Summary of Significant Accounting Policies | Accounting Standards and Significant Accounting Policies Basis of Presentation and Principles of Consolidation The accompanying unaudited condensed consolidated financial statements include Castlight and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. 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 results for the interim periods presented are not necessarily indicative of the results expected for any future period. The following information should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 . Effective January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASC 606”) . All amounts and disclosures set forth in this Form 10-Q have been updated to comply with this update, as indicated by the “as adjusted” label. Certain prior period amounts reported in the condensed consolidated financial statements and notes have been reclassified to conform to current period presentation. Use of Estimates The preparation of condensed consolidated financial statements in conformity with GAAP requires the Company 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 fair value of assets acquired and liabilities assumed for business combination; • The amortization period for deferred commissions and deferred professional services costs; • Variable consideration included in the transaction price of the Company’s contracts with customers; • The standalone selling price of the performance obligations in the Company’s contracts with customers; and • Assumptions used in the valuation of certain equity awards. Actual results could differ from those estimates, and such differences could be material to the Company’s consolidated financial position and results of operations. Recently Adopted Accounting Pronouncements In May 2014 the Financial Accounting Standards Board (“FASB”) issued ASC 606. ASC 606 supersedes the revenue recognition requirements in ASC 605, Revenue Recognition , and requires the recognition of revenue when promised goods or services are transferred to customers in an amount that reflects the considerations to which the entity expects to be entitled to in exchange for those goods or services. ASC 606 also includes Subtopic 340-40, Other Assets and Deferred Costs - Contracts with Customers , which requires the deferral of incremental costs of obtaining and fulfilling a contract with a customer. The key changes from adopting the new standard are: • Prior to the adoption of the new standard, the Company recognized revenue of the combined professional services and subscription deliverable over the contractual term of the subscription contract. For certain contracts, this included periods that were cancelable due to termination provisions. Under the new standard, the Company recognizes revenue for the combined professional services and subscription performance obligation over the non-cancelable term of the arrangement. Additionally, prior to the adoption of the new standard, revenue related to variable fees was deferred until the fees became fixed or determinable. Under the new standard, the Company estimates variable consideration at the most likely amount to which the Company expects to be entitled. The Company includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. • Prior to the adoption of the new standard, the Company capitalized incremental and direct costs to obtain subscription contracts and amortized those costs over the non-cancelable portion of contracts. Under the new standard, the Company capitalizes all incremental costs to obtain subscription contracts and then amortizes those costs on a systematic basis that is consistent with the transfer to the customer of the goods or services to which those assets relate, which the Company has determined to be five years for initial subscription contracts or the contractual period for renewal subscription contracts. • Prior to the adoption of the new standard, the Company expensed costs to fulfill subscription contracts when they were incurred. Under the new standard, the Company recognizes as assets certain costs incurred to fulfill subscription contracts. Additionally, under the new standard, these costs are amortized on a systematic basis over a period that is consistent with the transfer to the customer of the goods or services to which those assets relate, which the Company has determined to be five years. Select unaudited condensed consolidated balance sheet line items, which reflect the adoption of ASC 606 are as follows (in thousands): As of December 31, 2017 Previously Reported Adjustments As adjusted Assets Accounts receivable and other, net $ 20,761 $ 1,172 $ 21,933 Deferred commissions* 10,583 16,929 27,512 Deferred professional service costs — 12,480 12,480 Liabilities and stockholders' equity Deferred revenue 29,410 (3,425 ) 25,985 Deferred revenue, non-current 6,686 (2,229 ) 4,457 Accumulated deficit (411,569 ) 36,235 (375,334 ) _______________________ * As of December 31, 2017, Deferred commissions, current and non-current, were previously presented separately. The condensed consolidated balance sheet as of December 31, 2017 was reclassified to conform to the current period presentation. Select unaudited condensed consolidated statement of operations line items, which reflect the adoption of ASC 606 are as follows (in thousands, except per share amounts): Three Months Ended March 31, 2017 Previously Reported Adjustments As adjusted Revenue: Subscription $ 25,766 $ 131 $ 25,897 Professional services and other 1,979 (173 ) 1,806 Cost of revenue: Cost of professional services and other 3,988 (179 ) 3,809 Operating expenses: Sales and marketing 14,443 (298 ) 14,145 Operating loss (15,001 ) 435 (14,566 ) Net loss (14,809 ) 435 (14,374 ) Net loss per share, basic and diluted (0.14 ) — (0.14 ) Select unaudited condensed consolidated statement of cash flows line items, which reflect the adoption of ASC 606 are as follows (in thousands): Three Months Ended March 31, 2017 Previously Reported Adjustments As adjusted Operating activities: Net loss $ (14,809 ) $ 435 $ (14,374 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation 5,827 (215 ) 5,612 Amortization of deferred professional costs — 887 887 Amortization of deferred commissions 2,089 (156 ) 1,933 Changes in operating assets and liabilities: Deferred commissions (416 ) (141 ) (557 ) Deferred professional service costs — (852 ) (852 ) Deferred revenue 3,087 42 3,129 Summary of Significant Accounting Policies Revenue Recognition Revenues are derived primarily from contracts with customers for subscription services and professional services. Revenues are recognized when control of these services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. Revenues do not include sales taxes. We determine revenue recognition through the following steps: • Identification of the contract, or contracts, with a customer; • Identification of the performance obligations in the contract; • Determination of the transaction price; • Allocation of the transaction price to the performance obligations in the contract; and • Recognition of revenue when, or as, the Company satisfies a performance obligation. Subscription Revenue. Subscription revenue recognition commences on the date that the Company’s subscription services are made available to the customer, which the Company considers to be the launch date, and subscription revenue is generally recognized over the contract term. Subscription contracts are generally three years in length and certain contracts include termination provisions. Some of the Company’s subscription contracts include performance incentives that are generally based on engagement. Additionally, some of the Company’s subscription contracts include audit provisions. The Company considers fees related to performance incentives and