Benefitfocus, Inc. (BNFT) CEO Raymond August on Q4 2019 Results - Earnings Call Transcript

Benefitfocus, Inc. (BNFT) Q4 2019 Earnings Conference Call March 3, 2020 5:00 PM ET

Company Participants

Michael Bauer - IR

Raymond August - CEO, President & Director

Stephen Swad - CFO

Conference Call Participants

Brian Peterson - Raymond James & Associates

Sean Wieland - Piper Sandler & Co.

Jamie Stockton - Wells Fargo Securities

Matthew Coss - JPMorgan Chase & Co.

Nandan Amladi - Guggenheim Securities

Operator

Greetings, and welcome to Benefitfocus Q4 and Full Year 2019 Earnings Conference call. [Operator Instructions].

I would now like to turn the conference over to your host, Mr. Michael Bauer, Vice President of Finance and Investor Relations. Thank you. You may begin.

Michael Bauer

Thank you, Operator. Good afternoon, and welcome to Benefitfocus Fourth Quarter and Full Year 2019 Earnings Call. We will be discussing the operating results announced in our press release issued after the close of market today.

Joining me today are Ray August, our President and Chief Executive Officer; and Steve Swad, Chief Financial Officer. Ray and Steve will offer some prepared remarks, and then we'll open the call up for a Q&A session.

Before we begin, let me remind you that today's discussion will include forward-looking statements, such as first quarter and full year 2020 guidance and other predictions, expectations and information that might be considered forward-looking under federal security laws, including statements about our positioning for the future. These statements reflect our views as of today only and should not be considered as representing our views for any subsequent date. These statements are subject to 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 risk; and a changing regulatory environment that could cause actual results to differ materially from expectations. For a further discussion of the material risks and other important factors that could affect our actual results, please refer to our annual report on Form 10-K and 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.

Raymond August

Thank you, Mike. Good afternoon, everyone. I am excited to share with you our significant progress. For Q4 and the full year 2019, we achieved broad-based growth across our business, including in the three focus areas we discussed on our call last quarter, namely BenefitsPlace, MarketPlace for Carrier and our broker channel. There are three takeaways from today's call: lives growth, significant adoption of our innovative solutions and continued improved financial performance.

First, the scale of our platform is accelerating with over 25 million consumer lives on our platform. In Q4, we added over 500,000 net benefit eligible lives. The total number of net benefit eligible lives has grown to 17.3 million, representing a 30% increase in 2019. We are pleased with this growth in Q4. Our broker network continues to expand. At the end of 2019, we had over 800 premier brokers on our platform as a cost-efficient and effective distribution channel promoting Benefitfocus services and capabilities. These brokers play a key role in the recommendation and utilization of our platform. Increasingly, the scale we have achieved will be a key element of our story as the investments we have made and success of our efforts give us tremendous operating leverage.

Second, our investments in benefits innovation are paying off. Our new medical carrier offering is quickly materializing. Since our last call, 3 medical carriers purchased our new quote-to-pay solution. Based on our open enrollment metrics, BenefitsPlace is seeing accelerating adoption and usage. Customers who implemented BenefitsPlace products conducted over 800 million of transactions on our platform in 2019. BenefitSAIGE, our AI-powered platform, has been instrumental in driving more consumer activity and awareness of BenefitsPlace products. This is a massive opportunity, making it possible to continue upselling BenefitsPlace to the 17.3 million net benefit eligible lives on our platform. Our focus on and investments in innovation are instrumental to our growth and success. We are excited that the continued growth of BenefitsPlace is enhancing and diversifying our earnings.

Third, our transformation is generating better financial performance and growth. Q4 revenue grew 17% over the previous year. 2019 full year revenue grew by 14%, comparing favorably to 2018 revenue growth of 9%. 2019 EBITDA was $19 million, representing an 84% improvement over 2018. Q4 EBITDA also exceeded expectations.

I am pleased with the continued progress we have made in driving all phases of our platform transformation. As a result of our progress, our Q4 results were within or exceeded the range of our guidance. Our platform strategy is transforming how benefits are bought, sold and used across the industry. And we are the only company with the experience, scale and data assets to make it happen.

