Q1 2022 Ontrak Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Ontrack first quarter 2022 earnings call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session to ask a question. During the session you will need to press star one on your telephone.
If anyone should require assistance during the conference. Please press Star then zero on your telephone.
Like to hand, the conference over to your host Carolyne, Paul Investor relation.
Please go ahead.
Thank you and thank you all for participating in today's call. Joining me today are Jonathan <unk>, Chief Executive Officer, and Brandon Laverne Chief Financial Officer.
Earlier today, Amtrak released financial results for the quarter ended March 31 2022.
A copy of the press release is available on the company's website.
Before we begin I would like to make the following remarks concerning forward looking statements.
All statements in this conference call other than historical facts are forward looking statements.
Words anticipate believes estimates expects intend guidance confidence targets 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 <unk> 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.
<unk> expressly disclaims any intent or obligation to update these forward looking statements.
With that I'd like to turn the call over to Jonathan.
Thanks, Carolyn and good afternoon, everyone and thanks for joining us today.
Since its founding.
On track.
<unk> has always been a mission oriented organization with a focus on improving the health and saving the lives of as many people as possible.
People like the on track remember Domenic, Medicaid beneficiary, who suffered from multiple chronic comorbidities, including diabetes hypertension.
Product pain, anxiety depression, and substance use disorder.
On track helped dominant to stop binge drinking and connected him with a therapist and psychiatrist who worked with him to address chronic trauma and better manages mental health with a dedicated support from is on track coach Dominic was engaged with is behavioral and primary care providers and adhering to us.
Treatment plans.
Resulting in a $42000 reduction in annual claim costs at graduation.
71% savings compared to the 12 months prior to enrolling in our program.
On track understands that the best way to help vulnerable individuals like Dominic who have complex chronic conditions and face barriers to care is through a sustained evidenced based collaborative whole person coaching and behavioral health provider model that maximizes the effectiveness.
Behavior change programs and treatment plants.
Today, our vision is to transform the health care journey for people with complex physical mental and social care needs through our AI infused evidence based care model.
It's the story, we've been telling customers and prospects as we fortify our value proposition and move to a growth trajectory.
Start there with an update on our pipeline and our growth agenda.
Our sales cycle has traditionally been long up to about 18 months and includes a series of key steps beginning with the initial meetings are signed Nondisclosure agreement, then usually proceeding to data exchange followed by final contract negotiations and signatures.
Since our last call we've seen a strong acceleration.
These steps with various prospects and could see a path to shorter sales cycles. If we stay on the current path of development.
I'm pleased to share we have a new multi state health plan prospect, that's in the contracting status and that speaks to the confidence in our enhanced model. We also have two health plan prospects in the data exchange phase with us with term sheets in contracting the next steps.
Our final engagements.
We touched on one of these in our last earnings call a multi state health plan and the other is a prominent plan and one of the nation's largest states together these potential customers represent over 4 million lives across all lines of business that are highly suited for a whole person evidenced based model, we anticipate going.
Live in the second half of 2022 with each of these customers.
And with most of that revenue being realized in 2023.
Nearly all of the remaining 13 health plan prospects, we highlighted during our last call. We remain actively engaged with us, including two who assigned.
<unk>, which is a prerequisite for the data exchange and we have seven more to the list, bringing our active health plan pipeline 2019.
In addition, we're collaborating with existing customers on various growth initiatives, including assistance.
With their RFP submissions for new state contracts, expanding our relationships to cover new geographies and lines of business and launching the on track mobile App, which will help promote higher enrollment rates and more engagement with our care coaches and providers. We believe the key to this encouraging momentum.
And our future success lies in the advances we've made in our clinical model and the technology that's underpinning it.
On track is developing an industry first solution, we refer to it as whole health plus that combines a rigorous evidence based clinical model apply to our health coaching in provider treatment plans.
Deep augmented intelligence capabilities infused into every step of the member journey from program eligibility through graduation.
Our enhanced clinical model incorporates evidenced based coaching techniques and treatment plans.
Smart goal setting.
Standardized assessments gaps in care interventions and bidirectional communications between care coaches and mental health providers as part of our model. We are creating an evidenced based provider network that combines both our own on track providers for maximum control and collaboration.
In other preferred providers, which will accelerate referrals and appointments promote integration of care and improve the member experience supporting this is an industry first advanced engagement engine that uses augmented intelligence to integrate health plan provider and on track data, allowing us to it.
Implement real time measurement feedback that optimizes every coach and provider interaction.
<unk> measurement feedback system in conjunction with our evidence based model will optimize member engagement coaching interactions and provider visits facilitate real time bidirectional communication between care coaches and mental health providers.
Assess fidelity measurement to evidenced based methodologies and most importantly deliver optimal value based outcomes like improved access quality and reduced cost to our customers.
