Benefitfocus Inc (BNFT) 2014 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Benefitfocus second-quarter 2014 earnings call.

(Operator Instructions)

Thank you. I would now like to turn the call over to Milt Alpern, CFO of Benefitfocus. You may begin.

Thank you, operator, and good afternoon, everyone, and welcome to Benefitfocus' second quarter 2014 earnings call. Today we will be discussing the operating results announced in our press release issued after the close of market today. I'm Milt Alpern, CFO of Benefitfocus, and with me on the call today is Shawn Jenkins, our President and Chief Executive Officer.

As a reminder today's discussion will include forward-looking statements such as third quarter and full-year 2014 guidance and other predictions expectations and information that might be considered forward-looking under federal securities laws. These statements reflect our views as of today only and should not be considered as representing our views as of any subsequent date.

These statements are subject to a variety of risks and uncertainties including the fluctuation of our financial results, general economic risk, the early stage of our markets, 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 10K which is on file with the SEC and our other SEC filings.

During the course of today's call we will also refer to certain non-GAAP financial measures. You will find important disclosures about those measures in our press release. With that let me turn the call over to Shawn, and then I will come back at the end to provide details regarding our second quarter results as well as our updated guidance for the third quarter and full-year 2014. Shawn?

Thanks, Milt, and thanks to all of you for joining us today. Benefitfocus performed at a high level in the second quarter with strong financial results that exceeded the high-end of our guidance range from both a revenue and profitability perspective. The total revenue for the quarter was $32.3 million, a 33% increase year-over-year.

Both of our business segments contribute to a strong revenue growth in the quarter with carrier revenue was up 17% and employer revenue increasing by 59%. During the quarter we had strong sales activity in both segments of our businesses including a record 70 new employer customers added. This is a significant increase compared to the 25 new customers we saw in the first quarter of 2014 and the 44 new customers added in the second quarter of 2013.

Our momentum in the marketplace clearly indicates customers are focused on transforming their benefits technology to provide a more comprehensive benefits experience for employees while also helping to bend the cost curve and bring greater cost certainty to one of the employer's largest expense items. We are in the early stages of this transformation, and our 488 employer customers represent less than 3% of the 18,000 large employers in the US.

The move to the cloud is a truly massive and generational platform shift in the IT landscape that is having a profound impact on how customers are deploying and managing their software environments. We have seen the impact in the cloud change the game in a number of areas of human resources department already including payroll, travel and expense management, recruitment and performance management.

We are seeing the same dynamic incur in the benefits administration market where customers are embracing the significant improvement our cloud-based benefits administration platform provides. We are uniquely positioned for success in this market given that our one platform serves both insurance carriers and employers. This marks the first time that technology has been the disruptive factor in the massive benefits markets. In the past things like regulatory change or a shift in benefit structure like the advent of HMOs a generation ago are the driving force for change in the industry.

However, these changes never fundamentally altered the process of shopping or enrolling for benefits. It not empower the employee to control their benefits experience. Benefitfocus' cloud-based platform is redefining the industry and bringing an entirely new paradigm of benefit shopping and management. With our solutions an employee is able to become a true consumer and take control of choosing the benefits package that is right for their specific circumstances.

This can include a much broader array of voluntary benefits than traditional benefits administration solicits providing. We are also able, through our big data benefit and for managed products to provide employees individualized claim and expense data that they can use to compare many health plans. I think access to this data is also a big benefit to the employer who now has the full lifecycle of data that can be leveraged to drive cost savings through more efficient plan design and administration.

Our platform is highly differentiated, because we are not wedded to the traditional structure of the benefits market. With our solution customers are able to fully embrace change and harness the impact of the cloud and defined contribution models to materially enhance their benefits offerings and cost structure. We see this difference resonating in the market in our direct sales effort and our private exchange marketplaces. One great example is the Mercer Marketplace which is built on the Benefitfocus platform. The Mercer Marketplace is seeing significant customer momentum.

Mercer's Marketplace is unique in that it is able to offer plans to both fully insured and self-funded customers which provides greater flexibility and opens the marketplace up to a broader group of customers. Our platform also provides unique flexibility to enable Mercer to introduce a new voluntary benefits only exchange. This lets the customers begin the process of moving to an exchange now while continuing to do internal work necessary to prepare for moving core benefits into the exchange at a future date.

Another clear business advantage of our private exchange marketplace channel is that expands our ability to bring the Benefitfocus platform to the mid market for customers with 100 to 1,000 employees. In this market segment we see a meaningful opportunity to enable employers of this size to provide a fundamentally better benefit shopping and administration experience for the employees. Reaching these employers through this channel is an attractive selling model that allows us to leverage our partners.

