Q1 2021 Castlight Health Inc Earnings Call

Good afternoon, and welcome to the cash held the first.

The first quarter 2021 conference call at this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask the question. During the session you will need of press star one on your telephone. Please be advised the today's conference is being recorded.

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Now like the hand, the conference over to Davis.

Please go ahead.

Leading today's call are naval Merritt, Chief Executive officer, and well timed around the Chief Financial Officer, Nathan of well will offer of 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 Catholics website.

This call contains forward looking statements regarding trends strategies and anticipated performance of the cast site business, including but not limited to guidance for 2021, new sales or they'll need of brand new innovation, the opportunities and impact of COVID-19 on our own operations our ability to sell.

In our operating result opportunity and the impact of COVID-19 on our customers and businesses and their decisions to buy certain benefits or Institute work force reductions retention of existing customers gross margin and operating expertise trends cashews teach your cash position and the chain.

And the growth strategy and the company's performance.

These statements are made as of April 29, 2021, and reflect management's views and expectations. At this time and are subject to various risks uncertainties and assumptions if any of these risks or uncertainties, the pellets or if any of the assumptions prove incorrect actual results could differ.

Really from these 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 for updates on our performance during the quarter unless the regulation at the complaint for them.

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 cash late for it but with the statement.

Today's call and presentation also includes certain non-GAAP financial metrics, such as non-GAAP gross margin operating expenses operating income and net income per share.

These non-GAAP financial measures should be considered in addition to and not as substitute for or in isolation from measures prepared in accordance with GAAP.

However, cash like believes these non-GAAP metrics aid in the understanding of cash sites financial result, disclosures 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 of the earnings.

At least that was filed before the call.

With that I'll turn the call over the naval Mirror CEO of cash lighthouse nave.

Thank you all for joining us on the call today I'll discuss our achievements in the first quarter, including progress against the three goals. We shared on our last call growth innovation and operating discipline after that I'll turn the call over to well for a more detailed review of the first quarter financials.

Our total revenue for the first quarter of $35 1 million exceeded our guidance our non-GAAP gross margin of 66, 8% with 170 basis points higher than the same period last year and calculate achieved a fourth straight quarter of non-GAAP profitability and positive cash flow rift.

<unk> our efforts to exercise the operating discipline to support continued financial sustainability.

Before I discuss each goal I am pleased to share of we agreed to expand our partnership with Boston Children's Hospital of P. C H and the C. D C. In support of the National COVID-19 vaccination effort, it's been a privilege to leverage our expertise in health navigation and complex health care data to support the country and that's critical.

The phase of pandemic response, the expansion will allow us to continue to serve BCH and of the CDC through the duration of the vaccination effort. This year well, we'll share more details on the financial impact.

In addition, the team delivered several meaningful achievements against our goals for 2021 and the first quarter.

Starting with our goal of AOR growth, our annualized recurring revenue or air or increased $1 3 million from last quarter to $128 million. While the first quarter is typically a seasonally light sales and renewals quarter. We were pleased the Blue Cross Blue Shield of Alabama chose to add care guides in February and proud that our.

Customer experience teams delivered our lowest churn quarter since 2016 looking forward I'll comment on the three core factors to deliver on our goal of AOR growth employer sales health plan sales and renewals.

Employer sales given the seasonality of our sales cycle Q1, and early Q2 are our critical pipeline building period, the combination of of growing navigation market or competitive high Tech high touch offering and strong team execution and pipeline generation activities have allowed us to make meaningful.

Progress against our pipeline targets, our Q1 stage, one pipeline generation with more than 130 per cent of our target and we have multiple active sales opportunities with very large employers that we view as winnable, we don't think 2021 will represent a full return to a normal buying ear, but we do see.

The faster progression through the early stages of the pipeline and expect a significant improvement from last year as COVID-19 colored dynamic.

Health plan sales as we see progress with employers or health plan business is robust and accelerating since February of several health plan prospects progressed from the early to mid stage, including several digital navigation opportunities. In addition, we saw multiple net new opportunities related to the.

Currency and coverage regulations, turning to our existing health plan partnerships. We believe there is potential for expansion across the anthem Cigna and Blue Cross Blue Shield of Alabama at the point of validation Blue Cross Blue Shield of Alabama signed an expansion in February to add care guides and Cigna is in the process of adding additional.

