Q4 2020 Castlight Health Inc Earnings Call
Good afternoon Andrew.
Welcome to the Cas flight Health fourth quarter 2020 conference call.
This time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
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Leading todays call are made from Merritt, Chief Executive Officer, and <unk> Chief Financial Officer.
Meanwhile, we'll offer prepared remarks, and then they will take questions.
The cash wide press release webcast link and other related materials are available on the Investor Relations section at the cash likes website.
This call will contain forward looking statements regarding trends strategies and anticipated performance of the cost like business.
But not limit it to that in for 2021, new styles, our ability to bring in new innovation, the opportunity and impact of Covid on our own operations, our ability to sell and our operating please on opportunities and the impact of Covid on our customers' businesses and their decisions to buy certain Ben.
Or did you work force reductions retention of existing customers gross margin and operating expense trends cash use future cash position and the changes in the gross strategy on the company's performance.
These statements are made as of February 23rd 2021, and reflect management's views and expectations at this time and are subject to various risks uncertainties and assumptions.
If any of these spreads cornerstone at Aesop, Alex or anyone of exemptions 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 and life any regulation FD compliant forum.
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 doesn't quite factors that may cause actual events or results to different materially from those contained in cash slight forward looking statement.
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 in escalation from measures prepared in accordance with GAAP. However, cash flight believes these non-GAAP metrics and the understanding of Catholics financial result.
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.
The earnings release that was filed before the call.
With that I'll turn the call over to them I eat a mirror of cash slight health life.
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've made over the past 18 months and then turned towards our goals for 'twenty 'twenty. One after that I will hand, the call to well to provide a more detailed review of the <unk>.
Financials.
For the full year, our total revenue up nearly 147 million exceeded our guidance our full year non-GAAP gross margin of 68 per cent was the highest since 2017 on cassolette achieved full year non-GAAP profitability for the first time, well Covid introduced many unforeseen challenge.
Our experienced management team and well on ice 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-19 and the rapid market evolution in a way that has positioned us well to grow a R. R in 'twenty and 'twenty one.
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 'twenty 'twenty, 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.
<unk> solution with the first rollout to commercial accounts planned for late this year their selection of Catholics 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.
It says in the evaluation process Blue Cross Blue Shield of Alabama is a particularly notable win as Alabama is a respected leader among the blues as both a larger regional plan, but also in 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 C. D. C. This dataset will be made available to the public through Boston children hospitals consumer facing site vaccine finder Dot Org, we were selected to do this work because of the national leadership.
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 in 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.
Four 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 her best operational year encapsulates history.
As we close out 2020 and focus on 'twenty and 'twenty. One 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 the opportunity to expand our addressable market for navigation. We set a goal of one new health plan customer in 2020, we exceeded that goal and 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 'twenty and 'twenty. One. We are also fortunate to announce the addition of Scott Serota as an executive adviser 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 calculate are invaluable, but also a 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 care guides solution to meet the market demand for a high touch high Tech navigation offering leveraging our technology backbone to enable scalable next generation.
Should we continue to hear from employers and benefit consultants alike that there is a whole on the market and a clear need for a solution that is not services first looking back at the first full year lives for one of our initial customers care guides 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 channel versus digital we were also pleased to see a 24% increase in enrollment and third party point solutions poster care guides and counter.
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 'twenty and 'twenty one 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-19 first our thoughtful proactive changes to cost structure allowed us to end the year with a 68 per cent 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 and COVID-19 navigation for employers.
As the national leader in testing navigation, and leveraged our data and analytics expertise to publish key insights and 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 and a personalized interactive way using the core capabilities of the Catholic platform. Some of our largest customers have deployed this functionality and we'll be speaking about it.
Webinar. This week, we are confident that the work we did to establish ourselves as the most innovative nimble player and the navigation space will increase retention and drive pipeline in 'twenty and 'twenty one.
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've built a team for the future. We have hired a level talent from a mix of tech and health care 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 castle lite through its next chapter of growth.
As we look to 'twenty 'twenty. One 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 air our growth in 'twenty and 'twenty. One 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 and 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.
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 Cup.
<unk> as they seek to comply with these rules.
With employers in order to drive sales and 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 cheetah increasing market awareness is our consultant on broke.
Our strategy, there, 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 <unk>.
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 establish the ability of a combination of self service plus clinical expertise to drive the same or better outcomes.
Expensive services first solutions, adding care guidance has amplified a strength of cash slide which is engaging the middle of the risk spectrum people with rising risk or chronic conditions. This is a GAAP, we commonly hear from customers and consultants as they have evaluated point solutions and other navigation platform.
