Q2 2021 1Life Healthcare Inc Earnings Call
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Ladies and gentlemen of today's conference is scheduled to begin shortly please continue to standby and thank you for your patience.
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Ladies and gentlemen, thank you for standing by and welcome to the 1 medical second quarter 2021 earnings Conference call.
At this time all lines are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask the question too on the session you would need to press Star then 1 on your telephone.
I would now like to hand, the conference over to your Speaker for today average thing Securities Counsel at 1 medical you may begin.
Thank you operator, Hello, everyone and welcome to the 1 medical fiscal 2021 second quarter earnings call I'm joined.
Today by Amir, Dan Rubin Chair, and CEO of 1 medical and Bjorn Thaler, Chief Financial Officer of 1 medical.
A complete the closure of our results can be found in our press release issued earlier today as well as in our related form 8-K, all of which are available on our website at Investor day, 1 medical Dot com.
As a reminder, today's call is being recorded and a replay will be available on our website.
As part of our comments today, we will make forward looking statements. These statements include statements regarding our pending acquisition of IR of health and are based on management's current views expectations and assumptions and are subject to multiple risks and uncertainties.
Actual results may differ materially and we disclaim any obligation to update any forward looking statements or outlook.
Please refer to the risk factors in our most recent annual report as updated from time to time by our other reports and filings with the SEC, including our quarterly reports.
We believe that the COVID-19 pandemic continues to create particular complexity when it comes to providing of forward looking view of the business and we are providing our guidance on a good faith basis per recent SEC recommendation.
We would like to specifically caution investors that our future performance will be harder to predict for the foreseeable future.
Our forward looking statements are based on assumptions that we believe to be reasonable as of todays date August for 2021.
Information contained in today's statements should not be relied upon as representing our estimates as of any subsequent date of.
Of note. It is 1 medical policy to neither reiterate nor adjust the financial guidance provided on today's call unless it is also done through a public disclosure such as the press release or through the filing of a form 8-K.
Today, we will discuss certain non-GAAP metrics that we believe even the understanding of our financial results of.
The historical reconciliation to comparable GAAP metrics can be found in today's earnings release.
Finally during the call we may offer incremental metrics to provide greater insights into the dynamic of our business. These details may be onetime in nature, and we may or may not provide updates in the future.
And with that I shall turn the call over to Amir and Bjorn for the prepared remarks and to take your questions.
Thank you Ivy and welcome everyone.
We are pleased to share results from our second quarter and update you on how we continue to perform innovate and grow in Q2, we delivered strong results as our human centered and technology powered model is resonating with the growing number of employers and consumers.
Our membership count surpassed the high end of our guidance of 620000 members for the quarter nicely highlighting our momentum when considering we surpassed 500000 members only a few quarters ago.
Generally our revenue also exceeded the high end of our guidance, we achieved all of this by delivering compassionate and impactful care for a fabulous team members and our technology, providing our growing membership base.
We also continued our focus on clinical innovation for example earlier in Q2, we highlighted the results of the peer reviewed study showcasing how our model delivered outsized impacts and controlling diabetes, thereby enabling improved member health outcomes.
We also continued advancing the power of our technology for example through further machine learning approaches that make navigating healthcare easier for our members and team.
We also continued our strong growth this quarter leveraging the multi pronged approach that we laid out during our IPO, including growing across markets in our product portfolio and with our partners.
Additionally building upon our advancements we are excited for the proposed acquisition of IR of health and the opportunities. It presents to extend our model to serve more individuals across every stage of life from children to adults to seniors.
Turning to our Q2 performance, we had a strong quarter. We ended Q2 with 621000 members growing our membership base of 31% year over year. We added 23000 members during the quarter and of it added more than 145000 members over the past 12 months.
We delivered of $120 million in Q2, net revenue, which was up 54% year over year we.
We delivered of Q2 care margin of $53 million.
Or 44% of net revenue, which represents our highest quarterly care margin ever reported even with our ongoing entry into new markets.
We also delivered Q2 adjusted EBITDA of positive $7 million, both of our care margin and adjusted EBITDA results showcase of the leverage inherent in our model.
On the heels of for back to back strong quarters with positive adjusted EBITDA. We are pleased to announce today that we expect our full year 2021, standalone adjusted EBITDA to be approximately breakeven.
And while we're not providing 2022 guidance at this point, we are pleased to update our long term goal for 1 medical standalone of.
Of achieving sustained positive adjusted EBITDA from year end 2022 for yearend 2021 of <unk>.
Full year ahead of the schedule, we laid out as part of our IPO.
In addition to our strong financial performance our team continued to serve our members and our communities with a powerful technology and operating platform that combines nationwide on demand as well as scheduled telemedicine proactive outbound digital population health services convenient in person per testing and vaccination.
Surfaces, and longitudinal chronic care and virtual behavioral health integrated into primary care.
Our team also continued to deliver pediatric services for whole family care workplace screening and testing services through our healthy together program vaccination services, including for COVID-19.
Mindset behavioral health services, 1 medical now National Digital Health services and of course, the coordination of specialty care through connectivity with our health network partners.
We see that our technology powered multimodal care model.
With our breadth and depth of services continues to be of strong differentiator in the market.
During Q2, we also continued to innovate with the technology powered clinical care model with we're pleased to share results of of peer reviewed publications highlighting how 1 medical members in our diabetes management program saw significant improvements in both glucose control and cholesterol ever levels.
Notably in the study average hemoglobin, a 1 C levels decreased by approximately 2 point this.
This 2 point reduction is the significant improvement when compared to similar studies highlighting virtual wellness solutions, but did not include primary care to manage chronic care and reported improvements of only up to 1 point compared to our 2 points for context previous studies have found that of 1 point reduction in hemoglobin <unk> C is linked.
For a reduction in risk of death by 21% heart attacks by 14% and microvascular complications by 37 per cent.
Building on our previously published study last year in Jama network open that showed a 45% reduction in total cost of care. This is yet another proof point that our members centered and technology powered primary care model can generate superior outcomes.
