
With over 12,000 employees, Atria Senior Living is an operator of monthly rental apartments for seniors in North America that spans over 21,000 residents across 28 states and seven Canadian provinces. Atria selected Benefitfocus Marketplace, Benefitstore, Core Analytics and Benefit Service Center to help design and execute a benefits plan that best fits their business goals and the needs of their workforce.
We think this multi-product sale well represents the additional value we are now delivering large employers with our expanded suite of products and services. GROWMARK employs approximately 8,000 people and provides more than 250,000 customers with agrimony energy facility planning and logistics products and services as well as grain marketing in more than 40 states and Ontario, Canada.
GROWMARK selected Benefitfocus Marketplace for our superior user experience and our ability to seamlessly integrate with their existing providers, including SAP. KLX Incorporated has over 3,000 employees and is a leading distributor in service provider of aerospace fasteners and consumables.
The company also provides oil-field services and associated rental equipment across North America. Calyx selected Benefitfocus Marketplace, Benefitstore, Core Analytics, Communications Portal and Benefit Service Center.
Driving the company's decision to select Benefitfocus was their previous experience using our software when KLX was a division within BE Aerospace, a current Benefitfocus customer. Reinforcing the now standalone company's decision to use Benefitfocus was our consumer-driven user experience, robust backend integration capabilities and our partnership with SAP.
From product perspective, innovation remains core to the Benefitfocus culture. In fact, we just concluded Innovation Week here in Charleston, where we assembled our entire engineering team for a week of industry-leading discussions, training and innovation projects.
During the week I also announced the new Benefitfocus Accelerator, a new innovation competition that rewards our Associates for product concepts that move the market forward. In March, at One Place 2016, we announced a number platform enhancements that we plan to make available to our clients this year.
Let me briefly recap a few of them here. At One Place, we announced that Benefitfocus will be the first enterprise benefits management platform to support a full set of mobile enrollment transactions and communications.
This capability which should become available during our autumn release it is designed to allow large employers on our platform to support mobile enrollment during this year's open enrollment. Included in the Benefitfocus Marketplace our new mobile capabilities will allow large employers to serve their employees better and reduce the time spent supporting employees who don't have access to a computer or laptop.
During the quarter, our ACA Management reporting solution across a critical milestone by successfully delivering form 1095C to our clients' employees. Our ACA Management reporting solution seamlessly supports employers by extracting data from disparate backend system to generate and distribute employee health insurance coverage data.
At One Place we also shared our plans for the new content manager in Benefitfocus Marketplace. This new capability will reinvent how HR professionals communicate with employees regarding benefit plans.
Increasingly, our power user, the benefits administrator, needs to think like a marketer and communicate a complex message to many different audiences. The new content manager will dramatically reduce the amount of time our users spend designing and implementing what is increasingly becoming a year-round communication plan.
Our system integrators will also gain a great set of tools to rapidly set up and deploy the Benefitfocus platform for large employers. For our carrier clients, we introduced the Benefitfocus Certified Carrier Program.
This new program provides our carrier clients with high-quality data standards, improved automated data exchange capabilities and operational support. We are especially excited about this program as it will benefit our carrier clients and Benefitfocus through lower cost and increased sales of their products.
In summary, we had a terrific start to the year and are well positioned for an excellent 2016. We continued executing against our strategy and benefit from the market's secular shift to the cloud.
The entire Benefitfocus team is incredibly excited about the vast opportunities in front of us and I believe we are making great progress in becoming a significantly larger and more profitable company over time as we strengthen our leadership position in this multi-billion dollar market opportunity. This great start to 2016 would not have been possible without the hard work and dedication of our Benefitfocus Associates.
I would like to give shout out to our entire team. You are all doing amazing things and really crating an incredible company and culture.
Thank you for all that you do to serve our customers and serve each other. I'd also like to welcome Dennis Story as our new Chief Financial Officer.
Dennis will join the Company on July 1 and has been the last 10 years leading Manhattan Associates financial organization as their CFO and Treasurer. With that I'm excited to introduce to you Joe Wilhite.
