Castlight Health (CSLT) to Acquire Jiff
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Castlight Health, Inc. (NYSE: CSLT) and privately held Jiff, Inc. announced today their agreement to come together to form a single company. The combined entity will offer the most comprehensive health benefits platform in the industry, helping employers, as well as millions of employees and their families, manage their health benefits dollars more effectively. Together, the combined company will serve more than 240 customers, including over 70 of the Fortune 500.
Castlight pioneered health care transparency, and today helps employees make better health decisions by guiding them to the right program, care and provider. Jiff redefined the wellbeing industry with an exceptional, mobile-first user experience and the largest ecosystem of health partnerships available in the market. The combined platform will seek to improve every aspect of an employee's health experience: from staying healthy, to accessing care, to managing a condition. For benefits and HR leaders, the combined platform will make it more efficient than ever before to engage with employees, purchase and deploy a wide range of benefit technologies, and measure impact - enabling them to reap the benefits of lower health care costs and a healthier workforce.
"Despite all of the changes in healthcare that have happened and will come, one thing is constant: employers continue to provide healthcare benefits. Moreover, they care deeply that their employees engage in their benefits so that the returns on this huge investment are felt by all," said Giovanni Colella, M.D., co-founder and current chief executive officer of Castlight Health. "This is a tremendous challenge, and we believe the combination of Castlight and Jiff is uniquely positioned to solve it."
Jiff serves as a central hub for wellbeing and other benefit programs, with a single point of access for employees. Jiff's app-store approach integrates more than 50 health solutions that sync seamlessly with its back-end system. In addition, an employer can allow virtually any vendor to connect to the platform, whether or not Jiff has integrated with them in the past. Jiff then personalizes recommendations for each employee based on the most relevant tools for their health needs and preferences. This is all delivered through a user experience that brings together the latest advancements in incentive design, social theory, and game mechanics -- optimizing engagement.
"Jiff harnesses the power of digital health solutions and the related ecosystem, bringing it all together in a way that gets employees engaged. Combine that with Castlight's robust data assets and personalized messaging capabilities, which already have helped transform how employees make health decisions, and I believe we will create the industry leader for enterprise health benefits management," said Derek Newell, chief executive officer of Jiff.
In addition to having complementary technologies and client lists, Castlight and Jiff have established strong partnerships with major players focused on the health benefits industry. For example, Jiff has established successful channel referral relationships with Willis Towers Watson and Mercer, among others, while Castlight's strategic partnerships include Anthem and SAP. The combined company will be highly focused on leveraging each other's channel relationships to maximize growth and better fulfill these partners' respective goals.
"In 2015, we chose to collaborate with Castlight to bring their powerful decision support and engagement capabilities to consumers and employers. With this announcement, we will now be able to deliver an even more comprehensive solution to consumers across the full spectrum of care and expect the combined solution to be attractive to large employers and their employees," said Morgan Kendrick, president of Anthem Inc.'s national accounts business segment.
Castlight will issue approximately 27 million shares and options at the closing of the transaction to former Jiff equity holders, representing approximately 20 percent of the combined company on a fully-diluted basis. The issuance of up to an additional 4 million shares is contingent on the achievement of specific growth objectives for the Jiff business in 2017. The transaction is expected to close in the first half of 2017 following satisfaction of customary closing conditions, including approval from Castlight's stockholders with respect to the issuance of Castlight shares in the transaction.
Following the closing of the transaction, Castlight's president and chief operating officer, John Doyle, will assume the role of chief executive officer of the combined company. Jiff's current CEO, Derek Newell, will become president of the combined company, responsible for sales and marketing, research and development, and professional services, and will report directly to John Doyle. Giovanni Colella will continue his service with Castlight in the role of executive chairman of the board of directors, focusing on deepening key partner and customer relationships. In addition, effective upon closing the transaction, two members of the current Jiff board of directors will be appointed to the Castlight board of directors and one of Castlight's current board members, Ann Lamont, will step down.
"The transaction's structure and blending of our leadership teams reflect our strongly held belief in the complementary aspects of the combination. Indeed, we believe the combination of Castlight and Jiff will enable us to more quickly achieve our goals of platform expansion and accelerated growth on a larger revenue base," said John Doyle, current president and COO of Castlight Health. "This deal is truly transformational, and it supports why we are so excited about our combined company's potential. Employers are clamoring for consolidation of offerings and more comprehensive health benefits solutions, and our planned combination answers their call. We believe the combination of Castlight and Jiff will create substantial value for our stockholders, and tremendous growth opportunities for our talented employees."
Financial Profile of Combined Company
Castlight expects to report full year 2016 GAAP revenue of approximately $102 million, which is the high-end of its previously issued guidance range, and annualized recurring revenue (ARR) of approximately $122 million exiting the year. Jiff is expected to generate approximately $7 million in GAAP revenue for the full year 2016, with ARR of $17 million exiting the year. Jiff's ARR was up over 100% from the end of the first half of 2016, a reflection of their strong momentum in the market place during the year.
The combined company is expected to generate approximately $138 to $142 million in pro forma non-GAAP revenue for the full year 2017. The high-end of this range assumes Castlight contributes $123 million and Jiff contributes $19 million with no impact from purchase accounting adjustments. This would represent pro forma growth of approximately 27% to 30% for the combined company. Management believes the combined company will be well positioned to sustain this level of pro forma growth in 2018.
The fourth quarter and full year 2016 results for both Castlight and Jiff are preliminary in nature and subject to change based on the completion of the year-end close process. In addition, as part of the acquisition's close process, Jiff's accounting policies will be conformed to Castlight's, which could cause Jiff's actual historical results to differ from the preliminary results shared in this release. After the close of the transaction, Castlight plans to provide GAAP revenue guidance for the combined company after it has completed its valuation work and related purchase accounting considerations regarding Jiff.
Jiff has been in investment mode to support their rapid growth. As Jiff is integrated with Castlight, management expects to realize operating efficiencies which, when combined with an accelerated revenue growth profile, is expected to enable the combined company to reach cash flow breakeven by the end of 2018. Importantly, management expects the cash balance of the combined company will be $60 million or greater when this breakeven milestone is reached.
Castlight's financial advisor for the transaction is Allen & Company LLC, with Fenwick & West LLC acting as its legal advisor. Piper Jaffray Companies is serving as Jiff's financial advisor, with Gunderson Dettmer serving as its legal advisor.
Castlight Health will host a conference call to discuss the transaction today at 2:30 p.m. Pacific Time (5:30 p.m. Eastern Time). A live audio webcast of the conference call can be accessed through the company's Investor Relations website at http://ir.castlighthealth.com. In addition, an archive of the webcast can be accessed through the same link. Participants who choose to call in to the conference call can do so by dialing 1-877-201-0168. The conference ID number is 44384541. A replay will be available for one week at 1-855-859-2056, passcode 44384541.
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