The success we are seeing in the mid market demonstrates that our platform is highly flexible and scalable. It can serve the mid-market, large market, and jumbo market on the same technology platform. As we mentioned we had terrific sales activity during the quarter with 70 new employer customers including Brookdale Senior Living, the nation's largest senior living provider with more than 50,000 employees; Forever 21; Hard Rock Cafe; McGraw-Hill Education; Owens Corning and Office Depot among others.

Office Depot is a benchmark customer win who will be using the Benefitfocus HR InTouch platform to provide a benefits communication portal for their more than 60,000 employees. This is an exciting win that demonstrates our ability to effectively compete and win in the jumbo employer market. We are seeing large customers look to utilize our communication portal as a first step in engaging with Benefitfocus as they adapt their long term benefits shopping and administration needs. And we believe this positions us well to secure a broader scale for these customers in the future.

Another exciting customer win in the quarter was Forever 21, a family owned company that is the nations fifth-largest specialty retailer with over 30,000 full-time and part-time employees. Retail is in one of the sectors most impacted by the changing regulatory environment given their large number of part-time employees who traditionally have not been benefit eligible but now have options available to them through the Affordable Care Act.

By deploying HR InTouch, Forever 21 will have an elegant benefits administration platform that can provide their highly distributed employee base with engagement tools accessible across the web and mobile devices. In our care business we are seeing a lot of great activity which has helped drive growth to a multi-year high. We are seeing carriers embrace the emerging consumer driven benefits landscape, and they are quickly working to upgrade their IT infrastructure to fully capitalize on this opportunity.

We also remain hard at work from a product perspective to bring exciting new functionality to the market that will generate additional value for our customers and growth opportunities for Benefitfocus. During the quarter we host our annual One Place user conference, the premier event in benefits management industry which is focused on our concept which we refer to as benefits for the whole workforce.

As the Forever 21 example illustrates, companies today need a benefits shopping and administration platform that can extend to their entire workforce including part time, flex workers and retirees. During the quarter we made a number of significant product announcements. I'd like to share four of them with you as they provide a view into our product momentum.

First is the new consumer marketplace that enables insurance carriers to provide individual consumers the ability to determine subsidy eligibility, compare plan options, estimate costs and apply subsidies for qualified health plans inside a single work flow. The increasing complexity of the benefits eligibility under the Affordable Care Act presents new challenges for both consumers and carriers, but we have extended our platform to provide a world-class shopping experience to these consumers.

Second, we introduced a major new design of the benefits administration role within our Benefitfocus marketplace solutions. This provides administrators with a superior user experience that utilizes date digitalization, information analysis and real-time reporting dashboards. We designed this user-friendly and intuitive experience by listening to our customers and watching how benefits administrators were using our product, so we could make sure our new design brought the information they needed most directly to their fingertips across any device.

Third is the new mobile experience that includes significant additional capabilities for our HR InTouch mobile app including the ability to upload benefit related documents from a mobile device and convenient access to employees' important benefits information. We refer to this as all your benefits in your pocket.

And fourth, we announced our enhanced and expanded analytics capabilities that enable companies to take full advantage of their eligibility, enrollment and claims data. Our new cost share estimator allows employers to predict the direct cost of making plan design changes in order to more effectively allocate budgets and better serve the needs of their whole workforce.

There's a lot of additional functionality that we are developing and that we will be introducing in the coming quarters. And emerging here and that is showing real promises is the continued growth in the number of third-party apps available to the Benefitfocus platform. As we continue to expand there's an active and growing group of third-party benefit providers including Transamerica, PayFlex and Workforce Solutions who are looking to leverage our reach into the 23 million individuals that we support.

We expect to see additional apps become available on our platform in the coming quarters, and we see a potential meaningful opportunity to monetize this expanding ecosystem over time. As we outlined for you at the beginning of the year, in 2014 we are making incremental investments in three specific areas to better position the Company for future growth and profitability. They are increased player sales capacity and marketing initiatives, private exchange marketplaces and our third-party implementation program.

We made great progress across all three initiatives during the quarter including hiring our first group of implementation trainers and beginning the certification process for our inaugural class of implementers. We are on track to have our first group of certified implementers in the field by the end of the year. Finally, I'm excited to announce two changes within our senior management team that will position the Company to deliver continued growth and improved profitability over time.

First, Andy Howell, our current Chief Operating Officer, will be undertaking a new role as Benefitfocus' Chief Commercial Officer. In this new role Andy will oversee all of our sales and marketing functions with a focus on driving significant, sustainable long-term growth.

