This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk05: Good day, and thank you for standing by. Welcome to the MarPi third quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Paul Kuntz with MarPi's investor relations team. Please go ahead.
spk04: Thanks, Paul. And welcome, everyone, to MARPE's first fiscal quarterly earnings call as a public company. With me on today's call are MARPE's Chief Executive Officer, Edmundo Gonzalez, and Chief Financial Officer, Joram Bibring. Before we turn the call over to Edmundo, please note that we'll be discussing certain non-GAAP financial measures that we believe are important when evaluating MARPE's performance. Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and the reconciliations thereof can be found in the press release that is posted on our website. 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 risks, uncertainties, and other factors that could cause the actual results for MARPE to differ materially from those expressed or implied on this call. For additional information, please refer to our cautionary statements in our press release and our filings with the SEC, all of which are available at marpehealth.com. And with that, I will now turn the call over to MARPE's CEO, Edmundo Gonzalez. Edmundo? Edmundo?
spk02: Thanks, Paul, and good afternoon to everyone. Thank you for joining us. It's a pleasure to be here on our first earnings call after our IPO. Before talking about the quarter, I wanted to share some information about our company's strategy and what this will mean in the quarters to come. We are a technology company, bringing some of the latest advances in artificial intelligence into the health plan space in the United States. We are going to market as a healthcare payer focused on clients who are self-funded. That is, clients who have chosen not to buy traditional insurance, but rather who pay for healthcare claims for their employees as they occur. Marpay partners with these employers and administers all of their healthcare benefits. Our products and services are very differentiated when compared to other healthcare payers. This is due to our use of advanced AI, which allows us to predict certain costly events in the employee populations we serve. This means that we can predict events that will not only impact a plan member's life, but that are also likely to generate big claims for our clients. By predicting a costly event before it happens, our care team focuses on getting the member to the right care. The mix of AI-driven prediction, And a very human intervention is what allows us to accomplish our mission of improving lives, saving lives, and saving our clients a lot of healthcare costs. Now, we have a two-pronged strategy. First, we are deploying our AI to create a very efficient payer. My goal is to take the cost of administering a claim to about one-third of what it is now in the industry. This will take some time. but we have already made much progress on this journey. At scale, this will mean very efficient operations driven by AI. Second, we continue to develop our ability to predict costly events related to chronic conditions, which account for about two-thirds of all healthcare spending. Our AI models are also showing good results in predicting certain orthopedic procedures months before they occur. Our goal here is to get members to the right care early. This makes a difference in members' lives and potentially prevents costly events like an ER visit or hospitalization. Now, in the area of orthopedic procedures, we can't prevent these events, but we can steer members to the right care from both a quality and a cost perspective. This is what saves our clients money. Prediction of health events is an area of continued investment and a source of high differentiation. Our strategy is working. We are growing as evidenced by our revenue numbers, but more importantly, we have planted the seeds for future growth by investing in sales and marketing this year. We have brought in very senior level sales and marketing teams, and we have reinvented marketing in this space. The approach is working. We now have approximately three times the amount of RFPs as we had last year at this time. This will pay off in 2022. Moving on to the quarter and the latest developments, I will let Joram provide you with the details, but the good news is that in the third quarter, we experienced growth of approximately 23% in the number of employee members that we serve, and we experienced revenue growth of 22% in Q3, versus Q2. I would like to mention one important win for us in the quarter, which is a series of school districts in Texas. Together, these clients brought us approximately 4,500 new employee lives. We are working closely with our broker partner in Texas and we believe this could be the beginning of a practice area focused on local school districts and other local government agencies. While you can see in our guidance that we expect nice growth in the fourth quarter of 2021, I do want to remind you that the health benefits business, both the fully funded and self-funded, is volatile, as employers tend to shop for alternatives often. So while we are very confident about our long-term growth, which will be fueled by our unique competitive advantage, having some turbulence along the way is just part of the journey. Before I hand it over to Yoram, who will discuss the results and guidance, I want to thank our employees for their hard work and dedication, as well as our legacy and new investors for supporting us and providing us with the financial resources that we need to execute on our strategy. Yoram?
