BNFT (2020 - Q2)

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Benefitfocus Q2 2020 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Patti Leahy. Thank you. You may begin. Patti Le

Thank you, operator. Good afternoon, and welcome to Benefitfocus's second quarter 2020 earnings call. Joining me today are Ray August, President and Chief Executive Officer; and Steve Swad, Chief Financial Officer. Ray and Steve will provide some prepared remarks, and then we'll open the call up for questions. Before we begin, let me remind you that today's discussion will include forward-looking statements such as third quarter and full year 2020 guidance and other predictions, expectations and information that might be considered forward-looking under federal securities 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 as of any subsequent date. These statements are subject to volatility and uncertainty in the global economy and financial markets in light of the evolving COVID-19 pandemic; a variety of risks and uncertainties, including our continuing losses and need to achieve GAAP profitability; the fluctuation of our financial results; the immature and volatile market for our products and services; recruitment and retention of key personnel; risks associated with acquisitions; the need to innovate and provide useful products and services; our ability to compete effectively; cybersecurity risks; and a changing regulatory environment that could cause actual results to differ materially from expectations. For 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 earnings press release. I'll now turn the call over to Ray.

Well, thank you, Patti, and good afternoon, everyone. I'll start by extending our well wishes to each of our valued stakeholders, including our associates, customers, partners, investors and analysts. We appreciate you joining the call, and hope everyone is managing well through these unusual times. There are two key factors I want to leave you with today. First, we have dramatically strengthened our financial foundation. We are executing well against the cost actions we shared with you last quarter in response to the pandemic. Our decisive actions and strong execution have positioned us to enhance our profitability, generate free cash flow and expand margins. We have also added substantial liquidity, which helps us weather any potential for an extended recession, while providing us flexibility to invest for future growth. This leads us to our second key takeaway. We continue to invest in the business and strengthen our value proposition. We believe our mission, to improve lives with benefits, has never been more important or more necessary. We are executing in high-impact areas, such as helping reduce healthcare costs and enabling health plans to be more efficient. We had several key wins in the quarter, demonstrating the power of our value proposition. Tying these together, we have the right foundation to accelerate future growth and create significant shareholder value. This is built on our strong performance in the quarter, our enhanced liquidity, continued investment in the business and strong execution by our team. All these factors enhance our competitive differentiation. I'll discuss these in more detail. During the quarter, we focused on strengthening our financial foundation to navigate the potential impact of the pandemic. As we shared with you last quarter, the macroeconomic environment and historic levels of unemployment led us to revise our revenue forecast for the year. We have taken swift and proactive steps to improve our profitability and cash flow. We're doing so through aggressive expense reductions and automation that drives operational efficiency and gross margin expansion. During the quarter, we greatly enhanced our cash position through the previously announced $80 million investment from the BuildGroup. The Founder and CEO of BuildGroup, Lanham Napier, has been a member of our Board of Directors since 2014. He now serves as our lead independent director. We are fortunate to have Lanham and his team as investors and business partners. Their investment strengthens our liquidity and represents a strong vote of confidence in our strategy while providing future opportunity to invest and grow our business. We believe we have positioned ourselves to emerge from the pandemic stronger, more profitable and more efficient than before. As Steve will discuss in detail, our second quarter financial performance was better than expected in almost every area. I am extremely proud of our team for delivering these results, particularly in the context of a challenging environment that was unthinkable just 6 months ago. Customer support, onboarding and implementations are all working well. Our associates have risen to the challenge of our new world of work. They maintain high levels of productivity and results. I want to thank them for their engagement and support of one another. Because of them, Benefitfocus is well positioned to serve our customers remotely for as long as necessary. During the quarter, we accelerated our automation efforts to drive a better customer experience and improve margins. One key area of automation is reducing the time it takes to implement, renew and integrate our customers. While there is more to do, I am very pleased with our progress to date. Importantly, the financial health of our customers was better than expected during the quarter. Net benefit eligible lives were flat sequentially and up 6% compared to the second quarter of 2019, which is also better than anticipated given our nation's record level of unemployment. That said, this environment has created additional stress for HR administrators, which in turn is causing longer than typical close times. Turning to our second key takeaway, our continued investment in the business. During the quarter, we strengthened our value proposition, enhanced key product features and extended our competitive differentiation. For example, this quarter, we made a significant upgrade to our existing Health Insights solution. This provides HR administrators with an easy-to-use AI-enabled tool. It helps them better understand which type of medical claims are driving up their costs. It gives employers a set of actions that improve their medical spend relative to industry benchmarks right within the administrator's workflow. This added transparency and ease of use should be a welcome innovation for HR administrators, particularly