Arms, 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-19, our ability to both innovate and execute quickly will matter and 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 sat on the introduction I'm proud of our work to deliver cash like 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 'twenty and 'twenty. One we plan to make intentional investments that will deliver a return to growth, but we will apply operational discipline to ensure a very low cash burn and sustained.
Gross margins.
To close my comments today I want to thank the Catholic team for everything they accomplished in 2020, we were able to deliver against our goals. Despite COVID-19 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 a or our growth in 'twenty and 'twenty. One we are excited to build on the past 18 months of transformation and remain committed to our mission to change health care and are grateful to do this important work every day I will now turn the call to well.
Thanks Nathan.
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 two per cent.
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 made mentioned, which led to new engagements in 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.
He 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 the Cassolette achieved our first full year of positive non-GAAP operating income for 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 used to just $5 6 million.
Our full year total cash used included onetime cash to build our Utah customer center of excellence, which represented more than 3 million of nonoperating cash outlay in the first half of 2020.
Turning to our fourth quarter results, our annualized recurring revenue or <unk> 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 2020 on one renewals into 2020 and I will speak further about our renewal book as I address our 'twenty one outlook shortly.
Total revenue in the fourth quarter was $37 1 million.
Kris or two per cent compared to a year ago.
Q4 revenue benefited from the recognition of initial revenue against our Boston Children's Hospital C. D. C agreement, which is reflected in our professional services revenue line.
As we referenced on the initial disclosure the agreement provides for BCH to pay cash like $8 $5 million per work that began in Q4 2020 and is expected to conclude in mid 2021.
Subscription revenue of $34 4 million accounted for 93 per cent 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-19 related layoffs employment disruptions or user count decreases for our employer clients.
Turning to non-GAAP measures, our gross margin in the quarter of <unk> 68 per cent compared favorably to 58 per cent 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 per cent 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 are completed on January one 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.
Same can be said free cash flow from operations at 3 million on the fourth quarter. We ended the fourth quarter was $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.
As we look forward into 2021, we have chosen to make a set of investments. We believe will allow us to capture market share and power of the return to Ara growth may have mentioned, notably in our sales and marketing organizations, where we are underspending, our competitors, who comparable firms and our care guides capabilities.
As we make these investments, though we remain committed to financial sustainability and will continue to steward, our cash to limit our outlet.
As we look forward into 'twenty and 'twenty, one we expect revenue in the range of 130 to 135 million.
Non-GAAP operating loss between 4 million and 9 million on.
Non-GAAP loss per share between <unk> and <unk> <unk> per share based on approximately 160 to 161 million shares outstanding.
Full year gross margins in the mid to high 60 per cent range and.
In 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 our forward quarterly expectation for revenue, we expect revenue for the first quarter that ends March 31, 2021, and the range of $32 million to $34 million.
Finally as May have mentioned, we are committed to AOR growth in 'twenty and 'twenty one while.
While may have 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 churn to a meaningfully lower air a 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 cashless.
Echo <unk> sentiments that we believe we are well positioned to deliver AOR 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.
At this time I would like to remind everyone in order to ask a question press star one on your telephone keypad well pause for just EMA may took a policy count day roster.
And your first question comes from Charles <unk> with Cowen.
Yeah, Hi, thanks for taking the questions.
Just just to start will you talked about.
That the renewal book for the rest of this year is about 50%.
And I guess, you're saying that because you pull forward a lot of that activity into 2020 is that correct.
Yeah, Charles it's great to chat with you today.
We did see obviously a 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 put forward a handful in total we're in 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.
It also because it's made mentioned we feel like we've got line of sight on the renewals on a healthier book and we have had in several years.
Okay. That's helpful and so then.
I guess, maybe a different question would be because if were looking at the air or declined sequentially.
She was is there like a success metric of the.
Debt early renewal activity or when you're saying early renewals. These on 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 make a different decision absolutely. So just as a bit of quick context, the way that we.
We are essentially book is that upon either the renewal itself or the notice of non renewal, we either added to or remove it from the E. R. M itself. So it depends on 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.
So on working through customers that may not renew and then if they gave us that notice in Q4, it would come out of there are.
Okay and that gives you the comfort with what are the remaining book as we go into this year.
That's right.
Okay, maybe one last one from me Boston Children's I think you said about eight and a half million by our math it looks like maybe about we saw a million a half from the fourth quarter.