spk00: Thank you, Edmondo, and good afternoon, everyone. I'm excited to be here on our first call as a public company. I will start by providing you an explanation of how the Continental Benefits Acquisition is impacting our 2021 revenues. I'll also say a few words on our revenue model in general, and I will then turn to the quarterly results and guidance. Until April 2021, we were a development stage company building the technology that Edmondo described to you. As such, we had no revenues, and the vast majority of our people were technology personnel based in Israel. On April 1st this year, we acquired Continental Benefits, the U.S.-based third-party administrator, or TPA for short. As Edmondo explained to you earlier, we believe that our AI-based technology will provide the TPA with unique capabilities that will drive our growth in the years to come. From the financial reporting perspective, our financials reflect the results of Continental benefits from April 1st, this year onwards. This means that our June 30th, 2021 income statement that was included in our IPO-related filings, the S-1 and the final prospectus, included only three months of revenues, even though it covered six months of activities. And our September 30th financials include only six months of revenues, even though they reflect MARPE's activity for nine months. It also means that when we compare our revenues for the three months ended September 30th to our revenues for the six months ended June 30th, we're effectively comparing sequential quarters of revenues, namely Q3 revenues to Q2 revenues. In terms of our revenue model itself, I want to start by saying that our current revenue model, which is also the revenue model of the TPA industry as a whole, provides good revenue visibility within a calendar year. We typically enter into annual contracts with fixed per employee fee, which means that bearing any material changes in the number of employees during the contract year, we have very good visibility as to the annual revenues from any specific customer. The main uncertainty around revenues relates to new wins and churn. The main reason for the churn is that many employers like to seek alternative offers every year to try to cut costs and improve the quality of service. And the fierce price competition leads to frequent changes of the providers. I said that our best visibility is for the calendar year because in our industry, more than 50% of customers typically renew their health insurance contracts on January 1st. Our goal is to reduce churn by applying a competitive advantage, namely providing our unique high-quality health prediction services, which will help our members improve their health and quality of life while helping their employers, while our customers reduce the cost of claims. As you know, the cost of health claims is by far the largest cost component of a customer's overall health care costs. We believe that over the long term, our competitive advantage will help us win new business and reduce churn. I want to say one more word about our revenue composition. We derive our revenues for two main components. The first is the fee that we charge for our administrative services, namely for managing the self-funded plan And the second is the revenues that we make from selling value-added services to our customers. These value-added services can be provided by third parties, in which case we're resellers, or they could be our own services based on our own predictive technology or other services that we may choose to provide with our own resources. We do not include in our revenues any funds that we receive from our customers for claims which we pass on to providers. and we don't include in our revenues funds that our customers pay us to pass on to insurance companies for stop-loss insurance premiums. These are policies that our customers have in order to limit their total exposure to cost of health claims. Moving on to the quarter. Our revenues for the third quarter were approximately $4.8 million, compared to $3.5 million for the second quarter of 2021, and zero revenues in 2020. Our second quarter revenues reflected a reduction of approximately $400,000 due to an accounting adjustment recorded in connection with the accounting for the Continental Benefits Acquisition. This adjustment is purely technical and relates to post-acquisition revenues that were collected in advance prior to the April 1st acquisition. If we add back the $400,000 technical adjustment, then quarter-over-quarter revenues increased by approximately $900,000, or 22%. I'd like to remind everyone that even though I'm comparing our Q3 revenues to the revenues you will find in our June 30th financials that are included in the prospectus, the comparison is appropriate in terms of revenues and cost of revenues, at least, because our June 30th financials do not include any Q1 revenues, which preceded the April 1st acquisition of continental benefits. In other words, our June 30th financials, even though they cover six months of operating activities, only include second quarter revenues and cost of revenues of continental benefits. Moving on to expenses. Cost of revenues include our cost of processing and adjudicating claims, our customer service costs, and the amounts charged by third-party vendors for their services that we resell to our customers. Our