Prepared Remarks (PDF 188 KB)

CEO Remarks

CSLT 3Q21 Earnings

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1. Operator:
2. Good afternoon and welcome to the Castlight Health third quarter 2021 conference call. [Operator instructions on
3. mute, etc.]

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1. Safe Harbor
2. Leading today's call are Maeve O'Meara, Chief Executive Officer, and Will Bondurant, Chief Financial Officer.
3. Maeve and Will will offer prepared remarks and then they will take questions. The Castlight press release, webcast
4. link and other related materials are available on the Investor Relations section of Castlight's website.
5. This call contains forward-looking statements regarding trends, strategies, and anticipated performance of the
6. Castlight business. These statements are made as of November 2nd, 2021, reflect management's views and
7. expectations at this time, and are subject to various risks, uncertainties, and assumptions.
8. Please refer to today's press release and the risk factors included in the company's filings with the Securities and
9. Exchange Commission for a discussion of important factors that may cause actual events or results to differ
10. materially from those contained in Castlight's forward-looking statements. Castlight disclaims any obligation to
11. update or revise any forward-looking statements, except as required by law.
12. Today's call and presentation also include certain non-GAAP financial metrics. These non-GAAP financial measures
13. should be considered in addition to, not as a substitute for or in isolation from, measures prepared in accordance
14. with GAAP. Disclosures regarding non-GAAP metrics and reconciliation to comparable GAAP metrics, on a historical
15. basis, can be found under the heading "Reconciliation of GAAP to Non-GAAP Financial Measures" of the earnings
16. release that was filed with the SEC before the call and in this quarter's presentation slides available on the Investor
17. Relations section of Castlight's website.
18. With that, I'll turn the call over to Maeve O'Meara, CEO of Castlight Health. Maeve?

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1. Maeve:
2. Thank you all for joining us to review our third quarter 2021 results. Today, I'll start by sharing an update on the
3. continued progress in our business, including our meaningful traction in direct to employer sales and strong
4. pipeline of health plan opportunities, and then provide further perspective on the longer-term growth initiatives
5. I discussed in August.

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1. I'll start with a brief review of the key metrics. We delivered another quarterly increase in Annualized Recurring
2. Revenue, or ARR, to $130.2M, up $2M sequentially from Q2. The increase was driven primarily by our strong
3. execution on Direct-to-Employer sales, netted against the churn we forecast and realized in the quarter. Direct-to-

1. employer quarterly bookings were the highest in over 3 years. I'll speak more about our sales pipeline and forward
2. view for employers and health plans in a moment.

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1. Our total revenue for the third quarter of $34.8 million was at the top-end of our guidance range and was ahead of
2. our expectations. Our non-GAAP gross margin was again 69%, and Castlight achieved a sixth straight quarter of
3. non-GAAPprofitability and positive cash flow, ending the quarter with $66 million in cash and no outstanding debt.

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1. Employer Sales
2. I will begin with employer sales. As I mentioned in my opening comments, our Q3 bookings were the highest we
3. have achieved since Q4 of 2017. The bookings build on the active pipeline generation and RFP season I mentioned
4. in our Q2 earnings call as well as improved sales execution. We are very pleased to welcome our new customers,
5. such as Elbit Systems of North America and Baptist Health, among others, to the Castlight family.

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1. Nearly three-quarters of our Q3 bookings were from new customers, including multiple competitive navigation
2. RFPs where our combination of high tech and high touch were a critical factor in winning the business.
3. Importantly, approximately two thirds of our new customers added our Care Guides offering, validating our
4. decision to add expert, human support and solidifying our navigation market position.

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1. We also saw benefit from prior relationships, such as a large university that was forced to terminate its contract
2. last year due to COVID-19 cost reductions, even while seeing meaningful value with Castlight, who re-signed in the
3. quarter and also will now expand from Care Guidance to Castlight Complete as of January 1st, 2022. Similarly, one
4. of our new wins followed the acquisition of an existing wellbeing customer; the acquiring organization and its
5. brokers learned about Castlight through the acquisition process, and ultimately decided to expand the relationship
6. to include Castlight Complete, as well as Care Guides, across the full organization.

