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spk00: Good morning. Leading today's call are Maeve O'Meara, Chief Executive Officer, and Will Bondurant, Chief Financial Officer. Maeve and Will will offer prepared remarks, and then they will take questions. The CastLight press release, webcast link, and other related materials are available on the investor relations section of CastLight's website. This call contains forward-looking statements regarding trends, strategies, and anticipated performance of the Cast Light business. These statements are made as of August 3rd, 2021, reflect management's views and expectations at this time, and are subject to various risks, uncertainties, and assumptions. Please refer to today's press release and the risk factors included in the company's filings with the Securities and Exchange Commission for a discussion of important factors that may cause actual events or results to differ materially from those contained in Castlight's forward-looking statements. Castlight disclaims any obligation to update or revise any forward-looking statements except as required by law. Today's call and presentation also includes certain non-GAAP financial metrics. These non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from, measures prepared in accordance with GAAP. Disclosures regarding non-GAAP metrics and reconciliation to comparable GAAP metrics on a historical basis can be found under the heading Reconciliation of JAP to Non-JAP Financial Measures of the earnings release that was filed with the SEC before the call. With that, I'll turn the call over to Maeve O'Meara, CEO of Castlight Health. Maeve?
spk01: Thank you all for joining us to review our second quarter 2021 results. Today, I'll start by sharing an update on the continued progress in our business, including our view of this year's direct-to-employer and health plan selling season. I'll then comment on some exciting updates to the Cast White team, and finally, I'll share some perspective on our longer-term growth initiatives. I'll start with a brief highlight of some key numbers. We saw a slight uptick sequentially in annualized recurring revenue, or ARR, which continued to move in the right direction for the second quarter in a row and was $128.2 million. Q2 was another very high customer retention quarter with strong sales activity setting us up well for Q3. Our total revenue for the second quarter of $35.6 million landed at the top end of our guidance range. Our non-GAAP gross margin was 69%, and CapSight achieved a fifth straight quarter of non-GAAP profitability and positive cash flow. Turning to the progress in our business, I'll begin with direct-to-employer. This was an incredibly active pipeline generation and RFP season, which benefited from our new CareGuides offering. In total, our RFP volume is up from the pre-COVID levels of 2019, meaningfully higher than 2020, and we entered Q3 with our largest late-stage pipeline in four years. And we see multiple pathways to achieving our targets for the year. By way of example, we were pleased to sign a Caslight Complete deal worth approximately $1 million of ARR in the first two weeks of Q3. Further, in addition to our pipeline activity, we announced a new channel partnership with Business Solver, where we are a preferred navigation vendor, and were selected by a brokerage house in a competitive process to support a portion of their business as the navigation vendor. On the health plan side, our initiatives progressed as planned in the first half of the year. We have developed a strong pipeline with a mix of expansion opportunities and potential new clients. As of today, we have one late-stage opportunity and several promising mid-stage opportunities. Our BCBS Alabama implementations of the digital navigation and care guides offerings are progressing on schedule and we are working closely with Blue Cross Blue Shield of Alabama to meet market demand and to enable their team's efforts. In both the employer and health plan markets, we continue to see potential tailwinds from transparency and coverage regulations as a best-in-class care guidance and healthcare navigation vendor. Importantly, we are starting these conversations with transparency, but they are quickly evolving into broader opportunities. From a retention standpoint, we continue to demonstrate meaningful progress. Q2 represents one of our best quarters in the past five years in terms of churn. I'm confident we are on track to show a meaningful improvement in retention compared to last year, even though we do still have important second half renewals to complete. As evidence of our continued improvement in the health of our book of business, our customer NPS in Q2 rose to 46 from negative territory when I stepped into the CEO role two years ago. I'm very proud of this progress, which I know has taken tremendous work from the entire organization. Importantly, supporting our progress with clients, we were pleased with the results of a third-party actuarial study released in May by Santa Barbara Actuaries, a highly respected firm led by Ian Duncan that is trusted and heavily utilized by the large self-insured employer market. The results demonstrated a 9.1% year-over-year reduction in medical trend among those who use Caslight compared to a matched control group and validate the clear ROI from utilizing Caslight's navigation technology. The study found lower medical spend across members at every clinical risk level. This reinforces a key value proposition we bring to market as the only navigation vendor able to demonstrate impact across a broad portion of a client's population. We have an exciting announcement from a team perspective. In the quarter, we brought on our India-based development team as FTEs. This talented and experienced team, many with tenures of four-plus years, had previously been working with us as part of a third party since 