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Castlight Health (NYSE:CSLT)
Q2 2019 Earnings Call
Jul 30, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good afternoon. My name is Jessie, and I'll be your conference Operator today. At this time, I'd like to welcome everyone to the Castlight Health second-quarter 2019 financial results conference call. [Operator instructions] Thank you.

Gary Fuges, Head of Investor Relations, you may begin your conference.

Gary Fuges -- Head of Investor Relations

Good afternoon, and welcome to the Castlight Health second-quarter 2019 conference call. Joining me on the call today are Maeve O'Meara, chief executive officer; and Siobhan Nolan Mangini, president and chief financial officer. Maeve and Siobhan will offer their prepared remarks and then we will open the call to take your questions. Our press release, webcast link and other related materials are available on our website.

This call contains forward-looking statements regarding our trends, strategies and the anticipated performance of our business, including, but not limited to, our guidance for full-year 2019, new sales, retention of existing customers, gross margin and operating expense trends, future cash position and the impact of management changes on the company's performance. These statements were made as of July 30, 2019, 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 July 30, 2019, 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 today's 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. Finally, today's presentation also includes certain non-GAAP metrics such as non-GAAP gross margin, operating expenses, operating loss and net loss 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 today's call.

With that, I'll turn the call over to Siobhan Nolan Mangini, Castlight's president and CFO. Siobhan?

Siobhan Nolan Mangini -- President and Chief Executive Officer

Thank you, Gary, and thank you everyone for joining us on today's call. Today, we made a series of important announcements regarding new leadership, expansion of our strategy and adjusted guidance. Over the last two years, the Castlight team has made significant progress on building a differentiated health navigation platform that delivers on the triple aim of reducing healthcare costs, improving outcomes and engaging users. First, we delivered our Engage and Complete products, which is scaled to support over six million lives in aggregate since January 2018, and are now nearly 60% of ARR.

Second, we improved our operational capabilities significantly. As a key example, we are successfully migrating customers from our legacy wellbeing platform, all while exceeding customer expectations. In parallel, we have delivered operating leverage while also investing in key areas: our products and our customers, which speak to our financial discipline. However, we have not converted our product and operating strengths into consistent growth and the board of directors has responded with management changes.

The Board believes that these will enable us to take better advantage of our clear leadership in healthcare technology and increase accountability to our fellow employees, customers, partners and shareholders. Today, Maeve O'Meara previously EVP of product and customer experience has been promoted to CEO. Maeve is an excellent choice to lead the company given her deep product expertise and leadership in developing our transparency, personalization and health navigation offerings. Additionally, Maeve is a thought-leader in our industry and well-respected by our partners and customers, and has led our relationship with Anthem.

I've worked with Maeve since 2012, and I have many words to describe her. She is a builder. She is tenacious, and she is passionate about improving healthcare through technology. Maeve brings an incredible understanding of our products, a track record of building teams and hitting deliverables, and a clear vision of how we can leverage our product to transform healthcare.

Maeve is an innovator, and I believe in her strategic vision. And in my role as president and CFO, I'll partner with her to execute on a go-forward strategy. Maeve will share her vision for Castlight and our go-forward plans, but first I'll review our Q2 financial results and revised outlook in more detail. After that, we'll take your questions.

Second-quarter financial results were roughly in line with our plans across revenue, gross margin and operating expense. However, we fell short of our growth goals. Annualized recurring revenue or ARR, at the end of the quarter was $142 million, down approximately $12 million sequentially. This was primarily due to two factors.

First, sales were behind plan as we did not generate meaningful sales from new customers in the quarter. The pipeline continued to track our expectations, but conversions lagged. We have opportunities to improve. Second, we experienced elevated out-of-period turn in Q2, driven primarily by customers of Care Guidance, our product that combines transparency and data-driven personalization.

Despite the measurable ROI Care Guidance delivers, a set of customers are defaulting to free check-the-box offerings, particularly from large payers. That said, we continue to see demand from a core set of customers to understand the value of our robust health navigation offering. We've had several existing customers expanded to our full health navigation suite, which now accounts for nearly 60% of our total book of business. As we've launched Complete, we have prioritized how we measure and understand value for our users and our customers.

With high engagement and user satisfaction for Complete, we have demonstrated continued value post-launch to our Complete customers across key pillars, including program utilization and cost of care reduction indicators. Due to the combination of lower direct sales, customer-driven launch timelines and lower expected revenue from Anthem as a customer, we are lowering our 2019 guidance ranges as outlined in today's second-quarter press release. We now expect revenue between $140 million and $145 million, non-GAAP operating loss between $8 million and $13 million and non-GAAP loss per share between $0.06 and $0.09 based on 145 million and 146 million shares. Based on this updated guidance, we now expect 2019 cash used in operations to be in the range of around $10 million.

We've successfully scaled our health navigation offering improved operational capabilities and instilled financial discipline, but there is a disconnect between these gains and our financial performance. We believe we have a go-to-market challenge not a product challenge and we are taking decisive action to address this. We remain committed to serving large employers and we are making changes to improve our execution to address their needs. Further, we can do more with our technology that we've already built.

We can both serve large employers and address the larger healthcare market opportunity and the best person to lead us in this expanded strategic direction is Maeve. For a deeper discussion of these changes and our expended strategy, I'd like to turn the call over to Maeve O'Meara, CEO of Castlight Health. Maeve?

