This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk01: Good afternoon and welcome to the CAST Light Health fourth quarter 2020 conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone keypad. If you require any further assistance, please press star 0. Leading today's call are Maeve O'Meara, Chief Executive Officer, and Will Rundurant, Chief Financial Officer. Maeve and Will will offer prepared remarks and then they will take questions. The Cast Light Press Release webcast link and other related materials are available on the Investor Relations section of the Cast Light's website. This call contains four linking statements regarding trends, strategies, and anticipated performance of the Cast Light business including but not limited to guidance for 2021, new sales, our ability to bring new innovation, the opportunities and impact of COVID on our own operations, our ability to sell and our operating results, opportunities and the impact of COVID on our customers' businesses and their decisions to buy certain benefits or institute workforce reductions, retention of existing customers, gross margin, and operating expense trends, cash use, future cash position, and the changes in the growth strategy on the company's performance. These statements are made as of February 23, 2021, and reflect management views and expectations at this time and are subject to various risks, uncertainties, and assumptions. If any of these risks or uncertainties develop or if any one of the assumptions prove incorrect, Actual results could differ materially from those expressed or implied by our forward-looking statements. The company disclaims any obligation to update or revise any forward-looking statements. This call contains financial guidance, but the company will not provide any further guidance or updates on performance during the quarter unless any regulation FD compliant form. Please refer to today's press release. and the risk factors included in the company's filings with the Securities and Exchange Commission for discussion of important factors that may cause actual events or results to differ maturely from those contained in Cast Light's forward-looking statements. Today's call and presentation also includes certain non-GAAP metrics, such as non-GAAP gross margin operating expenses, operating income loss, and net income loss per share. These non-GAAP financial measures should be considered in addition to, not as a substitute for or an escalation from, measures prepared in accordance with GAAP. However, Caslike believes these non-GAAP metrics aid in the understanding of Caslike's financial results. Disclosures regarding non-GAAP metrics and reconciliation to comparable GAAP metrics on a historical basis can be found under the heading Reconciliation of GAAP to non-GAAP financial measures of the earnings release that was filed before the call. With that, I'll turn the call over to Maiv O'Mara, CEO of Cast Light Health. Maiv?
spk02: Thank you all for joining us today. On the call, I'll provide an update on the fourth quarter, a look back at the progress we made over the past 18 months, and then turn towards our goals for 2021. After that, I will hand the call to Will to provide a more detailed review of the financials. For the full year, our total revenue of nearly $147 million exceeded our guidance. Our full year non-GAAP gross margin of 68% was the highest since 2017. And CapSight achieved full year non-GAAP profitability for the first time. While COVID introduced many unforeseen challenges, our experienced management team and Will and I's deep understanding of the business allowed us to make swift, sound decisions that strengthened our financial footing while still enabling us to respond to COVID and the rapid market evolution in a way that has positioned us well to grow ARR in 2021. The team delivered a very strong fourth quarter, and I would like to take a minute to recognize some of those achievements. First, we exceeded our goal of adding one new health plan customer in 2020, signing a second new health plan in December. I am thrilled to announce Blue Cross Blue Shield of Alabama as our newest health plan customer. They purchased our full navigation solution with the first rollout commercial accounts planned for late this year. Their selection of Caslight's navigation solution in a highly competitive process is continued evidence of our strong product market fit with health plans. The relationship builds our strength in the Blues and multiple leaders at Anthem served as customer references in the evaluation process. Blue Cross Blue Shield Alabama is a particularly notable win as Alabama is a respected leader among the Blues as both a larger regional plan, but also an established innovator. Second, we entered a partnership with Boston Children's Hospital to support the national vaccination effort under their existing agreement with the CDC. Specifically, we are enabling providers, pharmacies, and jurisdictions to report vaccine inventory on a daily basis to the CDC. This data set will be made available to the public through Boston Children's Hospital's consumer-facing site, VaccineFinder.org. We were selected to do this work because of the national leadership role we played in COVID testing navigation, and more significantly, our established expertise in health navigation. Will will share the financial details of this agreement, but as an organization, we are honored to support the country in this critical work that so closely aligns with our mission. And finally, our teams executed flawlessly during the heaviest operational time and health benefits. We exceeded our service level for all clients in December and January with overall customer satisfaction scores of 8.1 for our customer service organization. Our care guides also excelled with an average customer satisfaction score of 9.0. We maintained our mobile NPS of 65 plus throughout the full year. We have stronger process, people, and technology