Castlight Health, Inc. Class B

Good afternoon and welcome to Cast Light Health third quarter 2021 conference call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one in your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to Sophia Golden. Please go ahead.

Leading today's call are Maeve Amera, Chief Executive Officer, and Will Bondurant, Chief Financial Officer. Maeve and Will will offer prepared remarks, and then they will take questions. The Catholic Press release, webcast link, and other related materials are available on the investor relations section of Catholic's website. This call contains forward-looking statements regarding trends, strategies, and anticipated performance of the Catholic business. These statements are made as of November 2nd, 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 CASI's forward-looking statements. TaxLight 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 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 GAAP and Non-GAAP Financial Measures of the Earnings Release that was filed with the SEC before the call and in this quarter's presentation slides available on the Investor Relations section of Cathlight's website. With that, I'll turn the call over to Maeve O'Meara, CEO of Cathlight Health. Maeve?

Thank you all for joining us to review our third quarter 2021 results. Today, I'll start by sharing an update on the continued progress in our business, including our meaningful traction in direct to employer sales and strong pipeline of health plan opportunities, and then provide further perspective on the longer term growth initiatives I discussed in August. I'll start with a brief review of the key metrics. We delivered another quarterly increase in annualized recurring revenue, or ARR, to 130.2 million, up 2 million sequentially from Q2. The increase was driven primarily by our strong execution on direct-to-employer sales netted against the churn we forecast and realized in the quarter. Direct-to-employer quarterly bookings were the highest in over three years. I'll speak more about our sales pipeline and forward view for employers and health funds in a moment. Our total revenue for the third quarter of $34.8 million was at the top end of our guidance range and was ahead of our expectations. Our non-GAAP gross margin was, again, 69%, and Castlight achieved a sixth straight quarter of non-GAAP profitability and positive cash flow, ending the quarter with $66 million in cash and no outstanding debt. I will begin with employer sales. As I mentioned in my opening comments, our Q3 bookings were the highest we have achieved since Q4 of 2017. The bookings build on the active pipeline generation and RFP season I mentioned in our Q2 earnings call, as well as improved sales execution. We are very pleased to welcome our new customers, such as Elbit Systems of North America and Baptist Health, among others, to the Cat's Light family. Nearly three-quarters of our Q3 bookings were from new customers, including multiple competitive navigation RFPs, where our combination of high-tech and high-touch were a critical factor in winning the business. Importantly, approximately two-thirds of our new customers added our care guides offering, validating our decision to add expert human support and solidifying our navigation market position. We also saw benefits from prior relationships, such as a large university that was forced to terminate its contract last year due to COVID-19 cost reductions, even while seeing meaningful value with Caslight, who re-signed in the quarter and also will now expand from care guidance to Caslight Complete as of January 1st, 2022. Similarly, one of our new wins followed the acquisition of an existing well-being customer. The acquiring organization and its brokers learned about Caslight through the acquisition process and ultimately decided to expand the relationship to include Caslight Complete as well as care guides across the full organization. We believe that Caslight's market-leading technology and combination of high-tech and high-touch solutions are squarely meeting the needs of the navigation market. In addition, we are also one of the few, if not the only, providers of comprehensive transparency and coverage solutions. This is becoming a priority not only for health 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 quarter. We have a robust employer pipeline entering the last months of the year, and we look forward to updating you on our progress. From a customer retention perspective, I shared last quarter that we were on track to deliver a meaningful improvement in retention compared to last year. I shared that churn was weighted to the second half of the year, given the majority of renewals occurring in that time period. As expected, we did experience ARR reductions from a small number of clients that we had identified as being at risk of attrition. While churn picked up sequentially as we forecasted, we are pleased that churn was less than half the level that we experienced in Q3 of 2020. The attrition in the quarter was more than offset by our new bookings, and we are pleased that our team is executing against meaningfully lower churn in 2021 versus prior years. Turning to our health plan business, I am pleased to share that a health plan pipeline has increased since we last spoke. We experienced no losses during the quarter, and all the pipeline opportunities I mentioned in August remain active, although certain decisions that we'd hoped would occur in the late Q3 timeframe have pushed to the fourth quarter. Right now, we have a half-dozen meaningful health plan opportunities in mid-stage or late stage, and we remain optimistic in our position across the full set. The opportunities encompass full digital navigation, navigation plus care guides, as well as transparency only. While we will continue to refine and improve how we forecast the timing of our large health plan prospect decision-making, we are excited to have such a robust health sales pipeline for this quarter and looking into 2022. The traction we are seeing in the market is evidence that health plans view us as critical, trusted partners in delivering value to their customers. 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 capabilities can support the demand for healthcare data infrastructure that provides information on the consumer's health and enables peerage to higher-quality, lower-cost providers, both bricks and mortar and virtual. As we laid out two years ago, we have seen demand for this capability from new buyer categories, like telehealth providers offering virtual primary care, advanced primary care providers, retail pharmacies, and more. We are pleased to be engaged in a rigorous evaluation process from one of the leaders in those categories to bolster their offering, and we have several additional conversations underway. While I want to be clear that any contribution to 2022 revenue will be nominal from these relationships, we believe there is meaningful TAM and revenue potential as we expand our intelligence as a service capabilities. Finally, we believe our discussions to date demonstrate the power, scale, and uniqueness of our core data and technology, as well as experience driving healthcare outcomes. To close, I'm happy to report our meaningful progress in 2021, and I am excited for the fourth quarter of the year. Our team is executing on our core goal of delivering ARR growth. We see our next generation navigation solution resonating 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. I want to thank the entire CastBite team for their excellent work, not only this quarter, but across all of 2021. It's gratifying to see your work producing outcomes for our customers, users, and shareholders. With that, I will now turn the call over to Will for a review of third quarter financials and our outlook for the remainder of the year.