Everyday Health, Inc.'s (EVDY) CEO Ben Wolin on Q2 2016 Results - Earnings Call Transcript

| About: Everyday Health, (EVDY)

Everyday Health, Inc. (NYSE:EVDY)

Q2 2016 Earnings Conference Call

Aug 4, 2016 4:30 PM ET

Executives

Alan Shapiro - General Counsel

Ben Wolin - Co-Founder and Chief Executive Officer

Brian Cooper - Executive Vice President and Chief Financial Officer

Analysts

Matt Dellelo - Leerink Partners

Charles Rhyee - Cowen and Company

Bill Sutherland - Emerging Growth Equities

Mark Kelley - Citigroup

Operator

Good afternoon. My name is Kristin, and I will be your conference operator today. At this time, I’d like to welcome everyone to the Everyday Health Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.

Alan Shapiro, General Counsel, you may begin your conference.

Alan Shapiro

Thank you. Good afternoon everyone, and thank you for joining Everyday Health's Q2 2016 earnings call. Joining me today are Ben Wolin, our Co-Founder and CEO; and Brian Cooper, our Executive Vice President and CFO.

Melanie Goldey is still out on maternity leave, but we are looking forward to having her back very shortly.

Before we get started, I’ll remind you that during this call, we may make forward-looking statements regarding the company’s future financial and operating performance, as well as our proposed plans. Any forward-looking statements are based on our current expectations and beliefs, and are based on information currently available to us.

Future events are subject to risks and uncertainties that could cause actual results to differ materially from the views expressed today, including, but not limited to those factors contained in the Risk Factors section of our SEC filings. All information discussed on this call is as of today and we do not intend to update this information to reflect future events or circumstances except as required by law.

In today’s call, we will also discuss certain non-GAAP financial measures, including adjusted EBITDA. I refer you to today’s press release on our Investor Relations website, at ir.everydayhealth.com where you can find the comparable GAAP measures and reconciliations. Finally, in light of Regulation FD, it is our policy not to comment on financial guidance other than in public communication.

I will now turn the call over to Ben.

Ben Wolin

Thanks, Alan, and thank you all for joining us today. Q2 is a very solid quarter for Everyday Health. Our Q2 total revenue of almost $58 million and our first half total revenue of almost $113 million are both record high for those periods and put us on track to meet our goal for the year.

Advertising and sponsorship revenue was up almost 7% in Q2 and over 21% for the first half of 2016. Adjusted EBITDA for Q2 was over $5.7 million at the upper end of the guidance we provided last quarter. We are executing well and we are very pleased with what we are seeing across our three business areas.

Our consumer advertising business improved notably in the first half of 2016. Total consumer advertising growth was in the mid single-digits in the first half, while consumer pharma advertising our key customer set saw double-digit growth. We expect these consumer advertising trends to continue in the back half of the year.

The consumer pharma advertising market remains robust, and with the better execution we are seeing from our team, we are confident that our largest business segment can accelerate growth in the years to come.

Our professional business which is more than one-third of the total business remains very strong. We are not only going deeper with existing customers, but we are succeeding in further penetrating our market and adding numerous new brands to our platform.

The total number professional brands we worked with in the first half of 2016 increased more than 40% over the same period last year. Underlying this growth is increasing engagement with our physician audience which improved 15% in the first half of 2016 over last year.

Our payer and provider business, anchored by the hospital CRM solution, we acquired exactly a year ago is doing great and exceeding all our key financial and operating metrics.

While moving into the category created a short-term drag on our EBITDA in 2016, it is clear this investment is paying off and setting up a great 2017. For example, we recently signed a three-year enterprise deal with a top five U.S. hospital system that will generate around $14 million of SaaS revenue over the three-year period and very likely millions of incremental dollars of related advertising revenue from the same customer. We are on track to almost double our payer/provider business this year and are positioned for substantial growth next year.

Our decision in late 2015 to reorganize the sales force into three distinct groups consumer, professional and payer/provider has shown to be the right one. We have upgraded the sales talent in each of the three teams and we will continue to reap the benefits from having dedicated team focused on discrete market segments. Likewise, the investments we made this year, particularly in our professional and payer/provider units are already paying off for us.

