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spk03: Ladies and gentlemen, please stand by. Your on-track Q2 2021 earnings call will begin in two minutes. Again, please stand by. Your conference call will begin in two minutes. Thank you. Thank you. Thank you. THE END Good afternoon, ladies and gentlemen, and welcome to the OnTrack Q2 2021 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. I would now like to turn the conference over to your host, Ms. Caroline Paul of Investor Relations. Anne, please go ahead.
spk00: Thank you, and thank you all for participating in today's call. Joining me today are Jonathan Mayhew, Chief Executive Officer, and Brandon Laverne, Chief Financial Officer. Earlier today, OnTrack released financial results for the quarter ended June 30th, 2021. 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, believe, 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 OnTrack'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-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. ONTRAC expressly disclaims any intent or obligation to update these forward-looking statements. With that, I'd like to turn the call over to Jonathan.
spk01: Good afternoon, everyone. Thank you for joining us. During the second quarter, we made important progress on our growth initiatives to expand our addressable market and our value proposition. Our journey to become a truly consumer-centric organization is now underway, and I and the management team have been on a listening tour with on-track customers, prospects, providers, and members, and I'll share some of my learnings with you momentarily. Our second quarter total revenue was $26.5 million, an increase of 54% compared to the same period in 2020 due to the strong growth in our government lines of business. We are just getting started on our journey to engage not only care avoidant, but also care seeking individuals and to broaden our reach within Medicare, Medicaid, commercial, and at-risk provider groups. Regarding our outlook for the remainder of the year, we are reiterating our revenue guidance of 80 to $85 million. While we saw some high-cost members dropping below their medical expense threshold during the quarter due to the lingering lower utilization, which resulted in a slight decline in our effective outreach pool, we expect a commensurate rebound in the second half of 2021. I would now like to provide an update on what we've learned from the customer prospect and provider listening tour and give you a sense of their feedback on our growth initiatives, at the core of our strategy is the continued development of a whole-person health, coach-supported and AI-enabled identification and engagement system. First, our customers find it difficult to engage high-cost, high-acuity individuals who do not generally seek care. Most of us find the U.S. healthcare system difficult to navigate. Imagine how much more challenging it is for the individuals with behavioral health conditions and chronic disease. Those who suffer from anxiety, depression, and substance use disorder are likely to have six or more chronic conditions that cause severe mental and physical pain. They face a host of socioeconomic, medical, and health system barriers that cause the severity of their disease. their receptivity to care, and their medical cost profile to change over time. OnTrack finds those who have fallen through the cracks. Our proven experience in managing claims data using our AI and predictive analytics to impute behavioral health conditions allows us to identify those who would most benefit from care. This is uniquely valuable to our customers and prospects because these complex cases drive 44% of medical costs, according to a recent known study. These individuals tend not to proactively engage with healthcare programs, whether digitally, telephonically, or in person. We will deepen and on track core competency, namely the timely identification and engagement of these most vulnerable members, so that we can support readiness for change in more individuals. We will continue to invest in machine learning models that identify those who are most suitable for behavioral health interventions and assess their underlying needs so that we can align those needs with the right amount and the right type of care. We're also continuously retraining our model to identify and predict members likely to have a change in the severity of their disease and cost profile over time. Second, our customers and prospects need partners who can screen and monitor those who may not have a diagnosed behavioral health condition. OnTrack provides deep human engagement and AI-enabled eligibility assessments based on 14 years of experience in caring for the most complex behavioral health populations. From a care pathway standpoint, we have continued to refine program eligibility in our process for screening and assessments. We've increased the alignment between behavioral health and social needs by administering screenings such as PHQ-9s and social determinant of health assessments that help us understand risk factors and how we can heighten upfront engagement in clinical support. The more deeply we understand each person's medical and behavioral needs, the better we can match them in a timely way to the right care pathway. Customers and providers value our measurement-based care, check-ins, monitoring, and follow-up assessments because these are integration opportunities with primary care physicians, providers, medical programs, community support programs, and value-based measures. Third, customers and providers want individuals with behavioral health conditions to complete treatment. Those suffering from behavioral health conditions often face insurmountable barriers in between their clinical visits, which makes treatments complex. Together, the member and their on-track care coach embark on a customized care pathway specifically curated for the member's needs. and supported by dozens of meaningful connections with their on-track care coach during the course of treatment. We advocate for members and connect them to what matters most in their lives, whether that's a therapist who specializes in PTSD, help with transportation, or finding a local church who can bring food to the members' home. This ensures that the members are more likely to have the capacity and the receptivity to meet with their providers who lead their treatment. As