<unk> groups and the Taft Hartley business segment. These additional cigna groups are covered under our existing contract and thus will not have an immediate financial impact, but both expansions demonstrate our health plan customers confidence in our solutions and highlight the opportunity to expand existing plan partnerships were new.

As I mentioned above Q1 represented our lowest churn quarter for Catholic since 2016. This is partly due to a smaller 2021 renewal cohort, but it also reflects strong execution.

As an example, we were pleased to renew one of our larger and more complex customer relationships with a meaningful seven figure contract size as we work to continue our improvement in retention, we transitioned our customer success managers two of variable compensation plan that aligns customer goals and renewal outcomes with the team.

Compensation. In addition, we will soon release, a third party study demonstrating tests like the impact on medical claims costs as I've said before we believe third party validation of our meaningful savings will support renewal conversations I look forward to sharing more progress in coming quarters as our main renewal season.

Q2 and Q3.

Next I'll turn to our goal of pioneering next generation navigation.

As I noted in February our differentiated high Tech high touch approach to navigation drive strong outcomes for our customers through an affordable combination of self service and clinical expertise to that end, we continued to make progress with our care guides solution in the quarter as I mentioned in Q1, we are committed to.

Raising awareness and now see care guides and more than 30 per cent of our pipeline discussions and we were pleased to see the number of Rfps. We received for care guides increased nearly fivefold over last year. In addition, we launched American Eagle and care guides, which is an exciting milestone as they are of net new customer who went to market for.

High touch navigation and chose cast light because of our care guides the offering.

Our national leadership role supporting the C D C and Boston Children's Hospital with COVID-19, vaccinations positioned us to support our customers with a truly best in market solution for vaccine navigation, we launched a comprehensive in App and care guides supported solution for all of our clients in mid February.

During which provides educational content of dresses vaccine hesitancy and guides users through an interactive experience to help them determine their eligibility and identify nearby locations with vaccine inventory. Our customers are also able to tailor their program around vaccination, including the messaging and <unk>.

<unk> or education unrelated programs since the launch one third of our users have accessed and utilized the vaccine navigation importantly, the solution also has helped to drive new registrations as up to 65 per cent of the newly registered users in the past 60 days accessed the vaccine navigation.

For customers, who promoted the solution, while bringing innovation is a core tenet of our customer relationships I believe vaccine navigation has been among the best received features we've delivered to clients in my time of Catholics and is a great example of how navigation solutions should be able to flex to serve as critical infrastructure.

Or to support of customer strategy or high priority needs at any time.

The well will provide detail on our progress against our goal of continued operating discipline I am pleased to be able to raise our 2021 outlook as a result of our expansion with Boston Children's Hospital and the progress we have made on renewals.

Finally, as you've heard me say in the past one of my top priorities has been building a world class leadership team that can lead costs late in its next chapter I'm excited to announce that we have hired a new SVP and chief sales officer, Frank Jennings to lead our direct employer sales organization I had the opportunity to work closely with the.

Frank when he was one of Catfights most successful sales leaders seven years ago.

Since then he's led the commercial organizations at several other digital health companies, including the co Vera most recently and Doctor on demand for five years I'm thrilled. He is returning to cash like he brings deep industry experience strong field sales leadership Catholic knowledge, and our commitment to the culture of our organization.

I'm excited to have Frank on board I'm pleased with the immediate and visible impact he is already making on the organization.

For clothes I'm happy to report 2021 is off to such a strong start and I feel confident in our ability to execute against our three priorities for the year returning to Ara growth pioneering next generation navigation and continuing to demonstrate operating discipline, while investing in growth.

As always I want to express my deep appreciation to the cast flight team for their unwavering dedication to our mission and the way they show up for our customers every single day I'll now turn the call to well for a review of the first quarter financial results and our outlook for the remainder of the year well.

Thanks, Matt I'll start.

By reviewing our first quarter results and then we'll discuss our outlook for the second quarter and the full year.

Beginning with the annualized recurring revenue or <unk>. We were pleased <unk> increased $1 3 million sequentially from 12, 31 and ended the quarter at $128 million as.