Let me share an example of what I mean. A large employer recently chose our platform to service its workforce. Our ability to drive greater benefits engagement through data and AI as well as deliver deeper insights into health plan costs and allocation -- utilization factored into their decision. And they saw tremendous value in our API capabilities to more efficiently connect across the benefits ecosystem. There are numerous customers like this out there, and I am confident that Benefitfocus is best positioned to address customer pain points, deliver greater health cost insights and remove end-to-end friction.

I will now provide specific details for each area of our continued transformation, starting with how we are scaling our platform. In Q4, we added over 500,000 net benefit eligible lives, a company record for the fourth quarter. This was fueled by many factors across all areas of our business. For the year, we had more than 4 million net benefit eligible lives. This 30% increase reflects growth across all areas of our business: medical carriers, the public sector, employers and other aggregators of groups such as gig economy workers.

With large employers in the public sector, our channel efforts are paying off. In Q4, our SAP performance was strong. Our broker channel and strategic Premier Broker program continues to drive scale as well as accelerate lives growth onto our platform.

Our premier broker expansion continues, climbing from 53 at the end of 2018 to over 800 at the end of 2019. This represents a 15x increase in just 1 year. The rapid increase in our broker channel demonstrates strengthening relationships with this vital part of the ecosystem. Brokers are influential and effective distribution channel to drive growth across the entire benefits industry. We expect these key relationships to make a significant impact and position us well for the upcoming selling season.

To enable greater broker activity, in 2019, we changed our relationship with Mercer. Mercer is no longer a leading source of revenue in our 2020 outlook. We remain confident that the strategic decision to fully open our channel to be broker-agnostic will offset the short-term revenue headwind over time.

We continue investing in benefits innovation to lead industry transformation. These investments include industry-leading data quality initiatives; the adoption of artificial intelligence to better inform consumers; as well as efforts to build our end-to-end solution for carriers. All are producing positive financial returns.

In 2019, we acquired certain commercial software assets of Connecture. Combined with our existing medical carrier solutions, these assets create the industry's only end-to-end quote-to-pay solution. This unique solution has been well received by the industry. We've leveraged the best of Benefitfocus and the assets acquired from Connecture. This means for this fall open enrollment, we will automate the entire benefits value chain. This gives a greater number of consumers easy access to voluntary benefits from the leading brands in BenefitsPlace. It does so through a smart, intuitive mobile experience and is driving new transformative discussions with existing customers and prospects.

We are very pleased that to date, our innovative carrier solution has produced 3 strategic 7-figure transactions, 2 are signed in Q4 2019 and 1 recently in Q1 2020. These are major wins signed with Optima Health, Premera Blue Cross and National Teachers Associates. Optima Health, for example, chose Benefitfocus for our simple effective solution to help manage Optima's health care and benefit selections to better serve its customers. We believe each of these carriers will contribute to our strong foundation for further revenue growth.

Our pipeline remains robust, and we anticipate continued strong activity throughout the year. Over the past months, our sales process within the carrier segment has been moving from the insurance carrier's COO to the CRO. And as the dynamics evolve from the Chief Operating Officer to the Chief Revenue Officer approving contracts, our sales lead time has markedly shortened. What used to take several years to close now takes less than a year.

Based on our recent wins, this dramatic improvement of closure time is due to the strategic and transformative nature of the value proposition that we're bringing to our customers. We are confident that the value we are creating for our customers will continue to accelerate the growth and success of Benefitfocus. Our best-of-breed platform enables medical carriers to deliver unmatched innovation to their members. It sets Benefitfocus apart from the market, allowing medical carriers to purchase a complete benefit solution from one source: Benefitfocus.

Open enrollment 2020 was the largest and most expansive in our company's history. Total premium purchased on our platform was a record of approximately $60 billion, and our industry-leading data accuracy continued to improve.

We are pleased with BenefitsPlace. With our AI-powered platform, BenefitSAIGE, and our industry-leading data analytics assisting consumers during the benefit selection process, voluntary benefits participation increased by approximately 350 basis points to nearly 28% for all voluntary product offerings. This represents over $800 million in premiums attributed to BenefitsPlace products.

