Marpai Inc. Q1 2023 Earnings Call
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Speaker 2: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one, to withdraw your questions, you may press star and two.
Speaker 2: At this time, I'd like to hand the floor over to Simon Lee, Vice President of Morpe. Please go ahead.
Speaker 2: Thanks, operator. Welcome everyone to our first quarter 2023 earnings call. With me on the call today are Marpe's Chief Executive Officer, Amundo Gonzalez, and Chief Financial Officer, Yoram Bibran. Before turning the call over to Amundo, please note that we'll be discussing certain non-GAAP financial measures that we believe are important.
Speaker 2: when evaluating Marpe's performance. The details on the relationship between these non-Gabmeasures for the most comparable GABMeasures and the Reconciliation Zero can be found in the press release that is posted on our website.
Speaker 2: Also, please note that certain statements made during this call will be forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risk uncertainties and other factors that could cause the actual results for Marpe to differ materially from those expressed or implied on this call. For more information, visit www.fema.gov
Speaker 2: For additional information, please refer to our cautionary statement and our press release and our filings with the SEC, all of which are available at marpatelps.com. And with that, I will turn the call over to Marpae CEO and Mundo González. And Mundo?
Speaker 2: Thanks, Simon. Good morning, everyone, and thanks for joining us. It's a pleasure to be here to discuss the financial results of the first quarter of 2023.
Speaker 2: As I've done in the past, let me just take one minute for some of you that are joining for the first time to review who we are in our strategy.
Speaker 3: Marpe is a technology company which is reinventing how employers around the country provide health benefits to their employees.
Speaker 3: We work with self-insured employers that elect not to buy traditional health insurance for their employees, but rather they self-insure.
Speaker 3: We create and manage the health plans for our clients. Almost 100,000 people carry a Marpe card in their wallet or often a digital card on the Marpe app, which they present to Dr. Sampus' pharmacies or hospitals around the country, just as one would with health plans from a large insurance company.
Speaker 3: Now, we make money for management fees related to administering our client's health plans, which include managing all the healthcare claims of their employees, reviewing these, and eventually paying them on behalf of our clients.
Speaker 3: We also have a portfolio of ancillary services that add to our revenue.
Speaker 3: The ancillary services include care navigation and care management for members of our plans. We call employees of our clients and their families members. And these services often make a difference in their healthcare journeys.
Speaker 3: For almost 200 clients across the country, Marpe's value proposition is clear. We save them money by engaging our members proactively in a manner that improves their health. And as I've said before, yes, healthier employee populations cost our clients less. That's what we do.
Speaker 3: We reached $9.7 million of revenue during the first quarter of 2023.
Speaker 3: our EBITDA was negative $6.7 million, but excluding sovereigns and unused facilities, it was negative $5.9 million. We'll report on this metric going forward as it gives our shareholders a view into the effects of our consolidation activities and our drive towards profitability. During the first quarter, we continued to execute our integration plan for Marpe Health and budgeted leasing projects go during the first quarter. On the second quarter, we presented toaser studios in Orange County that theomonventure program in Sacramento was causing rates to me and I used these
Speaker 3: 40,000 employee lives.
Speaker 3: We are executing per our plan and per our budget.
Speaker 3: Given the cost of severances and other breakup costs, public investors will begin to see the effects of this consolidation in Q2 and even in Q3. Our goal is to reach the scale required to achieve a profitable EBITDA level of operations within 2024.
Speaker 3: cost of severances and other breakup costs, public investors will begin to see the effects of this consolidation in Q2 and even into Q3. Our goal is to reach the scale required to achieve a profitable EBITDA level of operations within 2024. How are we doing this?
Speaker 3: Well, our focus is simple. First, keep to our expense budget and adjust fast if the top line is falling behind. Mind you, our revenue is pretty visible given the nature of our contracts. Second, felt the customers we already have. There's a great opportunity to upsell products.
