Castlight Health, Inc. Class B

Q3 2021 Earnings Conference Call


spk_0: good afternoon and welcome to cast white health third quarter twenty twenty one culprits call at this time or to censor know listen only mode after the speaker prevent creation there will be a question and answer session locker a question during the session you will need a car star wanting your telephone will you be advisor to the and is being recorded if you require any further assistance please protect our zero i'll acknowledge him the corporate over stopping a golden please go ahead leading could a call or neighbor mera chief executive officer and well bonder on chief financial officer nathan well will offer prepared remarks and then they will take question the catholic utterly webcast blank and other related materials are available on the investor relations section of catholic website it's call can came forward looking statements regarding trend strategies and anticipated performance of the catholic business the statement or made as of november second two thousand and twenty one reflect management the with and expectations after time and are subject to various risks uncertainties and assumptions please refer conveyed press release and the risk factor included in the company filing with the securities and exchange commission for discussion of important factor that may cause actual event or results to differ materially from those contained and catholic forward looking statements calculated claim any obligation to update or revise any forward looking statements except as required by law please call and presentation author include thirty non gaap financial metric these non gaap financial measures should be considered in addition que not open for to gore or in isolation from you're prepared and according for gap disclosures regarding non gotten a check and reconciliation to comparable got metric on a historical data and be found under the heading reconciliation of gap and non gaap financial matter of be earning relief that would file but the ve before the call and in this quarter's presentation five available on the investor relations action of catholic like that
spk_1: it but that i'll turn the call over tomato mera ceo of kathleen how mail
spk_2: thank you all for joining up to review our third quarter twenty twenty one result today authored by sharing an update on the continued progress in our that that including are meaningful traction and direct to employer failed and shrunk pipeline of have plan opportunities and then provide further perspective on the longer term growth initiative
spk_1: i'd have got in august
spk_0: author of the brief review of the key metrics we delivered another quarterly and craved and analyze recurring revenue or air are to one hundred and thirty point two million two million sequentially from queue to be increased was driven primarily by are strong execution on direct to employers failed netted
spk_1: against the journey we forecast and realized in the quarter direct your employer quarterly but games where the highest in over three years of be more about our self pipeline and for do for employers and have found in a moment our total revenue for the third quarter of thirty four point eight million without the top end our guide and range and with ahead of our expectations are non gaap girth margin but again the be nine percent and catfight achieved a six straight quarter of non gaap profitability and positive cash flow and in the quarter with the effect familiar and in cash and no outstanding that i will begin with employer fails as i mentioned that my opening comments are cute three fucking where the highest we have achieved some to queue for of khalifa and he the booking build on the active pipeline generation and rfp feet and i mentioned in our qq earnings call as well as improved failed execution we are very pleased the welcome our new customers but job elbit systems of north america and baptist health among others to the cat fight family
spk_0: nearly three quarters of our cute three but can work from new customers including multiple competitive navigation rfp p bear or combination of high tech and hi touch were critical factor and wedding the business importantly approximately two thirds of our new customers added care guides offering validating ah decision to add expert human support and solidifying or navigation market position
spk_1: we also thought that fit for prior relationship such as a large university but was forced to terminated contract last year due to covet nineteen cost reduction even the meaningful value with tough fight who resigned in the quarter and author will now have banned from care guide and to calculate complete out of january first twenty twenty two
spk_0: similarly one of our new and that followed the acquisition of an existing while being pumped dumber the acquiring organization and at birth learned about halfway through the acquisition process and ultimately decided to expand the relationship to include catholic complete as well as care guide across the full organization
spk_1: we believe that catfights market leading technology and combination of high tech and hide hutch solutions are squarely meeting the needs of the navigation market and addition we are also one of the few if not the only provider of comprehensive transparency uncovered solutions but that becoming a priority not only for health
spk_0: plans but also large self insured employers with a compliance focus and or government contracts and the strength of our experience and transparency drove one of our most meaningful customer wins in the corner we have a robust employer pipeline and for in the last month of the year and we look forward to updating you on our progress from a customer retention perspective i shared by quarter that we were on track to deliver a meaningful improvement and retention compared to last year i hear that charan with waited to the second half of the year given the majority of renewal that korean in that time period as expected we did experience a or are reduction from a
