Castlight Health (CSLT) Q3 2018 Earnings Conference Call Transcript

Castlight Health (CSLT)
Q3 2018 Earnings Conference Call
Nov. 6, 2018 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is Kim, and I will be your conference operator today. At this time, I would like to welcome everyone to the Castlight Health Q3 2018 financial results conference call. [Operator instructions] Gary Fuges, head of investor relations, you may begin your conference.

Gary Fuges -- Head of Investor Relations

Good afternoon and welcome to Castlight Health third-quarter 2018 conference call. Joining me on the call today are John Doyle, chief executive officer; and Siobhan Mangini, chief financial officer. John and Siobhan will offer their prepared remarks, and then we will open the call up to take your questions. Our press release, webcast, and PowerPoint presentation are available on our website.

This call contains forward-looking statements regarding our trends, our strategies, and the anticipated performance of our business, including our guidance for the full year of 2018, timing of cash flows and non-GAAP operating breakeven, cost savings efforts, impact of non-renewals, direct and channel sales momentum, our ability to add additional channel partners, future churn risk, and future cash position. These statements were made as of November 6, 2018 and reflect management's views and expectations at that time and are subject to various risks, uncertainties and assumptions. If this call is replayed after November 6, 2018 the information in the call may no longer be current or accurate. We disclaim any obligation to update or revise any forward-looking statements.

We provide guidance on this 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. Please refer to the company's November 6, 2018 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 our forward-looking statements. Our presentation also includes certain non-GAAP metrics such as non-GAAP gross margin, operating expenses, operating loss, operating income and net loss or net income per diluted 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 Appendix section of our earnings release filed before the call.

With that, I'll turn the call over to John Doyle, Castlight's CEO. John?

John Doyle -- Chief Executive Officer

Thank you for joining us on the call today. I am especially pleased to share a lot of positive news with you today because the first half of the third quarter tested us. The loss of Walmart was our biggest challenge by far but it was not the only one we faced during Q3. Seasonally high churn was a factor then as well.

And yet since then, we've moved beyond the key drivers of churn to a string of important successes that set the stage for more consistent performance ahead. The highlights speak for themselves. First, the launch of Castlight Complete was outstanding. This was our top goal for the year and the team executed exceptionally well.

We launched our first set of complete customers, which included large multinational businesses with hundreds of thousands of employees, multiple third-party ecosystem integrations, and complex incentives programs. The significance of these launches is very high for our business because we now have the foundation to serve virtually any large organization in the United States with the most comprehensive health navigation solution in the market, regardless of which payer they work with. In addition to the well-executed launches of our most powerful product to date, we closed a record number of new logos in the quarter. Engage clearly has good traction in its first selling season since the product launched last January.

Momentum in our partnership with Anthem is a positive, heading into 2019. With improved sales of Castlight Complete next selling season, we have an excellent opportunity to reaccelerate overall sales as well. From a financial point of view in Q3, we reached $40 million in quarterly revenue for the first time. We also executed a necessary restructuring that led to a strong sequential increase in non-GAAP gross margins and the first non-GAAP operating profit in Castlight's history.

Reaching profitability is an important milestone in any scenario. For Castlight, it is especially satisfying because the team did it while also sustaining market-leading innovation and revenue growth over the same period. We continue to be confident that Castlight can reach our target operating margin of 20% to 25%. Finally, we made excellent progress in discussions with potential new channel partners since our last call.

We have seen strong interest from a diverse group of firms that see digital health navigation as a key part of solving important issues in healthcare. There are clear ways to create compelling new value for users and employers through one of these partnership opportunities. As we've discussed previously, this initiative is not intended to be a sales driver for us in 2019. We will continue to perceive deliberately, while prioritizing strong strategic alignment and the long-term potential of a new strategic partnership for our business.

With all of this great progress across our product, financial, and go-to-market initiatives, the day-to-day tone in our business has rebounded well from a difficult summer. That said, seasonally elevated churn created a significant ARR headwind for us in Q3. We ended the quarter with $153 million in ARR. Therefore, even when Walmart ARR is excluded from historical periods, net ARR in Q3 was flat quarter over quarter and up just 6% year over year.

