Castlight Health, Inc.
Q3 2015 Earnings Call Transcript

Published: 5 Nov 2015

[Operator:]

Good afternoon. My name is Julie and I will be your conference operator today. At this time, I'd like to welcome everyone to the Castlight Health's Third Quarter 2015 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. Charles Butler, VP of Investor Relations, you may begin.

[Charles Butler:]

Good afternoon and welcome to Castlight's conference call to discuss our financial results for the third quarter ended September 30, 2015. With me on today's call are Giovanni Colella, our Founder and CEO; John Doyle, our CFO; and Nita Sommers, our Chief Strategy Officer. Following their prepared remarks, we will take questions. Our quarterly report on Form 10-Q for the quarter ended September 30, 2015 and the associated press release were issued after the close of market today and are posted on our website, where this call is being simultaneously webcast. We're also providing a PowerPoint presentation that accompanies this call. You may access it on our website, where it will also be posted after this call for 30 days. This presentation contains forward-looking statements regarding our trends, our strategies and the anticipated performance of our business, including our guidance for the fourth quarter and full year 2015. These statements reflect management's current views and expectations and are subject to various risks, uncertainties and assumptions and we disclaim any obligation to update or revise any forward-looking statements. Please refer to the 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 forward-looking statements. This presentation also includes certain non-GAAP metrics, such as non-GAAP gross margin, operating expenses, net loss and net loss per share, that we believe aid in the understanding of our financial results. A reconciliation to comparable GAAP metrics on a historical basis can be found in the earnings release dated November 4, 2015, which is available on our website and as an exhibit to the Form 8-K filed with the SEC just before this call.

[Giovanni M. Colella:]

Good afternoon, and thank you for joining us. The third quarter was an important period for us to assess the progress of our go-to-market efforts considering the changes we made in our sales organization coming into the year in advance of what has historically been a seasonally strong period for us from a sales standpoint. In addition, we were very active on the product and the partnerships fronts in Q3. I will cover the highlights of these areas, and then Nita will provide more details on our newest product and exciting new strategic collaboration we announced today with Anthem. John will close with a review of Q3 results and updated guidance in addition to our early thoughts on growth in 2016 and our path to positive cash flow. So let's start with third quarter business highlights. First, we signed 14 net new customers during the quarter. Among these were four new Fortune 500 customers, including Boeing and SpartanNash. Overall, we're very pleased to now be working with almost 200 customers, including more than 50 of the Fortune 500. With that said, while we were pleased to continue adding great brands to the Castlight family and we did exceed our revenue objectives for the quarter, we were disappointed that our sales productivity did not ramp to the level we expected in Q3. Our pipeline remains robust, but the bottom line is that we need to improve our ability to bring deals over the finish line more quickly and with greater predictability. In addition to our own efforts, we are now at the right point of our business and also in the market development to increase leverage through channel partners that can help shorten our sales cycle. For this reason, the collaboration we announced today with Anthem is an important part of our plan to accelerate sales velocity. As we leverage increased sales capacity, we have the broadest and deepest platform to capitalize on customer demand for new solutions to optimize their healthcare investments. We continue to expand our product portfolio with the launch of our second major new product this year, Castlight Action. This product is a powerful advance beyond transparency, because it gives benefit leaders simple and effective new ways to proactively connect populations who need care with the benefits and programs that can help them. While