We also continued to innovate with our technology platform, we furthered our data interoperability with more health network partners and information exchanges, allowing for more sharing of information across the continuum of settings and advancing our role in owning the complexity of navigating care on behalf of the board members.
We also continued to expand our machine learning models to support streamlined analysis and sorting of external and internal data to make it more actionable with reduced administrative burdens on our team.
This past quarter. We also continued to see many diverse opportunities for growth as we laid out during our IPO. These opportunities include growing with consumers and with the enterprise clients growing in existing markets and in new markets growing with existing partners and with new partnerships growing service offering.
And growing the populations we reach to date, we have demonstrated a track record of successfully executing across these growth avenues. We continued to see strong membership growth across our consumer and enterprise channel with our model attracting a diverse set of enterprise clients.
In Q2, we began new relationships with organizations in the industries across legal financial services manufacturing construction insurance real estate Commerce software and consumer goods. We also continue to serve members on employers with a growing set of service offerings with recent examples including 1 medical.
Now 1 medical for kids healthy together workplace return services and mindset behavioral health for example of the top 10 largest clients we signed in the quarter 60 per cent purchased multiple offerings highlighting how our robust solution set continues to attract and serve a diverse client base.
We also continued expanding our market presence and our health network partnerships, creating more opportunities for consumer and enterprise membership growth and.
And more coordinated care across the continuum of aesthetic.
In addition to our nationwide digital health coverage, we are on track to expand in person coverage from 9 markets at the time of our IPO to 'twenty 2 markets next year before considering IRA.
Our health network partnerships are advancing clinically and digitally integrated care. When we can further coordinated care and help reduce avoidable cost while also advancing seamless service by owning the complexity of navigating care for our members. This past quarter. We were also excited to open our doors in new markets, such as Kansas City.
<unk> in Birmingham, and Huntsville, Alabama, with the launch of our partnership with per radio health.
In total we opened 14, new offices during Q2 across both new and existing markets ending the quarter with 120 for total offices, along with nationwide digital health coverage.
We also continued to make progress in preparation for launching our upcoming new markets, which include Columbus, Ohio, Huston, Texas, Milwaukee, Wisconsin, Raleigh, Durham, North Carolina, The Miami, South, Florida region, and Dallas Fort Worth Texas.
Accordingly, we continue to see tremendous opportunities for 1 more runways for growth in the employer based insurance market with a total addressable market of approximately of $170 billion for primary care in the commercial segment in the United States.
We have demonstrated the strong track record in engaging with members to help drive better health outcomes and lower healthcare costs. Moreover, we believe we can take these core strength and also apply them to further serve the senior population and risk bearing program. The Medicare through our proposed acquisition of IR of health.
The acquisition would meaningfully expand our <unk>.
Pension market opportunity, adding approximately $700 billion to create a combined total addressable market of $870 billion across commercial and Medicare segments.
Including Medicare advantage and the new Medicare direct contracting program.
As we shared on the transaction announcement call our vision with I R is to create a premier National member base technology powered.
Primary care centered healthcare organization.
We believe we will be uniquely positioned to serve people nationwide and across every stage of life from pediatrics 3 of the Goldman years, together, we will be able to provide nationwide digital health coverage and in person care in 28 markets, which could reach more than 120 million people or nearly 40% of the.
Entire U S population.
We will bring together when medicals proven capabilities to attract the white and retain members as well as to manage ongoing chronic conditions, while helping to reduce healthcare cost with I R. It strength in delivering outstanding high service high quality value based care to seniors on the global risk models.
As you saw in the IR of cohort data was shared with you in the form S..4 filed with the SEC IRA has been able to deliver outstanding outcomes.
Under full risk while successfully managing third party of medical cost together, we will be able to further serve members and their families as they age into Medicare and migrate from employer based insurance into Medicare.
We will also extend our position as the premier place to practice medicine.
By offering opportunities across a spectrum of patient populations geography, and digital health model.
You'll also be able to further coordinate care with health network partners to deliver better health outcomes and help lower cost. Most importantly, we plan to continue to the wider members with a modernized approach the in person and digital healthcare with advanced capabilities for population health and care management within a range of reimbursement models.
Moving full risk model, we believe the acquisition of <unk> will further 1 medical's position as a leader in consumer driven technology powered high quality value based healthcare that will support our members and living healthier lives, while simultaneously saving costs and as we help them on the complexity of navigating.
Elsewhere across the complex ecosystem.
In closing, we delivered an outstanding Q2, and first half of 2021 as our team and technology help us to continue to perform innovate and grow with the strong performance. We are now expecting our full year membership to reach 670000.680000 members our full year revenue.
New to reach $475 million to $485 million and our annual adjusted EBITDA to be approximately breakeven.
We continue to perform with impact to our more than 621000 members as our multimodal care model technology platform geographic reach and breadth and depth of services remains strong and growing differentiators in the market.
We continue to innovate in our care model recently, highlighting how our technology powered and team based approach embedding chronic care management into a member based primary care model delivers better results for consumers and employers and we continue to execute across our many growth opportunities serving more consumers and enterprise clients.
Expanding our footprint aligning with Premier partners and growing our service offerings, while we have seen much success to date. We believe we are just getting started in our mission to transform healthcare. We're also excited by the opportunity to grow with IR of health to expand our model to further serve senior population creating.
The significant opportunity to serve members of all ages and across every stage of life. We look forward to keeping you updated on our progress and appreciate your engagement with US now let me turn it over to our CFO Bjorn Thaler.
Yeah.
Thank you Emil and Hello to everyone on today's call.
I look forward to providing you an update today on our second quarter results, which highlight the continued momentum in our business as well as an update on our Q3 and full year 2021 outlook.
And just like them yourself, the strategic nature of the allure of the transaction.
Briefly highlight its financial Infectiousness.
We would also encourage everyone to read the form S..4 filed with the STC in connection with the acquisition debt further highlights the strength of the orders model and the exciting opportunity ahead for us.
For the combined organization.
First 2 on into Q2.
The expanded our membership base by 31% year over year, ending the quarter with 621000 members 1000 members higher than the high end of our guidance.