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1. We believe that Castlight's market-leading technology and combination of high-tech, and high-touch solutions are
2. squarely meeting the needs of the navigation market. In addition, we are also one of the few, if not the only,
3. providers of comprehensive Transparency in Coverage solutions. This is becoming a priority not only for health
4. plans, but also large, self-insured employers with a compliance focus and/or government contracts, and the
5. strength of our experience in transparency drove one of our most meaningful customer wins in the quarter. We
6. have a robust employer pipeline entering the last months of the year, and we look forward to updating you on our
7. progress.

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69 Churn/Retention

1. From a customer retention perspective, I shared last quarter that we were on-track to deliver a "meaningful
2. improvement in retention compared to last year." I shared that churn was weighted to the 2nd half of the year,
3. given the majority of renewals occurring in that time period. As expected, we did experience ARR reductions from
4. a small number of clients that we had identified as being at risk of attrition. While churn ticked up sequentially as
5. we forecasted, we are pleased that churn was less than half the level that we experienced in Q3 of 2020. The
6. attrition in the quarter was more than offset by our new bookings, and we are pleased that our team is executing
7. against meaningfully lower churn in 2021 vs. prior years.

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1. Health Plans
2. Turning to our Health Plan business, I am pleased to share that our Health Plan pipeline has increased since we last
3. spoke. We experienced no losses during the quarter and all the pipeline opportunities I mentioned in August
4. remain active, although certain decisions that we'd hoped would occur in the late Q3 timeframe have pushed to
5. the fourth quarter. Right now, we have a half-dozen meaningful health plan opportunities in mid-stage or late-
6. stage and we remain optimistic in our position across the full set. The opportunities encompass full digital
7. navigation, navigation plus Care Guides, as well as transparency only. While we will continue to refine and improve
8. how we forecast the timing of our large health plan prospect decision-making, we are excited to have such a
9. robust health plan sales pipeline for this quarter and looking into 2022. The traction we are seeing in the market is
10. evidence that health plans view us as critical, trusted partners in delivering value to their customers.

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1. Growth: Intelligence-as-a-Service
2. I'll conclude my remarks today with additional commentary on the longer-term growth strategy I discussed on our
3. last call. As I mentioned last quarter, we believe our data & technology capabilities can support the demand for
4. healthcare data infrastructure that provides information on the consumer's health and enables steerage to higher
5. quality, lower cost providers, both bricks and mortar and virtual. As we laid out two years ago, we have seen
6. demand for this capability from new buyer categories, like telehealth providers offering virtual primary care,
7. advanced primary care providers, retail pharmacies, and more.

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1. We are pleased to be engaged in a rigorous evaluation process from one of the leaders in those categories to
2. bolster their offering, and we have several additional conversations underway. While I want to be clear that any
3. contribution to 2022 revenue will be nominal from these relationships, we believe there is meaningful TAM and
4. revenue potential as we expand our intelligence-as-a-service capabilities. Finally, we believe our discussions to-
5. date demonstrate the power, scale, and uniqueness of our core data and technology, as well as experience driving
6. healthcare outcomes.

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CFO Remarks

1. Conclusion
2. To close, I'm happy to report our meaningful progress in 2021 and I am excited for the fourth quarter of the year.
3. Our team is executing on our core goal of delivering ARR growth, we see our next generation navigation solution
4. resonating in the marketplace, and we continue to demonstrate operating discipline as we grow the business. We
5. are in a large and growing market, and the momentum across the business is real and exciting.