Joel leads our Finance department today. He's a good friend of mine, has been our SVP of Finance since prior to our IPO.
Joel, take it away.
Joel Wilhite
Thanks, Shawn. I'm very pleased with our quarterly results, which exceeded our expectations on the high end of our guidance ranges, both from revenue and profitability perspective.
I'll begin by reviewing the details of our financial performance and then I'll finish with our updated guidance for the full year 2016 and our outlook for the second quarter. Total revenue for the first quarter was $54.8 million, an increase of 28% compared to the first quarter of 2015 and above the high end of our guidance range.
Driving the impressive revenue growth in the quarter was a combination of new customer wins and add-on product sales to both new customers and our installed base. Breaking revenue down further, software subscription revenue was $49 million, representing 89% of total revenue and growing 30% year over year while professional services revenue was $5.8 million, representing 11% of total revenue and up 18% year over year.
As highlighted during our fourth-quarter earnings call, we believe it our services revenue has begun to normalize, reflecting the fact that we're now more than a year past the change in our customer relationship period from 10 years to 7 years for both carrier and employer segments. Looking at revenue by segment, employer revenue for the quarter was $32.2 million, up 54% compared to the year-ago period.
Carrier revenue of $22.6 million was in line with our expectation and was up 4% from the year-ago period. Let me now review the supplemental metrics we report on a quarterly basis.
We ended the first quarter with 741 large employer customers, an increase of 18 compared to 723 at the end of the fourth quarter and up from 568 in the first quarter of 2015. While the second and third quarters are typically our biggest selling quarters, we saw good deal activity in the first quarter which was driven by the increased demand for our products.
Additionally, with the strong demand for our add-on products in the employer business, we're seeing recurring revenue grow among both new and existing customers. We also ended the quarter with 54 carrier customers, unchanged from the prior quarter and up two carriers from the year-ago period.
Our software services revenue retention rate once again exceeded 95% in the first quarter for both carrier and employer segments, in which we believe is evidence of the significant value our platform generates for our customers. Moving down the P&L, our non-GAAP gross profit was $26.1 million, or 48% non-GAAP gross margin, up from 45% in the prior quarter and unchanged from the year-ago period.
This sequential improvement reflects seasonality in our business while the year-ago compare reflects incremental investments associated with our multi-year commitment towards data science and analytics. Similarly, non-GAAP gross margins, software gross margin, of 65% was up 200 basis points from the prior quarter and flat from the year-ago period.
Important, we expect year-over-year improvement in both non-GAAP software gross margin and total gross margin drought the remainder of 2016. This improvement is embedded in our 2016 guidance and predominately reflects the following.
First, the tenure of our customers our platform continues to increase. As we have previously stated, once a customer remains on our platform for multiple open enrollments, the profitability of that customer generally improves.
Second, our land-and-expand strategy not only drives strong top-line growth but also contributes to higher gross margins from our back-to-base sale. Third, as Shawn previously mentioned, across the company we're focused on improving our efficiency.
The combination of increasing our use of third-party system integrators and leveraging our use of global resources should enable increased flexibility for our customers and higher profitability for Benefitfocus. Adjusted EBITDA was negative $3.7 million in the first quarter, or negative 7% of revenue.
This was significantly better than our guidance of an adjusted EBITDA loss of $7 million to $6.5 million and compares favorably to negative $7.8 million in the first quarter of 2015. Our adjusted EBITDA was positively impacted by the revenue out performance in the quarter which largely falls to the bottom line as well as improved efficiencies across the Company.
The year-over-year decline in sales and marketing spend reflect a large deal we signed in the year-ago period and more outcome-based marketing spend. For the full year we expect our sales and marketing spends to increase in line with our historical seasonality.
As I previously mentioned, we are 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 partner sales and greater up-sell activity with our new employer add-on products, such as Benefitstore. We continue to believe we can achieve our long-term adjusted EBITDA margin of 20% over time.
Non-GAAP net loss per share was $0.29 based on 29.2 million weighted average shares outstanding, better than our guidance of a loss of $0.42 to $0.40 per share and the year-ago period per-share loss of $0.48, which was based on 26.7 million weighted average shares outstanding. Looking to our GAAP results, gross profit was $25.5 million.