Speaker 3: which we have to clients we already have. For example, many of our legacy Marpe clients before the acquisition do not yet have care management provided by us. But with the acquisition of Maestro, we now have an internal care management company.
Speaker 3: We also have Marpey RX, our own pharmacy benefit manager.
Speaker 3: There's plenty of product for us to meet or even beat our goal of having at least $50 per employee per month in every life we manage.
Speaker 3: Some investors ask me what they should be looking for in terms of key metrics. I would look at three things. First, as I mentioned, our adjusted EBITDA loss, excluding these discontinued operations. This will show you our journey towards profitability. Key metrics, of course, are employee lives we manage.
Speaker 3: which we report, and the net revenue per employee per month that we earn.
Speaker 3: In closing, let me say a word about the future.
Speaker 3: During our last call, I described how we're deploying AI and other technology to build a unique ecosystem of value-based care vendors.
Speaker 3: These are the best of the best clinical vendors out there. They represent evidence-based solutions that make a difference in our members' lives. These members may have chronic conditions like diabetes.
Speaker 3: We have gathered these specific solutions to provide a marketplace for our members.
Speaker 3: What's our role in all this? As I've mentioned, think of a mini Amazon in healthcare. We point you to the right solution that's evidence-based that will deliver results such as lower A1C, for example, for you as a member. But for our clients, the self-insured employers, it means lower overall cost.
Speaker 3: this ecosystem throughout our joint customer base during 2023. I invite you to watch this space.
Speaker 3: And now let me turn it over to Yoram Bibring, our CFO , for a more detailed view of our financials in Q1. Yoram?
Speaker 4: Thank you, Edmundo, and good morning, everyone.
Speaker 4: Our revenues for the first quarter of 23 were approximately $9.7 million, $400,000 higher than the high end of our guidance.
Speaker 4: which was 9.3 million and 2.1 million higher than our revenues for the fourth quarter of 22.
Speaker 4: The main reason for the increasing revenues from the fourth quarter was that my extras revenues were included for two months in the fourth quarter versus three months in the first quarter of 2023. As of March 21st, a total number of employee lives.
Speaker 4: was $41,571.
Speaker 4: compared to 42,107 at the end of 22.
Speaker 4: During the first quarter, we added new customers representing approximately 3,300 employee lives.
Speaker 4: and most customers with approximately 3300 employee lives.
Speaker 4: and our existing customer base reduced its workforce by about 500 employee lives.
Speaker 4: When any service provider is acquired, some customers view this as a reason to test the market, find that she could deal if you will, and indeed most of the trim was with the maestro legacy customer base. The transaction also impacted our ability to close new deals.
Speaker 4: because many potential customers would shy away from signing up with a company that is in the midst of an integration project.
Speaker 4: Overall, we are happy that we were able to keep our customer base relatively stable, and we believe that by the end of 2023, when the next major round of reviewals and new sales occur, all the concerns of the existing customers and the potential new customers will no longer be relevant as integration will be over.
Speaker 4: Moving on to expenses.
Speaker 4: I will be comparing first quarter 23 expenses to the fourth quarter 22 expenses.
Speaker 4: Cost of revenues historically included cost of processing and adjudicating claims, customer service costs, and amounts charged by third-party vendors for their services that we resell to our customers.
Speaker 4: With the acquisition of Maestro, we are now also providing care management services that are delivered by our nurses and cost containment services that have a labor component as well and all these costs are now included in our coastal revenues.
Speaker 4: Accursion revenues for the first quarter, excluding depreciation and mortization, were approximately 6.4 million of 66% of revenues, versus 4.8 million of 63% of revenues in the fourth quarter.
Speaker 4: Our gross profit was $3.3 million, or 34% of revenues in the first quarter, compared to $2.8 million, or 37% of revenues in the fourth quarter.