This business is clearly capable of stronger growth than we saw last quarter. In other words, Walmart was not our only challenge in Q3. We lost other customers as well mainly due to dissatisfaction with our legacy products. Both in transparency and also notably among firms that became exasperated with the instability of our legacy Jiff wellbeing products and the support problems that ensued for their employees.

The impact of this dynamic with legacy Jiff customers was concentrated in Q3 because we engaged all of them during the period to plan their migrations to complete wellbeing, our fully replatformed solution in 2019. In the end, more of them decided to terminate than we had expected rather than committing to the migration. While regrettable from a near-term financial point of view, it is imperative that Castlight sunset all legacy products next year as planned. This is simply essential if we are to consistently deliver the highest quality, most valuable user experience in the industry over the long term, which is our north star.

However, the fact remains that churn has been a persistent headwind for us for more than two years. So, I want to explain why we believe that we've turned the corner on churn risk at Castlight. We see four reasons. First, before we even talk about the substantive reasons that the worst churn is behind us, the reality is that we'll have 25% less ARR up for renewal in 2019 compared to this year, and no individual customer renewal representing even half the ARR that Walmart did.

So in this way, it's just a fact that renewal comps start getting easier for us next year. Second, the overall risk profile of our customer portfolio is lower than it was before. Transparency ARR, which has been our highest churn customer segment, was just 13% of total ARR at the end of Q3. Also, as we expected, churn due to lower renewal pricing was minimal in Q3 relative to past periods.

This is consistent with the fact that we have worked through the large amount of business that have been sold at prices significantly above our current market pricing. Third, the elevated churn risk associated with our platform migration is also largely behind us. The instability of the legacy Jiff product created significant delivery and service issues for customers that launched that product. At this point, 90% of the remaining customers that implemented legacy Jiff products have committed to migrate by a specific date next year.

Fourth, users love our newest products. Engagement and user feedback are excellent. The combination of wellbeing and care guidance in a single app is driving two to three x higher engagement across key metrics, like monthly active users, searches within the app and clinical program interactions. In addition, gaps in care are being closed at a meaningfully higher rate too, which speaks to behavior change.

User reviews and NPS scores consistently north of 60 say it loudly as well. Castlight is delivering the best products in the digital health navigation market. These are the reasons we are confident that the churn headwind is increasingly behind us. Our overall renewal exposure is lower, the quality of our book of business is higher, we worked through the bulk of the migration-related risk and we'll soon have all customers on a single scalable platform that is already delighting users and delivering real value for customers.

All told, everyone at Castlight is energized to be turning a corner on tough issues driven by legacy products that will be completely behind us very soon. We have been focused on the second half of 2018 for a long time at a pivotal moment for our business. The opportunity to reaccelerate growth is at hand. With the formal launch of Castlight Complete in Q3, the full range of health navigation capabilities that we offer from wellbeing to care guidance, to communications, are now generally available for all large organizations in the United States.

This means two things that will be important differences for our business in 2019 as compared to this year. First, at this time last year, neither Anthem Engage nor Castlight Complete was available for delivery. Now, following the successful launch of Complete, our direct sales team and channel partners will go into the year with all of our products available for sale, production demo, and implementation to any large organization in the country. And second, our commitment to sunsetting legacy products next year has come with some pain, but the decision will free up significant R&D capacity and professional services resources for innovation and continued improvement in our financial profile over time.

These factors are consequential improvements in our strategic position relative to our competitors. Most importantly, from a product point of view, our heavy investments in data and integrations infrastructure, scalable architecture, and automated quality assurance for the last 18 months set Castlight apart in our industry. Like many emerging industries, ours has often prioritized sales above the unglamorous complex work required to deliver a comprehensive health navigation solution that users love. The difference is evident in users' responses to health navigation products.

As the health navigation market evolves, product quality, scalability, and reliability will be key determinants of success and Castlight is committed to leading on all three dimensions. Overall, Q3 was our best quarter ever for operational execution, with the nearly flawless delivery of the most important product in the company's history and the completion of a restructuring program that aligns our business to deliver growth and profitability. 2019 can't come soon enough for all of us at Castlight. We have the right product, go-to-market strategy and model in place for future success, and I'm excited about where we're headed as the leader in the growing market for digital health navigation.

I'll now turn the call over to Siobhan, who will review our Q3 financial performance and updated outlook in greater detail.

