Q1 2017 financial & business update April 26, 2017
This presentation contains forward-looking statements about Castlight Health s expectations, plans, intentions, and strategies, including, but not limited to, statements regarding Castlight Health s 2017 full year projections, estimates of purchase accounting adjustments, our expectations for future performance of our business, market growth and business conditions, future innovation by the company and future developments with respect to the digital healthcare industry. Statements including words such as anticipate, believe, estimate, will, continue, expect, or future, and statements in the future tense are forward-looking statements. These forward-looking statements involve risks and uncertainties, as well as assumptions, which, if they do not fully materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The risks and uncertainties include those described in Castlight Health s documents filed with or furnished to the Securities and Exchange Commission. All forward-looking statements in this presentation are based on information available to Castlight Health as of the date hereof. Castlight Health assumes no obligation to update these forward-looking statements. In addition, please note the close date of the Jiff acquisition was April 3 rd. Accordingly, the deferred revenue fair value adjustment discussed in this presentation is a preliminary estimate and is subject to change upon the completion of purchase price accounting. Safe Harbor 2
To supplement Castlight Health s financial statements presented in accordance with generally accepted accounting principles (GAAP), we also use and provide investors and others with non-gaap measures of certain components of financial performance, including non-gaap pro forma revenue, non-gaap gross margin, non-gaap operating expense, non-gaap operating loss, non-gaap net loss and non-gaap net loss per share. Non-GAAP pro forma revenue excludes the impact of the deferred revenue write-down and includes Jiff first quarter 2017 revenue. Non-GAAP gross margin, non- GAAP operating expense, and non-gaap operating loss exclude stock-based compensation, litigation settlement, charges related to a reduction in workforce, capitalization and amortization of internal-use software and charges related to the acquisition and the associated tax impact of these items, where applicable. For a detailed explanation of these non-gaap measures, refer to the Appendix section of this presentation. We believe that these non-gaap financial measures provide useful supplemental information to investors and others, facilitate the analysis of the company s core operating results and comparison of operating results across reporting periods, and can help enhance overall understanding of the company s historical financial performance. Non-GAAP Financial Measures We have provided a reconciliation of each non-gaap financial measure to the most directly comparable GAAP financial measure, except that we have not reconciled our non-gaap operating loss and net loss per share guidance for the full year 2017 to comparable GAAP operating loss and net loss per share guidance because we do not provide guidance for stock-based compensation expense, capitalization and amortization of internal-use software and charges related to the acquisition, which are reconciling items between GAAP and non-gaap operating loss. The factors that may impact our future stock-based compensation expense and capitalization and amortization of internal-use software are out of our control and/or cannot be reasonably predicted, and therefore we are unable to provide such guidance without unreasonable effort. Factors include our market capitalization and related volatility of our stock price and our inability to project the cost or scope of internally produced software and charges related to the proposed acquisition for the year. These non-gaap financial measures should be considered in addition to, not as a substitute for or in isolation from, measures prepared in accordance with GAAP. Further, these non-gaap measures may differ from the non-gaap information used by other companies, including peer companies, and therefore comparability may be limited. Castlight Health encourages investors and others to review the company s financial information in its entirety and not rely on a single financial measure. 3