I mentioned a moment ago, the healthcare system is intensely difficult for those with behavioral health disorders and chronic disease. Fourth, the debate about the effectiveness of a digital versus human experience is a false dichotomy. The power of both should be embraced because there are times when high-tech tools can motivate an individual to manage their health. Weight loss, for example. And there are times when high touch human contact is crucial, suicide ideation, for example. What matters is engagement. When individuals are engaged in their care, they get well. The on track engagement program, which can last up to 12 months, delivers durable clinical and economic outcomes for those who are hardest to reach and engage. We use multiple channels and personalize our approach to engage members at the right time and the right place with the right message, whether that's online, offline, or both. Our treatment effect study shows that OnTrack members are still benefiting from the program 24 months after enrollment. Customers are interested in our ability to deliver similar levels of multimodal engagement for lower acuity, behavioral health populations, and additional lines of business. Fifth, access to high-quality behavioral health providers is critical. We are building out individual person-centered care that connects an ecosystem of stakeholders to the much-needed solutions. Our personalization of care extends to customizing therapists through clinical matching. For example, we might identify an individual with depression, diabetes, and hypertension. Since we focus on the member's goals, We might start by working with this member and their stated goal of weight loss while matching the member to a mental health professional who works with depression. We also consider the member's health plan, their line of business, language, and preference for face-to-face or telephonic provider visits. We review the health plan's programs as well to see whether after receiving care, the member would benefit from enrolling in a health plans program that, for instance, works with members to improve management of their diabetes. That being said, by linking our members with the best mental health treatment and providing intensive coaching support, these individuals may not need to enroll in further programs because their medical condition often improves through better health literacy, treatment adherence, and attention to their mental health and social risk. Our ability to match members to the most suitable health care professionals has been especially well received by health plan customers and by provider networks we wish to partner with. In light of the severe national shortage of behavioral health providers accepting insurance, our partnerships with over 14,500 behavioral health providers continues to be a clear differentiator for OnTrack in the marketplace. And sixth, government programs, commercial partners have a keen interest in how OnTrack's value-based care can drive overall customer satisfaction scores. OnTrack has a high net promoter score that has the potential to increase how members rate their health plans and providers. Importantly, we have an opportunity to explore how we can impact customer HEDIS scores stars ratings, caps scores by engaging members in ways that create high satisfaction levels and help members successfully access and complete treatment. Key account leaders within our customer organizations tell us that their major accounts value the OnTrack program. We're well positioned to heighten the value that health plans create for commercial populations by building trust, engagement, and readiness with employees. so that their employers experience higher enterprise loyalty and commitment levels. As we've begun testing receptivity to the growth initiatives, not only with our customers, but with prospects and providers, the feedback has been very positive. We've seen an increase in initial discussions in recent weeks in our sales pipeline. While it's still early, we're encouraged by dialogue we're having with health plans, provider groups, and employer organizations. We're investing to roll out our enhanced product and service capabilities over the third quarter and the fourth quarter this year as an engine for growth and expansion into more channels, population segments, and lines of business. With respect to our existing customers, we continue to see meaningful levels of engagement as we discuss our product development roadmap, develop strategies to maintain and increase return on investment, and enhance our reporting of insights and analytics. During the second quarter, we announced an expansion with a large healthcare system, which was officially launched earlier this week, and we remain on track to expand this particular relationship into additional geographies over time. With respect to a previously communicated customer termination, we would note that in the spirit of providing the best member experience, we've mutually agreed with the customer that there's benefit to supporting this commercial membership through the course of treatment and graduation from the OnTrack program. For this reason, we did not disenroll their commercial members as of June 30th, as originally planned, and we look forward to scheduled discussions this month on our evolving product roadmap and capabilities and how these might align to this valued customer's needs. I'd also like to note that we are building out a world-class executive team and anticipate sharing important news very soon on selected candidates for three key positions, which are expected to advance and accelerate our growth initiatives in the second half of this year. Those are the Chief Customer Officer, Chief Medical Officer, and Chief Information Officer. In summary, I'm pleased with the progress we've made on our product and clinical roadmap these past few months. I continue to see a massive addressable market for those who can benefit from our integrated intervention platform, and I'm looking forward to continued invigorating discussions with health plans, employers, and providers on the outcomes that we deliver and the collaborative partnership they would like to create with us. We are intently focused on mutual growth and achieving our mission of helping save the lives of as many people as possible. I'll now turn the call over to Brandon Laverne, our Chief Financial Officer. Brandon.