Maeve O'Meara -- Chief Executive Officer

Thank you all for joining us today. I want to thank Siobhan for her partnership over the years and her pivotal role in bringing operational excellence and financial discipline to Castlight. Siobhan has proven herself as both a capable and inspirational cross-functional leader. I couldn't choose a better person to serve as president of Castlight.

She will be a great partner as I focus on leading the commercial technology and product aspects of the business. Siobhan and I agreed on the company's key strengths and differentiators and believe we can execute better to leverage our assets and improve growth. Since this is my first call, I'd like to take a minute to introduce myself and share my point of view on Castlight's current state, including a review of the lessons we've learned and our plans to improve the business. I'll then discuss our broader strategic vision for the company and our priorities going forward.

Since joining the company in 2010, I've been deeply passionate about our mission to use technology to empower consumers to make better health decisions leading to better outcomes, lower cost, and a better overall experience. I've had the opportunity to learn at every stage of Castlight's growth from our first customer launch to the scale we've achieved today. I've led the strategy design and development of our products and am thrilled to have approximately 20 million lives with access to our technology. In June 2018, I took leadership of our customer experience teams, which helped me further deepen relationships with our customers and channel partners.

I'm excited to lead Castlight as I believe we have a massive opportunity to help address the fact that people are still struggling with how to navigate healthcare. We believe Castlight is well positioned to succeed and reignite growth due to a set of key assets. First and foremost, it starts with our people. We've assembled a tenacious resilient team with a deep understanding of the complex U.S.

healthcare landscape and a commitment to Castlight's mission. Second, Castlight is highly differentiated in data, technology and product. Our team has spent a decade developing the data foundation that includes one of the most comprehensive set of cross carrier data pipelines in the industry and incredibly robust set of engagement data across digital health ecosystem partners and unique proprietary data on user search and engagement around healthcare consumerism. We have used our data foundation to create products that have demonstrated market-leading behavior change and cost of care impact.

As we evaluate how we're doing against the triple aim, we see a product that has clearly improved experience as evidenced by high utilization and high NPS scores, a product that has improved outcomes for example by doubling the use of appropriate preventive care and ultimately a product that has consistently lowered hard medical spend by 1.5% to 2% across 200-plus customers. In addition, the underlying technology and proprietary data assets have enormous opportunity to create value outside our own app in new markets. The third asset is our innovator customer base. The employers we serve are more than customers, but partners with a long track record of incubating innovation and catalyzing systemic change.

Many of our customers are the vanguard of change agents and critical partners for future innovation. This combination of team, technology and customer base has enabled us to deliver value for millions of users. It is also these assets that led to our deep and productive partnership with one of the largest health plans in the country using our technology to support their customers and members. That said, we have not done enough to leverage these assets.

And over the last two years, we've learned some valuable lessons across the business. I'd like to discuss those lessons, and our plan to improve. Let's start with employers. As a pioneer in health navigation, we expanded our product in future set to sell into a broader set of employers.

In adding well-being through the Jiff acquisition, we had to divert significant resources to build out capabilities, and more significantly support the legacy platform. We had a diluted market message. And ultimately, we tried to be too many things to too many people. Going forward, we are not energized to support large employers on health navigation.

With legacy well-being migrations, largely behind us, we can double down on co-innovation that drives lower cost of care, better outcomes and an improved user experience. From a go-to-market perspective, we will simplify and improve the price value equation of our packages. We believe we can show immediate value, to both our well-being customers, with deeper personalization and to our Care Guidance customers by enabling integration with our digital health ecosystem. Beyond employers, we've spoken in the past about driving growth, through new channel relationships.

Based on our Anthem partnership, we explored adding new health plan partners with a similar model. In this process, we learned there is significant health plan interest in our core technology, but a need for an embedded experience, that covers the full population including the fully insured membership. Fortunately, this is something our technology does today. But there is an urgent need to improve our go-to-market motion in this area.

Health plans are not purely channel partners, but also customers, who seek to benefit directly from our technology. We have a clear opportunity to respond to this demand, by creating the appropriate focus and flexible packaging to ensure we meet plans where they are on their technology journey. We see signs of the technology we have been pioneering, has become a must-have for health plans. And we need to capitalize on our investment.

One of our other lessons has been around, how to maintain a heads-up approach to innovation with a heads-down approach to execution. We were focused on scaling and building operational muscle in the organization, and had not explored ways to leverage our technology in new markets. The shift to value-based care, the introduction of alternative delivery models, and payer-provider consolidation has created demand for healthcare data infrastructure that provides information on the consumer's health, and enables steerage to higher quality, lower cost providers. This is the core of what we do.

Our architecture is services oriented, so we can expose the technology services that support our current offerings. And power user experiences in new buyer categories, such as retail pharmacies, labs, telehealth providers and more. Going forward, we are opening the aperture of our business to serve new markets, while focusing our product footprint to capitalize on our strengths. This means we're expanding our strategic vision and focusing on the following priorities over the next 12 months.

Employers, we will build on the success of our complete launches and amplify our differentiators like steerage, data-driven personalization and our open ecosystem across all packages, to deliver measurable behavior change. Put simply we need to create more value for our existing customers. And make our value proposition much clearer to prospects. Payers, we're excited to put more focus on serving health plans.

Our strategy is to leverage our existing differentiated capabilities, to power an embedded experience across all health plan segments with a robust buy-up solution for the ASO segment. New markets, we are pursuing partnerships that validate the broader applicability of our healthcare data infrastructure and value-add capabilities. To be clear, this thesis requires further validation but we are confident in this. Health care decisions are being made and being influenced in many ways and in many places, providing richer information at those moments can only drive greater value across the system.

