UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 13D

(Rule 13d-101)

INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT

TO § 240.13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO

§ 240.13d-2(a)

(Amendment No. 1)1

Castlight Health, Inc.

(Name of Issuer)

Class B Common Stock, par value $0.0001

(Title of Class of Securities)

14862Q 10 0

(CUSIP Number)

STEVE WOLOSKY, ESQ.

OLSHAN FROME WOLOSKY LLP

1325 Avenue of the Americas

New York, New York 10019

(212) 451-2300

(Name, Address and Telephone Number of Person

Authorized to Receive Notices and Communications)

 

June 9, 2020

(Date of Event Which Requires Filing of This Statement)

 

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§ 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box ☒.

Note:  Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits.  See § 240.13d-7 for other parties to whom copies are to be sent.

 

 

 

1              The remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).

 

CUSIP No. 14862Q 10 0

  1   NAME OF REPORTING PERSON  
         
        Raging Capital Management, LLC  
  2   CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) ☐
        (b) ☐
           
  3   SEC USE ONLY    
           
           
  4   SOURCE OF FUNDS  
         
        AF  
  5   CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)     ☐
       
           
  6   CITIZENSHIP OR PLACE OF ORGANIZATION  
         
        DELAWARE  
NUMBER OF   7   SOLE VOTING POWER  
SHARES          
BENEFICIALLY         - 0 -  
OWNED BY   8   SHARED VOTING POWER  
EACH          
REPORTING         10,423,517  
PERSON WITH   9   SOLE DISPOSITIVE POWER  
         
          - 0 -  
    10   SHARED DISPOSITIVE POWER  
           
          10,423,517  
  11   AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON  
         
        10,423,517  
  12   CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES     ☐
       
           
  13   PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)  
         
        9.1%  
  14   TYPE OF REPORTING PERSON  
         
        IA  

  

2

CUSIP No. 14862Q 10 0

  1   NAME OF REPORTING PERSON  
         
        William C. Martin  
  2   CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) ☐
        (b) ☐
           
  3   SEC USE ONLY    
           
           
  4   SOURCE OF FUNDS  
         
        AF, PF  
  5   CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)     ☐
       
           
  6   CITIZENSHIP OR PLACE OF ORGANIZATION  
         
        USA  
NUMBER OF   7   SOLE VOTING POWER  
SHARES          
BENEFICIALLY         605,000  
OWNED BY   8   SHARED VOTING POWER  
EACH          
REPORTING         10,423,517  
PERSON WITH   9   SOLE DISPOSITIVE POWER  
         
          605,000  
    10   SHARED DISPOSITIVE POWER  
           
          10,423,517  
  11   AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON  
         
        11,028,517  
  12   CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES     ☐
       
           
  13   PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)  
         
        9.6%  
  14   TYPE OF REPORTING PERSON  
         
        HC  

  

3

CUSIP No. 14862Q 10 0

The following constitutes Amendment No. 1 to the Schedule 13D filed by the undersigned (“Amendment No. 1”). This Amendment No. 1 amends the Schedule 13D as specifically set forth herein.

Item 2.Identity and Background.

The final paragraph of Item 2(a) is hereby amended and restated to read as follows:

Set forth on Schedule A annexed to this Amendment No. 1 (“Schedule A”) is the name and present principal business, occupation or employment and the name, principal business and address of any corporation or other organization in which such employment is conducted of the executive officers of Raging Capital. To the best of the Reporting Persons’ knowledge, except as otherwise set forth herein, none of the persons listed on Schedule A beneficially owns any securities of the Issuer or is a party to any contract, agreement or understanding required to be disclosed herein.

Item 3.Source and Amount of Funds or Other Consideration.

Item 3 is hereby amended and restated to read as follows:

The aggregate purchase price of the 10,423,517 Shares owned directly by Raging Master is approximately $14,834,429, including brokerage commissions. Such Shares were acquired with the working capital of Raging Master.