It's our orchestration of these different AI capabilities and the data it generates that we believe customers value.
As a driver of better outcomes and return on investment.
Now an update on our low acuity wellbeing solution life dojo, which offers an app based coaching model to commercial employers.
We have been conducting outreach to the top 100 broker consultant in the employer benefit space have security preferred vendor status with several and are providing proof of concept testing with a large professional employer organization or PEO <unk>.
Before making the app available to their 8000 client companies, we secured meetings with prospects that vary from the railroad workers Union to large <unk>.
Library systems, we're encouraged with the progress that each of our products is making in the marketplace on track whole health plus as our core health plan offering representing most of our historical.
And future revenue opportunities in life dojo, or App based wellbeing solution targeting employers.
With the sales activity and enhanced product in place we continue to have a path to profitability that anticipates positive monthly EBITDA in the first quarter of 2023 with positive operating cash flows a quarter later.
In the main in the meantime, we have received updated near term covenant flexibility from our existing debt finance partner as.
As well as backstop commitment from our founder and executive Chairman.
While we seek longer term replacement financing sources in the near term.
Now I'd like to turn the call over to Brandon Laverne, our Chief Financial Officer.
Brent.
Okay.
Thanks, Jonathan.
During the first quarter, we recorded revenue of $5 3 million and 82% year over year decrease due primarily to the loss of the two large customers. We expect near term quarterly revenues from our existing customer contracts to remain at approximately $4 million to $5 million over the next few quarters as we look to execute on our pipeline opportunities including potential customer.
Spansion that we believe may increase revenues late in the year and especially in 2023.
At the beginning of the quarter.
3700, 95 million enrolled members and ended with $28 67 at the end of the quarter or simple average of 3331.
That equates to revenue of about $526 per enrolled member per month for the quarter compared to 626 per enrolled member per month in Q1, 2021, and 522 per enrolled member per month in the fourth quarter of 2021.
The lower revenue per enrolled member year over year was partially due to the number of members enrolled from the two terminated clients as well as new pricing models implemented as we previously discussed in prior quarters.
To go a bit deeper into Q1 enrollment we enrolled a total of 446 members during the quarter compared to 5900 in Q1 last year.
<unk> Q1, 'twenty, two gross enrollment by our outreach pool, which averaged approximately 4700 for the quarter.
Annualized this to a 30, 38% enrollment rate compared to the 28% annualized enrollment rate we saw during 2021.
Our average monthly this enrollment rate during the quarter was 10%, which is consistent with the improving trend over the past few quarters.
Further we graduated 313 enrolled members during the quarter, which equates to about 8% of enrolled members in the program at the beginning of the quarter.
The impact of all that was a net enrollment decrease of 928 members in the first quarter.
Our gross margin in the first quarter was 50 45, 9% a decrease from 55, 6% in the first quarter of last year.
The decrease in our gross margin is due to the decrease in our revenue related to the loss of two of our customers as well as the new pricing models previously discussed.
We expect our gross margins to remain in the mid to low <unk> until our revenue volume increases we ended the quarter with 88 care community in member engagement team members included in cost of revenue down 30% sequentially from 125 at the end of Q4 due to a reduction in response to the customer loss in our strategic cost reduction efforts.
This was also put us in a position to take on new revenue and new members without adding head count to the member engagement and care community in the short to midterm that would expect would help increase our gross margin.
Turning to the balance sheet and cash flow our cash flow from operations in the first quarter was a negative $10 5 million compared to a positive $6 4 million in the first quarter last year.
We ended the quarter with cash and cash equivalents of $27 2 million down from $58 $8 million at fourth quarter end last year.
Including the restricted cash total cash was $32 $1 million down from $65 9 million in fourth quarter than last year.
During the quarter, we paid down $20 million of principal debt balance, reducing the remaining book balance of $16 million.
Subsequent to quarter end, one of our former customers paid the remaining balance due for the commercial business of $4 $7 million.
Which combined with other amounts we expect to come in in the near term will help reduce our Q2 burn significantly.
Further as pipeline opportunities begin to contribute to revenues in the second half. We believe we would have decreased cash burn from current levels in the third and especially fourth quarters with returned to cash flow positively cash flow positivity as early as the second quarter of 2023.
As previously mentioned, we've been continuously focused on ensuring we have sufficient capital and financing to bring a robust pipeline to fruition and to set ourselves up for future growth.
On April 15, this year, we entered into a note purchase agreement with our executive Chairman and largest stockholder pursuant to which we may borrow up to $25 million through September one 2023, which is not included in our current cash balance but remains available to us to.
To be clear this is effectively a backstop for financing needs provided by our executive chairman given his strong belief in the company's management and prospects, while we continue to work through additional debt and equity financing opportunities.
It helps provide support to execute on our strategy in the near term.
