BNFT (2019 - Q3)

Greetings, welcome to the Benefitfocus Third Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded.I’ll now turn the conference over to your host, Mr. Michael Bauer, Vice President of Finance and Investor Relations. You may begin. Michael

Thank you, operator. Good afternoon and welcome to Benefitfocus’ third quarter 2019 earnings call. We will be discussing the operating results announced in our press release issued after the close of market today. Joining me today are Ray August, our President and Chief Executive Officer; and Steve Swad, our Chief Financial Officer. Ray and Steve will offer some prepared remarks and then we’ll open the call for a Q&A session.Before we begin, let me remind you that today’s discussion will include forward-looking statements such as full year 2019 guidance and other predictions, expectations and information that might be considered forward-looking under federal security laws, including statements about our positioning for the future.These statements reflect our views as of today only and should not be considered as representing our views of any subsequent date. These statements are subject to a variety of risks and uncertainties, including our losses and need to achieve GAAP profitability, the fluctuation of our financial results, the immature and volatile market of our products and services, recruitment and retention of key personnel, risk associated with acquisitions, the need to innovate and provide useful products and services, our ability to compete effectively, cybersecurity risk and a changing regulatory environment that could cause actual results to differ materially from expectations.For a further discussion of material risks and other important factors that could affect our actual results, please refer to our Annual Report on Form 10-K and other SEC filings. During the course of today’s call, we’ll also refer to certain non-GAAP financial measures. You can find the important disclosures about those measures in our earnings press release.I’ll now turn the call over to Ray.