it's still very early, we are pleased with the initial traction of both Elevate, our behavioral health product launched in Q2, and Action, and we expect both to have broad appeal across our customer base and with new prospects. We also completed our 2015 renewal cycle in Q3. We continue to achieve excellent results not just renewing customers, but also expanding what we do for them. Ultimately, renewals are the most important indicator of the value our customers are receiving for our EHM solutions, so we're pleased to be on pace to exceed 100% net dollar retention for the year. As we look ahead to 2016, we think the continued ramping on the sales force, two exciting new products and a better balance of direct sales and channel sales capacity put us in a good position to drive long-term growth. From a direct sales perspective, it is important to note that almost half of our new logos in Q3 were deals completed by sales reps that joined us this year, which is an indication that we're making progress, albeit, not at the pace we were hoping for when planning our business at the beginning of the year. As I mentioned, among the highlights for Q3, we are increasing our focus on working with channel partners. This initiative resulted in collaboration with Anthem that we announced today. Nita will go into more details, but essentially, we will power the cost and quality transparency tool that Anthem's affiliated health plans offer their clients. And most of all, our sales teams will work together to drive broader adoption of the Castlight EHM solutions among these clients. Our mission is to help organizations optimize delivery of healthcare benefits and help people to make better choices for their health. We think this partnership is a breakthrough for its potential to accelerate the adoption of Castlight technology among the tens of millions of members who get their healthcare coverage from Anthem affiliates. Now, before turning the call over to Nita, I also want to update you on a few changes related to our organizational structure and management teams, as we position the company to scale to the next level. First of all, John Doyle has been promoted to Chief Operating Officer. In addition to remaining Castlight's Chief Financial Officer, he will assume responsibility for marketing and customer operations teams. John has played a big role in guiding Castlight's rapid growth improving our operational efficiency and he has deep domain expertise in the products we're bringing to market as well as the challenges we're solving for our customers. As we have evolved from a single product company to a comprehensive EHM platform, we expect our overall go-to-market execution to further improve with this well-deserved promotion for John. Second John McCracken, our SVP of Worldwide Sales, will now report directly to me. He has responsibility for driving the success of our direct sales team as well as all sales collaboration activities with channel partners including Anthem. John is a proven enterprise sales leader with deep experience scaling sales organization to many times the current size of Castlight, most notably at Mercury Interactive. He has been with us for less than a year, and in that time, we can see that we are on the right path to building a top performance sales organization to drive strong growth for many years ahead. I am very excited to work with John more closely moving forward. Finally, related to these changes, Michele Law will be leaving Castlight on November 9 to pursue other opportunities. She helped Castlight during its initial period of hyper-growth and we want to thank her for her contribution and wish her well in her future endeavors. In summary, I have high expectation for Castlight and our team. Castlight pioneered healthcare transparency, and in the last few years, we have built on that foundation so that today our customers have an unprecedented ability to leverage technology to deliver great benefits and enable their people to make well informed decisions about their health. I'm inspired by dedication of our people and incredibly excited about the opportunity we have ahead of us. We are committed as ever to executing of that opportunities for our customers and our shareholders. And now, I will turn the call over to Nita to describe our newest product, Castlight Action and our exciting collaboration with Anthem in more detail. Nita?