Regarding our outlook for 2022 as I indicated earlier, we expect near term quarterly revenues from our existing customer contracts to be in the $4 million to $5 million range for the second quarter of 2022.
Before we begin before we begin to see pipeline revenues contribute in late 2022 and more significantly in 2023.
As a result, we continue to expect 2022 annual revenues in the range of $25 million to $30 million with a projected run rate entering 2023 more than double that amount.
I'd now like to turn the call back to Jonathan.
Thanks Brandon.
As we move forward this year and next we're committed to an integrated evidence based whole person coaching and behavioral health provider and care model.
As our core on track product offering, which maximizes the effectiveness of behavior change programs and treatment plans and delivers durable value based outcomes for medical medically complex populations, who face a myriad of barriers to their care, we're beginning to see the receptivity of this differentiated value.
Proposition and the sales pipeline and look forward to converting this momentum in 2022.
Now I'd like to open it up for questions.
Operator.
Yes, Sir and ladies and gentlemen, as a reminder to ask a question you will need to press star one on your telephone again, if you would like to ask a question you will need to press star one on your telephone.
Just a moment to compile the Q&A roster.
Again, if you would like to ask a question you will need to press star one on your telephone.
Yes.
For ever for any question you have Richard close from Canaccord.
Richard Your line is open.
Yes, thanks for the question.
Brandon I was wondering if you could go through that revenue.
Exiting the year.
You said.
Two times run rate two times the level of the 25 is that correct.
Yes, that's correct. So two times the 25 to 30 million that we see for the annual period of 2022, we would believe we're exiting 2022 effectively with a run rate revenue.
So annualized off of the end of 2020.
Like the month end of 2022 more than double the 25.
The $30 million.
Okay, so not the fourth quarter annualized.
That's correct.
Okay.
Alright so.
Curious.
It's somewhat vague or maybe I'm just not understanding.
With respect to adding new clients.
Do you think new clients will be.
Launched in 2022 or is there going to be any do you think any revenue contribution this year from new clients.
Richard I mean, I think so sort of go.
Go ahead go ahead.
Go ahead sorry.
No I was going to say.
We're in.
We're in some final stages.
With regard to contracting and the.
The financial analysis associated with proposals.
As we I think we've mentioned in prior calls we would anticipate from the time that we get the contract it might take US 90 days to launch.
So as we're approaching those stages of conversation you can imagine that there would be.
Those kinds of activities occurring in the second half of the year, which would begin the process of creating revenue in the second half of this year.
Okay.
Right.
We've guided the near term, yes, we've got it the near term revenues from existing contracts that Q. The Q1 number five to plus $4 million to $5 million going forward and so in order to get to the 25 to 30, you can triangulate back into there is an expectation of some revenues being contributed.
But by new customers.
Okay.
And then.
Obviously, a good build in the pipeline I think you said 19 with the.
Additional seven I think that number was.
Can you is it all.
And that has helped and related.
Totally unrelated.
Is that the.
At the same thing as Aetna and Cigna previously have you made adjustments to the program.
In and around that weather.
We're just talking the same thing as.
What you were doing before.
Yes.
Their health plan related.
Richard.
The new and enhanced set of AI data platform.
Care management capabilities so.
I'd say its pointed in the direction of the same user.
The same kind of member.
What the capabilities to identify.
Engage treat and be able to measure the fidelity and the effectiveness both for clinical improvement as well as financial Rois are all substantially increased and enhanced in the program.
So pointed in the same direction same kind of remember trying to drive the same financial result, but very different set of capabilities have continued to be developed around the program.
Okay, and then are you still talking about 12 months.
Program or.
Has there been any changes associated with the length then.
If someone complete successfully and graduate.
Get paid.
So from that standpoint.
Any thoughts around that.
Really really good question.
Really good question as we've continued to build out.
<unk>.
Quality.
And.
Standardized set of measurable clinical improvements.
I would imagine that we're going to going to be able to have a more variable set of graduation parameters right as people are achieving.
A number of dimensions on their wellbeing if that can occur.
In less than 12 months and the individual and their trading professionals field at the person's self management and scale improvement.
All of their underlying primary care and clinical activities are sort of commensurate with graduation and that can occur before 12 months that we would want to make sure. We've got a variable graduation criteria.
I don't know at the end of the day, though Richard what that will do is produce a lower average graduation rate for us right.
We've got a 12 month program on average people are in the program eight to nine months or thereabouts today.
And I think even with the variable graduation criteria, we could likely see the same average duration of people on the program.
We'd like to be more sophisticated.
Round variable graduation criteria.
Okay and my final question would be with respect to the 25 million available borrowings.
Brandon can you talk a little bit about that in terms of.
What's the cost of that.
The borrowings and just thought process.
Timing of additional financing.
Sure.
The.
