Q3 2021 Ontrak Inc Earnings Call
[music].
Good day and thank you for standing by welcome to the on track third quarter 2021 earnings call. At this time, all attendee lines are in a listen only mode.
I have a question and answer on today's presentation. If you wish to ask a question. Please press star one on your telephone please.
Be advised that today's call is being recorded I will now handle vertical altair host for today Ms. Caroline Paul Ma'am. Please go ahead.
Thank you and thank you all for participating in today's call.
Joining me today are Jonathan Mayhew, Chief Executive Officer, and Brandon Laverne Chief Financial Officer.
Earlier today on track released financial results for the quarter ended September 32021.
A copy of the press release is available on the company's website.
Before we begin I'd like to make the following remarks concerning forward looking statements.
All statements in this conference call other than historical facts are forward looking statements.
The words anticipates believes estimates expects intend guidance confidence target.
Projects and some other expressions typically are used to identify forward looking statements.
These forward looking statements are not guarantees of future performance, but may involve and are subject to certain risks and uncertainties. Other factors that may affect on trucks business financial condition and other operating results, which include but are not limited to the risk factors described in the risk factors section of the Form 10-K and form 10.
Q as filed with the SEC.
Therefore, actual outcomes and results may differ materially from those expressed or implied by these forward looking statements.
On track expressly disclaims any intent or obligation to update these forward looking statements.
With that I'd like to turn the call over to Jonathan.
Oh, Thank you Karen and good afternoon, everyone and thanks for joining us during the third quarter, we made important progress with building held for sale.
Right.
We are now in active discussions with three of the.
The larger national health plans in the country, and we're exchanging data and creating financial models for multiple provider and employer organizations.
Break down these opportunities for you in a moment.
But our confidence in our ability to fast track it.
Meaningful portion of our pipeline.
Is increasing given the overall market dynamics and our new management team.
During our last earnings call I shared our plan to recruit experienced leaders for three new executive roles.
Number one renowned industry thought leader Dr. Robert Eckert joined on track from Cortez.
Remember as our Chief Medical Officer.
He's already engaging with clinical decision makers at customer and prospect organizations.
Presenting the on track program with National Health care conferences, and giving speeches at Fortune 100 companies then.
While restructuring on track clinical operations to accelerate our ability to achieve meaningful and measurable meaningful and measurable engagement across a wider spectrum of individuals' behavioral health conditions and comorbidities.
Mary Lou Osborne joined Us from Aetna as Chief customer Officer.
She is meeting with our customers and leading or conversion of an increasingly robust sales pipeline, which I'll speak more to more materially.
Archil became on track first CIO org.
<unk> joined US from the New York soundly and he's taking a pragmatic view of our technology investments prioritizing high value.
AI enabled solutions that drive market differentiation for <unk>.
These new appointments round out our executive team and enhance our ability to deliver a flexible portfolio of behavioral health solutions to a broader set of customers across more channels.
Demand for behavioral health care continues to soar and access to quality behavioral health care is worth it.
D C. In the U S census Bureau has reported that one in four adults experiencing symptoms of anxiety or depression have not received the counseling or the therapy that they felt that they needed.
On track care coaches continue to play a critical role in preparing members received behavioral health care from providers, ensuring that members are guided along appropriate care pathways and engaging with members between provider visits to help them succeed at completing treatment at a time when there was tremendous pressure unfair.
On truck and lessen the burden on providers by increasing member adherence and engagement.
Now I would like to give you a breakdown of our sales.
I'm very pleased with the recent levels of customer and prospect interest that we're generating as we broaden our reach with refined value proposition for clinical clinically meaningful enhanced human and digital interactions customized for Medicare Medicaid commercial.
So at risk provider groups and the direct to employer market.
Health plans remain our core business, we now have market validated value propositions that recognize the distinct needs of each line of business.
Commercial Medicare and Medicaid and.
And the metrics that matter most to each customer constituency.
We expect our health plan and government business to remain the largest share of on track business.
Well, we are in discussions with a number of organizations seeking solutions for every line of business.
Our current pipeline of health plan process includes three of the larger health plans in the nation.