Siobhan Mangini -- Chief Financial Officer

Thanks, John. Good afternoon, everyone, and let me also thank all of you for joining us on today's call. I'll review our Q3 results and 2018 outlook. After that, we'll take your questions.

Note that Q3 2018 non-GAAP metrics exclude the impact of our August restructuring program. We executed well in Q3, generating solid revenue from launch activity and achieving non-GAAP operating profitability one quarter ahead of target. We ended the quarter with net annualized recurring revenue, or ARR, of $152.7 million. As John mentioned, ARR was essentially flat from Q2, adjusting for the Walmart termination notice received in July.

I'd like to reinforce what John said earlier about customer retention going forward. Based on our position of having our customers, either launched on or migrating to our scalable platform, coupled with fewer customers up for renewal, we believe we have laid the ground work to reduce churn in 2019 and beyond. Total revenue for the third quarter was $40 million, which increased 16% year over year. Revenues are a function of launching customers and our successful implementation activity in Q3, drove growth in both subscription and professional services revenue.

Subscription revenue was 92% of total revenue and increased 17% year over year. Professional services revenue increased 7% year over year. As we previously discussed, as we look forward, we will have lower onetime professional services fees associated with the development of the Anthem local product. Now let's turn to our third-quarter non-GAAP financials.

Overall, we saw a reduction in cost across every area of our business as a result of our successful restructuring in the third quarter. Q3 non-GAAP gross margin was 68%, compared to 62% in the prior quarter and 67% a year ago. We are very pleased with the progress we made to drive targeted and yet durable cost savings across key areas, such as Amazon Web Services this past quarter. We continue to expect to hit our long-term gross margins of 70% to 75% in the second half of the year.

Total non-GAAP operating expenses for the third quarter were $26.8 million, down 8% year over year, compared to revenue growth of 16% in the period. This reflects an impact of our restructuring program, specifically in the sales and marketing lines, combined with continued operating expense discipline in our day-to-day operations. Given the importance of innovation to our future growth, we continue to invest in R&D at levels above our long-term targets. Q3 non-GAAP operating income of approximately $300,000 was an improvement compared to a loss of $6.2 million in the year-ago period.

This is a result of revenue growth and the operating expense reductions from the restructuring program. We ended the quarter with $68.4 million of cash, cash equivalents, and marketable securities. Cash used in operations was approximately $6 million in Q3, which included the majority of employee severance from the restructuring program. We continue to remain on track to be breakeven on a cash flow from operations basis in Q4.

With that, let me provide an update to our 2018 outlook. We now expect revenue to be at the high end of our $150 million to $155 million guidance range, based primarily on the timing of Q3 customer launches. With the progress we've made in building a scalable platform, we now anticipate ARR to revenue conversion to be closer to the four- to five-quarter range going forward. This is an improvement from the six-plus quarter range we've seen over the past 18 months.

As a result of the restructuring program, we now expect to beat our non-GAAP operating loss guidance range of $15 million to $20 million. We also now anticipate cash used in operations will beat our prior-target range of mid-$20 million and expect to end the year with more than $70 million of cash. In summary, Q3 was a strong quarter of operational execution and financial performance. We transformed our product offering while decreasing the risk profile of our book of business.

We're excited to be in market with our most powerful offering to date, and believe we are at just the beginning of delivering on the promise of digital health for our customers, users, employees, and shareholders. Operator, we'll now take your questions. 

Questions and Answers:

Operator

[Operator instructions] Your first question comes from Jeff Garro from William Blair. Your line is open.

Jeff Garro -- William Blair & Company -- Analyst

Yes. Good afternoon. Thanks for taking the questions. I want to follow up a little bit about the ARR dynamics in the quarter and also factor in the workforce reduction, the restructuring you guys had.

Have less people now -- you've seen some real pauses of growing the customer count and the healthcare environment, digital health, and benefits for workers, it's more complex than ever. So as you scale up the business and handle more and more complex environments, can you help us look forward in the future in how you'll be able to improve retention as things get bigger and more complicated?

John Doyle -- Chief Executive Officer

So, Jeff, this is John. Thanks for your question. Well, certainly agree with the premise that things are getting more complicated for employers as benefits leaders, in particular, and heads of HR struggle to deal with the ever-increasing healthcare costs and really a proliferation of potential ways to address those costs. If you think about what that means for our business as the products are more and more concentrated on healthcare navigation, as opposed to wellbeing and care guidance, it's a perfect fit, right? Because healthcare navigation is all about getting individual users to high-quality, cost-efficient sites of care, which in a complex environment, requires well-executed technology and services to do, we think we're well-positioned.