As a reminder of our membership count continues to exclude the virtual only 1 medical now uses and any temporary use those to Mikael for as part of our community service doing the spin damage.
Turning to our revenue in total we delivered $124 million in net revenue in Q2 up 54%.
Oh.
And $2 million at Boston High end of our guidance.
This revenue growth was driven in part by our continued strong growth in membership revenue.
Which was $28 million.
3 points of $2 million year over year, and which reflects in part due to higher than anticipated membership number I showed earlier.
Our strong revenue performance was also driven by our second quarter on net patient service revenue of $43.4 million.
Which was up 81% year or with you.
This growth was driven in part by our continued strong membership growth ex the normalization of primary care consumption compared to the same period last year during shelter in place the orders.
Finally, our Q2 partnership with Avenue for <unk>.
56 point of $1 million because.
<unk> 65 per cent year over year.
This growth was driven by our strong membership growth continued realization of select markets moving from net patient service revenue to partnership revenue.
And by the continued strong results of our healthy together workplace reentry program.
No for the enterprise clients, such as employers schools and universities to help them, India of COVID-19 response.
Moving down the P&L, we delivered Q2 care margin of $52.5 million or.
For 44% of net revenue.
We were pleased to deliver our highest quarterly margin ever reported which reflects the leverage capabilities in our model while at the same time, we opened 14, new offices during the quarter and continue to prepare us to into 6 new markets over the next 12 months on.
All of which tend to reduce our key on margin in the near term.
Moving below cost of care.
It will remain in Q2 operating expenses, excluding our non-GAAP adjustments, we will of $45.6 million and were up 15% year over year.
We continue to invest in sales and marketing technology and support functions.
Our revenue increase of 54% this true reflects the leverage capabilities in our model.
As the result of our Q2 revenue and expense performance. Our Q2, adjusted EBITDA was positive $7 million or 6% of net revenue compared to a loss of $15.2 million.
For a 19% of net the revenue in Q2.2020.
Yeah.
Turning to our balance sheet as of the end of Q2, we had $653.8 million and total cash and short term marketable securities.
We continue to believe that this provides us with ample liquidity to fund our continued responsible growth as well as the integration of operation of our yoga over the next several years.
Let us now turn to guidance.
We expect the finished Q3 with the total membership count in the range of 640000 to 650000 members and we expect to deliver Q3 net of revenue in the range of $113 million to $120 million.
Please keep in mind that our Qsymia revenue guidance reflects typical seasonal trends and assumes relatively modest contribution from COVID-19 testing.
For the full year, the expects to finish 'twenty to 'twenty..1 was the total membership count in the range of 670000 to 680 cells.
Which continues to reflect our strong and growing the value proposition in the marketplace.
We also expect to deliver annual net revenue of approximately $475 million to $485 million.
<unk> of approximately $185 million to $195 million.
And on adjusted EBITDA to be approximately breakeven.
On the heels of for back to back strong quote of his positive adjusted EBITDA. We are therefore pleased to also update our long term goal for them on medical Standalone of achieving sustained positive EBITDA from your end of 'twenty to 'twenty 2.2 year end of 2021 if full year ahead of this.
You will be laid out as part of our IPO.
We are very pleased to provide this update which demonstrates the ongoing strength of our business.
The ability to deliver responsible growth at scale as.
As well as the attractive leverage and unit economics inherent in our model.
Yeah.
Before we close let me briefly share a few thoughts on hold pending acquisition of a ULA.
We consider the ability for device pull off a couple of membership growth.
Gauge with our members improve their health and lowered their healthcare costs core strength of 1 medical and we are particularly excited about doubling down on the strength with Iowa and Medicaid eligible.
And the combination of user yoga, if you'll be able to sort of more members with our human centered and technology enabled model and enabled better health outcomes.
At the same time royalty to further lower the total cost of care.
This can generate more savings for our members.
The network of partners enterprise clients, and payoffs, which will continue to make our service offering even more differentiated and attractive.
We will also expand the in person of each of our model to 28 markets from 22 markets kitchen of yet another step in creating a national primary care brand in life members exceptional chaos, both virtually across the nation.
The growing number of interesting markets.
We also believe that this transaction can provide attractive revenue growth opportunities coupled with an increase in total adjusted EBITDA margin profile.
These financial opportunities will support us in delivering great value for our shareholders as well as advance our efforts in serving all of our key stakeholders.
Yeah.
Please note that the guidance. We provided you with today does not include the impact of of your order on our business and the rebuild provides you with an updated guidance when the acquisition of <unk> closes, which we currently expect to happen in Q3.
In closing the RP.
Pleased to deliver another quarter of strong financial results, including strong membership into the revenue growth couple.
With the just the highest reported quarterly key of molecules in our history.
We remain on track to deliver a great 2021, and I'm, particularly pleased to guide to a sustained standalone adjusted EBITDA break even 1 year early.
Our value proposition continues to resonate and grow in the market as we continue to leverage our unique strength to improve health outcomes for the members while at the same time of reducing healthcare costs.
We believe the D strength together with all of our position us to deliver impactful results to the Medicare population.
We will also continue to provide long term tailwind to our revenue and margins.
And we believe the Io of acquisition that will further enable us to transform healthcare at scale, allowing us to sales of nearly 40 per cent of the U S population in person in our combined 28 markets and nationally to our virtual offering helping us create of national model for exceptional high quality care.
We thank you for your time today, and we'll now open up the call for questions.
Thank you, ladies and gentlemen, as a reminder to ask the question you will need to press Star then 1 on your telephone.
To withdraw your question press the pound key.
Again, Thats star 1 to ask the question.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Ricky Goldwasser with Morgan Stanley. Your line is open.
Yes.
Hey, Thanks. This is connor on for Ricky.
Could you provide us with an update on the selling season, and what you're hearing from prospective employer clients, which pinpoints are prospective clients of us focused on and are there any particular.
Solutions or service lines that are resonating.
Resonating more with the with with the pipeline. Thanks.
Thanks Connor for the question.
This is amir.