Before reviewing each business unit in more detail, I wanted take a moment to remind everyone of the strategic goal we are singularly focused on, namely to operate the leading marketing and communications platform for all healthcare marketers, seeking to engage and influence consumers and healthcare professionals.

We remain convinced that connecting with consumers and physicians through digital channels will continue to increase in importance for all healthcare entities, whether it’s the hospital system that is historically relied on print, radio ads and billboard, a specialty pharma manufacture spend too much on broadcast television to reach 500,000 patients or the broader pharmaceutical industry that continues to cut sufficient sales reps, the value of digital is obvious. That is where the audience is moving and the ability to target and measure in real-time is far superior.

It is no longer debate whether digital marketing budgets will dramatically increase in the coming years. The debate at this point is really around how quickly the shift can and will occur. The macro trends in our business remain quite positive.

Our thesis is that all of our clients whether it’s a pharma company, OTC market or hospital or health insurance company have four identical objectives. First, identifying who they want to reach; second, being able to actually reach that target audience; third, engaging with the target audience in a compelling way; and fourth, measuring the results of the marketing efforts to see what's working. Our unique digital platform enables any healthcare entity targeting consumers or healthcare professionals to address all four of these objectives.

Our platform has three pillars. First, a large and engage health-focused audience; second, premier health content and actionable tools for both consumers and healthcare professionals; and third, best-in-class data and analytics technology that can deliver effective marketing and communication programs that we measure in real-time.

Let me now share with you in more detail what we are seeing across three business units. We are pleased our consumer business continues to make good progress in 2016. As I noted at the outset our consumer advertising increased mid single-digits in the first half of the year, while consumer pharma advertising experienced double-digit growth. We expect the same performance in the second half of 2016, so we remain on track for total consumer advertising growth for 2016 in the mid single-digits.

We expect future growth in consumer advertising revenue to come from pharma brand and marketing on our What to Expect property. On the pharma side the continuing focus on specialty drug development across the pharma sector, particularly orphan and rare brand, should benefit our consumer business. For niche patient population, our digital platform remains a superior engagement platform compared to TV and other legacy marketing channels.

As I mentioned on our last call spending on specialty drugs is currently 37% of total pharma spend and it is expected to increase to 50% by the end of 2018. It's only around one to two percent of patients constitutes specialty drug usage is very small sliver of the patient population will soon be responsible for 50% of the total drug spend. This represents a significant opportunity for us as large and small pharma companies will increasingly turn to digital channels to engage these highly targeted audiences.

Our leading What to Expect pregnancy and parenting brand is doing great. In the first half of 2016 visits were up 32% and registrations increased over 27% from last year. We continue to see around 50% of pregnant women in the U.S. register for What to Expect and this penetration gives us a variety of revenue opportunities for advertising and sponsorship from pharma, retail and large CPG companies, as well as with our payer and provider customer sets.

The power of the What to Expect brand on a global scale was very evident just yesterday. As you may have seen yesterday was global BumpDay. What to Expect in partnership with the international health organizations such as the United Nations Foundation and the International Medical Corps and major corporate sponsors such as Duracell, AmeriCorps and Disney created BumpDay to help raise awareness about the need for maternal health care worldwide. Almost 1,000 women die every day as a result of pregnancy related causes and most of these deaths are preventable with access to prenatal care and pregnancy, skilled care during childbirth and Karen support in the weeks after childbirth.

This was the second annual BumpDay and the growth and success of this day measured not only by social media and other activity, but also by donations from around the world is a real testament to the prestige and credibility of the What to Expect brand and its ability to really drive public health benefits.

Our professional business continues to perform very well. As we said in the past, pharma companies spend approximately three to five times more on marketing to physicians than they do on marketing to consumers and digital solutions are replacing the feet on the street sales model and pharma companies are slashing their sales forces and doctors increasingly refuse to see sales reps.