Speaker 4: Our first quarter offered the expenses, not including coastal revenues, depreciation and the motivation and sub-based compensation, for $10 million, an increase of approximately $200,000 compared to the fourth quarter when these expenses amounted to 9.8 million. Included in our first quarter expenses are approximately $800,000 related to severance and abuse facility costs, as we said, monthly mentioned. Since my first expenses were included for two months in the fourth quarter and three months in the first quarter, it is hard to compare the two quarters. Starting in the second quarter, the figure will become much more comparable in this equation.
Speaker 4: which we booked based on the present value of the purchase price.
Speaker 4: We will continue to accrue this non-cash interest quarterly until the purchase price amount will be fully paid off.
Speaker 4: A net loss for the first quarter was approximately 8.9 million, or 42 cents per share, compared to a net loss of 8.5 million, or 41 cents per share in the fourth quarter. Excluding net expense, net interest expense of 401,000, stock-based compensation of 702,000, and depreciation and amortization, and asset write-off expenses of approximately 1 million. Adjustment EBITDA for the first quarter was a negative of approximately 6.7 million, compared to a negative of 7 million for the fourth quarter. As Edmondo mentioned, the 6.7 million included was a negative of 6.7 million.
Speaker 4: approximately $800,000 relating to the severance and unused facility costs, as well as approximately $1.5 million invested in the value-based care platform. Moving on to guidance, we're not changing our 23 full year revenue guidance at this point, and expect second quarter revenues to be in the range of $9.5 to $9.8 million.
Speaker 4: Before I transfer the call back to the operator, I just want to recap the secondary that we completed in April . When Hab rabbramahIswaHe nearly said that the name of the young average existed after
Speaker 4: We issued 7.4 million shares at a price of $1 per share. Net proceeds were approximately $6.4 million after expenses.
Speaker 4: An expert or managed for purchase agreement, 35% of the net proceeds will be used to reduce the debt to the seller and the balance will stay with the company. The balance of the cash will stay with the company. With that, we will open the call for questions. Operator?
Speaker 5: Ladies and gentlemen, at this time we'll begin the question and answer session. To ask a question you may press star and then one on your touch-tone telephones.
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Speaker 5: Again, that is Star and then one to join the question queue. Our first question today comes from Alan Clee from Maxim Group. Please go ahead with your question. Hello, good morning. I heard you say that potential new customers were...
Speaker 5: We're waiting until because you're doing a big deal that might want to wait. To follow up on that, could you discuss your strategy with third party insurance brokers to try to...
Speaker 5: grow new business and maybe are you planning up a broker conference this year? And what type of feedback do you get from the brokers of what they're looking for to consider recommending yourself to a new customer? Thank you.
Speaker 3: Thank you for the question, Alan. So look, I think in all acquisitions, especially at this scale, you know, people kind of weighed a bit. Thankfully, I think this is behind us, which was really related to one one of 23, if you will. We continue our outreach with our sales horse.
Speaker 3: also came a lot of wonderful products that of course increase the value proposition to clients from the broker channel obviously it also increases their potential you know to make to make commission and to make revenue.
Speaker 3: from these clients, all in one package. So I do believe that the solution itself is what drives the sale. We are working very hard, not only with our current clients, but with new clients, to communicate that.
Speaker 3: And we continue to work with some of the largest brokers out there and essentially work towards a one-one renewal deadline. And that's why we try to make a renewal for our group and renewal in general.
Speaker 3: I will also mention, Alan, a new kind of, maybe a new segment.
Speaker 3: There is a tremendous amount of interest in business here from smaller clients and why is that well as you know the ACA mandates, you know small businesses about 50 employees have insurance.
Speaker 3: The issue is that a lot of businesses that say had 75 or 100 employees traditionally have been fully funded, meaning they buy traditional health insurance because of the rising cost of those products that are great, by the way. I've been a consumer of these in the past.
Speaker 3: And because of the rising cost, a lot of businesses of the smaller scale just can't afford them anymore.
