Q2 2020 Ontrak Inc Earnings Call
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Hi.
And on track 2022nd quarter financial results Conference call.
It's time all participants are in listen only mode. You question answer session will follow the formal presentation. As a reminder, this conference is being recorded.
Before I turn the call Ritu management I would like to make the following remarks concerning forward looking statements. All statements in this conference call other than historical facts are forward looking statements.
We anticipate.
We estimate expect intend guidance confidence target for Jack and some other expressions typically are used to identify forward looking statement.
These forward looking statements are not guarantees of future performance, but may involve.
And are subject to certain risks and uncertainties and other factors that may cause effect.
I tried to business.
Condition and other operating results, which include but are not limited to the risk factors described in the risk factor section of the form 10-K and form 10-Q as filed with the FCC.
Therefore, actual outcomes and the results may differ materially from those expressed or implied by these forward looking statement.
On track expressly disclaims any intention or obligation to update these forward looking statement.
I'd like to turn the call. It two chairman Pfizer Chairman and CEO of Ontrack incorporated. Please go ahead chair.
Thank you operator.
With me on today's call our brand New lover, our Chief Financial Officer will review, how we're thinking about our model going forward versus repeating quite as reported in today's release at Cordero said, our president and Chief operating officer, who will join US for the question and answer portion of the call.
These are exciting times indeed since our last earnings call. We took the important step of changing the company's name from cat assist to on track to harness strong customer member and provider awareness of our on track product solutions.
This evolution marks the transition from the pilot phase of our corporate development into a clinically and economically proven strategic partner.
We believe it is more powerful to market under a unified master brand that we'll be able to scale the business faster and more efficiently as on track.
Especially since this is how we are known to our national network of over 12000 behavioral health providers.
In these times up unprecedented social hardship and economic disruption. We have continued to refine are on track product solutions, so proactively and holistic like a dress member health. We now know that cobot 19 has disproportionately impacted coming.
Entities of color and vulnerable populations and we are actively working to address cultural trauma.
Effective and Amp apathetic.
[laughter] episodic engagement of those who may have lost confidence in the broader health care system.
Taking a step back and looking at our strong second quarter performance, we delivered record revenue of 17.2 million an increase of 124% from last year.
Our total active enrolled members grew at a record rate as well totaling nearly 12000 members at the end of the corridor.
That momentum continued through July and we now have over 13200 members enrolled as of today.
Our effective outreach pool ended the quarter at 141000, a small declined sequentially from 145000, but has increased back up to 149000 as of today.
As we caution last call we saw high cost members dropping below their medical express thrashed expense threshold.
Due to lower utilization during a pandemic as well as certain members, losing health plan coverage.
As our health plan partners announced this past week, including CBS out there today, there's been a sharp decline in hospital utilization. However, they expect a commensurate rebound in the second half for Q1 2021.
During Q2 due to lower utilization and lost so called payer coverage, we saw a decrease in our outreach pool.
49000 members.
Impressively. These decreases were nearly offset by members added to our outreach pull through qualifying higher cost.
Plan to help plant expansions and enhancements, we've made to our outreach pool identification algorithms.
We feel the enhancements we've made will last for the long term.
And the low utilization during the pandemic should reverse course once the economy opens again for people feel they can no longer put up necessary health care services.
Brandon will talk more about our metrics and how to think about them going forward and a bit.
From a new logo perspective, our pipeline is more robust now than at any time in the past, which we believe will contribute to further increases in the outreach pool as we stand today, we are very confident in our ability to continue expansion up new customers as well.
Well, a substantial expansions within existing customers.
Turning to the announcement, we made at the end of June we have signed a three year 90 million dollar minimum contract with Cigna for the accelerated expansion are on track solution.
The 90 million is a starting point.
And very importantly, although no assurance here, we have seen the actual amounts exceed contractual amounts in the initial cygnus states by 57%.
This nation wide expansion from our initial pilot will ensure that eligible Medicare advantage members of Cigna will have access to critical behavioral health care and an additional 13 states.
Our initial plan with Cigna was to begin enrolling members in the third quarter, but we were advised last week that signal is still working through some changes to their company wide data sharing protocols. So we now expect enrollment to began in October of this year.
Sure we have been prepared for launch for some time and we look forward to cigna's data feed and the opportunity for expansions with Cigna Postwatch.
Recall that a mid November 2019, our initial guidance for 2020 included a signal launch in January 2020, which was expected to contribute nearly $40 million in the first 12 months, including a ramp up period.
Our guidance was very conservative relative to a 127 million internal forecast at that time.
Assuming October launch, which is expected to contribute $3 million this year.