Our professional growth in 2016 is being driven primarily by two factors. First, we are succeeding in signing up new pharma brands. We have already signed up 93 new brands for 2016 that did not generate any revenue with us in 2015, and the overall size of our professional deals are also increasing.

Second, as we shared in the past pharma clients are increasingly interested in performance based programs. We are the clear leader here, and our gain share model is an important revenue driver for the professional business. These programs increase prescription activity for our clients and they can accurately measure the effectiveness of these programs. There is no guesswork as to whether the marketing is working or whether the dollars are being well spent.

These programs were initially sold to single brand through the end of our beyond patent exclusivity, but an interesting development we are seeing in the marketing -- in the market is that a broader set of pharma brands are attracted to these programs and companies are increasingly willing to do broader enterprise deals incorporating multiple brands. We think this trend towards performance based programs will continue, and we believe our successful track record at driving prescription volume for our clients will allow us to maintain our strong leadership position here.

We're also making excellent progress in driving increased engagement across our professional audience. Professional engagement defined as a validated healthier professionals interacting with our properties with a consumer content participating in a market research study, asking for product sample, are earnings CRE credit, increased 15% in the first half of 2016 over 2015. Physician registrations are also up 25% in the first half of 2016.

We invested significantly in our professional business across product and sales in the first half of 2016. These investments are paying off, and we continue to see our professional business as a very large revenue opportunity for us.

Turning now to our payer/provider business, which focuses on selling a CRM platform and marketing solutions to hospitals and marketing programs to help insurers. We acquired Tea Leaves Health, a hospital CRM, exactly a year ago. During this time, we have seen three main dynamics at play.

First, hospital systems across the country are embracing data driven CRM platforms and digital solutions to drive new patient volume and better manage risk. When hospitals license our CRM platform, this is typically the first time the hospital is purchasing a third-party system, so this is a really a large new market that we are helping to drive. We are even more convinced now than we were a year ago that servicing hospital customers is a very large revenue opportunity.

Second, we think we have the best product in the market and we are experiencing great sales momentum, with both large national systems and local and regional players. As I mentioned earlier, we were thrilled to recently close a $14 million three-year enterprise deal with a top five U.S. hospital system. Our CRM platform is currently being used by eight of the top 15 hospital systems in the country.

Our sales pipeline is strong, and we remain on track to end the year with at least $17 million of annualized contract value, up from under $6 million when we acquired Tea Leaves. This means we expect to generate at least $17 million of SaaS revenue in 2017.

The ability to leverage our consumer audience, content and data assets to service our hospital customers also gives us a significant advantage in the market. Seamlessly combining a great CRM platform with segmented and targeted marketing campaign, was the strategic rationale behind the client Tea Leaves, and we are seeing important benefits from being able to offer an integrated solution.

In the first half of 2016, every dollar of SaaS revenue resulted in significantly more than $0.50 of incremental advertising revenue, meaning a $14 million SaaS deal has a potential to drive at least $7 million in incremental advertising revenues.

The ability to leverage our What To Expect asset to drive maternity and pediatric service lines for hospitals in the same way we are leveraging What to Expect to insurers drive down maternity related expenses is another example of how our consumer business can greatly enhance our suite of solutions for hospitals.

The hospital market is certainly a very promising opportunity for us, with multiyear customer contracts and recurring and predictable licensing fees that also drive incremental advertising revenues. We continue to believe that our hospital revenues can grow in excess of 50% per year over the next several years.

In closing, we had a great first half in 2016 and we are pleased with the strong execution in each of our three business areas. The investments in acquisitions we have made have clearly strengthened our platform and opened up large, new revenue opportunities in attractive markets. This platform is now servicing customers across the healthcare sector, and our customer relationship have evolved as we do larger, longer and more strategic partnerships.

Now let me turn it over to Brian who will review the Q2 financial results in more detail and provide our guidance for Q3 and the full year.

Brian Cooper

Thanks, Ben. We are very pleased with our performance this quarter. To quickly recap the numbers. In Q2, revenues were $57.7 million, representing 5% growth over the prior year. Advertising and sponsorship revenue grew 7% to $53.5 million. This growth was largely driven by success with our pharma customers in professional, increased advertising from hospitals and modest growth in consumer.