spk05: Thank you, Jonathan. As Jonathan mentioned earlier, during the second quarter, we recorded revenue of $26.5 million, a 54% year-over-year increase, despite the loss of the Medicare members of our lost customer at the beginning of the quarter. Deferred revenue decreased to $14.5 million in the second quarter, down from $24.9 million in the first quarter. At the beginning of the second quarter, we had 14,868 enrolled members and ended the quarter with 10,818, or a simple average of 12,843. That equates to revenue of about $687 per enrolled member per month for the quarter, and compared to 558 per enrolled member per month, I should say, in the second quarter of 2020. And it was 626 per enrolled member per month in Q1 2021. To go a bit deeper into Q2 enrollment, we enrolled a total of 3,066 members during the quarter compared to 6,723 in the second quarter last year, or a 54% decrease largely due to the termination notice. Dividing Q2 gross enrollment by our outreach pool, which averaged approximately 23,000 for the quarter, it annualizes to a 53% enrollment rate on an annual basis, compared to the 21% annualized rate we saw in the first quarter. Our disenrollment rate averaged approximately 11% per month during the quarter, resulting in us disenrolling a total of 5,070 enrolled members during the quarter. At the very beginning of the second quarter, as part of the transition plan with our last customer, we disenrolled 2,100 of their Medicare members. Excluding these members disenrolling due to the termination notice, our disenrollment rate would have been approximately 7% per month. This compares favorably to the 9% average monthly disenrollment rate we saw in Q2 of last year. Further, we graduated 2,046 enrolled members during the quarter, which equates to about 14% of the enrolled members in the program at the beginning of the quarter, and an increase to the 9% average monthly graduation rate we saw in the second quarter of last year. Then an impact of all that was a net enrollment decrease of about 4,050 members in the second quarter. Our gross margin for the second quarter of 67.8% increased sequentially from 55.6% and compared to 42.7% in the second quarter of last year. The expansion of our gross margin was driven by the 23% increase in the average per enrolled member per month rate in Q2 2021 compared to Q2 2020, combined with significantly improved enrollment rates as our business has shifted to a higher mix of the government business. Further, we have continued to optimize our internal costs, including the insourcing of nutritional specialists into our coaching staff, that were previously outsourced to third-party providers, as well as the communication materials delivered to our members and prospects. We ended the quarter with 244 team members included in cost of revenue, down 19% sequentially from 303 at the end of Q1 due to our reduction in response to the customer loss. The team members and cost of revenue are primarily made up of care coaches and member engagement specialists. As we look forward, we would expect gross margin to normalize a bit lower than recent trends as we ramp up new customers, continue to develop our relationships and price structures with existing customers, and increase third-party behavior health provider visits. Turning to the balance sheet and cash flow, our cash flow from operations in the second quarter was a negative $3.3 million compared to a negative $6.2 million in the second quarter last year. On the balance sheet, we ended the quarter with cash and cash equivalents of $91.5 million, up from $86.9 million at year-end. Including restricted cash, total cash was $103.2 million, or consistent with year-end. We remain confident that we have sufficient capital and access to future capital to manage our operations and execute on the strategic initiatives we've outlined. Regarding our outlook for the remainder of the year, as Jonathan indicated, we're targeting revenue in the $80 million to $85 million range. While we are proud that we were able to achieve positive adjusted EBITDA through the fourth quarter, first quarter, and second quarter, we continue to expect adjusted EBITDA to be negatively impacted in the remaining quarters of the year due to the lost contract. We anticipate operating leverage improvements as we add additional customers and expansions to our platform in subsequent quarters. I'd now like to turn the call back over to Jonathan. Donovan?
spk01: Thank you, Brendan. We continue to execute on our strategic plans to expand our addressable market, further invest in our engagement system, and increase our brand recognition for those who serve individuals with behavioral health and chronic conditions. This momentum puts us in a great position to achieve our four-year goals, and I look forward to updating you on our progress. Our continued execution and intense focus on the growth initiatives will drive us towards greater predictability while also expanding our impact on those in need across the nation. With that, we'll now open it up to questions. Operator?
