Ontrak Q4 2023 Earnings Call Transcript

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Provided by Quartr
April 16, 2024

There are 5 speakers on the call.

Operator

Thank you, operator, and thank you all for participating in today's call. Joining me today are Brandon LaVerne, Chief Executive Officer and Chief Operating Officer Mary Lou Osborne, President and Chief Commercial Officer and James Park, Chief Financial Officer. Earlier today, OnTrak released financial results for the quarter ending December 31, 2023.

Speaker 1

A copy of

Operator

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, intends, 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.

Operator

Other factors that may affect OnTrak's 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 ks 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. OnTrak expressly disclaims any intent or obligation to update these forward looking statements. With that, I'd like to turn the call over to Brandon.

Speaker 2

Thank you, Ryan. We're excited to provide updates on the momentum in our pipeline and how OnTrak's continued innovation with the advanced engagement system is addressing the needs of our customers and building demand with prospective customers. Mary Lou will go into details with respect to prospects shortly. We also recognize our Medicare Advantage health plan customers are challenging macro environment at the moment, which represent opportunities for OnTrak and our value proposition to help our health plan partners better serve their members in a cost efficient manner. But first, allow me to cover highlights from the recent quarter.

Speaker 2

Aside from new business development opportunities that Mary Lee will discuss, we focused this quarter on continued innovation and technology focus. As we continue to develop our AI infused technology, we are able to offer increased efficiencies and higher ROI to our customers and pipeline, while maintaining our patient centered focus. We recently introduced OnTrak's advanced engagement system to maximize more efficient and effective engagement by integrating AI throughout the member experience. The OnTrapp advanced engagement system enables member engagement at greater scale and with greater efficiency than ever before. We have achieved a member outreach success rate of 54% across all lines of business, which is more than double what we believe is the industry standard.

Speaker 2

The advanced engagement system is made up of multiple components starting with a risk based analytics engine, which uses AI algorithms to identify members and prioritize outreach based on factors like risk, readiness, acuity, claims, prescriptions and enrollment history. Our engine can find hard to reach high risk members, for example, members with high predicted probability of substance use disorder or depression, but no associated diagnosis in existing health records. As a result, 20% to 30% of our members obtain new behavioral health diagnoses after enrollment in the OnTrak WholeHealth Plus program, improving risk scores for these members. The next component of the advanced engagement system is our AI driven coach notes, which converts spoken interactions into text, significantly reducing the time care coaches spend recording engagement notes, resulting in increased care coach capacity of up to 20%, while our care signals engine flags and facilitates timely and relevant care interventions. The care signals indicate important events like new diagnoses, new medications, work stress and key factors that influence wellness, enabling care coaches to proactively engage with members in advance of additional medical issues by setting revised goals and providing targeted coaching support.

Speaker 2

Our next best action engine then offers immediate data driven recommendations to optimize care coaching interactions leading to a 25% reduction in time spent organizing schedules and tasks across caseloads, while ensuring that resources are prioritized where they're needed most. In certain cases, the next best action engine will trigger the built in AI virtual assistant, which offers members an opportunity to engage with their OnTrak care team in more ways than ever before. To ensure OnTrak care coaches adhere to best practices, AI powered tools monitor for quality and fidelity. These technologies evaluate care delivery and offer care coaches real time feedback into how well their interactions are serving members. The infrastructure that supports Certainty's dynamic capabilities is comprised of advanced data management systems, which have generated savings of 80% in the pipeline maintenance costs and delivered nearly 90% shorter turnaround times.

Speaker 2

Our data exchange platform efficiently simplifies management of electronic data interchange while effectively complying with federal requirements and best practices in the industry. Our infrastructure enables provider interoperability or the ability to exchange and use health information through HITRUST certified industry standard frameworks. This creates a closed loop bidirectional data sharing ecosystem, seamlessly connecting providers, specialists and OnTrak Care Coaches. Finally, through our proprietary provider matching engine, we match members with the right provider, reducing the stress of members on their own attempting to select the most suitable provider. Our technology taps into OnTrak's 45 state behavior health network to evaluate more than a dozen specialties and 30 subspecialties, performance and outcomes as well as mode of delivery, diversity and demographics.

