Castlight Health, Inc.
Q3 2014 Earnings Call Transcript

Published: 31 Oct 2014

[Operator:]

Greetings. And welcome to the Castlight Health Third Quarter 2014 Earnings Conference. At this time all participants are in a listen only mode. (Operator Instructions). As a reminder this conference is being recorded. I would now like to turn the conference over to your host Ms. Nita Sommers, VP of Corporate and Business Development for Castlight Health. Thank you. You may now begin.

[Nita Sommers:]

Good afternoon and welcome to Castlight’s third quarter 2014 conference call for the period ended September 30, 2014. With me on today’s call are Giovanni Colella, our Co-Founder and CEO and John Doyle, our CFO. Following the prepared remarks we will take questions. Our press release was issued after close of market today and is posted on our website where this call is being simultaneously webcast. During the course of this call we will make forward-looking statements regarding our trends, strategies and anticipated performance of our business including our guidance for the fourth quarter and full year 2014. These statements reflect management’s current views and expectations and are subject to risk various risks, uncertainties and assumptions. Please refer to the press release and the risk factors included in the company’s filings with the Securities and Exchange Commission for discussion of important factors that may cause actual events or results to differ materially from those contained in our forward-looking statements. Forward-looking statements made during the call are being made as of today. If this call is replayed or viewed after today, the information presented during this call may not contain current or accurate information. We disclaim any obligation to update or revise any forward-looking statements. We will provide guidance on today’s call, but we will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum. On the call we will also discuss certain non-GAAP metrics that we believe aid in understanding of our financial results. A reconciliation to comparable GAAP metrics on a historical basis can be found in today’s earnings release which is available on our website and as an exhibit to the Form 8K filed with the SEC just before the call. With that, let me turn this call over Gio.

[Giovanni Colella:]