Andy has been a valued member of our senior management team since 2007 and will leverage his great experience with our customers and partners to generate success in this exciting new role. Secondly, Ray August has joined Benefitfocus to become our new Chief Operating Officer. In this role Ray will oversee all of our operational functions, customer service support efforts and implementation efforts with a mandate to ensure the organization is efficiently scaling as we become a much larger company.

Ray has an impressive background including serving as the general manager for the financial services and insurance division of Computer Sciences Corporation, where he led a multibillion dollar organization in annual revenue with over 10,000 employees around the world. These two senior management changes will enable Benefitfocus to scale more quickly and allow me to focus more of my time working on our future product road map and building out our partner eco-system.

I feel that this focus on new product pipeline will be a powerful advantage for the Company as our customer base grows in the coming years. We have an incredible customer community that is active with fantastic ideas for new products, and we have the best software designer and engineers in the industry. It is an exciting time to be innovating with our customers and our engineering team.

To summarize, Benefitfocus delivered strong second-quarter results and is well-positioned to continue that momentum in the back half of the year. We are seeing significant customer demand in both our carrier and employer businesses, and we see a long runway of future opportunities. We continue to make the investments necessary to ensure we are well-positioned to further extend our clear leadership position in the multibillion dollar cloud-based benefits management market.

But before I turn over to Milt, I'd like to congratulate all of my fellow associates in Benefitfocus for once again being recognized as one of the best places to work. It is such an honor to work with all of you. Congratulations. With that let me turn it over to Milt. Milt?

Thanks, Shawn. We're very pleased with our second-quarter performance. It's exceeded our expectations across all key metrics. I will begin by reviewing the details of the financial performance. And then I'll finish with our updated guidance for the full year 2014 as well as the third quarter. Total revenue for the second quarter was $32.3 million an increase of 33% compared to the second quarter of 2013 and above the high end of our guidance range of $31 million to $31.5 million.

The revenue outperformance in the quarter was driven by the underlying momentum we are seeing across both of our business segments. Breaking revenues down further, software subscription revenue was $29.8 million representing 92% of total revenue and up 32% year-over-year while professional services revenue was $2.5 million representing the remaining 8% of total revenues and up 50% year-over-year.

Looking at revenue by segment employer revenue for the quarter was $14.3 million up 59% compared to the year ago period, while carrier revenue was $18 million up 17% from the year ago period. Our employer business represented 44% of total revenue in the second quarter compared to 37% from the year ago period. We continue to see our revenue mix shift towards our faster growing employer business, which we believe is highly underpenetrated and represents a significant growth opportunity.

Let me now review the supplemental metrics and report on a quarterly basis. We ended the quarter with 488 large employer customers, an increase of 140 compared with 348 in second quarter of 2013 and up from 418 at the end of last quarter. As a reminder, the second and third quarter are typically our largest selling quarters as customers look ahead to the upcoming open enrollment season.

We also ended the quarter with 43 carrier customers consistent with the end of Q1. Throughout the second quarter we saw strong sales activity within our installed base, and we continued making progress with implementation of the six new carrier customers we won in the recent quarters. Our software revenue retention rate was once again greater than 95% in the second quarter, which we believe reflects the significant value our platform generates for our customers.

Moving down to P&L, I'll start by discussing gross profit on an adjusted basis which excludes stock-based compensation, depreciation and amortization of acquired intangibles and amortization of capitalized software. Adjusted gross profit in the second quarter was $13.7 million or an adjusted gross margin of 42%, down from a 49% adjusted gross margin in the year ago period. As a reminder we recognize expenses for professional services as incurred, but defer the revenue until our customer is live in the Benefitfocus platform.

Professional services revenue is then amortized over a 10 year customer relationship period. Now if we had recognized professional services revenue as delivered during the second quarter, instead of the customer relationship period, our adjusted gross margins would have been approximately eight points higher. We believe that this disclosure gives investors better insight into the profitability of business by aligning our professional services revenue and expense in the period in which they are occurred. And we intend to provide this view of gross margins on a go forward basis.

The decline in adjusted gross margins reflects a significant demand we [experience] from our solutions and the growing number of implementations we are undertaking. In addition to the professional services impact noted above, in the second quarter we also made meaningful investments in our customer services organizations to scale that group to successfully service our growing number of employer customers and prepare for the upcoming opening enrollment season.

This impacted software margins by several hundred basis points in the quarter, though we will begin to see these margins expand as we continue to leverage these investments. Over time we expect these engagements will drive incremental subscription revenue as more lives or brought onto the platforms. We also expect the creation of our third-party implementation ecosystem to be a driver of future gross margin expansion.