during these difficult times. Today, our Health Insights products leverages our massive differentiated data assets, including integrated medical claims data. It provides transparency and helps identify cost mitigation strategies for employers and their employees. With these insights, employers can view and benchmark key healthcare cost drivers. They can also identify potential solutions to improve health outcomes. This includes emergency room use, high cost claimants, prescriptions, preventive care and chronic conditions. Compared to industry averages, when an employer implements our Health Insights solution, we see significantly higher participation in high deductible health plans and supplemental benefit products. This saves self-funded employers and their employees' money while also ensuring that employees are covered in times of need. Our Health Insight products also gives employees cost transparency based on their historical and expected benefit usage. This helps them better understand their planned choices and personal financial impact. It also results in more complete and better coverage for the existing number of people choosing high deductible health plans to reduce their monthly premiums. Our compelling value proposition enabled us to close a number of large employer deals and add a new health plan in the second quarter. We also continue strengthening our relationship with premier brokers such as Mercer and Aon. We have enhanced our partnership with Aon, one of the top U.S. brokerage companies. By offering them a greater choice of options, Aon is better able to serve large employers. Working closely with Aon's voluntary benefits and consulting team, our partnership recently added its first employer customer. I'll now share a couple of examples from a recent employer win and a health plan win to illustrate the power of our value proposition. At the highest level, our employer value proposition translates to lower costs, reduce complexity, better communication and higher employee retention. One of our employer highlights included a joint win with Mercer Atlanta for the GIOA Benefits Trust. This is the association that will be representing health benefits for a large majority of nationwide Chick-fil-A franchise operators. Our consultative approach was a key to winning this contract, educating the client on how our system automates the complex process of benefits administration, specifically eligibility and dual employment by multiple operators. Notably, our platform rollout, Chick-fil-A's full and part-time workers to access and choose their own voluntary benefits from our benefit catalog. For many of these workers, it will be the first time they can access affordable voluntary benefits. This is a great example of realizing our mission to improve lives with benefits. If you visit a Chick-fil-A, you've experienced firsthand their high-quality service. It's gratifying to know those operators and team members are now able to supplement their medical benefits with a compelling mix of affordable voluntary benefits. Our data suggests that offering key voluntary benefits correlates to higher employee retention, which contributes to lower employer costs. I am also happy to report that all institutions within the University of Texas System are now live and are currently going through open enrollment. This implementation represents 125,000 UT System employees and retirees who are now reaping the benefits of our state-of-the-art enrollment system. We are proud to be improving their benefits journey, and in the words of their executive director of benefits, deliver phenomenal member communications. That kind of robust communications and our reliable user experience is increasingly important for their members and employees. This is especially true in today's remote work environment and with the ongoing uncertainty we all face due to the pandemic. Moving to health plans; our value proposition for these customers is about driving lower costs, enhancing member and broker engagement, improving operational efficiencies and enabling digital transformation through our end-to-end quote-to-pay capabilities. We continue to have good traction in our pipeline as health plans view our end-to-end solution as a strategic asset, an asset that helps them grow their revenue while controlling costs. Our recent win with the new health plan, Medica, illustrates the value of our offering. Medica is a multibillion-dollar health plan, looking to grow their market share within the 9 states coverage area in the Midwest. With our platform, Medica will be able to enroll and bill for their group markets on one platform regardless of state or line of business. The Benefitplace solution for health plans will modernize Medica's product distribution and enrollment solutions. It will also consolidate systems to improve satisfaction and engagement for brokers, employer groups and members. Other processes and technologies leveraged by health plans today lack the integration necessary to complete a cohesive, single, quote-to-pay workflow. Our solution removes the confusion and duplicate processes among their customers. While the initial opportunity with Medica was to improve operational inefficiencies, our relationship is expanding. We are helping Medica grow into new markets with a modern, fully digital, end-to-end quote-to-pay solution. As we work to bring our platform to Medica's brokers, employers and members, we expect the revenue contribution to begin in the fourth quarter. As an aside, I'd like to report that like most of the opportunities we closed in Q2, this was initiated, managed and closed 100% virtually. We are growing and succeeding by helping our customers grow and succeed. As health plans accelerate their digital transformation, increase operational efficiencies and engage with members in a more meaningful way, our end-to-end solution is a strong differentiator that sets us apart. In closing, we remain focused on increasing the value of our platform and improving profitability. We are extremely well positioned to manage through the current macro environment and continuing investing in the business to drive long-term growth. We believe we have the resources, market leadership and technical advantage to exit the pandemic stronger and better positioned. And we are confident that we are taking the right steps to drive near and long-term shareholder value. With that, Steve will now take you through our financials and outlook in more detail.