Speaker 3: So you're seeing a massive way of customers that are coming to self insurance or self funding for the first time ever. And that's certainly a way that we are leaning into. A lot of the new lives we received in...
Speaker 3: in the last few quarters have been in that profile. And that's very exciting. First of all, because of volume. Yes, an individual client may be smaller, maybe not 500 lives, maybe 80 lives, but there's so many of them, so many of them.
Speaker 3: and the decisions there are not necessarily a year out or three quarters out, but more 30 days out. So it's very, very exciting that the industry is being shaken a bit by this kind of trend and wave.
Speaker 5: That's great. Thank you. I was also trying to think about
Speaker 5: So you've said you have these new programs.
Speaker 5: But for the partnerships for chronic diseases that you're...
Speaker 5: to offer some now when you're planning a bunch more of these. I'm trying to think of the revenue that you can generate from it, if any of that is in 23 numbers. I did a back-of-the-envelope math, but I'd rather, I could tell you it, but I'd rather hear how you think about it. But in general, if you're saving for the experiment, and you're asking, if the investment amount I just said, is 22. Please let me know in the comments.
Speaker 5: the customer's money and then they're offering something for that, some of the savings and then you get a cut of that, which mostly drops to the bottom line is the...
Speaker 3: Is there a way to think about how, if that could be meaningful or when that might scale up? Thanks. Yeah, yeah. So, and Alan, just for others, I think what you're describing is the revenue related to ancillary products and maybe very specifically to our value-based care initiatives. Look, first and foremost, I do believe…
Speaker 3: of value-based care is the future. It's only just scratching the surface right now in commercial health care, meaning commercial insurance or what companies buy. This is obviously the standard in the Medicare world, right, with Medicare Advantage.
Speaker 3: and by extension to our clients. So members must get the value. And they're the value within terms of healthcare, right? Did by A1C go down? Did my back pain go down? We're measuring real human outcomes. Now what that translates to for the client is less claims or less costly claims. Our partners like Verta for example have mountains of data on efficacy, meaning how do they and a deep prescribed specialty medications because patients are getting better, meaning they don't need to be on these.
Speaker 3: medications that cost the programs or the plan so much. These are very exciting times, meaning the cost improvements here are certainly not provided by providing, you know, cheap health care or less health care. The lowering of costs is because human outcomes.
Speaker 3: have a fee from the vendor as we match make why because we're essentially eliminating their cost of acquisition. Right. They cannot access our members. Our members are our own. We're very protective about that. So if we find a member that may benefit again in human.
Speaker 3: within 23.
Speaker 3: this to be a very meaningful, you know, look we're close to 40 million of revenue here. So I don't expect VBC to be that huge. What I do expect is for all of the groundwork to be laid. So in 24 you do have quite material.
Speaker 3: a chunk of very high margin revenue that is being created.
Speaker 3: Last point on that, Alan, you know we have announced publicly two of these phenomenal value-based vendors. We are working with our client base, you know, 200 clients or so, to implement these, again, as needed, right? Meaning customer needs vary, you may not have...
Speaker 3: a big population of people living with diabetes, or you may, right? So it's really bespoke. But I do expect that ecosystem to expand a lot within the next quarters. So obviously, the more there, the more disease states you're covering, the more members' needs you're covering.
Speaker 3: And that obviously leads to more revenue share for us.
Speaker 3: that obviously leads to more revenue share for us. That's great. Thank you.
Speaker 5: I'm sorry, I just missed something from the call. When you were talking about the severance costs or kind of one-time costs related to Marpe.
Speaker 5: in the quarter. Could you just repeat what that was? Thank you.
Speaker 3: Yes, what I was referring to, a few items here. So based on our integration plan, we have eliminated duplicate positions. We have made basically all of the efforts that needed to be made to create one company from two, right?