Were confident in the scalability of our business model and our ability to achieve and reach our long-term gross margin targets. Turning to operating expenses, on a non-GAAP basis, excluding stock based compensation and amortization of acquired intangibles, sales and marketing expenses were $13.7 million, an increase of 30% compared to the second quarter of 2013. Our R&D expenses were $10 million, an increase of 76% compared to the year ago period, and G&A expense were $3.4 million, up 31% compared to the year ago period. Please note that non-GAAP G&A expenses excludes $424,000 of one-time yield costs associated with our recent secondary offering.

Adjusted EBITDA was a loss of $3.5 million or a negative 42% of revenue. This is better than our guidance of an adjusted EBITDA loss of $15 million to $15.5 million and compares to an EBITDA loss of $6.8 million in the second quarter of last year. As we have mentioned in the past, our EBITDA margin reflects the increasing investments we are making in our sales organization and products in order to capitalize on our leadership position in this multi-billion dollar market.

We believe these investments will position the Company for continued significant long-term growth and will drive increased shareholder value. As the growth of our employer business model reaps over time and our business achieves greater scale, we continue to believe that we can achieve our adjusted EBITDA target of 20%. Non-GAAP net loss per share was $0.62 based on 25.2 million weighted average shares outstanding, better than our guidance of a loss of $0.70 to $0.73 per share and compares to a per share loss of $0.41 on 21.3 million pro forma weighted average shares outstanding in the year ago period.

Looking quickly at our GAAP results, gross profit was $11.3 million, an operating loss of $17.4 million, and our net loss per share was $0.72. Turning to the balance sheet, we ended the quarter with cash and cash equivalents and marketable securities of $71.7 million. This is a decrease from $75 million at the end of the first-quarter. I would now like to finish with our guidance for the third quarter and full-year 2014.

For the full-year we are increasing our revenue forecast to $133.6 million to $135.6 million, which equates to year-over-year growth of 28% to 29%. We are targeting an adjusted EBITDA loss of $49 million to $51 million and a net loss per share of $2.35 to $2.42 based on 25.2 million weighted average shares outstanding. Turning to the third quarter we are targeting revenue of $33.5 million to $34 million which represents year-over-year growth of 27% to 29%.

From a profitability perspective we expect an adjusted EBITDA loss of $14.8 million to $15.3 million and a non-GAAP net loss per share of $0.70 to $0.72 based on 25.4 million weighted average shares outstanding. In summary, as we've said, we're very pleased with our performance in the second quarter and the strong continued demand we are seeing in both of our business segments.

We believe the investments we are making will position Benefitfocus to be a long-term winner in the dynamic, multibillion dollar market opportunities we are in the early stages of targeting. With that, we're now ready to take your questions. Operator, please begin the Q&A

(Operator Instructions)

Greg Dunham, Goldman Sachs.

Thanks for taking my question. I guess I want to start off on the net customer add number of 70. Obviously, that -- very strong -- up like 59% year over year on my math, and equivalent to what you've done over the prior three quarters. Were there any anomalies in that, meaning: Was the average revenue per employer customer down or any different than it's been historically?

Yes, thanks, Greg, great question. Obviously, we're super proud of the 70 posted. It does demonstrate the continued momentum we're seeing in the employer business.

There is no real anomaly in that; obviously, I think people are getting the handle on the Benefitfocus story. We tend to have very strong sales cycle in the employer business in the middle of the year -- second and third quarter -- as employers prepare to modernize their benefits for open enrollment season, which tends to happen in the late third quarter, fourth quarter of the year for a January effective date of their benefits.

So, the idea that second quarter being particularly strong is consistent with our Business and the model that we are seeing. But we're just tremendously proud of our sales team, and watching their efforts grow, but no anomalies on the size. If anything, you've seen us announce several jumbo employers in there, with Brookdale and Office Depot -- two 50,000-plus employers. So that we're really starting to see some great penetration -- early penetration in the jumbo market. I would say, just top to bottom, an incredibly exciting quarter for the Business.

Okay. And then quickly on the changes -- promoting Andy to Chief Commercial Officer and bringing in Ray as the COO -- could you remind us what the sales org structure was previously, and what the different reporting lines are going to be now versus before? Because clearly, from the net customer add number in the quarter, you're not having sales issues.

Well, as you are familiar with our story, we see accelerating growth with these tailwinds of the Affordable Care Act, moving to the cloud for benefits administration, providing a new and elegant way to provide benefits and the defined contribution in private exchange and marketplace stores. So, it's just really a bunch of cylinders firing for our Business in this exciting market opportunity.

My commitment as CEO of the Company and one of the founders is to continue to put the people in place and make the decisions to allow the Company to grow and express itself, and be a really fantastic Company, from the culture, best places to work, which we're so proud of, being elected again. And, as we think about strategically -- of course, we are thinking about the scale, right? We've got to deliver for all of these customers. We've got a rapid software release cadence with a software release every 90 days, 4 times a year.