2014 and has been responsible for meaningful innovation in our platform. During the transition, we were able to retain 100 out of 104 members of our team, which is a reflection of engineering and product leadership, our operational muscle in the people and finance functions, and Cat's Light's strong R&D culture. Importantly, bringing our India R&D operations into Cat's Light directly will allow us to scale and grow our team in India. Taking a step back from the quarter, I want to close by speaking to the next episode When I stepped into the role of CEO two years ago, Caslight was viewed as a purely digital navigation company and honestly often known only for its role in creating the category of transparency. On my first earnings call in July 2019, I spoke about the immediate strategic shifts needed, namely expanding the go-to-market through health plans and the addition of high-touch navigation. Following that call, we set up a health plan sales team and announced our CareGuides offering. In July 2019, though, I also shared, and I quote, that the shift to value-based care, the introduction of alternative delivery models, and payer-provider consolidation has created demand for healthcare data infrastructure that provides information on the consumer health and enable steerage to higher quality, lower cost providers. This is the core of what we do. Our architecture is services oriented, so we can expose the technology services that support our current offerings, empower user experiences in new buyer categories, such as retail pharmacies, labs, telehealth providers, and more. Given our progress against the key growth levers, we can now begin utilizing our data and technology capabilities to support the demand for healthcare data infrastructure that provides information on the consumer's health and enables peerage to higher quality, lower cost providers. As we laid out two years ago, we have seen interest in this capability from new buyer categories like telehealth providers offering virtual primary care, on-site, near-site clinics, retail pharmacies, and more. While this commercial development is still early stage, we believe it will meaningfully expand our market opportunity and enable long-term growth. We will keep you updated on our progress. To conclude, I am pleased with the progress we've made in the first half of 2021. We continue to deliver against our financial goals and we're poised to re-accelerate our growth in the second half of the year. As always, I want to thank the team for their commitment to our mission as we serve our customers with the focus that comes from the privilege of purpose. I'll now turn the call to Will for a review of the second quarter financial results and our outlook for the remainder of the year. Will? Thanks, Maeve.
spk02: I'll start by reviewing our second quarter results, and then we'll discuss our outlook for the third quarter and full year. Beginning with annualized recurring revenue, or ARR, our ARR of $128.2 million increased slightly sequentially. While we signed some new business in the second quarter, our pipeline is back-cap-laden this year for both the employer and health plan markets, as we have mentioned. We are confident that our team will be able to implement the new business signed in the third quarter and be ready to launch on January 1st. Total revenue in the second quarter of $35.6 million increased 2% sequentially and was essentially flat compared to a year ago. Subscription revenue of $31.1 million represented 87% of our total revenue, and professional services revenue accounted for the remainder. Our PS revenue reflects continued contribution from the Boston Children's Hospital CDC vaccine finder work. Total gross margins of 68.7%, increased 190 basis points sequentially, and 40 basis points compared to a year ago. The increase was driven by top line contribution from the vaccine finder work and continued operational efficiencies. Subscription gross margins remain over 77% for the fifth straight quarter. Operating expense as a percentage of total revenue of 63.5% was relatively flat year over year as we hit the anniversary of our cost management measures implemented last year. And we started to see the return of some expense associated with COVID-19 savings. As Maeve mentioned, in the quarter we established an Indian entity and hired approximately 100 individuals as FTEs who previously worked with Caslight as a third party as part of our development teams. Given this, our total headcount increased to approximately 550 from approximately 450 at the prior quarter. We don't expect material change in our 2021 expense from this transition, but are very excited about welcoming these talented individuals fully into the Catholic family and look forward to continuing R&D scale through our Hyderabad location. Non-GAAP operating income of $1.9 million is our fifth consecutive positive quarter of non-GAAP profit. Similarly, we reported positive cash flow from operations of $4.6 million and drove our cash balance to $60.7 million at the end of the quarter. Turning now to our 2021 outlook, we are reiterating the 2021 outlook provided in Q1, including full-year revenue of $135 to $140 million, non-GAAP operating loss of $4 million to an income of $1 million, non-GAAP loss per share of $0.03 per share to an income of $0.01 per share, based on approximately 160 to 161 million shares outstanding, gross margins in the mid-60s, cash flow from operation between $2 million and $7 million, and cash balance at year-end to be more than $50 million. For the third quarter of 2021, we expect revenue in the range of $33 to $35 million. In conclusion, we are pleased with another quarter of strong financial results and are excited for the strength of our pipeline entering Q3. We look forward to sharing our progress through this quarter as we look ahead towards 2022. With that, we'd be pleased to take questions. Thank you.