We are acting with a sense of both urgency and a sense of purpose. The priorities I described will allow us to better capitalize on the strength of our technology, enabling us to better serve large employers, drive scale with health plans and expand our addressable market. We believe this will flow through our financial performance, resulting in more consistent growth and a return to sustainability. I'm excited about Castlight's future, but I'm also acutely aware of the burden of proof needed for our stakeholders and shareholders.

We understand the need to establish credibility with our stakeholders. And we know that happens, one customer, one partner, one proof point, one quarter at a time. We have an incredible set of people products and customers. The opportunity is clear.

I'd like to thank the entire Castlight team for their commitment, creativity and courage and tackling the enormous challenge of changing healthcare. I also look forward to meeting investors and analysts and updating you regularly on our progress. We have work to do, but our technology strengths align with the massive need across the healthcare ecosystem and we're motivated to capitalize on this opportunity. Thank you.

Operator, we'll now take questions.

Questions & Answers:


Operator

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

Jeff Garro -- William Blair and Company -- Analyst

Yeah. Good afternoon, everyone. Thanks for taking the questions. Maeve and Siobhan congrats on the new role.

With that would like to ask about the strategic vision of expanding from employers to payers and other new markets and maybe on some of the nuts and bolts of that. There's likely some costs in R&D and sales and marketing to fulfill that vision. So maybe you can walk us through thoughts on incremental investment and how that plays against the progress over the last 12 months to reach profitability and any kind of rough timing on ability to deliver a revenue impact from those initiatives?

Maeve O'Meara -- Chief Executive Officer

Sure. Thanks for the question, Jeff and I see here from you again as well. So I'll break them into two pieces, which first I'll talk about our focus on the health plan and then I'll talk a little bit about our focus on point of care opportunities. So the core thesis here is really about taking the technology that we have today and applying it in new markets.

So the reason that we're focused on the health plan opportunity is that there are a lot of tailwinds specifically some of the macro trends around rising cost of care, demands for consumer experience, the competitive dynamics between plans and then of course the legislative and policy pressures for transparency have created enormous interest from plans and we're confident that there is a match between our technology and their needs. So that's the reason for the focus there. And to your question on resourcing, we do feel that given our services-oriented architecture that we're in a strong position to be able to move quickly and implement that with plans without a significant investment. I was very close to the Engage investment and it is really taking technology we have and packaging in different ways.

Siobhan Nolan Mangini -- President and Chief Executive Officer

And thanks, Jeff as it relates to the operating model, we are keeping the same long-term targets that we've talked about where we've obviously continued to over-invest as an innovation. So you can see this in the P&L, R&D continues to be an area that were significantly over-invested relative to our long-term targets of 20% to 24%. We believe it's very important to continue to innovate and to fund innovation and growth. And so what we're excited about is as we're moving through these migrations and then as we made great progress with these migrations it will free up capacity over the next 6 to 18 months so that we can continue to maintain that investment, but then deploy it into these new areas.

So I would say, operating model remains the same as we've talked about in the past and we've already hit our long-term targets actually in sales and marketing. But in R&D you're going to continue to see similar levels of investment to what we've had in the past several quarters.

Jeff Garro -- William Blair and Company -- Analyst

Got it. That helps. And a follow-up with a more near-term question on the guidance revision. I was hoping for a rough breakdown of that $13 million reduction between the points you mentioned in the release the lower in the prepared remarks the lower direct sales the changes to launch timelines and then lower Anthem revenue.

Siobhan Nolan Mangini -- President and Chief Executive Officer

Absolutely. So I think overall it's just worth noting that our philosophy here is to have a conservative approach to our guidance and that's what we've done with the guidance that we shared today. Let me start the year. We have about 90% of our revenue live and the variances driven by actually the things that I talked about today inter year.

It was actually very evenly distributed between those three factors that's $13 million difference. The first was plan launches of customers who had already signed and had product launching throughout 2019. We saw customers push launch dates for various idiosyncratic reasons many times related to their benefit strategy selecting a behavioral health vendor for example. We also had inter-year bookings to revenue conversion that we expected from Q1, Q2 sales that we're going to launch inter year.

Given we're behind our plans particularly on the direct side in the first half of the year that is driving the other piece of lower revenues in the second half. And then, finally, we have capabilities that Anthem pays for outside of Engage and we expected growth in 2019, but due to timing and prioritization of work inside Anthem, we have less growth than expected. So as a result you're seeing a relatively even distribution of revenues from the first half to the second half and clearly our number one priority here and you can hear from Maeve's vision is to restore growth and we're excited to do that.

Jeff Garro -- William Blair and Company -- Analyst

That helps. One more follow-up there, I think the direct sales bucket you've talked about the pipeline and maybe a possibility for a rebound there, but the other two, the delayed timelines and the Anthem revenue, can you help us translate that into what's at the end of second-quarter ARR? And how that might translate going forward outside of net new sales?

Siobhan Nolan Mangini -- President and Chief Executive Officer

Just to make sure I'm understanding that you're asking effectively like what's in ARR but not yet launched or would you mind just clarifying that...

Jeff Garro -- William Blair and Company -- Analyst

Yes, absolutely. To clarify, I guess, I'm asking the guidance reduction is all of that baked into the kind of go-forward run rate revenue expectations that I typically think of as being represented by ARR.