And one of the key things that's happened with the public offering and the visibility of our Company is we are really attracting some incredible talent in the sales organization and in the operations implementation organization. So, with Andy -- Andy's been with me seven, eight years. He's run the organization -- run the operations. He's very intimate with the customers, and understands our partners and our ecosystem and the dynamic. And he is just a close, trusted friend.

So, as we looked at the sales organization, historically we have an employer sales team, a carrier sales team, an operations and channel organization, and a marketing team, and then our ecosystem. Andy is going to take that whole group on. That group has expanded significantly in the last three or four years. And they are adding great talent in there. So, he will have that whole organization. It will give clear leadership -- trusted leadership and a very familiar leadership to all of our customers and partners, and Andy has my incredible trust.

With Ray August -- Ray is an accomplished operator. He's run multi-billion dollar businesses before with over 10,000 employees, global footprint. He's had some extremely large customers and tremendous references, and just -- he's just an all-around great person. He is going to join the team and take that operational role on, with a mandate to scale the business to keep our 95%-plus customer retention rate high, and make sure that our customers are getting our brand of anticipatory service while we continue to deliver on the technology -- the road map.

And this really frees me up to focus the bulk of my time on our product road map and our product pipeline. We have a huge product pipeline, some exciting ideas of how we can improve the entire benefits experience using this analytics and big data that we have with benefit informatics. Our mobile technologies are really surging. Our marketplace and administration is really functioning. And so, I'm excited to be able to work with Don Taylor, our Chief Technology Officer, even more with this new structure. So, I think it's a fantastic show of existing management, as well as the kind of talent that we're attracting to the Company.

Okay, perfect. One last one -- real quick one for Milt. Historically, you've generated -- working capital has been a tailwind to cash flow from operations; roughly 18% to -- well, mid- to high-teens over the last three years. Is there any reason to think that that tailwind is any different in 2014, 2015 going forward?

Thanks, Greg. I don't think so. I think that we're still -- we are making investments, as you know. And I think that you can see from the investments that we have made and have talked about since late last year and the beginning of this year that they are beginning to pay off. 70 new large employer customers in the second quarter is quite an accomplishment.

I still think we are continuing to make the investments in the area that we've talked about. And we've also made investments in areas now where we are being able to -- or making investments where we need to support the growth of the customer base, as well as our ability to service that growing customer base and the implementations around them.

Also I think when you look at the growth in deferred revenue -- our deferred revenues now at the end of the second quarter are almost approaching $90 million. I think that's another indication of what you are seeing in working capital change as well.

Great. Thanks, guys.

Thank you.

Nandan Amladi, Deutsche Bank.

Thanks for taking my question. First question is for you, Shawn. 70 new employer customers -- very impressive. You are also building out [the file on your] system integration certification program.

What are your expectations for the share of projects that you might be able to complete for you, looking out a year or two? Because if you keep adding employers at this pace without the capacity to deliver, that may show up in the revenue line perhaps not growing at the same pace as your customer adds?

Yes, great question. I think it taps on a couple of themes that we've been really investing in. First of all, this idea of the Benefitfocus University -- a formal way to train and certify third parties to be able to implement the Benefitfocus platform. We think that's a coming-of-age for our Company and our platform. And we were really excited to announce, on the last call, Accenture and Deloitte is the two lead ones; ROC, Aesonn and HRchitect being the other three rounding that out.

That's all going extremely well. The University is functioning. The training curriculum is being prepared, and we have our first group of folks going through that process. We expect the first certified implementers to come out the other end of that pipe by the end of the year.

As we've talked about, Nandan, this is an investment year for us on the system integrator program. So as we do that, we will be providing the implementation service with Benefitfocus resource in 2014. We expect it to be really our -- the Benefitfocus resource -- however, the third parties are beginning to shadow some of our really key projects; and there's a lot of them, as you can see. So, they are coming up to speed; they're learning.

What really led to the whole concept of doing this was just an observation that we wanted to make sure we scaled. But I heard personally from some of our larger employer customers and carriers that they have these system integrators already in their building. They might be working on an SAP or an Oracle or another type of project. And they'd like their existing consultants to know more about our technology, so they can do some of the project management.

I think this is just a natural fit. The customers really enjoy it. And I believe the customers themselves will really shape and drive, if you will, the percentage mix between Benefitfocus resource and third-party resource.

I don't have an estimate for you as far as a target on split. I just know that people love our implementation and our implementation teams, and we're hearing extremely good things from the SIs that we are working with.