spk00: At this time, I would like to inform everyone. In order to ask a question, you may press star, then the number 1 on your telephone keypad. Again, that's star 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Charles Reihi from Cowen. Your line is open.
spk04: Yeah, thanks for taking the questions. You know, maybe start, Maeve, just a couple ones. You know, you talked about sort of the pipeline for additional health plan clients, and you kind of listed off a couple near-term, near-medium-term opportunities. Are these all Blue Cross Blue Shields?
spk01: uh kind of plans or are there non-blue cross plans in this mix yeah sure thanks hey charles thanks for the question um so you know as i mentioned we have a late stage opportunity in several mid-stage um just to level set late stage for us means that we've been selected and are in contracting Mid-stage means that we're at a finalist stage and would expect selection to happen this year, presumably. And in terms of the nature of those opportunities, I think you're calling out where we do believe we have a sweet spot, which is some of those large regional blues. So certainly those are included, as well as other types of plans.
spk04: Okay, thanks. And on these mid-stage opportunities, Who are you typically competing against right now? You know, what does this competitive landscape look like when, yeah, basically what type of companies are you competing against in these mid-stage opportunities?
spk01: Yeah, no, thanks for the question. So in terms of, you know, what I guess I would say is that, you know, the challenge that we see in the health plan market really from a velocity perspective is, that there are not a ton of RFPs in a given year. So very often a lot of our work is actually focused on opportunity creation. And once there is an RFP, we certainly feel very good about our ability to win. So the kind of competitive question that you're asking, you know, I'd say that the larger competitive dynamic is really a do we build in-house or do we partner question at the plan level. And then, you know, in terms of who we see actually competing once there is an RFP is a range across players in, the well-being space, the navigation space, and then some of the traditional transparency vendors. So it varies a little bit in terms of how the actual RFP is written. So it is a bit of a range of competitive set. But I think the most important dynamic is really that first question around build first partner.
spk04: Okay, thanks. And just to follow up on that, does that mean that with the – These RFPs, are these health plans just looking for single solutions, just like either navigation or transparency? How many of these are kind of more comprehensive solutions? RFPs that, you know, would, like, cash, like, complete, that would be... Yeah.
spk01: Now, it's one of the things that's actually really exciting about the pipeline is that, you know, they are a navigation, both digital and high-touch care guides. So, you know, what we like about what we're seeing is that, you know, when we look at the capabilities that we do feel like we're uniquely well-positioned to win those opportunities.
spk04: Okay, thanks. And then just one last one. You know, in the guidance, the $33 to $35 million for the third quarter, can you give a sense of what the split we should think about between subscription revenue versus professional services? You know, it looks like, you know, we obviously outperformed here in the second quarter. It seems like it's probably more related to Boston Children's. Just want to get a sense for that on third quarter. Thanks.
spk02: Yeah, absolutely, Charles. And thanks for joining us today. So you're right in the second quarter, we were glad to kind of be at the top of the range outperform. That upside was principally driven by Boston Children's Hospital. There were a set of deliverables in Q2 that had revenue associated with them as we launched the vaccines.gov site and delivered on some of the kind of the key commitments of that relationship. Going forward in Q3, we expect the Boston Children's Hospital CDC revenue to step down, but it will still be a meaningful driver. Look something more like Q4, maybe a little bit more than Q4 from a Boston Children's Hospital contribution. And then, you know, you heard the 33 to 35 million Q3 revenue guidance.
spk04: Okay, great. Thanks a lot. I'll jump back in here.
spk02: Absolutely. Thanks, Charles.
spk00: Again, for anyone else who wants to ask questions, you may press star one on your telephone keypad. Your next question comes from the line of Richard Close from Canaccord Genuity. Your line is open.
spk03: Great, thanks. I get to ask a question this quarter. I appreciate it. Thanks. Yeah. I was wondering if you could just go into the retention and, you know, you're talking about churn being the lowest it's been in quite some time. Can you just help us out with what's resonating with the clients? Is it just simply you've gone through, you know, enough and, you know, And so you're left with, you know, solid customers. You know, just how you think about that, where you are with respect to the whole process since you've taken over.