To elaborate just a little bit, what healthcare navigation requires is both breadth, you've got to cover all of the areas that an employee might have a need in, and also depth. And Castlight really is in a category by ourselves on both fronts, which is what gives us confidence about retention. It's one of the main reasons going forward, as you think about the customer base. In other words, from the standpoint of breadth, whether it's pharmacy, whether it's medical, whether it's wellbeing, clinical programs, or other resources, Castlight covers that entire scope.

And then on the depth side, we're ingesting thousands of data files from hundreds of sources on a monthly basis to deliver highly personalized experiences for consumers that are changing their behavior in positive ways, we talked about gaps in care, for example. That's what all of this is about. And so I think the progress that we've made there is the most important piece of reducing churn. Some of the other areas that we mentioned in the script kind of boring and not substantive but just the math is favoring us, heading into next year with a significantly smaller renewal class.

And frankly, many of the renewals that are happening are customers that we renewed previously, certainly don't have the same pricing dynamics in those renewals that was a headwind for us before. And then we also said, transparency now just 13% of the business, much lower exposure in a high-churn legacy part of the business than we had before. And then we've been through all of the migration conversations with customers that had been on the legacy wellbeing products. So they've either churned, as we talked about, or committed -- 90% of them committed to a migration date heading forward in 2019.

So, we're feeling great for all of those reasons that the retention numbers are going to improve quite a bit heading into '19.

Siobhan Mangini -- Chief Financial Officer

Jeff, did I hear a question about the restructuring that you also had asked?

Jeff Garro -- William Blair & Company -- Analyst

Yes, I was just trying to hit the aspect of that there's more customers, more complexity in healthcare and you have, essentially, less people. So, I want to make sure that you have the capacity. And that there won't be customer service issues kind of falling through the cracks?

Siobhan Mangini -- Chief Financial Officer

Yes. It's a great question. I think we executed the restructuring very successfully, very quickly. The goal was to, really, be able to self-fund excellent customer experience and ongoing innovation and growth, and I think we did that.

The adjustments that we made, in particular when you see subscription margins increasing as they did, was really around areas like Amazon Web Services, trying to be very focused on making sure that we are focused on customer success and customer support. In terms of the OPEX side, there were adjustments made in every area. The biggest adjustments to the cost structure were in sales and marketing, as we're seeing more leverage from the channel, and the ability to really have a blended infrastructure that's using both the direct sales team but also channels like Engage as we look forward.

Jeff Garro -- William Blair & Company -- Analyst

Great. Maybe one more follow-up for me, maybe, more on the ARR side and kind of the growth contribution. Hoping you could shed some light on the mix between Engage and your own sales force? And maybe also discuss your feelings about the pipeline and the impact of the ROI guarantee on that. Thanks.

John Doyle -- Chief Executive Officer

Thanks, Jeff. So, first of all, outstanding quarter overall. We're really pleased with the team's execution across critical priorities. We talked about the launch of Castlight Complete.

We talked about record number of new logos in the quarter and profitability, obviously, a milestone that we've been focused on for some time, so that's exciting too. In terms of the sales volumes in Q3, we were very pleased to see that Engage continued to perform according to plan. That was something that we saw also in Q2 and it was the expectation. That partnership is going well and gives us good momentum in that part of the business heading into 2019.

The reception of the product by customers and users is really terrific. Castlight Complete did not contribute significant new business in Q3. We talked about a bit more contribution in Q3 than we saw in Q2 and that did come through, but I think it's still at a place where the launch of the product and the referenceability of these initial customers and the ability of prospects now to test that solution in production, kick the tires, talk to folks that have already launched it. It's just a difference-maker going forward in the dialogues with potential new customers.

And so we're excited about where that product is headed next year.

Jeff Garro -- William Blair & Company -- Analyst

Great. Thanks for taking the questions.

John Doyle -- Chief Executive Officer

Thanks, Jeff.

Operator

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

Brian Peterson -- Raymond James -- Analyst

Hi. Thanks for taking the question. I want to echo my congratulations on Complete. I know this has been a multiyear effort for you guys.