Approximately $36 million was lost revenue for the first nine months.
Well this further delay in the implementation of our Cigna expansion puts pressure on our 2020 guidance.
The great work the team has done this year and enhancing our identification algorithms improving the speed of processing health plan data as well as late stage expansion conversations.
We are now having with existing partners, we still feel confident in our 90 million target for this year.
But let's take a moment to emphasize that we overcame a 36 million dollar loss of revenue.
This year, but this loss is not lost.
But it is pushed out and augurs very well for next year's revenue growth.
As you can see and Brandon will elucidate next year is shaping up to become a very big year importantly from a profitability standpoint, we are poised to reach positive adjusted EBITDA and then next two to three quarters.
I'll now turn it over to Brandon to get into the numbers Brandon.
Thank you Karen.
And as you mentioned rather than spending a lot of time reading for you the numbers in the press release this quarter I thought it'd be more useful to provide some insight into how we think about revenue model and the future.
I receive a lot of questions from investors asking for help understanding this and why we're so confident in such high growth going forward. So I'm going to take this time to walk through some thoughts to help you get the same comfort level that we have.
So during the second quarter, we recorded revenues of $17.2 million most of our revenue today is received on a per enrolled member per month basis at the beginning of the quarter. We had 8600 total active enrolled members with 11989 at the end of the quarter or that.
So simple average of 10290 for.
That equates to about 1673 per active enrolled member for the quarter or if you annualize that just shy of $6700 per year.
If we look at AR 13200 active enrolled members we have as of today multiplied by the $6700 per year that results in a run rate of over $88 million, assuming we do nothing else other than maintain existing membership levels.
Further if you look at our outreach pool at the beginning and ended the quarter the simple averages 143000.
We enrolled 6723, new members during the quarter, which divided by the outreach pool annualizes to about a 19% enrollment rate blended across our customer base.
Our disenrollment rates fluctuate, but as normalized in the 8% range plus or minus per month and be graduated about 9% of enrolled member base that existed at the beginning of the quarter.
All that resulted in a net new enrollment of 3389, new members during the quarter.
At the status quo, if we enrolled conservatively just 3000 net new members in Q3 in Q4, which technically would be a slower paced than we saw in Q2 growing off of higher baseline.
That would bring our and rolled members by the ended the year to 18000.
If I take that 18000 multiplied by the 6700 per enrolled number per month average that we saw in Q2.
That equates to a run rate of over $120 million.
Of course, we would continue to expect those numbers to grow throughout 2021 as well.
However, none of those numbers yet include the sign Cigna contract that we announced in June which we now expect to begin enrolling in October as Darren mentioned.
This contracted is expected to be worth minimally $90 million over a three year period, but our modeling based upon our experienced with the pilot states for this customer suggests that we could far surpassed that.
As a reference we were able to below 57% more under our pilot program than our original contract maximum given the success of our program.
You can see how quickly the numbers can grow when you add this to our baseline.
And still further as tearing indicated we're nearly ready to launch certain new enhancements to our tools with the expectation of adding tens of thousands more to the outreach pool over the next several months related to our existing customers.
We're also having late stage conversations for additional expansions. We're currently negotiating with existing customers and Exterran stated our pipeline of new logos has never been stronger I hope that helps give you some insight into why we're so excited about contracts prospects looking ahead I can't wait to share progress along the way.
For a few other highlights for the quarter I'd like to point out that our gross margin improved to 42.7% in the second quarter of 2020 from 41.4% in the first quarter of 2020, consistent with a slight increase as we discussed on the last call.
As we ramp up hiring in Q3, I would expect a slight reduction of gross margin in Q3, but in the same ballpark is where we've been this year.
We ended the quarter with 384 team members included in cost of sales an increase of 81% from 212 at the same time last year, primarily made up of care coaches and member engagement specialists.
We're targeting to have approximately 700 team members and cost of sales by year end, so that as a tall logistical task for recruiting and onboarding, but there are up for it.
Further we are investing in our operations sales and support functions, including R&D to handle the expected rapid growth of on track in the coming quarters.
We had 185 team members and operating expense at the ended the quarter, 65% increase from 112 at Q2 2019 I.
I continue to believe that we'll achieve positive EBITDA in the fourth or first quarter.
I'm also very pleased that our cash balances the ended the quarter increased by about $650000 from Q1 2020, as we continue to improve the management of our receivables from our customer base I'll now turn the call back over to tear and for his closing remarks Sir.
Thanks Brandon.
As you can see our outlook for the future is as strong as it's ever been and hopefully brandon's walked through the model helps you understand why we can feel comfortable thinking about triple digit growth rates in 2021.