to thank for our best operational year in Caslight's history. As we close out 2020 and focus on 2021, I think it's important to take a step back and reflect on the massive organizational transformation that we have driven over the last 18 months. First, we made the strategic decision to enter the health plan market where we saw opportunity to expand our addressable market for navigation. We set a goal of one new health plan customer in 2020. We exceeded that goal in signing both a national plan and a large, well-respected blue plan within the year. We continue to see significant potential in this market and have built a strong pipeline of opportunities for future growth in 2021. We are also fortunate to announce the addition of Scott Sirota as an executive advisor. Scott just recently retired from his role as CEO and president of the Blue Cross Blue Shield Association, which he oversaw for nearly 20 years. During his tenure, Blues membership increased substantially, and the association played a key role in driving deeper collaboration across the 36 Blues plans. Scott is a true expert and respected leader in the space, and the time and energy he provides Caslight are invaluable, but also validation of the opportunity we have in front of us in the health plan market. Second, we made the strategic decision to expand our offering to include a high-touch services offering almost 18 months ago. We built and launched our CareGuide solution to meet the market demand for a high-touch, high-tech navigation offering, leveraging our technology backbone to enable scalable next-generation navigation. We continue to hear from employers and benefit consultants alike that there is a hole in the market and a clear need for a solution that is not services first. Looking back at the first full year live for one of our initial customers, CareGuides drove a 32% increase in engagement compared to our full book of business. And this engagement was seen in all user risk segments. We also saw that higher risk cohorts were 43% more likely to engage in high touch channels versus digital. We were also pleased to see a 24% increase in enrollment in third-party point solutions post the CareGuides encounter, a direct result of our integrated technology that enables guides to seamlessly connect users with these solutions. We are confident that these two key decisions, go-to-market expansion with health plans and the addition of care guides, will enable us to return to growth in 2021. As one additional point of validation, I am excited to share that our newest health plan customer, Blue Cross Blue Shield of Alabama, just signed an expansion with us earlier this month to add care guides as part of the initial launch scope alongside the digital navigation solution I discussed earlier in our Q4 highlights. In addition to establishing clear strategic imperatives, we are proud of the decisions we made during COVID. First, our thoughtful proactive changes to cost structure allowed us to end the year with a 68% non-GAAP gross margin, achieving our first year of non-GAAP profitability and invest cash prudently. Throughout 2020, we demonstrated operational discipline and chose to make high impact investments, such as our health plan team and care guides. COVID also showcased our ability to innovate and execute quickly to support our customers. We established ourselves as clear thought leaders in COVID navigation for employers as the national leader in testing navigation and leveraged our data and analytics expertise to publish key insights in leading academic journals. Most recently, we launched our COVID-19 Vaccine Navigation Solution, which is helping our employers educate, engage, and enable access to vaccines in a personalized, interactive way using the core capabilities of the Castlight platform. Some of our largest customers have deployed this functionality and we'll be speaking about it in a webinar this week. We are confident that the work we did to establish ourselves as the most innovative, nimble player in the navigation space will increase retention and drive pipeline in 2021. Looking back over the past 18 months, we have made an enormous amount of progress, but I am most proud of the leadership team we built, a team for the future. We have hired A-level talent from a mix of tech and healthcare and coupled that new expertise with leaders who have grown up inside the company. We have created a culture of debate and accountability and built a cohesive team despite a pandemic keeping us physically apart. This is a team I am confident can lead Castlight through its next chapter of growth. As we look to 2021, we are confident that we have put in place the right strategy and team and that our focus needs to be on execution. We have three clear priorities. First, we will return to ARR growth in 2021. We expect this growth will be driven by continued traction in the health plan market, as well as a return to growth in our employer business. In the health plan market, we have a strong pipeline and fully expect to build on the momentum we created in 2020. Our health plan customer base now includes Anthem, Cigna, and Blue Cross Blue Shield of Alabama, so we are optimistic that we will have expansion opportunities like our recent Blue Cross Blue Shield Alabama Care Guides win, in addition to new health plan partners. We have built out our health plan sales team and are better positioned to convert on pipeline opportunities as an organization. We continue to see that our full product portfolio is resonating with the greatest demand around digital navigation, but also see acceleration from external factors like the finalized CMS transparency rules. We have been the undisputed leader in transparency for a decade and thus are well positioned to support existing and future customers as they seek to comply with these rules. With employers, in order to drive sales in the growing navigation market, it is critical that we increase awareness