Our operating loss was $11.5 million and our net loss per share was $0.46. Cash used in operations was $19.8 million as working capital was negatively impacted by one-time items associated with our ERP implementation and other business decisions.
Importantly, the $14 million of one-time items that negatively impacted Q1 should reverse, as I will explain in more detail in a second, and become a positive for Q2 and does not have an impact on our 2016 outlook. Adjusting for these one-time items, our Q1 cash used from operations and cash flow improved on a year-over-year basis.
Let's take a few minutes to bridge our Q1 2016 performance to our Q2 2015 results. First, the rollout of our new ERP implantation impacted the timing of our cash collection and disbursements for the quarter, which resulted in $7.8 million use of cash in our working capital during the quarter.
This impact was a matter of timing and should largely reverse in Q2. Second, we have made a couple of payroll-related operational changes appear to last year which impacts cash flow timing.
Specifically, we outsourced our payroll processing shifted our 40-k match payment to March from April. Together, these negatively impacting working capital by $6.2 million in Q1 but will also reverse in Q2.
Moving to the balance sheet, we repaid $25 million of our revolving credit line in the quarter and ended Q1 with cash, cash equivalents and marketable securities of $38.1 million. We believe we have sufficient liquidity with over $90 million in cash, cash equivalents, marketable securities and available borrowing to reach cash flow positive.
I will now turn to our outlook for the second quarter and full year 2016. Starting with our full-year guidance, we expect revenue of $232 million to $235.5 million, which equates to year-over-year growth of 25% to 27%.
We are targeting an adjusted EBITDA loss of $12 million to $8.5 million and continue to expect to achieve adjusted EBITDA profitability in the fourth quarter. We anticipate a non-GAAP net loss of $33.5 million to $30 million and a non-GAAP net loss per share of $1.14 to $1.02 based on 29.4 million weighted average shares outstanding.
Also in 2016 we are targeting free cash flow in the range of negative $37 million to negative $32 million and again we believe our improving profitability and our cash balances, together with available credit facility, will provide sufficient liquidity until we become cash flow positive. For the second quarter of 2016 we are targeting revenue of $56.5 million to $57 million, which represents year-over-year growth of 32% to 33%.
Please note Q2 total revenue will benefit by a few million dollars, which predominately reflects the recognition of revenue from some ACA Management & Reporting deliverables that will result in revenue recognized as those items are delivered in the quarter. From a profitability perspective, we expect an adjusted EBITDA loss of $6 million to $5.5 million and non-GAAP net loss of $11.3 million to $10.8 million and a non-GAAP net loss per share of $0.39 to $0.37 based on 29.3 million weighted average shares outstanding.
In summary, we're very pleased to have delivered a strong start to 2016, with first-quarter results that exceeded our expectations on both the top and the bottom line. We continue to benefit from excellent demand for our platform as benefits management becomes increasingly complex and we believe we are well-positioned to capitalize on the momentum in this highly dynamic multi-billion dollar market.
Given our expanded distribution and product portfolio, we are increasingly 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
[Operator Instructions] Your first question comes from Nadan Amladi [Deutsche Bank]
Nadan Amladi
[Technical Difficulty] and I just wanted to ask, the contribution from this to new bookings, where does us and today relative to a year ago or when it was first signed?
Shawn Jenkins
Hey, Nadan, thanks for the question. The first part of it was cut off.
Would you mind just teeing that up for me again? Thanks.
Nadan Amladi
Sorry, the question was on the SAP partnership. How is the trajectory of the bookings as a percentage of your total mix?
How much new business are you gaining from SAP - from the SAP partnership?
Shawn Jenkins
Great question. Thanks.
We are extremely pleased with the partnership. This time last year we hadn't signed it yet so this is kind of the first - first quarter for us with SAP.
They are contributing deals to the pipeline and also two closed deals. We mentioned in the prepared remarks that on average, we're seeing the SAP deals are little bit larger than the historical average.