[Nita Sommers:]

Thanks, Gio. In our extensive work with customers and prospects, we consistently hear that they are focused on three things

[John C. Doyle:]

Thanks, Nita, and good afternoon, everyone. As you heard from Gio and from Nita, we've made steady progress building the business so far this year. This progress in the form of new products, strong renewals and growing channel leverage increases our confidence that will drive strong growth in the business over the long-term. Based on our sales results in the third quarter and our overall book of business as of today, we're expecting revenue growth in the mid-30% range in 2016. While this is very healthy growth by most standards, it is below the level we were targeting with our investments in the business, particularly in sales and marketing. As a result, we've already begun to adjust our spending plans to stay on track with our goal to reach cash flow breakeven early in 2017 with substantial cash remaining on our balance sheet. There's significant room to leverage investments we've already made across our business to support greater scale, and to be clear, we also expect to see improved sales productivity in 2016, as our team continues to ramp and we leverage channel opportunities that we didn't have before. We will provide more specific guidance for 2016 on our fourth quarter call, but to provide a high level preview of our investment plans for next year, we have positioned the business to hold operating expenses less than 5% growth for the full year against top-line growth in the mid-30% range as I referenced a moment ago. One reason that we're providing an early view into our expectations for 2016 is that we have good revenue visibility as a function of our subscription business model. Historically, we've shared customer accounts each quarter and average annual revenue per customer to enable you to gauge the progress of our growth initiatives. However, as our business has evolved and deal sizes vary, renewals and cross-sales increased, and product mix changes from quarter-to quarter, these metrics have become less reliable indicators of our future growth. As a result, beginning today, we will share our annual recurring revenue under contract or ARR as of quarter end each time we report quarterly financial results. We believe this metric will give investors clear visibility in the current sales momentum and our growth expectations for subscription revenue. Before sharing the metric for Q3 2015, I want to be very clear what it represents. ARR represents annualized subscription revenues under contract as of quarter end. This includes ARR from new customers and cross-sales that we've not implemented yet and excludes all amounts related to terminated or expired contracts. Importantly, our ARR metric also exclude non-subscription revenues such as the professional services revenue we derived from the fees we charge for implementations and communications services. As of the end of the third quarter, we had $103 million in ARR under contract representing year-over-year growth of 41% when compared to $73 million in ARR under contract at the end of Q3 2014. Historically, given the timeline between when we sign a customer contract and when we begin recognizing subscription revenue, ARR has been a good predictor of our annualized subscription revenue run rate three quarters to five quarters in the future. For example, our annualized subscription revenue run rate based on subscription revenues of $18.2 million in Q3 2015 was $73 million, the same amount as ARR at the end of Q3 last year. Looking ahead to 2016, we believe it is appropriate to assume that it will take us four quarters to five quarters to reach an annualized subscription revenue run rate of $103 million, the amount of ARR we had under contract at the end of Q3 2015. The timeline assumption is slightly longer than we've seen most recently because our sales in 2015 have been heavily weighted to cross-sells and our implementation timelines for these new products are initially longer than our portfolio average. Clearly, we're focused on converting ARR to revenue and billings at a faster pace over time as we continue to bring down implementation timelines across our entire product suite. Now, let's turn to our third quarter financials. I will be briefer than in the past so we can get to questions about the important forward-looking topics we've talked about today. Total revenue for the third quarter was $19.5 million, which is up 60% compared to the same period last year. Subscription revenue, which constituted 93% of total revenue, increased 62%. We launched eight customers on the Castlight Essentials platform and 14 customers on cross-sell products during the quarter. Gross margin was 59% in the third quarter compared with 58% in Q2 and up strongly compared with 44% in the same quarter a year ago. Our long-term gross margin target remains unchanged at 70% to 75%. Total operating expenses were $27.5 million in Q3, which was down 3% sequentially from Q2 2015, consistent with our plan to moderate expense growth through next year. Sales and marketing expenses were $14.7 million in Q3, which was 6% below Q2. In the prior quarter, we had a seasonal increase in marketing spend related to customer events. R&D expense was $7.7 million in Q3, which represented an increase of 48% year-over-year. We've had great success attracting outstanding R&D talent this year in one of the most competitive hiring environments for technical talent in the world. This has been a key highlight, because the expertise and capacity we've added in R&D is a critical element of continuing to deliver the products that will drive our future growth. G&A expenses were $5.1 million in Q3, which was down 9% sequentially, as there were some non-routine expenses in last quarter's G&A line. Our Q3 net loss was $15.9 million compared to a net loss of $17.5 million in the second quarter. We ended Q3 with $147.2 million in cash and investments. Cash used in operations was $14.5 million in the third quarter of 2015 compared with $17.2 million in the previous quarter. Let me now turn to our Q4 and full year 2015 financial outlook. For Q4, we expect total revenue of between $20.7 million and $21 million, a non-GAAP operating loss in the range of $15.4 million to $16.4 million, and a non-GAAP net loss per share of $0.16 to $0.17 based on 95 million weighted average basic and diluted shares outstanding. Based on our fourth quarter guidance, we expect full year total revenue of between $74.7 million and $75 million. We expect a full year non-GAAP operating loss of $65 million to $66 million and a non-GAAP net loss per share of between $0.68 and $0.70 based on 94 million to 95 million weighted average basic and diluted shares outstanding. Finally, we expect our cash used in operations to be between $56 million and $59 million for 2015. The increased cash usage in 2015 compared to our prior guidance is the result of lower than expected sales in Q3 in addition to the mix of new bookings compared with our plans. These factors led to lower billings than we had forecasted. As I discussed earlier, we're operating against plans that have us breaking even from a cash flow perspective in early 2017. These plans incorporate a significant decrease in our level of cash burn in 2016 relative to 2015 as revenue and billings growth far exceed expense growth. As we look ahead, we're excited about the business. Organizations and their people continue to face daunting challenges when it comes to optimizing healthcare benefits and making good choices. Castlight has built powerful solutions to help them address these challenges more effectively than ever before. We are focused on improving and enhancing our go-to-market execution in order to fully capitalize on our strong market position and the opportunity in front of us. We think our plans are solid and we're totally committed to making them happen. With that, Gio, Nita and I will be happy to take questions.