spk_1: all number of clients that we had identified as being at risk of attrition well churn kicked up sequentially as we forecasted we are pleased that churn with less than half the level that we experienced and que three on twenty twenty the attrition and the quarter was more than offset by our new book in and we are pleased that our team and execute him again to meaningfully lower churn and twenty twenty one vs prior years turning to our help fund of that i am pleased to share that a help on pipeline has increased since we last spoke we experienced know losses during the quarter and all the pipeline opportunity by mentioned in august remain active although certain decisions that we'd hoped would occur in the late que three time frame of pushed to the fourth quarter right now we are
spk_0: a half dozen meaningful have fun opportunities in middle age or late stage and we remain optimistic and our position across the full that the opportunity to encompass all digital navigation navigation of care guide as well as transparency only while we will continue to refine and improve how he fork
spk_1: half the timing of are large health plan prospect decision making we are excited to have such a robot help they'll pipeline for this quarter and looking into twenty twenty two the church and we are been in the market is evident that helped fund feel at that critical truck that partners in delivering value to their up from earth
spk_0: i'll conclude my remarks today with additional commentary on the longer term growth strategy i discussed on our last call as i mentioned last quarter we believe our data and technology capability can support the demand for healthcare data infrastructure but provides information on the consumer hell and enable peerage to higher quality lower cop providers both bricks and mortar in virtual as we laid out two years ago we have been demand for the capability from new buyer category like tell health providers offering virtual primary care advanced primary care providers retail pharmacies and more we are pleased to be engaged in a breeder if evaluation prop up from one of the leaders in those categories the ball through they're offering and we have several additional conversations under way while i want to be clear that any contribution to twenty twenty two revenue will be nominal from leave relationship we believe there is meaningful pam and robin a potential as we expand our intelligence other therapist capability finally we believe our discussion today demonstrate the power scale and uniqueness of our core data and technology as well as experience driving healthcare outcome to close i'm happy to report are meaningful progress and twenty twenty one and i am at five
spk_1: did for the fourth quarter of the year our team is executing on our core goal of delivering a our growth we see our next generation navigation pollution breath and eighteen in the marketplace and we continue to demonstrate operating discipline as we grow the business we are in a large and growing market and the momentum across the business is real and exciting
spk_3: i want to thank the entire count by team for their excellent work not only that corner but across all of twenty twenty one it's gratifying to see your work producing outcomes for our customers youth earth and shareholders but that i will now turn the call over to well for a review of third quarter financial up and our outlook for the remainder of the or well thanks leave or start viewing or third quarter results and then i'll discuss or outlook for the fourth quarter and the full year beginning with a new recurring revenue or a our our our era of on thirty point two million increase sequentially for the third quarter in a row the increase was driven by the employer market including meaningful new coin edition of both opposite to current clients as we have mentioned previously or twenty twenty one renewals were weighted towards the second half of the year and is made shared we had stronger neural activity in the corner after that terminated with an error are more than two million was signed in december twenty nineteen but never launched because of covert nineteenth impact on their implantation this is the only customer who didn't want a son was delayed or impacted by called nineteen total revenue in the third quarter of thirty four point eight million decreased two percent sequentially and decreased one percent compared to a year ago and was at the upper end of our previously shared outlook for the quarter subscription revenue of thirty one point six million represented ninety one percent of our total revenue and professional services revenue accounted for the remainder are professional services revenue again principally reflected are boston children's hospital cdc vaccine that got support and the it spec in sequential decline was in line with the expectations we laid out earlier in the year and are want to support pch and the cdc turning cannot get measures gross margins of sixty nine percent are essentially flat sequentially and compared to a year ago subscription gross margins where over seventy seven percent for the sixth street corner we remain pleased with our industry leading attractive gross margin profile which helps demonstrate the scale of our technology and competitive advantage that are are and the investments have generated non gap operating expense as a percentage of total revenue of sixty two percent was down one percent sequentially and bob four percent year over a year as we continue to see increased business expenses from be covered in back to twenty twenty baseline are non get operating income of two point five million delivered our sixth consecutive positive quarter of non gap profit similarly we reported positive cash flow from operations of five point eight million