Ontrak Inc. (OTRK) has released its financial results for the fourth quarter and full year of 2023, showcasing a significant year-over-year revenue increase and the deployment of its advanced engagement system that leverages AI technology. The company also noted the successful integration of the ReQoL assessment into its product suite and the securing of new contracts, including one with Community Care Plan in South Florida. Despite a substantial revenue growth, Ontrak reported a negative cash flow from operations and a net enrollment decrease for the quarter.
Key Takeaways
- Ontrak's revenue for Q4 2023 stood at $3.5 million, marking a 41% increase compared to the previous year.
- The company's advanced engagement system has doubled the industry standard with a 54% member outreach success rate.
- Ontrak integrated the ReQoL assessment into its WholeHealth+ suite, enhancing its service offerings.
- A new contract with Community Care Plan and advancements in negotiations with two other health plans have been secured.
- The company's gross margin was reported at 64.6%, but it faced a negative cash flow from operations amounting to $3.6 million.
Company Outlook
- Ontrak anticipates Q1 2024 revenue to be between $2.5 million and $2.9 million.
- The company ended the fourth quarter with $9.7 million in cash and equivalents, after completing a public offering of $6.3 million and securing a $15 million senior secured demand note.
Bearish Highlights
- Net enrollment decreased by 539 members in the quarter.
- The average monthly cash burn was $1.3 million.
- The winding down of services by a customer is expected to significantly affect revenue in February 2024.
Bullish Highlights
- Ontrak has a strong sales pipeline with 26 active prospects, potentially representing 15 million members.
- The company executed a new agreement with a Medicaid health plan and expanded its relationship with Sentara Health.
- Approval by the Florida Agency allows Ontrak to bypass additional approval processes for future Florida customers.
Misses
- Cash flow from operations was in the negative, at $3.6 million for the quarter.
Q&A Highlights
- The impact of Medicaid dis-enrollment on financials has been mostly absorbed in the fourth quarter, with minimal future impact expected.
- Ontrak's AI-driven engagement system has improved efficiency and member service capacity.
In summary, Ontrak Inc. has demonstrated growth in Q4 2023 through increased revenue and the successful implementation of technology to enhance member engagement. While facing challenges such as a net enrollment decrease and a negative cash flow, the company remains optimistic about its future, particularly with its strong sales pipeline and recent business developments. The integration of ReQoL into its offerings and the approval to work with health plan vendors in Florida without additional processes are also notable achievements. Moving forward, Ontrak aims to mitigate the impact of Medicaid dis-enrollment and capitalize on its advanced AI system to improve service delivery.
InvestingPro Insights
Ontrak Inc. (OTRK) has demonstrated resilience with its recent financial results, despite facing operational challenges. A deeper look into the company's financial health through InvestingPro real-time data and tips provides investors with a clearer picture of Ontrak's market position.
InvestingPro Data:
- The company has a market capitalization of $19.55 million, reflecting its size within the healthcare technology sector.
- Ontrak's revenue for the last twelve months as of Q3 2023 stood at $11.71 million, though it has experienced a decline of 47.56% in revenue growth over the same period.
- The gross profit margin remains strong at 68.72%, indicating a solid capability to control costs relative to revenue.
InvestingPro Tips:
- Analysts have voiced concerns regarding Ontrak's profitability, not anticipating the company will be profitable this year. This aligns with the reported negative cash flow from operations.
- The stock price has seen significant fluctuations, with a notable 106.37% return over the last month, yet it has fallen by 87.54% over the last year, highlighting the high price volatility that investors have faced.
For those considering an investment in Ontrak, it's important to weigh these insights carefully. The company's recent growth in revenue and advancements in AI technology for member engagement are positive signs, but the financial data and InvestingPro Tips suggest caution due to its cash burn and volatility in stock price.
InvestingPro offers additional insights for Ontrak, and interested readers can find more in-depth analysis, including 9 more InvestingPro Tips, at https://www.investing.com/pro/OTRK. To further enhance your investing strategy, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Full transcript - Catasys Inc (NASDAQ:OTRK) Q4 2023:
Operator: Thank you for standing by, and welcome to the Ontrak Inc. Fourth Quarter and Year End 2023 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]. I would now like to hand the call over to Ryan Halsted, Investor Relation. Please.
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. Earlier today, Ontrak released financial results for the quarter ending December 31, 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: Thank you, Ryan. We are excited to 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 facing a 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. Aside from new business development opportunities that Mary Lou will discuss, we focus 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 Ontrak 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. 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 Whole Health 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. 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 on-track 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 certain of these 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. 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 high trusts certified industry standard frameworks. This creates a closed-loop, bi-directional data-sharing ecosystem, seamlessly connecting providers, specialists, and Ontrak care coaches. Finally, through our proprietary provider matching engine, Rematched 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 behavioral health network to evaluate more than a dozen specialties and 30 subspecialties performance and outcomes, as well as mode delivery, diversity and demographics. Optimized provider matching helps drive remarkable clinical outcomes. When members and providers are aligned in care, we have seen a greater than 50% clinically significant reduction in anxiety and depression symptoms evidenced by their GAD-7 and PHQ-9 scores for members in our WholeHealth+ program. In addition to announcing the rollout of our advanced engagement system, we're integrating the recovering quality of life assessment or ReQoL into our WholeHealth+ suite of products and services. Originally, developed by the Oxford University Innovation Lab, the integration of ReQoL aligns perfectly with our focus on providing person-centered measurement-based care for individuals dealing with mental health and substance use conditions. ReQoL assessments are utilized to assess help mental health conditions, psychological interventions, and healthcare treatments affect the patient's lives. These assessments prioritize understanding the individual beyond diagnosis, aligning with recovery-oriented approaches, as we adopt these assessments into Ontrak WholeHealth+, I'm a 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 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. Ontrak’s WholeHealth+ program drives lower hospitalization and inpatient utilization for Medicare Advantage Plan Partners membership. Our program of continuous mental health assessments 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 planned star rating, which is a key driver of membership growth. Ontrak’s WholeHealth+ program is more important than ever and will 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. 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?