spk03: Ladies and gentlemen, if you have a question at this time, please press star then the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Once again, to ask a question, Please press star, then the number one key on your touchstone telephone. Your first question comes from the line of Charles Rahe from Cohen. Your line is open.
spk02: Yeah, thanks, guys, and congrats on the quarter. Jonathan, just had a quick question. As we think about the Aetna members, you kind of mentioned that the commercial members are staying on. How many more months? Do you expect them to be on the platform? And is that factored still within the revenue guidance range provided?
spk01: It is. And the way I would describe it is, you know, they were originally scheduled for all of the members to be off the platform and out of our program by the end of June. And through the course of conversations, what we collectively and mutually decided to do was to make sure we could support these members through their natural graduation and disenrollment dates. So you can think of it as sort of feathering down throughout the rest of this year, maybe a little into the beginning of next year. But most of the membership should have naturally achieved their graduations through to the end of the year.
spk02: Is there something different between the commercial members and the Medicare members that would allow the Medicare members to all get disenrolled versus commercial being chosen to stay on? Are there certain capabilities that Aetna is providing to their Medicare members that's not necessarily available for commercial members?
spk01: Not that I'm aware of. I really think, you know, there are probably – less restrictions, I'll say, in terms of, you know, communication with the commercial population versus, you know, some of the government communication requirements that are requisite for, you know, CMS and government, you know, communication protocol. So they may have a little bit more flexibility with commercial than they do Medicare. But I'm not aware of any support differences that, you know, were or were not provided to those numbers.
spk02: That's helpful. And then maybe one last for me. On Optima with the Sentara Healthcare, you know, when is that expected to start and, you know, how many lives, covered lives will go into the pool? What's the best way to think about that one?
spk01: Yeah, I mean, we're live. We activated that relationship this week. I'll let Brandon comment on the impact. to the outreach pools and populations relative to the forecast. But we did activate the relationship this week.
spk05: Sure. And, Charles, so we had indicated that the average pool at the end of the quarter was around 20,000. The average during the quarter was about 23. And I can tell you that today the outreach pool is around 27,000. And so that would include, you know, any natural other fluctuations as well as the inclusion of the new the new program that you discussed.
spk02: Great. I appreciate it. Thanks. Thank you.
spk03: Your next question comes from the line of Richard Close from Canaccord. Your line is open.
spk06: Yeah, thanks. Brandon, just housekeeping. What was the rate that you gave the average rate or price in the second quarter? It was a 600 number.
spk05: In the second quarter, it was 687 per enrolled member per month.
spk06: Okay. All right. Excellent. Okay. With respect to the 80 to 85, maybe just going off of Charles' question in terms of the Aetna commercial staying on, do we – Think of that as, you know, you're still generating revenue from that, from those commercial members. You had expected them off, you know, off by the end of the second quarter. So does that, you know, sort of imply that, you know, maybe the revenue you would have guided down possibly without those Aetna members staying on? How should we think about that?
spk05: Richard, the way I would answer that is the Aetna members coming off, we hadn't enrolled them in great numbers in the last couple quarters. And so the rate of decline is accelerating as we get closer to, you know, 12 months from when we last enrolled, as an example. And so I can tell you as of the end of the quarter, we had, you know, a little over 2,500 members for them, and now that number is down to about 760 as of today. And so it is coming down much faster as people are graduating and then, you know, in their normal disenrollment rates. And so the incremental revenue associated with that is not that great, and we are still working with, with the health plan to determine ultimately what that's going to look like through the rest of the year.
spk06: Maybe as a different way, were you expecting all the Aetna members to be off the books June 30th by June 30th or no previously?
spk05: Yes, we were. We were. And so, Richard, to answer more directly, I think the question really is would we have guided down and And we're still looking in the range we're talking about. There's enough uncertainty with how this particular population is going to act in the next six months or five from now, technically, and then just with other natural variations. And so I'd say there's just additional uncertainty with it, and so we feel that it's within the same guidance that we've given. Okay, great.
spk06: That's helpful. And then, Jonathan, maybe just going back to your initial comments and the growth strategy and rolling out, I guess, new offerings in the second half. Specifically, if you could just make it easy for us, I guess, in terms of what are you expecting to roll out in the second half that you know, you're not doing now? What's different?