Thank you, Nita. And thank all of you for joining us to discuss our third quarter results. I am pleased to share that Castlight has an outstanding third quarter. We executed well across the business, driving great results for customers and record new bookings, while expanding our product offerings through innovation and access to more data than ever before. It is widely known that healthcare has been way beyond other industries when it comes to leveraging technology to improve results, but that is changing. These are exciting times for technology companies focused on healthcare and Castlight is one of the visionary companies driving this change. We are seeing the market for transparency solutions becoming increasingly mainstream. The opportunity to move beyond transparency to help companies truly take control of the healthcare investment is unfolding before us. We believe the opportunities ahead of us are enormous and there are many, which makes focus critical to achieving our goals. We plan carefully and we measure our progress diligently so we can effectively allocate our resources to drive rapid growth and solidify our leadership position. As I mentioned on our last call, we track four key drivers of our business very closely. These are growth, customer success, ecosystem relationships and innovation. Let's start with growth. Revenue were $12.2 million representing 238% growth compared to Q3 last year. This was ahead of our expectations, thanks to more great work by our customer implementations team. Q3 was also a terrific quarter for sales with record new sales. Our experience to date is that the third quarter is typically the high water mark in the years for the new sales. As we discussed last quarter, the second half of the year is when the vast majority of customers typically make their human resource and benefits decisions for the coming year. Adopting the Castlight platform tends to be part of that cycle. This means that for us it is really important to be ready to support prospects and customers as they plan their work with Castlight for the coming year. Well, we were ready and our sales team delivered in the third quarter. The details are impressive. We ended Q3 with 159 signed customers compared to 130 at the end of last quarter and 88 at the end of Q3 last year. We saw a strong increase in average deal size during the quarter and we added seven new Fortune 500 customers, including AT&T, Land O'Lakes and Anthem, who in addition of being a health plan partner will also be deploying Castlight to his own employees. One of the reasons for our success in Q3 was our decision earlier this year to focus our sales effort on the higher end of the market. This is where the key market influences are. They are the most innovative companies and have the largest IT budget. We are seeing strong demand across the market as more and more large businesses see the importance of deploying new technologies to get more from the healthcare spending. As before, the new customers we signed in Q3 are across a diverse set of industries. While every one of these firms is focused on getting more value from their healthcare spending, what we find most interesting is the diversity of strategic business objective that our customers are asking for our help to address. Evidence is building, that American enterprises are beginning to manage healthcare spending in a fundamentally new way to make the most out of their investments, ensure employees and their families get the right care at the right cost, at the right time and to help reduce overuse and waste in the healthcare system. Let’s walk through a few examples. In this past quarter alone we signed a large automotive manufacturer that selected Castlight as part of its strategy to create a best-in-class benefit package. They reported to us that they expect Castlight to help them achieve their talent recruitment goals. We signed a technology company that were seeking drive employee engagement to their existing health and wellness program. We also signed a manufacturer that needed a technology platform to enable cost savings and help facilitate a company wide transition to consumer driven health plans. And lastly, we signed a healthcare provider looking for partner that can rapidly innovate with them to create and introduce a unique benefit experience for their employees. This diversity of objective creates an enormous opportunity for Castlight to drive value for our customers. Our best-in-class transparency solution is an important starting point, but the breadth of our industry leading enterprise healthcare cloud solutions, means that we are strongly positioned to help our customers accomplish a wide range of goals. For example, many customers focus on our ability to impact yearly cost or help them reduce overuse and wasted healthcare spend. Others are much more interested in measuring improvements and employee engagement and satisfaction with employee of benefit options as part of their broader initiative to attract and retain top talent. Still others ask us to track adoption and utilization of key programs designed to support employee productivity goals. We believe that no other technology company offers enterprises the power and flexibility to achieve their healthcare benefits goals as effectively as Castlight. This brings us to our second key business driver, customer success. One of the important goals that many companies have when they work with us is to reduce cost, as the market for healthcare technology expands it is important to understand what works and what doesn’t work. When it comes to helping our customers lower healthcare cost. While it is admittedly premature to draw further conclusion, it is not too soon to take a close look at early experiences and see what we can learn. In this context we were thrilled last week by the publication of our study that provides an important validation of the potential of the Castlight platform to help our customers reduce cost. The Journal of American Medical Association, one of the most widely circulated peer reviewed medical journals in the world, published a study affirming the positive impact of Castlight's platform on a selected set of healthcare services. The study examining the impact of Castlight across 18 employers who had employees using Castlight between 2010 and 2015. The study found that employees who searched on Castlight saved money for themselves and their employers. Specifically, employees assessing Castlight saw cost reductions averaging 14% on lab test and 13% on imaging services when compared with employees who didn’t search in Castlight. As expected the study also supported the notion that primary care office visits present less opportunities for savings. While exciting, these findings are just the beginning. The JAMA study evaluated the first years use of Castlight by employers and employees at the dawn of healthcare consumers in the US. As enterprise healthcare management continues to evolve beyond transparency and more and more customers implement our platform, we expect to see more proof of the value that Castlight can delver across many dimensions, including employee satisfaction, productivity and benefit program optimization. Another key area for focus at Castlight is something we call ecosystem relationships. For us this phrase refers to our relationships with a variety of organizations, including health plans, Qualis [ph] organizations, pharmacy benefit managers, healthcare technology firms that integrate with us through Castlight Connect, healthcare providers and others who collectively form the ecosystem in which we operate. During Q3, we continue to expand our ecosystem relationships with many of these important constituencies. On the data front, we made significant progress this quarter developing relationships with several of the major dental insurance carriers to support the rollout of Castlight Dentals and mutual employers. Additionally, in Q3 we further expanded our data bytes with one of the largest health plans we've been working with for several years to enhance the user experience for all joint customers. Finally, we expanded our connect partner ecosystem to support numerous additional health savings accounts or HSA providers, tele health services and consumer decisions support programs. Finally, when it comes to innovations, we are investing in and working aggressively to add features and functionality to existing products while we build new products that made Castlight enterprise healthcare cloud platform the leading solution in our industry. In Q3, we continue development of Castlight Dental, the new addition to the Castlight Care Solution Center in preparation for our first customer launch of the application in Q1 2015. In addition to this, we invested significantly in enhancing our existing products to sustain our lead in the market, specifically we completed a comprehensive user experience refresh of our flagship Castlight medical application. And lastly, we expanded our rewards product offering, adding capabilities to now incentivize employees to get preventive care services, utilize high quality providers and engage with other wellness and education programs. The value of our innovation is ultimately measured by whether we deliver our new products to customers that used them to achieve their goals. In Q3 our attach rate for pharmacy and rewards were particularly strong 78% and 13% respectively. These high attach rate in combination with our up market success contributed to average deal sizes being more than 20% larger in the third quarter than in the second quarter of 2014. A trend that we were please to see as a testament to the value of our investment in innovation and product expansion. With the commercial launch of Castlight Dental in Q4, we are excited to continue building out our enterprise, healthcare cloud offering. We are extremely pleased that our performance this quarter and especially by our success at delivering strong progress on all of our key drivers, growth, customer success, ecosystem relationships and innovation. With this, let me turn things over to John to comment on our Q3 financial performance in more detail.