We're feeling very positive about the selling season and really we see that our model continues to be differentiated and stand out in the marketplace. As you know we combine.
Our membership primary care model with bundled digital health inbound as well as outbound population health with in person care.
And that in person care can be for well woman care for chronic disease management.
The b for vaccines and testing so we're finding our combination of our model to be very strong as we mentioned in the earnings call as we saw in the last quarter, we saw sales across an array of different.
Employer.
Segments and industry types.
And as we also mentioned in the earnings script of B.
Of the top 10 accounts, we sold in the last quarter 60 per cent of them add selected multiples of our offerings so that.
That kind of include our.
1 medical now or our mindset behavioral health solution. So we're really seeing employers find that an integrated solution integrating chronic disease management digital health vaccination Covid services.
Continue to be very powerful and we anticipate.
On that continuing into the future.
Great. Thanks, and then as a follow up maybe for VR and could you maybe walk us through and give some more color around some of the puts and takes in second half guidance, especially maybe thinking about the the fourth quarter.
What kind of assumptions does 1 medical have around flow for.
The activity and vaccination campaigns and testing in Q4. Thanks.
Yeah, absolutely. Thank you.
So it looks like they're obviously very proud of all of the performance in the in the first half of them coming in $2 million of off the high end of our guidance just for Q2.
<unk> made me look sort of at the quarter over quarter progression here.
Yeah. The first thing to just keep in mind is that about 64% of our Q2 revenue was generated through membership fees of a partnership fees and as you know these tend to be sort of less valuable than than the net patient service revenue line.
So.
When it and sort of look at the volumes of services only when you look at the quarter. It's certainly Q1, clearly still had a lot of the tailwind.
That'd be talked about in the past, including high Covid testing volumes, including pent up demand for the for healthcare services, such as the annual physicals deferred kind of came in and those sort of things.
Going into Q2, we said that would be really expecting dose tailings to abate and they did a.
Looking back day.
And that the slower than what we had anticipated, causing us to outperform on the revenue side, but they certainly do debate them and now as we sort of look forward into Q3 I think the question is a bit.
Some of these tailwind.
We emerge or the on Austin and certainly what's the.
What's baked into our guidance boastful QC and Q4 is thankfully largely in the skew to a return to sort of more normal demand patterns.
With a modest amount of Covid testing for example, yeah.
So no particular sort of pseudo the booster shot for the full of exceeding the distinction.
Just as well.
Just as much as we do not speak into shelter in place and we don't bake into the guidance any sort of pent up demand for do you feel like you are as well so really as we speak about QC on Q4, it's a it's a in.
In many ways the return to more normal patterns in the to the extent that the.
At the V C differences here relative to the Delta Valley and all of the or what have you would debt that could be 1 of the swing factors certainly for the quarter into the remainder of the yield.
Yeah.
Great. Thank you.
Thank you.
Our next question comes from the line of Lisa Gill with J P. Morgan Your line is open.
Great. Thanks, very much good afternoon Amir on.
We are on a congratulations on on the EBITDA in the quarter and the scope for guidance.
I just wanted to start with the care margin, which is great in the quarter and you talked about leverage how much of that leverage is coming from virtual care would be my first question and then a bigger question for you in the air would be you talked about the peer review you talked about you know chronic conditions diabetes cholesterol et cetera on.
Do you think that there's an opportunity to work with enterprises and employers are around the different programs and perhaps take some level of competition on on some of these.
Yeah, absolutely I'll I'll start on on your first part of it then.
Can you kind of add on the second question here.
Certainly when you when you look at the care of molecule.
The first thing to point out is sort of debt than the average that'd be built into our model, but it's the way of sort of the.
The outperformance on the revenue side does flow what does tends to flow through the does the remainder of the P&L of the smell and and I think you'll see this in Q2 for both the camo, which in the nose of to the EBITDA line here.
Yeah, just on net on our side no T. I think as we look at the the rest of the year, we do expect that commodity here a little bit of 3 continue to open new offices.
It excludes the Polledo offices, we've opened 12, new offices in the first 6 months of the year.
And if you recall of you said you were going to open about 30 to 40, new offices for the full year. So we definitely do have a higher proportion of of offices in the second be together with the 6 new markets that we plan on entering into the next 12 months, so that will more of a T a little bit but certainly.
Specifically to your question on virtual.
It really doesn't have that much of an impact on our operations today, yeah. When you take a step back for like for life services certainly to date, we are being reimbursed approximately the same but the services being performed the virtually or in person at all of the offices.
I think in the long term you certainly could get to a place where you would say look it's not just the member that they can take these calls and into the actions from the safety of their sofa, but also all of a provider of which will help us.
In the and becoming more efficient or even more efficient because all of the assets are certainly but in the near term that's not being the big driver and I'll walk you through performance.
And maybe Lisa to take the second part of your question.
Which was.
Employers of work with us on programs to help them save money and even take capitation will certainly as we noted here today on the earnings call.
We have plenty of proof points that our model delivers outsized impacts you know today, we talked about the study that we released and J M. I R that showed that we reduced hemoglobin <unk> C and took patients really from uncontrolled to control diabetes of 2 point reduction and this was.
What about double of any other reduction seen in virtual only solution. So I think that's you know.
The powerful proof point on the impact on kind of outcomes and quality of care and and the study that we signed the last year from the journal of the American Medical Association Jama Network Open where we showed a 45 per cent reduction in healthcare costs.
Certainly shows that that we can reduce those costs in and frankly, we'd be delighted to share.
Share in the savings of those costs you know what that study showed was actually about of 26 per cent reduction in prescription costs of 33% reduction in emergency room costs of <unk> 43 per section.
The reduction in and surgical specialty costs and 54 per cent reduction in specialist costs. So.
We're absolutely.
Im pleased and feel very confident about the impacts we make there most of the employer market is not organized under a global capitate or capitate. The model. Many employers are in P. P. O models with high deductibles <unk> H S A's or some combination of so kind of the.
Power of our model is we can fit into their existing insurance structure and show that we can save money.
And some of them we've created a membership model you could argue we're taking some capitation in the fixed are in our in the fixed payment there.
