IPO Preview: Castlight Health

Mar.14.14 | About: Castlight Health, (CSLT)

Summary

Enterprise Healthcare Cloud offering to self-insured companies in a broad range of industries and governmental entities.

42% and 55% top line revenue growth for Q4 and Q3 compared to preceding quarter.

2013 Q4 revenue was $5.5 million and losses were $20 million.

Based in San Francisco, CA, Castlight Health (NYSE:CSLT) scheduled a $111 million IPO on the NYSE with a market capitalization of $953 million at a price range midpoint of $10 for Friday, March 14, 2014. The price range has since been raised to $13-15. The conclusion is the same.

The full IPO calendar is available at IPOpremium.

SEC Documents
Manager, Joint managers: Goldman Sachs, Morgan Stanley

Co-Managers: Allen & Company, Stifel, Canaccord Genuity, Raymond James

Summary
CSLT markets and sells its Enterprise Healthcare Cloud offering to self-insured companies in a broad range of industries and governmental entities.

As of December 31, 2013, CSLT had 106 signed customers, including 48 customers that had implemented CSLT's offering, which CSLT refers to as launched customers.

In comparison, CSLT had 47 signed customers, including 15 launched customers, as of December 31, 2012.

For the 2013 year, revenue increased 212% to $13 million from $4 million. Losses increased to -$62 million from -$35 million.

2013 Q4 revenue was $5.5 million and losses were $20 million.

Valuation

Glossary

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

% offered

Annualizing Dec qtr

Cap (MM)

Sls

Erngs

BkVlue

TanBV

in IPO

Castlight Health

$755

37.0

-9.4

4.9

5.6

15%

Click to enlarge

Conclusion

This story is all about top line revenue growth in a new enterprise software category. CSLT is betting the farm by spending 237% of revenue on sales & marketing.

Here is the recent quarterly top line revenue performance.

Quarters

March '13

June 13

Sept 13

Dec 13

Rev ($mm)

$1,907

$2,325

$3,609

$5,132

% gain over prior qtr

22%

55%

42%

Click to enlarge

Losses are huge ($20 million for Q4 2013), and the price to Q4 annualized revenue is a whopping 37.

Nevertheless, with the market near all-time highs and with great sector interest in new enterprise cloud software applications, the rating on CSLT is a buy on the IPO.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above:

Business

CSLT is a pioneer in a new category of cloud-based software that enables enterprises to gain control over their rapidly escalating health care costs.

CSLT's Enterprise Healthcare Cloud allows its customers to conquer the complexity of the existing health care system by providing personalized, actionable information to their employees, implementing technology-enabled benefit designs and integrating disparate systems and applications.

CSLT's comprehensive technology offering aggregates complex, large-scale data and applies sophisticated analytics to make health care cost and quality data transparent and useful. CSLT deploys consumer-oriented applications that deliver strong engagement and integration capabilities.

History

Since its inception in 2008, CSLT has been committed to improving the efficiency of the U.S. health care industry.

From 2008 to 2010, CSLT focused its efforts on research and development to build its consumer health care database, its analytic capabilities and the initial version of its cloud-based application, Castlight Medical.

After its release in 2010, CSLT has continued to enhance that application, as well as release Castlight Pharmacy, Castlight Rewards and Castlight Reference-Based Pricing in 2013.

These applications are delivered to its customers, and their employees and families, via its cloud-based offering and leverage consumer-oriented design principles that drive engagement and ease of use.

CSLT markets and sells its Enterprise Healthcare Cloud offering to self-insured companies in a broad range of industries and governmental entities.

Customer growth

As of December 31, 2013, CSLT had 106 signed customers, including 48 customers that had implemented CSLT's offering, which CSLT refers to as launched customers.

In comparison, CSLT had 47 signed customers, including 15 launched customers, as of December 31, 2012.

CSLT's current customers as of December 31, 2013 included 26 Fortune 500 companies and collectively represent millions of eligible employees and their adult dependents.

CSLT sells its offering solely in the United States, and CSLT markets to its customers and potential customers primarily through its direct sales force.

Dividend Policy

No dividends are planned

Intellectual Property

Historically, despite a substantial investment in research and development activities, CSLT has not focused on filing patent applications, although this may change in the future.

As of December 31, 2013, CSLT had one issued patent and four patent applications pending in the United States. Its patent expires on July 27, 2031.

Competition

The market for enterprise health care cloud solutions is in an early stage of development, but is rapidly evolving and competitive.

CSLT currently faces competition from independent third-party tool vendors, such as Change Healthcare Corporation, ClearCost Health, Healthcare Blue Book, HealthSparq Inc. and Truven Health Analytics Inc., as well as from health plans, such as Aetna Inc., Cigna Corporation, United Healthcare Group, Inc. and WellPoint, Inc.

5% stockholders

Giovanni M. Colella, 8.2%

Ann Lamont, 15.8%

Bryan Roberts, 20.6%

Use of proceeds

CSLT expects to net $99.3 million from its IPO. Proceeds are allocated as follows:

For working capital and other general corporate purposes, however, as of the date of this prospectus, CSLT cannot specify with certainty the particular uses of the net proceeds for such purposes. Additionally, CSLT may use the net proceeds from this offering to expand its current business through acquisitions of, or investments in, other businesses, products or technologies. CSLT has no commitments with respect to any such acquisitions or investments at this time.

Disclaimer: This CSLT IPO report is based on a reading and analysis of CSLT's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.