Document and Entity Information

6 Months Ended

Jun. 30, 2015

Jul. 31, 2015

Class A [Member]

Jul. 31, 2015

Class B [Member]

Class of Stock [Line Items]

Document Type

10-Q

Amendment Flag

false

Document Period End Date

Jun. 30, 2015

Document Fiscal Year Focus

2015

Document Fiscal Period Focus

Q2

Trading Symbol

CSLT

Entity Registrant Name

CASTLIGHT HEALTH, INC.

Entity Central Index Key

0001433714

Current Fiscal Year End Date

--12-31

Entity Filer Category

Non-accelerated Filer

Entity Common Stock, Shares Outstanding

54,681,184

39,635,427

Consolidated Balance Sheets (USD $)

In Thousands, unless otherwise specified

Jun. 30, 2015

Dec. 31, 2014

Current assets:

Cash and cash equivalents

$ 31,533

$ 17,425

Marketable securities

132,905

175,057

Accounts receivable, net

11,048

11,097

Deferred commissions

3,956

3,675

Prepaid expenses and other current assets

5,960

3,476

Total current assets

185,402

210,730

Property and equipment, net

4,515

3,630

Marketable securities, noncurrent

0

6,220

Restricted cash, noncurrent

1,000

0

Deferred commissions, noncurrent

2,374

2,563

Other assets

3,692

131

Total assets

196,983

223,274

Current liabilities:

Accounts payable

4,180

3,217

Accrued expenses and other current liabilities

4,702

5,791

Accrued compensation

8,730

10,455

Deferred revenue

24,125

20,708

Total current liabilities

41,737

40,171

Deferred revenue, noncurrent

7,638

6,652

Other liabilities, noncurrent

1,208

261

Total liabilities

50,583

47,084

Commitments and contingencies

Stockholders’ equity (deficit):

Additional paid-in capital

404,412

393,397

Accumulated other comprehensive income

10

(40)

Accumulated deficit

(258,031)

(217,176)

Total stockholders’ equity (deficit)

146,400

176,190

Total liabilities, convertible preferred stock and stockholders’ equity (deficit)

196,983

223,274

Class A [Member]

Stockholders’ equity (deficit):

Common stock value issued

5

6

Class B [Member]

Stockholders’ equity (deficit):

Common stock value issued

$ 4

$ 3

Consolidated Statements of Operations (USD $)

In Thousands, except Per Share data, unless otherwise specified

3 Months Ended

6 Months Ended

Jun. 30, 2015

Jun. 30, 2014

Jun. 30, 2015

Jun. 30, 2014

Revenue:

Subscription

$ 17,278

$ 9,576

$ 32,184

$ 17,039

Professional services

1,232

957

2,277

1,870

Total revenue

18,510

10,533

34,461

18,909

Cost of revenue:

Cost of subscription

2,932 ¹

2,915 ¹

5,451 ¹

5,627 ¹

Cost of professional services

5,322 ¹

4,502 ¹

9,975 ¹

8,373 ¹

Total cost of revenue

8,254

7,417

15,426

14,000

Gross profit

10,256

3,116

19,035

4,909

Operating expenses:

Sales and marketing

17,641 ¹

14,947 ¹

34,104 ¹

31,507 ¹

Research and development

7,391 ¹

5,476 ¹

13,985 ¹

11,003 ¹

General and administrative

6,517 ¹

4,519 ¹

11,980 ¹

8,529 ¹

Total operating expenses

31,549

24,942

60,069

51,039

Operating loss

(21,293)

(21,826)

(41,034)

(46,130)

Other income, net

81

50

179

73

Net loss

$ (21,212)

$ (21,776)

$ (40,855)

$ (46,057)

Net loss per Class A and B share, basic and diluted

$ (0.23)

$ (0.24)

$ 0

Weighted-average shares used to compute basic and diluted net loss per Class A and B share

93,804

89,520

92,801

53,284

[1] Includes stock-based compensation expense as follows: Cost of subscription $67 and $35. Cost of professional services $450 and $280. Sales and marketing $2,074 and $1,152. Research and development $730 and $493. General and administrative $896 and $980

Consolidated Statements of Operations Parenthetical (USD $)

In Thousands, unless otherwise specified

3 Months Ended

6 Months Ended

Jun. 30, 2015

Jun. 30, 2014

Jun. 30, 2015

Jun. 30, 2014

Cost of subscription [Member]

Allocated Share-based Compensation Expense

$ 67

$ 35

$ 100

$ 39

Cost of professional services [Member]

Allocated Share-based Compensation Expense

450

280

875

420

Sales and marketing [Member]

Allocated Share-based Compensation Expense

2,074

1,152

3,825

2,326

Research and development [Member]

Allocated Share-based Compensation Expense

730

493

1,363

914

General and administrative [Member]

Allocated Share-based Compensation Expense

$ 896

$ 980

$ 1,923

$ 1,794

Consolidated Statements of Comprehensive Loss (USD $)

In Thousands, unless otherwise specified

3 Months Ended

6 Months Ended

Jun. 30, 2015

Jun. 30, 2014

Jun. 30, 2015

Jun. 30, 2014

Consolidated Statement of Comprehensive Loss:

Net loss

$ (21,212)

$ (21,776)

$ (40,855)

$ (46,057)

Other comprehensive income (loss):

Net change in unrealized gain (loss) on available-for-sale marketable securities

8

(41)