Thank you, Mike. Good afternoon, everyone. Benefitfocus is working to fundamentally transform how benefits are bought and sold in the United States. We continue to make solid progress and the accomplishments in the third quarter and year-to-date are helping us achieve this goal of transformation.Multiple factors across our business position us to be a market leader, but three key differentiators and core and unique to Benefitfocus. First, is our AI-powered platform. It is designed to remove friction, improve the consumer experience and increase benefits participation. It helps employees engage with what they want in the year around, not just storing a two-week open enrollment period.Second is our end-to-end network. We are adding lives at scale to our platform. Our ecosystem is unmatched. It continues to strengthen as we add buyers, employers, employees and freelance workers as well as sellers, carriers, suppliers and brokers.Third is our emerging platform business model. We collect transactional revenue from sellers on our platform and subscription revenue from buyers on our platform. This means, our BenefitsPlace suppliers pay a certain fee for benefits purchase, and the end users which consists of carriers and employers, and the employee and consumer lives, they represent pay us software subscriptions for our platforms.The combination of our growing scale and increased participation drives the greater volume of data and future revenue. We have amassed an incredible data asset. Our data allows us to create meaningful connections at scale, as well as match a particular carriers’ offer with the needs and wants of an employer and individual consumer.In Q3, we added another 300,000 net benefit eligible lives to our platform, bringing this total to 16.8 million. Importantly, our direct sales team and growing partnership channel executed the plan to remain on track to achieve our full year growth target of net benefit eligible lives.Because of our strong network, and the flexibility of our single code based platform, we have multiple opportunities to grow lives. These include medical carriers, public sector, other aggregators and groups of lives and large employers.In Q3, we extended our platforms reach to support the growing gig economy. For example, Shipt, Inc. a leading online, same-day delivery platform, a wholly owned subsidiary of the Target Corporation signed on to make BenefitsPlace and its robust product offering available to the entire workforce of freelance workers.Shipt is an example of the powerful network effect of our platforms growing capabilities. They recognized the value of our platform and the importance of offering a robust set of better set of benefits, benefits that attract and retain freelance workers.Currently tens of millions of Americans consider themselves freelancers and contractors, and that each group is growing. This is a generational shift. We believe we have the right ingredients and the right platform to be at the forefront of this shift to connect with this workforce to support their lives, and to provide the benefits they want.To further our platform efforts, we added over 250 premier brokers during the quarter. This brings our total premier broker count to over 700, up materially from last year where we had less than 50. These brokers recommend the Benefitfocus platform to their customers. That is an example of the network effect we are creating and the platform capabilities of our business model.We believe the significant growth positions us well to continue growing net benefit eligible lives in 2020 and beyond. While the future broker opportunity is substantial, this influential part of the network continues to make a positive impact today. Brokers have significantly contributed to our 2019 employer lives growth. In addition to net benefit eligible lives being up over 25% compared to last year.The following indicator suggests engagement and participation will be higher at this open enrollment and will continue to grow as our platform matures. Compared to the prior year period, active enrollments and the number of lives exposed to BenefitsPlace have increased. BenefitsPlace has nearly doubled the amount of products, including multi-generational benefit options that enhance talent recruiting and retention strategies. InnovationPlace, our startup partner program announced that One Place successfully launched his first company, Natalist or our own associate.These products will soon be offered on BenefitsPlace, and a new cohort of innovative suppliers will be joining the program next month. Finally, our artificial intelligence engine is now active. And we have improved our industry-leading platform data analytics capabilities.Our early indications are positive and we’re pleased with current OE results. We are seeing instances when our open enrollment recommendations and guidelines are implemented, engagement is higher.In addition to our AI improvements, our technology leadership position continues to expand. At our Carrier Place Conference in September, we introduced MarketPlace for Carriers. This includes our platforms’ transformative quote-to-pay capabilities, we’ve leveraged the best of Benefitfocus and the assets acquired from Connecture. This means, for next year’s open enrollment MarketPlace for Carriers will automate the entire benefits value chain.This gives a greater number of consumers’ easy access to voluntary benefits from the leading brands in BenefitsPlace, all through a smart and intuitive mobile experience. Our pipeline is strong and this product offering is driving new transformative discussions with existing and new customers.For employers, the initial deployment of our Enterprise Human Capital Management API with Ultimate Software has been extremely positive. This product is designed to eliminate integration friction, to automate manual processes and to create a better and more reliable experience. Employer demand is robust, and we have a healthy pipeline of additional HCM vendors lining up.And in our Q3 autumn software release, we launched SelfPay capabilities to provide consumers more choice and using alternate payment options for voluntary benefits. This increased flexibility does more than remove ecosystem friction, it is also expected to support new growth opportunities in the emerging gig economy, as well as future consumer participation on our platform.Platform growth, increased engagement and more powerful technology strengthened the core of our business. Another critically important element of our businesses is our data. Today, we have an unmatched health, wealth, property and lifestyle data asset that is a powerful part of our business.We expect our AI engine, future ecosystem growth and continued data centric investments to drive a more personalized customer experience, combined with our tailored analytics for the entire benefits ecosystem, we believe we can extend our competitive differentiation and accelerate growth.We are excited about the power of our platform strategy and the value of our data to better support the entire benefits ecosystem. Over the next 45 days, open enrollment activity will hit a fever pitch. We are ready for that. Our data investments have positioned Benefitfocus to provide the best experience in the industry.We are leading the market in data accuracy at 99.9% our statistic far better than industry performance. We are entering open enrollment with momentum and are excited about our growth opportunities. To build off this year’s success next week we will host our 2020 sales kickoff conference.At this year’s event, we will have expanded the conference to include members of our entire selling ecosystem. This includes our direct sales team, premier brokers and other channel partners and influencers who are coming together to collaborate, learn and win.Lastly, I am pleased with our financial performance. Our revenue grew 17% non-GAAP gross margins increased 300 basis points over last year, and EBITDA was well above last year and our expectations. This performance is confirming that our platform is stronger.For the past two years, our team has focused on growing our platform, increasing consumer engagement and advancing our technological leadership. With our diverse revenue streams and strengthening fundamentals, we are well positioned to increase shareholder value.Now I’d like to turn the call over to Steve to review our financial results. Steve?