[John Doyle:]

Thanks Gio. And good afternoon everyone. We had another strong second quarter across the board in Q3. Revenue growth was strong, new bookings and attach rate are setting us up well for 2015 and we made great progress on gross margins during the quarter. In just our second full quarter of operations since the IPO in March our team has continued to exceeded our plans which is terrific. Its a really exciting time to be at Castlight and we're grateful to all of our customers, employees and partners. Turning now to financial details, they really underscore the strong quarter that we had in Q3. Total revenue was $12.2 million in the third quarter up 238% year-over-year and up 16% compared to Q2. Subscription revenue was 92% of total revenue in Q3 and increased 250% in Q3 compared with the third quarter of 2013 and 18% versus the previous quarter. Growth in subscription revenue is primarily related to customer implementation activity. At the end of Q3 we had 103 launched customers compared to 90 at the end of Q2 and 44 at the end of Q3 2013. Professional services revenue in Q3 was 141% higher than in Q3 2013 and flat relative to Q2. The flat trend compared to last quarter was primarily related to non-recurring revenue that we recognized in Q2. As we have discussed before, we have experienced strong cyclical trends in revenue growth and new customer bookings. In the case of revenue growth the cycle has been tied to when our customers prefer to launch Castlight which is often at the beginning of a new plan year. In contrast but related to this dynamic, we have seen stronger demand in new bookings in the second half of the year and Q3 in particular as customers make their purchase decisions and time for us to complete implementation activities and launch Castlight early in their next plan year. Accordingly the third quarter is a critical period for us to drive new bookings growth and we again exceeded our expectations. We exited Q3 with 159 signed customers versus 130 at the end of last quarter. In addition to new customers, we also focused on attach rate of applications beyond our core Castlight medical offering and also on average deal sizes as key growth metrics in the business and we saw a great progress on all three in Q3. During Q3 attach rates on new sales for Castlight pharmacy and Castlight rewards was 78% and 13% respectively versus cumulative attach rates of approximately 65% and 5% in the first half of this year. Increased penetration of upsell applications was a key driver of average deal size which increased more than 20% in Q3 compared with Q2. As a reminder, we plan to update total backlog and net dollar retention metrics for investors annually after each year end. On a quarterly basis we will keep you informed about our progress by updating you on our customer accounts, trends and deal sizes and our performance against our goal of annual net dollar retention of 100%. Through the end of Q3 we are on track to deliver against that goal of 100% net dollar retention in 2014. In addition to solid top line growth in Q3, we continue to achieve steady improvement in our gross margin which reached 44% this quarter compared to a negative gross margin of 33% in the year ago period and a positive 33% gross margin in Q2. While we expect our gross margin percentage to improve over time, we expect a smaller increase in Q4 than we experienced Q3 relative to Q2. This is because the strong improvement we saw in Q3 was enhanced by specific endurable cost reductions and because we expect implementation activities to increase in Q4 in preparation for customer launches scheduled for completion in Q1 2015. It is worth noting that our overall gross margin blends the effects of gross margins we derive from subscription revenues with the gross losses we generate from professional services. Gross margins on subscription revenues increased to 78% in Q3 from 70% in the prior quarter. Our primary objectives for our services business are to maximize customer satisfaction and facilitate rapid market adoption of our products. As a reminder, our long-term overall gross margin target for our business is 70% to 75%, achieving this target will require continued growth of our higher margin subscription revenues and to a lesser extent improvements in the margin profile of our professional services offerings. We remain confident in our ability to achieve both over time. Totaling operating expenses were $21.6 million in the third quarter which was 45% higher than the year quarter, but 3% below second quarter operating expenses which were $22.2 million. The decrease in operating expenses in Q3 compared with Q2 was primarily driven by a decrease in sales and marketing expenses during the third quarter, partially offset by increases in R&D and G&A expenses. Sales and marketing expenses totaled $12.6 million in Q3 compared with $8.5 million; in Q3 2913 and $13.7 million in Q2 2014. The sequential decrease in sales and marketing expense in Q3 was driven by the cost associated with Castlight's enterprise healthcare Summit during the first half of 2014 as we did not execute a major marketing event in Q3. We expect sales and marketing spending to reaccelerate in Q4 2014 as we continue to invest aggressively in the business to drive strong sales growth in 2015 and beyond. R&D and G&A in Q3 were inline with our expectations, R&D expenses increased 30% compared to the same period in 2013 and 5% sequentially. Increases in general and administrative expenses were 61% and 7% relative to Q3, 2013 and last quarter respectively, primarily reflecting the addition of public company infrastructure and other resources needed to support the overall growth of our business. Collectively these activities resulted in a Q3 net loss of $16.1 million which was approximately 14% smaller than our net loss in the previous quarter. Our net loss per share in the third quarter was $0.18 on 89.7 million weighted average shares outstanding compared to net losses per share of $0.21 on 89.5 million and a $1.58 on 10.2 million weighted average shares outstanding in the previous and year ago quarter’s respectively. We exited the quarter with $210 million in cash and investments. Cash used in operations was $7.5 million during the third quarter versus $19.6 million in Q2. The decrease in cash used in operations was driven by working capital dynamics, including strong collections of customer receivables against a significant increase in billings. While we signed a record amount of new bookings in Q3, it is important to note that our billings are not reliable indicators of new sales activity. This is because we most often bill for subscriptions at time of launch and because the length of time that we bill for varies widely among customers. Now I will wrap our prepared remarks with update financial guidance for 2014 and then Gio and I will take questions. For the full year 2014 we are forecasting total revenue of $43.9 million to $44.3 million representing growth of 238% to 241% compared to $13 million in total revenue in 2013 and an increase from our prior guidance of $42.6 million to $43.2 million. We currently projecting a full year non-GAAP operating loss in the range of $74 million to $75 million and a non-GAAP net loss per share in the range of $1 to a $1.01 based on 74 million weighted average basic and diluted shares outstanding. For the fourth quarter we are forecasting total revenue of $12.8 million to $13.2 million representing growth of 151% to 159% on a year-over-year basis. We expect to generate a non-GAAP operating loss in the range of $19.6 million to $20.6 million and a non-GAAP net loss per share of $0.22 to $0.23 based on 90 million weighted average basic and diluted shares. In summary, we’re pleased about our progress in the third quarter and year-to-date and we’re confident in our forecast for continued strong growth for the balance of 2014. Thanks for your attention and now Gio and I will be happy to take some questions.