Thank you, Ray. I'm going to start by sharing with you an overall sense for how the business performed this past quarter during the pandemic. I'll then cover Q2 financial highlights, Q3 guidance and our updated full year guidance. From a high-level perspective, the health of our customer base and the impact of unemployment were better than expected, resulting in higher than expected net benefit eligible lives, revenue, adjusted EBITDA and free cash flow. In the current environment, as Ray mentioned, we had several key wins from virtual selling activities, but we also are seeing that it's taking longer than normal to close deals. This appears to be a matter of timing rather than lost opportunity, and we are working hard to bring those deals in and close them before the busy open enrollment season begins. While most implementations are proceeding as planned, we had one health plan customer put their work on hold due to the pressure they are seeing from a weaker SMB market. We had expectations that there would be some implementation disruption and hope as we move forward, it remains limited and contained. So overall, from my perspective, I'm quite pleased at this point that our customers and business are weathering the pandemic storm better than originally estimated. Turning to the second quarter. Our results exceeded my expectations. Total revenue for the quarter was $62.2 million, better than our guidance of $55 million to $58 million. This outperformance was primarily due to higher than expected lives on our platform. However, compared to the second quarter of 2019, our total revenue was down 9%, mainly driven by lower subscription and professional services revenue. Subscription revenue exceeded our expectations this quarter due to the financial health of our customers being stronger than planned. While it was down 8% compared to the same period last year, this is primarily due to the runoff of our legacy agreement with Mercer. Platform revenue, which represents revenue from voluntary benefits, grew 13% year-over-year to $6.1 million. This performance was also better than expected against the backdrop of the pandemic. Professional services came in as expected for Q2 at $12.3 million, down 21% compared to the same period last year. Most of this decline is due to fewer health plan change requests and a shift to focusing on higher-margin professional services work. On a GAAP basis, gross profit was $31.8 million, representing a gross margin of 51.1%. On a non-GAAP basis, gross profit was $32.7 million, representing a gross margin of 52.6%, which was down about 100 basis points from last year, primarily due to lower software gross margin. On a non-GAAP basis, our software gross margin was 63.1% for Q2 2020 compared to 70.8% in Q2 of last year. This decline, which was expected, is a result of reduced high-margin Mercer revenue. We expect software gross margin will improve as we progress through 2020 and the full impact of our cost management actions and automation efforts continue to take effect. Professional services gross margin on a non-GAAP basis was 10.2% for the quarter, 13 points better than Q1 and 15 points better than prior year. We are working with our customers to get fairly compensated for our services and are pleased with our progress in this area. Going forward, we expect continued gradual gross margin expansion as we improve processes and our automation efforts take hold. In Q2, adjusted EBITDA was $9.3 million, representing an EBITDA margin of 15%. This exceeded the high end of our guidance and compares favorably to roughly breakeven in Q2 2019. Our adjusted EBITDA was positively impacted by higher-than-expected revenue and the impact of cost reduction measures we took late -- in late April. We expect some of the favorability to reverse in Q3 as we incur sales costs for bookings that shifted from Q2 to Q3. Adjusted EBITDA excludes $5.6 million of restructuring charges. GAAP operating loss was $6.1 million, and GAAP net loss per share was $0.38. This compares favorably to GAAP operating loss of $9.8 million and GAAP net loss per share of $0.46 in Q2 2019. Now, let's move to the balance sheet and cash flow. We ended the quarter with a strong cash balance of approximately $183.5 million. Our cash balance is up substantially from last quarter as a result of the BuildGroup's $80 million investment, which closed in early June. In addition, during the quarter, we paid off the $10 million that was outstanding on our line of credit and now have the full $50 million line of credit available to us. Our enhanced liquidity allows us to continue to make prudent and disciplined capital allocation decisions and opportunistic investments. This added liquidity provides a buffer and helps us weather economic uncertainty, even if it lasts longer than currently expected. Early in the quarter, we purchased approximately 36,000 shares of our common stock at a cost of $285,000, representing an average price of roughly $7.98 per share. Since initiating our share repurchase program last year, we have purchased slightly more than 1.1 million shares for approximately $9.7 million at an average repurchase price of $8.71 per share. Approximately $10.3 million remains available under our share repurchase program. Moving on to free cash flow. We generated $6.2 million of free cash flow in Q2. Free cash flow is a non-GAAP measure that we define as cash provided or used in operations, less purchases of property and equipment and excluding restructuring costs. With this strong performance, we expect to deliver sustained levels of positive free cash flow for the remainder of the year. Turning to Q3 guidance. We are targeting Q3 2020 total revenue of $59 million to $62 million and adjusted EBITDA to be in the range of $6 million to $9 million. We expect non-GAAP net loss of $6 million to $3 million, which represents a non-GAAP net loss per share of between $0.21 and $0.12 per share based on 32.3 million [ph] basic and diluted weighted average common shares outstanding. Looking ahead to our full year 2020 guidance, our performance in the quarter allows us to narrow the range of our revenue outlook from $250 million to $270 million to between $260 million and $270 million. We are also increasing our EBITDA guidance from $25 million to $35 million to $35 million to $40 million due to improved margins, cost reduction actions and expected automation efficiencies. We are also raising our free cash flow guidance. We had originally expected to utilize between $10 million and $15 million to fund operations and CapEx. We now believe we will generate positive free cash flow between $10 million and $20 million. This revised guidance reflects our strong Q2 results and a brighter outlook on collections. Our EBITDA and free cash flow guidance excludes the impact of restructuring charges. In conclusion, we are pleased with our operating results, given these uncertain times. We are delivering our offerings in a digital world and are implementing all of the necessary business processes to bring new customers onto our platform without ever physically leaving their homes. Our expectations to generate higher levels of EBITDA and free cash flow, combined with the substantial level of liquidity currently on our balance sheet, provide ample financial flexibility that will benefit us through this pandemic. We acknowledge the current environment not only makes forward projections difficult but will likely cause short-term pressure on revenue growth over the next few quarters because businesses are moving at a slower pace and our visibility is lower than normal. We will continue to closely monitor the timing of bookings, traction on our platform business and the macroeconomic recovery, and we'll update you accordingly. Most importantly, we have the people, technology, products, data, scale and financial resources to profitably grow our company and deliver increased shareholder value over the long-term. Thank you. Now I'll turn it over to the operator for questions.