Thank you, Ray. Today I’ll begin with a few of my learnings as CFO since our last call, then I’ll provide a brief recap of the third quarter financial results and conclude with guidance. Let’s start with one of my learnings. It’s clear that our company’s primary focus is on growing live and increasing engagement. As lives grow and engagement increases, our software and transaction revenue should grow and margins should continue to expand.In addition, what became clear to me over the last 90 days is that meaningful value will be created by exposing and engaging our existing base of customers to BenefitsPlace. We are pleased with the success of BenefitsPlace to-date and the opportunity in front of us to drive additional participation and engagement.Second, I have a better appreciation for the value of our carrier relationships. These relationships are strategic in that our product enables the carrier to interact with their customers. The [technical difficulty] products are important components for the carrier’s offerings, these relationships are very sticky. So it makes sense that we’re deploying capital to grow in this area of our business, as these customers have large lifetime values and low customer acquisition costs.And third, after talking with and listening to you, we are committed to disclosing more information on our business. At the time of our Q4 call, I will have experienced two full quarters and one open enrollment as CFO. At that time, I expect to provide additional disclosures to help you better understand our business. I will also guide to 2020 revenue and EBITDA.Now let’s turn to our financials. Overall, it was a solid quarter for Benefitfocus. Ray mentioned we ended the quarter with 16.8 million net benefit eligible lives and for the first time, exposed BenefitsPlace to gig economy workers. Therefore, to keep pace with our strategy and business activities, we updated our definition of net benefit eligible lives to include this growing part of the workforce. We believe this will drive incremental transaction revenue beginning this open enrollment season.Moving to the P&L, total revenue for the quarter was $71.7 million, an increase of 17% compared to the third quarter of 2018 and was at the high end of our guidance range. Third quarter revenue was primarily driven by software subscription revenue and BenefitsPlace revenue.As we’ve discussed in prior quarters, our Q3 revenue growth was partially offset by the renegotiation of the Mercer contract, which allowed us to remove friction with the broker community. Excluding the impacts of Mercer, our third quarter revenue growth was in the low 20% range.Connecture delivers strong results in the quarter by contributing nearly $9 million of revenue. The Connecture performance partially reflects synergies from our combined team’s ability to secure business from the acquired customer relationships.This resulted in incremental software and professional services revenue in the quarter, and as an indication of future opportunities. We are very pleased with the financial performance and strategic IP that resulted from the Connecture acquisition and we’re on pace to have this deal fully integrated by the end of the year.Excluding the contributions from Connecture and the impacts of Mercer, total revenue grew in the mid single-digits compared to Q3 2018. The change in the growth rate from Q2 reflects our focus on high margin software service revenue and less change requests work. As previously discussed, we remain confident that the year-on-year growth will accelerate in Q4.Increased interest in our platform is driving total software services revenue, which was $54.2 million in the quarter, an increase of 16% compared to the prior period. The growth reflects an approximate $4 million contribution from customers formerly owned by Connecture and continued growth in both subscription and BenefitsPlace.Excluding the contributions from Connecture customers and Mercer, total software services grew in the low double-digits compared to Q3 2018. Our total professional services revenue was $17.5 million. The 23% increase over Q3 2018 reflects the acquisition of Connecture.GAAP gross profit was $36.1 million, representing a margin of 50%. Software gross profit was $36.9 million, representing a margin of 68%. Non-GAAP gross profit was $37.2 million, which represents a 52% non-GAAP gross margin. This favorably compares to a 49% non-GAAP gross margin in Q3 2018. Non-GAAP software gross profit was $37.5 million or a 69% non-GAAP gross margin. This is up from the 66% non-GAAP gross margin in Q3 2018.Similar to prior quarters, the improvement in gross margin reflects a continued organic shift toward high margin subscription and BenefitsPlace transaction revenue, improved operational efficiency from focused investment in automation and data and benefits from scale as our platform activity grows at low marginal costs.We also continue to drive improvements in our adjusted EBITDA. Q3 adjusted EBITDA was $2.9 million. This exceeded our guidance and compares favorably to roughly breakeven in Q3 2018. Our adjusted EBITDA which positively impacted by our recurring revenue growth, gross margin expansion and our increasing operational scale.Operating loss was $7.3 million, contributing to a net loss per share of $0.38. The year-over-year increase in operating expenses largely resulted from Connecture related expenses. A non-GAAP net loss was $7.5 million, compared to a $7.2 million net loss in the year ago period.Now let’s move to the balance sheet and cash flow. We ended Q3 with cash and cash equivalents of $130.7 million, down from $138.4 million in the prior quarter. Free cash flow, a non-GAAP measure that we define as cash provided or used in operations, plus purchases of property and equipment was negative $6.3 million in the quarter. We expect single-digit millions of positive free cash flow to be generated next quarter.Moving to guidance. For the full year 2019, we are reiterating our total revenue expectation of $292 million to $300 million. We’re increasing our adjusted EBITDA range to $12 million to $17 million, up from $10 million to $15 million. We are also improving our expected non-GAAP net loss the $29 million to $24 million, which represents a non-GAAP net loss per share of $0.89 to $0.74, based on 32.5 million basic and diluted weighted average common shares outstanding.While it is too early to provide 2020 guidance, I’d like to provide some directional color. We are excited about the emerging growth opportunity from BenefitsPlace. We are excited about our new solution MarketPlace for Carrier and we are excited about the strategic decision to fully open up the broker channel. Each of these represents significant growth opportunities for our company.As we’ve shared with you before, the choice to renegotiate our Mercer relationship creates near-term revenue pressure, but importantly, it removes significant friction from a much larger broker opportunity over the long-term.With that, we will open it up for questions.