In terms of the membership model, but kind of the power of our model as an employer of doesn't have to do anything complex in terms of contracting to get really high engagement get really great medical outcomes and to be able to save money within their existing insurance programs.
Great. That's very helpful. Thank you.
Thank you.
Our next question comes from the line of Elizabeth Anderson with Evercore. Your line is open.
Hey, guys. Thanks, so much for the question and congrats on the quarter I was wondering if you could give me I know the transaction hasn't closed yet, but I was wondering as you sort of spent more time together, even the pre closed planning well the thing you're big in changes there should've mow the areas that you're most excited about so far.
Well great. Thank you Elizabeth for the question.
I think as we mentioned in our S. For them. This is really an exciting opportunity to bring together 2 human centered technology powered primary care of platforms.
And to be able to transform healthcare across every stage of life and really what you had here in 1 medical and I were out. There is you know 2 companies with very similar DNA salaried model provider built for purpose technology of focus on a great member experience and a focus on delivering value base.
The care, so that continues to excite us and.
Certainly nothing has changed in our enthusiasm from what we've described in the S form and I as we mentioned in our remarks today, we really believe this allows us to create the premier National member base technology powered our primary care organization and each of US is shown as of.
We just talked about we can deliver better health and better care outcomes.
With lower costs and to be able to do that you know from pediatrics to adults into the Golden years. We think is very powerful all sorts of describing the S for them and this gives us an opportunity really to serve a whole range of people across the family and potentially add dependence.
In all directions.
Children adults grandparents and be able to serve them.
Together, we will be in 28 markets are reaching close to 40 per cent of the United States. So we find that very powerful.
And so that that continues to excite us.
On across our across the enterprise and we think that positions us to really be a premier national brand in healthcare organization.
That's helpful and just sort of things through that and because of the addition of you know the focus on kind of current seniors and things like that are there any areas does that change your view on whether you should get more involved in any areas of specialty care.
Well I think both of our models have really been primary care of centered but 1 of the things that we've done.
Extremely well that we've talked about is these health network partnerships and that really allows us to develop very tight relationships in coordination with specialists.
And to be able to avoid duplicative testing to share of digital information to share of clinical communications to coordinate care across the continuum.
And we've developed these interfaces and also have leveraged machine learning and other approaches to streamline the sharing of data and risk stratify populations. So we feel this positions us really strongly to advance highly coordinated care AR as we move into kind of more comp.
Plex and aging populations. So I think building on what we've built with our health network partnerships that coordination of care capabilities is really I think where we can shine and better managing our coordinated specialty care.
Thank you.
Thank you.
Our next question comes from the line of George Hill with the Tonight.
Your line is open.
Good evening, guys and thanks for taking the questions I guess I have 1 for Bureau on a 1 for Amir I guess bjorn on the adjusted EBITDA guidance as it relates to the back half of the year I guess given that you've put together for quarters consecutively now positive adjusted EBITDA, what would've been the assumptions that might have driven it negative such the the guidance is now.
All of kind of positive or.
Honestly for the year and Amir of my question is it.
It seems like coming out of Covid everybody's talking about all of things behavioral. This day. These days do you see an opportunity to take the business anywhere as it relates the behavioral as the growth opportunity or does it just on how you fit about the debt does it just not fit and how you feel about the primary care model right now.
Yeah. Thank you George so on the on the question about the EBITDA.
Yeah, there's really a couple of different things at work here..1 you felt me earlier on the Q&A actually talked a little bit about the expectation that our <unk> is going to moderate in the second half.
It is in part driven by sort of of the additional investments into it.
Into our expansion in office footprint et cetera.
Uh huh.
The other thing that I would just mentioned there is the real.
Really continue to invest in our growth on the G&A line and also on the sales and marketing line you know whether that is continuing to build on what technology. Our brand presence of whether that is continuing to build our service offering for the members.
Looking at our health network, most enterprise customers provide us so we really want to make sure that we continue to to go in a responsible way and it also means that we continue to invest in our operations. So that's a little bit of of what youre going to see in the second half and.
Actually I want to talk a little bit about the other question here.
Yeah. Thanks, George Yeah in terms of behavioral 1 of I'd say 1 of the powerful things about 1 medical is we truly do coordinate and integrate care and not just think about it is it's different pieces. So for example, some patients may have diabetes issues behavioral health issues.
You know nida need help coordinating a mammogram or of Pap smear or an IUD insertion may need of vaccine and also of Covid test well, we can do all of that so our mindset behavioral health program, certainly deliveries behavioral health solutions to to our members but powerfully.
It's integrated into primary care, it's our team members and the salary based model of coordinating with primary care providers and as I mentioned in the prepared remarks of the top 10 largest sales that we had in the in the prior quarter 60 per cent of them had multiple offerings, including our mindset behavioral health.
So we continue to see that as something that debt will continue to resonate well continue to be powerful.
But particularly powerful because it's integrated into primary care just as we saw with the of diabetes solution, we can get outsized or or double the debt.
The performance published performance in the diabetes case, when things are integrated in the chronic care of longitudinal model as part of the primary care.
That's very helpful. Thank you guys.
Thank you.
Our next question comes from the line of Steph Wissink with Jefferies. Your line is open.
Thank you good afternoon, everyone of you.
Our next question is for you I wanted to just take 1 more shot at the EBITDA guidance, maybe coming out of it from a slightly different direction. If we look at your care margin guidance for the year of it does embed that step back and if you would of Decompartmentalize. The preopening burden of some of your of centers that you have planned for the back half from your underlying organic care margin.
Are you still seeing directional improvement in net underlying rate.
Yeah. Thank you for that yeah.
I mean to some extent it is hard to decouple those sort of because we are really looking at the says what do we need to do to keep investing in our production and making it even more attractive.
And certainly.
None of that is investing in technology you wanted it in is investing in the brand you'll hear me earlier today talked about sort of.
The building a brand business truly national reach certainly on the virtual sides, but also no soon to be able to deliver and put us in key of in 28 markets.