Although overall, all of our average employer counts are going up. And with the multi-product sales they're getting bigger through PEPM expansion as well.
But we're really pleased with relationship. I think something new for this year, which is also exciting, is we have been training some of the system integrators who are able to sell SAP products, so their SIs not only do implementation work but they also sell.
And so we have had some training classes with several of the SIs that can now actually sell the Benefitfocus platform to their customer base. So a lot of excitement there.
Just a reminder for everybody on the call in context, though our seasonality of selling, we tend to see the largest net new customers come in, in the second quarter and third quarter and the reason for that is most of our large employers do their annual benefits open enrollment in the fall in the October, November timeframe. And so they make their selection of a new platform in the second or third quarter, which we're in the busy season right now of selling.
But we're really pleased with the partnership and the way it is expanding and even influencing the SI community.
Nadan Amladi
Thanks. Ana a follow-up on the same topic, what sort of margin impact will this have over time from the financial arrangements?
Shawn Jenkins
Well, I'll start off and I'll let Joel add a little bit. The pricing, the contracts are the same, software to service, subscription based, based on the number of employees on the platform.
So really we don't see any different margin profile. We price the deals as we would other customers.
I'll let Joel add a little bit, but really there's not going to be a material change from our direct business.
Joel Wilhite
Yes, I would just add that a benefit of having a distribution arrangement affords us to be ability to expand our capacity. We also don't incur the full selling cost so it adds to the impact of the bottom line from an EBITDA perspective.
Shawn Jenkins
I guess I was addressing gross margin but you're right, the channel partner does bring a lot of the table and because most of their deals will probably be done by SIs, too. We won't have the cost of the implementation.
Overall I think it is actually a little bit of a lift. Thanks.
Nadan Amladi
Thank you.
Joel Wilhite
Thank you.
Operator
Your next question comes from John DiFucci with Jefferies.
Unidentified Analyst
This is Joe on for John. Thanks for letting me ask a question.
You guys had previously guided to an $11 million cash headwind for the year, primarily due to draw down of deferred revenue. We saw that pretty significantly in the first quarter.
I just want to see if that was still the case. And then how to I think about that going forward in 2017 or 2018, I mean 2017 versus 2016?
Joel Wilhite
Yes. So, great question.
You are right, when we guided our full-year free cash flow for the first time, when we released the guidance for the year we did talk about this dynamic as we get - as employer gross as a bigger percentage of revenue, as the carrier business decreases than the services component with the carriers where typically there were large payments in advance, shifts as we get more towards the employer side and services decrease as a percentage of our business. What I will say is that what we are seeing is what we expected.
Q1, if you remove the impact of one-time items, was actually better on an operating cash flow and a free cash flow basis than last year. Again adjusting for those one-time items, we are on track and we would expect and repeat full-year free cash flow in the ranges that we mentioned.
Again, I expect that gradually over time, that dynamic to continue into 2017 and to even out over time as carrier stabilizes and grows again.
Unidentified Analyst
Thanks. That is helpful.
And then just a quick follow up. You guys have previously given a metric as far as percent of new customers that are using more than one product.
I was wondering if you could give an update to that number.
Shawn Jenkins
Yes. We didn't publish that number this time.
I will say that our number of products per customer in the first quarter was higher than last year, up meaningfully. We're still not breaking that number out.
We do plan to flush out some of those metrics in the coming quarters but we did see good expansion of the number of products. Also the per employee per month, the PEPM, on both the new sales that we have and also selling back into the base has been steadily improving as well.
So great results in both of those areas.
Unidentified Analyst
Awesome. Thanks, guys.
Shawn Jenkins
Sure.
Operator
Your next comes from Terry Tillman with Raymond James. Terry, your line is open.
That question has been withdrawn. Your next question comes from Stephen Lynch with Wells Fargo.
Stephen Lynch
Hey, guys. Thanks for taking the questions.
Just to start off, I want to talk to you about the attach rate. Specifically, maybe what can we expect is a reasonable attach rate going into this selling season versus what it was last year?