And we're actively engaged in discussions with a total of 16 plans and large population states in the southwest Midwest and.
Provider networks are a new source of revenue.
We're seeing continued interest in our services among provider networks and hospital system. We can help these organizations improve access to behavioral health care.
And completion of treatment through our ability to remove barriers to care.
Create customized care pathways and engage and support even those individuals.
Least trust in the health care system piece.
These provider networks are also interested in our ability to help them with value based care and since we're advancing discussions with two regional provider networks and anticipate conversations with a number of large integrated provider organizations, representing a significant post central's upstream to on track.
The employer market is another source of increased.
We are targeting employer organizations with over 5000 employees.
In advanced discussions with three employers of that sort.
And have anticipated.
Participating with and have participated in a large employer RFP.
We've also begun a dialogue with the national pharmacy retailer and last month, Dr. Robert <unk>, Our Chief Medical Officer was honored to be the keynote speaker at Ford Motor Company's global health awareness.
I'd now like to provide an update on the product strategy.
We continue to see the strongest interest for our highest acuity.
Individuals with severe behavioral health conditions.
Dressing high acuity populations, and delivering health and financial outcomes through a blend of on track care coaching digital interventions and provider.
He is a valuable now as it's ever been and improving members access to behavioral health support while driving down medical costs and improving health outcomes. In fact in the past several weeks multiple health plans have reported that the cost of care is well above normal levels due to higher COVID-19 related costs.
Emergency room visits have continued to rise, indicating that high acuity individuals.
Increasingly.
Of expensive avoidable E. Our services instead of accessing the appropriate community.
Mary care and behavioral health services.
She was the members need to be coached too and through care, which requires a well coordinated effort and continuous communications.
Hum.
On the part of they're on track care team behavioral health providers and primary care physicians.
We are enhancing our highest acuity offering with a new on track mobile care product that will give our care coaches in providers, an easier and more efficient way to communicate with each other and allow members swifter referrals to high quality behavioral health providers, we envision further investments in <unk>.
<unk> and feature upgrades in an effort to make high acuity part.
Clear market leader for evidence based engagement and treatment of the most difficult to engage individuals.
To give you a sense of the value of our high acuity.
Mostly pricing has historically averaged between 500 and $700 per enrolled member per month.
Recently, we've been able to reduce this to the lower end of the range as we have built efficiencies into our cost structure to enable and ensure appropriate rois for our customers.
As we continue to refine our on track products, including the addition of the on track mobile care module, we anticipate further efficiencies that provide more flexibility to incorporate different price points.
Pending on our customers' NIE.
Including the ability to lower or raise the threshold target spend for inclusion in our program.
We believe that lowering the base targeted spend threshold could increase our typical 2% to 4% of the population by an additional 10% to 12%.
But at a lower price point, while flexing, our cost and delivery model to maintain strong margins and increasing our total addressable market for the core on track program to approximately $43 billion.
Two of our largest employer customers who utilize.
Our life dojo won't be well being digital solution.
Increased.
And expressed an interest in adding a lower threshold targeted spend entre program to their existing won't be.
But at a lower price point than our historic higher targeted spend thresholds for the on track program.
Further one of our longest standing health plan customers has already signed a contract to be on track mobile care product to the high acuity on track program.
We estimate that 2022 revenues will still come primarily from higher acuity members sold two health plan customers.
For low acuity individuals seeking will be we are delivering our new on track mobile care product, which takes the original life dojo digital pot and enhances it with additional human coaching video and interactive content and asynchronous one on one chat for those.
Who are ready to manage their own well being needs. We expect that employers may want to combine this low acuity products with flexible features.
We're on track program in the same way that the two current employer plans are doing so today.
For the low acuity trucks will be few dollars a few dollars P. M. P. M focused on employer groups with 5000 or more employees in the U S. We estimate that the total addressable market associated with well being for employers to be nearly $6 billion.
Foundational to our product strategy.
Our advanced digital and data infrastructure.
Tracking of meaningful engagement and real time reporting to our customers and the members care team.
And why does the large number of digital App now available in the behavioral health market.
We have been intently focused on meaningful engagement.