50

(40)

Reclassification adjustments for net realized gains on available-for-sale marketable securities

0

Other comprehensive income (loss)

8

(41)

50

(40)

Comprehensive loss

$ (21,204)

$ (21,817)

$ (40,805)

$ (46,097)

Consolidated Statements of Cash Flows (USD $)

In Thousands, unless otherwise specified

6 Months Ended

Jun. 30, 2015

Jun. 30, 2014

Operating activities:

Net loss

$ (40,855)

$ (46,057)

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

910

604

Stock-based compensation

8,086

5,493

Amortization of deferred commissions

1,659

2,244

Accretion and amortization of marketable securities

827

497

Expense related to warrant

0

2,499

Changes in operating assets and liabilities:

Accounts receivable

49

(5,327)

Deferred commissions

(1,751)

(1,369)

Prepaid expenses and other assets

(1,818)

(1,677)

Accounts payable

1,258

384

Accrued expenses and other liabilities

(3,169)

(1,203)

Deferred revenue

4,403

8,277

Net cash used in operating activities

(30,401)

(35,635)

Investing activities:

Restricted cash

(1,000)

101

Purchase of property and equipment

(1,693)

(967)

Investment in related party

3,125

0

Purchase of marketable securities

(18,958)

(162,175)

Sales of marketable securities

5,000

13,000

Maturities of marketable securities

61,553

8,000

Net cash provided by (used in) investing activities

41,777

(142,041)

Financing activities:

Proceeds from the exercise of stock options

2,826

1,628

Payments of deferred offering costs

0

189,943

Payments of deferred offering costs

(94)

(3,781)

Net cash provided by financing activities

2,732

187,790

Net increase in cash and cash equivalents

14,108

10,114

Cash and cash equivalents at beginning of period

17,425

25,154

Cash and cash equivalents at end of period

$ 31,533

$ 35,268

Organization and Description of Business

Description of Business

Castlight Health, Inc. ("Castlight") is a pioneer in a new category of cloud-based software that enables enterprises to understand and manage health care spending as a strategic business investment, and help employees and their families make more informed medical decisions based on factors such as cost, quality and patient experience. Our Enterprise Healthcare Management solutions allow our customers to conquer the complexity of the existing health care system by providing personalized, actionable information to their employees, implementing technology-enabled benefit designs and integrating disparate systems and applications. Our comprehensive technology offering aggregates complex, large-scale data and applies sophisticated analytics to make health care data transparent and useful. We were incorporated in the State of Delaware in January 2008. Our principal executive offices are located in San Francisco, California.

Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles (GAAP), for interim financial information and with the instructions to Form 10-Q and Article 10 of Securities and Exchange Commission (SEC), Regulation S-X. In the opinion of management, the information herein reflects all adjustments, consisting only of normal recurring adjustments except as otherwise noted, considered necessary for a fair statement of results of operations, financial position and cash flows. The condensed consolidated financial statements include the results of Castlight and its wholly owned U.S. subsidiary. The results for the interim periods presented are not necessarily indicative of the results expected for any future period.

The condensed consolidated balance sheet as of December 31, 2014 included herein was derived from the audited financial statements as of that date. The following information should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014. There have been no changes to our significant accounting policies described in our Annual Report on Form 10-K that have had a material impact on our condensed consolidated financial statements and related notes.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. These estimates include, but are not limited to, the determination of the relative selling prices for our services, certain assumptions used in the valuation of our equity awards, and the capitalization and estimated useful life of internal-use software development costs. Actual results could differ from those estimates, and such differences could be material to our consolidated financial position and results of operations.

Recently Issued and Adopted Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board (FASB) issued new accounting guidance Customer's Accounting for Fees Paid in a Cloud Computing Arrangement. This guidance is intended to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement, primarily to determine whether the arrangement includes a sale or license of software. The guidance will be effective for us beginning January 1, 2016. Early adoption is permitted. We have elected not to early adopt. The adoption of this guidance is not expected to have a material impact on our condensed consolidated financial statements.

In May 2014, the Financial Accounting Standards Board (FASB) issued ASU 2014-09 regarding ASC Topic 606, Revenue from Contracts with Customers. The standard provides principles for recognizing revenue for the transfer of promised goods or services to customers with the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance will be effective for us beginning January 1, 2018. Early adoption is not permitted. We are evaluating the accounting, transition and disclosure requirements of the standard and cannot currently estimate the financial statement impact of adoption.

Marketable Securities

At June 30, 2015 and December 31, 2014, respectively, marketable securities consisted of the following (in thousands):



	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
June 30, 2015
U.S. agency obligations	$	145,414	$	16	$	(5	)	$	145,425
Money market mutual funds	8,015		—		—			8,015
	153,429		16		(5		)	153,440
Included in cash and cash equivalents	20,535		—		—			20,535
Included in marketable securities	$	132,894	$	16	$	(5	)	$	132,905



	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
December 31, 2014
U.S. agency obligations	$	177,297	$	4	$	(44	)	$	177,257
U.S. treasury securities	5,580		1		—			5,581
Money market mutual funds	1,919		—		—			1,919
	184,796		5		(44		)	184,757
Included in cash and cash equivalents	3,480		—		—			3,480
Included in marketable securities	$	175,093	$	5	$	(41	)	$	175,057
Included in marketable securities, noncurrent	$	6,223	$	—	$	(3	)	$	6,220

Fair Value Measurements

We measure our financial assets and liabilities at fair value at each reporting period using a fair value hierarchy that requires that we maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:

Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2—Include other inputs that are directly or indirectly observable in the marketplace.