The aggregate purchase price of the 605,000 Shares beneficially owned directly by Mr. Martin is approximately $411,561, including brokerage commissions. Such Shares were acquired with personal funds.

Raging Master effects purchases of securities primarily through margin accounts maintained for it with prime brokers, which may extend margin credit to it as and when required to open or carry positions in the margin accounts, subject to applicable federal margin regulations, stock exchange rules and the prime brokers’ credit policies. In such instances, the positions held in the margin accounts are pledged as collateral security for the repayment of debit balances in the accounts.

Item 4.Purpose of Transaction.

Item 4 is hereby amended to add the following:

On June 9, 2020, Raging Capital sent a letter to the board of directors of the Issuer (the “June letter”) following up on a private letter previously sent to the board in April 2020 (the “April letter”) expressing its serious concerns regarding the lack of cost consciousness and profitability at the Issuer and imploring the board to take decisive action to address these concerns. Although Raging Capital was pleased to see some of the incremental cost cuts announced by the Issuer after the April letter was sent, Raging Capital expressed its surprise and disappointment that none of the board members reached out to it, as specifically requested, to discuss an action plan that could be immediately implemented by the Issuer. Raging Capital also discussed the alarming results of the recent annual meeting of shareholders, including a withhold vote of over 20% of the votes cast on the two independent directors up for election, more than 23 million shares voted against the appointment of Ernst & Young (“E&Y”) as the Issuer’s auditor and management’s failure to obtain the requisite vote to approve the non-binding advisory proposal on executive compensation. Raging Capital encouraged the board to act with a greater sense of urgency to address its concerns or else risk facing a proxy campaign in the fall. Raging Capital referred the board to its April letter outlining the Issuer’s egregious cost structure and ideas on how to streamline and rationalize the business in order to drive immediate profitability, including replacing E&Y.

A copy of the June letter, including the April letter, are attached hereto as Exhibit 99.1 and incorporated herein by reference.

4

CUSIP No. 14862Q 10 0

Item 5.Interest in Securities of the Issuer.

Items 5(a)-(c) are hereby amended and restated to read as follows:

(a)       The aggregate percentage of Shares reported owned by each person named herein is based upon 114,484,826 Shares outstanding as of May 5, 2020, which is the total number of Shares outstanding as reported in the Issuer’s Form 10-Q filed with the Securities and Exchange Commission on May 8, 2020.

As of the close of business on June 8, 2020, each of Raging Capital and William C. Martin may be deemed to beneficially own the 10,423,517 Shares, constituting approximately 9.1% of the Shares outstanding, held by Raging Master by virtue of their relationships with Raging Master discussed in further detail in Item 2. As of the close of business on June 8, 2020, Mr. Martin also directly beneficially owns an additional 605,000 Shares which, together with the Shares held by Raging Master, constitutes approximately 9.6% of the Shares outstanding.

The filing of this Schedule 13D shall not be deemed an admission that the Reporting Persons are, for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended, the beneficial owners of any Shares he or it does not directly own. Each of the Reporting Persons specifically disclaims beneficial ownership of the Shares reported herein that he or it does not directly own. Without limiting the foregoing sentence, Raging Master specifically disclaims beneficial ownership of the securities of the Issuer held by it by virtue of its inability to vote or dispose of such securities as a result of the IMA.

(b)       Raging Capital and William C. Martin may be deemed to share the power to vote and dispose of the Shares held by Raging Master. Mr. Martin has the power to vote and dispose of the Shares he directly beneficially owns.

(c)       Schedule B annexed hereto lists all transactions in the Shares during the past sixty days by the Reporting Persons and the other executive officer of Raging Capital disclosed in Schedule A. All of such transactions were effected in the open market.

Item 7.Material to be Filed as Exhibits.

Item 7 is hereby amended to add the following exhibit:

99.1Letters to the Board of Directors of Castlight Health, Inc., dated June 9, 2020 and April 21, 2020.