The well continue to to Bill's dad will continue to also build an ecosystem of additional services around debt would be just talks about behavioral health suite.
<unk> talked in the past about the 1 medical for kids of all.
Pediatric service offering so you know what.
When I think about what does what is 1 of the things that makes 1 medical special but it's sort of debt debt interconnected ecosystem of products that would be of building some putting back into the membership to make the membership itself more attractive some allow us to to charge additional fees for free.
The additional services et cetera, the like on the behavioral side.
And the dose of some of the investments that we are going to do particularly in the second half here.
Looking to continue to to reinvest in the business and make sure that the big of those that'd be shown over the last couple of years continues to come.
Continues to device for the business for what.
Okay. That's great. My second question is just related to the comments on the leverage so it looks like that $120 million run rate is about the level you would need to kind of get into the low single digit EBITDA contribution level is that something we should think about going forward and you're going to see some incremental margins as we look out into 'twenty 2 and.
Even into 'twenty 3 as the business scales, both from the membership on a revenue perspective.
Yeah. So we obviously provided.
Some of financial numbers as well as part of all of those formats for our.
That also gives you a little bit of a sense of sort of how we are thinking about the of M. P O.
Yeah and again.
If we were at 2.2.
To focused purely on the on EBITDA.
Yeah, I think for you would ultimately do ourselves the disable.
Because we do think that on.
There is a lot more growth to be had you heard us in the past day, but you know even on our largest market.
We are yeah.
About 3%.
Our market share. So you know, we'll continue to to really invest into net growth.
Then the other thing I would just say is debt.
Obviously with the addition of are you all the.
You'll have an additional dynamic here, where the more members to be sign up a day more on near term demand you have on demolishing profile, because many sort of from new members on the Medicare side are not well managed as day sort of.
Come to us in the beginning and over time will improve health outcomes.
So that's another dynamic going forward what the.
Did you might want to think about you.
Thank you.
Thank you.
Our next question comes from the line of Richard close with Canaccord. Your line is open.
Great. Thanks, congratulations on the quarter be on.
And maybe just on that last comment.
I know we talked in June.
About the it's a little bit with you guys, but on.
On the adjusted the EBITDA or I mean, the care of margin.
Losses for.
Or are you or are you just hit on it in terms of new.
The new cohorts and whatnot, but we still get this question a lot.
Does the IRI.
Do you do you feel confident or do they have a track record of the older cohorts actually having positive care margins.
Any demonstration or any details you can provide on that would be helpful.
Thank you for the children I mean, the short answer is yes, you can imagine we've really dug into that as part of our diligence.
I think we gave you some data points day.
On both of the announcement of it and also in the form as for.
We sold for example of 27 basis of 27 percentage point improvement in the medical.
Medical claims vanish the expense ratio of over 5 years. So for example, if you look at the member cohort that they signed up in 2017.
And the first of year to day came in day and about 100, and so the percent of medical claims expense ratio did 1 over the next 4 years did you use to 76%. So that's the 27 percentage point decrease.
Lou from and I should say over for years.
If you look at the 2018 cohort you've got the E is similar.
A dynamic here, where they start off the very high of Dennis They become managed bed OSD of healthy proves you see sort of the corresponding decrease in the medical claims expense ratio of the same boosted 2019 cohort so are we.
We do feel twice the cause.
Quite a positive obviously about the ability to do that.
And then on top of debt you then layer in thankfully what 1 medical has been able to do by itself over time, you've heard me talk today about the 2 point reduction in hemoglobin <unk> C for diabetics.
Which is yeah.
More than the virtual all of these products for example tends to the Liberal you've heard us talked about the 45 per cent cost savings.
Net be published in peer reviewed studies.
You've heard us about you know some of the other cost savings are in studies as well so when.
When you add those 2 companies together with with all the values of coaches are I think we feel we feel really good about all of the ability to positively impact of the health of those.
Medicare advantage members and and all of that flow from that.
Okay. That's very helpful. Amir I was just wondering if you could just talk a little bit about the labor market for you guys, obviously, you're opening up.
For a decent number of new markets and I'm just curious your thoughts with respect to any challenges out there that you're seeing.
Yeah. Thanks, Richard well, we think this is 1 of the kind of differentiated advantages of our model and we often talk about how we serve multiple key stakeholders. So of course, we wanted to like the the consumer the member and sort of employers and payers and we want to integrate across the healthcare ecosystem, but we also want to be the best.
Place to be a team member and the best place to practice medicine, and we've done a number of things here that we believe position ourselves powerplay.
First of all we built around our technology.
And we've shown with our technology that we can.
Pardon me reduce electronic health record tasks, we've shown about 40% less task than other providers we've seen.
We leverage of salary based model rather than a fee for service compensation model, which on the fee for service system kind of encourage us short transactional visits and we try to have relationship based care, we bundled digital health as part of that that provides that our cash.
Coverage at wrap around coverage.
2 are in person team members. So we think we're very well positioned to continue to grow and to continue to attract staff differentially and and the b kind of the premier place to practice medicine.
Okay. Thank you.
Thank you.
Our next question comes from the line of Daniel gross light with the city.
Your line is open.
Thanks for taking the question guys and congrats on the strong quarter I wanted to go back to the Iowa acquisition for a bit on the <unk>.
Revenue synergies assumed in the acquisition you noted in the proxy that you expect new incremental members growing from around 5000 in 2022 to around 2202030 I was hoping you could put a finer point on the split of those incremental members between 1 medical aging into I R. A.
Our of being referred by when medical members increase the awareness et cetera.
Yeah happy to so.
I think oh.
I think when you take the step back on are you on a to your point of view you see a couple of different opportunities for those members to show up.
1 we now have 621000 members. They all have pounds day won't have Glenn pounds and keep in mind debt.
It's a 90 NPS and certainly historically Sweeney waiting more than 9 out of 10 consumer members.
We feel that thankfully dose just spend on 'twenty 1000 members that we have of going be great brand ambassadors at the kitchen table and day talks to the opinions and grand pounds about the yeah.
What's the life health plan to sign up or what's the dice the what's the right model to sign up.
