Ontrak Inc., a leading AI and telehealth-enabled, integrated behavioral health platform, reported its financial results for the third quarter of 2023, showing a 31% year-over-year revenue increase. The company also highlighted its robust sales pipeline, operational enhancements, and improved clinical outcomes during its earnings conference call.
Key takeaways from the call include:
- Ontrak reported Q3 2023 revenue of $3.7 million, a 31% increase year-over-year, primarily due to a 21% increase in total average enrolled members.
- The company announced a new customer agreement with a health plan that will leverage its entire product suite for 25,000 Medicaid members.
- Ontrak is in the final phase of contracting with three other prospects, which if successful, could lead to significant expansion opportunities.
- The company's gross margin for Q3 2023 was 72%, consistent with the previous quarter and up from 49.5% in Q3 2022.
- Ontrak ended the quarter with cash and cash equivalents of $3.2 million, down from $6.1 million at the end of the previous quarter.
During the call, Ontrak's CEO, Brandon LaVerne, highlighted the company's recent customer signing and three prospects close to a final signature, attributing the momentum to improvements in clinical outcomes and technology solutions. He also emphasized the company's commitment to delivering durable outcomes for its members.
Mary Lou Osborne, President and Chief Commercial Officer, provided more details on the new customer agreement and the final phase of contracting with three other prospects. She also mentioned the company's ongoing discussions with existing customers to expand its solutions to additional populations and new lines of business.
Ontrak's CFO, James Park, reported a 31% year-over-year increase in revenue due primarily to a 21% increase in total average enrolled members. He also noted operational efficiencies and increasing revenues as factors that could lead to positive cash flow in the near future.
The company reaffirmed its revenue guidance of $12 million to $14 million for the year from its current customer base.
InvestingPro Insights
In addition to the promising prospects and growth reported by Ontrak, it's important to consider some critical insights provided by InvestingPro.
The real-time data reveals that Ontrak's Market Cap stands at $3.37M USD, with a revenue of $10.84M USD in the last twelve months as of Q2 2023. However, the company's revenue growth shows a significant decline of -71.53% over the same period.
InvestingPro Tips provide additional context. Despite Ontrak's growth in sales, the company operates with a significant debt burden and has been quickly burning through cash. The stock price has also taken a significant hit over the last six months, and analysts do not anticipate the company will be profitable this year.
These insights do not undermine the growth and prospects reported by Ontrak but provide a more comprehensive picture of the company's financial health. For more in-depth analysis and additional tips, consider exploring InvestingPro’s comprehensive suite of investment tools. It offers 10 additional tips for Ontrak, providing a more detailed understanding of the company's performance and potential risks.
Full transcript - OTRK Q3 2023:
Operator: Good day, and thank you for standing by, and welcome to the Ontrak Third Quarter '23 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would like to introduce your host for today's call, Ryan Halsted. Please go ahead.
Ryan Halsted: 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. 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 September 30, 2023. 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. 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. 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 sections 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. 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.
Brandon LaVerne: Thanks, Ryan. Good afternoon, everybody. We're excited to share details on our recent customer signing as well as three prospects that we feel are close to a final signature. We are experiencing noticeable momentum in our sales pipeline and believe that continued improvements in our clinical outcomes and technology solutions has resulted in increased traction with prospects. I believe the enhancements we have made to our product strategy with our WholeHealth suite of behavioral health solutions has played a major role in the business momentum we are seeing. All of us at Ontrak Health are deeply grateful to our new and existing customers for their support and shared commitment to helping improve the health and save the lives of as many members as possible. Mary Lou will share more specifics on the new sales activity in a moment, but first let me cover highlights of some of our achievements over the past quarter. Our ongoing patient-reported outcomes study findings demonstrate that our WholeHealth+ product is resulting in improved anxiety and depressive symptom management, reinforcing our commitment to delivering durable outcomes for our members. Leveraging industry recognized assessments such as PHQ-9 and GAD-7, we've witnessed significant reductions in anxiety and depressive symptoms among assessed members. Notably, 60% of members demonstrated a clinically significant 5-point reduction in anxiety symptoms, and 53% showed the same reduction in depressive symptoms. Analysis of our Q3 data also demonstrates Ontrak's ability to identify members