I wish I mean clinical measures of member care teams interactions that have proven behavioral science backed verifiable outcomes all of our products combine human and digital interventions and the level of human engagement aligns with the severity of the members' condition and their readiness and the needs of.
The individuals.
There is no one size fits all approach for those who are behavioral health conditions, and we will continue to invest in clinical insights and measures that expand beyond social determinants of health assessments.
With respect to our existing customers, we continue to see meaningful levels of interest as we discuss our product development roadmap develop strategies to maintain or increase the ROI and enhance our reporting and insights and analytics.
As I mentioned earlier, one of our health plan customers just contracted to deliver the Archrock mobile care product to their members effective early next year and two of our employer customers will augment their wellbeing program with some of the flexible features well see entre for next year.
As I mentioned on our last earnings call. We expect our continued execution and intense focus on growth initiatives will drive us towards greater predictability.
Also expanding our ability to be soaring demand across the nation.
Archrock has a world class management team.
Market validated flexible product and an increasingly robust sales line that we believe position us.
To scale and a rapidly expanding market.
I'll now turn the call over to Brandon Laverne, our Chief Financial Officer.
Right.
Thank you Jonathan.
During the third quarter, we recorded revenue of $18 6 million, a 23% year over year decrease due primarily to the loss of two large customers.
Deferred revenue decreased to $5 $3 million in the third quarter down from $14 $5 million in the second quarter with the remainder expected to be mostly recognized into the fourth quarter.
At the beginning of the quarter, we had 10904 enrolled members and ended with 9395.
Or a simple average of 10150.
That equates to revenue of about $611 per enrolled member per month for the quarter compared to $608 per enrolled member per month.
In the third quarter last year and $685 per enrolled member per month in the second quarter of this year.
To go a bit deeper into Q3 enrollment we enrolled a total of 2000 and 854 members during the quarter compared to 7192 in the third quarter last year.
Dividing Q3 gross enrollment by our outreach pool, which averaged approximately 21613 for the quarter.
It annualize to a 53% enrollment rate compared to the 52% annualized enrollment rate, we saw in Q2 and 56% in the first quarter.
Our disinvolvement rate averaged approximately 7% per month during the quarter, resulting in its different rolling a total of 2241 members during the quarter.
This compares favorably to the 10% average monthly just enrollment rate we saw in Q3 of last year.
Further we graduated 2122 enrolled members during the quarter.
Which equates to about 19% of the enrolled members in the program at the beginning of the quarter an increase to the 9% average monthly graduate graduation rate we saw in the second quarter.
Of this year.
The net impact of all that was a net enrollment decrease of 3964 in the third quarter.
Our gross margin for the third quarter of 68, 5% increase sequentially from 67, 8% compared to 45, 6% in the third quarter of last year.
The expansion of our gross margin from last year was driven by the optimization of our internal cost and numerous efficiencies implemented in our program.
We ended the quarter with 181 team members included in cost of revenue down 7% sequentially from 195 at the end of Q2 due to a reduction in response to the customer loss.
I'd like to spend a little time, helping you understand how we think about our revenue model for the areas that Jonathan mentioned earlier.
Our higher acuity Entr'acte model assumes we receive approximately 2% to 4% of the health plan population into our outreach pool.
With commercial customers on the lower end and government customers on the higher end.
Our annualized enrollment rate assumptions are in the 24% to 45% range.
Sure it off the outreach pool again with commercial in the lower end and government on the higher end.
Upon launch of any program or receipt of significant new members into the outreach pool, our enrollment rate tends to be much higher and then normalizes over the next several months as the outreach pool matures with only normal monthly changes.
As I said earlier, our average per enrolled member per month during Q3 was $611.
And it is trending lower for the reasons mentioned.
But at 611 per enrolled member per month.
1 million life health plan in the commercial space at a 2% outreach pool with a 24% annualized enrollment rate.
Given the seven to eight average months in a program could generate nearly $22 million per year in revenues at maturity.
Similar a 1 million lives Medicare plan at a 4% outreach pool with a 45% annualized enrollment rate at the 611 per enrolled member per month and seven to eight average months in the program could generate over $80 million per year in revenues that maturity.