Level 3—Unobservable inputs that are supported by little or no market activity.

The fair value of marketable securities included in the Level 2 category is based on observable inputs, such as quoted prices for similar assets at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly. These values were obtained from a third-party pricing service and were evaluated using pricing models that vary by asset class and may incorporate available trade, bid and other market information and price quotes from well-established third party pricing vendors and broker-dealers. There have been no changes in valuation techniques in the periods presented. We have no financial assets or liabilities measured using Level 3 inputs. There were no significant transfers between Levels 1 and 2 assets as of June 30, 2015 and December 31, 2014. The following tables present information about our assets that are measured at fair value on a recurring basis using the above input categories (in thousands):



	Level 1		Level 2		Total
June 30, 2015
Cash equivalents:
Money market mutual funds	8,015		—		8,015
U.S. agency obligations	—		12,520		12,520
Marketable securities:
U.S. agency obligations	—		132,905		132,905
	$	8,015	$	145,425	$	153,440



	Level 1		Level 2		Total
December 31, 2014
Cash equivalents:
Money market mutual funds	$	1,919	$	—	$	1,919
U.S. agency obligations	—		1,561		1,561
Marketable securities:
U.S. agency obligations	—		175,696		175,696
U.S. treasury securities	—		5,581		5,581
	$	1,919	$	182,838	$	184,757

Gross unrealized gains and losses for cash equivalents and marketable securities as of June 30, 2015 and December 31, 2014 were not material. We do not believe the unrealized losses represent other-than-temporary impairments based on our evaluation of available evidence as of June 30, 2015.

There were no realized gains or losses during the three months ended June 30, 2015. All of our marketable securities at June 30, 2015 mature within one year. As of December 31, 2014 those securities with maturities greater than one year are reflected in the noncurrent portion of our condensed consolidated balance sheets. Marketable securities on the balance sheets consist of securities with original or remaining maturities at the time of purchase of greater than three months, and the remainder of the securities is reflected in cash and cash equivalents.

Property and equipment, net

Property and equipment

Property and Equipment

Property and equipment consisted of the following (in thousands):



	As of
	June 30, 2015			December 31, 2014
Leasehold improvements	$	1,058		$	1,058
Computer equipment	3,641			3,247
Software	874			874
Capitalization of internal-use software	1,155			291
Furniture and equipment	301			301
Construction in process	537			—
Total	7,566			5,771
Accumulated depreciation	(3,051		)	(2,141		)
Property and equipment, net	$	4,515		$	3,630

Depreciation and amortization expense for the three months ended June 30, 2015 and 2014, was $0.5 million and $0.3 million, respectively, and $0.9 million and $0.6 million for the six months ended June 30, 2015 and 2014, respectively. Depreciation is recorded on a straight-line basis.

Related Party Transactions (Notes)

Related Party Transactions and Variable Interest Entity

Note 6. Related Party Transactions and Variable Interest Entity

In the second quarter of 2015, we announced a strategic alliance with Lyra Health ("Lyra"), to develop and bring to market an integrated behavioral health solution. In connection with this strategic alliance, the Company made a $3.1 million preferred stock investment in Lyra. Lyra is considered a related party to us because two of Lyra’s co-founders serve on our board of directors, and Castlight's Chief Executive Officer, serves on Lyra's board. An independent committee of Castlight's board of directors, comprising of directors with no involvement in any external behavioral health business initiatives, approved the strategic alliance with and investment in Lyra.

Lyra Health was founded in 2015 to work with employers, health plans, and providers to improve behavioral health outcomes and plans to offer a complementary behavioral health service that combines technology with active care management to improve patient outcomes. As part of the strategic alliance Lyra's product will be integrated with Castlight Elevate for those customers who purchase the integrated solution. Castlight Elevate is an extension of the Castlight enterprise healthcare management platform which enables employees to research behavioral health services, make educated treatment choices, and commence care.

We have evaluated these transactions, including their related party aspects, and have determined that Lyra is a variable interest entity (“VIE”) for Castlight. In determining that we are not the VIE's primary beneficiary, we considered qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the characteristics of our involvement; and the obligation or likelihood for us to provide incremental financial support. Based on our evaluation, we determined that Castlight and our related parties collectively have power and benefits of the operations of VIE but that we are not the party most closely associated to the VIE. Accordingly, we are not required to consolidate the operations of the VIE. Our maximum exposure to loss as a result of our involvement with this unconsolidated VIE is limited to our investment of $3.1 million and we are not obligated to provide incremental financial support to Lyra.

The investment in Lyra is accounted for under the cost method and is included under other assets in our condensed consolidated financial statements. We have not estimated the fair value of our investment because there have been no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment. We will assess our investment for impairment on a quarterly basis or based on facts or circumstances that may require us to reassess the fair value of our investment.