Speaker 2

Optimized provider matching helps drive remarkable clinical outcomes when members and providers are aligned in care. We've seen a greater than 50% clinically significant reduction In addition to announcing the rollout of our advanced engagement system, we're integrating the recovering quality of life assessment or REQUAL into our Whole Health Plus suite of products and services. Originally developed by the Oxford University Innovation Lab, the integration of Recall aligns perfectly with our focus on providing person centered, measurement based care for individuals dealing with mental health and substance use conditions. Recall assessments are utilized to assess how mental health conditions, psychological interventions and healthcare treatments affect the patients' lives. These assessments prioritize understanding the individual beyond diagnosis, aligning with recovery oriented approaches.

Speaker 2

As we adopt these assessments into OnTrak WholeHealth Plus, I'm proud to share that we secured official recognition from the Oxford University Innovation Lab as an authorized licensee, serving as a testament to our focus on continued innovation and to improving outcomes through measured feedback. We recognize our Medicare Advantage health plan customers are facing a challenging macro environment, including funding pressures, declining star ratings, elevated utilization trends and narrowing benefits packages. We believe this macro environment presents an opportunity for OnTrak's product offerings. We are well positioned to help our health plan partners better identify and engage their respective memberships to best utilize critical behavioral health benefits. Our technology, care coaches and human centered approach integrate behavioral and physical health and can better identify and engage patients across the acuity spectrum.

Speaker 2

OnTrak's Whole Health Plus program drives lower hospitalization and inpatient utilization for Medicare Advantage Plan Partners membership. Our program of continuous mental health assessment is also proven to improve health outcomes of OnTrak Health members and increase engagement, which can contribute to the improvement in quality scores of health plan partners. These quality scores are critical to maintaining or increasing a plan star ratings, which is a key driver of membership growth. OnTrak's Whole Health Plus program is more important than ever and very well aligned to help solve for these macro issues that Medicare Advantage plans are facing today by delivering proven health outcomes and reducing costs, while also increasing engagement, leading to increased quality scores. We are confident in our value proposition to Health Plan Partners and are seeing continued demand in our recent customer expansions and further progress in our pipeline as a result.

Speaker 2

Finally, we are pleased to have successfully completed our latest round of structured financing that James will highlight in a few minutes. This funding provides us with additional runway to finance and execute our growth initiatives and reflects underlying confidence among our largest investors in our pipeline and prospects. These encouraging developments, including new signature, sales momentum, clinical outcomes and technological enhancements underscores the strength of our strategy, the power of our product, our dedication to our customers and members and the hard work of all of our employees. Now I'll pass it over to Mary Lou Osborne, who will provide further insight into our new customer and other exciting developments in our pipeline. Mary Lou?

Speaker 3

Thank you, Brandon. I am thrilled to provide a few updates on our new Medicaid health plan customer that we discussed in our last earnings call. It is our privilege to be working with Community Care Plan, a provider service network plan located in South Florida owned by large respected hospitals, Memorial Healthcare System and Broward Health. We are happy to share that OnTrak Health has received Florida state approval from the Florida Agency For Healthcare Administration to partner with community care plan providing behavioral health solutions for adult members ages 18 years and above. The OnTrak Health and Community Care teams are diligently working on the joint implementation plan.

Speaker 3

We anticipate a go live date within the next 30 days. As we have reported in our last earnings call, OnTrak will be offering several of our behavioral health solutions to Community Care Plans adult membership, including WholeHealth Plus, OnTrak Engage, OnTrak Access, in addition to quality support for HEDIS measures as well as a member portal. In addition to this exciting contract win, we are in the final contracting phase with 2 other prominent health plans representing over 2,000,000 lives across all lines of business. Both health plans are interested in beginning a pilot partnership, one for Medicare Advantage members and the other for Medicaid members. Both health plans have stated, when clinical and financial outcomes are proven, there is an intent to expand to a larger membership cohort and across other lines of business.