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] The first question comes from Brian Peterson with Raymond James. Please go ahead.

Good evening, gentlemen. Thanks for taking the question. So Ray, maybe I’ll start with you. Just we’re going through open enrollment right now, I know you mentioned some stats on engagement, any insight you can share about what you’re seeing in terms of trends or customers that are going through that process?

Yeah. Thank you, Brian. We’re in the early days of open enrollment, Q4 is our busiest quarter when it comes to open enrollment, but in the early innings. But what we’re seeing so far has been extremely positive. As we decompose what happens to an open enrollment, it starts with a number of people on our platform, and our lives counter up by 27% with the previous period, so have a lot more people on our platform interacting with us.And then we look at the number of products they have available to buy. We have twice the number of BenefitsPlace products than we had a year ago. And then the third thing is really, after you have the people on the platform and the products, is our people making that click and participating in our platform and purchasing those products.And over the last year, we’ve made a very, very significant investment in artificial intelligence with BenefitSAIGE. And that product allows us to proactively reach out to people on our platform, and help them make the right benefit selection for them and their families.In the last month alone, we sent that over a million messages to people on our platform to help guide them so they’re making the right decision. So when we look at the people on our platform, the number of products that have available to them, the participation that we’re seeing, we're very, very pleased with our overall results.Also our customers are reporting good feedback to us this open enrollment. And one of the things that we’re really proud of is, if you look at the investments we’ve made in data and automation, which you see showing up in our gross margin improvements, but it also speaks to the quality of the data and our system. We have a 99.9%, the first-pass yield rate, which really means that’s the number of transactions that are correct and positive in our system, the 0.1% is typically things that the data coming off from a payroll system is incorrect.So we believe our first-pass yield measures are by far the highest in the industry. And you know, as we think about open enrollment, one of the things I love about this industry is, you get a new open enrollment every year, every year people go through the same process. So last year, we had our first BenefitsPlace open enrollment. We saw very, very good results. This year our results are much improved over last year, and the learnings that we’re going to get from this year are going to make us even stronger in the next year. So really pleased with what we’re seeing with open enrollment thus far.

That’s good to hear. And maybe a follow up for Steve, I appreciate all the color on the Mercer dynamics. And I appreciate you’re not giving 2020 guidance at this point, but anything that you can share directionally in terms of Mercer and maybe how we should think about that contribution in 2020? Thanks guys.

Okay. Thanks, Brian. Yeah before I get into 2020, just a quick comment on the quarter. I was pretty pleased with rev growth, pleased with the margin expansion, pleased with the EBITDA growth and pleased with the lives growth.And then as it relates to 2020, I did – we still got six weeks left in the year and so I didn’t give point estimates. I need to see how the year closes out, but I did share with you some color. I shared color around BenefitsPlace that seems – that’s performing well and that’ll be part of our discussion in 2020.We’re seeing opportunities in the carrier space, that’ll be part of our discussion for 2020. The broker channel is – the strategy shift we made to open up the broker channel continues to be positive is to remove friction and you’re seeing positive influences in our selling activity.And as you pointed out, and also our brokers, our number of brokers are up I don’t know more than I think we’re at 50 about a year ago and we’re at 700 now or more than 700 now. And I did highlight though moving away – shifting away from the legacy Mercer business, we’ll see a continued decline in our revenue over time. But the strategy shift which embraces brokers, this part of our ecosystem and removing that friction will provide tailwinds to the business over the long-term.

Understood, thanks Steve.

Okay.

Thank you. The next question comes from Nandan Amladi with Guggenheim Partners. Please go ahead.

Hi, good afternoon. Thanks for taking my question. So question about this support for freelancers. Traditionally, your platform has been very suitable for employer sponsored benefits. In the context of freelancers, how does this actually work? Are you establishing relationships directly with the freelancers or is there still a sort of a sponsoring entity?