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1. I want to thank the entire Castlight team for their excellent work not only this quarter, but across all of 2021. It's
2. gratifying to see your work producing outcomes for our customers, users, and shareholders. With that I will now
3. turn the call over to Will for a review of third quarter financials and our outlook for the remainder of the year.
4. Will?

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1. Thanks, Maeve. I'll start by reviewing our third quarter results and then I'll discuss our outlook for the fourth
2. quarter and the full year.

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1. Beginning with Annualized Recurring Revenue, or ARR, our ARR of $130.2 million increased sequentially for the
2. third quarter in a row. The increase was driven by the employer market, including meaningful new client additions
3. as well as upsells to current clients. As we mentioned previously, our 2021 renewals were weighted toward the 2nd
4. half of the year, and as Maeve shared, we had strong renewal activity in the quarter. The largest customer that
5. terminated, with ARR of more than $2 million, was signed in Dec 2019, but never launched because of COVID-19's
6. impacts on their implementation. This is the only customer whose implementation was delayed or impacted by
7. COVID-19.

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1. Total revenue in the third quarter of $34.8 million decreased 2% sequentially and decreased 1% compared to a
2. year ago and was at the upper end of our previously shared outlook. Subscription revenue of $31.6 million
3. represented 91% of our total revenue and professional service revenue accounted for the remainder; our
4. Professional Services revenue again principally reflected our Boston Children's Hospital / CDC Vaccines.Gov
5. support, and the expected sequential decline was in line with the expectations we laid out earlier in the year.

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1. Turning to Non-GAAP measures, gross margins of 69% were essentially flat sequentially and compared to a year
2. ago. Subscription gross margins were over 77% for the sixth straight quarter. We remain pleased with our industry-
3. leading, attractive gross margin profile, which helps demonstrate the scale of our technology and the competitive
4. advantage our R&D investments has generated.

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1. Non-GAAPoperating expense as a percentage of total revenue of 62% was down 1% sequentially and up 4% year
2. over year as we continued to see increased business expenses from the COVID-impacted 2020 baseline.

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1. Our non-GAAPoperating income of $2.5 million delivered our sixth consecutive positive quarter of non-GAAP
2. profit. Similarly, we reported positive cash flow from operations of $5.8 million and our cash balance was $65.8
3. million at the end of the quarter. In the quarter, we made the final payments on our term loan and the company
4. has no outstanding debt as of 9/30. After several years of intentional focus on operating with fiscal discipline, we
5. feel well positioned to invest in the areas of our business that are driving growth as we plan for 2022.

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1. Turning now to our outlook, we are updating the 2021 full year outlook we originally provided in our Q1 call, and
2. now expect:
3. • Revenue of $135 - $140 million
4. • Non-GAAP operating loss of ($4 million) to income of $1 million
5. • Non-GAAP loss per share of ($0.03) to income of $0.01 per share, now based on approximately 160
6. million shares outstanding
7. • Gross margins in the mid-to-high 60%s compared to our previous expectation of mid-60s
8. • Cash Flow from Operations between $10 and $15 million of cash generated compared to our previous
9. expectation of between $2 and $7 million of cash generated from operations
10. • Cash balance at year end of around $60 million, compared to our previous expectation of at least $50M

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160 For the fourth quarter, we expect revenue in the range of $33 million to $35 million.

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1. As you can hear in today's call, we are pleased at how well Castlight's solutions are resonating with large
2. employers, health plans, and future potential customers of our data & technology. Our strength in transparency
3. means we are one of the only firms that can support employers in compliance with coming regulation, our
4. successful launch of Care Guides positions us to meet the customer demand for navigation, and we are now
5. focused on finishing strong in 2021, the 1/1 launch period and planning for 2022.

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1. As always, I'd like to thank the Castlight team and specifically Sophia Golden, who read today's safe harbor, and
2. was the winner of the Making Things Happen Culture Award in Q3 as member of the team delivering our vaccine
3. navigation.

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172 With that, we'd be pleased to take questions. Operator?