Whether it is further expansions with that.
The other existing customers the impending launch of our signs cigna expansions enhancements to our algorithms speeding the outreach pool or potential new logos and pilots.
I'm really excited to see the hard work dedication passion and grid.
Every on track teammates as we proceed on to new Heights.
As we look to the future will be incorporating and leveraging more technology in our product offering which will have the effect of significantly expanding our footprint within our health plan partners and advancing our mission to help improve the health.
And save the lives of as many people as possible.
I look forward to updating you on our progress along the way.
We also look forward to participating at next week's Canaccord Health care conference.
Kurt Brandon I will now open the call to your questions operator.
Thank you we will now begin the question and answer session.
To ask your question you could do so by pressing Star then one on your touched on phone.
The speaker phone you need to pick up your handset first before pursuing any numbers once again, if you'd like to ask your question. Please press Star then one on your telephone at this time.
Our first question comes from Richard close your line is now open.
Great. Thank you for the questions congratulations on the success.
Just really quickly with respect to the Cigna and the 90 million over three years and then how you characterize the pilots can you go into.
The 57% outperformance on the pilots in a little bit more detail and then what's the 90 million is over three years is actually for in terms of just any details along that that would be great.
Brandon Hey, I'll I'll start so without going into that the quantification of what the historical numbers were I would just say that the original contracts similar to a the new contract had an action to Max is in there by by state and when we look at our pilot was in Twoq.
Date, we look at what we were originally contracted to bill under those states.
And as we started to get to the point of reaching that Max.
We exceeded that Max and the customer allowed us to continue building under that contract in excess of what it was and that's where that 57% comes in.
And and Curt I would ask if there's any anything further you would you would say on that note.
Yeah, the only thing I would add is that.
The signal Medicare advantage group.
Has consistently been above.
The 19% enrollment rates.
Even prior to.
March when we saw upticks related to cobot.
And so as Brendan and saying this overage that occurred actually started.
During the fourth quarter of last year and had continued to accelerate.
As a overall enrollment rates increase.
So this is you know the client was very excited about the opportunity for us to serve more individuals and so continue to press the success of enrollment forward.
Okay great.
Next question would be with respect to the technology that you're talking about rolling out can you go into a little bit more detail exactly what that is what you guys are intended to do does that expand you mentioned expanding the footprint.
But maybe little bit more meat on the bone with respect to what that is.
I'll start and then I'll, let Curt chime in.
Needless to say so today, we we've talked about in the past we've talked about that were part of human interaction impart technology, and it's because the human interaction that and because of our member obsession in our frontline obsession translates into an NPS score of 83.
Which equates to our engagement capability.
Human interaction is very necessary that said.
As we see around us in terms of virtual care remote patient monitoring.
Digital interventions.
We will look to combine all of that into our product offering.
And then not too distant future actually.
And with that.
We will expand our footprint because we'll be addressing either well more immediately we can go down to lower acuity patients.
That will be more apt to take advantage of that technology and you've heard me described.
The way I look at the World way, we look at the World is the world's divided into two.
There's the treatment seeking.
And there is the care, avoiding and treatment and care seeking and treatment and care avoided.
The World is focused on the easier left of treatment seekers.
We are focused on and we don't have any competition that we can see in the care avoidant market and we believe roughly 90% of those are care avoid and at the intersection.
Multiple behavioral health diseases, and multiple chronic diseases and its established knowledge that 50% of those with chronic disease alone.
Our care avoid it so to the extent that we could take our.
King or so year playbook on engagement.
Incorporate technology.
And be able to deliver digital interventions to our care avoided members and then as you see around us wherever the those enter dressing that.
Care seeking.
We will use digital products and platforms.
Similarly for remote patient monitoring et cetera.
I heard you want to add anything to that.
No I think you covered it.
Okay all right.
I would say one thing that thing Richard.
We hope this will start becoming very clear and we're not talking about next year. We're talking about in the next 30 to 60 days. So I think we're going to look a lot like the comes to other companies you cover.
Except the difference being that we can address the care avoid a market.
Okay great.
Respect to the the expansions or discussions late stage discussions with expansions, maybe if you can dive into that a little bit more in terms of is that new populations are just new states anything like national rollout I'm sort of like Cigna and then.
New logos any thoughts there are those large or small plans and is that national in scope as well.
I'll, let Kurt start and I'll chime in if there's anything left to discuss.
Sure So were remotes, so I apologize for the back and forth.
Yes, sorry, so we are working collaboratively with a behavioral health executives at some of our top clients are part of the ask is to continue to customize some parts of what we do with you on track program.