Yeah, Nandan, thank you. We’re really excited about adding the gig economy to the portfolio of products and companies that we offer. As you know, the gig economy is just taken off, and it’s really providing not only an increased opportunity for us, but obviously is increasing our TAM as well.In the case of Shipt, the sponsoring entity is Shipt themselves. They’re offering our solution to all their, what they call, shoppers. And we’ve been really excited by the progress, we got them up and implemented in 30 days and now a Shipt shopper from go out and buy a number of products that are on BenefitsPlace today, products like pet insurance, identity theft and even medical insurance.So we see this is a big and growing opportunity for us now and into the future to really make sure providing benefits solutions to all gig workers also opens us up to 1099 workers, consultants and others. So well that we’re helping this gig economy and also the TAM expansion that provides to us.

Thank you. And a quick follow-up for Steve. As you look ahead to next year, where do you expect your R&D efforts will be focused continuing to build up a network, adding more brokers and more products to the platform? Or are there still fundamental features in the platform that would draw a lot of R&D funding as well?

No, we’re – we’ll come back to you with more specifics, but the themes that you’re hearing us talk about today are going to continue our AI platform is going to be a theme. Our data – accumulation of data is going to be a theme. MarketPlace for Carriers is going to be a theme. I’m pleased serving the ecosystem is the job of the platform and you’re going to hear the themes we’re talking about today just continue into next year, and we will refine that message as we come back to you on our next call.

All right, thank you.

Thank you. The next question comes from Chris Merwin with Goldman Sachs. Please go ahead.

This is Kevin off for Chris, thanks for taking my question. Ray, last quarter you talked about a higher mix of life and ancillary products on BenefitsPlace versus specialty, and having a kind of a negative impact on the timing of your revenue. Can you – as you head into open enrollment, can you maybe talk about an update there and how that mix is evolving?

Yeah, it’s operating just as we planned. We’re not at the halfway point yet of our open enrollment. We have our biggest two weeks ahead of us and six weeks left in the quarter of the open enrollment activity, but the mix is holding true to what we thought it would be, as I said that participation is very, very high we’re seeing real good take rates. But our guidance remains the same.

Got it. Thanks. And then maybe on the progress with the brokers, I think last quarter you talked about a percentage in terms of the overall broker community and kind of the contribution to lives. Any update there?

Yeah, it was 70% last quarter, in which our brokers had an impact in our lives growth. And we’re seeing a very consistent pattern this quarter. And we’re in fact working very closely with our brokers next week in Charlotte, we have what we call our Seller Place gathering, where we bring together the key sellers on our platform, whether our internal sales people, brokers and other partners and our broker community will be there planning for next year to make 2020 stronger than ever.

Great, thank you.

Thank you. The next question comes from Frank Sparacino with First Analysis. Please go ahead.

Hi guys, can you hear me okay?

Yes.

Maybe just first, can you – you talked about change in the definition on the net benefit eligible lives. Can you be more specific there in terms of what changed? And then as it relates to Q4, I would imagine we’re not going to see much of a change in the lives growth. So why Q4 range I assume as this entirely driven by BenefitsPlace, but if you could maybe just talk about some of the assumptions you have low end versus high end in that guidance? Thank you.

Yeah, this is Steve. The definition update was just simple. It didn’t consider freelancers and so we added a sentence that considered freelancers. And kind of stepping up we’re pleased to kind of tap into that opportunity. We think that’s a growing opportunity in our platform will serve that group well.As it relates to the guidance for Q4, Ray mentioned and I mentioned that we still – we’re in the middle of open enrollment and you rightfully point out, we’ve got – I’m taking a close or keeping a close eye on BenefitsPlace and that’s part of the reason for the variability. We also have some carrier transactions that I’ve got my eye on and the combination of those two just caused me to think it was prudent to hold on revenue [technical difficulty] you will note that we lifted EBITDA guidance.

Thank you. The next question comes from Jamie Stockton with Wells Fargo. Please go ahead.

Yeah, good evening and thanks for taking my questions. I guess maybe first, I know there’ve been some other questions on the premier brokers. But this number that you guys are talking about continues to escalate. Can you help us think about the leads that you’re getting from these entities maybe from a size standpoint? Are they similar to what you would source the kind of a more direct effort? Are these smaller businesses?I appreciate that you guys have said that something in the ballpark of 70% of the lives that you’re bringing on have at least in some way been influenced by your broker channel. But I guess I’m trying to think about like a year from now or two years from now and some of these newer broker relationships really start to have an impact, is it going to be that they’re giving you leads that are kind of in line with the normal customers that you’ve been signing up in the last year or two?