That said, we're making the executive management team additions and organizational structure with Andy taking over as Chief Commercial Officer and Ray August coming in. Ray's got great experience in scaling, implementations, running big data centers, big technology projects. I don't think we announced in the press release, but he was a CTO of Great Plains Software back in the 1990s. And so, he's just got great technical experience but also customer delivery. And his clear mandate is to on-board the staff -- use the Benefitfocus University training and certification for our own folks. And I think we've got a really good plan to scale both of those groups.

And a quick follow-up: At the beginning of the year, you raised your OpEx profile to invest more in R&D and sales and marketing to take advantage of the exchange opportunity. How are you tracking at the halfway point in the year, and has there been any meaningful change in either the competitive environment or regulatory environment that would require to change course somewhat?

Yes, great question. I think we're really on track. We outlined three areas of investment. One is sales and marketing, and that -- we're just attracting I think world-class sales team, really incredible management, and also our account reps around the country. So, we're very happy with the performance and our scaling there.

The second piece was around private exchange marketplace technology. That's really the bigger R&D item that we talked about. As you can see, just from the performance of the Company, we are having a lot of success in that area, and we are seeing our partners really begin to surge with the success they're having with the private exchanges in the marketplaces they are deploying on the Benefitfocus platform.

Our product cadence in that area is right on track, I would say. We had a big release each quarter. So, our second-quarter software release was delivered on time. Our third-quarter release is coming up, and our fourth quarter. So, it has a tremendous amount of really awesome front-end marketplace consumer technology, but also the administrative strength and billing capabilities that you need on the back end to support the marketplace.

And on the regulatory front, we don't see anything new changing the dynamic of either the product or the sales cycle. And the competitive front I think it continues to be the same themes that we've talked about consistently for, I guess, coming up on a year now, which is really: This is the cloud replacing old technology and an old way of doing things is the primary driver and just getting these tailwinds from implementation of the Affordable Care Act and moving defined contributions. I'd say those themes are all still intact, and accelerating if anything.

Thank you.

Thank you.

Terry Tillman, Raymond James.

I guess the first question, Shawn, just relates to -- very intriguing to hear about a couple of these jumbo employer wins. I'd like some education, at least for myself, in terms of: Does that tend to be more like a carrier sales cycle, or is it like the large employer sales cycles, not much difference there? And who do you compete against? Is it more like ERP providers there?

Yes, good question. Actually, I think the cycle is probably a little bit in between. The jumbo accounts have more moving parts. They might be doing acquisitions; they've got dynamics. They often have international workforce, so they have a lot to consider. They also have the staff to do it, though, too. So, they have people that maybe specialize full time in the aspects that we deal in our own benefits enrollment administration and whatnot.

It's not a lot slower than what you'd consider to be our typical employer cadence, though. They're not double as long, or take an extra year, anything like that.

What we're really finding is, as the public offering raised the awareness of Benefitfocus and our logo, and more people know about our Company and our momentum, we're getting into these conversations more and more with all size employers, particularly the jumbo market. And they tend to have multi-year engagements maybe with an outsourcing firm or big ERP deployments. So, if anything, we're just now getting into the natural cycle of them learning about the Company, and them planning, whether it's this year or next year or the year after, to move.

They have the same pressure -- in some cases, even more pressure -- with some of the dynamics of the Affordable Care Act. So, I think they are probably moving faster than maybe they would have five years ago, just moving to the cloud. So, it's fun to see our sales team learn that market and have those introductions, have those conversations.

And because we're in the carrier market, and our customers are huge -- they are enormous corporations. The deals are very complex, and they are very long term. Our sales team gets the benefits of the company understanding how to make those sales, how to talk about the scale of our cloud and our infrastructure and the size of our engineering team. And all those themes that work well for our carrier strength tend to really show extremely well when you get to the jumbo market. So, I think it's one platform both -- feeding both markets is working well.

And on the jumbo employer side, I'm assuming you all haven't been going after the jumbo employers for that long, maybe it's a newer, carve-out sales force. But folks can start to become complacent and expect more of the same every quarter. With a couple of large jumbo deals in the second quarter, is this still an immature part of the Business, so we shouldn't become complacent and assume you're going to sign that many or even ramp the number of jumbo employer deals per quarter over the near to intermediate term?

Yes, it's certainly not a -- in no way is it a major strategy shift or anything like that. I've always felt like it was just a natural process -- these larger accounts. Like I said, they have big installations of some legacy platform and contract.

And in my dealings with the jumbo market, they are extremely excited about seeing the Benefitfocus platform, understanding the communication capability, being able to use media and videos to explain complex concepts across tens of thousands of employees. So, they are like extremely excited about the promise of the cloud. They are using it in other areas, and Benefitfocus has really emerged as a leader.