Siobhan Nolan Mangini -- President and Chief Executive Officer

Yes. OK. Absolutely great clarifying question. So all three of those are incorporated into ARR.

So these are customers that have already been signed, but not yet launched. There is -- I would say two handful of the customers that we're still yet to launch. To your point, the booking is clearly not an ARR and then the same thing with the Anthem as a customer. So that is incorporated into the $142 million of annual recurring revenue that we had at the end of Q2.

And that's what I really think of and clearly that's what you're question is about as our best predictor for future growth, when you look forward into subscription revenues let's say five, six quarters in advance.

Jeff Garro -- William Blair and Company -- Analyst

Great. Thanks again. I'll jump back in the queue.

Operator

Your next question comes from Charles Rhyee with Cowen. Your line is open.

Charles Rhyee -- Cowen and Company -- Analyst

Yes. Thanks for taking the question. If we look at the -- obviously the ARR reduction you talked about it being sort of evenly distributed across those three buckets. Is our target of 60% of our ARR coming from direct sales? Has that changed at all because of what's happening? Or is that still the goal? And then secondly, you talked about greater-than-expected churn.

If I recall and forgive me I don't have the number right in front of me, your target was getting down to it was like 15% of customers from transparency only. Is that now lower? Is that expected number now expected to be lower going forward? Maybe help just those three parts first.

Siobhan Nolan Mangini -- President and Chief Executive Officer

Yes. So the first thing I do want to clarify is, I was giving the drivers of the guidance reduction which is revenues for the year. When you're asking which I think your question actually was on what was the driver of the ARR reduction in -- the quarter-over-quarter ARR reduction. And that was two components.

It was primarily driven by elevated churn and I think we should double-click on that in just a minute and then lower-than-expected sales. So on the question I think that you had around like where was that churn coming from what we saw was really elevated churn on Care Guidance. As a reminder that transparency plus personalization that was about three quarters of the churn that we saw in Q2 and what we did see was kind of a default motion happening toward going to free check the box solution. Clearly, we have an opportunity to improve.

In terms of your very specific question on where this transparency fits, transparency is about 10% of ARR right now. Transparency and Care Guidance is about a quarter of ARR in total. What I think makes some sense is Maeve given her experience can share her thoughts in terms of what are we going to do or where can we improve in terms of customer retention.

Charles Rhyee -- Cowen and Company -- Analyst

So before we get that can I just quickly ask you -- I apologize, but the difference between the 10% that's just transparency versus what you are talking about here. Was that not contemplated where we are -- like we are experiencing the churn issue last year coming into this year? Was that something a little bit different than what we're talking now?

Siobhan Nolan Mangini -- President and Chief Executive Officer

Yes. And I think this is what Maeve can talk about. So yes, it was not fully contemplated because this was a cohort of customers. We started with transparency had upgraded to using data-driven personalization.

I think, frankly the value prop of innovation was really high at that point. And when I look at the customers that we have you can actually see this very interesting set. Like when you look at our top 20 customers 75% have gone into health navigation, all the two have been up-sell. So there are customers who want to be on this innovation journey that's what we thought was happening with care guidance.

But I think we have to earn the right to innovate with them. And so it was -- I think this was something we were not expecting to your point a year ago in terms of happening with that care guidance cohort.

Charles Rhyee -- Cowen and Company -- Analyst

OK. Understood.

Siobhan Nolan Mangini -- President and Chief Executive Officer

Great. And so maybe I will just have Maeve because she has actually been closer to this in many ways just talk about what we think we can do in terms of, frankly, winning back the trust and the right to innovate with this cohort of care guidance customers, but other customers frankly across the booking business as well.

Maeve O'Meara -- Chief Executive Officer

Sure. Yes. So I think in my experience working and partnering with our customers the things that we need to be doing to have a healthy book of business over time really down -- boil down to three things. So we need to be delivering incredible value.

We need to be continually raising the bar with ongoing innovation, which is what Siobhan is highlighting with the case with our care guidance customers and then we need to have strong partnership at every level of the organization. So when those three things are in place, we are in good shape. The distraction in the business that we've had over the last couple of years did take us away from executing on those three dimensions. The good news is that with the migrations largely behind us, we have both the focus and capacity to execute on those dimensions.

But as Siobhan mentioned, the care guidance customers were on that journey with us and the pace of innovation and, frankly, communication of that was lagging and that was really what led to them to default to the health plan solution.

Charles Rhyee -- Cowen and Company -- Analyst

I see. OK. That's helpful. You talked about gaining the trust of your clients that sort of earned the right to be innovative with them.

Is there anything specifically that's happening, I mean, in terms like what would choose them not to stay with you in this case? Is it where you -- I mean, I guess anything in terms of like implementation challenges or not meeting sort of milestones like what would also make someone say, you know what at this point, I'm going to go do whatever might meet my main payer and is got something, and I'd just like to understand.

Siobhan Nolan Mangini -- President and Chief Executive Officer

Well, what is interesting is, no, it's not an implementation and specific thing or a technology clutch. I think this is around value and continuing to drive toward this what we call the triple aim of value and demonstrating value over time, which is where you're probably hearing the tenor shift slightly Charles toward how do we really focus on driving more value across specific pillars and clearly articulating that as well to these customers. And so that it's very, I would say, clear to them in terms of the value that we're receiving.