Deferred Revenue

Deferred revenue consisted of the following (in thousands):



	As of
	June 30, 2015		December 31, 2014
Subscription	$	17,373	$	14,826
Professional services—implementation	3,622		2,974
Professional services—communications	3,130		2,908
Total current	24,125		20,708
Subscription	2,090		1,950
Professional services—implementation	4,816		4,327
Professional services—communications	732		375
Total noncurrent	7,638		6,652
Total	$	31,763	$	27,360

Commitments and Contingencies

Legal Matters

On April 2, April 16, April 29, and May 4, 2015, purported securities class action lawsuits were filed in the Superior Court of the State of California, County of San Mateo, against us, certain of our current and former directors, executive officers, significant stockholders and underwriters associated with our IPO. The lawsuits, which were consolidated on July 22, 2015, were brought by purported stockholders of our company seeking to represent a class consisting of all those who purchased our stock pursuant and/or traceable to the Registration Statement and Prospectus issued in connection with our IPO. The lawsuits assert claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and seek unspecified damages and other relief. We believe that the claims are without merit and intend to defend the lawsuits vigorously.

From time to time, we may become subject to other legal proceedings, claims or litigation arising in the ordinary course of business. In addition, we may receive letters alleging infringement of patents or other intellectual property rights. We do not believe that any liability from any reasonably foreseeable disposition of these legal actions and claims, individually or in the aggregate, would have a material effect on our business, operating results, cash flows or financial condition. The lawsuits described above are still in their early stages and the final outcome, including our liability, if any, with respect to the claims in the lawsuits, are uncertain. If an unfavorable outcome were to occur in the litigation, the impact could be material to our business, financial condition, cash flow or results of operations, depending on the specific circumstances of the outcome. We cannot make a reasonable estimate of the potential loss or range of loss, if any, arising from these matters. We accrue for loss contingencies when it is both probable that we will incur the loss and when we can reasonably estimate the amount of the loss or range of loss. If we determine that a loss is reasonably possible and can reasonably estimate the range of the loss, then we disclose the range of the loss.

Leases and Contractual Obligations

We lease office space under noncancelable operating leases in San Francisco, California. On May 21, 2015, we entered into a new office space lease in San Francisco, California, in order to expand our office facilities. The lease extends to June 30, 2021, with a five year renewal option. The total rent obligation under the lease is $12.8 million. There were no other material changes in our contractual obligations from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014. Please see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” in our Annual Report on Form 10-K for a description of our contractual obligations.

Stockholders' Equity (Deficit)

Stockholders’ Equity

Common Stock

As of June 30, 2015, we had 54,678,735 shares of Class A common stock and 39,574,120 shares of Class B common stock outstanding.

Stock Options Activity

A summary of stock option activity for the six months ended June 30, 2015 is as follows (in thousands, except share and per share amounts):



	Options Outstanding		Weighted- Average Exercise Price		Aggregate Intrinsic Value
Balance at December 31, 2014	16,392,539		$	4.40	$	128,541
Stock option grants	491,900		$	8.95
Stock options exercised	(3,107,786	)	$	1.02
Stock options canceled	(1,766,650	)	$	6.80
Balance at June 30, 2015	12,010,003		$	5.11	$	53,906

The total grant-date fair value of stock options granted during the six months ended June 30, 2015 and 2014 was $2.3 million and $28.4 million, respectively.

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-valuation model with the following assumptions and fair value per share:



	Six Months Ended June 30,
	2015	2014
Volatility	53%	60%
Expected life (in years)	6.17	5.0-6.2
Risk-free interest rate	1.38%-1.91%	1.53%-1.99%
Dividend yield	—%	—%

As of June 30, 2015, we had $27.7 million in unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over a weighted-average period of approximately 2.8 years.

Restricted Stock Units

A summary of restricted stock unit activity for the six months ended June 30, 2015 is as follows :



	Number of Shares Outstanding		Weighted- Average Grant Date Fair Value
Balance at December 31, 2014	1,398,893		$	11.06
Restricted Stock Units granted	3,318,000		$	8.73
Restricted Stock Units vested	—		$	—
Restricted Stock Units forfeited	(316,900	)	$	10.26
Balance at June 30, 2015	4,399,993		$	9.36

As of June 30, 2015, there was a total of $38.3 million in unrecognized compensation cost related to restricted stock units, which is expected to be recognized over a weighted-average period of approximately 3.6 years.

In June 2015, we awarded performance stock units (PSUs) to certain employees. The number of shares that will eventually vest depends on achievement of performance targets for 2015, as determined by the compensation committee of our board of directors, and may range from 0 percent to 150 percent of the targeted award amount. The PSUs will vest over the period of two years in quarterly installments subject to recipients' continued service through the vesting date of November 15, 2017 in order to earn the shares. The compensation expense associated with the PSUs is expensed using the accelerated method.

Income Taxes

The effective tax rate for the three and six months ended June 30, 2015 and 2014 was zero percent, primarily as a result of the estimated tax loss for the year and the change in valuation allowance.

There were no material changes to unrecognized tax benefits in the three and six months ended June 30, 2015, and we do not anticipate that unrecognized tax benefits will significantly increase or decrease in the next 12 months. At June 30, 2015, all unrecognized tax benefits are subject to a full valuation allowance and, if recognized, will not affect the effective tax rate.

Net Loss per Share

Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by giving effect to all potential shares of common stock, including Preferred Stock and outstanding stock options and warrants, to the extent dilutive. Basic and diluted net loss per share was the same for each period presented as the inclusion of all potential shares of common stock outstanding would have been anti-dilutive.

Net loss is allocated based on the contractual participation rights of the Class A and Class B common stock as if the earnings for the year have been distributed. As the liquidation and dividend rights are identical, the net loss is allocated on a proportionate basis.