So congrats for getting that generally available.

John Doyle -- Chief Executive Officer

Thanks, Brian.

Brian Peterson -- Raymond James -- Analyst

So, as we think about -- thanks, John. And as we think about you guys going to market with Complete in 2019, I'm just curious, does that change the seasonality of the bookings profile overall? I know typically the second quarter and the third quarter are a little more active. I just didn't know that with some of the Jiff functionality, if that's something that you could, maybe, sell more throughout the year. Any help with how to think about that?

John Doyle -- Chief Executive Officer

Great question, Brian, and certainly the wellbeing component of our offering and we do sell stand-alone wellbeing, is an important door opener for conversations with, really, any large organization at any time of the year. I think it's still the truth that most benefits and wellbeing teams think about annual cycles. And so I don't expect a major change in the seasonality. Although, your point is a good one and I think there's an opportunity for kind of more active dialogue and closing of sales cycle in other periods than perhaps we've seen in the past because of that wellbeing dynamic.

Brian Peterson -- Raymond James -- Analyst

And maybe a follow-up, John or Siobhan, I don't know who wants to take this. But you guys have kind of split out the transparency on the ARR. I thought, if I heard you correctly, that in '19 everyone is going to be migrated over. So, is that a disclosure that is no longer relevant that we won't get and essentially, everybody is on the same platform? Just want to make sure I have that right.

Siobhan Mangini -- Chief Financial Officer

Yes, it's a great question. So, we're at 13% of ARR on transparency only. So, it had dropped down. It was 17% last quarter.

What we are saying is that everyone will end up on our single platform technology. It's modular so you could have, as John was saying, wellbeing, transparency, care guidance or Complete. We are actively migrating folks over. We had another 15 customers with transparency that moved over to the platform this past quarter.

But there always will be, as we've said, some small percentage of customers that are still on transparency only. Our target was 15%. We've already exceeded that and we'll continue to share that. But at this point, it's a minimal part of the overall portfolio mix.

John Doyle -- Chief Executive Officer

I think, importantly, Brian, all of the products, to Siobhan's point, are being delivered off the same technology stack. So transparency, as we talk about it going forward, will be customers that have not deployed what you would have been familiar with in the past, as our Action product, which we now talk about in the context of Castlight Complete, as the user profiling and analytics and targeted engagement. So that's the piece that's not there for customers that are just using transparency.

Brian Peterson -- Raymond James -- Analyst

Got it. That's clear. Thanks, guys.

John Doyle -- Chief Executive Officer

Thank you.

Operator

[Operator instructions] Your next question comes from Charles Rhyee from Cowen and Company. Your line is open.

Unidentified speaker

Hi, guys. This is Sam on for Charles today. I guess I just have a question -- I don't recall last quarter hearing that some of the legacy Jiff clients were, maybe, thinking about terminating. Can you maybe talk through what made them decide to terminate? Maybe why they didn't move on to the new platform? And kind of what gives you confidence to make up that loss moving forward? Thanks.

John Doyle -- Chief Executive Officer

Thanks, Sam. Well, we have talked for some time about the need to rebuild or replatform, I should say, the wellbeing capabilities that we acquired in the Jiff acquisition. We made the decision to do that as a direct consequence of the instability of the platform, which I think is the most easily thought of as just the function of the early stage of that business and how subscale they were when the acquisition occurred. What I think was just difficult to forecast last time we were on the phone was, we had many of our conversations with Jiff customers between that call and now about migrating on to Castlight Complete wellbeing in 2019.

Until recently that was a product that we wouldn't have been able to demonstrate in production, certainly not referenceable. And I think the reason that I used the term in the script, exasperated, is that when you try to understand, why a customer wouldn't migrate to something we think is very clearly a market-leading solution with Castlight Complete. It is just a fact that, in some of these cases, the instability of that legacy platform caused significant disruption, employees having unacceptably poor experiences, for example, not able to see progress against achievement of incentives objectives, not receiving incentives in a timely way. That driving significant calls into support, which creates great deal of stress on stretch day chart teams.