Maeve O'Meara -- Chief Executive Officer

Yes. I'll just add that in the experience sorry, Charles to cut you off, but in our experience with the care guidance customers, they had gone as Siobhan mentioned on a journey with us from transparency to care guidance, which meant that we were adding personalization. Their expectations were a fast follow-on expanding our personalization engine, more innovative network and planned steerage tactics, and those are things that due to some of the resource redirection that we had during the acquisition, as well as building out Engage that we weren't doing. And I think that that each time going as we talked about continuous innovation and in a partnered way wasn't there.

And had we've been doing that, we don't believe that they would have been deep, also, into the health plan solution.

Charles Rhyee -- Cowen and Company -- Analyst

I see. My last question then is here sorry, maybe you mentioned, it's not a product issue, it's a go-to market message issue. Is there any concern sort of that the market itself doesn't understand? Is it more like the market maturity issue? And is that something where you talk about sort of your current customers are sort of innovators like they are early adopter types, but when we think about sort of the mid-part of the curve here in terms of the people who kind of follow after. Is this the big challenge -- is this a challenge that we're facing in terms of trying to get people to understand the value then?

Maeve O'Meara -- Chief Executive Officer

Yes. I would say, it's a really unfaithful question and it's exactly what we're up against Charles. So I do spend a ton of time with customers' prospects. I also sit on the board of the Cost Institute of the National Business Group on Health and a lot of our discussions are exactly what you're highlighting, which is this need for health navigation and there is clearly a lot of attention and focus, but -- and so we are confident the market is taking shape and there are tailwinds from the broader digital health ecosystem of point solution.

But it absolutely still is developing. The good news is we feel good about our ability to win in that market. So, given the proof points that we continue to generate off of Complete so two times higher program utilization, 25% reduction in ER utilization, 20% higher search rate, there is really exciting proof points coming off of Complete. To your point, what we need to be able to do is package and communicate that value to the customers in order to be successful since we are still in the early innings of this market.

Charles Rhyee -- Cowen and Company -- Analyst

Great. Thanks. I'll jump back in the queue.

Operator

Your next question comes from Jamie Stockton with Wells Fargo. Your line is open.

Jamie Stockton -- Wells Fargo Securities -- Analyst

Hi. Good afternoon all, guys. Thanks for taking my questions. I guess maybe the first one just on the Q1 and Q2 sales than maybe you had previously anticipated.

The selling season does kind of extend into the third quarter at least that's my understanding. Could you talk about, when you said that the pipeline continues to be relatively robust is that something that you think might translate into better selling in the third quarter? Or is this, an expectation that maybe these are customers that are going to be good prospects next year, but not so much this year?

Siobhan Nolan Mangini -- President and Chief Executive Officer

Yeah. It's a good question. And just a preface, we did say we wanted a big change on the direct side of the business. And, obviously, the conversion rates lagged in the first half of the year.

And I certainly want to be conservative in terms of what I'm saying at this point. We do actually see things progressing, through the pipeline, both on the channels and the direct side of the business, which is great to see. But at this point, I think our voice is we just really need to make sure that we execute. And have those conversions actually moving to the pipeline.

But I would say, we are still in to your point the second half of this year. And Q3 is always important decision-making cycle within benefits. And we're playing very hard to make sure that we can actually get more customers on to Complete and on to Engage and think we've got some shots.

Jamie Stockton -- Wells Fargo Securities -- Analyst

OK. And then, I guess, just as far as -- I get with kind of all the works that happened around integrating, Jeff, and the features that that brought to the table and coming up with the Complete platform that maybe there was a modeled message as far as employers were concerned. If I'm an employer who is not a Castlight customer and maybe I was a prospect before, and I'm just still a prospect, what is that messaging now versus what it was before? I mean, can you give us some sense for what is really falling by the wayside, to allow you to have a more crisp kind of delivery of what you guys bring to the table than the way that you were trying to communicate it before?

Siobhan Nolan Mangini -- President and Chief Executive Officer

Yeah. So, it's interesting actually think you're hitting on a real critical piece here. And,frankly, it's something I actually think we have a real opportunity to improve. And Maeve actually talked about this trying to do too many things, too many people, for too many folks.

And I actually think, it's alluded the message that we are trying to span across multiple categories. And so part of what the vision that we've been talking about today is, how do we get much crisper on health navigation, focusing on areas like steerage, improving quality of care. And I think it starts with the value pillars we talked about. It's also tightening up the messaging.

I think that's something that really a top priority for us over the next 90 days. Frankly, as we're diving into how to improve the commercial go-to-market execution overall, is how can we make sure that the messaging the specific area is crisp and clear. I don't know if you have anything to add.

Maeve O'Meara -- Chief Executive Officer

Yeah. I think that's exactly right.

Jamie Stockton -- Wells Fargo Securities -- Analyst

OK. And maybe just one more, when you say improving steerage, like what needs to happen for that improvement to actually occur? Like, is there any incremental data that needs to happen? Is there incremental messaging that you need to do to employees of these employers like on that -- on a day-to-day basis, as users are using the platform? What needs to happen in order for that to occur?

Siobhan Nolan Mangini -- President and Chief Executive Officer

Sure. It's a great question and I'd love to dive into it. So steerage is an incredibly important value prop and the way that think about that is getting people to the right care at the right provider. And we've done a lot of work over the last really six months to 12 months around incorporating and doing a better job communicating quality to our users and thinking about things like referral patterns and really making sure that we're directing to the right provider for the right person, so this is things like connecting someone who has diabetes to a provider that has a Bridges to Excellence distinction in diabetes that's just a simple example.