cost of revenues, excluding depreciation and amortization, were approximately $3.3 million, or 70% of revenues. which is approximately the same as our gross margin in the second quarter if one calculates it based on the adjusted revenues, excluding the $400,000 adjustment that I explained. Our goal is to improve our gross margin over time, and we plan to provide you with our long-term cost model on our Q4 call. The balance of our operating expenses for the third quarter amounted to approximately $6.2 million, or $5.1 million, excluding depreciation, amortization, and stock-based compensation. Unlike revenues and cost of revenues, our operating expenses in the third quarter are not comparable to our operating expenses in the June 30th financials, but those also included first quarter expenses of Marpay, Inc., pre-continental benefits acquisition. Starting in Q4, we will provide quarter-over-quarter analysis of the operating expenses. Our operating loss for the three months ended September 30th was approximately $4.7 million. Our net loss for the third quarter was approximately $4.8 million, or 47 cents per share, compared to a net loss of $926,000, or 37 cents per share, in the third quarter of 2020. Excluding net interest expenses of $57,000 and stock-based compensation of approximately $253,000 and depreciation and mortization expenses of $802,000, adjusted EBITDA for the third quarter was a negative of approximately $3.7 million. Moving on to our financial activities, as you know, we completed our IPO in late October, and so it is not reflected in our quarter end balance sheet and in our cash flows for the nine months. To recap the IPO, we issued a total of 7,187,500 shares of common stock at $4 per share. Gross proceeds were $28.75 million, and net proceeds after deducting the underwriter's commission and offering expenses were $24.8 million. In addition, after the IPO, all the September 30th outstanding debt was either converted or paid off. We used the proceeds of the IPO to pay off approximately $3.8 million of debt, of which $1 million was received after September 30th, and we issued approximately 1.7 million shares of common stock, converting approximately $5.1 million of convertible debt and accrued interest. All the debt converted or was repaid based on the original terms of the respective notes. Moving on to our Q4 revenue guidance, we expect fourth quarter 2021 revenues to be in the range of $5.6 to $5.8 million, representing sequential increase of 17% to 21% compared to the third quarter of 2021. And with that, we will open the call for questions. Operator?
spk05: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions.
spk01: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Thank you. Our first question comes from Kevin Mangan with Think Equity.
spk05: Please proceed with your question.
spk03: Congratulations, guys, on the great quarter. Can you just give us some of your thoughts and outlooks on 2022, you know, absent guidance, just kind of what your main focus areas are in terms of, you know, sales efforts in 2022?
spk02: Yeah, sure. Hey, Kevin, how are you? It's Edmundo. So absolutely. Look, obviously, we've been hard at work after the IPO, laying all the foundations for Grade 22. I think all of us have to think of this really in two ways. And we describe this with a lot of our investors during the IPO Roadshow. So we basically have two big pillars of growth. The first is organic, right? So on the organic front, we have made tremendous headway in differentiating ourselves from every other third-party administrator out there in the marketplace. I'm really pleased with our volume of RFPs. It's just, you know, extremely high vis-a-vis what was in place a year ago at the legacy Continental Benefits. Right now we're already seeing volume for implementation in July in September and even one one of 23 So that channel is working really well, and that's been completely Restructured with some of the best people literally some of the best people in the industry which I've kind of plucked out from from very You know high-performing positions. That's one the second pillar remember is also the inorganic growth. So I'll remind everyone that there's approximately 200 TPAs out there in the market. These are largely bill payers. They don't have artificial intelligence. They don't have what we have in terms of a differentiated solution. So obviously, we are also looking to grow inorganically through that channel. I think of the 200, probably 100 are really relevant to us. So we are in process here of taking a careful look at these and hope to have some news here in the months and quarters to come.
spk01: Great. Thank you.
spk05: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate that your line is in the question queue.
spk01: Thank you.
spk05: There are no further questions at this time. I would like to turn the call back over to Edmundo Gonzalez for any closing comments.
spk02: So I would just like to thank everyone for their time, and thank you so much for your support. And we are definitely hard at work in building a great company here, so look forward to the next call to go over 2021 results during the first quarter. But thank you, everyone, and happy holidays.
spk05: This concludes today's conference. You may disconnect your lines. Thank you for your participation.
Disclaimer