Yeah. Jamie, thanks. What we’ve been real excited about our broker progress and pleasantly surprised which is just a ramp up and how they’re really engaging with us. They see us as a great way for them to add lives, but also expand their revenue, given the contribution that BenefitsPlace makes with their customers and the fact that their customers will typically buy more when they select BenefitsPlace products and alternative products.The way we look at it is, this last year was a very good year where we moved to brokers created a talent for our business, it allowed us to have a much more efficient cost of sales, where we actually could deploy resources to other parts of our ecosystem, namely medical carriers, providing solution to voluntary providers, so it allowed us to really get more value out of our sales force.Now that we have brokers out there who are generating leads from us. We’re excited for next year to the contribution that don’t make. We don’t have clear line of sight yet on exactly what that looks like. And we’re working with them, planning starting next – basically next week at our sales meeting which will be able to give us really good insight into the contribution that they’ll make to us. But it really remains to be seen how quickly they come online.But I will say 2019 we’re very pleased with the progress and in 2020, we will continue to see an improvement there. But also very important to us is allowing us to scale our sales investment, and essentially growing into multiple sales forces we’ve had material increase in a percent that we spend on sales.

But just from a 5 standpoint rate do the customers that you tend to bring in that are influenced by the broker relationships, do they tend to be kind of average sized customers?

Yeah is very consistent with the customers that we’ve been adding in the past.

Okay.

Every customer needs a broker.

Sure. And then I guess my other question is around the Connecture contribution during the quarter. It sounded like it was a pretty healthy one I think Steve said $9 million maybe a couple of questions there. One, should we think about that as a kind of as a similar contribution in the fourth quarter and if not, is it that the pro services piece, which sounded like it might have been $5 million of that $9 million that going to come down maybe because of some work that they do before open enrollment, but that doesn’t happen during open enrollment?

Yeah, this is Steve to backup I’m really pleased with the Connecture acquisition. I’m pleased from a financial perspective; this is a business that we paid $20 million-plus for and in one quarter it does $9 million of top line. I also mentioned that included some synergies.So you saw for the first time, like both the Connecture folks and the Benefitfocus folks going at the market together and I was pleased with the synergies, I think the business did better together than we would have without apart. As it relates to your question on the quarter – Q3 is that business’ strongest quarter and we expect Q4 to revert back to something similar to what we saw in Q2.

And just to add on that, but from a Connecture point of view there is the economic impact, but actually, most importantly as a strategic impact of their assets and the impact on our business and I really like this Connecture and Benefitfocus as one business. And what we’ve done is, we’ve combined the Connecture assets with our assets for and that’s really created our MarketPlace for Carrier where we use the Connecture front-end rating, quoting and product catalogue with our back-end enrollment and billing solution. And that’s one of the drivers that we have for this carrier pipeline which we’re very positive about.

Okay, thank you.

Thank you. The next question comes from Dan Ives with Wedbush Securities. Please go ahead.

Hi, this is Strecker on for Dan. You touched on a little bit earlier, but can you talk about the three different lives, types of lives and how they performed individually in the quarter? And then just from a high level, how you’re thinking about that trajectory into 2020? And then just anything you’d like to call out or update to BenefitSAIGE would be great. Thanks.

And maybe I’ll – we talked about lives in the aggregate and we ended the quarter at 16.8 million, we’re up 300,000. We feel good about that. That’s kind of in line with our expectations. And then your second question was like how do we look to 2020? I gave a little bit of color at the beginning of the Q&A and also in my comments, and I just want to wait we’ll get much more color after we close these next six weeks. And we’ll come back out with you with some more detailed descriptions at 2020.

Yeah, and I’ll take the BenefitSAIGE question. Yeah and BenefitSAIGE is instrumental to our platform. And in fact, the way we think about our platform is an AI-driven platform. And what BenefitSAIGE is allowing us to do, it allows us to analyze this massive data that we have and proactively reach out to people and help inform them of decisions they need to make.So if you look at benefits enrollment in the past, typically somewhere to go to an enrollment site, they’d enter in their information it’d be a two-week period during the year, and then they’d come back every year for that two-week period. But BenefitSAIGE, it allows us to take this data, analyze it, make recommendations to people on our platform, regardless of the time of the year.So we can reach out to somebody and say, hey, you’ve just surpassed the deductible limit on your insurance policy. So now it’d be a good time to bring on discretionary medical procedures or your travelers just turned 26 years old, this would be a good time to enroll them in their own medical plan or you just got a raise.And now this would be a great time to top off your CD – HSA contribution here on 401(k) contribution. So really allows us to have this proactive two-way relationship with everybody in our platform. So whether it’s through emails or notifications they’re hearing from us with relevant data that has an impact on their lives and their families’ lives.