[Operator Instructions] Our first question is from Alex Sklar with Raymond James.

Ray, you gave a couple of examples in your prepared remarks. But based on the flat lives commentary in this environment, could you just give a little bit more color on the Q2 selling season? And how the results of that are setting you up for growth in the back half of the year and into next year?

Yes, sure. Thanks, Alex. Appreciate it. As we looked at the impact of COVID and what it was going to do to the economy and the fact that we have -- we get paid basically through the number of people on our platform and the number of people that pay us to use our platform, it became very obvious that we had to take swift and aggressive action to make sure that we were driving the right activities in our company. As we did that, one of the things that was very, very important was that we had a very solid foundation for our business as we entered into this whole season. So as we entered into Q2 on our selling season, the market is responding very, very well to our overall value proposition. And if you look at our mission of improving lives with benefit, it became very apparent that this mission really is more important now than ever for the employers we serve, their employees, their families and the health plans that are our overall customers. And what we're hearing back from the market is that our value proposition is extremely strong. Companies are looking for the ability to communicate with their employees. They're looking for the ability to demystify the complexities of healthcare. They're looking to save money, and they're looking to offer benefits to their employees, so they can keep those employees motivated, and motivated employees increase customer retention. And I pointed to a couple of great examples in the script about where we really saw some wins in the marketplace. One of my favorites is the Chick-fil-A opportunity, where our solution is allowing people to buy benefits and get benefits more than they ever had in the past. So it's really making an impact to both Chick-fil-A and the employees at Chick-fil-A. On the health plan perspective, health plans are really focused on serving their members, and they're looking to drive operational efficiency, organizational effectiveness, and they're telling us our platform is doing just that. We announced the signing of Medica. That's our fourth major health plan transaction in as many quarters. So the health plans are really seeing our solution, our value proposition as very, very needed and something that they're very much interested in. So as we look at the selling season, we exited the selling season where our company has never been on a stronger financial footing. We're seeing expanded margins. We've really feathered our balance sheet with the BuildGroup -- with the BuildGroup investment, and that's giving us the ability to play offense during these uncertain times. But with that said, we really are in an unprecedented time. We have limited visibility. We really don't know what we don't know. None of us do when we look at the overall economy. Our buyers are distracted. The buyers of our solution, whether they be health plans who are working on serving their members or HR administrators who are working on servicing their employees, they just reacted and focused on that area, which is very important to all of them. And what this is doing is leading to longer sales cycles for us as a company. So as an overall company, we're really controlling what we could control. We are having positive free cash flow, EBITDA margin expansion. And the things like having a very high gross margin for our professional services puts us in a very strong position. So going forward, we're cautiously optimistic about the opportunity. We're keeping a close eye on the overall market. We're staying very, very close to our customers. We're continuing to invest in innovation because we really believe that in the near term, that we'll be well positioned both with our expanded EBITDA to accelerate our revenue growth.