The revenue guard here 32 to 34 would seem rather low if we're ever going to if we picked over the remaining $7 million or so ratably across the two quarters is it backend weighted at all or can you give us a sense for that yet.
Yeah, no absolutely. So we're obviously I should start by saying were 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 eight and a half million dollars 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 per kind of flow from you know call. It mid Q4, all the way through that mid 'twenty, one mark in the professional services line of revenue.
Okay, all right I'll stop there. Thank you.
Thanks Charles.
Okay.
And your next question comes from Richard <unk> from Canaccord Genuity.
Great. Thanks for the question.
I assume you can hear me okay.
You can.
Okay great.
Can you talk a little bit about Scott.
Specific rules.
With respect to the Blue Cross Blue Shield and.
That big.
Yes.
I'll just start by saying that Scott, we're really excited to announce something from an incredible adviser on he's actually been working with us for some time, but are just obviously sharing that kind of publicly today and his prior experience was president and CEO of the Blue Cross Blue Shield Association. So he's really been involved in an all out.
Fact of really the blues community collaboration and innovation.
And as you can imagine had really an unparalleled network of relationships as well as the actual personal experience at the 20 year CEO I'm on.
What I would also just add to that is you know I think Scott can really work with any digital health company and I think he chose Cas like because he believes we have the best solution that we know how to work with plans and that we have the maturity on experience to win in this day, so extremely excited to be share in the news today.
There was he involved in Alabama.
Great question. So he was actually and so you know I think we mentioned in the in the earlier remarks that it was a competitive process and we won for several reasons. So kind of number one with really having the best solutions that we were told that we had by far the most comprehensive product offering the second.
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.
Okay.
And staying on the health plan side of things here, you had talked about a strong pipeline.
Last year, you said want hopefully signing one you signed two.
Yes.
Have a targeted number of new wins for 'twenty 'twenty, one and then if you do is that more 2022 revenue event or 2023.
Sure no. Thank you for the question. So you know.
On 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 as we looked at this year one of the things that that we saw it 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 and in Alabama at the additional validation, we fully expect to help us frankly increase the velocity of some of those opportunities through the pipe.
So we feel very good about our ability to grow the health plan business well do you want to play on the revenue debt 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 one one and so obviously revenue in 'twenty, one with signing in.
<unk> 20 on.
The Alabama relationship is a broader product scope. So that's a good thing will be a longer implementation time line looking at late this year and so it will depend on the product scope and implementation timeline as to whether its 22 revenue.
Full year part year or 'twenty three revenue.
Okay.
When you sign a contract like that even though the revenue might be way off.
Sure.
Little often to the distance.
Does it immediately go on to a R. R.
Net.
That's right.
When we sign a contract.
On the part that is annualized and recurring and so excluding implementation fees or one time fees would go into air or upon contract signature.
Okay.
And then maybe if we could move on the care guidance, if I could ask a couple more but.
So how are you viewing the care guidance opportunity is this more cross sell to your existing clients.
Or is this more true.
Potential new clients, maybe you can talk about where you see the most opportunity there and then maybe.
How or what percentage of the Rfps that you're bidding on include care guides.
Yeah absolutely.
They did 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 and debt.
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, just yet to share some perspective there.
The Rfps and RFID that we've seen which is early in the year for that to be clear, but those have included both high tech and high touch them. So the short answer is we believe that the market is converging around navigation 0.1, 0.2, 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.
With our care guides solution.
Okay, and then a follow on to that is if you sign someone take care guides, let's.
Let's see.
Distinct customer and they decide to take on care guides, they want that as well.
Is that tied to the benefit of ear 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 across so yeah.
Yeah No great question I think one of the things that's really exciting about care guys is that we can launch that very quickly as well and he is really if you think about what care guides is it is a team of experts that are really providing support to people who have more complicated issues questions, Andrew or are not comfortable with teck.
<unk>, but we actually already have all of the data that would power the tools and solutions that care guides views.
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 care guides as an add on.
I would add though just quickly that certainly we can sign in launch within a 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 'twenty, two and so I would view meaningful kind of cross sell opportunity as upside to our revenue.
For 'twenty, one if we were able to drive that.
Okay. That's fair and then I just have one final question if I can squeeze it in so lets say per guidance takes off you're successful there.
Yuri.
Here today talking about your strong margins.
Gross margins whatnot.
Are you thinking about.
The margin profile as care guides.
Increases in our.
Popularity I guess Abbott.
Absolutely I think one of the pieces, we think differentiates us in this space that navigation spaces 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 on 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.