Thank you. The next question comes from Steve Halper with Cantor Fitzgerald. Please go ahead.

Hi, could you just walk us through the mechanics around the declining deferred revenue on the balance sheet?

Sure, this is Steve. That relates primarily to – well, let me back up. It was many SaaS companies’ deferred revenue is a key indicator of what’s happening in the future with our business, because so much of it happens on a quarterly bill basis or a monthly bill basis. That metric is not as significant.And – but to answer your question explicitly, for our business, most of that relates to professional services for large carrier installs and we have to match the timing of the recognition of that with the install. So it sits on the balance sheet for a while and that comes into the – then it comes into the income statement.Secondarily in the much smaller piece of it, especially as you look year-over-year is, Mercer is treated similar that there some of the legacy Mercer businesses that’s on the balance sheet and then it comes off.

Got it, thank you.

Thank you. The next question comes from Mark Murphy with JP Morgan. Please go ahead.

Hey, good afternoon. This is Matt Coss on behalf of Mark Murphy. Thanks for taking my questions. Steve, of the 300,000 lives added this quarter. How many do you think came from the expanded definition that now includes gig workers? And then I have one follow up.

Yeah. Matt, we don’t give specifics on that. We were excited about the opportunity. We embraced the opportunity. If you think about the focus of the company, it’s connecting buyers the benefits with sellers the benefits. And this cohort of lives needs benefit the same way as all the other ones. And we lump them together and serve them each individually on a tailored basis.

Okay, great. And then I know part of this – so the path of acceleration in revenue growth certainly includes growth of lives on the platform. But I think part of the – the other part of the equation is growth and ARPU. I know it’s still very early in open enrollment, but have you seen any indicators that would make you excited about ARPU growth or these you’re initially optimistic and sort of the voluntary benefits that people are acquiring or just anything on the ARPU side?

Yeah, I’m going to – you can ask me that in 90 days. I’m going to wait for open enrollment to close. I’m going to have my remarks about the quarter and when I have more remarks about 2020 and be happy to talk about that then.

Right, thanks. That’s it for me.

Thank you. The next question comes from Matt Hedberg with RBC Capital Markets. Please go ahead.

Hi, this is Robert Simmons on Matt. So 3Q is usually your biggest selling season and 2Q was much larger for you this year. Has something fundamentally changed there?

No, is actually the reverse. 2Q is our biggest selling season by far and 3Q is an add-on selling season. And as we had a very strong Q2 and actually very strong 3Q as well. So, but Q2 is always traditionally our biggest selling season.

Okay. So last year it was kind of an unusual thing with the $0.5 million then at $0.9 million?

Yeah and last year if you look Q2 was very, very – was much less than this year’s Q2. So actually a lot of deferrals last year in Q2 that split into Q3. But have taken a combination of Q2 and Q3 or in both years, the numbers this year are much, much higher.

Great and can you give any updates on the partnership with SAP proceeding?

Yeah. As we’ve talked about in our strategy, all parts of partnerships are very, very important to us. Whether it’d be brokers or HCM vendors, we spoke extensively about our relationship with Ultimate on the call and we have several others that we’ll be announcing shortly.But of course, SAP is our most important HCM provider and the relationship continues to perform well. SAP is performing well with their SuccessFactors solution and we’re really pleased to be a partner of theirs.

Great, thanks for taking the questions.

Thank you. We have reached the end of the question-and-answer session. I will turn the call over to Mr. Ray August for closing remarks.

Thank you for joining our Q3 earnings call. As I reflect on the past 18 months, our platform shift has unlocked many opportunities. Our network is larger and stronger than ever. Artificial Intelligence is delivering valuable insights and our data asset is much more robust. We are very confident that we will achieve our goal of transforming how benefits are bought, sold and used across the country. This ends our call.

Thank you. This concludes today’s conference and you may disconnect your lines at this time. Thank you for your participation.