Okay, great. And then, I'm not -- Ray or Steve, on this one, a couple of parts to this, but the 4 health plan deals that you've kind of signed up in the past 9 months or so now including Medica, can you just help us understand the expected progression of getting those lives onto the platform? And I think I heard you say Medica will be offering your voluntary benefits. Are any of the other plans -- health plans also going to be offering Benefitplace this selling -- this season? Thanks.

Yes. We're very pleased with what's going on with health plans. We're really uniquely positioned in that marketplace, and as I said, really proud of the four health plans have chosen Benefitfocus over the last four quarters, which is really a terrific run for us as a company. As a healthcare -- as health plans are taking care of their members, as health plans are really thinking about how can they do more with less, healthcare costs are rising, they have a tremendous amount to do as they're really compelled by the operational efficiency that our system is providing them. And in the case of Medica, they really see our system creating growth for them. They serve in nine different states, and they see this as an opportunity to grow and enhance their overall revenue proposition. So our value proposition for these health plans is very, very strong, and we're seeing that, as you mentioned, that our solution allows them to offer voluntary benefits to their members, and many of our health plans are offering that capability as well. The four health plans that we added over the last four quarters, all the implementations are on track with one exception. It's the company that Steve noted that they paused their implementation for -- hopefully, for a short term and working on some company difficulties. But every single implementation is going great, and we remain extremely optimistic about the health plan opportunity.

Yes. And you should see those -- this is Steve. You should see those start going live in Q4.

Our next question comes from Sean Wieland with Piper Jaffray.

Just wanted to maybe dig in a little bit more on the impact of the lengthening of the sales cycle. If you could give us maybe some quantitative measures around that? And are you seeing that there's a risk for some of these sales cycles to possibly be delaying the deal into the next benefit year where you lose this open enrollment cycle?

Sean, this is Steve. Yes, we are seeing a lengthening of the cycle. I will say it was within the context of what we modeled. You see the in-year revenue impact didn't -- in-year revenue wasn't impacted. My comments were more compared to our normal cycle, it's longer, not compared to what we estimated in COVID. And as I mentioned in my comments, they're mostly -- they look to be slippage, not losses. And we are seeing a number of instances where something moved out of one quarter into the other and then it closed. And so, I actually -- I can't answer explicitly your question with math because the deals are still coming in. In this case, that deadline is a bit -- time is our friend. Time will motivate closures between now and, let's say, the end of August. And I'll have a better sense to answer your question after that. I will say relative to our normal cycles, we are seeing it going longer.

Sean, one of the things that was pretty interesting during this process is we had some deals that slipped out of Q1. In fact, one deal we thought we lost that we kind of wrote it off as lost was an airline. And this airline, I thought we wouldn't see them again, and now they're coming back to an important part of our pipeline, and we're looking to close them pretty soon here. So what that's really telling us is that our solution is needed. So regardless of the company, regardless of their financial situation, they have this need to communicate with their employees. They have this need to focus on looking at healthcare cost. They have a need to demystify the complexity of healthcare. And so, we have a much needed system, and we're really pleased to see the activity. So it makes us feel good about the opportunities.

Okay. And then, just a quick one on the book-to-pay capability. Do I hear it right that Medica signed up for that? And if you can maybe update us on the number of plans that have signed up for that?

This is Steve. Medica signed up for an enrollment product that included voluntary benefits, and there is some upsell opportunities still left with that account to extend even deeper our product offer.