Yeah.
What would be of hoping is that theyre going to say yeah.
It doesn't the.
Key thing is sign up with somebody who can provide you with 1 medical and I all of the debts, that's why us and that's the way I'm really really happy with this debt that's would be of hoping they will say.
Yeah. In addition to that you've got the expansion of the markets that you mentioned briefly the scene.
On this age ins of of our members that are the current believe on medical members on the best overtime will age into Medicare and just to give you. An example, there.
We have about 2 to 3001 medical members age into Medicare.
On average you know, obviously fluctuates, but that's probably not a bad number to think about.
And suppose you sign up or suppose you have 2500 of members aging into Medicare and you can keep half of them either under the in the MA plan or under the D. C. Direct contracting model of you take risk right.
<unk> 1250 people per year.
Assuming hundreds of thousands of dollars per member per month and the revenue are.
Debt alone is sort of $15 million of annualized revenue of ideal, but and obviously that is to some extent cumulative for next year, you've got the you've got the additional people age into Medicare as well. So that's obviously a hypothetical example, but.
But hopefully it shows you how how quickly the numbers cannot can add up from something that we think frankly is relatively low hanging fruit.
Got it okay, that's helpful and if you're on it.
It sounds like from your commentary, you're not really changing your view on the general cadence of the business due to the Delta variant.
Is that right and I just wanted to check to see if you've incorporated delta at all into your assumptions for the back half of this year and next year.
Yeah, so that.
That is generally right.
But we haven't really changed all of our guidance.
Yeah, you think debt given some of the some of the uncertainties debt, where you see our debt is still debt I think to do so maybe just to reiterate.
What we are assuming for for Q3 and Q4 is the.
Sort of the return to a true normal demand patterns debt the debt on those less impacted by COVID-19 than what we've seen in the past we assume the relatively moderate amount of of Covid testing.
We certainly also don't expect any shelter in place and fitness.
All of the or any sort of pent up demand for food care debt will be there'll be necessarily seeing over the next 6 months. So hopefully that gives you some guidance as to how we are thinking about this and again.
The various ways to sort of get to a to the to the high end of the guidance and yeah. As usual I think it's not just an optimal model that will get us there, but the but the idea of different ways to get us to 2 barriers results within the guidance range.
Yeah that makes sense. Thanks for you on.
Thank you.
Our next question comes from the line of Jessica <unk> with Piper Sandler Your line is open.
Hi, Thank you for taking the question and congrats on the corner. So I have 1 on the fourth quarter guidance and if the Reacceleration and membership growth that you're forecasting. The hearing has historically reported mostly coming from the D. T C channel or on the enterprise market and just how should we think about drivers underlying that fourth quarter of reaccelerate.
Yeah.
Yeah, we.
We are yeah we.
We continue to see strong demand both on the enterprise and consumer side if.
If you look at sort of the the quarterly patterns, obviously by all the companies can earn us at any time do you want to get a benefit for you.
A lot of them do make decisions.
Do you have sort of 1.1 and once we have sort of once we all sort of over that hurdle oftentimes. They say, okay. Now we've gotten to to make the purchasing decision Neal first of all of you out sooner. So that's 1 of the reasons why you see you see sort of Q4 and Q1 tends to have more.
For membership sign ups, particularly on the enterprise side, but.
Just to wait for as we see strong demand continuing strong demand both on the consumer side and the enterprise side.
Thank you and that's helpful for them as a follow up you'll be in 22 markets next year are you able to sell enterprise membership in the new markets. The ear for Dan 1 dark or do you anticipate that membership growth is primarily going to come from the DTC channel on the first few quarters post launch.
Yeah on part of the power of our model and of adding 1 medical now allows us to go to enterprise accounts and serve.
Serve them in markets across the country, where we have physical presence, but maybe where we just might turn on our digital only 1 medical now solution. So.
That that is a.
Part of the reason why our 1 medical now has has been a powerful so that that allows us to sell nationally and the kind of have this network effect in more markets that.
Of that we go into the more we attract the larger and larger employers, which is then pulls us into additional markets.
Thank you.
Thank you.
Our next question comes from the line of Ryan Daniels with William Blair. Your line is open.
Yeah. Thanks for taking the question apologize if you answered this I've been hopping among multiple calls but.
On the 1 I wanted to ask it seems like your service offerings are really broadening I noticed that youre doing some urgent care services in some markets like New York and the San Francisco. So I was hoping you could talk a little bit about the expansion there or if that's kind of driven by a health system partnerships in the longer term opportunity the rolled out more broadly and then maybe just some of the other stuff that you're offering the.
Appears to be novel like the nutrition and weight loss counseling and you mentioned.
Think of mirror the mindset for corporations in the mental health I think you've also got the shift program for group therapy for just a little bit about how the service offerings of 1 medical have been broadened over the last few years on where youre seeing the most success.
Yeah, Thanks, Ryan what I would say, where we're still on the longitudinal primary care model and membership model. So.
But certainly patients can come to us with urgent issues in office or on demand, but we are a longitudinal primary care model, but as we've been describing.
We can handle an array of things on our primary care model.
Whether that's a diabetes management and we spoke to the outsized performance, we have there whether its behavioral health, whether it's leveraging health coaches or of therapists or group visits whether its the nutrition whether it's.
Ah well women care LGBTQ plus care.
Expertise in managing chronic diseases and chronic conditions like HIV and these are the things that we can do when we have longitudinal member relationships.
And the relationships are really sticky so.
We've shown that we can offer that range of services as we noted on our earnings call of our 10 largest sales in the quarter 60 per cent of them had multiple offerings and we think that shows the power of having.
Our primary care based model where.
Where you can manage the whole person health and care.
Thanks, so much.
Thank you.
The.
Thank you.
Our next question comes from the line of Donald Hooker.
With Keybanc, Sir your line is on that Greg.
Great. Good afternoon, the real quick the it.
I didn't think of that I've mentioned anything about free cash flow. So it's exciting to see your adjusted EBITDA positive.
At this point, but you know of any kind of update in terms of.
So maybe getting closer than expected to the free cash flow.