So in terms of -- we have laid kind of the fundamental groundwork to do that. In terms of actually improving upon that we view that as there's kind of two opportunities, number one is expanding our personalization engines that we have found that when we proactively engage users, who are much more effective at steerage that's how we've seen that two times increase in physical therapy for the musculoskeletal population as an example. But the other area that I'm excited about that we're exploring is actually leveraging our data to selectively add higher touch capabilities and moments in some of those moments that matter to complement our digital solution. So that's another opportunity where we think that right now a lot of our savings are coming from the low- to moderate-risk acuity populations and we believe that there is an opportunity to better serve the moderate to risk -- moderate- to high-risk populations by incorporating some of those higher touch capabilities selectively.

Jamie Stockton -- Wells Fargo Securities -- Analyst

OK. Thank you.

Gary Fuges -- Head of Investor Relations

Yeah.

Operator

Your next question comes from Richard Close with Canaccord Genuity. Your line is open.

Richard Close -- Canaccord Genuity -- Analyst

Great. Thanks. Congratulations on, I guess, the new positions. I was wondering if you could just go over the drivers for the revenue guidance change again? Not sure I fully understand the specifics there and maybe you could just go over that.

Siobhan Nolan Mangini -- President and Chief Executive Officer

Yeah. Absolutely. It's great to talk with you Richard.

Richard Close -- Canaccord Genuity -- Analyst

Thank you.

Siobhan Nolan Mangini -- President and Chief Executive Officer

So this is for the revenue guidance specifically what drove the guidance down. And there was three factors. So the first was it was planned launches of customers who had signed. So this is I think to Jeff's question, it's in ARR, but they had products that were going to launch throughout 2019.

There are a few handful of customers who either had specific products that they decided to adjust the time line for benefit communications or benefit decisions. So it's an idea like maybe you need to have a new behavioral health carve-out vendor. If you're launching elevate or perhaps you want communications from the Castlight launch to go out on a slightly different time line than we initially anticipated at the beginning of the year that's first bucket. The second bucket was there were bookings that we were forecasting in the first half of the year that we thought would end up launching in -- and contributing to revenues in the second half of the year.

And we ended up both with lower sales, but also longer timelines associated with that. So, lower bookings below plan and then longer timelines launching into rev rec. And then the third area is there are some capabilities that Anthem pays for outside of Engage. So this is Anthem effectively as a customer, they're using particular products that we have and we had expected growth within the year.

And due to timing and prioritization this is not -- this is just within their own world Anthem we have less growth than we had actually put into the revenue guidance. So those three factors relatively equal distribution in terms of contribution to the adjustment that were driving the change in revenue guidance and clearly, we're focused on making changes as we look forward.

Richard Close -- Canaccord Genuity -- Analyst

OK. And then I guess a follow-up to that. Maybe just from an overall industry perspective, do you think employers and payers, I guess, are focused on other areas, let's say, maybe telehealths or diabetes management, which you just brought up to name a few. Do you think that translates offerings are maybe viewed less important with the end market now that they have strategies focusing on other areas?

Siobhan Nolan Mangini -- President and Chief Executive Officer

Well, I think I'm happy to add a couple of thoughts and I think I've made a very close to those, just in the sense of -- I think that this is a platform sale, which is just, I think, what happens when we are a platform, which we are for 60% of our business. And like I said, we've seen it quite successful when it happens, you end up being that infrastructure for a benefit design, and it's sticky and it's very powerful, but the sale itself is a complex sale and it can take time. And so, I think that's really one key thing that we're seeing in terms of the conversion and the pipeline. But I don't know if there's anything you'd want to add.

Maeve O'Meara -- Chief Executive Officer

Yeah. No, I think Siobhan mailed it, which is actually telehealth and digital diabetes management, digital therapeutics. All of this can be tailwinds for us, but we have found that the platform sale does involve a lot of different stakeholders. And as we mentioned earlier that the need for it, and the belief and confidence in its ability to drive that program utilization, which we are seeing in our Complete proof point we are still early in that market.

Richard Close -- Canaccord Genuity -- Analyst

OK. And I guess a follow-up to that question would be is there any thoughts in terms of changing the pricing model of the product, to maybe like a per active user? Or any thoughts in and around that that maybe would demonstrate more value to the customer? Or any thoughts in and around that?

Siobhan Nolan Mangini -- President and Chief Executive Officer

Well, so you're going to put in this ROI guarantee, which is effectively because we do have a great data in terms of the reduction of medical spends. I do think -- it's nothing we're doing right now, but I do think there is an opportunity for shared savings model that is not seen in other parts of the industry, obviously, when you are effectively taking part of what the cost savings are that we would be very interested in testing out. I actually think that the high touch models that Maeve was talking about are going to be a key driver of that. We'd love to see cost reduction frankly multiple levels above the 1.5% to 2% that we're seeing right now.

So as we're seeing that you could imagine, we're -- you're doing some sort of shared savings model. And so, I would say, it's something we actually have been spending time on in terms of what's the financial model and pricing model that you can do with customers. And, frankly, as we're going into new markets that as Maeve was talking about, those payers that is for other points of care, I do think that there is going to be different model incidence based, for a lack of better word, utilization base like you're talking about. It's a very natural area that we would go as we're testing into new markets.

So it's absolutely top of mind for us right now.

