San Francisco-based Castlight Health, which offers consumers a personalized health shopping platform, added 14 new large customers, saw increased revenue and cash, and intensified its focus on evolving the business to gain more traction among mainstream buyers in the third quarter of 2016.
On call with investors, Castlight Health CEO and cofounder Giovanni Colella said the company reached $100 million annualized revenue run rate during the quarter, which he called a significant milestone for the company, and also said the company reduced their operating loss to its lowest level in four years. As Castlight looks to transition, hopefully moving into the realm of $500 million revenue, Colella said the company’s top priorities are further solidifying their health benefits platform reputation as a leader in transparency, as well as establishing a blended sales model.
Castlight’s new customers include Kraft Heinz and Tractor Supply, and the company said it has increasingly seen customers that subscribe to the full platform subscription. More than 80 percent of the company’s new customers have subscribed to the full platform offering, which is a combination of their employer-facing offering Castlight Action, which was introduced last quarter along with another feature called Elevate, which identifies employees who are at-risk of behavioral health issues and gives them access to care.
“We believe there's a need among large employers to put in place a comprehensive, cloud-based platform that addresses a broad range of health benefits challenges, including low employee engagement and underutilized employer health benefits,” Colella said. “The market is highly fragmented today, with a dizzying number of point solution providers under the umbrella of healthcare, benefits, wellness and related areas. We increasingly hear from customers that they do not want to deal with 10, 15 different vendors and neither do their employees."
Last quarter, Castlight announced their partnership with Anthem, which Colella said has benefited the company’s channel led-strategy. The company also recently entered a partnership with SAP to participating on the software company’s Connected Health Platform.
“Over the last few quarters, we have learned a lot in collaboration with Anthem. We increasingly expect this relationship to benefit our business tremendously,” Colella said on the call. “We also have continued to invest in expanding set of relationships with large consulting firms and regional brokers, that are helping to broaden awareness of the Castlight brand and the future set. Finally, we expect that our partnership with SAP will offer another potential source of growth in the future.”
Castlight Health President and COO John C. Doyle said the company is beginning to see clear results from the initiatives they have prioritized over the last year, remarking their “foundation for long-term growth is stronger than ever.”
Also pointing to the Anthem collaboration, Doyle said the partnership has the greatest potential to drive Castlight Health’s growth in the near future.
“During 2016, we devoted significant R&D capacity to the development of a white label medical cost and quality estimator solution that we began rolling out to Anthem customers in October. This first wave was quite successful,” Doyle said on the call. “Over the next two years, we expect to deploy this solution across Anthem’s entire commercial book of business. As we have described in the past, the primary growth opportunity for Castlight in our collaboration with Anthem does not come from medical cost and quality transparency. For us, the success of the Anthem relationship from a growth perspective is tied to sales of our more comprehensive health benefits platform to Anthem customers.”
Total revenue for the third quarter was $25.5 million, up 31 percent year-over-year, and gross margins were 68.8 percent compared with last year’s 55.5 percent. While the company added 14 new customers – which Doyle called a “significant jump from four net new logos added in the first six months of the year” – the company did temper the excitement by cautioning investors that the company’s seasonality of new sales is shifting.
“Our sales cycles are increasingly linked to those of our channel partners, which is leading to reduced concentration of new bookings in any one quarter relative to the others,” Doyle said on the call. “The bottom line is that the quarter-to-quarter bookings will fluctuate. We expect to see more enterprise deals with large employers in the fourth quarter, and we feel good about our sales momentum as we finish 2016 and begin planning for 2017."