[Operator:]

Thank you. (Operator Instructions). Our first question is coming from the line of Robert Jones with Goldman Sachs. Your line is now open. You may proceed with your question.

[Robert Jones:]

Great. Thanks for the questions and good evening Gio and John. Just on the 29 new customers signed in the quarter, I know you said that the average deal size has been increasing, I believe you said 20% higher relative to 2Q. You know, attach rates were impressive in the quarter as well. Any sense you can give us on the pricing leverage that you are seeing on these new clients relative to what you saw in 1Q, 2Q and you know, obviously in this quarter?

[John Doyle:]

Yes. Hi, Bob. Thanks for your question. This is John. So as you know and would expect pricing varies a lot quarter-to-quarter with customer mix and our product sales mix. And certainly a critical metric in the business you'll also recognize its competitively sensitive. And so really deal size is a good way to think about the economic we're driving in these customer relationships and we are seeing that increasing. And that increase in deal size is happening in the context of very favorable dynamics competitively, so continuing to win the vast majority of the opportunities that we are involved in and also achieving premium pricing. So driving premium pricing, winning the vast majority deals, driving deals size all super positive, key parts of the strong performance in Q3. You also mentioned the attach rates which as – as we've talked about is a critical part of growing those customer relationships and expanding the business. So, very healthy improvement there. And then the overly to all of that is continuing to invest aggressively in innovation to delver more valuable for – more value for customers and stay firmly in the lead. So feeling great across the board there.