I know on last quarter's call you talked about two thirds of deals including two or more products by the end of 2015. Any more metrics or numbers you could give us help us understand how the product portfolio has changed and the attachment rate could change year over year in this selling season?
That would be great.
Shawn Jenkins
Yes, great. I'd say, Stephen, I'd it’s going to - that two thirds number, two thirds is what we said last, I guess it was after the second quarter of last year, two-thirds of new deals were including more than one product and that's is holding consistent or even a little bit of improvement in there.
I would go a little bit further to say the number of products per deal is actually going up as well. A little bit better than two-thirds of the new customers are buying multiple products from us now.
They are actually buying more products per customer then they were on average than last year. As I mentioned, we don't have that broken out yet.
As we get a little bit of a pattern there that we will see we will probably start to issue some more public metrics around that. If you think about what we did just a year ago, we introduced the Benefitstore, we had eight customers at the beginning of last year in a pilot.
We now have 121. We rolled up Core Analytics.
At this one place just in Orlando here in March, a whole host of new capabilities for Core Analytics, some new partners in the Benefitstore, our mobile capability that we have rolled out which really reinforces the core platform. These products are really being adopted.
I would say there being loved. The ACA Management reporting hit a big milestone in the quarter where we delivered the forms to the employees and now to the employer in this quarter.
A lot of really great exciting things and the feedback from the employers has been just phenomenal. The thing that we mentioned, Stephen, I'm sure you picked up on it, was this is the first time we have had a back to the base sales group as well.
Your question's around net new attach rates. But we're now - we have an inside sales team that works with our customer success organization and the field sales force.
They have quotas, they have a great package of products to sell back into the base and they had a good first quarter and their pipeline is really looking nice for the year. A lot of great themes and this has been our multi-your strategy all along.
Stephen Lynch
That is fantastic color. Just maybe one other one.
I wanted to talk to you about the carrier business. Revenue is down a little sequentially.
Maybe just talk a little bit about what is going on there. Is that mostly or entirely due to the client base stepping down in Q4?
Is that just sort of a follow-through from that?
Shawn Jenkins
Yes. I think from, a - as one of the founders here, I feel like I know this carrier business so well, 15, 16 years of building it.
It tends to do what it has done the last couple of years which is kind of over performed our long-term projection for it. And then based on a number of net new deals and the timing of those rollouts and the size of these larger carriers that we have announced in the last 18 months, they are just now beginning to go live.
Some of them go live a little bit later this year, big deals that we signed in the beginning of last year. So we feel like it is kind of behaving like we thought it would.
We think the performance is in line certainly in the first quarter. Probably one of the biggest changes that is maybe having a little bit more of a near-term impact the next couple of quarters is we are a software subscription, cloud-based.
The number of members or employees on the platform is how we get paid each month. That is intact.
But the large carriers would be buying additional professional services from us. You saw our deferred revenue and the size of it.
And we kind of made a change in strategy in engaging with the carriers last year to say hey, look, the professional services is great and we want to make the software do what you needed to do, but let's put some patterns together. So we began to form some carrier councils, product councils.
We put five or six or eight carriers in a room and say, what you really want to platform new to do in the next couple of years and rather than each of you paying us a professional services fee, what we're going to do is build those products together. We call it consumer-driven R&D or community-driven R&D.
We have a great pipeline of carrier additional products that have coming out of that work. Some of it will come live middle to late this year and a lot in 2017 and 2018.
So where you might feel a see less professional services from our carrier business in this year and maybe a little bit into next year, we think that is going to turn into really higher-margin, better sticky subscription software revenue in that period with our new market adoption team that we just announced as well, overall makes us really bullish on the carrier business.
Stephen Lynch
That's great. Thanks, Shawn.
Operator
The next question comes from Terry Tillman with Raymond James.
Terry Tillman
Hey, guys. Can you hear me okay?
Shawn Jenkins
Yes. We got you.
Thanks, Terry.
Terry Tillman
Okay. Thanks for the time for my question.
It is actually just on the bookings. Thinking about that for the rest of the year, and I know you don't give any bookings metrics and it could vary quarter to quarter on timing of deals and the type of deals, but as we think about the year, it is a question of quality versus quantity, particularly on the employer side.