Really Richard to address broader populations as the primary objective.
But the plan to continue to expand to the remaining geography. The remaining states. We are still executing against so the big the big lift.
Is really being able to expand that target population beyond where we're focused with those customers today.
Okay.
Oh, sorry, we regret add up.
Oh I would also had beyond that.
Our with existing customers pilots that we hope to share with you soon.
Okay, great. Thanks.
Kurt yields you want to it.
Oh I'm sorry go ahead.
I'm, sorry, Kurt you want to talk about the new logos.
Sure so from the beginning of the year through through this date you know we have.
Really expanded as turn mentioned in the prepared remarks, the number of new opportunities. So this does not cover.
Spansion with existing customers. So we've added over 35 new opportunities.
That that on risk adjusted we're targeting over 450000, new outreach pool lives.
And this expansion in our sales pipeline has happened just within the last six months. So we are aggressively going out telling our story tuck in new customers and engaging to understand how weak and earn the privilege of serving their populations.
Okay. That's very helpful. Thank you.
Thank you. Our next question comes from Sean Dodge Your line is now open.
Thanks.
Nude and congratulations.
Maybe starting with good Curt your last comment there about the 450000 incremental new loves you're targeting via the pilot you've recently added I Didnt historically pilots have taken a long time to kind of getting plays right and get data from and then roll into some had been natur national ER launch.
Are you at the point, where you've done this enough times now into the you can shorten timelines there I guess you know what should we be thinking about timeline wise.
The.
And the opportunity around those 450000 lives.
Yes. So the 450000 definitely is is broadly to your point across a series of pilots and potential larger rollouts.
One of the benefit.
Of our customers management changing is that sometimes those folks end up in other places and they know us well and so those are opportunities where they know the on track program. They know the results we can deliver and we believe based on the conversations we can accelerate those roll out.
In terms of net new customers, where there isn't experience.
It is reflected in the pipeline numbers that I gave you that those are intended to be smaller pilot. So that the the rollouts and the full books of business would actually be significantly more Sean that's about 450000.
That we're tracking the pipeline right now.
Got it and then the signal launch how many individuals you expect that to add to the outreach pool.
Brandon I know you have the latest numbers I don't know if you want to go through that.
Yeah and in ours. It adds about 15000 to the outreach pool.
But one thing you have to consider about this population as its Medicare advantage and it comes at a much greater enrollment rate a than our blended average of the 19% that we saw in Q2, Sean I'm, sorry, which probably did you ask about.
The significant Medicare advantage, Okay launch it I said you get to that in October.
Okay then.
The comments around the timing for positive EBITDA.
I think previously you guys talked about fourth quarter sounds like you're pushing that out just a little bit.
What's changed there it sounds like maybe you're you're hiring plans are a little bit more aggressive then than you thought initially is that it or is it something else.
No no change whatsoever, the differences tear in saying the fourth quarter and brand in being a CFO and saying fourth quarter first quarter, but nothing has changed.
Okay, Great and then last one from me.
Brand in the math you presented on enrollments and revenue if we think about.
Kind of using that same exercise for this year you enrollments accelerated significantly over the course of the second quarter. The momentum carried into two July what kind of a monthly cadence do you need can maintain to hit the 90 million revenue goal for this year.
Well that that's ultimately if you.
Without solving for it on my head right now if you think about where we're at now I I've given you some math on 3000, and we're already one month in 1200, I've already beating that I was trying to be conservative in southern indicated we expect that is going to continue to increase our our dis enrollment rate has been can.
Distantly in that 8% its dipped down below to seven it's slightly around eight and so that's been consistent our enrollment our gross enrollments.
It is already through the first month.
More than a third of what we enrolled in the second quarter and so we're excited excelerate and as we should be a from a from a pure number perspective, because we have a higher base on what on what we're starting from.
Got it that's great.
Thank you again.
Thank you thanks.
Thank you. Our next question comes from Charles Read Your line is now well then.
Yeah. Thanks for taking the questions are not congrats on the on the quarter I guess it maybe a question for brand and you know if we're if you're pointing us to this 19% sort of enrollment rate.
But at the same time I think you turn you talked about the fact that because of.
Of course, the you know, where we're having a lower utilization and so people are falling below the threshold. So they don't qualify for the outreach pool.
We think about a normalized or at least pool in the future.
If we do see this utilization kind of tick back what kind of enrollment enrollment rates sort of on ongoing basis should we think about a you know sort of moving forward.
Well, let me just the enrollment rate is based on the outreach pool.