John Doyle CEO
Castlight is the Only Vendor that Covers the Full Spectrum Wellness Vendors Benefit Hubs Healthcare Decision Support Vendors Comprehensive mobile wellbeing platform Motivating user experience Highly configurable incentives Multi-channel, automated outreach Ecosystem of partners & deep integrations Transparency & steerage Personalized user experience Driven by the largest claims & benefits data set 5
Progress on 2017 Key Initiatives 2017 Initiative Q1 Progress Four of five gross logo wins were platform clients (Engage) Early Jiff cross-sells, including Wal-Mart in April Drive faster platform adoption by new customers Good channel support; progress with Anthem partnership Momentum in sales pipeline 6
Progress on 2017 Key Initiatives 2017 Initiative Q1 Progress Tracking to expectations; typical of seasonality in market Q1 logo churn primarily from transparency clients Focus on reducing ARR churn in 2017 Stickier platform ARR now 50%+ of total ARR v. ~20% in Q1 16 7
Progress on 2017 Key Initiatives 2017 Initiative Q1 Progress Transaction closed on April 3 New leadership team in place and synergies identified Integrate Castlight & Jiff to unlock the strategic value of combined company Early cross-sell successes Executing on product roadmap. Integrated app target: 1H 18 On track for cash flow break-even by year-end 2018 8
Siobhan Nolan Mangini CFO
Revenue by Quarter ($M) Castlight Revenue $35 $30 $25 $20 Services Subscription $22.7 $1.7 $23.6 $1.6 $25.5 $1.6 $29.9 $1.7 $27.7 $2.0 $15 $10 $21.0 $22.0 $23.9 $28.2 $25.8 $5 $0 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q/Q Growth 7% 4% 8% 17% (7%) Y/Y Growth 42% 27% 31% 40% 22% 10
Gross Profit by Quarter ($M) Castlight Non-GAAP Gross Profit & Margin $30 $25 $20 $15 $10 $5 63% Gross Profit Gross Margin 66% $14.3 $15.6 72% $18.4 75% $22.4 74% $20.5 80% 75% 70% 65% 60% 55% 50% 45% Gross Margin by Quarter (%) $0 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q/Q Growth 14% 9% 17% 22% (8%) Y/Y Growth 54% 45% 59% 79% 43% 40% Non-GAAP figures adjusted for Stock Based Comp, Capitalized Software, charges related to reduction in force, litigation settlement and acquisition related costs 11
Operating Expense ($M) Castlight Non-GAAP Operating Expense $35 G&A R&D S&M $30 $25 $20 $15 $27.2 $4.5 $8.7 $26.3 $4.8 $8.6 $26.0 $23.9 $23.9 $4.1 $4.0 $5.1 $8.9 $8.2 $9.0 $10 $5 $14.0 $12.9 $10.9 $11.7 $11.9 $0 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q/Q Growth 0% (4%) (9%) 0% 9% Y/Y Growth 7% (7%) (13%) (13%) (5%) Non-GAAP figures adjusted for Stock Based Comp, Capitalized Software, charges related to reduction in force, litigation settlement and acquisition related costs 12
Non-GAAP Net Loss ($M) Castlight Non-GAAP Operating Loss $0 ($5) ($13.0) ($10.6) ($5.5) ($1.5) ($5.5) ($10) ($15) ($20) Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q/Q Growth (13%) (18%) (48%) (73%) 270% Y/Y Growth (20%) (40%) (65%) (90%) (57%) Non-GAAP figures adjusted for Stock Based Comp, Capitalization and Amortization of Software, Litigation Settlement, charges related to reduction in force and acquisition related costs 13
Cash Balance (as of March 31, 2017) Castlight expects to reach cash flow breakeven by the end of 2018 with at least $60 million of cash Cash at End of Q1 2017 Q1 2017 Cash Flow from Operations $103.2 M $(10.9) M* * Includes $4.0 million in Jiff-related transaction costs 14