Yeah.
Yeah.
Yeah.
Okay.
Hello.
Sorry, Bjorn I think you're on mute.
Yeah.
Yeah look.
Yep, we can hear you.
Okay.
Sorry for the for the technical issues here.
Obviously, the EBITDA performance will flow through to to get us a better starting point on the onto cash flow as well we are going to continue to invest in all the offices, so youre going to continue to sort of see.
The additional cash flow to that from us opening up in the geographies opening up new offices.
But certainly the the EBITDA outperformance this year and the ability to to now have called for the time for being EBITDA positive certainly will flow through on the cash flow statement as well and I would imagine.
Okay. Thank you.
Thank you.
Our next question comes from the line of David Larsen with the D. P. I G. The line is open.
Hi, can you talk a little bit more about potential revenue synergies with <unk> and the Medicare space in particular.
Is there any possible way to supplement the revenue you might debt for those Medicare members of MMA members is it possible to collect the partnership revenue for some of those members in some way from your from various hospitals and then.
Can you talk a little bit of out in sort of potentials into those MA plans for the commercial products. Thank you.
Yeah. Thanks, Thanks, David No we wouldn't.
We really think about these in indifferent model the the seniors in the Medicare advantage and direct contracting of really in these Ah full risk models, whereas in the commercial world as we talked before on the call. Most employers are kind of in PPO plans and so the models are different.
There in the industry so.
I would think about those revenue models in that way, but as Bjorn. Previously described there is tremendous revenue synergies here and being able to sell and market across a range of ages and.
And across every stage of life from pediatrics to adults to the Golden years since we'd like to say.
And so we do anticipate having folks who are in 1 medical today and some of them they age into Medicare and we could look at direct contracting or Medicare advantage models and put them. In those models are we may have folks who have parents or grandparents as bjorn previously described hood who liked.
The join this combined model and we can find their way into models there and we may have so can I or who are in.
The aging adults that might have a younger family members, who can sign up as well so we.
We really see the cross marketing and an end and growth in sales opportunities as being significant.
Great. Thanks, very much and then 1 of the things I've always liked about 1 medical is your the earnings profile of the business itself I mean, congratulations on the good EBITA for the quarter with Io or of obviously, there's a bit lower EBITDA margin there.
Any color or initial thoughts on it in your view when you would like to see your EBITDA breakeven I think that might be 1 of the things weighing on the stock any any color or just sort of high level thoughts around that would be great I think like you.
Yeah, I mean, we obviously provided in the underperformance for.
Yeah.
The actions forecasts and extrapolations day.
What is the view on on synergies.
So I think of that probably is is we all have the point you to here given that we haven't closed the 2 companies yet in the end.
And everything else.
Yeah, maybe it's just taking a step back I think taught a lot of on medical has shown over the last.
Last several years certainly is that the value focused on on our operations. We are very focused on responsible growth.
And balancing sort of of the value of stakeholders on I think what you'll see us sort of the combined company is you'll see us continuing to do that and yeah, certainly while while debt percentage of EBITDA margin.
Yeah.
<unk> towards sort of the 17% plus.
The combined EBITDA margin compared to all of our 20% plus standalone.
So you know debt percentage is obviously on a much higher dollar non both so yeah. The way we think about the frankly is that it is going to be accretive to total EBITDA margin in terms of it all of them.
Great. Thank you.
Thank you.
Our next question comes from the line of Alan dressing with Credit Suisse. Your line is open.
Yeah. This is actually the gel interesting from credit Suisse I actually want to go back to some of the disclosures and the S..4 proxy for that.
Really around revenue synergies of 377 million and 2025.2 questions. There first of it looks like the EBITDA impact is pretty minimal.
The next 3 or 4 years of actually negative help.
Help us understand some of the investments required to drive those synergies over the next 30 to 40 years and another data point, which was the best friends on the call earlier of 15000 incremental members by 20 to 25.
I look at the M. P. M 77 million revenue on 15000 of it looks B M Company Hi are there other than the synergy number include anything beyond sort of members of just trying to reconcile that 15000 member count what's the.
The revenue synergy target.
Yeah.
So what does all of the history a lot in the heel.
What I would point you back towards is what I mentioned earlier about the dynamics that you have.
In the Medicare program.
If you sign up of new member on.
Unfortunately, many of those members most of those members they tend not to be particularly valla managed line.
They're.
The house conditions on all the checks.
They do not they have to figure out the chronic care.
Out of Us so are the only on those members do tend to have.
The higher and higher.
Medical costs associated with them, but then over time you manage their house they become yeah, the healthier relative to where they can be and and you do the right thing by that was member of the necessary resolves the associated cost with the dose members ought to go down.
The of healthy booths, and yeah, I think when you look at the synergies and the formats for you've got to keep in mind. The theory sort of this cohort the effects that again, we already talked about well all the time you have the decline in in total medical cost, but every year as you sign up new members.
Well, yes, you sign up.
And the increasing number of members obviously you know.
On the relative mix shift and that's the sink a little bit what do you see in terms of the the.
The overall synergies here that the world is close and the formats for which really frankly.
The testament to the growth that the debt yeah. We believe we can generate T. Together with you on a going forward.
Okay, just the 1 follow up on the since you announced how thing have you guys had any conversations with your health system partners in other markets or even the health system, saying, even iron ore market in terms of some potential of synergies you guys kind of run rate there any feedback you can share from those conversations.
Or is it too early.
Yeah as I previously mentioned I think 1 of the power of thank you Julian growth 1 of the power of our model is we have done this clinical and digital integration across primary and specialty care. So that absolutely is something that we can bring.
Bring to them are the <unk>.
Care space, the Medicare advantage space and collaborate with our health network partners as well. So we're very excited about the those those opportunities I think that's another strong differentiator.
In our model of care.
Thank you.
I'm not showing any further questions in the queue I would now like to turn the call back over to of mail for closing remarks.
Well. Thank you so much of everybody. Thanks for the interest and the great discussion and questions today, and we look forward to seeing you next time.
Evening, Thanks, so much everyone.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.
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