Health answered 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 sixties, so that might be a tick down from what when cash that was purely a technology company three or four years ago, we would've been saying, but ultimately we can maintain this margin price debt profile.
Launching that high Tech high touch navigation solution.
Okay, great. Thank you.
Thank you.
As a reminder to ask a question press star one.
One on your telephone keypad.
Pass through to see moving to compile the Q&A whilst day.
Yeah.
And your next question comes from and Ciena Manheimer with color Securities.
Thanks, Good afternoon, congrats on all the all the great progress and the strong finish to the year I wanted to ask.
But the question around Boston children's revenue different way I guess, how much of your 'twenty 'twenty. One outlook includes the onetime project with the C. D C.
So we can back that out.
Yeah, Jim So you can think about.
Boston children's as.
$8 $5 million of payments.
That would have started in Q4 and goes 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 team's working on that and we expect that team to stay relatively consistently sized from from when we launched it in call. It mid Q4.
Through that mid 'twenty, one period, so hopefully.
Hopefully that helps you kind of back into it.
What you might think about on a Q1 Q2, and then early Q3 basis.
Okay, Alright, 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 E. R. R. A number that you provided for <unk> for December 31.
That's right so congratulations to maybe on the team on Alabama.
Alabama agreement, we signed in December was for the digital component of the navigation solution and then we expanded to include the care guidance component just a few weeks ago. So the December digital component is in the 12 31 are are the component from a couple of weeks ago, adding care guidance.
We'll be at our 331 era.
Right, Okay and are you able to just help us along with sizing that opportunity I mean, I assume its somewhere between signet as initial agreement in anthem, but that's a large range. There can you give us any more granularity about how how much this can contribute.
Sure Hey, Jamie 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 artful navigation solution, including care guides and so for those reasons, we do expect it to be a meaningful contribution in 'twenty two.
Okay very good good and last thing.
So when you spoke of the E. R R and how you pulled forward renewals.
Reducing the renewal the cohort for for this year.
How should we think about that conversion of AOR to revenue is it is it one for one in other words, it should 100% of that number be recognized in the in the forward 12 months as revenue.
Yeah, Jim It's a good question. So if you think about <unk>, it's everything that is contracted and both signed and launched to sign on and implementation.
The because of the dynamic you mentioned with renewals and candidly because our employer sales were lighter in 2020 than we would've liked the proportion of IRR that is live is heavier than in previous years. There is still a set of air are 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 AOR to convert to revenue than we did.
Say over the last couple of years.
Makes sense. Thank you.
Yeah.
And your next question comes from Charles <unk> with Cowen.
Okay.
Yeah, Hey, thanks for taking the follow up here.
Just wanted to.
Just circle back here, if I think so.
I'm, sorry, if I missed it but did you actually say, how much Alabama or it was in the quarter.
We did not.
Charles We don't talk about customer specific era numbers, we chose to give the cigna <unk> in Q3, because we didn't want to kind of beat anyone a stray a signal we're starting with a 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 'twenty two.
Okay. So then my follow up question is if we back out about anthem, and then a little bit for Cigna.
If we make some assumptions for Alabama.
Kind of points to the employer market really struggling here and obviously a lot of things happened in 2020, just curious and particularly the fourth quarter with caregivers into the market.
Scientists at gave you notice of not renewing I guess two questions around that first is it because those employees are buying down benefits on.
Or were they making a decision to move to a competitor.
Yeah, No great question, and I'll address that kind of a couple of pizza pieces of it and so kind of starting with some of the churn conversation. 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-19 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 a 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-19 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 theres fewer COVID-19 headwinds I think theres been a maturing of our remote buying process.
Certainly COVID-19 still exists that people have learned to adapt number two is that we did not have our team fully enabled on care guides right. The high touch piece, which is where a lot of the opportunity is.
So having our team with that in there 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 seen contribute to pipeline. So we think that'll be really significant so the way that we think about it Charles as 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 it any kind of piece of that I know you asked 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 churn quarter than we would've liked.
Okay and so then my follow up question. There is so if we look at the guidance for the first quarter.
And took the midpoint at $33 million.
Sumit.
It sounds like Youre, saying think of Boston children's fairly ratable from mid December so call it roughly $3 million or so.
On a kind of a.
Kind of a core revenue of $29 million, you know probably subscription revenue I guess, you know I'm asked me 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 $126 7 million and that's kind of our our go forward. Unlike when we saw new Quants. It takes a while for them to ramp up and show up in the revenues, yes that doesn't mean that kind of pain function, we'd take we try and take the most conservative approach, we can where there are as it relates to clients that are terminating so.