[Operator:]

Your first question comes from the line of Robert Jones from Goldman Sachs. Your line is open.

[Robert Patrick Jones:]

Thanks for the questions, and John, congratulations on the expanded role. I guess just to start with the initial outlook on sales growth for 2016, just a quick math. It seems like you're calling for probably about half of the growth or about $20 million probably less than the trajectory that we were expecting understanding that we saw some changes throughout the year with the sales force that has played a part in productivity. It still seems like a fairly big change compared to the way we were probably and that you were probably viewing the world previously. So I guess if we just go back here in time, what would you say were the kind of one, two or three biggest assumptions where people were probably most off. I mean was it the competitive landscape? Was there any change in pricing? Just trying to get maybe a couple of points that could kind of help us square the initial outlook on 2016 relative to where we were kind of thinking it would be?

[John C. Doyle:]

Yeah, thanks Bob, this is John. First of all, I think there are a number of things that have gone well and it's important to start there. So first of all, Q3 results much improved versus Q1 and Q2. We've seen good uptake from Fortune 500 businesses all year, earlier this year, GM, for example, and then, we talked about Boeing and SpartanNash in the call. And we've begun to see contributions from new reps, and clearly, that team is going to continue to ramp. The channel relationship we've talked about today is another forward-looking opportunity that we're very excited about. Clearly, we've got to get better on velocity and predictability of our sales cycles, to be specific about the factor or assumption in our models, anyway, that is most germane here definitely sales cycle. So what we didn't see were losses. It's not a competitive dynamic we're excited about the deals in the pipeline, but what we very definitely observed is longer deal cycles than we were anticipating in our model and that's really the story of Q3, and as you know, Q3 is a big quarter for us. So when you look ahead to 2016 and think about top-line growth in 2016, it's a direct relationship.

[Robert Patrick Jones:]

And I guess that's helpful. If we think about one of the metrics you shared that maybe gets at just a little bit more specifically the net dollar retention of I think you said just over 100% or at least 100%. Could you maybe just even qualitatively help us think about the composition of that? I mean were there losses? Were the up-sells within some of the renewed contracts maybe not as robust as you had hoped? Just any additional insight into the components around the net dollar retention metric would be helpful.

[John C. Doyle:]

Sure, and to be clear, we're well ahead of 100% on net dollar retention. We'll provide specific outcome there at the end of the year, but we feel great about it. In fact, if you remember back to the Analyst Day, we talked at that time about a much smaller cohort of customers that we had renewed at that point where we saw 20%-plus uplift on new contracts with some of our biggest customers who had been renewing. And 2015 has been a big year for us for renewal, so it's one of the real bright spots where we've seen strong growth in the book of business we had coming into 2015, which to your point created a good foundation for us to drive strong growth in 2016 and that certainly has been our focus. The reality is, as I said, we saw just a bunch of deals slipping through Q3 which had been a quarter in previous years when the prospect of an implementation time coming in Q1 was a very effective way to bring sales cycles to a close and get those deals completed and this quarter we just didn't deliver there and as I said that plays through very directly on 2016 growth.

[Robert Patrick Jones:]

Okay. And I guess just one last one if I could sneak it in on the Anthem announcement, just so I understand this better. So is this really Castlight being sold as part of the Anthem offering into employers and health plans? And if that is the case, just any help around how the economics on that type of Castlight sale would look relative to the more traditional Castlight sale will be helpful for us?

[Nita Sommers:]

Yeah, thanks, Bob. This is Nita. I'll take this one. And so, just so the relationship is that Castlight will over time start powering the cost and quality transparency tools on Anthem.com. So those are essentially the offerings that are made available to all members of Anthem's affiliates and we'll take that over. In exchange for us taking on that and delivering a best-in-class service to their population, we will on exchange be getting comprehensive go-to-market and data support and really this is very exciting in my perspective for Castlight, because as John talked about one of the key reasons that we really believe that channels can be important to us at this point in the trajectory of the business is that it can really help accelerate our ability to get to market, accelerate sales cycle and the like, by having key influencers really advocating for Castlight and its product solution set and so that's really the nature of the relationship.

[Robert Patrick Jones:]

Okay, got it. Thanks so much guys.

[John C. Doyle:]

Thanks, Bob.