spk01: Sure. Yeah, no. Hey, Richard. Nice to hear you, and thanks for the question. And you're right that we're certainly glad to see the low churn and, you know, happy to have renewed some of our important customers over the first half of the year. And, you know, we definitely think that there's a lot of things that are contributing to the feeling that we've turned to the corner. So I've talked in the past about a healthy book of business, which, you know, by a lot of metrics, we would say that we have the healthiest book of business that we've had in years. So, you know, first there's that element of just kind of operational excellence, which is something that, you know, we didn't have at all times. And we really do feel like that's something that we've executed really well on. The other really three legs of the stool have been around, you know, are you delivering value? We talked a little bit about our third-party validated study. We're glad to have this study, but it also just supports the results that we've been sharing with our customers. The second is, you know, great relationships at every level of the organization. And, you know, I think having the right people and giving them the right support is a huge part of that. And then finally, really seeing the world evolving in the same way such that, you know, the key to navigation is really ensuring that you're supporting the customer's strategy and that you're really a strategic partner. So I think that, you know, all of those factors are really supporting us in having this healthy of a book of business and therefore really allowing us to have, you know, turned a corner on churn.
spk03: Okay. That's helpful. And can you just refresh me? You made some comments with respect to, you know, renewals and whatnot. So how does the rest of the year look again? Or have you gone through much of the renewal process or where are you?
spk01: Yeah, I'll just, I'll comment and then Will, you should add a little bit of detail. It's a great comment of, you know, obviously we've been happy to have low churn and renew some of our important customers. You know, I would also say that we still do have the majority of renewals in the second half, and certainly we feel that given the health of Book of Business and given the smaller size that we're in a good position, but absolutely we're focused on those renewals, which are happening in the second half. Will, did you want to add detail to that?
spk02: I think that's right, Richard. We still have, I would say, the majority of the renewals for the year to be done, but saw meaningful progress in Q2, including a seven-figure renewal, a large six-figure renewal that's a really important client. So our team did a nice job.
spk03: Great. Good news there. And then just on the employer side, since Charles asked about the health plans, I'll ask on the employer. You seem pretty positive in your commentary. Can you just update us on what is the market like in terms of appetite for these type of services? Has there been any meaningful change? change, I guess, as the year progressed? Just any update there.
spk01: Sure. I'll start off and Will certainly feel free to add. So, you know, just from a market perspective, I think as we've talked about, the navigation market is growing. And so I think just generally we're feeling the benefits of a market that is looking for navigation and I think increasingly looking for a mix of technology and service. which we're well positioned to offer. You know, in terms of just as we think about the employer business to provide maybe a little bit of commentary on our pipeline, because I think it gives some perspective on the conversations we're having. So, you know, within our pipeline, we do have quite a bit of diversity. So there's, you know, some very large opportunities, some smaller deals. The majority of what we see is complete and care guides. So the majority of the opportunities do include care guides. Um, and you know, some of those opportunities, um, in the pipeline have actually come through transparency and coverage conversations. So that's certainly been another kind of contributing factor to the conversation. Um, so, you know, from a market perspective, we think we're in a growing market and uniquely positioned because of the high tech high touch offering. And I think that's reflected in what we see in the pipeline for the second half of the year.
spk03: Okay. That's helpful. I'll jump back in the queue. Thanks. Congratulations.
spk00: Your next question comes from the line of Charles Ray from Cowen. Your line is open.
spk04: Yeah, thanks. I just wanted to follow up real quickly in terms of the second half for renewals. You know, what percent of the ARR is up for renewal, is left to be renewed for the remainder of the year?
spk02: Yeah, Charles, we had shared entering the year that our renewal book for 2021 was about half of the renewal book for 2020. So we've got a little bit of a favorable year and that about 70% of that was in the second half of the year. So that's kind of the thing to be thinking, you know, along it's, you know, call it two thirds of the renewals left to do. We're pretty far along that path and have line of sight to certainly all of the large customers. and renewal paper in front of all of them. So do feel good about where we are at this point in the year, but have some meaningful renewals still to clear.
spk04: And then just on those renewals itself, like what percent of those, do any of those contain expansions to add care guides? And if so, like what kind of, what percent of those renewals are contemplating expanded services? Thanks.
spk02: Yeah, absolutely. I would give our customer success and sales team a lot of credit for introducing care guides to essentially every one of our customers over the last six to nine months. And we're in conversations with honestly about half of our customers about care guides at varying stages. A handful of the renewals in the second half of the year actively have care guides contemplated as part of the renewal and expansion, but we do expect to see several care guides upsells in the second half, and more importantly, expect to continue that cross-sell tailwind into 2022 as well.
spk04: Great. So those renewals that have care guides in it, that would that would lead to a higher ARR for the renewal then?