of our high-touch capabilities. Our solution has now been live for over a year and is generating great proof points, so we are in a much stronger position to educate the market and take share. Key to increasing market awareness is our consultant and broker strategy. They are particularly aware of the need for an alternative within navigation that isn't just less expensive services. We are negotiating new agreements with the top firms and have kicked off a top 100 local producer strategy to ensure we are getting our full high-tech, high-touch navigation message into the hands of these key influencers who ultimately determine inclusion in RFPs. We also expect to significantly improve performance on renewals. This is a function of both customer health and a significantly smaller renewal cohort than in the past two years. We are moving aggressively to pull renewals forward within the year and are confident in our plan. Second, we will pioneer next-generation navigation. With our high-tech, high-touch approach, we are creating the next generation of navigation. Over the last year, we clearly established the ability of a combination of self-service plus clinical expertise to drive the same or better outcomes as expensive services-first solutions. Adding CareGuides has amplified a strength of CastFlight, which is engaging the middle of the risk spectrum, people with rising risk or chronic conditions. This is a gap we commonly hear from customers and consultants as they have evaluated point solutions and other navigation platforms. We will measure our success through further demonstrated impact on ROI as seen in third-party validated studies and customer case studies. We have a robust roadmap on both the technology and services side, and we will continue to expand our ecosystem as a vector to drive greater impact. As a digital health pioneer that also demonstrated rapid innovation during COVID, our ability to both innovate and execute quickly will matter in a competitive growing market. Third, we will continue to demonstrate operating discipline, investing in growth while maintaining our attractive high-margin business model. As I said in the introduction, I'm proud of our work to deliver Caslight's best financial performance in our 10-plus year history. We operate with attractive gross margins and have proven we can do so profitably. We have built a technology platform that allows us to deliver high-tech, high-touch navigation with strong gross margins. In 2021, we plan to make intentional investments that will deliver a return to growth, but we will apply operational discipline to ensure very low cash burn and sustained growth margins. To close my comments today, I want to thank the Castlight team for everything they accomplished in 2020. We were able to deliver against our goals despite COVID and revealed a fast-twitch innovation muscle that allowed us to deepen our relationships with customers and support our communities and our country. We have done the hard work to set the foundation, which will enable ARR growth in 2021. We are excited to build on the past 18 months of transformation and remain committed to our mission to change healthcare and are grateful to do this important work every day. I'll now turn the call to Will.
spk04: Thanks, Maeve. I'll spend a bit of time touching on full-year highlights, review our fourth quarter results in detail, and provide our initial outlook for the year ahead. For the full year 2020, we reported revenue of $146.7 million, an increase of 2%. While 2020 certainly was a challenging environment, specifically for our employer business, our revenue increase demonstrates our resilient revenue model and the team's innovation Maeve mentioned, which led to new engagements and the year-over-year increase in revenue. Non-GAAP gross margins of 68% increased nearly 600 basis points compared to 2019. The improvement was a direct result of our commitment to financial sustainability. As Maeve said, our proactive cost structure decisions in early May allowed us to position the business for a strong year, even in the midst of unprecedented economic times. We are also pleased to report that CassLight achieved our first full year of positive non-GAAP operating income, with 2020 non-GAAP operating income of $6.3 million compared to a loss of $21.7 million in 2019. Finally, as it relates to cash, we delivered positive cash flow from operations for the second half of the year, bringing the full year operating cash flow use to just $5.6 million. Our full year total cash used included one time cash to build our Utah Customer Center of Excellence, which represented more than $3 million of non-operating cash outlay in the first half of 2020. Turning to our fourth quarter results, our annualized recurring revenue, or ARR, at the end of the quarter was 126.7 million, down approximately 4.7 million sequentially. As we discussed in Q3, we saw limited employer sales that did not offset client renewal decisions. Importantly, we continued to pull forward 2021 renewals into 2020, and I will speak further about our renewal book as I address our 21 outlook shortly. Total revenue in the fourth quarter was 37.1 million, an increase of 2% compared to a year ago. Q4 revenue benefited from the recognition of initial revenue against our Boston Children's Hospital CDC agreement, which is reflected in our professional services revenue line. As we referenced in the initial disclosure, the agreement provides for BCH to pay Castlight $8.5 million for work that began in Q4 2020 and is expected to conclude in mid-2021. Subscription revenue of $34.4 million accounted for 93% of total revenue, and services revenue represented the remaining $2.7 million. Subscription revenue in the quarter continued to benefit from membership levels that exceeded our conservative forecasts around potential COVID-related layoffs, employment disruptions, or user count decreases for our employer clients. Turning to non-GAAP