And so we spent a ton of time with customers, diving in, providing support where feasible, but you can imagine in those circumstances, you get customers who are pretty frustrated. And when you're talking about migrating at that point to a product that hasn't even been in the market yet, it's just a very difficult conversation. And so I'm pleased that in many cases, in some of the larger situations, in particular, we were able to navigate that conversation and build confidence around the launches next year and those customers will be migrating but in some cases we didn't, as we talked about. And I think the bottom line is that, what that all means for the business next year is that we're heading forward with Castlight Complete in a -- with a platform that's vastly more robust and reliable, easier to support.

We've come out of the launch to hundreds of thousands of employees this year. We can look at the support levels relative to what we've seen with past products and it's just a fact that we've got not only much higher utilization but much lower need for active support. NPS is in the 60s and the 70s and so just ample evidence that we're in a fundamentally different place from a user and customer-value perspective there. So, the completion of all those conversations and the strength of the go-forward platform are really the critical pieces.

Unidentified speaker

Awesome. Thanks. And I guess, just one follow-up on the Anthem Engage. I think Anthem had outlined that, in the first quarter they had about 800,000 members on the platform and it sounds like according to their most recent earnings call, they've already kind of doubled that.

So, can you elaborate a little bit on -- I know you talked briefly about it, but maybe a little bit more on the opportunity there? And how much more kind of room to run you guys have?

John Doyle -- Chief Executive Officer

Sure. So, we've talked before about an expectation that we would approximately double the volume of business we did with Anthem in 2017 that we would double it in 2018, we're on plan there, and we're pleased to be on plan. I think the momentum in that relationship absolutely sets us up well for a successful 2019 together, which is great. Having said that, what we're most excited about in the business is the launch of Castlight Complete and the opportunities that represents.

And we have a belief that, that product and its applicability to really every large organization in the country, particularly, non-Anthem customers, which is a lot of folks, gives us a significant room to grow there as we hit our first full selling season next year post GA. So very excited about that potential, focused on Castlight Complete.

Unidentified speaker

Awesome. Thanks, guys, and congrats on the quarter.

John Doyle -- Chief Executive Officer

Thanks a lot, Sam.

Operator

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

Frank Sparacino -- First Analysis Investment -- Analyst

Hello, everyone. Siobhan, maybe for you, just can you parse out the details on the ARR this quarter just in terms of the churn, maybe, to start with and then new business added?

Siobhan Mangini -- Chief Financial Officer

Sure. Let me maybe start with the new business piece. So, John's been talking about, we've seen very strong traction with Engage. It really is penetrating the early majority, so we saw the highest logo velocity we've ever seen in the business.

I think an important thing to note is that those are smaller deals and that what you see on average versus the Fortune 1000 that our direct sales team is selling into. So Q3 Engage deals were, on average, about half that of our average ARR per customer, when you look across our book of business. And so we're excited to see a level of adoption. I think it creates more diversity across our book, which is something that we've been talking about in terms of diversification of the customer base.

But it is different in terms of growth. In terms of the churn headwinds, it was elevated also at highest level on an absolute dollar basis we've ever seen. $13 million plus alone came from Walmart in terms of the termination that we saw. And then the majority of the other churn came from, what we're talking about, legacy wellbeing customers or folks who had the legacy wellbeing application or joint customers.

And so we think we have that behind us now that we're 90% plus committed on the migrations but that was, as you can imagine, a driver -- those two pieces, very elevated churn in Q3 is the headwind, which is yielding flat ARR growth, excluding Walmart.

Frank Sparacino -- First Analysis Investment -- Analyst

And maybe just one follow-up for me. In terms of the contributions from the channel versus direct, any commentary there?

John Doyle -- Chief Executive Officer

Well, I think -- so as I said, in Q2, Q3, big contributions from the channel, relatively less from the direct sales and that's really from our perspective a function of where we are in the business, relative to the launch of Castlight Complete. So, given the legacy of drivers of churn that we've talked about now for quite some time with transparency and in Q3 wellbeing, it's just important for our sales team to have a launched product that's referenceable, that can be tested in production -- demoed in production, I should say, to give new prospects confidence about the launch of this capability. And I think one of the issues that was just really difficult to overcome in sales cycles in 2018 was the fact that we were selling a product in Castlight Complete that literally hadn't been launched yet. So, when you're dealing with some stability issues in the legacy product, you're talking to new prospects, who want some reassurance about the experience their employees are growing to have and you have nowhere to go on the referenceability, all of that changes heading into '19, which is a big part of the reason that we're feeling good about the first full year of sales of Castlight Complete, post GA.