with unaddressed behavioral health needs and coach them into care, leveraging thousands of in-network behavioral health providers is leading to new and updated diagnoses. Across the company's book of business, 42% of members diagnosed with substance-use disorder did not have the diagnosis showing in the prior year's claims prior to enrollment in Ontrak's WholeHealth+ program. Other behavioral health conditions with similar post-enrollment results include 27% for depression, 27% for bipolar disorder, 21% for anxiety, and 20% for schizophrenia. Ontrak's ability to support the identification, engagement, and documentation of high-cost, high-risk members effectively aides healthcare payers and providers focused on improving the management of their chronically ill members with unaddressed behavioral health conditions as well as their documentation for risk-adjusted revenue. We recently released preliminary results from a retrospective observational study showing significant healthcare cost savings across Medicaid members over 24 months. The study results demonstrate our commitment to evidence-based solutions and data-driven insights that are leading to statistically significant savings for Medicaid members that graduated from the WholeHealth+ program. Also in recent weeks, we announced a successful deployment of the TransSend Core EDI Gateway, a notable achievement that simplifies electronic data interchange, supports HIPAA compliance, and optimizes data transactions for our providers and health plan customers. This will enable us to process well over 0.5 billion claims data transactions in the coming year and significantly reduce turnaround times. During the past two quarterly calls, I summarized some of the augmented intelligence and operational enhancements we implemented during the first and second quarter of 2023. I'd now like to highlight some of the tangible results of those implementations, each of which improves the efficiency of our care coaches and other frontline staff. Number one, our virtual assistant Eleanor continues to help deliver an increase in member retention rates through a cadence of automated calls that provide check-ins on health status, capture member needs, and schedule calls with care coaches. During Q3, we saw the efforts of that outreach continue with a 42% reduction in our no-contact disenrollment rate from the Ontrak WholeHealth+ program. Number two, the omni-channel delivery of GAD-7 and PHQ-9 assessments was launched in Q3, providing members the option to choose the method of delivery for these assessments, whether it's SMS, e-mail, virtual assistant, or during coaching calls in an effort to ensure we are receiving the results in the most timely and efficient way possible that works for each member. And number three, since the launch of our efforts to improve care coach caseloads in the fourth quarter of 2022, driven by adding AI capabilities and operational enhancements for administrative functions, we have now seen a collective 90% improvement in the average quarterly care coach caseloads since the launch in the fourth quarter of 2022. All of these positive developments, the new customer and sales momentum, clinical outcomes, and technology and operational enhancements, reinforced the strength of our strategy, our commitment to our customers and members, and the dedication of our employees. And now, I'd like to turn it over to Mary Lou Osborne, who has more details upon our new customer and exciting developments in our pipeline. Mary Lou?
Mary Lou Osborne: Thanks, Brandon. I'm thrilled to provide more details about our new customer agreement. Our new health plan customer will leverage our entire product suite plus 25,000 Medicaid members. We are awaiting on imminent state approval to begin the engagement this quarter with the following Ontrak solutions. I will touch on each solution. Ontrak WholeHealth+, which includes the identification of high-cost, high-acuity members with chronic comorbidities and underlying but unaddressed behavioral health conditions. This program includes specialized care coaching and provider treatment for eligible members and delivers improved clinical outcomes and significant cost savings. Ontrak Engage, which is our coaching-specific solution that identifies members who would benefit from ongoing coaching to help them address physical and behavioral health challenges without a clear need for provider intervention. In addition to Ontrak Engage being available to all adult members, Ontrak Health will further outreach to the health plan's most impacted members with serious mental illness to help them address their unique healthcare needs. Ontrak Access will provide additional behavioral health providers for WholeHealth+ members with prompt access and availability to care, leveraging our NCQA certification as a credential's verification organization. Ontrak quality support for the members served, jointly collaborating with the health plan on HEDIS measures, closing critical gaps in care and improving health outcomes. And finally, the new Ontrak member portal that features specialized and tailored information delivered through our stayontrak.com website to provide educational and timely content for all the customers' adult members on how to improve their overall well-being. In addition, we are in the final phase of contracting with three other prospects. I will provide a brief update on each prospect. One, we are completing a statement of work with a prominent value-based