The following table presents the calculation of basic and diluted net loss per share for our common stock (in thousands, except per share data):



	Three Months Ended June 30,												Six Months Ended June 30,
	2015						2014						2015						2014
	Class A			Class B			Class A			Class B			Class A			Class B			Class A			Class B
Net loss	$	(13,086	)	$	(8,126	)	$	(18,671	)	$	(3,105	)	$	(25,658	)	$	(15,197	)	$	(43,850	)	$	(2,207	)
Weighted-average shares used to compute basic and diluted net loss per share	57,870			35,934			76,755			12,765			58,282			34,519			50,731			2,553
Basic and diluted net loss per share	$	(0.23	)	$	(0.23	)	$	(0.24	)	$	(0.24	)	$	(0.44	)	$	(0.44	)	$	(0.86	)	$	(0.86	)

The following securities were excluded from the calculation of diluted net loss per share for common stock because their effect would have been anti-dilutive for the periods presented (in thousands):



	Three Months Ended June 30,		Six Months Ended June 30,
	2015	2014	2015	2014
Stock options and restricted common stock	16,410	17,908	16,410	17,908
Warrants	115	115	115	115
Total	16,525	18,023	16,525	18,023

Summary of Significant Accounting Policies (Policies)

Basis of Accounting Presentation and Principles of Consolidation

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles (GAAP), for interim financial information and with the instructions to Form 10-Q and Article 10 of Securities and Exchange Commission (SEC), Regulation S-X. In the opinion of management, the information herein reflects all adjustments, consisting only of normal recurring adjustments except as otherwise noted, considered necessary for a fair statement of results of operations, financial position and cash flows. The condensed consolidated financial statements include the results of Castlight and its wholly owned U.S. subsidiary. The results for the interim periods presented are not necessarily indicative of the results expected for any future period.

The condensed consolidated balance sheet as of December 31, 2014 included herein was derived from the audited financial statements as of that date. The following information should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014. There have been no changes to our significant accounting policies described in our Annual Report on Form 10-K that have had a material impact on our condensed consolidated financial statements and related notes.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. These estimates include, but are not limited to, the determination of the relative selling prices for our services, certain assumptions used in the valuation of our equity awards, and the capitalization and estimated useful life of internal-use software development costs. Actual results could differ from those estimates, and such differences could be material to our consolidated financial position and results of operations.

Recently Issued and Adopted Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board (FASB) issued new accounting guidance Customer's Accounting for Fees Paid in a Cloud Computing Arrangement. This guidance is intended to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement, primarily to determine whether the arrangement includes a sale or license of software. The guidance will be effective for us beginning January 1, 2016. Early adoption is permitted. We have elected not to early adopt. The adoption of this guidance is not expected to have a material impact on our condensed consolidated financial statements.

In May 2014, the Financial Accounting Standards Board (FASB) issued ASU 2014-09 regarding ASC Topic 606, Revenue from Contracts with Customers. The standard provides principles for recognizing revenue for the transfer of promised goods or services to customers with the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance will be effective for us beginning January 1, 2018. Early adoption is not permitted. We are evaluating the accounting, transition and disclosure requirements of the standard and cannot currently estimate the financial statement impact of adoption.

Marketable Securities (Tables)

Available-for-sale Securities

At June 30, 2015 and December 31, 2014, respectively, marketable securities consisted of the following (in thousands):



	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
June 30, 2015
U.S. agency obligations	$	145,414	$	16	$	(5	)	$	145,425
Money market mutual funds	8,015		—		—			8,015
	153,429		16		(5		)	153,440
Included in cash and cash equivalents	20,535		—		—			20,535
Included in marketable securities	$	132,894	$	16	$	(5	)	$	132,905



	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
December 31, 2014
U.S. agency obligations	$	177,297	$	4	$	(44	)	$	177,257
U.S. treasury securities	5,580		1		—			5,581
Money market mutual funds	1,919		—		—			1,919
	184,796		5		(44		)	184,757
Included in cash and cash equivalents	3,480		—		—			3,480
Included in marketable securities	$	175,093	$	5	$	(41	)	$	175,057
Included in marketable securities, noncurrent	$	6,223	$	—	$	(3	)	$	6,220

Fair Value Measurements (Tables)

Fair Value, Assets Measured on Recurring Basis

The following tables present information about our assets that are measured at fair value on a recurring basis using the above input categories (in thousands):



	Level 1		Level 2		Total
June 30, 2015
Cash equivalents:
Money market mutual funds	8,015		—		8,015
U.S. agency obligations	—		12,520		12,520
Marketable securities:
U.S. agency obligations	—		132,905		132,905
	$	8,015	$	145,425	$	153,440



	Level 1		Level 2		Total
December 31, 2014
Cash equivalents:
Money market mutual funds	$	1,919	$	—	$	1,919
U.S. agency obligations	—		1,561		1,561
Marketable securities:
U.S. agency obligations	—		175,696		175,696
U.S. treasury securities	—		5,581		5,581
	$	1,919	$	182,838	$	184,757

Property and equipment, net (Tables)

Property, Plant and Equipment

Property and equipment consisted of the following (in thousands):