In Q4, we expanded our BenefitsPlace HSA, FSA offerings with the addition of ConnectYourCare, a leading consumer-directed health care solution provider. We are very excited with our BenefitsPlace opportunity and the successful ramp of our platform pivot. These efforts are producing strong financial results, expanding margin and improving financial performance.

BenefitsPlace and our solid carrier performance both contributed to our 2019 revenue growth. BenefitsPlace was also a catalyst for Q4 with a 34% growth rate. Our revenue growth contributed to meaningful 2019 adjusted EBITDA expansion of approximately $9 million, and we believe 2019 and Q4 bookings growth will lead to continued 2020 financial improvement.

In conclusion, I am proud of what Benefitfocus has accomplished. This team has a clear understanding of our path to profitable revenue growth. We are tremendously optimistic about our future. We are confident that we can transform the benefits industry. And we look forward to the opportunity to deliver in 2020.

Now I would like to turn the call over to Steve.

Stephen Swad

Thank you, Ray. I want to start by providing some high-level financial observations about the business activities since we last spoke. Then I'll discuss 2019 financial results and provide guidance for Q1 and full year 2020.

Starting with my observations. First, we made significant progress selling our quote-to-pay offering into the carrier market. As I mentioned during our last call, this channel is strategic for us principally because our products are critical to the operations of medical carriers, and as a result, these relationships tend to be long-lasting. I'm pleased with our progress and expect more deals to close as we proceed through 2020.

Second, we performed well with BenefitsPlace, which currently is exposed to about 5 million of our buyer lives. We see a lot of runway by adding new products and exposing this offering to our existing base of over 17.3 million net benefit eligible lives.

Third, our business model remains strong. We have revenue sources from employers, medical carriers and from voluntary benefit suppliers. I believe this multidimensional business model is going to serve us well over the long run, especially as BenefitsPlace exposure and engagement increases.

Now let's turn to our results. Total revenue for the quarter was $87.1 million, an increase of 17% compared to the fourth quarter of 2018 and was driven by double-digit growth in each of our revenue streams. Platform revenue, which represents revenue from BenefitsPlace, was up 34% in the quarter compared to last year. This was disclosed for the first time this quarter.

As we've highlighted on our prior earnings call, at the start of 2019, we strategically renegotiated our Mercer contract. The revised contract contributed to stronger relationships with the influential broker community, but from a 2019 revenue standpoint, created a near-term headwind of approximately $3 million in Q4 and $9 million for the full year.

Connecture-related assets continued to deliver solid results and contributed approximately $7 million of revenue in the quarter and nearly $24 million for the full year 2019. For both the quarter and full year, professional services revenue accounted for approximately half of this revenue contribution. We continue to be pleased with the performance of the assets acquired from Connecture.

Excluding the contributions from Connecture and the impacts of Mercer, total Q4 revenue grew 13% compared to Q4 '18 and reflect high single-digit subscription and professional services growth and 34% growth in platform revenue. On a GAAP basis, software gross profit was $46.8 million, representing margin of 68%. Professional services gross profit was negative $2.5 million, resulting in gross -- resulting in total gross profit of $44.3 million or 51%.

On a non-GAAP basis, software gross profit was $47.8 million, representing margin of 70%. Professional services gross profit was negative $2 million, resulting in total gross profit of $45.8 million or 53%. The year-over-year decline in gross margin as a percentage of revenue reflects the combination of increased investment in open enrollment staffing, investment in third-party data and a reduction in high-margin Mercer revenue.

Q4 adjusted EBITDA was $12.5 million. This exceeded our guidance and compares favorably to $12 million of EBITDA in Q4 2018. Our adjusted EBITDA was positively impacted by tighter expense management in the quarter. For the year, our adjusted EBITDA was $19 million, an increase of 84% compared to 2018. We plan to continue rigorously managing our cost in 2020 and expect that our adjusted EBITDA will continue to improve.

Operating profit was $1.6 million, and net loss per share was $0.12. This compares favorably to the operating loss of $9.6 million and net loss per share of $0.41 in Q4 2018.