Speaker 3

Also, I'm delighted to share that we have expanded our behavioral health product offerings to one of our long standing health plan partners, Centara Health. The expanded partnership recently signed includes offering Whole Health Plus to a broader commercial population as well as to self insured groups. Together, the commercial and self insured group expansions represent more than a 6.5x increase in the number of Centara Health Plan members eligible for the OnTrak WholeHealth Plus program. We have already begun to outreach and engage individuals identified in the expansions with unaddressed anxiety, depression, substance use disorder and underlying chronic diseases for personalized care coaching and prompt access to behavioral health providers when needed. In addition, we are in discussions with Centaur to further expand Whole Health Plus and OnTrak Engage to a new line of business.

Speaker 3

These expansions and strong partnership illustrate the trust that Centara has placed on track and serves as a testament to the 5 year relationship we have built together, achieving clinical and financial outcomes and effectively serving members with behavioral health conditions. Finally, the sales pipeline remains strong and growing with approximately 26 active prospects representing 15,000,000 members across all lines of business. We are happy with our progress of executing a new logo with a prominent Medicaid health plan, community care plan as well as our multiple executed expansions with Centara Health. We look forward to welcoming our new customers with great excitement as we build these relationships serving new populations across multiple lines of business, serving members in need of behavioral health support, care and treatment. Now I'd like to turn the call over to our Chief Financial Officer, James Park.

Speaker 1

Thanks, Mary Lou. During the Q4, we recorded revenue of $3,500,000 a 41% year over year increase due primarily to a 50% increase in total average enrolled members during the Q4 of 2023 compared to the same period in 2022. At the beginning of the quarter, we had 2,297 enrolled members and ended with 1758 at the end of the quarter or a simple average of 20.28. That equates to revenue of about $5.46 per health plan enrolled member per month for the quarter, a small decrease from $5.52 per health plan enrolled member per month in Q3 of 2023 an increase from $5.39 in Q4 of 2022. Regarding our Q4 member metrics, we enrolled a total of 6.54 members during the quarter compared to 12.72 in Q3 of this year and 754 in Q4 of 2022.

Speaker 1

Dividing Q4 gross enrollments by our outreach pool, which averaged 4,131 for the quarter, it annualizes to a 63% enrollment rate compared to 50% enrollment rate in Q3 of 2023 and 66% in Q4 of 2022. Our average monthly disenrollment rate was 16% in the current quarter compared to 11% in both Q3 of 2023 and Q4 of 2022. The disenrollment rate was higher in the current quarter due to a significant number of members moving coverage due to Medicaid redetermination. Without the impact of these members, our disenrollment rate for the quarter would have been slightly lower than historical disenrollment rates. Further, we graduated 194 enrolled members during the quarter.

Speaker 1

This equates to about 8% of the enrolled members in the program at the beginning of the quarter, which is consistent with prior periods. The impact of all this was a net enrollment decrease of 539 members in the 4th quarter. Our gross margin for the 4th quarter was 64.6%, which decreased from 72% in Q3 of 2023, an increase from 61.2 percent of the Q4 of last year. The decrease in our gross margin in Q4 of 2023 compared to Q3 2023 was due to an increase in our cost of revenue, primarily relating to the increase of member facing departments at the end of Q3. The increase in our gross margin compared to prior year was primarily due to the continued operational efficiencies in our member facing teams with the utilization of various AI and other systems and process improvements we discussed earlier and in prior quarters.

Speaker 1

Our coaching capacity has now improved by over 90% since last year when we began to implement these initiatives, all while continuing to provide the quality of care members and customers expect. Turning to the balance sheet and cash flow. Our cash flow from operations in the 4th quarter was negative $3,600,000 compared to negative $1,400,000 in the 4th quarter last year and negative $1,800,000 in Q3 of 2023. This resulted in our average monthly cash burn to be about 1,300,000 dollars per month for the full year of 2023. We believe our operational efficiencies and anticipated revenues from the process that Mary Lou mentioned has us approaching cash flow positivity in the near future.

Speaker 1

We ended the quarter with cash and cash equivalents of $9,700,000 up from $3,200,000 at the end of last quarter. There was no restricted cash as of December 31, 2023. However, including a specific cash at the end of Q3, 2023, the total cash was $9,200,000 at the end of the quarter. As provision announced in December of 2023, we completed our public offering of $6,300,000 before offering related fees, concurrent with a private placement converting all except $2,000,000 of our Q4 note into common equity. Additionally, in March 2024, we completed an amendment to the Q4 agreement that gives us access to a $15,000,000 senior secured demand note, which is set up as monthly drawdowns over the next year and subject to approval at the time of the draw.