 

5

CUSIP No. 14862Q 10 0

SIGNATURES

After reasonable inquiry and to the best of his knowledge and belief, each of the undersigned certifies that the information set forth in this statement is true, complete and correct.

Dated:  June 9, 2020 Raging Capital Management, LLC
   
  By: /s/ Frederick C. Wasch
    Name: Frederick C. Wasch
    Title: Chief Financial Officer

 

 

  /s/ Frederick C. Wasch
  Frederick C. Wasch as attorney-in-fact for William C. Martin

 

6

CUSIP No. 14862Q 10 0

SCHEDULE A

Executive Officers of Raging Capital Management, LLC

Name and Position Present Principal Occupation Business Address

William C. Martin,

Chairman, Chief Investment Officer and Managing Member

Chairman, Chief Investment Officer and Managing Member of Raging Capital Management, LLC

c/o Raging Capital Management, LLC

Ten Princeton Avenue, P.O. Box 228

Rocky Hill, New Jersey 08553

Frederick C. Wasch,

Chief Financial Officer1

Chief Financial Officer of Raging Capital Management, LLC

c/o Raging Capital Management, LLC

Ten Princeton Avenue, P.O. Box 228

Rocky Hill, New Jersey 08553

 


1As of the close of business on June 8, 2020, Mr. Wasch may be deemed to beneficially own 18,545 Shares, including Shares held by his spouse. The aggregate purchase price of such Shares is approximately $12,980. Such Shares were purchased with personal funds. A list of all transactions in the Shares by Mr. Wasch during the past sixty days are set forth in Schedule B.

 

CUSIP No. 14862Q 10 0

SCHEDULE B

Transactions in the Shares of the Issuer During the Past 60 Days

Class of

Security

Shares Purchased/(Sold)

 

Price ($)

Date of

Purchase/Sale

 

WILLIAM C. MARTIN

Common Stock 50,000 0.6750 04/20/2020
Common Stock 12,500 0.6750 04/20/2020
Common Stock 12,500 0.6750 04/20/2020
Common Stock 25,000 0.6560 04/21/2020
Common Stock 12,500 0.6560 04/21/2020
Common Stock 12,500 0.6560 04/21/2020
Common Stock 25,000 0.6560 04/21/2020
Common Stock 100,000 0.6580 04/22/2020
Common Stock 50,000 0.6880 04/24/2020
Common Stock 50,000 0.7210 04/27/2020
Common Stock 35,000 0.6310 05/05/2020
Common Stock 10,000 0.6310 05/05/2020
Common Stock 10,000 0.6310 05/05/2020
Common Stock 50,000 0.6310 05/05/2020
Common Stock 50,000 0.6310 05/05/2020
Common Stock 7,000 0.6310 05/06/2020
Common Stock (10,000) 0.6310 05/06/2020
Common Stock 3,000 0.6310 05/06/2020
Common Stock 1,985 0.7750 05/28/2020
Common Stock 100 0.7750 05/28/2020
Common Stock 800 0.7750 05/28/2020
Common Stock 200 0.7750 05/28/2020
Common Stock 20,200 0.7750 05/28/2020
Common Stock 61 0.7750 05/28/2020
Common Stock 16,817 0.7750 05/28/2020
Common Stock 55 0.7750 05/28/2020
Common Stock 2,939 0.7750 05/28/2020
Common Stock 4,643 0.7748 05/28/2020
Common Stock 1,700 0.7737 05/28/2020
Common Stock 500 0.7734 05/28/2020
Common Stock 15,000 0.7550 05/29/2020
Common Stock 17,200 0.7700 06/02/2020
Common Stock 600 0.7700 06/02/2020
Common Stock 1,000 0.7685 06/02/2020
Common Stock 100 0.7679 06/02/2020
Common Stock 600 0.7672 06/02/2020
Common Stock 500 0.7671 06/02/2020
Common Stock 8,277 0.7700 06/03/2020
Common Stock 400 0.7700 06/03/2020
Common Stock 5,124 0.7700 06/03/2020
Common Stock 200 0.7700 06/03/2020
Common Stock 99 0.7700 06/03/2020
Common Stock 200 0.7700 06/03/2020
Common Stock 100 0.7700 06/03/2020
Common Stock 200 0.7700 06/03/2020
Common Stock 100 0.7700 06/03/2020
Common Stock 100 0.7700 06/03/2020
Common Stock 198 0.7700 06/03/2020
Common Stock 2 0.7700 06/03/2020