The cost of it is very similar to our existing.
Structure with with our existing lender.
And so.
That particular financing would be in place and so it is not in addition to it would be in place. So if we get to a point where.
We are refinancing our existing debt.
Or refinancing any other.
Something in between.
It would take in but only.
You can't have both in place at the same time, but overall the cost of capital associated with it it is roughly similar.
Two what we currently have in place.
And remind me with that of.
It's in the it's in the.
Mid teens.
Okay.
Alright, thank you.
For our next question, we have Bill Sutherland from benchmark consulting Bill your line's open.
Hey, Hey, guys.
The multi state health plan and the two health plans that I guess.
In the data exchange phase.
Are these.
Of.
A particular type of health plan.
Good question.
One I would describe as a.
<unk> is a multi line of business.
Carrier and then one is.
More profiled two.
The government programs actually I should probably say Q2 or multi line and one is more profiled towards government programs.
Yes, I was curious because I know it will impact.
The size of the pool and the.
Great.
Okay Yeah.
I don't know if at this point I can sort of give you more detail on the size of those lines of business in particular, but generally speaking the two have got sort of representation across Medicaid Medicare commercial public exchanges and then one is far more profile towards towards government and.
In commercial.
And Youll, probably get more uptake in terms of the multi line plans get more uptake in the managed plans I would think.
No.
I think as we've talked about on our reach rate and enrollment rate is higher than the government programs than it is in commercial.
So just like the propensity of the disease burden is just higher in Medicaid and Medicare populations.
Yes.
So.
Yes.
For many reasons it sort of good for our business and it's good for the.
Financial return that we are able to create with the customer just given the higher cost associated with those kinds of individuals.
Alright.
And I would add is it's also the <unk>.
Eligibility is higher too so those eligibility even upfront so the outreach pool is it bigger or the government plans that would be for commercial.
And then also the reach and the enrollment rate from there as well.
Right.
Jonathan you mentioned in the last call I think.
Youre seeing some activity some sales activity with.
Alrighty based providers.
With that.
We continue to be in.
In very active conversations.
At this stage that I would describe some of those conversations in is the Nondisclosure agreement.
Right the business associate agreement, which puts us behind their firewall relative to privacy and HIPAA concerns at all that that enables the data exchange.
We're at that level of conversation and a couple of those value based provider.
Conversations.
So.
Moving along and I can just tell you that.
The.
The data security concerns generally and the sophistication on both sides of the equation with.
Sort of the vast amounts of data that they go back and forth just takes the right people on both of our teams to make sure that those conversations are occurring and that we're well positioned.
For all of that data exchange.
So.
That is generally that the stage that we're out with a couple of the more advanced larger value based.
Providers.
Okay.
And.
I guess last for me I was.
Just thinking about the well being products.
Like your.
Kind of going.
Consultant round as far as.
As far as the sales process.
See you.
You described as having being in preferred vendor status with several.
Okay.
Several brokers.
I guess clarify that for us if you don't mind and it sounds like you're also rather than going to a large fortune 100 kind of company or youre thinking more of the PPO route.
With small guys.
Would the PEO, yes, I mean, a couple of maybe.
Questions there.
The.
The preferred vendor and provider status for some of the larger broker and consulting firms requires a lot of.
Diligence so.
It starts with requests for information in a vetting process.
That includes the.
The viability and the validity of the program.
The technology that sits behind it with the distribution strategies are et cetera. So.
And then what happens is once once we're approved for for preferred vendor status.
Make the program available to their sales and.
And customer client relationship people, so that they can access the program, we're able to do distinguish training.
And whether it's recorded versus live training sessions, and we're just able to get much closer to the sales and the customer.
Service teams in those organizations once you achieve that preferred status and then it starts to happen.
Well look for quotes right four four.
Their pipeline to start to develop.
In the case of the PPO with like 8000 client companies.
Does it mean that you know you're off.
<unk> is now available at all of those companies.
Yes.
Elected benefit they want.
That's the next step for US we are in a pilot mode with them today, they've got a dedicated set of users in the tool we are monitoring with them.
The enrollment activity and performance for the pilot group.
And.
That's our hope and expectation that.
The performance in the pilot will be of sufficient enough activity and value that they.
We'll extend it out to the 8000.
Companies.
They support so we're excited about where theres been a lot of diligence and.
A lot of proof of concept work just to get to the point where they are.
Decided to go to a pilot pilot phase on the program Alright.
And it's relatively no that is just a couple of weeks in on that.
Okay.
Alright.
So two quick questions I appreciate it.
Thank you. Thank you.
Thank you.
As there are no further questions at this time I'll hand, it back over to Jonathan Mayhew for closing remark.
Thank you everyone for joining us Tonight and wish everyone. A nice evening. Thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you all for participating you may now disconnect.