Now let's move to the balance sheet and cash flow. We ended Q4 with cash and cash equivalents of $131 million. Also, we are in the final stages of negotiating a new credit facility for approximately $50 million. I'm expecting this facility to provide additional flexibility and liquidity at attractive terms. Free cash flow, a non-GAAP measure that we define as cash provided or used in operations plus purchases of property and equipment, was $2.5 million in the quarter and in line with our expectations.

Moving to guidance. As Ray highlighted, our outlook reflects several factors including the combination of continued strong adoption and growth in BenefitsPlace; a greater percentage of our backlog and new ARR to be derived from larger transactions, which will benefit Q4 2020 and 2021 revenue; Mercer revenue declining from approximately $26 million in 2019 to expected $10 million in 2020; and a planned reduction in on-premise Connecture customers.

Let me also give more color regarding the political landscape as we frequently get asked questions on this topic. Overall, we view changes in health care laws as a positive for Benefitfocus as our platform helps consumers make complex choices with relevant data and easy-to-use tools. When regulations change, our customers need help, and we are uniquely positioned to provide that needed support. We will continue to closely monitor the macro environment and assess the potential impact on our business.

For the first quarter of 2020, we are targeting total revenue of $67.5 million to $69.5 million; a non-GAAP gross margin of approximately 50%; and adjusted EBITDA between $0.5 million and $2.5 million. We expect a net loss of $10 million to $8 million, which represents a non-GAAP net loss per share of $0.30 to $0.24 based on 32.8 million basic and diluted weighted average common shares outstanding.

For the full year 2020, we are targeting total revenue of $310 million to $320 million and adjusted EBITDA between $22 million and $27 million. We expect non-GAAP net loss of $23 million to $18 million, which represents a non-GAAP loss per share of $0.69 to $0.54 based on 33.2 million basic and diluted weighted average common shares outstanding. For modeling purposes, we are expecting total revenue trends to resemble those of 2019.

In addition, today, we announced that our Board of Directors has approved a share repurchase program for up to $20 million of our common stock. This reflects confidence in our growth strategy, our ability to successfully execute and our belief that the intrinsic value of the company is much greater than the price at these current trading levels.

In closing, we are entering 2020 with more lives than ever before and a plan to further increase lives and engagement on the platform. I look forward to providing you with updates on our progress as we move through the year.

With that, we'll open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions]. Our first question comes from the line of Brian Peterson with Raymond James.

Brian Peterson

So just wanted to start out on the 2020 guidance. Steve, I appreciate some of the color there. But maybe you could walk through some of the assumptions or moving parts on what's driving the outlook for 2020.

Raymond August

Yes. Thanks, Brian. We appreciate it. As we think about 2020, we're really excited about the future for Benefitfocus and our customers. There's really 3 main drivers that we look at, and the first is BenefitsPlace. As you saw from a BenefitsPlace perspective, the amount of premium that our customers purchased went up from $600 million to $800 million. Our revenue went up from above $20 million to above $30 million. And we have plenty of runway where we could sell more BenefitsPlace solutions to the 17 million-plus net benefit eligible folks on our platform. So BenefitsPlace is a key driver of our 2020 revenue.

Second key driver for us is really around the carrier lives. We're seeing a lot of great demand for our carrier-based solution. Last year, we acquired the assets of Connecture. We married up their next-generation product with the Benefitfocus carrier solutions, brought that to market in Q4 of last year. And since our last earnings call, we had 3 different carriers sign up for that innovative quote-to-pay solution. We're told it's the only product in the market like that. So that's going to play a big role in our revenue growth in the back half of the year, and we have a very, very strong pipeline.

The third key lever for us is working with the broker community. We've increased the number of brokers who are premier brokers in Benefitfocus from a year ago by about 15x to over 800 brokers that represent Benefitfocus out in the market. And we see these brokers as a tailwind to our activities in the employer marketplace. So really looking forward to the lives that we're going to add to our over 17 million net benefit eligible lives from both the broker community, our medical carriers. And we're seeing strong expansion and engagement with BenefitsPlace. And those are some of the big drivers we have going into this year.

Stephen Swad

And I'd just add to that, Brian, that we took that plan and that operating plan and then risk-adjusted it to develop guidance. I feel good about where we landed.

