Q3 2022 Ontrak Inc Earnings Call

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Good day, and thank you for standing by and welcome to the on track third quarter 2022 earnings call. At this time all participants are in listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your <unk>.

Telephone, you'll then you're an automated message advising your hand is Reyes. Please be advised that today's conference call is being recorded.

I'd now like to hand, the conference over to your speaker for today, Ryan Halsted Investor Relations. Please go ahead.

Thank you and thank you all for participating in today's call. Joining me today are Taryn Pizer, Chief Executive Officer, Brandon Laverne, Chief Operating Officer, Mary Lou Osborne, Chief Commercial Officer, and James Park, Chief Financial Officer earlier today on track released fine.

Results for the quarter ending September 32022, 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 anticipate believes estimates expects intend guidance confidence targets projects and some other express.

<unk> 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 tracks business financial condition and other operating results, which include but are not limited to the risk factors described in the risk sections of forms 10-K and forms 10-Q 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 would like to turn the call over to Terry.

Thank you Ryan and welcome everyone.

As I reflect on longer term contract.

I am reminded of the power of our mission.

To help you through the health and safety.

The lives of as many people as possible.

As we enter the final stages of finding a variety of new prospects I'm more convinced than ever that aren't.

Mission resonates with everyone in our industry.

<unk> focused on improving member outcomes and it's why I'm not only CEO , but also a principal investor in the company.

AI enabled whole person solution provides durable outcomes for members.

Significant cost savings for health plans providers and employer groups and.

I am confident the progress we are about to share with you, but the first step in our return to growth.

Now I'd like to turn the call over to our co President and Chief Commercial Officer, Mary New Osborn.

Thank you Sharon.

I'm excited to share encouraging progress in our pipeline.

We now have 30 active prospects representing about 15 million eligible lives.

Which is more than double the total lives we described in our last quarter.

20 of the prospects are health plans seven our employer groups three our value based provider groups.

Well a couple of smaller health plans.

Dropped off the pipeline, we added a few larger health plans and move several other health plans closer to a final signature.

Resulting in the most robust pipeline to date.

Let's start with prospects in the final stage of our pipeline.

We are finalizing a master service agreement and scope of work with a prominent western regional plan.

For their Medicare advantage population and we are analyzing data for our southeast based plan for their Medicaid population.

We believe both could be new contracted customers before the end of this calendar year.

With revenue being realized beginning in Q1 2023.

We are also conducting implementation meetings with a prominent multi state value based provider care group.

As we finalize all paperwork and prepare to launch by the end of this year.

We plan to launch in one mid Western state with significant interest from the primary care group to expand to additional states.

2023, and initial meetings in various states are being scheduled at this time.

And we have submitted a financial proposal to one of the largest plans in the northeast for all their lines of business.

While we await their final response, we have discussed a Q1 launch which would start generating revenue in late Q1 2023.

Together these final stage prospects represent over 1 million lives that could positively impact our revenue in 2023.

And beyond while not in our current pipeline yet there are an additional 2 million lives in different lines of business associated with these prospects.

Several additional pipeline prospects, representing almost 5 million lives have entered into non disclosure agreements.

Or <unk> with US we have reached this stage in just a matter of several weeks reduced from several months, which we believe is abbreviating the.

The potential sales cycle.

While the remaining 9 million lives in the early stage of our pipeline includes another large plan in the Midwest with approximately four.

<unk> 5 million lives and regional health plans across the nation in varying lines of business.

All told we are encouraged by our robust pipeline with three health plans and one value based provider group and final stage.

And others about to enter data exchange.

These prospects represent over 6 million lives are over 40% of our total pipeline.

All of this is happening at a faster pace than the standard 18 months sales cycle as we anticipate several deals could be closing within one year of initial engagement.

Our life Dojo digital platform pipeline of five prospects includes two potential customers, who are reviewing pricing proposals, including a large aviation manufacturing employer and a large professional employer organization with access to over 500000 lives.

Finally, we are in discussions to expand existing contracts with two long standing customers for additional populations.

With those eligible lives being added to our active outreach pool in Q1 of 2023.

I am excited by the accelerated nature of our pipeline and eminent signatures, we believe will materialize in the coming weeks.

We believe we will see the revenue impact in Q1 and throughout 2023.

Most importantly, our health plan prospects are telling us we have an essential offering for people with chronic comorbidities and unaddressed behavioral health conditions.

As well as a robust behavioral health provider network with access and availability to timely treatment.

We are hearing this is an attractive business model for payers providers and employer groups.

And that can build the foundation for our return to growth in 2023 and beyond.

Now I'd like to turn the call over to our co President and Chief operating Officer, Brandon Laverne.

Thanks, Mary Lou.

Im also energized by the positive momentum we are seeing in our pipeline.