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Ladies and gentlemen, thank you for standing by and welcome to the on track first quarter 2022 earnings call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session to ask a question. During this session you will need to press star one on your telephone.
One should require assistance during the conference vis vis our event zero on your telephone.
I now like to hand, the conference over to your Haley Caroline Paul Investor Relations. Thank you. 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 March 31 2022.
Copy of the press release is available on the company's website.
Before we begin I would like to make the following remarks concerning forward looking statements.
All statements in this conference call other than historical facts are forward looking statements. The words anticipate believes estimates expects intend guidance confidence targets 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 <unk> business financial condition and other operating results, which include but are not limited to the risk factors described in the risk factors section of our 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.
<unk> expressly disclaims any intent or obligation to update these forward looking statements.
With that I'd like to turn the call over to Jonathan.
Thanks, Carolyn good afternoon, everyone and thanks for joining us today.
Since its founding.
On track.
Health has always been a mission oriented organization with a focus on improving the health and saving the lives of as many people as possible.
People like the on track remember Domenic, Medicaid beneficiary, who suffered from multiple chronic comorbidities, including diabetes hypertension.
<unk> pain.
Zaidi depression and substance use disorder.
On track helped dominant to stop binge drinking and connected him with a therapist and psychiatrist who worked with him to address chronic trauma and better manages mental health with a dedicated support from is on track coach Dominic was engaged with is behavioral and primary care providers and adhering to us.
Treatment plans.
Resulting in a $42000 reduction in annual claim costs at graduation.
71% savings compared to the 12 months prior to enrolling in our program.
On track understands that the best way to help vulnerable individuals like Dominic who have complex chronic conditions and face barriers to care is through a sustained evidenced based collaborative whole person coaching and behavioral health provider model that maximizes the effectiveness.
Behavior change programs and treatment plants.
Today, our vision is to transform the health care journey for people with complex physical mental and social care needs through our AI infused evidence based care model.
The story, we've been telling customers and prospects as we fortify our value proposition and move to a growth trajectory.
Let's start there with an update on our pipeline and our growth agenda.
Our sales cycle has traditionally been long up to about 18 months and includes a series of key steps beginning with the initial meetings have signed Nondisclosure agreement then usually proceeding to data exchange followed by final contract negotiations and signatures.
Since our last call we've seen a strong acceleration of these steps with various prospects and could see a path to shorter sales cycles. If we stay on the current path of development.
I'm pleased to share we have a new multi state health plan prospect Thats in the contracting status and that speaks to the confidence in our enhanced model. We also have two health plan prospects in the data exchange phase with us with term sheets in contracting the next steps.
Towards our final engagements.
We touched on one of these in our last earnings call a multi state health plan. The other is a prominent plan and one of the nation's largest states together these potential customers represent over 4 million lives across all lines of business that are highly suited for a whole person evidenced based model we anticipate.
We live in the second half of 2022 with each of these customers and with most of that revenue being realized in 2023.
Nearly all of the remaining 13 health plan prospects, we highlighted during our last call. We remain actively engaged with us, including two who assigned.
<unk>, which is a prerequisite for the data exchange and we have seven more to the list, bringing our active health plan pipeline 2019.
In addition, we're collaborating with existing customers on various growth initiatives, including assistance.
With their RFP submissions for new state contracts, expanding our relationships to cover new geographies and lines of business and launching the on track mobile App, which will help promote higher enrollment rates and more engagement with our care coaches and providers. We believe the key to this encouraging momentum.
And our future success lies in the advances we've made in our clinical model and the technology that's underpinning it.
On track is developing an industry first solution, we refer to it as whole health plus that combines a rigorous evidence based clinical model apply to our health coaching in provider treatment plans with deep augmented intelligence capabilities infused into every step of the member journey.
From program eligibility through graduation, our enhanced clinical model incorporates evidenced based coaching techniques and treatment plans.
Mark goal setting standardized assessments.
Gaps in care interventions and bidirectional communications between care coaches and mental health providers as part of our model, we are creating an evidenced.
<unk> provider network that combines both our own on track providers for maximum control and collaboration and other preferred providers, which will accelerate referrals and appointments promote integration of care and improve the member experience supporting this is an industry first advanced <unk>.
<unk> engine.
Uses augmented intelligence to integrate health plan provider and on track data, allowing us to implement real time measurement feedback that optimizes every coach and provider interactions are AI measurement feedback system in conjunction with our evidence based model will optimize member engagement coaching interactions.
<unk> and provider visits facilitate real time bi directional communication between care coaches and mental health providers.
Seth Fidelity measurement to evidenced based methodologies and most importantly deliver optimal value based outcomes like improved access quality and reduced cost to our customers.
It's our orchestration of these different AI capabilities and the data it generates that we believe customers value as.
As a driver of better outcomes and return on investment.