[Robert Jones:]

Great. And I guess just on a follow up. If I look at your sales infrastructure, sales and marketing it hasn’t really grown which I guess you know in some ways to be a good thing. But if you look at the opportunities ahead of you, I mean, do you feel like you have the appropriate footprint from a sales and marketing standpoint right now to capitalize on the opportunities in 2015?

[John Doyle:]

Yes, that’s great. So, we feel like we're in a wonderful position. So remember not only did we see a fantastic bookings performance in Q3, we saw great contribution from across the sales force, very focused here on sales capacity as we've talked about and think we're set up well for 2015 and I think its important you know to remember the cyclicality in our business with respect to new sales. So we do see the second half of the year really driving a majority of our business and so as we become kind of clearer and clearer on that cyclicality the timing of our sales and marketing investment is something that we've been able to plan very precisely. And so as I said in the prepared remarks, you're going to see from us an acceleration of that spend in the fourth quarter, again, as part of our plan and we think we're in a great position for next year.

[Robert Jones:]

That’s helpful. And I guess just one big picture one if I could, your understanding that 3Q is typically your biggest new business quarter, given when decisions are made around benefits. Gio, I was wondering any observations from your point of view on changes in behavior, in decision making, any types of questions or you know interests that you're fielding from potential clients that were newer of any interest to you?

[Giovanni Colella:]

Yes. Thank you, this a very good questions and obviously this is more of a qualitative answer than a quantitative one. But absolutely I have seen that first of all more and more meetings, I get invited to have CFO sitting in the room and much more interest also from the human resource department expanding beyond the benefit department. So I translate that into a broader interest in a platform than just an interest in showing transparency.

[Robert Jones:]

Interesting. Thank you.

[Giovanni Colella:]

Thanks.

[Operator:]

Our next question is coming from the line of Jennifer Lowe with Morgan Stanley. Your line is open. You may proceed with your question.

[Jennifer Lowe:]

Thank you. One of the things I wanted to ask about is what I've been talking about –talking to some companies that are looking to try and capitalize on all this enthusiasm around changes in how companies and users approach healthcare. One of the things that comes up a lot is the opportunity to take wearables and health tracking technology and incorporate that in some way into employer benefit plans, you know, as part of incentives to track people's activity to get them healthier and potentially have incentives attached to that. Is that something that you all have looked at all or talked about given that it seems like it would be a pretty natural extension of the data collection and data you're aggregating from other sources?

[Giovanni Colella:]

This is Gio. Thank you very much for the question. In all fairness, we haven’t heard that much interest from the employers we are talking to today. We keep our eyes very open and we monitor very carefully what employees are asking for. I have to say this is not something that comes up that frequently. With that said, you know, as part of our platform, we have Connect where we help customers drive adoptions of things that they implement and our platform integrates all of this spread point solutions. I mean, you've heard about the on-site clinics, the wellness. So when that question comes up and if that question will come in the future, we feel very positive that we're ready to integrate with different type of solutions.

[Jennifer Lowe:]

And I also wanted to touch on some of the work that you done – that you referenced earlier looking at the impact that Castlight can have on expenses for employees that are searchers versus non –employees that are searchers versus non-searchers and you mentioned the imaging and the lab tests is an area of savings. But think you also said that there is less opportunity around the initial point of care, the preferred provider. If you look at utilization and adoption by customers within that base and what gets people to be a searcher versus a non-searcher. Is there any relationship there in terms of people getting non-standard care that gets them using Castlight when potentially they won't prefer. I'm just curious around the trend on engagement and whether that number of searchers has been growing or whether there's any data sets [ph] around that?

[Giovanni Colella:]

Yes. It’s a great question and we were as Gio said really pleased by the validation that the JAMA paper provided for the potential of best-in-class transparency to drive behavior change. And I think of couple of things to add to the context you provided and then I'll address your question. So 70% of the folks that were studied did search on Castlight and so the study focused on a very narrow set of medical services to evaluate the impact of that searching activity, but I think its important to note that the use of the platform was quite broad. And so in terms of what catalyzes folks to search, I am going be – going a bit beyond certainly the scope of the paper. But its fair to say that people are generally motivated to search when they are looking for something that they are not already doing by default and don’t have a lot of familiarity with. So if you think about the primary care setting, oftentimes people have long standing relationships with the primary care physician and the need to go search and think through that care context is just less compelling for them. Then for example if they are injured and need an MRI and they haven’t done that before and don’t know anything about it. Then access to our solutions is a real game changer for them in terms of finding the right care, at the right time and right cost. So, we are seeing very positive trends in utilization over time. That study covered the period 2010 to 2013, lot of that period of time a very earliest moments of adoption of Castlight and healthcare consumerism. So, the trends are great and as I've said a good early proof point.