Speaker 3: The reference to that is that we had severance costs, other break-up costs, there's leases that are not being used. That was approximately $800,000 in Q1. We'll be reporting on this particular item, meaning non-ongoing costs.
in the quarters to come and the reference there was exactly that. I don't know if Yoram has additional thoughts on this particular item, Yoram.
No, I think you covered it. Basically, we're defining... These are the costs that are not connected to our ongoing operations, as Montserrat said. So, we have unused facilities that we inherited, and also we have severance costs. That's pretty much it.
And the point is, I think we want to separate that and outline that for our public shareholders, because it is obviously an indication of our cost structure going forward. So even if you may see
the cost in this particular quarter, those costs are deferred from our ongoing business or hopefully going away in the quarters to come. That was the whole point.
Thank you. So you said on the last earnings call that roughly if you get the 50,000 lives, you're
and you get paid $50 per live that gets you to
$50 per live, that gets you to break even.
I believe. My question is do you see a path to getting that getting there organically? Or is that more likely going to happen with hopefully another acquisition? Yeah, look, it's certainly, it's certainly both.
and the demand is coming internally. You know, right? We're obviously very focused on keeping what we have, meaning making sure that our customers are deriving maximum value and they know it because...
A customer kept is obviously worth everything. So that is a huge initiative. I do believe that we can get there organically, but as you may know, there's a lot of other...
opportunities even with smaller assets out there. So we're exploring everything and definitely the two lovers who are both inorganic picking up some customer bases from smaller TPAs and the organic are live. So that's...
segments and one of them was it's very small but it's captive insurance. What revenue is that? What is that related?
Yes, Yoram, would you like to explain the accounting? I can talk about the strategy, but please. I mean, we have been, I guess for us today, this is the captive is an ancillary product or tPA.
So a small number of employee lights.
We sell this which is effectively we're participating in the stop-loss insurance in a way
The revenue we are recognizing is premium revenue.
The revenue we are recognizing is premium, premium revenue. It's small, it's very very small.
it's pretty much an ancillary product because it's an insurance type product then you have to report it separately.
Okay, great. And then in terms of your use of AI for...
identifying potential big healthcare events before they happen.
And I know it's always improving. Any update on?
if any internal update on-
how it's getting used and in any other new ways or improving? Let me talk a little bit about the future. Obviously, there's a lot happening in the realm of AI, especially with large language models. I'm sure you've seen in the press. I think we shall try that somewhere.
We are really leaning in here with respect to value-based care and deploying not only our AI but other technologies to making sure we can matchmake appropriately, making sure we understand who that member is and what their journey is. So the deployment of our technology is really around
around that. That's what the future looks like as well. In addition to that, we're very, very excited about being able to really predict the cost that may be a little bit hidden and unknown within subpopulations for our clients. So, for example, you may have a group that is pretty much maybe a little bit above the average in terms of cost.
But based on our analysis of data, based on these models, we can tell, and obviously based on huge, huge amount of history, we can tell that this subpopulation will potentially cost more or not, right? This is critical information not only for the planning, but also for the research.
the financial planning of our clients, but it's also very, very critical for stop loss underwriting. Remember that 100% of my clients, yes, of course, they're self-insured, meaning they're paying for those claims as they come.
But they do have stop loss meaning at some point they have traded that risk to a large re-insure, right? That re-insure
charges substantial premiums obviously for taking that risk. And they have to really understand what those potential costs are. So we see multiple audiences for these models, again in the quarters and years to come.
as they get better. But it really is about understanding risk. Predicting is one thing, a very important thing, but modifying risk is perhaps even more important.
I'll leave it there Thank you
Okay, I think that's it for my question. Thank you very much and thank you. So, thank you. The good stuff you're doing. Thank you so much. Thank you for your questions.
Once again, if you would like to ask a question, please press star and 1.
closing remarks. No, just thank you, operator, and thank you everyone for participating in our first quarter earnings call. I appreciate your time this morning. Have a good day and look forward to hearing from you and seeing you on the next quarterly release. Thank you very much, everyone.
Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.