measures, our gross margin in the quarter of 68% compared favorably to 58% a year ago. Subscription gross margin of 79% was in line with our expectations. Non-GAAP operating expenses as a percentage of revenue were 61% in the quarter compared to 80% in the fourth quarter of last year. Like previous quarters, the year-over-year improvement reflects our 2020 priority around financial sustainability, specifically as we realized savings following our platform migrations that completed on January 1st of 2020. as well as the impact of our proactive cost management measures implemented in Q2 of this year. Finally, non-GAAP operating income of $2.7 million represents the third straight quarter of positive non-GAAP operating income. The same can be said for cash flow from operations at $3 million in the fourth quarter. We ended the fourth quarter with $49.2 million of cash on the balance sheet. With that, I'll now provide our 2021 outlook. In 2020, we made significant progress against our goals of financial sustainability and believe that we are now in a position to manage profitability and cash flow against investment opportunities that will drive growth in the business. As we look forward into 2021, we have chosen to make a set of investments we believe will allow us to capture market share, empower the return to ARR growth Maeve mentioned, notably in our sales and marketing organizations, where we are underspending our competitors and comparable firms, and our CareGuides capabilities. As we make these investments, though, we remain committed to financial sustainability and will continue to steward our cash to limit our outlay. As we look forward into 2021, we expect revenue in the range of $130 to $135 million, non-GAAP operating loss between $4 million and $9 million, a non-GAAP loss per share between two cents and six cents per share based on approximately 160 to 161 million shares outstanding, full-year gross margins in the mid to high 60% range, and cash flow from operations to be between $2 million of cash generated and $3 million of cash used. We expect the end of the year with cash and cash equivalents of greater than $45 million. Beginning this year, we will also provide a forward quarterly expectation for revenue. We expect revenue for the first quarter that ends March 31st, 2021 in the range of 32 to 34 million. Finally, as Maeve mentioned, we are committed to ARR growth in 2021. While Maeve described in depth our sales motion and progress in both health plan and employer markets, I also wanted to share a bit of context on our renewal book of business. In 2021, our renewal book is half the size of our 2020 renewal cohort. We are already engaged with each major renewal and believe we can manage our turn to a meaningfully lower ARR reduction and higher net dollar retention in 2020 or 2019. We made significant progress in 2020 while meeting the needs of our customers and users during challenging times, and that couldn't have happened without the hard work, creativity, and commitment from the entire team at Castlight. I echo Maeve's sentiment that we believe we are well-positioned to deliver ARR growth in 2021, and I look forward to updating you on our progress throughout the year. We are confident in our team, the investments we are making to return to growth, and appreciate each of our employees, customers, users, and shareholders as participants in our transformation. At this time, I'd like to open the call to questions. Operator?
spk01: At this time, I would like to remind everyone In order to ask a question, press star and the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. And your first question comes from Troll 3 with Cohen.
spk08: Uh, yeah. Hi. Thanks for taking the questions. Um, hey, just just to start. Um, well, you talked about, um, that the renewal book for the rest of this year is about 50%. And I guess you're saying that because you pulled forward a lot of that activity into 2020. Is that correct?
spk04: Charles, it's great to chat with you today. As I mentioned, we did see, obviously, renewal activity in Q3 and Q4, and one of our goals was to pull forward as much of the 2021 renewal book into 2020 as we could. We pulled forward a handful in Q4 and a handful in Q3 to help be part of the reason we feel good about that book looking forward, partly, obviously, because of the size, and then also because, as Maeve mentioned, we feel like we've got line of sight in the renewals and a healthier book than we have had in several years.
spk08: Okay, that's helpful. And so then I guess maybe a different question would be because if we're looking at the ARR decline sequentially, it was, you know, is there like a success metric of the that early renewal activity? Or when you're saying early renewals, you know, these are ones that you were able to close for a renewal. Were there others that you were in discussions for an early renewal and they took that opportunity to, you know, make a different decision?
spk04: Absolutely. So just as a bit of quick context, the way that we essentially book ARR is that upon either the renewal itself or the notice of non-renewal, we either add it to or remove it from the ARR itself. So it's upon the kind of contracting or the termination notice. And so when we say pull forward into 2021, it's both renewing those customers we could, but then also working through customers that may not renew. And then if they gave us that notice in Q4, it would come out of ARR.
spk08: Okay. And that gives you the comfort with, with the remaining book as we go into this year?
spk04: That's right.
spk08: Okay. Maybe one last one for me. Boston Children's, I think you said about $8.5 million. By our math, it looks like maybe about, we saw $1.5 million in the fourth quarter. The revenue guide here, 32 to 34, would seem rather low if we take the remaining $7 million or so radically across the two quarters. Is it back-end weighted at all, or can you give us a sense for that? Thanks.