Feedback, we're getting from prospects and current customers is informing our strategic and operational priorities for the coming year.

These include number one a continued focus on evolving and improving our core offering which is the ontrack whole health plus program that focuses on that 2% to 5% of plan members Andi.

Undiagnosed or untreated behavioral health conditions, along with chronic physical comorbidities.

These individuals represent an outsized cost burden for health plan will be the very people, we effectively identify engage and coach to and through treatment to deliver durable clinical outcomes and significant cost savings to our customers.

To that end after only three months, our new clinical assessments for depression, and anxiety already indicate clinically significant improvements in our members.

This program will remain the bedrock of the Ontrack health offerings.

Number two using augmented intelligence principally through our advanced engagement system to enhance our ability to care for our members through a variety of capabilities, we have our history.

This includes benefits like the best time to call members natural language processing to inform our coaches are the most effective techniques to engage members and AI generated notes for about coaches and providers as part of our bidirectional communication to maximize our whole person approach. We plan to continue to bring on more AI capabilities throughout 2023.

Number three reviewing the potential increase of the population. We serve to include people with mid acuity behavioral health conditions and fewer chronic comorbidities.

This could expand our outreach pool from the traditional 2% to 5% of our plan's population to the next tranche of 6% to 15% of members who would benefit from our whole person coaching model and access to providers only as needed.

As a business and mission driven opportunity as we seek to serve and help as many members as possible.

We are in the process of modeling out the market and revenue potential of this initiative and we believe it represents upside that leverages, our core strengths and extends the reach of our capabilities in a way that we will be financially and clinically attractive to the customers and prospects.

Number four further expanding our network of credential behavioral health providers.

We're well positioned to absorb new members and supplement new customers existing networks.

And number five continuing to rollout improvements to our lifestyle. Joe digital platform. We are currently adding a new set of modules for users of the app as well as expanding language capabilities for new international markets.

This all reflects our continued focus on being clinically rigorous measurement base and customer centric as we rebuild our customer base topline revenue and overall growth trajectory now.

Now I would like to turn the call over to our Chief Financial Officer James Park.

Thanks, Brendan during the third quarter, we recorded revenues of $2 $8 million and 85% year over year decrease due primarily to the loss of two large customers. We previously discussed.

At the beginning of the quarter.

2094 enrolled members.

With 1365 at the end of the quarter for a simple average of 1730.

That equates to a revenue of about $548 per enrolled member per month for the quarter compared to $611 per member per month in Q3 of 2021 and $528 per enrolled member per month in Q2 of 2022.

To go a bit deeper into the Q3 enrollment.

We've enrolled a total of 533 members during the quarter compared to 2854 in Q3 of last year and 364 in Q2 of 2022.

Q3, gross Enrolments fire outreach pool, which averaged 3995 for the quarter Andrew.

Annualized 253% enrollment rate the same rate we saw during Q3 of 2021, an increase from 39% in Q2 of 2022.

Our average monthly this enrollment rate was 8%.

Right, we saw in Q2 of 2022.

Further we graduate at 828 members during the quarter, which equates to about 40% of the enrolled members in the program after the beginning of the quarter.

Net impact of all that was a net enrollment decrease of 725 or 29 members in the third quarter.

Our gross margin for the third quarter was 49, 5%, which increased sequentially from 43, 5% and decreased from 68, 5% in the third quarter of last year.

Increase in our gross margin sequentially for Q3 was primarily due to restructuring plan, we completed as part of management's cost saving measure.

Under this restructuring plan.

Approximately 34%.

Full time positions and $7 7 million of annual compensation costs as well as approximately $3 million of annual third party costs.

As this was implemented during the quarter, we expect our gross margin to normalize into the mid <unk> by the end of the year.

The year over year decrease in our gross margin is due to the decrease in our revenues related to the loss of two of our customers as well as a new pricing model previously discussed.

We ended the quarter with 30 team members, including our cost of revenue.

Down from 70 at the end of Q2.

In line with a decrease in our enrolled members.

Additionally, we continue to improve the efficiency of our member facing employees with the investments we made during the year to enhance our technology and AI capabilities by automating or reducing the amount of administrative time spent an increasing amount of direct time spent with our members.

<unk> improved processes will enable us to help our members more efficiently and delivering higher ROI to our customers.

Turning to the balance sheet and cash flow our cash flow from operation in the third quarter was negative $8 3 million compared to negative $14 3 million in the third quarter last year.

We ended the quarter were cash and cash equivalents of $7 3 million.

Down from $10 1 million at the end of the second quarter in 2022.

Included in restricted cash total cash flow was $11 9 million.

Down from $14 $9 million at the second quarter this year.

The net decrease in cash during the quarter $7 $5 million was related to the final payoff of Rgs loan balance.