You kind of said well how do we look at a normalized outreach pool that won't change our enrollment rate. It just means our outreach pools gonna grow significantly. So the 49000 that we lost this last quarter, you can pretty much and of course.
United Health said last week, they started to see a return of utilization and Aetna said today as CBS Aetna said that they're starting to see it now as well. So we do expect to bring those lives back or they are they saw relative amount. So you would add that 49000 to where we are today.
Hey.
And of course, we always or does that was a point. Despite the loss of 49000, we still adding new members. All the time. So we see the outreach pool, all that brand and speak to the enrollment right, but we see the outreach pool to grow quite significantly from where it is right now the first growth would be.
Cigna, but we could see subs very substantial growth going into next year.
Sure and Charles the way, we think about it in the enrollment rate you know it goes into a lot of sub categories and you know how how we're reaching into the outreach pool, which we've seen acceleration there the conversion rates associated with what our engagement specialists.
You know send over to the care coaches and how well they can convert.
And so all those metrics have been improving for a lot of reasons some of which could be covered in some of which are into just operational improvements. We've made in how we see and when we see the data.
And so the enhanced enrollment rate there were seen we've talked about a 20% enrollment rate debt at scale in our in our history and we're starting to see that some of that comes with mix.
We're seeing a healthy mix in growth in our.
In our Medicare business, we have today, which has a higher enrollment rate or the exist in the new contract. We have a with cigna, we'll have a higher enrollment rate and so we can see this percentage continued decline and I can see Charles costs I could say qualitatively because we don't know that precisely when we won't maybe we'll never know but what.
We can't say is that we won't see that big of a change with Medicare population, because they've always been relatively easy to reach them being at home.
So what's different now is yes. The commercial population is more at home, but let's not forget these there's still care and treatment avoided in patients just because you could reach them doesn't mean, you convert them. So I think and we'll never know really what the true effect of Kogut as other than we do know 49.
Thousand dropped out of our outreach pool due to lower utilization.
Okay. That's helpful and I don't maybe I missed it but are we still targeting and always pull of 200000.
By year end or or has that kind of expectation change at all.
Dead has not changed.
And there's room for significant increase.
Okay.
And then and then last question then turned you kind of touched on a we won't know what the real impact a cove it may or may not be down the road.
This enrollment, though you use seems like you're saying, it's kind of stabilized yet this 8% monthly rate. Its you know do we feel comfortable that that's going to be sort of Uh huh.
System going forward or or as you know, we kind of come out of this locked down.
Could that change because it seems like that should be more is more a function of sort of the deficit you guys are doing thanks.
Yeah, I think though the improvement to 8% is really improvement in our capability I would say that the backdrop that people are really fully appreciating.
Is the worsening.
Mental behavioral health in the country and the cultural trauma, that's also going out in the country.
But we're a lagging effect at all.
All that they see building up in the population now will overtime translate into higher utilization because of the behavioral health hindering the chronic disease aspects and so world well see that lagged in our business. So I think the second half this year the first half.
Of next year, we will start seeing the effect of worsening behavioral health in the country.
In our numbers.
Great. Thanks, a lot.
Yes.
Thank you Charles.
Thank you as a reminder, if you have a question. Please press Star then one on your Touchtone phone.
Our next question comes from Gene Mannheimer. Your line is now open.
Thanks, Good afternoon, and congrats and all the good progress.
I had one housekeeping question and that is.
All can do you know the enrollment number I'm in the year ago period Q2 of 19.
I do when you say the enrollment number or do you mean, the gross or the actual enrolled members I would say yeah. If you have the enroll members and maybe the additions during that quarter.
Sure. So we added 828 net and ended the quarter at 3951.
Perfect.
Thank you and then just a question on also on your path to profitability.
Over the next two or three quarters, I mean, as some of that predicated on on track 2.0 folding in here at a at a higher margin given that it's a lower touch service and leverage is more a tape automation. Thanks.
Gene no. It doesn't include it in includes very little.
Got it again, you know as you know we say all the time, we tell you what we know not what we expect.
None of our numbers or none of our thoughts about this year next year include to point out. However, there does represent a very large opportunity in 2.0, but that's in there what what is possible what we expect but not what we know.
That's great.
Thanks again.
Thanks Gene.
And speakers I have no further questions. Thank you so I'll turn it back to you for closing comments.
Thank you everyone for joining us on the call today, I'd, especially like to thank the entire on track team for their incredible contributions towards our mission of helping improve the health and saving lives as many people as possible have a great afternoon and evening everyone. Thank you for joining us see.
Next quarter.
Hi.
Thank you. This concludes today's conference call. Thanks for your participation you may now disconnect.
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