Now an update on our low acuity wellbeing solution lifestyle, <unk>, which offers an app based coaching model to commercial employers.
We have been conducting outreach to the top 100 broker consultant in the employer benefit space have security preferred vendor status with several and are providing proof of concept testing with a large professional employer organization or PEO <unk>.
Before making the app available to their 8000 client companies, we've secured meetings with prospects that vary from the railroad workers Union too large.
Library systems, we're encouraged with the progress that each of our products is making in the marketplace on track whole health plus as our core health plan offering representing most of our historical and future revenue opportunities in life dojo, or App based wellbeing solution targeting employers.
With this sales activity and enhanced product in place we continue to have a path to profitability.
<unk> positive monthly EBITDA in the first quarter of 2023 with positive operating cash flows a quarter later.
In the main in the meantime, we have received updated near term covenant flexibility from our existing debt finance partner as.
As well as backstop commitment from our founder and executive Chairman.
While we seek longer term replacement financing sources in the near term.
Now I'd like to turn the call over to Brandon Laverne, our Chief Financial Officer.
Brad.
Yes.
Thanks, Jonathan.
During the first quarter, we recorded revenue of $5 $3 million and 82% year over year decrease due primarily to the loss of the two large customers. We expect near term quarterly revenues from our existing customer contracts to remain at approximately $4 million to $5 million over the next few quarters as we look to execute on our pipeline opportunities including potential customer.
Spansion that we believe may increase revenues late in the year and especially in 2023.
At the beginning of the quarter.
3700, 95 million enrolled members and ended with $28 67 at the end of the quarter or simple average of 3331.
That equates to revenue of about $526 per enrolled member per month for the quarter compared to 626 per enrolled member per month in Q1, 2021, and 522 per enrolled member per month in the fourth quarter of 2021.
The lower revenue per enrolled member year over year was partially due to the number of members enrolled from the two terminated clients as well as new pricing models implemented as we previously discussed in prior quarters.
To go a bit deeper into Q1 enrollment we enrolled a total of 446 members during the quarter compared to 5900 in Q1 last year.
<unk> Q1, 'twenty, two gross enrollment by our outreach pool, which averaged approximately 4700 for the quarter.
Annualized this to a 30, 38% enrollment rate compared to the 28% annualized enrolment rates we saw during 2021.
Our average monthly this enrollment rate during the quarter was 10%, which is consistent with the improving trend over the past few quarters.
Further we graduated 313 enrolled members during the quarter, which equates to about 8% of enrolled members in the program at the beginning of the quarter.
The impact of all that was a net enrollment decrease of 928 members in the first quarter.
Our gross margin in the first quarter was 50 45, 9% a decrease from 55, 6% in the first quarter of last year.
The decrease in our gross margin is due to the decrease in our revenue related to the loss of two of our customers as well as the new pricing model as previously discussed.
We expect our gross margins to remain in the mid to low <unk> until our revenue volume increases we ended the quarter with 88 care community in member engagement team members included in cost of revenue down 30% sequentially from 125 at the end of Q4 due to a reduction in response to the customer loss and our strategic cost reduction efforts.
This has also put us in a position to take on new revenue and new members without adding head count to the member engagement and care community in the short to midterm that we expect will help increase our gross margin.
Turning to the balance sheet and cash flow our cash flow from operations in the first quarter was a negative $10 5 million compared to a positive $6 4 million in the first quarter last year.
We ended the quarter with cash and cash equivalents of $27 $2 million down from $58 $8 million at fourth quarter end last year.
Including the restricted cash total cash was $32 $1 million down from $65 9 million of fourth quarter end last year.
During the quarter, we paid down $20 million of principal debt balance, reducing the remaining book balance of $16 million.
Subsequent to quarter end, one of our former customers paid the remaining balance due for the commercial business of $4 7 million.
Which combined with other amounts we expect to come in in the near term will help reduce our Q2 burn significantly.
Further as pipeline opportunities begin to contribute to revenues in the second half. We believe we would have decreased cash burn from current levels in the third and especially fourth quarters with returned to cash flow positively cash flow positivity as early as the second quarter of 2023.
As previously mentioned, we've been continuously focused on ensuring we have sufficient capital and financing to bring a robust pipeline to fruition and to set ourselves up for future growth.
On April 15, this year, we entered into a note purchase agreement with our executive Chairman and largest stockholder pursuant to which we may borrow up to $25 million through September one 2023, which is not included in our current cash balance by remains available to us to.
To be clear this is effectively a backstop for financing needs provided by our executive chairman given his strong belief in the company's management and prospects. While we continue to work through additional debt and equity financing opportunities and helps provide support to execute on our strategy in the near term.
Regarding our outlook for 2022 as I indicated earlier, we expect near term quarterly revenues from our existing customer contracts to be in the 4% to $5 million range for the second quarter of 2022.