Brian Peterson

Understood. And Ray, maybe just a follow-up to some of those comments. The three 7-figure carrier deals, any help on what drove those and how we should be thinking about expectations or the pipeline for some large potential carrier transactions going forward?

Raymond August

Yes. As we look at Benefitfocus through our platform transformation, we're really focused in the business of connecting people to benefits. And we do that in multiple ways. We do that through carriers. Carriers help us connect to both employers and also individuals. From a carrier perspective, the solution we have is very unique because it allows a carrier to a quote a product, enroll a product, bill a product and receive cash against that product. And it's the only product like it on the marketplace. And it's competitively distinctive for us.

So you see just in the -- a short amount of time since it's been out that we've added three different carriers to Benefitfocus, a mix of both existing customers of Benefitfocus, great companies like Premera, Optima and a new customer, National Teachers Associates. And so the carriers are responding saying this is a very innovative product. And one of the things that they really see that is very compelling about it, not only it's the end-to-end quote to pay, but it's the ability to offer to their customers BenefitsPlace. And having BenefitsPlace adoption by the carriers, which will be new to us at the end of 2020, is something that they see as a way to compel their customers through offering more voluntary products.

It's also good for us because it allows us to match up our BenefitsPlace suppliers with these carriers. So we're seeing that as a real driver for these carriers. So pipeline is very strong for the rest of the year. We expect to continue to have closures as we drive through the rest of 2020.

Brian Peterson

That's good to hear. And maybe just one quick clarification. Steve, I know you mentioned the 5 million lives being exposed to BenefitsPlace. I just want to be clear. Does that include or not include the benefit -- the prior customers that were on Benefitstore?

Stephen Swad

That is all lives exposed to BenefitsPlace. And so it would include those lives. And just a point of clarification, Brian, the way I think about BenefitsPlace is I think of it as a grocery store. And there's an aisle in the grocery store, and there are benefits in the aisle. And a life goes down the aisle, and they pull voluntary benefits into their cart, and we get compensated for those voluntary benefits. So I don't think about it as a store and a place. I just think about it as consumer activity, engaging with voluntary insurance products that we put in front of them. So that's the way I think of it.

Operator

Our next question comes from the line of Sean Wieland with Piper Jaffray.

Sean Wieland

So you said sales cycle -- you're seeing some sales cycle declining or improving but also that more ARR is going to be derived from larger transactions. So deal size is increasing and sales cycle decreasing isn't something that we see very often. Help me connect those dots.

Raymond August

Yes. Thanks, Sean. We're really pleased with the activity around the carriers with BenefitsPlace. And as we think about it, what's really happened is, before, we just had an enrollment system and a billing system in the marketplace. We were often purchased -- always purchased for operational efficiency by insurance companies. It was a tactical solution that was -- it was very important for the companies, but somewhat tactical. It's really about automation and operational efficiency.

Now that we have this end-to-end quote-to-pay solution, the quoting is key in all this because quoting drives increased activity. It drives providing quotes to people looking for insurance. And that has helped create the shift from being a tactical efficiency solution to a strategic solution for the carriers, where they see, by having this solution, they're going to drive more revenue for their companies.

And that's really the shift we talked about from the COO to the CRO, where companies need to hit their numbers for the coming year. So it's a shift that once you're talking to the Chief Revenue Officer of a company, they have the CEO typically about, hey, I need this solution to drive incremental revenue. And that's what we saw in these deals that we added this over the last several months.

Sean Wieland

That's helpful. And do you have any thoughts on cash flow, free cash flow guidance for 2020?

Stephen Swad

Yes, Sean, this is Steve. We ended 2019 with -- we consumed $32 million. We are expecting significant improvement over that in 2020 driven by 2 things: an increase in EBITDA as well as a reduction in our working capital investments. And kind of the sum of those two to result in free cash flow consumption, somewhere between $15 million and $20 million.

Sean Wieland

Okay. And the line of credit renewal, just a small one, is this -- this is replacing the one that expired in February for $95 million?

Stephen Swad

That is correct. It's -- the line expired. We replaced it. There is a best efforts accordion to expand it. I was comfortable with the $50 million principally because we have $131 million on our balance sheet. I didn't want to pay the fees associated with the unused line. But it is a replacement to that. And it is with the same primary bank.