How should we be thinking about it? I know this 18,000 is what you're striving to get a majority of those opportunities as you can, but as we look through the rest of the year, how would you balance the units as opposed to the right kind of units, if you know what I mean?
Shawn Jenkins
Great question. Thanks, Terry.
Our employer business obviously is moving along, right, 54% in the quarter. Actually if you look into it the software subscription revenue was up 57%.
It is really doing fantastic. As we have announced a year ago and then reinforced with this One Place, new additional products for employers is now part of additional strategy.
I would say that land and expand is the Benefitfocus employer strategy. We want to win new customers.
We have 741 out of 18,000. We have got about 4% market share and we want to build on that momentum.
That is our first priority. We have the world's best enterprise benefits software management sales team and product in the market.
We're still - that is the focus. With a channel like SAP and Mercer and our great partners it is really wonderful.
That said, when you look at our core analytics product, which our customers are buying, ACA Management & Reporting, Benefitstore, our Service Center, these deals are getting, the PEPM is going up. It is going up considerably.
So in one sense we don't really have to have as many more logos or many more new employers to continue the type of momentum that we are seeing that business. It is in no way our strategy to slow down the acquisition of new customers.
But for example, in first quarter we had more new customers than we did last year but actual, our selling was quite a bit more because of the multi-product sales and the PEPM. We are balancing those two.
As you know, we are on track to get to adjusted EBITDA profitability in the fourth quarter of this year. It's a big milestone for the management team.
Balancing winning new customers, which is our main priority, with higher-margin and larger PEPM with those new customers and selling back in the base gives us more levers to pull, I would say. Is something we do think about a lot, but obviously we had more new employers in the first quarter and that is the trend that I would think you would see for the year, but in any given quarter it could actually be similar to last year but the selling could be quite a bit more.
Terry Tillman
Okay. Thanks a lot.
Shawn Jenkins
Yes. Thank you.
Operator
Your next question comes from Ross MacMillan with RBC.
Ross MacMillan
Thanks for taking my questions and congratulations. Shawn, one for you and then one for the numbers.
As you start to ramp the Benefitstore, I was just curious, can you talk to where it is from a revenue contribution at this standpoint? And then second, what are you seeing in terms of the mix of commission pipes?
I think it could be taken as heat or non-heat. That might have some influence on how big an influence it has on some revenue near term.
My second question, maybe you could double click on the ACA factors in Q2. If you could just drill into that and explain whether that is in one-time in nature and if so, what it is.
Thank you.
Shawn Jenkins
Thanks, Russ. We appreciate the comments there.
The Benefitstore is, just for a refresher for the folks on the line, we introduced the benefits were a year ago commercially. It is a way for a large employer to offer a host of voluntary benefit programs to their employees.
This is really important now as many employers move to high-deductible health plans. Employees are paying for more of the programs out of their pocket.
With a higher deductible health plan they want to make sure they can cover themselves in the event of a larger illness so they can buy things like critical illness or disability insurance is available, life insurance products and host of fun other things like identity theft protection, pet insurance is very big and other nontraditional benefits, really excited about the momentum, 121 customers now in our first year in the Benefitstore. It's a brokerage model so the compensation comes from the carriers and partners that are selling these products to the employees.
We're able to do a really great assessment for the employer of how they stack up against the industry, what products will be available for their type of work force. Your question about how the commissions are generated, all the commissions are obviously filed with the Department of Insurance in each state and they're all transparent from that nature.
There is sort of a decision to make on the timing of the commissions. We like the recurring revenue nature of our software business so we try and mirror that as much as possible.
Some of them do get paid more in advance, like in the first year or so, while others are paid out on a more levelized basis. I would say it's a pretty good blend, Ross, probably 50-50, more so driven by the type of product and the insurance carrier and how that aligns to the workforce, but it is in that nature.
We're not breaking the revenue number out yet, although it is a positive impact, obviously, in 2016. We think as we look out into the next several years it is really going to help reinforce that employer growth.