	As of
	June 30, 2015			December 31, 2014
Leasehold improvements	$	1,058		$	1,058
Computer equipment	3,641			3,247
Software	874			874
Capitalization of internal-use software	1,155			291
Furniture and equipment	301			301
Construction in process	537			—
Total	7,566			5,771
Accumulated depreciation	(3,051		)	(2,141		)
Property and equipment, net	$	4,515		$	3,630

Deferred Revenue (Tables)

Deferred Revenue, by Arrangement, Disclosure

Deferred revenue consisted of the following (in thousands):



	As of
	June 30, 2015		December 31, 2014
Subscription	$	17,373	$	14,826
Professional services—implementation	3,622		2,974
Professional services—communications	3,130		2,908
Total current	24,125		20,708
Subscription	2,090		1,950
Professional services—implementation	4,816		4,327
Professional services—communications	732		375
Total noncurrent	7,638		6,652
Total	$	31,763	$	27,360

Stockholders' Equity (Deficit) (Tables)

Schedule of Other Share-based Compensation, Activity [Table Text Block]

A summary of restricted stock unit activity for the six months ended June 30, 2015 is as follows :



	Number of Shares Outstanding		Weighted- Average Grant Date Fair Value
Balance at December 31, 2014	1,398,893		$	11.06
Restricted Stock Units granted	3,318,000		$	8.73
Restricted Stock Units vested	—		$	—
Restricted Stock Units forfeited	(316,900	)	$	10.26
Balance at June 30, 2015	4,399,993		$	9.36

Schedule of Share-based Compensation, Stock Options, Activity

A summary of stock option activity for the six months ended June 30, 2015 is as follows (in thousands, except share and per share amounts):



	Options Outstanding		Weighted- Average Exercise Price		Aggregate Intrinsic Value
Balance at December 31, 2014	16,392,539		$	4.40	$	128,541
Stock option grants	491,900		$	8.95
Stock options exercised	(3,107,786	)	$	1.02
Stock options canceled	(1,766,650	)	$	6.80
Balance at June 30, 2015	12,010,003		$	5.11	$	53,906

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-valuation model with the following assumptions and fair value per share:



	Six Months Ended June 30,
	2015	2014
Volatility	53%	60%
Expected life (in years)	6.17	5.0-6.2
Risk-free interest rate	1.38%-1.91%	1.53%-1.99%
Dividend yield	—%	—%

Net Loss per Share (Tables)

Schedule of Earnings Per Share, Basic and Diluted

The following table presents the calculation of basic and diluted net loss per share for our common stock (in thousands, except per share data):



	Three Months Ended June 30,												Six Months Ended June 30,
	2015						2014						2015						2014
	Class A			Class B			Class A			Class B			Class A			Class B			Class A			Class B
Net loss	$	(13,086	)	$	(8,126	)	$	(18,671	)	$	(3,105	)	$	(25,658	)	$	(15,197	)	$	(43,850	)	$	(2,207	)
Weighted-average shares used to compute basic and diluted net loss per share	57,870			35,934			76,755			12,765			58,282			34,519			50,731			2,553
Basic and diluted net loss per share	$	(0.23	)	$	(0.23	)	$	(0.24	)	$	(0.24	)	$	(0.44	)	$	(0.44	)	$	(0.86	)	$	(0.86	)

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share

The following securities were excluded from the calculation of diluted net loss per share for common stock because their effect would have been anti-dilutive for the periods presented (in thousands):



	Three Months Ended June 30,		Six Months Ended June 30,
	2015	2014	2015	2014
Stock options and restricted common stock	16,410	17,908	16,410	17,908
Warrants	115	115	115	115
Total	16,525	18,023	16,525	18,023

Marketable Securities (Details) (USD $)

In Thousands, unless otherwise specified

Jun. 30, 2015

Dec. 31, 2014

Schedule of Available-for-sale Securities [Line Items]

Amortized Cost

$ 153,429

$ 184,796

Unrealized Gains

16

5

Unrealized Losses

(5)

(44)

Fair Value

153,440

184,757

Included in cash and cash equivalents [Member]

Schedule of Available-for-sale Securities [Line Items]

Amortized Cost

20,535

3,480

Unrealized Gains

0

Unrealized Losses

0

Fair Value

20,535

3,480

Included in marketable securities [Member]

Schedule of Available-for-sale Securities [Line Items]

Amortized Cost

132,894

175,093

Unrealized Gains

16

5

Unrealized Losses

(5)

(41)

Fair Value

132,905

175,057

Included in marketable securities, noncurrent [Member]

Schedule of Available-for-sale Securities [Line Items]

Amortized Cost

6,223

Unrealized Gains

0

Unrealized Losses

(3)

Fair Value

6,220

U.S. agency obligations [Member]

Schedule of Available-for-sale Securities [Line Items]

Amortized Cost

145,414

177,297

Unrealized Gains

16

4

Unrealized Losses

(5)

(44)

Fair Value

145,425

177,257

U.S. treasury securities [Member]

Schedule of Available-for-sale Securities [Line Items]

Amortized Cost

5,580

Unrealized Gains

1

Unrealized Losses

0

Fair Value

5,581

Money market mutual funds [Member]

Schedule of Available-for-sale Securities [Line Items]

Amortized Cost

8,015

1,919

Unrealized Gains

0

Unrealized Losses

0

Fair Value

$ 8,015

$ 1,919

Fair Value Measurements (Details) (USD $)

3 Months Ended

6 Months Ended

Jun. 30, 2015

Fair Value Disclosures [Abstract]