Richard Close -- Canaccord Genuity -- Analyst

OK. And then my final question is just go back to maybe Charles' question in and around Care Guidance I think it was. I'm curious why that's just suddenly seem to pop-up in the second quarter? And then thoughts of is there a risk that this happens again in the second half? Or is it just behind us now?

Siobhan Nolan Mangini -- President and Chief Executive Officer

Yeah. I mean I think there is a natural decision just in terms of the cycle. Maybe I'll start there, and then I can talk about specifically with Care Guidance and what we're learning. I would say there is a decision-making cycle that ties to the benefit here, and our data budgeting cycle frankly, which is right now when people are typically planning and that's when we get these sorts of notifications.

I think with Care Guidance, it clearly was a mess for us in terms of thinking that there was a level of stability, and frankly, co-innovation that we clearly can I think improve quickly by delivering more value to this customer set and the customer base. As I mentioned, they are in the mid-teens in terms of the percentage of ARR for Care Guidance specifically right now. I think there is more value that we can be delivering immediately to that segment, and we've been working on seeing what we can do in terms of offering things like our ecosystem integration's capabilities, that's on the well-being side around that and actually have that set of customers seeing the benefits of that right away. And I think what we're in the midst of is actually, I would say, implementing against the principles that Maeve was talking about earlier what creates a healthy book of business.

And I think that will be the clearest thing that will drive stickiness, and maybe you want to talk about what the actions are that you are starting.

Maeve O'Meara -- Chief Executive Officer

Sure. Well, I'll just make a general comment. Siobhan talks about timing. So one of the things that we are observing is that along with the consolidation in the payer space that there is a trend among a set of employers toward carving in a broad set of solutions that spans medical pharmacy, behavioral health EAP, and their digital and care management solutions.

So when we go back to those principles of having deliver incredible value and continued innovation and strong partnership, those are even more important to counteract that gravitational pull that's always been there, but I would say has been more present, and then because of our kind of distraction and not investing as heavily there that, I think that that's really what happened in Q2.

Richard Close -- Canaccord Genuity -- Analyst

OK.Thank you.

Operator

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

Frank Sparacino -- First Analysis -- Analyst

Hi, Siobhan. Hi, Maeve.

Siobhan Nolan Mangini -- President and Chief Executive Officer

Hi.

Maeve O'Meara -- Chief Executive Officer

Hi.

Frank Sparacino -- First Analysis -- Analyst

Just two for me. First is, can you just share where was John spending the majority of his time? And then secondly, could you talk a little bit on the sales order chart and specifically in terms of the leadership what it looks like today relative to six, nine months ago? I'm trying to figure out how much is turned over since, I guess, John's departure.

Siobhan Nolan Mangini -- President and Chief Executive Officer

Sure. Maybe I'll start with that and then we can talk about the time allocation. So we've had the same head of commercial, the entire time. I would say we did have -- and he has been representing both the channels and the direct sales organization.

So our Anthem relationship is there as well. I would say a year ago we did end up restructuring given the success we've seen with the channels and the ability frankly to drive higher efficiency and lower customer acquisition costs. And so we had a smaller team of direct sales folks of around 10 people and it's actually been relatively stable. It's a very highly tenured group of people and we still are around that same size team as over the past nine-ish months.

And to that specific question same thing on the solutions consultant side so you've got commercial direct, sales leaders, a channels team and then kind of a marketing and demand gen inside sales function that's been relatively stable since that adjustment on the restructuring. It's hard to speak exactly for in terms of John and the time allocation, I would say clearly there is the customer piece of things and relationships with some customers. They're -- obviously, as he realized quite a bit on the team in terms of the commercial side and then general operations I would say was an area of focus as well. But it's hard I would say for me specifically to comment on how he spends his time.

Operator

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

Brian Peterson -- Raymond James -- Analyst

Hi. Thanks for taking the questions. So wondering on the drop in ARR for a second. So I appreciate the color on the Care Guidance product.

I'm curious if those customers had any concentration with any particular payer? Or is there any other commonality between those customers outside of what products they were using?

Siobhan Nolan Mangini -- President and Chief Executive Officer

Yes. It's a great -- hey, Brian it's nice to talk to you. It's a good question and I would say, yes there was a thread of a -- I would say in particular a move to Raleigh with United. And so these are folks who predominantly had a primary carrier through United and the Raleigh product and they were defaulting into that solution.

That's where we really did see the most competition.

Brian Peterson -- Raymond James -- Analyst

Got it. And maybe just a follow-up. So the opportunities with payers longer term I think makes sense. I'm just curious how much of the integration with various payers that you've already worked with in the past is kind of pre-built? And how much might need to be worked on with the product to develop relationships with new payers over time? Thanks, guys.

Siobhan Nolan Mangini -- President and Chief Executive Officer

Sure. So I'll just start by saying that we do have huge conviction around the health plan opportunity and have seen just clear alignment around the health plan need and our technology in terms of how much of the existing data pipelines and how much of the existing technology can we use. So I have been deeply involved in building Anthem Engage. So I do have a lot of insight into how much of that is reusable how much isn't.

And -- the good news is that we do feel like with our flexible architecture that we are going to be able to expose many of the core components of our technology. So we aren't looking at a heavy R&D lift in order to support new plans and it's worth mentioning we do have data pipelines in just about 85% of carriers today. So that also gives us a strong data foundation with those health plans.

Brian Peterson -- Raymond James -- Analyst

Thank you.