It is a great service to the employee and their family and the employer. That is the main thing we think about is good gross margin.
It is additive. It's good cash flow because collect the cash in the year following the sale but it is matched up well with the recurring revenue, really pleased with it.
So I will let Joel take the timing of the ACA question.
Joel Wilhite
Yes, Ross, I think you asked about just giving some color around the ACA revenue impact. We talked about in our prepared remarks that we do see a few million dollar impact in Q2.
It is baked into the guidance, obviously, for the quarter and for the full year and was contemplated when we gave initial guidance for the year as well. We're going to recognize that revenue essentially as those deliverables are completed in the second quarter.
Ross MacMillan
Thank you.
Joel Wilhite
Okay. Thanks, Ross.
Operator
Next question comes from Richard Davis with Canaccord.
Unidentified Analyst
Hey, guys. It’s DJ on the line for Richard.
So Shawn, I'm wondering if we can get a little more granular on the per-employee per-month pricing. Obviously, to expand the side of the story is getting a little bit more emphasis with inside sales crew doing their thing.
So, curious, how high is up on per-employee per-month pricing and then kind of where is your average customer today to give us a sense of how big could this business be with the customers you have now? I know obviously you're still trying to grow the new customers, but framing it that way would be helpful.
Shawn Jenkins
Thanks. So we talked, DJ, kind of historically, about how our business operates in the overall metrics, even going back to our IPO.
I'll maybe even add a little bit of color to your question about pricing and what is happening in the market. We charge per-employee per-month for our Benefitfocus marketplace.
We charge $3.85 per-employee per-month for that core platform. What we said last year when we introduced the new suite of products was that if you add up those additional products you can actually double that PEPM up to $6, $7, $7.50 per employee per month is kind of the opportunity we have created for ourselves.
As we have employers select the core Benefitfocus platform they had one, two or three and in some cases even a couple that we announced on the call today. Some of those customers had four or five products in the sale.
That kind of puts you in the ballpark. The pricing of those things has been very thoughtful.
Customers provide us great feedback to the value that we're delivering to them. We are often times replacing legacy systems, on-premises systems or kind of outdated systems provided by other parties that are really software in nature.
We give the customer a big leap forward in functionality. Four software releases a year, mobile technology, core analytics, a whole host of great things generally at a price point that is the same or even a little bit less than what they have been paying historically but a much better system overall.
We're comfortable with the pricing that we have in the market and that idea of $3.85 or so for the core platform and then if you buy everything else you can kind of double it is the range that we have.
Unidentified Analyst
That makes sense. I'm wondering if you can give us an update on the North Carolina state health plan deal.
I think it has been a couple of quarters since it was announced. Where is that implantation stand?
How is it regressing? Any color on the relationship that you can provide?
Shawn Jenkins
Yes. Thanks.
Really proud of the team, the joint team, the customer the state health plan of North Carolina, a huge customer measured in the hundreds of thousands of people that are on their health plan, really proud to do the work with the state health plan. We went successfully through open enrollment with them this past fall.
The system was live in time in the feedback we have been getting is very positive. Good executive status points.
We have a really great crew of Benefitfocus Associates. As a matter fact, I will give a shout out to our state health plan team at Benefitfocus.
Thanks all the great work you're doing. Now what we are in, as you can imagine, is the planning for open enrollment season coming up.
That is going very well and we are pleased with the partnership we have with such a great customer, a very large employer customer for us.
Unidentified Analyst
Got it. Thanks for the color.
Shawn Jenkins
Okay, thank you.
Operator
Your next question comes from Nina Deka with Piper Jaffray.
Nina Deka
Hey, guys. Thanks for taking the question.
I apologize if you already went over this; we had a conflict earlier. I wondered if you had provided any update on both your SAP relationships and also the expansion of the Castlight relationship that you had announced during your keynotes at One Place.
Shawn Jenkins
Super. Yes, thanks, Nina.
We talked a little bit about SAP. The good news is great relationship.
We're really pleased to have been selected by SAP in the second quarter of last year. This is our first, first quarter with SAP.