As of May have mentioned, the first quarter is seasonally a light sales and renewals quarter for our industry and the <unk> increase was principally a result of the expanded Blue Cross Blue Shield of Alabama relationship and Q1 being the lowest churn quarter, we've experienced since 2016.

Total revenue in the first quarter was $35 1 million, which exceeded our quarterly guidance range with the upside driven by performance guarantee of achievement and our Boston Children's Hospital relationship.

The revenue represented a decrease of 10 per cent compared to a year ago, which was driven by the AUR decline, we saw in 2020 and around $3 million of one time revenue in the prior year quarter subscription revenue accounted for 92 per cent of total revenue and professional services revenue accounted for eight per cent of total revenue this quarter, including the.

<unk> for my Boston Children's Hospital of CDC relationship.

Turning to non-GAAP measures, our gross margin in the quarter of $66 eight per cent compared favorably to 65, 1% of year ago.

Subscription gross margin was 77 five per cent continuing to come in in line with our expectations.

Non-GAAP operating expenses as a percentage of revenue were 63 five per cent in the quarter compared to 78% in the first quarter a year ago. This year over year improvement reflects our ongoing commitment to financial sustainability, even as we have made targeted investments to return to era of growth this year.

Non-GAAP operating income of $1 2 million represented our fourth straight quarter of positive non-GAAP operating income.

Literally our cash flow from operations was $7 6 million for the first quarter, which was a record level for capsulate, though it is worth noting the cash flow benefited for more than $3 million of favorable payment timing in Q1, we ended the first quarter with $56 $5 million in cash on the balance sheet.

With that I'll speak to the impact of the Boston Children's Hospital of CDC expansion provide our initial outlook for the second quarter and update our full year of 2021 outlook.

As <unk> mentioned, we were pleased to expand and extend our support for Boston Children's Hospital as it relates to their work with the CDC on COVID-19, vaccinations and vaccine finder.

Incremental to our original agreement we added support for additional deliverables this year and extended our hosting and ongoing support through mid 2022, given the expected duration of the COVID-19 vaccination effort.

Due to additional work from the amendment, we expect slightly higher revenue in Q2 and to continue to recognize revenue associated with the relationship through mid 2022.

Reflecting the impact of our expanded Boston Children's hospital relationship for 2020. One we are increasing our outlook and now expect revenue in the range of $135 million to $140 million non-GAAP operating income between on the income of 1 million and of loss of $4 million.

Non-GAAP income per share between an income of one cents per share and a loss of <unk> <unk> per share based on approximately 160 to 161 million shares.

Full year gross margins in the mid 60 per cent range.

Cash flow provided from operations between $2 million and $7 million, we expect the in the year with more than $50 million of cash.

As we said on our February call. We are now in a position to provide quarterly revenue guidance as well for the second quarter, we expect revenue in the range of $33 million to $35 million.

We are pleased with the progress in the quarter, including the sequential AOR growth and improved financial outlook driven by the Boston Children's Hospital expansion and I am confident in our team's execution against the goal of delivering <unk> growth in 2021.

Before we open the lines of questions I want to think of the cast light team for showing up as one team on a mission, making things happen each and every day on behalf of our customers users and all of our stakeholders one of those cash letters as T of Davis, who read the safe Harbor to open the call. It was one of our quarterly Q1 employee spotless. Thank you.

The Tia at this time, we'd be pleased to take questions operator.

As a reminder to ask any question you would need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.

Your first question is for them of Charles right.

With Cowen.

Oh, Yeah, Hey, Thanks, guys for taking the question I'm, just the real quickly on Boston children's.

Oh, how much of the revenue is it fair to say that the revenue increase that we're expecting for the full year is all Boston children's or is there anything else to think about that and then in terms of the contribution.

Is the first quarter when we looked at the professional services margin is that the the right runway of doors or should we assume the kind of increases here and kind of runs out of a certain level and is that of consistent amount that goes to the first half of next year.

And then we kind of drop back to what.

We kind of saw beforehand.

Yeah, Hey, Charles first of all.

I would say, we're really pleased to have the expanded and extended Boston for on top of relationship and I'm pleased for the leadership role at it shows is playing and helping in the COVID-19 pandemic quite candidly on the on.

On the questions itself the.