As most of our business spans multiple quarters, it is important to evaluate our cumulative progress. Looking at Q1 and Q2 together, total revenue is up 18% over 2015, and advertising and sponsorship revenue is up 21% over last year.

Pharma revenue continues to be our largest category of advertisers and grew 20% in the first half of 2016. Premium services revenue was $4 million in Q2 and consists primarily of consumer subscriptions and SaaS fees from hospitals using our CRM platform. We are very pleased with the ramping up of SaaS revenue, which is being offset by our planned exit from the South Beach Diet and Jillian Michaels subscription services.

Adjusted EBITDA in Q2 was $5.7 million, at the upper end of our guidance range and adjusted EBITDA for the first half of 2016 was $7.7 million. For Q2, non-GAAP net loss per share on a basic and diluted basis was $0.05.

Regarding our balance sheet. At June 30th, the company had a cash balance of approximately $30 million and $118 million of debt outstanding on a facility of almost $140 million. Free cash flow for the first six months of the year, defined as cash flow from operations less CapEx, was $6.4 million or 25% improvement over the same period last year.

Looking at Q3. We expect total revenue to be in the range of $58 million to $61 million, including advertising and sponsorship revenue, which is expected to be between $54 million and $57 million or approximately 12% growth at the midpoint. Adjusted EBITDA for Q3 is expected to be between $9 million and $11 million.

We are also maintaining our full year revenue guidance, which is forecast to be between $252 million and $260 million, including full year advertising revenue estimated at $235 million to $243 million.

As Ben mentioned, our sales force reorganization has worked out very well, and our bookings are currently tracking ahead of where we were at the same point in time last year, providing confidence we can achieve our forecast. We are also maintaining our full year adjusted EBITDA guidance of approximately $44 million to $48 million.

Our first half revenue constitutes approximately 44% of our projected total revenue for 2016, which is slightly more evenly distributed than we have experienced in prior years. Having a more even distribution of revenue across the quarters is a welcome development and is being helped by our growing SaaS revenue with recurring monthly fees and longer term deals for gain share in orphan programs.

In terms of our business unit breakdown, we continue to expect our full year revenue distribution across consumer, professional and payer/provider to be consistent with what we previously shared with you.

Consumer revenue is expected to be approximately 57% of total 2016 revenue, with consumer advertising revenue growing in the mid single-digits. Professional revenue is expected to be approximately 36% of total revenue, with year-over-year growth of 20%. And payer/provider revenue is expected to be approximately 7% of total revenue, with year-over-year growth of more than 85%.

Pharma will continue to be our largest customer segment. We have the unique ability to provide a comprehensive suite of solutions across the entire pharma portfolio regardless of the size of the patient population or stage of commercialization.

Many large pharma companies are now purchasing multiple solutions across our platform, resulting in more strategic relationships with us and increasing revenues from our core customer set. We believe this trend will continue.

As Ben highlighted, the hospital CRM market is a significant opportunity for the company, with multiyear customer contracts and recurring licensing fees that also drive incremental advertising revenues.

As Ben mentioned, we expect to end the year with at least $17 million of annualized contract value, which is a good proxy for estimating our 2017 SaaS revenues. We are really off to a great start here.

The market is large, we are seeing great sales momentum, and our ability to seamlessly combine CRM with targeted marketing companies is unmatched in the market. We believe that our hospital revenue can grow in excess of 50% per year over the next several years.

We are pleased that our decision to invest the incremental 2016 EBITDA back into the business is paying off. These investments are focused primarily in product, technology and sales across our entire business, but primarily in our professional and payer/provider units.

As we have previously said, we expect our adjusted EBITDA margin to expand in 2017 and to reach the mid-20s in 2018. Specifically, we see this margin expansion coming from three key areas.

First, audience leverage, meaning our current consumer and professional audiences are capable of supporting higher revenues. Second, sales leverage. We anticipate more productivity from our now larger and more focused sales teams. And finally, we will benefit as our high margin SaaS revenues continue to scale and become a larger contributor to the company's overall P&L.