We have trained their sales force for a product number, actually set of product numbers inside SAP. The SAP sales team can sell the Benefitfocus platform on their contract to their customers and we are winning deals in the pipeline.
It looks terrific there. One of the things that we mentioned is that we have now also begun to train the system integrators for SAP.
Many other system integrators can actually sell their software, the SAP software. So we have begun to do some of that training.
That is even further strengthening that channel is SIs are out now talking to the customers about SAP products and services, including the Benefitfocus platform. We're really optimistic about the relationship and feel like there is good momentum there.
The other thing that came up, I think maybe in a little bit of a separate question is, how does that - economics of that work? One of the things that we benefit from there is many of their deals are done by system integrators which is helps our margin and also gets the use bench of the SI and we just get the full software subscription revenue in margin, higher-margin for us.
On the Castlight relationship, really great reception from many joint customers. Benefitfocus already have customers that was using Castlight.
We announced a partnership and API, a combined product where you can view the Castlight insights and individual transparency tools from the Benefitfocus platform and vice versa. You can move seamlessly between the two.
We have some great early adopter customers of that. More importantly, I would say that the sales teams have been trained and they have some really great pipeline that they're bringing Benefitfocus into and we do for them as well.
The reception from the market, which to me is the most important thing, has been very positive. I have had several conversations with very large employers who are excited about the opportunity and entering into our early adopter program.
Nina Deka
Great. Thank you.
Congrats on the quarter.
Shawn Jenkins
Thank you.
Operator
Your next question comes from Frank Sparacino with First Analyst.
Frank Sparacino
Hi, guys. Shawn, I just wanted to follow-up on the ACA Management Reporting module and how you think that plays out over the next couple of years.
I would assume we have kind of reached a peak, maybe in the base, but what you think the growth there looks like? I know the audits will start sometime in July timeframe.
I don't know if that is a meaningful event for your clients in terms of what it means for demand for Benefitfocus, but any thoughts there would be helpful.
Shawn Jenkins
Yes. Thanks, Frank.
First of all, the ACA Management & Reporting, the whole IRS implementation was a very fast one because a lot of the final rules and regulations and specs didn't come out until summer of last year, even into the fall, and Benefitfocus was one of the first companies to get certified to actually submit those. We had great up-tick from our installed base.
I would actually it a little bit different, Frank. I think there is meaningful upside for us in our installed base.
Many employers kind of just got through it as best they could on whatever system they had, payroll system, spreadsheets, et cetera, kind of manual-ish. We did some really great selling but we had to cutoff period for sign-ups.
We had a really great up-tick but there is actual upside in our employer base and we're still selling that now. I think there's meaningful upside for us because many of our customers operate multiple backend systems, multiple payroll systems and they do acquisitions.
As they look to their payroll vendor to solve a need, they may not actually have all the information where at Benefitfocus, we always have to have all of your employees, we have to tie into all of your payroll systems, we have all of the health information that we need, which is really the source of the information. We are expert in this area.
I think that even folks that solved it another way, in a rush, are opportunity for us. As we look forward, I think it's - to us what we really built was a compliance platform.
I refer to it as compliance as a service, this being one of the first things. As this particular element changes or tweaks or requires additional data or insight, both to comply but also just to understand how the business is handling it, I think we can come up with additional products and services around that.
I think there's opportunity to work with system integrators and so forth to build some practice work around this. We are excited about - that's a weird thing to say, we're excited about compliance at Benefitfocus.
We are excited about solving the needs for employers and making it easier for them. We really have created a framework that I think we can innovate on top of and expand PEPM and other products.
Operator
And I show no further questions. I will turn the conference back over to Shawn for any closing remarks.
Shawn Jenkins
Super. Thanks so much for joining our call today, really proud of the team exceeding on the top and bottom line, 11 straight quarters doing that.
On track for EBITDA adjusted profitability in the fourth quarter, really proud of the management team and all the Associates at Benefitfocus. And thanks for tuning in.
Look forward to talking to you soon.
Operator
Thank you for your participation. This concludes today's conference call.
You may now disconnect.