spk04: Yeah, no, absolutely. So obviously I should start by saying we're really pleased to have that relationship with Boston Children's Hospital. The proactive work we did with COVID has led to this opportunity. That payment is $8.5 million, and it reflects work that happens from – Q4 through the middle part of 2021. And that work happens as the essentially as the work happens. And so you'd expect that revenue to kind of flow from, you know, call it mid Q4 all the way through that mid 21 mark in the professional services line of revenue.
spk08: Okay. All right. I'll stop there. Thank you.
spk04: Thanks, Charles.
spk01: And your next question comes from Richard Cleese from Kennecourt Genuity.
spk06: Great. Thanks for the question. I assume you can hear me okay?
spk02: We can.
spk06: Okay, great.
spk07: Can you talk a little bit about Scott's specific role with respect to the Blue Cross Blue Shield and has that begun?
spk02: Yes, I'll just start by saying that Scott, we're really excited to announce him. He's been an incredible advisor. He's actually been working with us for some time, but are just obviously sharing it kind of publicly today. And his prior experience, you know, was president and CEO of the Blue Cross Blue Shield Association. So he's really been involved in all aspects of really the Blues community collaboration and innovation. And as you can imagine, has really an unparalleled network of relationships, as well as the actual personal experience of the 20-year CEO. And what I would also just add to that is, you know, I think Scott could really work with any digital health company, and I think he chose Cat's Light because he believes we have the best solution, that we know how to work with plans, and that we have the maturity and experience to win in this space. So extremely excited to be sharing the news today.
spk06: And was he involved in Alabama?
spk02: Great question. So he was, actually. So, you know, I think we mentioned in the earlier remarks that it was a competitive process. And we won for several reasons. So kind of number one was really having the best solution. So we were told that we had by far the most comprehensive product offering. The second was our track record with Anthem. So Anthem was, as you can imagine, a big reference for us. and then of course demonstrated success with large innovative employers. That said, Scott was also a key reference for us, knowing the company as well as he does.
spk06: okay um in staying on the health plan side of things here you talked about a strong pipeline um last year you said one you know hopefully signing one you signed two um you know do you have a targeted number of you know new wins uh for 2021 And then if you do, is that more a 2022 revenue event or 2023?
spk02: Sure. No, thank you for the question. So, you know, taking a step back, as you mentioned, we're thrilled to have exceeded the goal and added a second health plan customer. Last year, we believed it was really important to establish a foundation. And, you know, as we looked at this year, one of the things that we, you know, saw pretty clearly was that we have now multiple ways to grow, right? So both within the plans as well as new plan customers, which, you know, as we discussed, we've already seen that with Blue Cross Blue Shield of Alabama. And really our traction in 2020, the health plan pipeline, which I'll speak a little bit more about, and then our product market fit is what gives us confidence to really sign up to commit and to grow this business. From a pipeline perspective, we are in early to mid-stage discussions with several plans. And just one piece of color that I would add is that those conversations, many of those were in process prior to us signing Alabama. But the additional validation we fully expect to help us, frankly, increase the velocity of some of those opportunities through the pipeline. So we feel very good about our ability to grow the health plan business. Will, do you want to just comment quickly on the revenue?
spk04: Yeah, quickly on revenue. So, Richard, the revenue dynamic, it depends on the implementation timeline. There's going to be a spectrum there. Cigna, we signed in Q3, and it went live on 1-1, and so obviously revenue in 21 with signing in 20. The Alabama relationship is a broader product scope, so that's a good thing. We'll be a longer implementation timeline looking at late this year. And so it will depend on the product scope and implementation timeline as to whether it's 22 revenue, full year, part year, or 23 revenue.
spk06: Okay. When you sign a contract like that, even though the revenue might be way off or a little off into the distance, does it immediately go into ARR?
spk04: That's right. When we sign a contract, the part that is annualized and recurring, and so excluding implementation fees or one-time fees, would go into ARR upon contract signature.
spk06: Okay. And then maybe if we could move on to CareGuides, if I could ask a couple more. So how are you viewing the CareGuides opportunity? Is this more, you know, cross-sell, you know, to your existing clients, or is this more, you know, potential new clients? Maybe, you know, you can talk about where you see the most opportunity there. And then maybe, you know, how or what percentage of RFPs that you're bidding on include care guides?
spk02: Yeah, absolutely. You know, so to take a step back, when we decided on this strategy about 18 months ago, the reason for that is that we believe that the high-tech, high-touch approach is what's going to win in the growing navigation market. So to answer your question, we do see opportunity actually with health plans in addition to employers, but certainly with employers both within our existing book and new business. Just as we've been looking at the employer pipeline to share some perspective there, the RFPs and RFIs that we've seen, which this is early in the year for that to be clear, but those have included both high-tech and high-touch. So the short answer is we believe that the market is converging around navigation, point one. Point two, we believe that the high-tech, high-touch approach is going to win, so we expect to compete in a majority of the opportunities with our care guide solution.