 

CUSIP No. 14862Q 10 0

FREDERICK C. WASCH

Common Stock 17,165 0.7000 04/30/2020
Common Stock 117 0.7200 04/30/2020
Common Stock 200 0.7200 04/30/2020
Common Stock 200 0.7200 04/30/2020
Common Stock 300 0.7300 04/30/2020
Common Stock 5,684 0.7300 04/30/2020
Common Stock 1,008 0.7200 04/30/2020
Common Stock 372 0.6300 05/05/2020
Common Stock 5,992 0.7200 05/05/2020
Common Stock 100 0.6300 05/05/2020
Common Stock 100 0.6300 05/05/2020
Common Stock 200 0.6300 05/05/2020

 

 

Exhibit 99.1

 

 

 

June 9, 2020

 

Board of Directors
Castlight Health, Inc.
50 Spear Street, Suite 400
San Francisco, CA 94105

 

Ladies & Gentlemen,

 

Raging Capital Management, LLC is a significant shareholder of Castlight Health, Inc. (“Castlight” or the “Company”), currently owning over 9% of the outstanding shares. I am following up on the letter that I sent to you on April 21, 2020 expressing my serious concerns regarding the lack of cost consciousness and profitability at Castlight and imploring the board to take decisive action to address these concerns. Although I was pleased to see some of the incremental cost cuts that you subsequently announced in early May, I am surprised and disappointed that not one of the nine members of the board reached out to me, as I specifically requested, to discuss an action plan that could be immediately implemented by the Company.

 

With Castlight’s stock price hovering just above all-time lows, and at this critical time for the business, I would have thought that communicating with concerned shareholders would be more of a priority. Since no one bothered to respond to my April 21 letter, I am making it publicly available today (see below).

 

Separately, I found the results of the recent annual meeting of shareholders to be quite interesting. Notably, the two independent directors up for election this year both had more than 20% of the votes cast withheld from them – despite the endorsement of the board and ISS and no active proxy campaign against them. This is a curiously high number of withheld votes for an uncontested election and perhaps reflective of a shareholder base that shares my growing impatience with the board.

 

Similarly, in what is typically a routine vote, more than 23 million shares were voted against the appointment of Ernst & Young (“E&Y”) as Castlight’s auditor. Perhaps a few other shareholders have noticed that E&Y is gouging our small cap company with more than $2 million in annual fees! Based on my own deep experience serving as a public company director (including a recent situation where we reduced audit costs by roughly 60%), I would estimate that reasonable audit and tax fees for a domestic company of Castlight’s size and complexity would be closer to $500,000 per year.

 

Last but certainly not least, I would highlight that Castlight’s stockholders resoundingly voted down the non-binding advisory vote on the Company’s executive compensation. It is my expectation that the board will make good on its proxy statement disclosure that it will “value the opinions expressed by stockholders” in their vote on this proposal by re-evaluating Castlight’s executive compensation policies.

 

 

Indeed, the only measure that passed without significant opposition was approval of the reverse stock split. The irony here, of course, is that a reverse stock split would not be necessary if the board were doing its job, since the stock would not be on life support.

 

In conclusion, I would encourage the board to act with a greater sense of urgency to address my concerns or else risk facing a proxy campaign in the fall. As a starting point, my April 21 letter below outlines Castlight’s egregious cost structure and suggests a few ideas on how to streamline and rationalize the business in order to drive immediate profitability. Step #1 would be replacing E&Y.