The principal driver of the increased guidance was the expanded Boston children's hospital relationships. So you're right on that point in terms of contribution what the agreement does essentially extend us from an original agreement that went through mid 'twenty one to the mid 'twenty two time frame really kind of the expected duration of the COVID-19 vaccination.

Effort.

What that means is you'll see that kind of run rate that was similar to Q1 running forward, though we did say in the prepared remarks. The Q2 of 'twenty. One this quarter will be slightly higher given some out of deliverables that were were part of the expanded agreement.

Okay. So so the contribution this year will be probably a little bit more than what we should expect for the first half of next year on a quarterly basis.

I would say the contribution in Q2 will be a little bit outsized, but other than that it should be fairly consistent.

With each of the other quarters from that.

Start timeframe in the mid part of Q4 through the middle part of the next year.

Okay got it.

And then in terms of the the core book.

The E. R side, you know you may be talked you talked about the pipeline here and particularly the health plan side.

You know should we still expect you know is it your view of we'll get another you know at least one health plan across the finish line of by year end of and I know the the target is to return to E. R of growth are you of your guys' prepared at this point of kind of give a kind of a magnitude of where you think that eight of our growth.

Range will look as we get to the end of the year.

Sure. Thanks for the question Charles and so I'll just start by saying that we were obviously pleased to be able to report an increase in IRR. This quarter. Obviously Q1 is typically a lighter sales and renewal quarter, but pleased to see it moving in the direction that we want and as you have commented we are committed to returning to <unk> growth in 2021, and we're confident that we're going to do that.

We're set up well to deliver on that commitment as you know <unk> is a function of three things. So it's a function of health plan sales employer sales and customer churn them and to your commentary on pipeline. We're feeling good about those of the health plan pipeline as well as some of the data that I shared on the employer of pipeline. So you know I shared that we saw.

Five ex increase in Rfps. We also were out of 130% of our stage one pipeline target you know and then of course had our lowest churn year. Since 2016. So if you think about those three pieces coming together and we feel that all three are going to be drivers of our return to air our growth and.

That's really you know the commitment that we've made and the commitment that we intend to keep I don't know well if you want to add anything to that no and I think on the health plan side. The piece that you started on Charles we feel really good about that pipeline you heard that amaze prepared remarks. The nice thing that we have this year is the ability of it at <unk> through both new business, New plans coming on board.

And through expansion of existing relationships and certainly we've made progress of the expansion of already but expect it to have both of those contribute this year.

Okay and last question for me is if we look at the expense lines you guys have done a really good job in this area on Opex.

As we think about returning to air of growth this year, and obviously going into next year should we think of our operating expenses start to grow more in line with arrow of growth again after kind of years of kind of cutting cutting back here to to manage expenses and then you know the the real quick so can party.

As.

You reported a non-GAAP operating profit we didn't book of an income tax provision of is it right. The thing we shouldnt be booking.

The income tax provision, even as we generate.

Non-GAAP operating profit at least for this year. Thanks.

Yes on the the latter point, that's the right way to think about this year in terms of the Opex kind of more broadly you of.

Heard for me really since you took the role of that helping the organization show operating discipline has been an important priority and we're glad that that's played out of the last four quarters four straight quarters of non-GAAP profit for straight quarters of positive.

Positive cash flow.

We do expect to make targeted investments on the Opex lines as we returned to growth we've talked before about those.

Those in the sales and marketing line, specifically in the health plan business, where we've got a real opportunity to capture share and then also in our care guides program, which is kind of R&D and also cost of cost of revenue, but in general we don't expect to see the opex lines kind of scale in a meaningful way as a growth skills.

We would expect to see that on the on the cost of revenue lines, but feel like we're in a reasonably good position to make targeted investments, but not need to see.

Meaningful step ups over the course of of call of the next day to 24 months as we return to that growth.

Okay. That's helpful. Thanks, guys.

And of course, thanks Charles.

As a reminder, ladies and gentlemen, if you would like to ask a question at this time of simply press Star then the number one on your telephone keypad.

And there are no further questions in queue at this time.

Okay.

Okay.

Yeah.

So with that thank you all for joining US today, we're glad to share the progress we've made against our 2021 priorities have a great evening.

This concludes today's conference call. Thank you for participating you may now disconnect.

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Right.

Okay.

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