Frank Sparacino -- First Analysis Investment -- Analyst

Thank you.

John Doyle -- Chief Executive Officer

Thanks, Frank.

Operator

Our next question comes from Gene Mannheimer from Dougherty. Your line is open.

Gene Mannheimer -- Dougherty & Co. -- Analyst

Thanks and congrats on a good quarter. Just a couple of housekeeping questions. Just so I'm clear, the departure of Walmart impact Q4 subscription revenue or does that take effect January 1?

Siobhan Mangini -- Chief Financial Officer

Great question, Gene. No, it takes effect essentially the end of the year. As does -- I think of ARR as the leading metric. We take it out as soon as it's been notified but the majority of our churn depends on a subscription revenue basis tends to aggregate at year end, 12/31.

Gene Mannheimer -- Dougherty & Co. -- Analyst

Good. Great. And with respect to transparency churn, did you -- can you give us the number for the year-ago quarter? How it was then versus now?

Siobhan Mangini -- Chief Financial Officer

I can. I may need to follow up with you. I think it was in the 20, if I remember correctly...

John Doyle -- Chief Executive Officer

23%.

Siobhan Mangini -- Chief Financial Officer

23% range a year ago.

Gene Mannheimer -- Dougherty & Co. -- Analyst

Yes, that rings a bell. And so given your confidence that the bulk of the churn is behind you, what might we expect transparency churn to look like exiting 2018?

Siobhan Mangini -- Chief Financial Officer

I'll start and I'm happy to have John talk. At this point, we have actually touched essentially all transparency customers. And so the reason why we are talking about 15% being an important marker is if you think that we've launched the platform product, which was Action, it's now called Genius, it's better than everything, at the end of 2015. We knew that by the end of this year, we would have touched pretty much all legacy transparency customers.

And those that are on the platform are satisfied with the product. And I would say, we really think that that headwind is behind us. It was something we forecasted, to your point, in this year. It did run according to the plans that we had expected, but at this point, I think we're in a much more stable position.

We obviously, always want folks to move to the platform. But in terms of the churn headwinds from transparency, I think it's just a different place than we were a year ago.

John Doyle -- Chief Executive Officer

Agreed. And, Gene, just to clarify, when Siobhan says we've touched all these customers, that means the remaining transparency customers have largely been through renewal cycle in which they decided to stay -- decided affirmatively to stay with transparency and those deals are priced at current market pricing. So, we feel very good about that.

Gene Mannheimer -- Dougherty & Co. -- Analyst

OK. Good. Very encouraging. And with respect to the number in new logos, you indicated the majority of them were Engage-related.

Did you give the number of net new logos?

Siobhan Mangini -- Chief Financial Officer

We did not. And just to provide a little rationale there is the logos are -- as I was saying, not all created equal, and that's why we've been using ARR, just to try to get folks given we take it out of -- adjust as soon we sell something and it's contracted or will be notified as churn. We'd be probably in the 285-plus customer count, but logos aren't removed until we end the contract, back to where you were asking about Walmart. So that's included in that and it will, at the end of the year, be adjusted.

And so we expect to be around 270 customers at the end of this year.

Gene Mannheimer -- Dougherty & Co. -- Analyst

Great. All right. Thank you again. Appreciate it.

John Doyle -- Chief Executive Officer

Thank you, Gene.

Operator

There are no further questions at this time. I now turn the call back to John Doyle, CEO.

John Doyle -- Chief Executive Officer

Thank you for joining us on today's call. We encourage you to go out and vote. And we look forward to seeing you at the William Blair Benefit Technology Conference on the 14th and the Piper Jaffray Healthcare Conference on the 27th. Have a great evening.

Operator

[Operator signoff]

Duration: 42 minutes

Call Participants:

Gary Fuges -- Head of Investor Relations

John Doyle -- Chief Executive Officer

Siobhan Mangini -- Chief Financial Officer

Jeff Garro -- William Blair & Company -- Analyst

Brian Peterson -- Raymond James -- Analyst

Frank Sparacino -- First Analysis Investment -- Analyst

Gene Mannheimer -- Dougherty & Co. -- Analyst

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