[Operator:]

Your next question comes from the line of Zack Sopcak from Morgan Stanley. Your line is open.

[Zachary W. Sopcak:]

Hey, this is Zack. Thanks for the question. Wanted to follow up with a question on Anthem. And just when we think about it as that relationship matures, how does that impact current Castlight customers that are on Anthem? Does anything change in the way their contracts are like – are structured with you?

[Nita Sommers:]

So really nothing changes in terms of the contracts that we have with our clients. The service that we're going to be building for Anthem and its population is really kind of focused on cost and quality transparency tools, similar in scale to what other health plans offer their membership today. Really what we're selling to the employers remains very differentiated from that in terms our EHM platform tackling broader issues such as employee engagement, underutilization of programs and providing more detailed analytics and insights. And so really that kind of extended platform is still what we're going to be selling to the employers and now are excited to have Anthem promoting that in the field as well.

[Zachary W. Sopcak:]

Okay. Got you. That's helpful. Thank you. And then just getting back to following up on Bob's question that FY 2016 guidance and bookings, was there any particular area when you're looking at bookings in 3Q that was more the cause of those business appointment than you thought, was it more in the Fortune 500 or was it a broader customer base?

[John C. Doyle:]

Thanks, Zack. This is John. So the bias certainly in our deals over the last three quarters or four quarters is weighted towards bigger accounts and that's where we've been investing aggressively with the sales force, one of the reasons we're so pleased to continue adding these Fortune 500 customers. So when you think about the gap in sales in Q3, it really is a function of a number of these large deals slipping out in time.

[Zachary W. Sopcak:]

And just one quick follow-up on that. So are they – is the decision then that could be made at a later point or have they chosen to go in a different direction?

[John C. Doyle:]

We feel very good about where those relationships are broadly speaking. So the sales force has been out in the field working with prospects in these customers and I think making good progress. The reality is deals haven't moved as quickly as we would like, but we feel good about the long-term trajectory of those dialogues and where they're likely to come out. So from a long-term business perspective, we see the market opportunity. We see great responses from these customers in these processes. We've got a very highly skilled sales team getting ramped here and now these channel relationships as well and our R&D team just delivered two outstanding new products. And so, as operators in the business we're very excited about where we're headed in the long-term and this quarter doesn't do anything to dissuade us from that. The reality is we missed the forecasting of these timelines on sales and we've got to get better at that, no question.

[Zachary W. Sopcak:]

Okay, great. Thank you.

[Operator:]

Your next question comes from the line of Brad Reback from Stifel. Your line is open.

[Brad R. Reback:]

Hey, guys.

[Giovanni M. Colella:]

Hey, Brad.

[Brad R. Reback:]

Can you commit to burning less cash in 2016 than 2015, or at least say that's the plan?

[John C. Doyle:]

Yeah, yeah, thanks, Brad. It will give me a chance to emphasize what I said in the script. We're going to burn significantly less cash in 2016 than we did 2015. We're committed to the early 2017 timing for reaching cash flow positive. Our preliminary guidance on operating expenses is that we will grow OpEx less than 5% in 2016, and we've got great revenue visibility into next year. So while we've guided to mid-30%s healthy growth, but we understand below where some of the outside models have been, we have 95% visibility to that top-line. So as we think about billings and the leverage we can get out of the operating expense lines, we feel very confident that we can burn a lot less cash next year than we did this year.

[Brad R. Reback:]

Great. And just one quick follow-up. If I take the ARR numbers that you've given us and assume sort of that four-quarter to five-quarter implementation go-live, it would appear to me that by the back half of 2016 growth should actually re-accelerate; so bottom sometime around 2Q and then re-accelerate given what you've signed up already.

[John C. Doyle:]

Yeah, it's a great point. And if you think about in the script we talked about ARR growth year-on-year of 41%, we've given top-line revenue guidance of 35%. The reason for the gap there is this cycle we're in where we've got new products, frankly, coming in at a faster rate than we imagined in terms of the uptake we've seen. Those are the products, when they're initially launched, that take a bit longer for us to implement. As those timelines come down to our portfolio average, you would expect the growth rate on top-line to parallel what you're seeing in ARR; and we do think that will happen.

[Brad R. Reback:]

Great, thanks very much.

[John C. Doyle:]

Thanks a lot, Brad.