Available-for-sale Securities, Gross Realized Gain (Loss)

$ 0

Available-for-sale Securities, Maturity Period

1 year

Fair Value Measurements - Summary of Assets Measured at Fair Value on a Recurring Basis (Details) (USD $)

In Thousands, unless otherwise specified

Jun. 30, 2015

Dec. 31, 2014

Marketable securities:

Marketable securities

$ 153,440

$ 184,757

Money market mutual funds [Member]

Marketable securities:

Marketable securities

8,015

1,919

U.S. agency obligations [Member]

Marketable securities:

Marketable securities

145,425

177,257

U.S. treasury securities [Member]

Marketable securities:

Marketable securities

5,581

Fair Value, Measurements, Recurring

Marketable securities:

Assets, Fair Value Disclosure

153,440

184,757

Fair Value, Measurements, Recurring |
Money market mutual funds [Member]

Cash equivalents:

Cash equivalents

8,015

1,919

Fair Value, Measurements, Recurring |
U.S. agency obligations [Member]

Cash equivalents:

Cash equivalents

12,520

1,561

Marketable securities:

Marketable securities

132,905

175,696

Fair Value, Measurements, Recurring |
U.S. treasury securities [Member]

Marketable securities:

Marketable securities

5,581

Fair Value, Measurements, Recurring |
Level 1 [Member]

Marketable securities:

Assets, Fair Value Disclosure

8,015

1,919

Fair Value, Measurements, Recurring |
Level 1 [Member] |
Money market mutual funds [Member]

Cash equivalents:

Cash equivalents

1,919

Fair Value, Measurements, Recurring |
Level 1 [Member] |
U.S. agency obligations [Member]

Cash equivalents:

Cash equivalents

0

Marketable securities:

Marketable securities

0

Fair Value, Measurements, Recurring |
Level 1 [Member] |
U.S. treasury securities [Member]

Marketable securities:

Marketable securities

0

Fair Value, Measurements, Recurring |
Level 2 [Member]

Marketable securities:

Assets, Fair Value Disclosure

145,425

182,838

Fair Value, Measurements, Recurring |
Level 2 [Member] |
Money market mutual funds [Member]

Cash equivalents:

Cash equivalents

0

Fair Value, Measurements, Recurring |
Level 2 [Member] |
U.S. agency obligations [Member]

Cash equivalents:

Cash equivalents

12,520

1,561

Marketable securities:

Marketable securities

132,905

175,696

Fair Value, Measurements, Recurring |
Level 2 [Member] |
U.S. treasury securities [Member]

Marketable securities:

Marketable securities

$ 5,581

Property and equipment, net (Details) (USD $)

In Millions, unless otherwise specified

3 Months Ended

6 Months Ended

Jun. 30, 2015

Jun. 30, 2014

Jun. 30, 2015

Jun. 30, 2014

Property, Plant and Equipment [Abstract]

Depreciation Expense

$ 0.5

$ 0.3

$ 0.9

$ 0.6

Property and equipment, net - Schedule of Property, Plant and Equipment (Details) (USD $)

In Thousands, unless otherwise specified

Jun. 30, 2015

Dec. 31, 2014

Property, Plant and Equipment [Line Items]

Property and Equipment

$ 7,566

$ 5,771

Capitalization of internal-use software

1,155

291

Accumulated depreciation

(3,051)

(2,141)

Property and equipment, net

4,515

3,630

Leasehold Improvements [Member]

Property, Plant and Equipment [Line Items]

Property and Equipment

1,058

Computer Equipment [Member]

Property, Plant and Equipment [Line Items]

Property and Equipment

3,641

3,247

Software [Member]

Property, Plant and Equipment [Line Items]

Property and Equipment

874

Furniture and Equipment [Member]

Property, Plant and Equipment [Line Items]

Property and Equipment

301

Asset under Construction [Member]

Property, Plant and Equipment [Line Items]

Property and Equipment

$ 537

$ 0

Related Party Transactions (Details) (USD $)

In Thousands, unless otherwise specified

6 Months Ended

3 Months Ended

Jun. 30, 2015

Jun. 30, 2014

Jun. 30, 2015

Lyra Health [Member]

Related Party Transaction [Line Items]

Payments to acquire interest in related party

$ 3,125

$ 0

$ 3,100

Deferred Revenue - Components of Deferred Revenue (Details) (USD $)

In Thousands, unless otherwise specified

Jun. 30, 2015

Dec. 31, 2014

Deferred Revenue Arrangement [Line Items]

Total current

$ 24,125

$ 20,708

Total noncurrent

7,638

6,652

Total

31,763

27,360

Subscription [Member]

Deferred Revenue Arrangement [Line Items]

Total current

17,373

14,826

Total noncurrent

2,090

1,950

Professional Services - Implementation [Member]

Deferred Revenue Arrangement [Line Items]

Total current

3,622

2,974

Total noncurrent

4,816

4,327

Professional Services - Communications [Member]

Deferred Revenue Arrangement [Line Items]

Total current

3,130

2,908

Total noncurrent

$ 732

$ 375

Commitments and Contingencies Commitments and Contingencies (Details) (USD $)

In Millions, unless otherwise specified

6 Months Ended

Jun. 30, 2015

Commitments and Contingencies Disclosure [Abstract]

Operating leases, renewal term

5 years

Future minimum payments due

$ 12.8

Stockholders' Equity (Deficit) - Summary of Stock by Class (Details)