I think that, like the carrier business, though, each quarter probably varies a little bit more just because the timing of these things is more dependant on their cycle. Whereas when you have -- I think it's a wonderful design to also have this really fantastic flywheel, which you would consider more medium-size employers -- 5,000 employees, 8,000, 10,000 employees, 10,000,12,000 employees -- those are starting to become some pretty big companies. And the fact that our software can handle the largest of the large and also the medium size is really a unique differentiator. So, it gives us the luxury to work on that jumbo market long term, and think extremely long term about those engagements.

Okay, got it. And I guess, Milt, just a quick question for you in terms of -- have you thought about -- or I guess you and Shawn -- have you thought about philosophically what's the right cash balance, or what's the minimum cash balance you think the Business could operate, assuming that your carriers and large employers will want to know about financial health. Is there any kind of level around cash balance where you see as a minimum? And then anything you could say about where it might trough from a duration standpoint, in terms of the cash burn? Thank you.

I think, Terry, with regards to cash balances, I don't have a minimum balance in mind. We ended the quarter with over $71 million in cash. Remember that we are able to generate cash through a lot of upfront payments that we get from some of our larger customers relative to implementations that we are doing for them in those projects. I think we have done a good job of collecting cash balances and so forth, and generating cash through normal operations to help fund the Business.

We're investing. That's obviously no surprise. We've talked about that a lot, and we're going to continue to invest.

As we talked about on the last call, we understand how to run the Business. We went public in order to raise the necessary capital to make the investments that we're making today. And I think, as we look out into 2015, and look at what we have to do there, we certainly are monitoring our cash, and understanding where we need to be. There's not a minimum balance that we are going to achieve, where something automatically then changes. We are going to run the Business on a day-to-day basis, and do what we need to do to generate the cash flow we need to make the investments that we have to make.

All right, great, guys. Thanks.

Thank you.

Richard Davis, Canaccord.

Thanks, guys. It's actually DJ on the line for Richard. So, maybe Shawn first -- on a same-store sales front -- the Office Depot example you gave was interesting. Help me think about, or try and quantify -- if a customer were to move from only using a benefits communication portal to a full benefits shopping and administration platform, what does that do to per-employee per-month pricing? Is that a double; is it a triple? How should we think about something like that?

Yes, good question. I appreciate that. And I think it is along the theme that we've been sharing here on a couple of these questions.

The idea of larger enterprises -- any kind of company, whether it's an employer, in our vernacular, or an insurance carrier -- we're finding ways to make them a customer -- creative ways because they desire the Benefitfocus technology. And as we've learned through our years of experience in the very large insurance carrier business, we can actually land and get the customer on with one of our products maybe in one of their market segments, and then we have a very good track record of expanding and adding more products.

In this case, what we're finding in the jumbo employer market is employers that might be already down the path of setting up their enrollment maybe the old way -- the old-fashioned way with some internet or some home-built system or some outsourcing contract, and they want to modernize. And so, in this particular case, we have been able to find a way to take the Benefitfocus communication platform, the way you log in, the way you see all the content, and weave it into an agreement with the jumbo account.

This gives us great flexibility in the future to begin to use other things, whether it's our benefits informatics data analytics service, our full enrollment capability, possibly private exchange or voluntary benefit capabilities in the future. So, I think it really is following a pattern of our carrier business.

As far as dialing in on a PEPM or how the contracts work, we don't go specifically there on a customer basis. But I would just more point to the fact that it is a pattern that we have developed over the years to be able to get in and make someone a really happy customer, and meet them sort of on their terms, and then expand as we go forward.

Okay. And then, maybe on the competitive front, I saw WageWorks acquired CONEXIS last week. I don't know much about their business. It seemed -- it looks like it's a little bit more services intensive. Did you guys see them? Does that change your competitive landscape at all, as they move a little bit more towards what you guys are doing? Any color on that front would be helpful.

Yes, that, to us, isn't a competitor. I don't know that we've competed with CONEXIS in the past. We didn't observe that as anything other than them adding complementary services to what they do. WageWorks is a great partner of ours, and we have a lot of joint customers.

And so, there hadn't been anything in the last quarter, I would say, certainly that is a material change in the competitive landscape. I just continue, as someone who's lived in this environment, to be amazed at the generational shift that this cloud technology -- the cloud platform is bringing. And more and more in other areas, not just in benefits, but in particularly in our area of benefits administration, enterprises are learning that the efficiency of being in the cloud, of being able to deliver apps rapidly, partners in the data exchange network effect that we've got, it's hard to compete with. If you're an older company, with older technology, without the engineering staff, it's not even a compare.