[Jennifer Lowe:]

Okay. Thank you.

[Operator:]

Thank you. Our next question is coming from the line of Brad Reback with Stifel. Your line is now open. You may proceed with your question. Mr. Reback, your line is open, do you have a question.

[Brad Reback:]

Sorry, about that. I was on mute. Just real quickly, one of your larger customers I believe a couple of weeks ago talked about not providing healthcare to about30,000 employees going forward. Do you think that has any sort of a relationship or impact on your relationship with that customer going forward? Thanks.

[John Doyle:]

Yes. Thanks, Brad. So we see changes in covered lives across our portfolio, both increases and decreases over time. And so you know those changes impact those individual customer economics, but this – what we observed and across the portfolio is that they tend to balance each other out and so it doesn’t you know, no one changes had a significant impact for us.

[Brad Reback:]

Great. Thanks very much.

[John Doyle:]

Thanks.

[Operator:]

Thank you very much. Our next question is coming from the line of Richard Davis with Canaccord Genuity. Your line is now open. You may proceed with your question.

[Evan Clark:]

Hey, guys this is Evan Clark on for Richard. Just a couple of quick questions. How are you thinking about the pricing on Castlight Dental solution and what have you've heard from the installed base in terms of timing and interest in adoption?

[John Doyle:]

Yes. Thanks, Evan. So, we had a great deal of interest, you know, dental covers a smaller scope of spend, certainly than core medical and some of the other things that we do. So the price point you know does reflect that. We expect to be closing those deals in 2015 and certainly any revenue that we would generate in 2015 we'd be incorporating into the guidance what we'll be giving you on our next call.

[Evan Clark:]

Great. And with Q3 being such a great quarter and with signing large customers and you continue to sign large reference accounts. Where do you stand from an implementation capacity standpoint and do you see is that all being gaining initiative growth and how quickly can you start rolling out the service to a new license?

[John Doyle:]

Yes, great. So, our – to answer your last part of your question first, our implementation timelines are typically 3 to 12 months. And we've talked about kind of what drives that variability in the past. In terms of our readiness for increases in customer implementation activity, there are a couple of points to make. One is we are continually driving process improvements and automation and getting better and better at these implementations. So that has driven quite a bit of leverage for us in terms of the volume we can achieve with given resources. Then the other thing that we do is we've build an ecosystem of third party resources who can help us along side our employees, these are contractors typically ready to step in and those resources get dialed up and down quarter-to-quarter depending on our implementation activity. So really hasn’t been a gating item and we've prepared very thoughtfully, I think for upcoming volume.

[Evan Clark:]

Great. Thanks a lot guys.

[John Doyle:]

Thank you.

[Operator:]

Thank you. Our next question is coming from the line of Terry Tillman with Raymond James. Your line is now open. You may proceed with your question.

[Terry Tillman:]

Hey, guys. Thanks, for taking my questions as well. I guess the first question and I don’t know maybe this is for Gio, but in terms of competitive dynamics just as we seeing this industry revolve or the competitive landscape over all. In terms of sales cycles and different deals have evolved in, do you see a different cast of characters in each of the deals, so do you actually see across your opportunity base and find business base, kind of the same cast to carriers in the individual deals?

[Giovanni Colella:]

Yes, thanks. This is a very good questions, and yes, we are seeing a lot more competitors coming in the space, because the space is very, very interesting. We are really at this moment in time the only broad solution for the enterprise healthcare cloud. So while we see point solutions like cost estimators or things like that, we haven’t seen yet anybody that offer the solutions like ours and we do believe that nobody can match our Castlight platform today. So, while the competition here and there is heating up, nobody we've seen yet that offers the broad solution like ours.