Updated 2017 Guidance FY 2017 outlook includes Jiff starting in 2Q Updated FY 2017 Outlook In millions, except EPS GAAP Revenue $ 132 to $ 136 Bridge to Prior Non-GAAP Pro Forma Revenue* Guidance In millions GAAP Revenue $ 132 to $ 136 Non-GAAP Operating Inc. (Loss) $ (35) to $ (31) + Jiff Q1'17 Rev. $ 3.7 $ 3.7 Non-GAAP EPS $ (0.28) to $ (0.24) Basic & Diluted Avg. Weighted Shrs. O/S 125 to 127 Expect to reach cash flow breakeven by the end of 2018 with a cash balance of $60M or greater + Deferred Rev. $ 1.9 $ 1.9 Non-GAAP Pro Forma Revenue $ 138 to $ 142 * Assumes a full year of revenue contribution from Jiff and no impact from to the write down of deferred revenue associated with purchase accounting for GAAP purposes. Please see the appendix section for a more detailed description of this reconciliation. 15
Appendix 16
Gross Profit: Reconciliation of GAAP to Non-GAAP Three Months Ended December 31, March 31, June 30, September 30, December 31, March 31, 2015 2016 2016 2016 2016 2017 Gross profit: GAAP gross profit subscription $ 16,048 $ 16,901 $ 17,861 $ 19,879 $ 23,912 $ 21,520 Stock-based compensation 87 108 120 139 139 127 Amortization of internal-use software 124 244 244 244 244 244 Reduction in workforce - - 5 - - - Non-GAAP gross profit subscription $ 16,259 $ 17,253 $ 18,230 $ 20,262 $ 24,295 $ 21,891 GAAP gross margin subscription 80.5% 80.3% 81.4% 83.3% 84.9% 83.5% Non-GAAP gross margin subscription 81.6% 81.9% 83.0% 84.9% 86.3% 85.0% GAAP gross loss professional services $ (4,388) $ (3,433) $ (3,220) $ (2,344) $ (2,417) $ (2,009) Stock-based compensation 653 477 535 456 493 461 Capitalization of internal-use software (30) - - - - - Acquisition related costs - - - - - 147 Reduction in workforce - - 99 4 - - Non-GAAP gross loss professional services $ (3,765) $ (2,956) $ (2,586) $ (1,884) $ (1,924) $ (1,401) GAAP gross margin professional services (318)% (204)% (198)% (143)% (139)% (102)% Non-GAAP gross margin professional services (272)% (176)% (159)% (115)% (111)% (71)% GAAP gross profit $ 11,660 $ 13,468 $ 14,641 $ 17,535 $ 21,495 $ 19,511 Impact of non-gaap adjustments 834 829 1,003 843 876 979 Non-GAAP gross profit $ 12,494 $ 14,297 $ 15,644 $ 18,378 $ 22,371 $ 20,490 GAAP gross margin 54.7% 59.3% 62.1% 68.8% 71.9% 70.3% Non-GAAP gross margin 58.6% 62.9% 66.3% 72.1% 74.8% 73.9% 17
Operating Expense: Reconciliation of GAAP to Non-GAAP Three Months Ended December 31, March 31, June 30, September 30, December 31, March 31, 2015 2016 2016 2016 2016 2017 Operating expense: GAAP sales and marketing $ 16,579 $ 16,282 $ 15,452 $ 13,143 $ 13,923 $ 14,443 Stock-based compensation (1,822) (2,235) (2,219) (2,190) (2,199) (2,154) Acquisition related costs - - - - - (405) Reduction in workforce - - (374) (48) - - Non-GAAP sales and marketing $ 14,757 $ 14,047 $ 12,859 $ 10,905 $ 11,724 $ 11,884 GAAP research and development $ 8,224 $ 10,085 $ 9,961 $ 10,573 $ 9,841 $ 11,071 Stock-based compensation (1,154) (1,405) (1,264) (1,631) (1,659) (1,790) Capitalization of internal-use software 620 - - - - - Acquisition related costs - - - - - (267) Reduction in workforce - - (118) (18) - - Non-GAAP research and development $ 7,690 $ 8,680 $ 8,579 $ 8,924 $ 8,182 $ 9,014 GAAP general and administrative $ 5,983 $ 8,545 $ 6,019 $ 5,338 $ 6,957 $ 8,998 Stock-based compensation (1,069) (1,269) (971) (1,236) (1,267) (1,295) Litigation settlement - (2,735) (141) - - (250) Acquisition related costs - - - - (1,731) (2,340) Reduction in workforce - - (80) (10) - - Non-GAAP general and administrative $ 4,914 $ 4,541 $ 4,827 $ 4,092 $ 3,959 $ 5,113 GAAP operating expense $ 30,786 $ 34,912 $ 31,432 $ 29,054 $ 30,721 $ 34,512 Impact of non-gaap adjustments (3,425) (7,644) (5,167) (5,133) (6,856) (8,501) Non-GAAP operating expense $ 27,361 $ 27,268 $ 26,265 $ 23,921 $ 23,865 $ 26,011 Operating loss: GAAP operating loss $ (19,126) $ (21,444) $ (16,791) $ (11,519) $ (9,226) $ (15,001) Impact of non-gaap adjustments 4,259 8,473 6,170 5,976 7,732 9,480 Non-GAAP operating loss $ (14,867) $ (12,971) $ (10,621) $ (5,543) $ (1,494) $ (5,521) 18