Jun. 30, 2015

Class A [Member]

Class of Stock [Line Items]

Common Stock, Shares, Issued

54,678,735

Class B [Member]

Class of Stock [Line Items]

Common Stock, Shares, Issued

39,574,120

Stockholders' Equity (Deficit) - Summary of Stock Option Activity (Details) (USD $)

In Thousands, except Share data, unless otherwise specified

6 Months Ended

Jun. 30, 2015

Options Outstanding

Beginning Balance

16,392,539,000

Stock option grants

491,900,000

Stock options exercised

(3,107,786,000)

Stock options canceled

(1,766,650,000)

Ending Balance

12,010,003,000

Weighted- Average Exercise Price

Beginning Balance

$ 5.11

Stock option grants

$ 8.95

Stock options exercised

$ 1.02

Stock options canceled

$ 6.80

Ending Balance

$ 4.40

Aggregate Intrinsic Value

Beginning Balance

$ 128,541

Ending Balance

$ 53,906

Stockholders' Equity (Deficit) - Stock Options Activity and Stock-based Compensation (Details) (USD $)

In Millions, unless otherwise specified

6 Months Ended

Jun. 30, 2015

Jun. 30, 2014

Equity and Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock Granted, Value, Share-based Compensation, Gross

$ 2.3

$ 28.4

Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Stock Options

$ 27.7

Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition

2 years 9 months 18 days

Stockholders' Equity (Deficit) - Assumptions Related to Share-based Compensation (Details) (Stock Option [Member])

6 Months Ended

Jun. 30, 2015

Jun. 30, 2014

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Volatility

53.00%

60.00%

Risk-free interest rate, minimum

1.38%

1.53%

Risk-free interest rate, maximum

1.91%

1.99%

Dividend yield

0.00%

Minimum [Member]

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Volatility

53.00%

60.00%

Expected life (in years)

6 years 2 months 1 day

5 years

Maximum [Member]

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Volatility

Expected life (in years)

6 years 2 months

Stockholders' Equity (Deficit) - Summary of Restricted Stock Unit Activity (Details) (USD $)

In Millions, except Share data in Thousands, unless otherwise specified

3 Months Ended

6 Months Ended

Jun. 30, 2015

Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Abstract]

Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition

2 years 9 months 18 days

Restricted Stock Units (RSUs) [Member]

Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]

Balance at December 31, 2014

1,398,893

Restricted Stock Units granted (1)

3,318,000

Restricted Stock Units vested

0

Restricted Stock Units forfeited

(316,900)

Balance at June 30, 2015

4,399,993

Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Abstract]

Balance at December 31, 2014

$ 11.06

Restricted Stock Units granted (1)

$ 8.73

Restricted Stock Units vested

$ 0.00

Restricted Stock Units forfeited

$ 10.26

Balance at June 30, 2015

$ 9.36

Unrecognized compensation cost

$ 38.3

Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition

3 years 7 months 17 days

Income Taxes (Details)

3 Months Ended

6 Months Ended

Jun. 30, 2015

Jun. 30, 2014

Jun. 30, 2015

Jun. 30, 2014

Income Tax Disclosure [Abstract]

Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent

0.00%

Net Loss per Share - Calculation of Basic and Diluted EPS for Common Stock (Details) (USD $)

In Thousands, except Per Share data, unless otherwise specified

3 Months Ended

6 Months Ended

Jun. 30, 2015

Jun. 30, 2014

Jun. 30, 2015

Jun. 30, 2014

Schedule of Earnings Per Share, Basic and Diluted, by Common Class, Including Two Class Method [Table] [Line Items]

Net loss

$ (21,212)

$ (21,776)

$ (40,855)

$ (46,057)

Weighted-average shares used to compute basic and diluted net loss per Class A and B share

93,804

89,520

92,801

53,284

Basic and diluted net loss per share (in usd per share)

$ (0.23)

$ (0.24)

$ 0

Class A [Member]

Schedule of Earnings Per Share, Basic and Diluted, by Common Class, Including Two Class Method [Table] [Line Items]

Net loss

(13,086)

(18,671)

(25,658)

(43,850)

Weighted-average shares used to compute basic and diluted net loss per Class A and B share

57,870

76,755

58,282

50,731

Basic and diluted net loss per share (in usd per share)

$ (0.23)

$ (0.24)

$ (0.44)

$ (0.86)

Class B [Member]

Schedule of Earnings Per Share, Basic and Diluted, by Common Class, Including Two Class Method [Table] [Line Items]

Net loss

$ (8,126)

$ (3,105)

$ (15,197)

$ (2,207)

Weighted-average shares used to compute basic and diluted net loss per Class A and B share

35,934

12,765

34,519

2,553

Basic and diluted net loss per share (in usd per share)

$ (0.23)

$ (0.24)

$ (0.44)

$ (0.86)

Net Loss per Share - Summary of Antidilutive Securities (Details) (Class A [Member])

In Thousands, unless otherwise specified

3 Months Ended

6 Months Ended

Jun. 30, 2015

Jun. 30, 2014

Jun. 30, 2015

Jun. 30, 2014

Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]

Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount

16,525

18,023

16,525

18,023

Stock Options and Restricted Common Stock [Member]

Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]

Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount

16,410

17,908

16,410

17,908

Warrants [Member]

Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]

Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount

115