I'll walk showing significant savings to the customers.
You can see why we continue to focus on this area of the market and also expect it to be the driver of future revenue growth.
In the employer space the Untracked mobile care product is priced at a few dollars per month for all lives. So for a 10000 sized employer revenues would simply be 10000 tons. A few dollars per month. However, we believe we can onboard employers at a much faster pace than health plans, helping to contribute to the revenue growth and also providing opportunities.
Upsell employers into the on track higher acuity program four enrolled members.
Turning to the balance sheet and cash flow.
Cash flow from operations in the third quarter was negative $14 $3 million compared to negative $2 $5 million in the third quarter last year.
On the balance sheet, we ended the quarter with cash and cash equivalents of $75 $3 million down from $86 $9 million at year end.
Including restricted cash total cash on the balance sheet was $84 $8 million down from $103 $2 million at year end.
We expect that we have sufficient capital and access to future capital to manage our operations and execute on the strategic initiatives we've outlined.
Regarding our outlook for the remainder of the year, we're raising our 2021 revenue target to the $82 million to $86 million range.
Implying Q4 revenues in the $8 million to $12 million range.
Our revenues have been impacted by the loss of two large customers as well as budgetary constraints limiting our outreach pool enrollment and pricing with certain other customers to the fullest extent.
These headwinds are likely to continue into the new year limiting our outreach pool enrollments and revenue as we just roll the remaining members from our loss customers by the end of Q4 until we sign and launch any of our pipeline opportunities.
Well, we were able to achieve year to date positive adjusted EBITDA up through Q3 of this year.
We expect adjusted EBITDA in the near term to be negatively impacted due to the headwinds mentioned above.
As we expect to onboard certain of our large pipeline opportunities. During 'twenty. Two we would expect to return to historical rates of growth off a smaller base.
I'd now like to turn the call back to Jonathan.
Yeah.
Thank you Brandon.
As I mentioned earlier addressing high acuity populations and delivering health and financial outcomes through a blend of on track care coaching digital interventions and provider visits is especially valuable now.
Our sales pipeline of health plans providers and employers.
Give us tremendous confidence pulse.
Health plans will remain our core customer.
We are in active dialogue with three of the larger health plans in the nation.
With our new management team on board and expanded total addressable market refined value proposition a flexible portfolio market validated products.
And new efficiencies in our cost structure, we're excited to return the company to historical growth rates.
I look forward to updating you on the progress and we'd like to close by recognizing the extraordinary team and on track for their commitment and professionalism with more than one in four Americans now reporting.
Clinical level anxiety, and depression or substance use disorder. The pressure on our employees has never been greater and their tremendous work is deeply appreciated by the members we serve.
All of us at Archrock.
With that I'd like to now open it up for questions.
Operator.
For participants who wish to ask a question. Please press Star then the number one on your telephone again. Please press Star then the number one or a telephone.
Our first question comes from the line of Richard close from Canaccord. Your line is open.
Yeah. Thanks for the question a great update here on <unk>.
The business John.
Jonathan I was wonder if you could just go into the discussions with the three national plans a little bit more.
Asleep you have lost the two customers and Aetna and Cigna this year.
Still have some enrollment with them and I'm I'm curious.
The discussions with these three plans that youre talking to do those losses come up.
And you know how do you address that with them.
Or is it a non issue and then is there an opportunity to have discussions with Aetna and Cigna in terms of revisiting their relationship with on track.
Richard Thanks for the question.
Really appreciate it.
Let me say at least the first part of your question relative to three three to three.
Three largest.
Her larger plans.
In the country.
I would say that they are in different stages.
All of our development slightly different lines of business or portions of lines of business with those with those prospects.
And the opportunity to expand into geographic.
Lines of business expansion, but I would tell you with those conversations.
Currently targeted to.
Aetna and Cigna are not part of the story just to just to try and be clear about that we don't we don't consider at work or sitting in our pipeline.
Pipeline.
In terms of sort of the reasons for their departures in a week.
The company.
And so much that extra shopping organization that knows us better and so that valuable feedback sort of essential to help us develop a coke a roadmap that you know we hope will continue to resonate in the market.