Operator

Our next question comes from the line of Jamie Stockton with Wells Fargo.

Jamie Stockton

I guess maybe the first one, just on the kind of Mercer business that's left. How should we think about that on a go-forward basis? I mean is this -- that is an entity that is in-sourcing or using another partner, and that's going to go away at some point? Or maybe it's going to be stable? If you could start there, that would be great.

Raymond August

Yes. The brokers are a key part of our growth drivers, Jamie, for next year and into the future, and our relationships continue to improve. The Mercer revenue is -- really could come from a point of -- we have this single source relationship to now where they're a part of our robust broker community. And like all parts of our robust broker community, we're working closely with them, have a good relationship with them, and frankly, hope to grow that revenue that we have working with them just like we would with any other broker.

So we're really seeing that have transitioned from a unique one-off relationship to now they're part of our overall community. They see a lot of value in our solution both because of the BenefitsPlace and the automation that provides. And we're going to continue to work that to hopefully drive it up as we go forward.

Jamie Stockton

Okay. That's great. And then maybe just -- you've given us a Q1 number and a full year number. I think Q1 still has some headwind from the restructuring that happened last year that didn't impact Q1 of '19. So maybe that's 3 or 4 points of headwind for growth or something like that. But even if I take that into account and the Connecture getting a full quarter contribution from it in Q1 versus last year, it seems like the business is maybe flat to slightly down organic in Q1. And then there's average growth rate the rest of the year that's maybe 8% or 9%, something like that. As we think about that inflection, is that an inflection that's likely to be relatively smooth throughout the year? Or is this a setup where, I think, maybe Steve's comment that you expect some big deals to go live in Q4? Is it more of kind of a Q4-centric inflection?

Stephen Swad

Yes. There was a lot in that. Kind of my view is we guided Q1, and I'm going to let that guidance hold. I'll, of course, update it in like 60 days or something like that. And then I did mention that the Mercer headwinds are going to continue, and in fact, strengthen. And that's why I called out explicitly Mercer's numbers.

And so you'll see, when you look at the data that Mercer is going from like $26 million to $10 million, and if you look back, it was, I think, $35 million to $26 million. And so you can see there's an acceleration in the decline for Mercer. And that's why I called it out the way I did it. And that might be part of what you're referencing. But at this point, I'm not really going to comment much more in Q1.

And just a reference point, in order to kind of be transparent about this, we put on our website a supplemental schedule that helps lay this out. And so you might want to look at that.

Operator

Our next question comes from the line of Mark Murphy with JPMorgan.

Matthew Coss

This is Matt Coss on behalf of Mark Murphy. Steve, you mentioned that you included some risk adjustments in your guidance. Can you explain a little bit to us what the specific risk adjustments might be and if they're related to any events over the recent few days and weeks?

Stephen Swad

I would describe them more as business puts and takes. So when you look at a business plan over a 12-month period, there are some good things and some great things and then some things that could go other ways. And so what I was referencing was more a risk adjustment of the business plan over the next 12 months.

Matthew Coss

Okay. So nothing that's cropped up recently is kind of factored into that?

Stephen Swad

That's correct.

Matthew Coss

Okay. Got it. And then, Ray, you mentioned a large employer chose your platform to service its workforce. Did this replace another solution? And what was the sales cycle like for that?

Raymond August

Yes. I'll speak more categorically then about the specific situation. But we're seeing a lot of multiple sources for our solutions, whether it be ERP vendors, the benefit solutions that we replace, and once in a while, still a custom solution. Typically, the sales cycle, depending on the size, is anywhere from 3 months to over a year. And it really depends on the company and the size of the company.

As you know, the -- our biggest selling season for the employer side of the segment is starting here in the next couple of weeks and will happen through early Q3. And those deals will turn pretty quickly. And the sales cycles are a matter of months is what we'll typically see.

For the carrier deals, it's longer, and that's simply because the deals are much more strategic for medical carrier. It typically has the -- all the executives of the medical carrier looking at that deal, and it's of strategic importance. So it takes a little bit longer sales cycle.