provider group that will be leveraging our Ontrak's Outreach, Engage, and Access solutions for their patients. We're particularly excited about the seamless connection we will be making between their primary care clinics and our care coaches, who will provide virtual support and who may also be on site based in the clinics. This initial engagement will cover their members in three major metropolitan markets. We anticipate that with successful outcomes, this engagement will lead to an additional opportunities for their 200,000 patients across 15 states. Two, we are finalizing a proposal for a large health system's Western Medicare Advantage Plan and expect to reach agreement later this quarter to serve members with our WholeHealth+ and Ontrak Engage solutions. We expect this new contract will go into effect in Q1 2024. With successful outcomes, we expect an opportunity to expand to additional members within Medicare, Advantage, and other lines of business. And three, we are working on final approvals of our Statement of Work from a major Northeastern health plan. In addition, the health plan is refreshing its data in order to finalize expectations around a pilot for their Medicaid, HARP, and commercial members in Q1 2024. With successful outcomes, we believe the plan's 1 million members will be a future opportunity for the Ontrak WholeHealth+ program. In addition, we are in discussions with our existing customers to expand our solutions to additional populations as well as new lines of business, and our pipeline continues to build momentum. We have 27 active prospects representing 20 million total lives. We are extremely grateful to our existing customers for the partnerships we have developed together, serving members in need of behavioral health support. And we welcome our new customers with great excitement as we build these relationships serving new populations across multiple business lines. And now, I'd like to turn the call over to our Chief Financial Officer, James Park.
James Park: Thanks, Mary Lou. During the third quarter, we recorded revenue of $3.7 million, a 31% year-over-year increase due primarily to a 21% increase in total average enrolled members during the third quarter of 2023, compared to the same period in 2022, and also represented a sequential increase of revenue of 23% from Q2 of 2023. At the beginning of the quarter, we had 1,889 enrolled members and ended with 2,297 at the end of the quarter for a simple average of 2,093. That equates to revenue of about $552 per health plan enrolled member per month for the quarter, an increase from $528 per health plan enrolled number per month in Q2 of 2023, and an increase from $515 per health plan enrolled member per month in Q3 of 2022. Regarding our Q3 member metrics, we enrolled a total of 1,272 members during the quarter compared to 1,091 in Q2 this year, and 533 in Q3 of 2022. This is five consecutive quarters that we have been able to steadily increase our gross enrollment. Dividing Q3 gross enrollments by our outreach pool, we averaged -- which averaged 10,180 for the quarter. It annualizes to a 50% enrollment rate, compared to 43% enrollment rate in Q2 of 2023 and 53% in Q3 of 2022. Our average monthly disenrollment rate was 11% in the current quarter, same as in Q2 of 2023, and slight increase from 8% in Q3 of 2022. Further, we graduated 187 enrollment numbers during the quarter. This equates to about 10% of the enrolled members in the program at the beginning of the quarter. The impact of all this was a net enrollment increase of 408 members in the third quarter. Our gross margin for the third quarter was 72%, which remained consistent from 72.8% in Q2 of 2023, an increase from 49.5% in the third quarter of last year. 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. 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 our members and customers expect. Turning to the balance sheet and cash flow. Our cash flow from operations in the third quarter was negative $1.8 million, compared to negative $8.3 million in the third quarter of last year and negative $5.1 million in Q2 of 2023. This resulted in our average monthly cash burn to be around $1.3 million per month this year so far and $0.6 million per month for the current quarter. We believe our operational efficiency and increasing revenues have us approaching positive cash flow in the near future, with anticipated revenues from the process that Mary Lou mentioned. We ended the quarter with cash and cash equivalents of $3.2 million, down from $6.1 million at the end of last quarter. Including restricted cash, total cash was $9.2 million at the end of the quarter, down from $10.1 million at the end of last quarter. We also just announced the public offering of $6.3 million before offering related fees, concurrent with a private placement converting all except $2 million of our Keep Well note into common equity. This provides us with additional capital to execute on our pipeline, while significantly reducing our debt obligation and improving our balance sheet. Regarding our outlook, we're reaffirming revenue guidance of $12 million to $14 million for revenues from our current customer base for the year. Now, we will open up for questions. Thank you.
Operator:
Brandon LaVerne: Thank you. On behalf of the entire Ontrak team, I'd like to thank you for joining with us today. Have a great day. Thank you.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
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