spk06: Okay. And then a follow-on to that is if you sign someone to care guides, let's say they're an existing customer and they decide to take on care guides, they want that as well. Is that tied to the benefit year in terms of you would launch that, you know, in the January when the new benefit year starts? Or how do we think about timing if you're able to do a cross-sell?
spk02: Yeah, no, great question. I think one of the things that's really exciting about CareGuides is that we can launch that very quickly as well. Because really, if you think about what CareGuides is, it is a team of experts that are really providing support to people who have more complicated issues, questions, and or are not comfortable with technology. But we actually already have all of the data that would power the tools and solutions that CareGuides use. So we would be able to launch them during the year. And we have actually yet to see really an employer that's been too focused around a one-one launch of CareGuides as an add-on.
spk04: I would add, though, just quickly that certainly we can sign and launch within the year. But as you think about our outlook, we typically are planning for a world where we sell the customer in 2021 to drive revenue in 22. And so I would view meaningful kind of cross-sell opportunity as upside to our revenue for 21 if we're able to drive that.
spk06: Okay, that's fair. And then I just have one final question, if I could squeeze it in. So let's say CareGuides takes off, you're successful there. You're here today talking about your strong margins. gross margins, whatnot. How are you thinking about the margin profile as care guides increases in popularity, I guess?
spk04: Absolutely. I think one of the pieces we think differentiates us in this space, that navigation space, is that we're approaching high touch from the technology side. And so we have the technology foundation that will always be in place. We are never just the services team, which allows us to scale, and it also allows us to provide the care guides with a set of sophisticated technology to essentially help answer the question but more quickly and more efficiently. And so we believe we'll be able to implement care guides and are seeing this with our initial set of customers where the margin profile stays essentially where it is in the mid-60s, So that might be a tick down from what, you know, when CapNet was purely a technology company three or four years ago, we would have been saying. But ultimately, we can maintain this margin profile, launching that high-tech, high-touch navigation solution.
spk06: Okay, great. Thank you.
spk02: Thank you.
spk01: As a reminder, to ask a question, press star and the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. And our next question comes from Shane Menheimer with Calera Securities.
spk03: Thanks. Good afternoon. Congrats on all the great progress and the strong finish to the year. I wanted to ask the question around Boston Children's revenue a different way. I guess, how much of your 2021 outlook includes the one-time project with the CDC, so we can back that out?
spk04: Yeah, Gene, so you can think about Boston Children's as $8.5 million of payments that would have started in Q4 and go through mid-2021. It's not purely ratable in the sense that it's not truly equal each day, but it's associated with the teams working on that. And we expect that team to stay relatively consistently sized from when we launched it in call it mid Q4 through that mid 21 period. So hopefully that helps you kind of back into what you might think about on a Q1, Q2, and then early Q3 basis.
spk03: Okay. All right. Excellent. Thanks, Will. And just to confirm, first of all, congrats on the Blue Cross of Alabama win. And is your initial agreement there, is that included in the ARR number that you provided for December 31?
spk04: That's right. So congratulations to Maeve and the team on Alabama. The Alabama agreement we signed in December was for the digital component of the navigation solution. And then we expanded to include the care guides component just a few weeks ago. So the December digital component is in the 1231 ARR. The component from a couple of weeks ago adding care guides will be in our 331 ARR.
spk03: Right. Okay. And are you able to, you know, just help us along with sizing that opportunity? I mean, I assume it's somewhere between Cigna's initial agreement and Anthem, but That's a large range there. Can you give us any more granularity about how much this can contribute? Thanks.
spk02: Sure. Hey, Gene. Thanks for the questions. So, you know, Alabama is a large regional blue that does have significant membership. And they did, as you know, purchase our full navigation solution, including care guides. And so for those reasons, we do expect it to be a meaningful contribution in 22. Okay.
spk03: Very good. Good. And last thing. So you spoke of the ARR and how you pulled forward renewals, reducing the renewal, the cohort for this year. So how should we think about that conversion of ARR to revenue? Is it one for one? In other words, should 100% of that ARR number be recognized in the forward 12 months as revenue?
spk04: Yeah, Gene, it's a good question. So if you think about ARR, it's everything that is contracted and Both signed and launched, signed and implementation. Because of the dynamic you mentioned with renewals and candidly because our employer sales were lighter in 2020 than we would have liked, the proportion of ARR that is live is heavier than in previous years. There is still a set of ARR under implementation. A big chunk of that is what we just talked about with Blue Cross Blue Shield of Alabama, which signed in December and will launch late this year. But we do expect a higher portion of the ARR to convert to revenue than we did, say, over the last couple of years.