and our cash balance with sixty five twenty nine at the end of the quarter in the quarter we made the final payments on our term loan and the company now has no outstanding debt as of nine thirty after several years of an intentional focus on operating with fiscal discipline we feel well positioned to invest in the areas of our business that are driving growth as we planned for twenty twenty two turning now to our outlook we are updating between twenty one for your outlook we originally provided in our que one call and now expect revenue of one hundred and thirty five two hundred and forty million dollars a non gap operating loss of four million dollars to an operating income of one million dollars non gap loss per share of three cents per share to an income of one cent per share now based and approximately one hundred and sixty million shares outstanding gross margins in the mid to high sixties compared to our previous expectation of the mid sixties cash flow from operations between ten and fifteen million dollars of cash generated compared to our previous expectation of between two and seven million dollars of cash generated from operations and a cash balance at year end of around sixty million dollars compared to previous expectation of at least fifty million dollars for the fourth quarter we expect revenue in a range of thirty three million to thirty five million dollars as you can hear in today's call we are pleased at how well catholic solutions are resonating with large employers health plans and potential future customers of our data and technology strength and transparency means we are one of the only firms that can support players in compliance with coming regulation or success launch of care guides positions us to meet the customer demand for navigation and we are now focused on finishing strong and twenty twenty one one one month period and planning for twenty two as always i like to thank the cast like team and specifically sophia golden who rented a safe harbor and was the winner of the making things happen culture and word and cute three as a key member of the team delivering our back the navigation solutions
spk_0: with that we be pleased to take questions operator as a reminder to ask a question you will need to press dar one on your telephone to withdraw your question press the pound key least and bible we compile the cuny a roster
spk_3: your first question will come from the line of richer clothes and canaccord please proceed with your question great things megan well first congratulations on the success and and building momentum a well i was wondering if you could just go over and the guidance yeah you look here today you've generated about i guess it was five point six million and nine gap operating income three september
spk_4: but you can you've kept the guidance the annual guide and a four million last a positive one so that that implies and pretty big range for the fourth quarter
spk_3: can you just to talk a little bit about their absolutely richard and thanks for the question so yeah you're right to mention that we've done a really nice job on delivering operating profit not get operating profit for the first three quarters of the year as we look at the fourth quarter there's a couple of dynamics and play the first is that we do see expenses check up in advance of the one one launched see then at that's especially true when we have meaningful new business activity and obviously you heard me talk about that on the employers' side are also launching bluecross blueshield in alabama in this quarter for one one and and work hiring in advance of some investments in the growth areas for twenty twenty two and so there is an investment you know said planned for the fourth quarter along with that you know that essentially seasonal expense load between both those pieces be chose to maintain that operating income guidance at the the range of kind of a lot of boy
spk_4: order income of one
spk_5: okay
spk_3: that top oh thanks the neither on the health plans you know i think it was my understanding that late stage means that kasoulides been selected but the our contract hasn't necessarily done finalize
spk_0: correct me if i'm wrong there bud you know how are you thinking about the know you know these deals that are in the pipeline is there anything specific that may be hanging you know hanging them up in terms of crossing the finish line or yeah no and thing for the question richard and you are remembering correctly in terms of how he characterized that pipeline and tell you know what i'd say that we were really excited to see the pipeline grow and and continue to expand and and certainly we had hoped that at the my that decisions are made with and
spk_4: but it opportunities but actually played and que three and we do expect that decisions and are contracting in here for an hour or also frankly focused on improving are forecasting ability but on the whole i think the key take away should be that we felt really good about the health by pipeline and our position in the market and are they
spk_3: added to pursue the opportunity that i mentioned in there are prepared remarks okay i get for just a follow up on mad so let's say you bring your no one or two with whatever the number is the cross the finish line just remind us like you know
spk_0: in terms of what the heinlein would be for you know you get selected you when the business time the contract
spk_3: the and man you know maybe when it goes in a a r r and then begins to convert the revenue sure absolutely and i can just come on earth and welcome at anything i've met and but i think an important point with health plans is that we have seen implementations can happen very quickly as you thought with thickness and that was a four month implementation and then you can also add that other how plan expect a twelve month implementation often coinciding with a one one or seven one launch at well you want to big to the a recognition of revenue absolutely richard so to me tomatoes played if you think about essentially when we are awarded the business we enter a contracting phase that typically it is anywhere from six to twelve weeks as we work through the contracts at the point the contract is signed we would have essentially point the and a guaranteed subscription revenue into a are so we would disclose that his parents and for example or our top thirty one air are if we saw