[Operator:]

Your next question comes from the line of Frank Sparacino from First Analysis. Your line is open.

[Frank Sparacino:]

Hi, guys. Two questions from me. First, just can you talk about, given the weakness from a bookings standpoint, from an implementation point of view, where you're at? Is there excess capacity and how do you look at that in 2016?

[John C. Doyle:]

Sure. So in terms of the implementation capacity, it's one of the places I think we've got leverage in the business; because, as you noted, Q3 sales came in below what we had planned to and we hire ahead of some of these forecasts, and so that is an area of leverage. In terms of what we're talking about when we talk about the longer implementation timelines, let me take a minute just to be extra clear there. We have been focused over the last year on improving implementation timelines on our core product and, also, Castlight Pharmacy, a cross-sell that we've talked about in the past. Both of those products now are approaching six-month implementation times. The core product is already there. Pharmacy is approaching that level; very much on track getting those core products into a routine and acceptable timeline. What has happened this year is more than half of our bookings this year have come from our newest products; very significant contribution from newest products. That wasn't what we forecast coming into the year. And every time we introduce a new product, you're going to start off on the high end of implementation timelines and then work that down over time. And so, what you're seeing next year is we expect this uptick of the newest products to be continuing. And so, the overall portfolio average implementation times are going to be a little bit higher than we've seen most recently; and that's the dynamic. But again, as I was mentioning in the response to the question Brad asked, we do expect those times to come in to our portfolio average of about six months over time.

[Frank Sparacino:]

Great. And last, can you just talk about Anthem a little bit more, I guess, from a competitive standpoint. I assume the alternative was Anthem building or continuing to build their own – or just the dynamic there?

[Giovanni M. Colella:]

Yeah, well. Thank you. This is Gio. Thank you for the question. It's a good question. Yes, obviously Anthem has many of the – they had many alternatives in front of them. Let me focus really on why this deal now and why it's so important for us. We are at a stage in the business in which we have the scale and the breadth of products that makes this deal incredibly exciting for both parties. And so, when we started discussing this with Anthem, we both realized that this was one of those situations where it could be a win-win for both of us. And so, there was no need for alternatives. It was just a matter of how do we work together and we came to a very good partnership.

[Nita Sommers:]

Hello?

[Giovanni M. Colella:]

Hello?

[Operator:]

Your next question comes from the line of Brian Peterson from Raymond James. Your line is open.

[Brian C. Peterson:]

Hi guys. Thanks for taking the question. Just wanted to clarify on the guidance. I know you have 95% visibility in the 35% growth, but I just want to understand, of that 35%, how much of that is coming from new products like Elevate or Action or will implementation timelines kind of prevent that from making a big contribution in 2016?

[John C. Doyle:]

Those – the contributions from the new products are to next year's growth rate very significant. As I just said more than half of the bookings that we recorded so far this year came from those new products and that's really what drives the growth you're seeing a year later in 2016, so very significant contribution. In terms of the opportunity to improve results next year relative to guidance, it does really come down to implementation timelines and we are going to be very focused, as you would imagine, on bringing those timelines in, but that's really where the opportunity is.

[Brian C. Peterson:]

Okay. And I know some of your new products, specifically with Action and Pulse last quarter, are a little bit of a different approach in that they're sold specifically to the HR buyer. I'm curious is that enabling or potentially complicating the go-to-market. And I know Action was just released, but any help on what that would be in terms of an uplift to ACV?

[Giovanni M. Colella:]

Yeah hi. Thank you. This is a very good question. This is Gio. And I spend my time in front of customers and I'm very excited about the interest and the demand for the new products. In terms of your statement that we're selling mostly to the HR buyer, definitely we've seen much more interest from the HR suite, especially for the products like Action that are very data driven, but we also constantly talk to benefit leaders and we've been expanding the relationship. Let me just tell you, again, it's just at the beginning. What I'm observing is especially Action is finally the kind of product that is giving the benefit leader the authority to talk at the HR suite as a real leader with data in their hands and real real-time data on how to optimize the benefits that they're getting. So it's changing the way the benefit leader perceives their own role. So we're very excited about that.