Speaker 1

These financing transactions have provided us with the additional capital needed to execute upon our pipeline, while significantly reducing our debt obligation and improving our balance sheet. They serve as a testament to our ability to execute and validation of OnTrak's evolving business. Also, in addition to the $1,500,000 we have already drawn down in April on the new CFO amendment, We also received cash proceeds of $1,900,000 from the exercise of warrants during March April, which continue to build our capital to execute on the pipeline. While we can't predict if and when the remaining warrants will be exercised, the total amount of warrants at their exercise price would equate to additional $16,000,000 in cash once the newly issued warrants with the current reset provisions have been registered. We will not be providing annual guidance at this point.

Speaker 1

For Q1 2024, we anticipate revenue in the range of $2,500,000 $2,900,000 Now we will open up for questions.

Operator

Thank you. Our first question comes from the line of Jonathan Aschoff of ROTH MKM. Your question please, Jonathan.

Speaker 4

Thank you. Guys, what does the new Florida Agency for Healthcare Administration Award mean for your new customer? And what might be the timeline for it to translate into increased revenue for On

Speaker 3

Track? Mary Lou, do

Speaker 2

you want to take that?

Speaker 3

So, the Florida agency approved, that's AHCA and that agency approves all health plan vendors that health plans want to work with in Florida. So it's terrific news that we've been approved. That also means any additional Florida customers we would bring forward have already been through the Florida agency approval process. Does that answer your question?

Speaker 4

Yes. Next one is how much more financial impact is negative financial impact is expected from any additional Medicaid disenrollments?

Speaker 2

I think from what we've seen so far is the bulk of the impact has already been there. We definitely saw an impact in the Q4 as James had indicated in our disenrollments. It's not entirely done yet, but from everything we've seen, it's definitely slowed. And so don't expect a significant portion going forward.

Speaker 4

Okay. Could you please explain a bit clearer than the March 21 press release about the advanced engagement system. What does it allow you to do that you could not do before implementing it?

Speaker 2

It's really putting together a lot of components that are bringing AI in and around our entire the entire journey of

Operator

our members.

Speaker 2

And so when we think a couple of years ago, our members were predominantly talking to us on the phone, our coaches, we would be serving members into treatment, communicating offline necessarily with providers. And now we have the ability to we've had the upfront ability to identify members. We've expanded that capability. We've expanded the timeline and processing speed at which we can process that information. We're serving up a lot more information to our coaches so that they have an understanding of what those next best actions are for the members that before it was read through a bunch of notes.

Speaker 2

These notes now are also being driven through the AI. And so the coach rather than following up a meeting and having to spend 15, 20, 30 minutes to document what happened, that process is happening contemporaneously with the AI, which frees up these coaches to serve more members. And so that's not only in efficiency, but it's also in support of incremental membership work. And so then just expanding with more assessments or virtual assistants can now engage with our members and create interactions in between coaching visits and in between provider visits. They can help follow-up and work on timing and reminders, which helps keep people in care and treatment, and which in turn helps keep the members engaged and engagement is really most important at this point to make sure that these members can stay on their journey, stay maintaining their treatment plans and within the On-site program and then ultimately serving and reducing their costs and improving their health.

Speaker 4

Okay. And lastly, is the winding down of using your services by the customer that left in February of 2024, the overwhelming reason why the revenue in the 4th quarter dropped quarter over quarter?

Speaker 1

Yes, that's correct. The slight larger impact is going to be the repetermination, but that was also part of it.

Speaker 4

Okay. Thank you very much.

Speaker 1

Thank you. Thank you.

Operator

I would now like to turn the conference back to Brandon Laverne for closing remarks. Sir?

Speaker 2

All right. Thank you, Latif. I would like to thank everyone for participating on our call today and wish you all a great afternoon. Thank you.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Earnings Conference Call
Ontrak Q4 2023
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