spk03: Makes sense. Thank you.
spk01: And your next question comes from Charles Rhee with Cohen.
spk08: Yeah, hey, thanks for taking the follow-up here. Just want to circle back here. If I think... I'm sorry if I missed it, but did you actually see how much Alabama ARR was in the quarter?
spk04: We did not, Charles. And, you know, we don't talk about customer-specific ARR numbers. We chose to give the Cigna ARR in Q3 because we didn't want to kind of lead anyone astray. Cigna, we're starting with a, you know, specific subset of their population and didn't want to imply it was bigger than it was. But we didn't. You heard me kind of describe it as a meaningful contribution as it converts to revenue in 2022.
spk08: Okay. So then my follow-up question is, you know, if we back out Anthem and then a little bit for Cigna and, you know, if we make some assumption for Alabama – you know, it kind of points to the employer market really struggling here. And obviously, a lot of things happened in 2020. Just curious, in particularly the fourth quarter, with care guides into the market, you know, clients that gave you notice of not renewing, I guess, two questions around that, you know, first, is it because those employees are buying down benefits? Or were they making a decision to move to a competitor?
spk02: Yeah, no, great question. And I'll address a kind of a couple of pieces of it. So kind of starting with some of the churn conversations. So really, when you think about churn, it's really a function of two things, which is customers choosing not to renew and then pricing reductions. And some of that was due to COVID. And candidly, some of it was not. So we've talked about the reasons that we feel good about churn looking forward, you know, half the size of the book, frankly, green and line of sight to those renewals. But kind of speaking more broadly about the employer book and why do we feel confident, you know, last year was a really different year due to COVID, and that impacted, as we just discussed, churn, but also new sales. So when we think about specifically 21, reasons we're feeling actually quite strong about the employer business are, number one, you know, there's fewer COVID headwinds. I think there's been a maturing of a remote buying process. Certainly COVID still exists, but people have learned to adapt. Number two is that we did not have our team fully enabled on care guides, the high touch piece, which is where a lot of the opportunity is. So having our team with that in their bag this year, we expect to have an impact. And then, of course, you know, I talked a little bit about some of the things we're doing on the channel side on the local level, which we're actually already seeing contribute to pipeline, so we think that'll be really significant. So the way that we think about it, Charles, is ultimately we are in a growing market. There is definitely a recognized need for a high-tech, high-touch solution, and we're actually very confident that our solution can win. So happy to dive into any kind of piece of that. I know you have several questions in there, but that's why we're feeling as good as we are about the employer business, despite having, as you said, a little bit of a tougher turn quarter than we would have liked.
spk08: Okay, and so then my follow-up question there is, so if we look at the guidance for the first quarter and take the midpoint at $33 million, you know, assuming it sounds like, Will, you're saying think of Boston's children as fairly ratable from, you know, mid-December, so call it, you know, roughly $3 million or so. You know, you're looking at kind of a... kind of a core revenue of $29 million, you know, probably subscription revenue, I guess, you know, I'm estimating roughly $28-ish plus, $28, $29. Is that just a function that if people give notice... those just revenues kind of just go away. So when we're looking at this, you know, $126.7 million AR, that's kind of our go-forward. Unlike when we sign new clients, it takes a while for them to ramp up and show up in the revenues?
spk04: Yes, that's exactly right. We try and take the most conservative approach we can with AR as it relates to clients that are terminating. So we take them out of that number when we receive the termination notice, Charles. And so there are clients, just to be very clear, that are still live with us and where revenue is being recorded, but they have come out of ARR because they shared a termination notice in Q4. A couple of those are the ones we talked about earlier, a 21 renewal cohort that we pulled forward to essentially handle it, take care of it in 2020. So that 126.7 represents essentially what is contracted go-forward revenue, but knowing some of it's an implantation and some of it is actually there are still clients that are live and recording revenue through the remainder of their contract term if they've given us a termination notice.
spk08: So they're still in that 1Q guidance then, even if they gave you termination notice, non-continuing notice in the fourth quarter?
spk04: That's correct. They very well could be.
spk08: Okay. Okay. Is there any levers then, you know, what could give us upside maybe to revenue guidance here? Or is it really that we're focused on, we should be focused on AR growth? Anything that can actually impact 2021 revenue itself?