 

I look forward to hearing from the board this time. I am available for a video conference at your immediate convenience.

 

Sincerely,

 

/s/ William C. Martin

 

William C. Martin
Raging Capital Management, LLC

bill@ragingcapital.com

917-549-8868 

 

 

April 21, 2020

 

Board of Directors
Castlight Health, Inc.
50 Spear Street, Suite 400
San Francisco, CA 94105

 

Ladies & Gentlemen:

 

As a significant stockholder of Castlight Health, Inc. (“Castlight” or the “Company”), I am writing this letter to express my serious concerns about the lack of cost consciousness and profitability at Castlight. I urge the board to take immediate and actionable steps to significantly reduce costs, return to breakeven and drive meaningful profitability.

 

Castlight was founded in 2008 and has never turned a profit as a public company. Over that time, Castlight has accumulated a $455 million operating deficit. Ironically, at this point, Castlight’s NOLs may be worth more than the enterprise value of the Company. Like many West Coast tech-companies that have never been held accountable to turn a profit, Castlight’s cost structure is bloated and egregious.

 

 

 

Here are several current examples:

 

Expense Castlight Facts Raging Capital View
G&A

Castlight spent $28 million on G&A in 2019, an astounding amount of money for a domestic company of your size and focus. Your G&A cost per full time employee (“FTE”) is $60,000, 67% greater than a comparable group we analyzed (and we would argue that your FTE headcount is bloated, making this statistic appear less worse than reality).

 

Your total headcount and cost per head should be meaningfully reduced – with every supporting employee expense, including rent, benefits, telecom, T&E, etc., bid out and significantly reduced or eliminated. The board should also eliminate fringe expenses like external investor relations consultants/data and cut back on or eliminate other consultants and professional services.

 

Sales & Marketing

Castlight spent approximately $39 million on sales & marketing in 2019, even though it has articulated a simplified go-to-market strategy of primarily focusing on a limited number of Blue Cross/Blue Shield carriers, some large corporates, and a consultant channel strategy. Castlight also has a single customer generating a large percentage of revenues.

 

You should force-rank your go-to-market priorities and reduce this number by at least half.

R&D

Castlight’s core data and product mission is impressive, but the reality is the Company’s overall product vision needs to be pruned and prioritized. This will allow the Company to significantly reduce its R&D spending, which has steadily increased in recent years and now totals $60 million.

 

Prune and prioritize your product vision and reduce R&D by 30-40%.

Audit Castlight spent approximately $2.1 million on audit expenses in 2019, despite being a relatively simply and primarily domestic-focused company.

This is a clear example that management and the board are out-to-lunch and oblivious on costs.  The board should immediately bid out this work to a non-Big Three firm; our belief is you can save a minimum of $1.5 million per year without impacting the quality of the audit work.

COVID-19 Crisis 500+ public companies have proactively reduced salaries in response to the COVID crisis.  Castlight has been silent.

Castlight should temporarily reduce senior executive compensation and benefits as well as board fees in response to the COVID-19 crisis.

 

 

 

In my experience as an entrepreneur and director of numerous companies over the years, profitability is infectious – it will boost employee morale, customer confidence and potentially create a virtuous cycle in the public markets. And it is long overdue at Castlight.

 

Finally, I would note that time is running out. Your balance sheet continues to dwindle in size – Castlight is literally two or three bad quarters away from being on the knife’s edge in an environment that is very high risk. It is time for the board to get out in front of these risks and take decisive action.

 

I would like to schedule a meeting to discuss with you in more detail an action plan that could be immediately implemented by the Company. I look forward to your prompt response.

 

Sincerely,

 

/s/ William C. Martin

 

William C. Martin
Raging Capital Management, LLC

bill@ragingcapital.com

917-549-8868