We take them out of that number.
When we received the termination notice Charles and so there are clients just to be very clear that are still live with us and where revenues being recorded but they have come out of IRR because they.
They share a termination notice in Q4, a couple of those are the ones. We talked about earlier of 21 renewal cohort that we pulled forward to essentially handle that take care of it in 2020, so that $126 seven represents essentially what is contracted go forward revenue, but knowing some of it is in implementation 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 the termination notice.
So they're still in that <unk> guidance done even if that gave you the even if they give you a termination notice non.
Whatever.
You will notice on the fourth quarter debt.
That's correct, there very well could be.
Okay.
Is there any levers then you know what what could give us upside maybe to our revenue guidance here or is it really that we're focused on we should be focused on a our gross anything that can actually impact our 2021 revenue itself, yeah I'll take those two separately for 2021 revenue.
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 and implementation right now.
We have not made.
Assumptions about in your revenue conversion I think Richard asked this earlier, if we were able to sign care gets customers and the existing base add on care guidance, we would be able to launch that and implement that and lead the revenue upside. There also as revenue upside from some of the items that are performance based so we have performance guarantees and certain <unk>.
<unk>.
We take kind of a on.
On evaluation of those in thinking through our outlook, but take a free frankly fairly kind of conservative approach to those performance guarantees and then finally I would I would say that Boston children's hospital didn't exist. When we spoke about Q3 and the October time frame.
This is not me, it's the work of the team, but there's a lot of creative people like assets that are looking for opportunities to drive revenue across the business.
But with that said <unk> is definitely going to be the best measure looking forward to look at the kind of the opportunity for us to see meaningful revenue growth. The return to growth we've talked about in 'twenty two and beyond.
Maybe it was left on follow up would be any other opportunities like Boston's children out there.
For other parts of the country or is it or is this really the only way youre kind of getting to it.
Yeah, No great question as well mentioned certainly my intent was not to focus on the C. D C. Our Boston Children's hospital, a lot of opportunities have come to us.
As a result of our work and testing on reputation and navigation and 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 whole on that market around at frankly, the high Tech high touch side. So you know one of the reasons that we decided to the Boston.
Children and CDC with certainly it aligns so closely with our mission, but also from an economic perspective that it did 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 where.
Valuate in those on a case by case basis.
Great.
Thanks, Thanks, a lot sure. Thanks Charles.
And your next question comes from Steve Halper with Cantor Fitzgerald.
Hi.
One housekeeping question and one bigger.
Picture question on the bigger picture, how could you how could you just sort of.
Describe a little bit more.
Pipeline that youre dealing with in the payer market.
And is there.
Do you have a.
Could you share with us how many payer contracts you would hope to sign them in 2021.
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 the anthem Cigna in Alabama, and then specifically new plans.
You talked earlier about really that the set of opportunities on the pipeline today are in kind of the early to mid stage conversation. Some of those are progressing or approaching the later stages, 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 gross 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.
Okay. So so so you would you would firmly expect new payers to sign during the year is that fair, yes, I do expect that.
And then the other housekeeping question is what are the what's the expectation for head count.
During the.
Of course of the year.
Yes, absolutely. We ended Q4 at 440, which was slightly up from the end of Q3, where we were.
430.
It was essentially kind of go forward Mark following our cost structure changes that Q4 head count ticked up because we have a set of folks that support customers around January one.
And so we expect it to be flat, maybe slightly decreased as we look forward, we don't expect to make.
Meaningful.
Increases in our head count certainly just the targeted investments that I mentioned earlier a.
A couple more salespeople on the Lake.
Great. Thank you.
Yeah.
Your next question comes from Richard close with Canaccord Genuity.
Yeah. Thanks, just a really quick one so on the <unk> declined sequentially is there any way.
Sort of.
So like maybe how much was actually a customer decided not to move forward and then maybe what we're pricing.
If you think about kind of that sequential decline Richard the majority of it.
I would say it was related to customers that chose not to move forward or chose to not move forward with specific components of.
Their product suite that they they had purchased.
Uh huh.
The minority there was certainly an element of lower pricing, especially as given Covid, we took long term agreements with lower price rather than than termination, but but I wouldn't call that a.
The kind of the smaller portion rather than just the customers that didn't move forward.
Okay. Thank you.
Yeah.
Yeah.
And there are no further questions at this time.
I'll now turn the conference over to me for closing remarks.
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.
This does concludes today's conference call you may now disconnect.
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