To wrap up, we feel great about our Q2 performance. We are on track to achieve our full year guidance and remain excited about the growth opportunities we are seeing across the business.

Now, let me turn it back over to Ben.

Ben Wolin

Thanks, Brian. Everyday Health had a very solid first half of 2016, and we look forward to continued growth throughout the remainder of the year. The macro trends remain very positive across our consumer, professional and payer/provider units. We are seeing better execution and a more focused sales effort across the three discrete units, and the strategic investments we made in professional and payer/provider are spurring very strong growth in each of these units.

As we look forward, we see more of the same. Consumer advertising growth, especially with our core pharma customers, very strong growth in professional as we bring new brands on the platform and maintain our leadership position in performance based partnerships and expanding our hospital based SaaS business, long-term, predictable and recurring revenue streams that also drive incremental marketing dollars.

We're holding an Investor Day in New York on Thursday, September 15. We look forward to seeing you there and providing you an opportunity to learn more about our business and interacting with other senior executives of the company.

Thank you for joining us today. We will be happy to take questions now.

Question-and-Answer Session

Operator

[Operator Instructions]

Your first question comes from the line of Matt Dellelo from Leerink Partners. Your line is open.

Matt Dellelo

Hi, guys. Congrats on the quarter. First of all, on the hospital SaaS deal. How should we think about that? Is that going to start revenue earning here in the second half? Is that baked into your new current guidance?

Ben Wolin

Yeah, thanks for the question. Yes, that's baked into the current guidance. We're obviously very pleased with that deal. It's really just a sign of the progress that we've made since acquiring that company and the quality of offering that we have out in the marketplace.

Just given the time it takes to implement those programs or that solution, most of that revenue doesn't start getting recognized until very late in 2016 and really will pick up steam in 2017.

Matt Dellelo

Okay. So it is small impact to the second half, but then part of the $17 million in annualized contract revenues going forward?

Ben Wolin

Correct. There's basically a six-month lag between signing a deal and recognizing revenue. So deals that are signed in Q2, you get a little bit of benefit in 2016 from a GAAP perspective. But as I said in the prepared remarks, we're really happy about going from about $8 million of GAAP SaaS revenue this year to more than doubling that based on where we think we're going to end the year from an ACV standpoint.

Matt Dellelo

Okay. Great. And then on the sales force reorg, it sounds like it's going really well. Are you substantially finished, or you are still adding quota carrying reps here in the second half? I think you added some in the first half. Maybe just some color on that.

Ben Wolin

Yeah, so thank you. Yeah, we're very pleased with the progress that the three distinct sales force are making. We have added significantly since really the end of Q3 2015 until now. We will continue to both improve the quality and quantity of the three distinct sales forces.

And I think the numbers, both in the rearview mirror, as well as our progress from a booking standpoint going forward really give us confidence that we made the right decision in terms of reorganizing from one generalized sales force into three groups. And we think that they are just going to gain momentum and accelerate our results as we move into 2017.

Matt Dellelo

Okay. Great. Thanks a lot.

Operator

Your next question comes from line of Charles Rhyee from Cowen and Company. Your line is open.

Charles Rhyee

Yeah, thanks guys. Congrats on the quarter. The hospital deal, the Tea Leaves, you said it's a top five U.S. hospital. What were they looking at during the process and what else were there other choices they were kind of contemplating at the time before choosing Tea Leaves?

Ben Wolin

Yeah. Thanks Charles Rhyee. I think -- so the nice thing about this deal was this customer started with pilot programs with us, and we have been working with them for more than a year. And in certain regions across the U.S., they were seeing just great results from using our CRM and the marketing platform that we created.

So based on excellent ROI that our customers saw, they came back to us and say we want to go national, and we use that opportunity to create one corporate deal that cut across the entire country and obviously not just expand our footprint in terms of number of hospitals, but also substantially increase the amount of revenue that we are generating.

So, it was really based on previous success that allowed us to expand. And I think we have that opportunity with a variety of systems right now that are already under contract, as well as new ones that are coming in the pipeline.