Mary Lou Osborne: Thank you, Brandon. I am thrilled to provide a few updates on our new Medicaid Health Plan customer. As 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 health care 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. 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+, 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 two other prominent health plans representing over 2 million 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. Also, I'm delighted to share that we have expanded our behavioral health product offerings to one of our longstanding health plan partners, Sentara Health. The expanded partnership recently signed includes offering WholeHealth+ 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 Sentara Health Plan members eligible for the Ontrak WholeHealth+ 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 Sentara to further expand WholeHealth+ and Ontrak engage to a new line of business. These expansions and strong partnership illustrate the trust that Sentara has placed in Ontrak and serves as a testament to the five-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 million 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 Sentara 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.
James Park: Thanks, Mary Lou. During the fourth quarter, we recorded revenue of $3.5 million, a 41% year-over-year increase due primarily to a 50% increase in total average enrolled members during the fourth quarter of 2023 compared to the same period in 2022. At the beginning of the quarter, we had 2,297 enrolled members and ended with 1,758 at the end of the quarter for a simple average of 2028. That equates to revenue of about $546 per health plan enrolled number per month for the quarter, a small decrease from $552 for health plan in enroll member per month in Q3 of 2023 and an increase from $539 in Q4 of 2022. Regarding our Q4 number metrics. We enrolled a total of 654 members during the quarter compared to 1,272 in Q3 of this year and 754 in Q4 of 2022. Regarding Q4 gross enrollment for our outreach pool, which averaged 4,131 for the quarter, it annualizes to a 63% enrollment rate compared to 50% at only 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. This enrollment 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. 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 fourth quarter. Our gross margin for the fourth quarter was 64.6%, which decreased from 72% in Q3 of 2023, an increase from 61.2% in the fourth quarter of last year. The decrease in our gross margin in Q4 2023 compared to Q3 '23 was due to an increase in our cost of revenue primarily relating to the increase in 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 and our member-facing teams with the utilization of areas, 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 members and customers expect. Turning to the balance sheet and cash flow. Our cash flow from operations in the fourth quarter was negative $3.6 million compared to negative $1.4 million in the fourth quarter last year and negative $1.8 million in Q3 of 2023. This resulted in our average monthly cash burn to be about $1.3 million per month for the full year 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. We ended the quarter with cash and cash equivalents of $9.7 million up from $3.2 million at the end of last quarter. There was no restricted cash as of December 31, 2023. However, including restricted cash at the end of Q3 2023, the total cash flow of $9.2 million at the end of the quarter. As previously announced in December of 2023, we completed a public offering of $6.3 million before offering related fees concurrent with the private placement converting all except $2 million of our people all noted to common equity. Additionally, in March 2024, we completed an amendment to the people agreement that give us access to a $15 million senior secured demand note, which is set up as monthly drawdowns over the next year and subject to approval at the time of withdraw. 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 evolving business. Also, in addition to the $1.5 million we have already drawn down in April on the new -- Amendment, we also received cash proceeds of $1.9 million from the exercise of warrants during March and April, which continue to build our capital to execute on a 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 million 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. For Q1 2024, we anticipate revenue in the range of $2.5 million and $2.9 million. Now we will open up for questions.
Operator: [Operator Instructions]. Our first question comes from the line of Jonathan Aschoff of Roth MKM. Your question please, Jonathan.
Jonathan Aschoff: Thank you. 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 per Ontrak?
Brandon LaVerne: Mary Lou, do you want to take that?
Mary Lou Osborne: The Florida Agency approved, that's AFA and that agency approves all health plan vendors that health plans want to work with in Florida. 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?
Jonathan Aschoff: Yes. Next one is how much more financial impact is negative financial impact is expected from any additional Medicaid dis-enrollment?
Brandon LaVerne: From what we've seen so far is the bulk of the impact has already been there. We definitely saw an impact in the fourth quarter as James had indicated in our dis-enrollment. 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.
Jonathan Aschoff: 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?
Brandon LaVerne: It's really putting together a lot of components that are bringing AI in and around our entire journey of our members. And so, when we think a couple 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've had the upfront ability to identify members, we've expanded that capability. We've expanded the timeline and the 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. 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 minutes, 20 minutes, 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 assistance 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, 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.
Jonathan Aschoff: 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 fourth quarter dropped quarter-over-quarter.
James Park: Yes, that's correct. The slight larger impact is going to be redetermination, but that was also part of it.
Operator: I would now like to turn the conference back to Brandon LaVerne for closing remarks. Sir?
Brandon LaVerne: All right. Thank you, Latif. We would like to thank everyone for participating on our call today, and I wish you all a great afternoon. Thank you.
Operator: And this concludes today's conference call. Thank you for participating. You may now disconnect.
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