Okay, and then Brandon you know, what's a U E.
Yeah successfully you know clothes one of these <unk> opportunities. These three national plans is there any opportunity for it to begin to contribute revenue you know beginning in 2022, obviously, we're coming up on.
A new plan years, so just curious in terms of any potential timing.
Yeah. Thanks, Richard Yeah, I would say you know the answers yes, I mean, we are looking to not have these things close by the end of 2022 were looking for much sooner than that I think is as you may know depending on the complexity of the plan.
You know it takes a couple of months can be two to three months to onboard and and launch post signature.
And we are aggressively trying to work you know all of these.
Complement that digital platform with the human aspects of a coach to care model.
It's resonating and it seems to create a market opportunity for us with some of the larger employers.
Okay, great. Thanks.
Back in the queue I appreciate it.
Thank you.
Your next question comes from the line of Charles <unk> from Cowen Your line is open.
Hi, guys. This is Glenn Xian for Charles Congrats on the quarter. So I guess first question is in terms of the on track a members I mean, I think it sounded like you guys have their own son, 60 members or so loss and it seems like you guys added around 100, or so I mean are those new enrollments and.
How should we kind of be thinking about the tail of members as they graduate them should we kind of expect that to go away.
At the end of the year second question is you know maybe around the kind of wellness products and the newer offerings that you're introducing can you kind of help describe what.
Maybe a typical user my might look like you know is it someone who already graduated from the higher acuity onto our program, maybe with substance use disorder, who just need something in between is it someone who might not need therapy at all because I guess the question is you know I think we hear a lot about how competitive some of these offerings are in the behavior of house.
So maybe just some color around what kind of user would be on this type of offering would be really helpful. Thanks.
Okay.
All right I'll take the first question, then I'll take yeah, and I'll take the second okay.
There you go perfect.
Most of our health related content.
That is available to those individuals and so the focus is on personal health engagement wellbeing, but.
One of the things that we learn from the feedback with those customers.
Many of those individuals that are supporting.
Supporting themselves through.
The health content Nicole activation.
Really do want to have the opportunity to be referred into care and whether that's a live human being who's coaching them towards.
Advance supporting their goals or whether that human interaction is actually seeking therapy.
We found is that.
The level of severity is gonna be directly connected to how much human contact of what you put into that digital app. So if there's very little coaching or there's no therapy that you're going to end up with a lower level of acuity of people interacting on their goals.
Acreage at all.
A deeper level of depression anxiety.
Support today.
Ability to support people around some of the.
The social risk factors that they might be trying to manage through we'll see interest in a number of therapy sessions.
Therapy encounters and then what we want to do is make sure that we balance that right level of therapy and coaching support that hit the price point that Scott.
And that's what's nice about targeting the larger employers that they're they're they're generally routinely self funded.
We'll be paying for the therapy costs and the behavioral health cost inside their population so for us to support that as any engagement mechanism off of the digital access that their employees have seems to be a strategy.
One for us resonate two seems to be.
Way for us to differentiate ourselves from sort of the content heavy but coaching and therapy like digital programs that exist in the market.
Does that help a little bit from our contacts in China to your question about who's likely to engage.
Yeah that's helpful. Thanks.
Address the proliferation of digital solutions, even if they have a coaching component.
Don't seem to be well faced off against people who need to be introduced the behavioral health services, they're gonna have stigma, they're gonna have access issues. They're gonna have you know community at social determinant barrier set maybe 222 sort of advice to rise above or climb through and.
And so that segment of the behavior off market. What we continue to receive feedback on is one that uhm folks don't feel particularly well addressed.
And so for US to you know talk about the way we approach that taken data quite claims information and making sure that the bottle see resolved uhm cost and condition eligibility criteria to go after D engaged in N out rich is.
Hard to do it's hard work to do it takes US right now many instances many months to get those individuals phone activated and ready to go a pit bull into the program. If we can better support that member coach and provider experience to digital capability, which is totally different people. Just you know having a per member per month.
Digital wealthy too.
And that differentiation ramp outreach and engagement for people with a level of severity that it's just not much represented typically on a digital tool is a segment in the marketplace. So you've only talked to help with the a four five different being Ralph option, what they tend to tell us that they don't feel the date got covered.