So, we don't really see anything different there. If anything, acceleration of move to the cloud, which is a theme you guys are seeing. We see it in your research and across the space, so it's really --

Yes, certainly. And then, maybe one last quick one, if I can. I think in your prepared remarks, you said: Hey, all six of the carrier implementations are going well. Maybe you could speak specifically -- United -- I know that's obviously a big one. Just what's going on there, where we are in the implementation process? And then remind us when we should expect any revenue contribution from that relationship.

Sure. Really the beautiful thing I think about the carrier business is we've really become so expert at it. They all have a nuance; they all have a flavor; they all have a strategy from the customer, but the carrier implementations tend to take 9 to 12 months. In this case, we're talking about a customer that we picked up in the first quarter, and we plan to be live with them by the end of the year. And we feel like we're on track with that.

It was -- from the way our accounting works and our revenue works, that'll be a fourth quarter, first quarter beginning of the monthly recurring revenue. And then any deferred revenue that went into the balance sheet begins to come onto the P&L commensurate with those monthly fees. So, that -- you'll see that.

And the other big carriers that we announced at the end of last year and the first part of this year, those six carriers, they are all kind of fourth quarter, just the beginning, and then they build into 2015 and 2016. And the larger the carrier, the longer that build takes, just because it's a big business for them to move. But we feel like we are on track with each of those implementations, and it's exciting to see them all come through.

Got it, okay. That's great. Thanks, guys.

Thanks.

Sean Wieland, Piper Jaffray.

So, Forever 21 -- interesting that they're doing this for part-time employees. Is there a price differential for the part-time employees, and what's the prospect of expanding your platform into other part-time workers within the existing base?

Sure. Thanks, Sean. It's really exciting. At our One Place event, we introduced this concept of the benefits for the whole workforce. And we expanded the Benefitfocus marketplace technology to really have some powerful new capabilities for part time, what we would refer to as variable -- flexible people that move back and forth between part time and full time. And with the new rules and regulations of the Affordable Care Act, it's incumbent upon the employer which bucket they are in, and keep up with all that. And then the retiree as well. So, the adoption of that strategy or framework, or way of thinking about the technology to serve those folks is a great case study in the Forever 21 example, and we think we will see a lot more of that.

We are thinking, in terms of our ability to show qualified health plans or even government-subsidized plans to these individuals who are not covered by their employer, not necessarily with Forever 21, but just in general. And we think that that's a way to monetize that through some partnerships. And we announced a web-based entity status at the end of last year. So, we're putting the pieces together to really interact with these part-time and flex workers, and provide them product.

I think the way we might monetize that in the future is possibly participate in the revenue share and whatnot. So, at this particular time, we are in the early stages of designing that economic model, working with partners and whatnot. I think what the Forever 21 example shows us is the appetite of our customers is there to use the platform for all of their entire workforce or their whole workforce.

So, it is an early stage of putting those pieces together, and we're beginning to see customers come through and adopt that technology. I think, over time, we'll work on ways to articulate to you guys how those part-timers might be a little bit different than the traditional full-time ben-eligible, but right now it is just -- we're probably a couple of quarters away from really flushing that out for you.

Okay. My second question is: How do you think about expanding the scope of marketplace to become a true health engagement platform going beyond benefits -- so, integrating price transparency or health monitoring solutions?

Well, it is a passion of mine. The founding idea of Benefitfocus was to provide a better way for an individual and their family to understand their benefits, but then also to apply them. So, when you need them, how do you use them?

And so, all your benefits in your pocket, for example, in our mobile app. We want you to be able to pull your phone out, and you can today on the Benefitfocus platform, and see all your benefits. You can see your policy information. You can see what you bought, what you declined. You can effect change in a growing set of circumstances.

With our benefit informatic service, our data analytics, our big data capability, we are bringing in claims, drug, lab and even self-reported data for those customers that are using that service. That's a foundational tool that really begins to teach the individual how their utilization -- how they are using -- utilizing the services.

And then, I think over time, I really see the app partnership, our ecosystem, other great companies that are out working on all sorts of innovation around health and wellness and gamification and transparency. I think bringing them in through a partnership arrangement to unlock their capabilities -- well, I know it is; it's a key part of our strategy, so that we can stay focused on really providing the underpinning of the foundation of the platform itself, the development environment, and doing the scale of work that we're doing in our core business. Over time, we certainly have a pipeline of additional things we'd like to develop. I really think there's kind of a pent-up demand of app partners that want to integrate with the platform in that particular area. It's very exciting.

That's great. Thanks so much.

Thank you.

Thank you. That concludes the Q&A session for today's call. I'd like to turn it back over to Milt Alpern for any closing remarks.

Okay. Well, thanks, everyone. It was a pleasure talking to you for our second-quarter call. We look forward to talking to you again at the end of our third quarter. We will see you then.

Again, thank you for your participation. This concludes today's call. You may now disconnect.