audit provisions to be variable consideration. The Company estimates variable consideration at the most likely amount to which it expects to be entitled. The Company includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The Company’s estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of its anticipated performance as well as other information available to the Company. The Company reassesses its estimates related to variable consideration each reporting period and records adjustments when appropriate. Professional Services and Other Revenue. Professional services and other revenue is primarily comprised of implementation services and communication services related to the Company's subscription service. Nearly all of the Company's professional services are sold on a fixed-fee basis. The Company determined its implementation services are not capable of being distinct. Accordingly, the Company recognizes implementation services revenue in the same manner as the subscription service, beginning on the launch date. The Company determined its communication services are distinct and the associated revenue is recognized over time from the commencement of the communication services through the end of the contractual term. Professional services and other revenue also includes revenue from products sold through the Company’s online marketplace and add-on subscription services made available from other ecosystem partners. These revenues are recognized on a net basis primarily because the Company acts as an agent in these contracts. Contracts with Multiple Performance Obligations. Most of the Company’s contracts have multiple performance obligations consisting of subscription services and professional services, including implementation services and communication services. For arrangements with multiple performance obligations, the Company evaluates whether the individual performance obligations are distinct. If the performance obligations are distinct, revenue is recognized for the respective performance obligation separately. If one or more of the performance obligations are not distinct, the performance obligations that are not distinct are combined with the Company's subscription service, and revenue for the combined performance obligation is recognized over the term of the subscription service commencing on the launch date. The Company has concluded that its subscription services and its communication services are distinct. Conversely, the Company has concluded that its implementation services are not distinct, primarily because these services are not capable of being distinct as the customer cannot benefit from the implementation services on their own. Accordingly, the Company considers the separate performance obligations in its multiple performance obligation contracts to be communication services and a combined performance obligation comprised of subscription services and implementation services. The transaction price for arrangements with multiple performance obligations is allocated to the separate performance obligations based on their standalone selling price. The Company determines standalone selling prices based on its overall pricing objectives taking into consideration market conditions and other factors, including the value of the contracts, the subscription services sold, and customer demographics. Contract Balances The Company records a contract asset when revenue is recognized prior to invoicing. Contract assets are presented within accounts receivable and other in the accompanying condensed consolidated balance sheet. A contract liability represents deferred revenue. Deferred revenue consists of professional services and cloud-based subscription services that have been billed in advance of revenue being recognized. The Company invoices its customers for its cloud-based subscription services based on the terms of the contract, which can be annual, quarterly or monthly installments. Deferred revenue that is anticipated to be recognized during the succeeding 12-month period is recorded as current deferred revenue, and the remaining portion is recorded as non-current. Accounts Receivable and Other Accounts receivable are recorded when invoiced and at the invoiced amount, net of allowances for doubtful accounts, which are not significant for any period presented. When accounts receivable are recorded, the related revenue may not commence until a later date depending on the nature of the services invoiced. Deferred Commissions Deferred commissions are the incremental costs that are incurred to obtain contracts with customers and consist primarily of sales commissions paid to the Company's sales force and channel partners. The commissions for initial contracts are deferred and amortized on a straight-line basis over a period of benefit that the Company has determined typically to be five years. The Company determined the period of benefit by taking into consideration the expected life of its subscription contracts, the expected life of the technology underlying its subscription services and other factors. The commissions for renewal contracts are deferred and then amortized on a straight-line basis over the related contractual renewal period. The deferred commission amounts are recoverable through the Company’s future revenues. Amortization of deferred commissions is included in sales and marketing expense in the accompanying condensed consolidated statements of operations. All costs deferred are reviewed for impairment periodically. Deferred Professional Service Costs Deferred professional services costs are the direct costs incurred to fulfill subscription contracts that occur prior to the launch of the Company’s subscription services. Professional service costs, which primarily consist of employee related expenses attributable to launch activities, are deferred and then amortized on a straight-line basis over a period of benefit that the Company has determined typically to be five years for the same reasons as described in the deferred commissions disclosure above. Deferred professional service costs are recoverable through future revenues. Amortization of deferred professional service costs is included in cost of professional services and other revenue in the accompanying condensed consolidated statements of operations. All costs deferred are reviewed for impairment periodically. Recently Issued Accounting Pronouncements In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases (“ASU 2016-02”). The guidance will require lessees to put all leases on their balance sheets, whether operating or financing, while continuing to recognize the expenses on their income statements in a manner similar to current practice. The guidance states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. The guidance will be effective for the Company beginning January 1, 2019 and early adoption is permitted. The Company is evaluating the full effect the adoption will have on its financial condition, results of operations, and disclosures. The Company is evaluating the accounting, transition and disclosure requirements of the standard and cannot currently estimate the impact of adoption on its consolidated financial statements. In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02). The provisions in ASU 2018-02 allow for a reclassification from accumulated other comprehensive income to retained earnings to eliminate the stranded tax effects resulting from the change in federal corporate income tax rate in the Tax Cuts and Jobs Act enacted in December 2017. The Company is required to adopt ASU 2018-02 on January 1, 2019. Early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. The adoption of ASU 2018-02 is not expected to have a significant impact on the Company’s financial position or results of operations. |