spk02: That's right. So typically care guides, and we're including it alongside Cast Light Complete, is a 30% to 40% uplift in the ARR. When it happens at renewal, there can be some netting out of changes in the lives or the membership and then price negotiation. But yes, it would typically lead to an increase or expansion in ARR, which we then would benefit from in terms of that cross-sell.
spk04: Okay, great. Thanks.
spk00: Your next question comes from the line of Richard Close. Your line is open.
spk03: Thanks. I guess Charles and I are tag teaming today. Will, what was that number on the uplift on ARR from adding care guides? Did you say 30% to 40%?
spk02: Yeah, absolutely. You guys are like synchronized swimmers at the Olympics or something, Richard. But that relay race or something. But you're right. It's typically a 30% to 40% uplift in the contract value when we add care guides to a cash-like complete customer relationship.
spk03: Okay. So let's say you have one of these renewals in the second half. You upsell CareGuides. How do we think about that as how quickly that can be converted to revenue? Is that like a January 1st sort of liftoff?
spk02: It's a good question. Our CareGuide solution typically can be launched more quickly than the full digital platform for a customer that's already live. And so the kind of time needed is six to eight weeks. But in terms of client strategy, they're typically at this point of the year going to be looking at 1-1. And so you're correct that in those conversations, we're most likely talking about 22 revenue contribution.
spk03: Okay. That's helpful. And then maybe back on the health plans, the late stage, I appreciate the details what late stage is in terms of you being selected. How long do you think that takes to go from selected to the papers are signed, and when would we think about like that as potentially – you know, beginning to contribute revenue?
spk02: Yeah, I would say I'll speak broadly or generally about the health plan market. We've seen some of these move more quickly, some of them move more slowly. But once we are selected, we then are into a contracting period, which is anywhere from kind of six weeks to three or four months, depending on the plan. And then from that, we are into an implementation period, which typically is on the order of about 12 months. If you think back to last year, we signed our relationship with Cigna in August and launched them on 1-1, so that was the faster end. We signed a relationship with Blue Cross Blue Shield of Alabama in December, and we'll launch them in Q4, so a little bit closer to 12 months. So if we sign a plan this year, we would typically be expecting that to be revenue contributing starting in the second half of 2022 and full contribution in 2023.
spk03: That's very helpful. And then can you just update us on Cigna in terms of how that has gone and maybe their, I guess, view on the offering and whether there's opportunities to expand and then maybe an update on Anthem and timelines on Anthem?
spk01: Sure. I'm happy to start there. So in the context of Cigna, so just to kind of refresh you, where we began was transparency for their Taft-Hartley clients with a 1-1 launch. So we had an on-time really successful launch and are now in discussions with Cigna looking to expand the offering to additional groups. So, if you recall some of the details, that wouldn't immediately contribute to revenue, but it's still, I think, a really positive signal about the expansion within the Taft-Hartley business group. And, you know, really the focus of the team is ensuring that we're engaging at the rate levels throughout the Cigna organization, because the opportunities that we see around expansion is really, you know, both within Taft-Hartley, but then, of course, product expansion, and then expansion in other Cigna segments. So what I would say is that the launch was successful. We have a happy client, and we are expanding to other Taft-Hartley groups. But, of course, broader expansion would really be looking at both product as well as other segment expansion. So that's really where we are with Cigna. And as it relates to Anthem, you know, we continue to have, you know, just honestly an incredibly positive relationship really at every level of that organization. And, you know, our conversations continue to be about really the evolution of the partnership. So we've had a number of conversations around other ways that we can partner and grow together. And that's something that obviously I'm spending a lot of my time on. So, you know, look forward to giving an update on that at the right time.
spk03: Okay, that's helpful. And then just going back to Cigna in terms of expanding to additional groups in TAF, Is it because you signed a, you know, a contract for a set amount in terms of why if you expanded within TAF, it wouldn't be incremental revenue? Is that, am I thinking about that correctly?
spk02: The contractor structure we've aligned on with health plans is for there to be kind of an initial tranche purchase threshold of members or a group of members. And so until all of those are used up, there's no incremental revenue. And, you know, we wouldn't be yet at that threshold as these new groups come on.
spk03: That makes sense. Thanks for reminding me on that. Congratulations on the progress.
spk01: Thanks, Richard. Appreciate the questions.
spk00: Again, for anyone else who wants to ask questions, you may press star 1 on your telephone keypad. There are no questions at this time, presenters. Please continue.
spk01: Great. Thank you all for joining us today, and we look forward to continuing the conversation. Have a great day.
spk00: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
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