Matthew Coss

Got it. Okay. And then finally, what steps do you think you could take? Or is it worth sort of encouraging voluntary benefit consumption outside of the typical Q3, Q4 benefits enrollment cycle?

Raymond August

Yes. We're really pleased with the voluntary benefit consumption that we've seen with BenefitsPlace going from $600 million of premium selected to $800 million of premium selected. And we're starting to see it happen throughout the year. The way that we're going to really engage with the consumers and continue to engage with the consumers is with our artificial intelligence engine, BenefitSAIGE.

And with BenefitSAIGE, we take this massive amount of data that we have on our platform, which is really health data, wealth data, demographic state about every individual. And when a specific event happens such as a new baby, child turning 26, then a message is sent out to the individual. And it's inciting them to act and provide products. So the -- so really using artificial intelligence and technology to reach out to people to purchase those benefits when they need it, we believe, will be very, very fundamental in moving from a two -- every two week period to a 52-week period. Data and artificial intelligence are going to drive us there.

Operator

[Operator Instructions]. Our next question comes from the line of Nandan Amladi with Guggenheim Partners.

Nandan Amladi

So a question on the 17 million lives. How many of these produced PEPM in 2019? And what's your expectation for 2020?

Stephen Swad

Could you just repeat that one more time?

Nandan Amladi

Yes. You have 17 million lives now ending fiscal year '19. How many of those lives produced revenue -- per employee per month type revenue in 2019? And what's your expectation for how many will generate that subscription revenue in 2020?

Stephen Swad

Yes. As you know, those lives are what we call booked lives, which represent lives where we have a signed contract. And then there's a journey to move those booked lives into -- they first start with professional services revenue and then PEPM, as you suggest. We do not break out those. As you know, that's on my to-do list. But we do not break those lives out at this time. I will say the larger the deals, the longer the implementation period and the longer it takes to get those lives generating PEPM.

And as it relates to the Q4 deals, I said when we were preparing guidance that we expect some of that revenue -- some of those deals to hit Q4 revenue but then to hit Q4 2020 and then to hit in full in 2021. And so that gives you an idea of the time it takes to go from contract to revenue.

Nandan Amladi

Right. And another sort of broader question. When you were disclosing employer versus carrier revenue separately until 2018, employer was growing a lot faster and have become the majority of your revenue at that point. Given the Connecture assets now and the new quote-to-pay solution, can you talk about the size and the growth dynamics of employer and carrier since you don't disclose those separately anymore?

Raymond August

Yes. Nandan, when we think about lives on our platform, we really think about Benefitfocus, and our role is to connect people to benefits. And in the last year, we actually increased our net benefit eligible lives by 30%. So extremely large number of lives joined our family. And we look at all lives equally because if you think about it, it's all about having somebody enrolling benefits through a medical plan and then purchasing voluntary products around that.

So we don't even think about them separately. We think about them the same. We think about how do we get more lives onto our platform, and then once we get those lives on the platform, how do we engage them. So ultimately, they're getting more value from our solution and then purchasing the medical plans, voluntary plans that helps them and their family for the future. And then ultimately, Benefitfocus receives revenue from that.

Nandan Amladi

So are they equally -- are consumers in both areas seeing the same types of products in BenefitsPlace?

Raymond August

Yes. If you look at the BenefitsPlace today, all revenue that we're seeing in BenefitsPlace, over $30 million of revenue that purchased about $800 million of premium in 2019, those are all from the employer side of the segment. In 2020, we have several carriers who will be offering BenefitsPlace products to their employees -- excuse me, to the employers that are on our platform, and we'll begin to see BenefitsPlace revenue emerge in 2020 as well. So we'll see BenefitsPlace revenue from both what was formerly known as the employer segment and the carrier segment, both of those in 2020.

Operator

We have reached the end of our question-and-answer session. And I would like to turn the call back over to Mr. Ray August, President and CEO.

Raymond August

Yes. So I'd like to thank everybody for your questions here today. And we look forward to updating you to the progress that Benefitfocus is making as we go forward, both this quarter and for the remainder of the year. Thank you.

Operator

This concludes today's conference call. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.