Reconciliation of GAAP to non-gaap Revenue Annual Guidance 2017 GAAP revenue guidance $132-136 Add back: Deferred revenue fair value adjustment (1) 1.9 Jiff revenue Q1 17 (2) 3.7 Non-GAAP pro forma revenue guidance (3) $138-142 (1) The close date of the Jiff acquisition occurred on April 3, 2017, subsequent to our fiscal quarter end. Accordingly, the deferred revenue fair value adjustment is a preliminary estimate and is subject to change upon the completion of purchase accounting. The impact on revenue related to purchase accounting as a result of these transactions limits the comparability of revenue between periods. While the deferred revenue written down in connection with Castlight s acquisition of Jiff will never be recognized as revenue under GAAP, we do not expect the acquisition to have an impact on future renewal rates of the contracts included within the deferred revenue write-down, nor do we expect revenue generated from new service and subscription contracts to be similarly impacted by purchase accounting adjustments. If this adjustment was not made, Castlight s future revenue growth rates could appear overstated. (2) Non-GAAP pro forma revenue guidance combines the results of Jiff and Castlight as if Jiff was acquired at the beginning of our fiscal year 2017 and, therefore, includes Jiff s first quarter 2017 revenue as conformed to Castlight accounting policy. (3) We believe presenting non-gaap pro forma revenue guidance to include the impact of Jiff s first quarter revenue as if the transaction had been completed at the beginning of our fiscal year 2017, and excluding the impact of deferred revenue write-down, will aid in the comparability between periods and in assessing our overall operating performance. We have performed an initial review of Jiff s accounting policies, upon comprehensive review, we may identify other differences among the accounting policies of Castlight and Jiff that, when conformed, could have an impact on future revenue. Non- GAAP pro forma revenue has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for GAAP revenue. Other companies in our industry may calculate this measure differently, which may limit its usefulness as a comparative measure. 19
Explanation of Non-GAAP Financial Measures Deferred revenue fair value adjustment: In connection with the acquisition of Jiff, the deferred revenue balances from Jiff products were required to be written down due to purchase accounting in accordance with GAAP. While the deferred revenue written down in connection with the acquisitions will never be recognized as revenues under GAAP, we do not expect the acquisition of Jiff to have an impact on future renewal rates of the contracts included within the deferred revenue write-down, nor do we expect revenues generated from new service and subscription contracts to be similarly impacted by purchase accounting adjustments. Jiff revenue Q1 17: An adjustment to Jiff s revenue to adhere to Castlight s accounting policies, in connection with the acquisition of Jiff. Stock-based compensation: A non-cash expense arising from the grant of stock-based awards to employees. Litigation settlement: Represents settlements of lawsuits related to Castlight s initial public offering and the acquisition of Jiff in the first quarter of 2016 and 2017, respectively. Reduction in workforce: Expenses associated with the program Castlight undertook in the second quarter of 2016 to reduce the Company's workforce by fourteen percent. Capitalization and amortization of internal-use software: Development costs incurred during the application development stage of our cloud-based service that we capitalize. Capitalized software development costs are included as part of property, plant and equipment and are amortized on a straight-line basis over the technology's estimated useful life. Acquisition related costs: Transaction and integration costs associated with the Jiff acquisition. These costs include all incremental expenses incurred to effect a business combination. Acquisition costs include advisory, legal, accounting, valuation, and other professional or consulting fees. Integration costs include expenses directly related to integration of business and facility operations, information technology systems and infrastructure and other employee related costs. 20