<unk> is the far end if it continues high acuity intervention.
And so I I I I would sit here and tell you that that you know, we're not having a lot of conversations around kicking somebody out by kicking a competitor.
We'll have a lot of conversations about a gap even gaps when somebody's help things have multiple vendors plug it in yourself, if there's a camera higher acuity in the market and so that rather try it because I think we have continued to develop a set of capabilities that uhm are well intended and we can execute against that can do that.
That turned into the marketplace.
Four three or two right.
Pinions about where opportunities or deficiencies day, except for mutations might exist.
So.
I think the human time element to to evaluate and ultimately implement the plan is is part of what we contend with.
Uhm and the you know the date of intake process in the analysis process.
And I'll I'll take.
It it differs by size of organization Reagan and some of the smaller single state maybe single line of business health plans those conversations can be a little bit more quickly at some of the large more complicated organizations. There are a lot of people involved in the proposal data analytics and modeling conversations.
So I I think those are some of you know just sort of a natural sales challenges. If you will relative to you know uhm how're market.
Product needs to to go to market it'd be it'd be contemplated uhm for implementation.
Okay. So.
So then one quick one if I came here just looking into 2022.
I know you have previously talked about maybe if it can <unk> $50 million revenue Terri that's still the right number please.
Still tracking toward that cool.
We're obviously trying to up tick.
To work those conversations with the other geographies, where we have a signed commitment is around the existing marketplace as an adjacent offerings to the current contract offering.
And then how would you gauge any.
Potential risks.
Year rollout this mobile.
And then maybe the customers says hey, I like this I don't really need the high acuity side of things is that a risk at all or no.
But all the risks I think about.
[laughter].
It's not a huge one because when when.
When people move beyond.
The digital age.
Synchronous.
Interactions around their culture.
Around their wellbeing contents and the things that they can.
Takedown from the digital tools themselves and you get into.
Clicking to chat and you want to either coach where you want to click through to a therapy and counter.
Cost profile of the program changes at that point.
And again, what we started to understand when you bake coaching and you'd make therapy available to the digital tool people are like that.
And so will we end up in this middle ground between people, who are not going to find their way to a digital tool. That's why did you call in to the outreach if they were managing their house really well they probably wouldn't have a right set of chronic conditions.
That need a lot of support so the difference between an outreach oriented program, that's going to pull people into support that treatment.
Find their way to coaching and therapy tend to look like really different people both from a health and wellbeing and then an overall cost standpoint, and so those two worlds like fuse at some point maybe.
But the ability to be up in.
You know something Thats higher acuity than what typically is found in a digital tool looks like a really different person from a cost and a comorbidity complexity standpoint, and the people that we have to go drive a lot of outreach to end up.
Courage them to enroll in the program so again.
Does the middle tier of eventually develop Richard maybe but we're really talking about sort of a lower end with people's ability to be supported with therapy and the upper end, where you're going to drive a lot of outreach.
Okay.
Okay.
Final question is we haven't really hit on it but you did talk about the provider segment.
And I think you said two regional.
Provider groups or something along that line can you just dive into that a little bit deeper.
And is that more a near term revenue opportunity or is it something like health plans do you have a longer sales cycle.
It's a newer.
It's a newer sales cycle for us to continue to explore I think some of the steps that I described earlier I think are likely to continue to apply themselves as we expand to other provider conversations I mean, we moved from a proposal.
We want a model data and this is where it is.
It might feel a little bit like a health plan sale, where if they want us to model data they want us to do outreach they want us to do engagement and they want us to pull people into behavioral health programs.
It's got a CEO a.
A little like a health plan sale whats really interesting maturity thats not necessarily with all providers, what some other provider scale like the already because they've got a close relationship with their providers are interacting with these members. So their clinicians already feel like in many instances they've got a idea of who the individuals are who might have.
So what we're working on and you know the great urgency with which we're working with it so uhm. Thank you for lunchtime.
This now concludes today's conference call. Thank you for participating you mean I'll I'll disconnect.
Presenters please stay on the line.
[music].
[music].
[music].
[music].