spk_4: a health and this quarter and then the revenue contribution would come on that customer launches of the call it half dozen or so opportunities made mentioned small number would launch in the middle part of twenty twenty two at most of them would be oriented towards the fourth quarter twenty twenty two from the revenue country
spk_0: fusion perspective but you know the air are in advance
spk_6: okay that's great i'll jump back in the queue get some others a chance once again as a reminder to ask the question that a star line your next question will come from the line of charles bright and callen please proceed with your question yeah
spk_0: a stupid question
spk_4: because on the garden shariah appreciate will the the comments about the because year
spk_7: expected in the fourth quarter i think last quarter though you guys talked about unexpected step up in sales and marketing on it as you know sales people can start to assume travel or
spk_3: obviously we didn't really see that year and a quarter you know it doesn't mean we should expect a bigger stop in the fourth quarter when you're looking at he did assumptions for those full year or prison fourth quarter it's really more and in technique the gross margins
spk_6: you know it's a good question charles and i have to say this is a place where covered duped me a we expected to be doing more traveling a third quarter and more and a field sales and marketing expenses and we did
spk_7: the i think we get the delta variant in the fourth quarter we do expect to see that take up we've been at in person conferences this month or i should say in october last month already part of the fourth quarter and so do expect to see sgt take up in the fourth quarter or even though to your claim the gross margin specifically that the car
spk_3: ps the cost of delivering the implementation line is where we also seen in kind of a step up quarter over quarter
spk_7: okay that that's helpful and and then you know may obviously a lot of success here
spk_0: you don't get a date and it's nice to hear about the the increase in the pipeline the top plans you know maybe what has changed on even have changed for us but know what is what it has been a key here i'm you know to this kind of acceleration in interest from health plans is it that the market has changed dramatically given that's cold it or or is it that the a view cast light as a more robust offering now with the addition to care guides maybe maybe some thoughts their church and nothing child appreciate the question and you know taking a perfectly about how to plan in i'd as you know oh we really sat at that as a focus areas starting and really when i stepped into that the arrow and late twenty nineteen setting part of what you're thinking and actually just the result of and he had spending the eighteen plots month and actually ah
spk_6: i'm either going out meeting health plans and really working at that pipeline i think that the product market fit had been strong really from the start but i think we were now starting to really see that come through in the opportunity that and so in a part of that i think it's just time and then the second pete that i think is benefiting
spk_7: is that very often you know what health plans are looking for is to support their customers and the increase in customer interest in navigation pollution has you know shown up at health plans wanting to provide the solution to their customers for fan and that kind of second tailwind
spk_0: which is manifesting itself and a large robot called plan pipeline
spk_6: oh gonna that's helpful and and and and there may be followed that up to the richards question it's you know that at this point you still feel confident in closing something by the and a second other health plan here by on the year your and or is is something that you think at this point probably more likely to be as looks and
spk_7: early next year
spk_6: while you know what we do expected that decisions will occur in queue for and currently we are hard at work i'm in in cases where decisions have been made and though you know on the whole the you know what i feel good about is a pipeline and our position and and they certainly are hoping to have in a positive news to report the next time we talk
spk_7: okay that's great that and maybe just wonderful of will on when we think about the fourth quarter in terms of the even guidance employed for the fourth quarter year
spk_5: what would you say more that is coming
spk_3: and even consort of a sort of a decrease in gross margin sequentially or and up to concealed in marketing because i'm assuming they be our indian ne a relatively flat
spk_8: yeah charles you know i think the way to think of it is we do have a step up in the cost of delivering the defense sensor the product in the fourth quarter implementation cycle and then we'll be color or pyro or a rollover cycle and our teams are essentially reconfiguring and and resetting up customers for the following year so yeah
spk_0: you will see a step down in that gross profit or are gross margin quarter over quarter that will drive you know would come most of the most of the that kind of the delta between to drink you for and then like i said as well you're going to fiesta up actually each of the attacks line sales and marketing or indian dna
spk_3: i'm in sales marketing aren't the it it partly as we are investing ahead of the opportunities may have talked about from a growth perspective know how plan and that didn't acknowledge the opportunity