Before we begin before you begin to see pipeline revenues contribute in late 2022 and more significantly in 2023.
As a result, we continue to expect 2022 annual revenues in the range of $25 million to $30 million with a projected run rate entering 2023 more than double that amount.
I would like to turn the call back to Jonathan.
Thanks Brandon.
As we move forward this year and next we're committed to an integrated evidence based whole person coaching and behavioral health provider and care model.
As our core on track product offering, which maximizes the effectiveness of behavior change programs and treatment plans and delivers durable value based outcomes for medical medically complex populations, who face a myriad of barriers to their care, we're beginning to see the receptivity of this differentiated value.
Composition of the sales pipeline and look forward to converting this momentum in 2022.
Now I'd like to open it up for questions.
Operator.
Yes, Sir and ladies and gentlemen.
To ask a question you will need to press star one on your telephone again, if you would like to ask a question you will need to press star one on your telephone we'll pause for just a moment to compile the Q&A roster.
Yeah.
Again, if you would like to ask a question you will need to press star one on your telephone.
Yes.
For our first question, we have Richard close from Canaccord.
Richard Your line is open.
Yes, thanks for the question.
Brandon I was wondering if you could go through that revenue.
Exiting the year.
Alright.
You said.
Two times run rate two times the level of the 25 is that correct.
Yes, that's correct. So take the 25% to 30 million that we see for the annual period of 2022, we would believe we're exiting 2022 effectively with a run rate revenue.
So annualized off of the end of 2020.
Like the month end of 2022 more than doubled to.
The $30 million.
Okay, so not the fourth quarter annualized.
That's correct.
Okay.
Alright so.
Curious.
It's somewhat vague or maybe I just not understanding.
With respect to adding new clients.
Yeah.
Do you think new clients will be.
Launched in 2022 or.
Theyre going to be any do you think any revenue contribution this year from new clients.
Alright, Richard I mean, I think so.
Go ahead.
Go ahead sorry.
And I was going to say.
We're in <unk>.
We're in some final stages.
With regard to contracting and the.
The financial analysis associated with proposals.
As we I think we've mentioned in prior calls we would anticipate from the time that we get the contract it might take US 90 days to launch.
As we're approaching those stages of conversation you can imagine that there would be.
Those kinds of activities occurring in the second half of the year, which would begin the process of creating revenue in the second half of this year.
Okay.
Right.
We've guided that near term, yes, we've got it the near term revenues from existing contracts that Q Q1 number five to plus $4 million to $5 million going forward and so in order to get to the 25% to 30, you can triangulate back into there is an expectation of some revenues being contributed.
By new customers.
Okay.
And then.
Obviously, a good build in the pipeline.
I think you said 19 with the.
Additional seven I think that number was.
Can you is it all.
And that has helped and related.
Currently all related.
Yes.
Is that.
At the same thing as Aetna and Cigna previously have you made adjustments to the program.
And then around that weather.
We're just talking the same thing as you.
What you were doing before.
Yes.
Their health plan related.
Richard it's the new and enhanced set of AI data platform and care management capabilities. So I would say it's pointed in the direction of the same user.
The same kind of member.
The capabilities to identify.
Engage treat.
And be able to measure the fidelity and the effectiveness both for clinical improvement as well as financial Rois are all substantially increased and enhanced in the program.
So pointed in the same direction same kind of remember trying to drive the same financial result, but very different set of capabilities have continued to be developed around the program.
Okay, and then are you still talking about 12 months.
Program or.
Has there been any changes associated with the length then.
If someone complete successfully and graduates.
Get paid.
So from that standpoint.
Any thoughts around that.
Really really good question.
Really good question as we've continued to build out.
The.
Quality.
And.
Yeah.
Standardized set of measurable clinical improvements.
I would imagine that we're going to going to be able to have a more variable set of graduation parameters right as people are achieving.
A number of dimensions on their wellbeing if that can occur.
In less than 12 months and the individual and their trading professionals field at the person's self management and scale improvement.
All of their underlying primary care and clinical activities are sort of commensurate with graduation and that can occur before 12 months that we would want to make sure. We've got a variable graduation criteria.
I don't know at the end of the day, though Richard that what that will do is produce a lower average graduation rate for us right.
We've got a 12 month program on average people are in the program eight to nine months or thereabouts today.
And I think even with the variable graduation criteria, we could likely see the same average duration of people on the program.
We'd like to be more sophisticated.
Round variable graduation criteria.
Okay and my final question would be with respect to the 25 million available borrowings.
Brandon can you talk a little bit about that in terms of whats the cost of that.
The borrowings and just thought process.
Timing of additional financing.
Okay.
Sure.
The.
The cost of it is very similar to our existing.
Structure with with our existing lender.
And so the.