[John C. Doyle:]

Yeah, let me add. I think that from a go-to-market perspective, we're really very much in the sweet spot that we have been working in now for many years. The difference is the product we were selling before Action and Elevate is a product where the end user was ultimately an employee, not the actual buyer in the HR office. And so, what the new products do in addition we think to driving important results for the business is it also creates a new thread in the dialogue with the buyer around the product that he or she will be using directly, an information that helps that individual do their job for their company more effectively than they had before. And that is, from a go-to-market perspective, a helpful dynamic in the dialogue. Hopefully, that answers that question. You also asked about ACV and how Action impacts ACV. This is really one of the things we're most excited about in the early demand for these products. And it's part of why the relationship with Anthem is indicative of a really exciting direction for the business. And it all comes back to the fact that the pricing on Action and Elevate is actually exceeding in many cases the pricing that we have achieved in the past for the core solution. And if you followed the company, we've talked about up-sells being priced at 15% to 40% of the core. These are products that are being sold for more than 100% of the core in some cases. So really exciting opportunity for the business that allowed us to leverage the early need we had in transparency, to build this broad relationship that we've talked about today. And so, ACV going up strongly as a result of these new products and very, very excited for the business.

[Brian C. Peterson:]

Okay, John, Gio, thanks for that. That's great color. And just on the Anthem relationship, just trying to understand the timing there. Is that potentially – when does that start and when do we really start to see that in the P&L? Is there going to be a light switch type moment in the first quarter where we see more an open enrollment. Just trying to understand how that's going to impact the model.

[Nita Sommers:]

Great question. And so, the go-to-market collaboration really starts immediately. So teams are well underway and are starting to work together to identify accounts that are good for Castlight and starting to move forward with that. So really it will be a phenomenon that's impacting sales in 2016. In terms of actually the rollout of the Castlight powered solution for the Anthem members, that's going to take more time and that will start in kind of mid to latter half of 2016 for us.

[Brian C. Peterson:]

Okay. Thanks guys.

[John C. Doyle:]

Thank you.

[Giovanni M. Colella:]

Thank you.

[Operator:]

Our next question comes from the line of Steven Wardell from Leerink. Your line is open.

[Steven Wardell:]

Hey, thank you and thanks for the question. So my first question is can you tell us about the selling season qualitatively, how is that going, what are prospects saying, what are they looking for? How has your products been received? How are prospects thinking about enterprise healthcare management? What more can you tell us about the selling season?

[Giovanni M. Colella:]

Sure. This is Gio. Thank you for the question. We are spending a lot of time with our customers. And we're seeing, as I said, a robust pipeline, and as we emphasized during the call, we're seeing the timeline of deal closure longer than what we expected. Obviously, there's a lot of interest in our new products as we emphasized here and lots of conversations with many customers. So really what we are seeing from a sales standpoint is a very strong sales force coming up to speed and a slowness in the deals that make them longer to close than what we expected.

[Steven Wardell:]

Great. And when you think of your Anthem partnership, when Castlight is selling direct to an employer, you guys are offering enterprise healthcare management. No one else that I know of is doing that. But when Anthem and you are selling a transparency to an Anthem client, how are you differentiated – think about the products there, how is that differentiated from the other competitors in the sector?

[Nita Sommers:]

Yeah, so just to clarify that that sort of basic cost and quality transparency tool will be given to all of their membership over time. They already offer a tool today, so this is basically going to take that over. And so, it's very similar to many, many health plans amidst all the other health plans offer kind of solutions like that. We certainly believe the one that we'll be powering is going to be best-in-class and will differentiate Anthem relative to those other health plan solutions. But it's really about getting that technology out in the hands of millions of members. I'm personally really excited about that portion of it, because now Castlight will be in that many users over time. And so, as we think about just what we'll be able to do with that data and with those sort of user insights over time, there's a lot of interesting things from a product perspective that this enables.

[Steven Wardell:]

Okay. Great. Thank you.

[Operator:]

There are no further questions at this time. I'd like to turn the call back over to CEO, Gio Colella.

[Giovanni M. Colella:]

Thank you. Thank you all for joining us on today's call. We do think we've made changes across the business to help us achieve our ambitious goals. We look forward to seeing you at the upcoming Stifel Healthcare Conference in New York City as well as our visit to Boston to meet with investors. We thank you for your continuous support and interest.

[Operator:]

And that concludes today's conference call. You may now disconnect.