spk04: Yeah, I'll take those two separately. For 2021 revenue, you know, we have really strong visibility to the core revenue base, as you mentioned, given our client contracts and given we don't have that much in implementation right now. We have not made assumptions about in-year revenue conversion. I think Richard asked this earlier. If we were able to sign CareGuides customers in the existing base, add on CareGuides, we would be able to launch that and implement that and leave the revenue upside. There also is revenue upside from some of the items that are performance-based. So we have performance guarantees in certain agreements. We take kind of an evaluation of those in thinking through our outlook, but take a frankly fairly kind of conservative approach to those performance guarantees. And then finally, I would say that Boston Children's Hospital didn't exist when we spoke about Q3 and the October timeframe. This is not me, it's the work of the team, but there's a lot of creative people at CASA that are looking for opportunities to drive revenue across the business. But with that said, ARR is definitely going to be the best measure looking forward to look at the kind of the opportunity for us to see, you know, meaningful revenue growth, the return to growth we've talked about in, you know, 22 and beyond.
spk08: Thanks. Maybe this last follow-up would be any other opportunities like Boston's Children out there, you know, for other parts of the country, or is this really the only way you're kind of getting to it?
spk02: Yeah, no, great question. And as Will mentioned, certainly my intent was not to focus on the CDC or Boston Children's Hospital. A lot of opportunities have come to us as a result of our work in testing and reputation in navigation. What I would just say from a focus perspective is that we have been very heads down on the fact that we're in a market that is growing, that has a hole in that market around, frankly, the high tech, high touch side. So, you know, one of the reasons that we decided to do Boston Children and CDC was certainly it aligned so closely with our mission, but also, you know, from an economic perspective, that it helps us on the questions that you're asking. So for that reason, we're trying to stay focused, but there is quite a bit of inbound to us, as you can imagine, for support around vaccines and otherwise, and we're evaluating those on a case-by-case basis.
spk08: Great. Thanks. Thanks a lot.
spk01: Sure.
spk03: Thanks, Charles.
spk01: And your next question comes from Steve Halper with Cantor Fitzgerald.
spk05: Hi. One housekeeping question and one bigger picture question. On the bigger picture, you know, how could you just sort of describe a little bit more, you know, the pipeline that you're dealing with, you know, in the payer market? And is there, you know, do you have a, would you share with us how many payer contracts you would hope to sign in 2021?
spk02: Sure. Well, happy to kind of talk broadly about the health plan initiative and kind of, as I mentioned, taking a step back, we are really focused on growing in two ways, expansion within our current customers. So that's Anthem, Cigna and Alabama, and then specifically new plans. I talked earlier about really the set of opportunities in the pipeline today are in kind of the early to mid stage conversation. Some of those are progressing. or approaching the later stage as we've defined it in the past. And, you know, as I said, we also expect them to move a little bit faster given some of the validation that we're having. So really our focus has been on committing to growth and less about kind of a specific number and more about how do we grow this business segment because, frankly, we feel like we have enough traction that we're confident we can do that.
spk05: Okay. So you would firmly expect new payers to sign during the year. Is that fair?
spk02: Yep, I do expect that.
spk05: And then the other last housekeeping question is, what's the expectation for headcount during the course of the year?
spk04: Yeah, absolutely. We ended Q4 at 440, which was slightly up from the end of Q3 where we were – uh 4 30. that was the essentially kind of go forward mark following our cost structure changes that q4 headcount ticked up because we have a set of folks that support customers around january 1st and so we expect it to be flat maybe slightly decreased as we look forward we don't expect to make um you know, meaningful increases in our headcount, certainly. Just the targeted investments that I mentioned earlier, you know, a couple more salespeople and the like.
spk05: Great. Thank you.
spk01: Your next question comes from Richard Cruz with Canaccord Genuity.
spk06: Thanks. Just a really quick one. So on the ARR decline sequentially, is there any way to sort of parse out like maybe how much was actually a customer deciding not to move forward and then maybe lower pricing?
spk04: If you think about kind of that sequential decline, Richard, um, the majority of it, uh, I would say was related to customers that, um, chose not to move forward or chose to not move forward with specific components of, um, the, you know, their product suite that they, they had purchased. Um, the minority, there was a, certainly an element of lower pricing, especially as, um, given COVID, we took long-term agreements with lower price rather than, you know, than termination. But I would call that the kind of the smaller portion rather than just the customers that did move forward.
spk07: Okay. Thank you.
spk01: And there are no further questions at this time. I'll now turn the conference over to Maeve for closing remarks.
spk02: Thank you all for joining us today. We're energized as we enter 2021 and are looking forward to seeing many of you virtually in early March. Thanks for your time.
spk01: This does conclude today's conference call.
Disclaimer