Charles Rhyee

So when we think about the pipeline then for Tea Leaves, should we assume that it's sort of a pilot first then lead to contracts or is this kind of a unique thing where now they can really act as a reference site and can we see an acceleration then in deal?

Ben Wolin

No. I think the norm really is not to have just a pilot and expansion. We're generally working now with the system out of the gate. This was a legacy customer that we -- was having good experience with the system that we were able to expand based on performance. So, I think the exception or the expectation should be bigger deals going forward as we continue to improve how we sell and improve the data and performance that we have coming out of the system.

Charles Rhyee

Okay. That's helpful. And you talked about the site traffic, so what you expect -- operationally, I think if you have -- at some point, if you already have half U.S. pregnancy population, -- and were growing -- registrations up 27%, what does that exactly mean? I mean, otherwise, should we have like 100% pretty quickly here? What is the difference here?

And then secondly, I don't know if you touched on may be I missed it, were you touched on the pilots [indiscernible] how that's going.

Ben Wolin

Sure thing. So, yeah, there we are continuing to see penetration with that brand and that property. So, we are getting more registrations in both first and second time moms, and we are seeing overall improvement in usage of the platform. I don't ever expect to get to 100% of that market, but I do think that we are improving with every quarter our access to that audience. And it obviously creates a great platform for a variety of different healthcare marketers. So, historically, we've done great with CPG and retailers and pharma in that category.

And as you point out, we're starting to make progress with insurers and providers who want to reach new moms or expecting mom. So those pilots are in market. And as I think I said a call ago or two calls ago, it's really kind of toward the tail end of this quarter and early next quarter when we'll start to see results and be able to have hopefully demonstrated a real positive ROI for our customers, which will allow us to expand those programs with anybody who's taking risk with covering a premium population.

Charles Rhyee

Yeah, I guess, my question is really, how is sort of the opt-in percentages look in terms of people who are registering on the site, being offered the risk assessment and then being given the choice to opt-in? Just curious what has been opt-in rate, and how does that compare to sort of your initial expectation? Thanks.

Ben Wolin

Yeah, I think it's been positive. The women that we introduced to these programs are starting to engage. We are impressed with the overall insurance coverage that we get across our entire population. So the majority of women who are downloading the app and registering with us are self identifying their insurer, whether it would be a commercial provider or Medicaid. And where appropriate, we're obviously pointing them in the direction of prenatal care program. So, it's early, but we're cautiously optimistic about the progress that we're making on that front.

Charles Rhyee

Do you think you will be able to give statistics at the Analyst Day?

Ben Wolin

I think it might be a little early for that, but right around there, we'll be getting progress. I had also mentioned that the other area that we're seeing in the pregnancy business that is quite positive is, tremendous amount of interest from providers, again, whether they take risk or not in using that asset to drive maternity and pediatric volumes. So, the whole payer/provider business unit is doing a great job of leveraging that asset on behalf of their customers, whether it would be insurer or provider to drive positive volume for their respective businesses.

Charles Rhyee

Okay. Great. Thanks a lot guys.

Operator

Your next question comes from the line of Bill Sutherland from Emerging Growth Equities. Your line is open.

Bill Sutherland

Thanks. And thanks for taking the questions. Most have been asked actually. I had a couple on cash side. I wanted to -- just noticing that your cash flow from ops year-to-date has been strong and is actually well ahead of adjusted EBITDA. So I am kind of curious, as you look for the full year, what your -- since you've given the EBITDA guidance, kind of how cash flow from ops may look in relation to that?

Brian Cooper

Yeah, so thanks, Bill. I appreciate the question. We continue to be very pleased with the just the overall cycle of the business and being able to generate cash as we continue to go deep with our customers and continue to get more strategic with them.

So, I think what you'll see is cash flow from operations continued to track EBITDA similarly to how it did next year. The working capital is fundamentally the same cycle in the business. So, similar to how we improved last year, I think you'll see similar improvement this year.