Siobhan Nolan Mangini -- President and Chief Executive Officer

Sure.

Operator

[Operator instructions] The next question comes from the line of Steve Halper with Cantor. Your line is open.

Steve Halper -- Cantor Fitzgerald -- Analyst

Hi. I'm not sure if you covered this yet, but what happened during the quarter with the Anthem sales?

Siobhan Nolan Mangini -- President and Chief Executive Officer

Yes. It's a great question and actually, I think, Charles asked something kind of related and I don't actually know that I specifically addressed it. So, we've talked about having about 60% of our business direct, 40% from Anthem and that's where we're trying to generally on our book of business. In this specific quarter, the vast majority of our sales were actually through the Anthem channel.

So it is continuing to contribute to plan.

Steve Halper -- Cantor Fitzgerald -- Analyst

But didn't you call out lower sales to Anthem as one of the reasons for the shortfall?

Siobhan Nolan Mangini -- President and Chief Executive Officer

So this is -- and I realized this is probably sounding very nuanced displaying here, but there are -- so that's sort of Engage which is effectively a channel distribution relationship. What I was calling out was our capabilities that Anthem pays for as a customer. So this is outside of Engage and where there was revenue growth expected in 2019 in the second half that is part of the revenue shortfall. The actual sales on Engage continue to -- I think we've got very happy customers jointly on the Engage platform.

Steve Halper -- Cantor Fitzgerald -- Analyst

Got it. I understand it. Thank you.

Operator

[Operator instructions] Your next question comes from the line of Richard Close with Canaccord Genuity. Your line is open.

Richard Close -- Canaccord Genuity -- Analyst

Great. Thanks for taking the additional question here, just with respect to the second channel partner that you guys were targeting previously what are your thoughts about that going forward? I mean the idea was to get something possibly signed in 2Q or 3Q and that way you could be ready to go-to-market in 2020 for revenue generation in 2021. So what are the thoughts in and around another channel partnership?

Siobhan Nolan Mangini -- President and Chief Executive Officer

Sure. So as I mentioned we're incredibly excited about the opportunity. I will say that we have learned a lot in the last nine months. So just a couple of the things that we've learned.

So we've learned that this is a leadership-led sale. It requires a deep understanding of the product and a dedicated cross functional team. We've also learned that it means that we need to actually really listen to the needs of the plan and then package our technology accordingly which means that it isn't exactly a rents and repeat of an employer sale or solution. So the good news is that we do have the building blocks and we have the ability to package the technology.

So I'll be making this a top priority for myself personally and we do plan to move with urgency. We are standing as a focused team and definitely excited to share updates on our progress.

Richard Close -- Canaccord Genuity -- Analyst

OK. Thank you.

Operator

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

Charles Rhyee -- Cowen and Company -- Analyst

Yes. Thanks for taking the follow-up. Just maybe going back to some of your prepared comments you've talked earlier about too many things to too many people. You also talked about the opening the aperture sort of broadening sort of your strategic view here.

Maybe in the reverse though what would be some of the things maybe you're not going to be pursuing as you try to be a little bit more focused here going forward? And what are some of the things you were doing that you're finding that you're not getting probably the best return on p to continue investing in?

Siobhan Nolan Mangini -- President and Chief Executive Officer

Sure. So I talked a little bit on the employer side and I think that we have alluded to in many ways which we had a very diluted message and that's really because of the fact that where the market is really spanning across all the way from well being to healthcare high touch concierge. So because of the fact that the market spans a really broad care brass and comes and there is a lot of frankly ambiguity around the requirements for health navigation that because of that we were playing in a lot of different areas. So really our focus is going to be very specifically on winning in health navigation.

And so some of the things that we wouldn't be doing is getting in a complete feature war around some of the wellness capabilities or blowing out some of the higher touch wellness components in that direction because of the fact that our focus really is that health navigation and being the platform because we think it's stickier over time. So that would be one example. Another example of where we are thinking about making a change has been in the health plan go-to-market. We really were thinking about this primarily as a channel for ASO employers as opposed to really understanding this to be a broader solution.

So thinking about how to leverage some of the technologies that we are market-leading in and playing to our strength is another just key strategy going forward in our health plan go-to-market.

Charles Rhyee -- Cowen and Company -- Analyst

Great. Thank you.

Siobhan Nolan Mangini -- President and Chief Executive Officer

Sure.

Operator

That is all the time that we have for questions today. I'll turn the call back to the presenters for any closing remarks.

Siobhan Nolan Mangini -- President and Chief Executive Officer

Thank you for joining us on today's call. We have the technology, the relationship, but most importantly the team to lower costs, improve outcomes and deliver a better overall experience in healthcare. We're excited to leverage these strengths to execute against the market opportunity in front of us. I look forward to meeting you in the near future and to updating you on our progress.

Have a good evening.

Operator

[Operator signoff]

Duration: 57 minutes

Call participants:

Gary Fuges -- Head of Investor Relations

Siobhan Nolan Mangini -- President and Chief Executive Officer

Maeve O'Meara -- Chief Executive Officer

Jeff Garro -- William Blair and Company -- Analyst

Charles Rhyee -- Cowen and Company -- Analyst

Jamie Stockton -- Wells Fargo Securities -- Analyst

Richard Close -- Canaccord Genuity -- Analyst

Frank Sparacino -- First Analysis -- Analyst

Brian Peterson -- Raymond James -- Analyst

Steve Halper -- Cantor Fitzgerald -- Analyst

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