[John Doyle:]

I think Terry, one thing I'd add to Gio's comments, one of the real I think important advantages that we've invested in and built in the business is a strong national footprint in our sales forces. And so we really don’t see among those smaller competitors Gio's talking about the same folks everywhere, what we see really is mix of people kind of regionally. And so the competition changes, but frankly the results are pretty consistent we're winning the vast majority of these deals. We're driving premium prices. And so I think we're in a really good spot.

[Terry Tillman:]

Okay. And I guess, John, and a question for you relates to, and it was asked earlier in terms of your ability or where with all to be able to handle strong bookings in terms of then implementing the customers. But what I am curios about, I know you also gave this wide range of 3 to 12 months on average, but when you have this greater attach rates of these other products, does it do anything to notably change the implementation cycle or is it just really more a matter of the size of the customer?

[John Doyle:]

Yes. You know, that’s a great question. And the reality is that the sometimes yes and sometimes no. And so there are cases where the entire footprint of the enterprise healthcare solution that that customer is purchased from us gets implemented at the same time. When we do that we're able to decouple the critical parts of the – of the parts of the solution we're implementing and we really don’t see material changes in the implementation time lines. There are other situations where the implementations are decoupled and so we might for example be deploying pharmacy separately from medical or deploying RVB or reward separately. Often that’s going to be driven by the status of our data relationships in the two cases. So for example we may have an existing data relationship that enables us to move promptly on the medical implementation, while we've got to develop a new data relationship on the pharmacy side that might extend that time line. And so hopefully that gives you a little color, but candidly the overall answer is that there is lot of variability.

[Terry Tillman:]

Okay. And then maybe if I could slip in another question as it relates to John you talked about in the fourth quarter that we're going to see a pretty meaningful ramp in sales and marketing expenses. Anything you can say on sales capacity planning for 2015 versus what the plan was in the 2014 in terms of you know is it a step function increase in a number of quota carrying reps. And then secondly I am curious about what kind of churn you've seen in you sales force? Thanks again.

[John Doyle:]

Yes, sure. So we think a ton about sales capacity and we are data nuts here at Castlight and so we've done a lot of looking at these questions and planning for 2015 growth. One of the answers I gave a little bit earlier I think is relevant here and that is that, we have a better sense then ever of the cyclicality in our business and timing our sales and marketing investments to be ready for that kind of big bullish of business in the second half of the year. It has given us in 2014 the ability to be a little more precise on that investment for example than we could be in 2013. And so in terms of the size of the investment, we are certainly going – we've grown sales and marketing headcount overall. We're going to grow it significantly heading into next year. It’s a little early to comment on efficiencies there, but I think we are seeing some. So it’s been a very thorough process, I think we're very well set up for 2015 and we'll certainly be sharing our guidance with you next time we talk.

[Terry Tillman:]

Okay. Thanks. Nice job.

[Operator:]

Thank You. Our next question is coming from the line of Steven Wardell with Leerink Partners. Your line is now open. You may proceed with your question.

[Steven Wardell:]

Thank you. So, 2015 is predicted to be a big year for employers shifting healthcare benefit costs onto employees and for employers expanding their consumer directed benefit progress for employees. Do you think that the employers who value view Castlight as being in the category of their consumer directed benefits with the same drivers in their mind? Or is it in an independent categories in their mind with its own drivers?

[John Doyle:]

Yes, thank you. This is a great question and there is one of the reasons why we're so excited about the position we're in today and the outlook for next year. We've seen more and more employers seeing Castlight as part of the process and the journey of shifting their employees to high deductible health plans. And employers that are usually heading in that direction or decide do that use Castlight as enabler for their employees to have a much better understanding of the healthcare expenses and the quality of what they are buying. So the two things are very much related one with each other, which makes us very positive on the outlook for next year.

[Steven Wardell:]

Great. Thank you.

[Operator:]

Thank you. At this time there are no further questions in the queue. I would like to turn the floor back over to our management team for any closing remarks.

[Giovanni Colella:]

Thank you, this is Gio and I want to thank all of you for your participation in today’s call. The questions are great and for your precious support for Castlight. We are really proud of our mission to prove the American healthcare system. We do take this very seriously and we thank our incredibly passionate team for once again delivering a great performance. We look forward to speaking to all of you over the course of the coming weeks including at the Stifel and Goldman conference in November. Thank you all and have a nice evening.

[Operator:]

Thank you. Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you very much for your participation. And have a wonderful afternoon.