Bill Sutherland

So, in other words, there is -- I don't have the full year in front of me, but it evens out, is what you're saying, Brian, on the full year, in terms of...

Brian Cooper

…that's exactly right. It will continue to track with our EBITDA performance.

Bill Sutherland

Okay. And then in terms of cash use for the remainder of the year, you're thinking what for CapEx? And then are there any additional acquisition payments due?

Brian Cooper

So, there are additional -- there is an additional payment due to the Tea Leaves acquisition, assuming that they achieve their earnout targets. Based on, as we talked about in the prepared remarks, with achieving end of the year annualized contract value of $17 million, they would be achieving their earnout target, and we would owe them an additional $5 million in 2016 with the company's option to pay that half cash, half stock. There's also an additional payment in Q1 2017 of $15 million and it was also the company's option -- at the company's option to pay at half cash, half stock.

Bill Sutherland

And on CapEx, I think that's pretty low, but I forgot what that -- what you're thinking there?

Brian Cooper

Yeah, I think you'll continue to see CapEx ratably throughout the year as we have -- you see the six-month number here, you can expect that to be spent ratably throughout the year.

Bill Sutherland

Okay. And then not to get too focused on mathematics here is as far as your mix of business, as you have outlined it for the full year, but when I work with those numbers, it seems like you would be with those relative growth rates for the three groups like come out higher on revenue. So, I can talk about this later offline. But I must be -- maybe I am working from the wrong numbers in 2015. But just -- let say, it's--.

Brian Cooper

Yeah, we're happy to go through you offline, but I think we're in line with the previous expectations.

Bill Sutherland

Yeah, I know. Okay. That's it for me. Thanks guys.

Ben Wolin

Thanks, Bill.

Operator

[Operator Instructions] Your next question comes from line of Mark Kelley from Citi. Your line is open.

Mark Kelley

Hey, guys. Thanks for taking the question. Just curious, is there any way for us to size the gain share revenues that you have, either as a percent of the total or otherwise? Seems like a nice area of growth for you. So anything help us gauge the progress there will be great.

And then second on the back to the SaaS revenue, the $17 million that you plan on recognizing in 2016, $12 million of that roughly is from other contracts other than the new customer you signed. Any way to help us understand kind of the customer concentration or mix there. Thanks.

Ben Wolin

Sure, thing. So, on gain share, let me just add a little bit with the market. Gain share, our program where the company's taking full risk on the marketing and getting paid on the revenue that we generate on behalf of the pharma brand. We're really seeing that expand, not just with late-stage brand, but earlier in lifecycle, and we're seeing pharma companies excited to work with us across their portfolio of products.

In general, we see the industry moving in that direction, and whether it's full gain share or a hybrid deal in which we're getting paid a fixed fee with upside, we really feel like we are a leader in the category and have really progressed on this front.

In terms of your specific question and kind of understanding the magnitude for our business, gain share would fill up all under our professional line, which Brian mentioned, is about a third of the total company, a little bit more than a third of the total company, and gain share is a significant minority of that business, so it is becoming a substantial piece of the business. But I think given that there's a lot of variability in terms of the types of deals that are getting cut, pure gain share, fixed fee flat gain share, we really just bucket it all in the professional suite and think -- just thinking about the overall private and professional is a great way of thinking about the business.

In terms of the SaaS question that you had, so the numbers that we provided in the remarks are SaaS revenue will represent -- will be about $8 million to $9 million in 2016. We expect to have -- end the year at about $17 million of ACV, which is annualized contract value, so not all of the contract that we have signed in 2016 will generate revenue in 2016. And that means that we go into 2017 with about $17 million of GAAP revenue in the future.

That -- those deals are fairly well distributed. Average customer is generating -- spending about $300,000 a year in SaaS revenue, not including the advertising or marketing that they are doing on top of that, which is about 50% of that number. So it's pretty well spread out across a variety of different hospitals.

Mark Kelley

That's all very helpful. Thanks, Ben.

Ben Wolin

Yeah, thanks Mark.

Operator

There are no further questions at this time. Thank you, ladies and gentlemen. This concludes today's conference call. You may now disconnect.

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