That particular financing would be in place and so it is not in addition to it would be in place. So if we get to a point where we.
We are refinancing our existing debt.
Or refinancing any other.
Something in between.
It would take one but only.
You can't have both in place at the same time, but overall the cost of capital associated with it it is roughly similar.
Two what we currently have in place.
And remind me with additive.
It's in the it's in the.
Mid teens.
Okay.
Alright, thank you.
For our next question, we have Bill Sutherland from benchmark consulting Bill your line's open.
Hey, Hey, guys.
The multi state health plan and the two health plans in.
The data exchange phase.
Are these.
Yes.
Particular type of health plan.
Good question.
Okay.
One I would describe as a.
<unk> is a multi line of business.
Carrier and then one is.
More profiled two.
The government program, so actually I should probably say Q2 or multi line and one is more profiled towards government programs.
Yes, I was curious because I know it will have impact.
The size of the pool and the.
Hey, Chris.
Great.
Okay Yeah.
I don't know if at this point I can sort of give you more detail on the size of those lines of business in particular, but generally speaking the two have got sort of representation across Medicaid Medicare commercial public exchanges and then one is far more profile towards towards government and commercial.
And Youll, probably get more uptake in terms of the multi line plans get more.
Uptake in the managed plans I would think.
No.
I think as we've talked about are our reach rate and enrollment rate is higher than the government programs than it is in commercial.
So just like the propensity of the disease burden is just higher in Medicaid and Medicare populations.
So.
Yes.
For many reasons it sort of good for our business and it's good for the.
The financial returns that we're able to create with the customer just given the higher cost associated with those kinds of individuals.
Alright, great.
I would add is it's also the.
Eligibility is higher too so those eligibility even upfront so the outreach pool is it bigger or the government plans that would be for commercial.
And then also the reach and the enrollment rate from there as well.
Great.
Jonathan you mentioned on the last call I think.
Youre seeing some activity some sales activity.
Yeah.
Hi based providers.
Update with that.
We continue to be in <unk>.
In very active conversations.
This stage that I would describe some of those conversations and is the non disclosure agreement.
Yeah.
Right the business associate agreement, which puts us behind their firewall relative to privacy and HIPAA concerns at all that that enables the data exchange. So we're at that level of conversation and a couple of those value based provider.
Conversations.
So moving along and I can just tell you that.
The data security concerns generally and the sophistication on both sides of the equation with.
Sort of the vast amounts of data that they go back and forth.
It takes the right people on both of our teams to make sure that those conversations are occurring and that we're well positioned for all of that data exchange.
That is generally that the stage that we're out with a couple of the more advanced larger value based.
Providers.
Okay.
And.
I guess last for me I was.
Just thinking about the wellbeing product it sounds like you are.
Good morning.
Consultant route as far as.
As far as the sales process.
The I mean.
You described.
Being a preferred vendor status with several.
Okay.
Several brokers.
Sure.
I guess clarify that for us if you don't mind and it sounds like you're also rather than going to a large fortune 100 kind of company or youre thinking more of the PPO route.
With small guys.
With the PEO, Yes, I mean, a couple of maybe.
Questions there.
Yes.
The preferred vendor and provider status for some of the larger broker and consulting firms requires a lot of.
Diligence.
So.
Whether it starts with requests for information in a vetting process.
Includes the.
The viability and the validity of the program.
The technology that sits behind it with the distribution strategies are et cetera. So.
And then what happens is once once we're approved for for preferred vendor status.
Make the program available to their sales and.
And customer client relationship people, so that they can access the program, we're able to do distinguish training.
And whether it's recorded versus live training sessions, and we're just able to get much closer to the sales and the customer.
Service teams in those organizations once you achieve that preferred status and then it starts to happen.
Well look for quotes right four four.
Their pipeline to start to develop.
In the case of the PPO with like 8000, alright.
Some of it as well.
Does it mean that you know you're off.
Joe is now available at all of those companies.
Elected benefit they want.
That's the next step for US we are in a pilot mode with them today, they've got a dedicated set of users.
In the tool we are monitoring with them.
Enrollment activity and performance for the pilot group.
And that's.
It's our hope and expectation that.
The performance in the pilot will be of sufficient enough activity in value.
We'll extend it out to the 8000 cars.
Companies.
They support so we're excited about where theres been a lot of diligence and.
A lot of proof of concept work just to get to the point where they are.
Decided to go to a pilot pilot phase on the program Alright.
And it's it's relatively no that is just a couple of weeks in on that.
Okay.
Alright.
Most of my questions I appreciate it.
Thank you. Thank you.
Thank you.
As there are no further questions at this time I'll hand, it back over to Jonathan Mayhew for closing remark.
Thank you everyone for joining us Tonight and wish everyone. A nice evening. Thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you all for participating you may now disconnect.