spk_4: right
spk_0: appreciated thanks guys and
spk_9: we do have a follow up question questioning queue from the line of richard constant canaccord please proceed
spk_4: yeah thanks i appreciate the comments on the turn him the you know compared to last year and whatnot the progress has been made their can you do provide us an update and terms where you are on the renewals for this year i know it was second half weighted by
spk_3: did most of that occur in the third quarter how much as remaining and for que
spk_0: sure i think tortured am and other start out by saying that i'm really proud of the fact that churn and twenty twenty one will be meaningfully better than what we thought in both twenty twenty and twenty nineteen that you're pointing out we shared last corner that we do have renewal foot slated towards the second half of the year and encoded by we have a a handful us to execute him queue for and we have line of sight to the majority of those were no old and we do expect the majority of them to be customer than twenty twenty two on you know that that of course we do expect some air are degradation and we are forecasting turn but on the whole we feel like we've really turned a corner in terms of the health of our book of business which in
spk_9: i was the credit to the entire organization
spk_0: or her
spk_10: and then with respect to gonna the current throwing few then was most in there yeah you know most of stuff for january first start
spk_3: you know you've had the already book or is there an opportunity a dude is the selling viewed in continuing here in in fourth quarter where it could be a contributor to twenty twenty two yeah no thing for trade and you know just have been a moment on employer sales and he died we shared back in queue to the team did a great job building pipeline and the first half of the year they were able to do that because of the strong product market bit of high tech i touch navigation and then that path quarter what you saw that the failed team i'm doing a great job executing against that pipeline which the credit both to the fail team and the strong leadership in that organization added to your point about the adam cycle of one one so certainly an interview three with a bag porter for us from an employer sale perspective that we do have a healthy pipeline entering
spk_0: q or we typically duty as that of employers to certainly launch off one one so we are and will continue to be focused on that opportunity the ever the next two months okay and my final question is is on transparency you guys how without a couple times you mentioned government regulations
spk_9: i'm not bad thing in one of the health plan is a transparency opportunity can you just go over
spk_11: you know obviously this is corridor the you know care floyd the genesis and the company can you just go with the dynamics of the korean by remain as it relates to transparency
spk_0: sharp and like you mentioned richard and you know the company has been a pioneer in the healthcare transparency faith and in a we've been actively tracking tracking belive that hospital and have planned related transparency regulations are we are very well aligned with the transparency role and well positioned to support on both are sitting up to
spk_12: more than future customers as they are focused on compliance with what is a very complex set of role and you know in terms of what we're learning kind of as time goes by what you probably heard and my remarks we had initially theme the interest and focus on compliance coming from health plan to spend a big opportunity for us to have those conversations and expanded conversations and but more recently over the last quarter and we did see more interest from employer are particularly those who have a large meaningful government contract we often see it from employers you are slice so have multiple carriers
spk_4: sorry looking to ensure that their compliant across a multitude of plan by richard i'm in the that kind of high level here is that and people are taking these regulations seriously and on you know if we believe that calculated certainly one of the only solution that's really able to ensure compliance with
spk_3: a regulation
spk_7: thank you
spk_3: sure your next question comes in the line at and your weinberger as a private investor please proceed with your question yeah hi you just to follow up on the last question with regard to transparency would you will get derby who's shooting you are of peace which started as transparency what percentage of those sort of grown from transparency only two people may be a cosplay complete tour or you been sort of in additional of care guide on top of that i guess we'll turn understand and transparency as a transparency regulations become more and focus how much more a t activity do you expect can't going to be invited to and are you sort of structure selling transparency or is there an opportunity once you're in front of customers to sort of showcase all of the solutions that cast white house
spk_0: absolutely i'll take that one as you think about the transparency and coverage kind of regulations the lead to very specific conversations that beginning as an example one of the customers that the new customers we added in que three was a customer that issued an rfp actually been the end of que to and we signed and contacted them and a period of really a matter of weeks about eight weeks because they were specifically focused on transparency and coverage in that conversation know we expanded that the dialogue from pure compliance to the value that a comprehensive navigation solution delivers both in terms of help karen and broadly and benefits that was one of our differentiate years in addition to being able to deliver transparency in that comprehensive way made mentioned

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