During the quarter, we raised $3 3 million and a registered direct offering of our common stock and continue to work on improving our capital structure.

We're also currently in discussions to extend the maturity date of our keep all agreement into 2024.

Regarding our outlook, we're confirming our previously issued revenue guidance of $14 million to $16 million for the year.

Right now I would like to do that.

Open up call for any questions.

Operator.

Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be call.

Please standby, while we compile the Q&A roster.

Yeah.

Okay.

Our first question comes from the line of Bill Sutherland of the Benchmark Company. Your line is now open.

Hi, everybody.

Nice work in the quarter with pipeline.

So Mary Lou maybe.

It would be if it's possible to talk about I know this is.

Difficult to.

Did nail down because of <unk>.

<unk> parts.

Our obviously in play as you say.

Close all the deals but.

Is there a do you have a sense of the cadence as you enter next year.

And the ability to.

If there is any gating factors and.

In terms of.

Setting these up.

As they come in.

Yes Bill.

How are you good.

So we expect signatures in the next 30 to 90 days, we're working on the.

Late stage prospects.

That I reported on in the in the earnings release.

And right now we have a very large plan evaluating our financial proposal.

So we expect to hear back I would say within a couple of weeks there may be a couple of other decision makers.

That need to sign off.

But we're expecting that to continue to go forward.

For the other late stage prospects.

We are reviewing data for one.

We had reviewed some data of the group and they asked us to review additional data.

So that's always a good sign to actually have an.

An increased amount of data from one plan that we're reviewing right now.

Would expect that one to go pretty fast as well once we go through that process, we will deliver a financial proposal.

And we expect that also will close within the next 30 to 90 days in.

In addition, there are a couple of others that are further along.

And we're working on Msas in <unk>. So, it's just a matter of finalizing the paperwork.

Ensuring we have all the decision maker sign offs.

Getting those signatures and launching.

We have express to all of our prospects. It takes about 90 days to launch, but we're not waiting for 90 days to begin building provider networks.

So we've already started the provider network build.

For all of these prospects and very very pleased with the work that we've done thus far.

We have brought new net new providers.

Two the on track program for these prospects.

So it could be shorter charter period of 90 day implementation for us as a result of that.

Does that help.

That's good I appreciate it and follow up here.

Yes.

What.

What's kind of changed in your from your view as far as the receptivity that you obviously get a.

And the the.

The SaaS.

It feels like there is a faster conversion process here from.

From introduction to.

Getting getting towards signatures.

Yes, well thank you for the acknowledgment.

We are working really hard here at Ed on track, we have a phenomenal sales team, we are reaching out to hundreds.

Of prospects each each week.

Asking for time to introduce are on tract program.

As you know through Brandon's.

<unk>, we have evolved our program we've improved our program.

We're bringing an evidence based model forward and where you are bringing forward.

Our model that no one else it appears in our space has.

The technology and the capabilities that we do so these prospects are very intrigued with our AI capabilities.

The fact that we can impute behavior health that we identify and engage and activate members, we're not waiting for members to call us.

As everyone knows that's part of the problem those that need care or not seeking care, they're not sure where to go.

How to access providers.

What we're hearing from health plans as well is that it's a very long time for members to be seen by providers.

Some of the plans we've met in the last couple of months are saying that it can be as much as four to six months.

For members to actually access a provider.

Visit first session.

And so with our ability to bring net new providers forward to guarantee that members are seeing in a timely manner within a couple of weeks not four to six months.

The message is resonating. So it is an acknowledgment of our evidence based model plus all of our capabilities and techniques. In addition to a provider network.

That's available for their members in a very timely fashion.

And with that message plans are interested in.

We present, the next steps in that introductory call and the next steps or an NDA.

Let's start exchanging data and so that's what we've been focused on and it's working.

It sounds sounds like it is and then last one maybe for Brian you James.

What about the cash.

The liquidity requirements as you ramp up.

Remind me of the timing of the cash flows.

And as that happens.

Sure Bill this is James.

And the way we think about it is with these late stage prospects.

Think about the 90 days to launch our regenerate will very quickly.

Now with the cash on hand, and we also have $40 million available still in the queue flow agreement that we have.

Right.

That should give us plenty of runway to execute on our sales pipeline.

So depending on a lot of factors of course.

Would you expect to be generating cash as soon as midyear next year or is it hard is it just impossible.

Make a gauge.

Yes, it's a little bit difficult to gauge at this point I think once we get through these first wave of the late stage prospects I think we will have a better view on those.

Positive cash flow and EBITDA.

Okay.

Well congrats on all the progress.

Ill sign off thank you.

Great. Thank you.

Thanks Bill.

At this time Im showing no further questions. So thank you for your participation in today's conference. This does conclude the program you may now disconnect.

Okay.

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

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