Our next question comes from Matt Coss with JPMorgan.

I guess as you look at the performance in Q2 was really better than you feared, being better than guidance. What were some of the, I guess, elements that surprised you to the upside? And then when you're thinking about the year last quarter, what elements that you're worried about sort of still remain with us?

Matt, this is Steve. The health of the customer base -- of our customer base was better than expected. And as I said, that shows itself through more lives on the platform, which also shows itself for more customers paying us subscription revenue. It also came through in collections that were above expectations. Our DSO actually declined sequentially, which was not expected. And so -- and if you kind of double-click underneath that, it's their employees -- our customers' employee base was less impacted by unemployment than we had anticipated. And so that's the core. And then, like, looking forward, we made adjustments to our guidance to reflect our best estimates as we close out the year. As you know, these are still challenging times and visibility is low. But we do have now one full quarter under our belt and -- which was up from 0 quarters under our belt the last time we spoke. The other thing is -- yes, there's one other topic as we go into the half, the second half, is we still got Benefit Catalog that the voluntary Benefit Marketplace, we've got that coming in Q4, and that will be a big data point. And the back half of the year assumes a range of outcomes with that offering. Again, we've never done a voluntary Benefit Marketplace in a pandemic, but those are kind of top of mind as I finish out the year.

[Operator Instructions] Our next question is from David Larsen with Verity.

Congrats on a good quarter. Can you talk a little bit about your ability to deploy your solutions in a remote manner? Like, do you actually have to be on-site or not?

Yes. No, thanks for that. Our solution is 100% in the cloud SaaS-based solution, which is you don't have to be physically present to configure it. The -- one of the things that our customers really enjoy is the fact that it doesn't have a footprint at their company. And our customers can take advantage of our solution no matter where they are today. In the script, I talked about UTS and the 125,000 members who are using our solution today and the really phenomenal increase in communication and the communication capabilities that all the members of UTS are now experiencing. And all those members are probably in 125,000 different locations today. So our solution can be deployed remotely. I'd also say that the different health plans that we're implementing right now, all those implementations, of course, are being done and conducted remotely. And all the deals that we closed, the many deals in Q2, were done 100% virtually. So, we're extremely strong at either be virtual selling, virtual implementations or people utilizing our solution from any device, whether it's a desktop or web browser or a mobile device.

Okay, great. And then, you usually give an update on like the number of brokers that have joined the platform. Any thoughts there? And then when do we actually lap the unfavorable impact of the change in the Mercer contract?

Yes. I'll handle the first part of that and pass it over to Steve on the Mercer contract. But from a broker perspective, brokers are -- we've really institutionalized where they're an important part of our business today. They're embedded in all our business processes, are embedded in our go-to market. And we really think about those in a joint and unified way. In this quarter, we've talked about the Chick-fil-A opportunity. That was an opportunity that we went to market with, with Mercer in their Atlanta office. We talked about our expanding relationship with Aon. We've continued to add a number of brokers, but it's really part of our flow. And one of the things that we're seeing when it comes to brokers is we have the exact same goals as our brokers. We are very focused on making sure we're giving the right products to the employers and their employees and making sure that we're really focused on the rising cost of healthcare and using population health with their analytics, artificial intelligence to really drive down the cost of healthcare for all of our customers on the employer side. And that's exactly what brokers are focused on, so we're 100% aligned with them. So we see them as a key and important part of our strategy, our go-to-market and our implementation.

Yes. And this is Steve, with respect to Mercer. Just to remind you that 2019 Mercer revenue was like roughly $26 million. In 2020, I mentioned in an earlier call, was pacing more toward $8 million. And so that headwind is -- will be behind us, that significant headwind. I can't give you precision on 2021's Mercer numbers yet because we'll get estimates from them on what's going to be on our platform in 2021. But I can tell you that the level of headwind will not be anything like what we're seeing this year.

Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn the call back to Ray August for closing remarks.

Well, thank you, operator. And I'd like to thank all of you for joining us this evening. Benefitfocus has a strong financial foundation, expanding margins and is generating free cash flow. This solid foundation gives us the ability to weather a prolonged pandemic, but it also allows us to go on the offense and invest to grow our business over the long-term, driving shareholder value. I would like to thank our team for their commitment to our customers and to one another. Together, we will continue to work hard to drive strong performance. We look forward to updating you on our progress next quarter. Good night.

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