spk01: You know, maybe the way I would try to simplify it is, you know, some of the guiding principles that we really try to develop around our product and clinical programs are evolving and changing. Those principles around that product roadmap is, you know, one, to make sure that we maintain some member obsession, particularly focused on people with high acuity and most in need, right? We feel like that's a foundational area for us. So we can do more to connect those individuals to, you know, community-based programs, health plan-related programs, and make sure that we support those treatment plans with, you know, more bi-directional information between our coaches, primary care physicians, and the treating therapists. Number two is we want to make sure that we enhance our sort of measurement obsession, right? Metrics early and often around clinical and quality outcomes can be further enhanced as we build those levels of connectivity. this concept of whole person support, right? These people do not live in isolation with the care they're receiving from their coach. And we can do more to make sure that their social circumstances, their clinical circumstances, and their behavioral and emotional support circumstances are integrated through expanding the role of our coach. Number four, I would say, is member engagement. We know we drive engagement. People have to be ready to engage with us. We need to meet the member where they are in terms of that readiness. But making sure that the coach, therapist, primary care physician engagement is in sync and is relational to the degree of severity that the people have, right? So the more severe you are, the more engagement they're going to be. Digital experiences. We bought Life Dojo, I think, as you and others know. And we've got a host of digital capabilities that allow us to enhance what our coaches do, but also what the members do. And so we will continue to layer in digital capabilities that complement the very human interactions that people have with a coach. And then number five, it's a question of we get to take that and balance those across a set of expanded lines of businesses and channels. So it's easy for us to take the coach model and pivot that into the employer market. It's relatively easy for us to take the digital platform and make sure it's available to the coaches to coach people up on the use of a digital set of tools and capabilities. And so we're going to continue to make sure that it's really relevant for commercial employer and the government lines of business. So hopefully those six dimensions relative to the guiding principles of the program help sort of clarify what we're doing. And the feature and the functionality and the pricing components, you know, we'll be able to lend more clarity to that as we come through, you know, into the third quarter. Does that help? Hopefully that clarifies.
spk06: Yeah, that does. So when you say pricing components, that means potentially you can get greater wallet share as you add capabilities and enhancements to the current offering?
spk01: Yep. It gives us a larger addressable market as we take those capabilities and take them to new audiences and new channels. And then I think from a pricing standpoint, we would want you to think about it relative to our pricing is and will be commensurate with the intensity and the service level of the individual that we service. And so as we continue to bring more into the high acuity population, that may have an effect on revenue in that direction. And as we take digital capabilities and platform solutions that have coaching and therapy modules, then you would expect pricing to be commensurate with a lower acuity level as well.
spk06: Okay. Thank you.
spk01: Yeah.
spk03: Your next question comes from the line of Sean Dodge from RBC Capital Markets. Your line is open.
spk04: Thanks. Good afternoon. Jonathan, you mentioned the expectation of a rebound in the eligibility pool beginning in the second half of this year. Is there anything you can point to specifically that underpins your confidence there? And then maybe if you could give us an idea of how many lives we could see flow back in as utilization rebound. I guess maybe a good starting point would be how many lives over the last few quarters do you think have dropped out because of the depressed utilization that could be set to kind of reconstitute?
spk01: You know, I'll let Brandon talk a little bit about sort of the specific, you know, numbers relative to the pool and the forecast. But, you know, some of the macro factors, if you will, you know, have to do with the continued mix shift with regard to commercial customers and government programs that's occurring in our pipeline and in the outreach pools that ultimately sign their way to, you know, the individuals that are in the gold status. I think in terms of some of the utilization, you know, as you probably have heard, you know, throughout the industry, and we definitely see this through the claims files that we take in, you know, regularly from the customers, you know, the commercial populations look different than the government programs. So commercial, you know, utilization seems to have restored a little bit more quickly and maybe even, sort of over-indexed on what the carriers would have thought trend was going to look like coming into the second quarter. And the government programs, Medicare and Medicaid specifically, are still looking below what they would have expected from a utilization standpoint. And we see that as we increasingly get more exposed to the government lines of business in our outreach pools. So, Brian, I don't know if you want to comment specifically on the increase in the pool size.
spk05: Sure. If you take it back a couple quarters. So, last year we had reported that we had lost about 30% to 40% of the pool related to utilization and kind of the height of COVID. And we never saw a big return. In the last two quarters, Q1 and Q2 this year, we've seen just little decrements related to utilization. So, recall that our program has a a threshold of about $7,500 to get into the program on an annual basis. And so we've seen, you know, less than 10% reductions in the last couple quarters, but we just haven't seen an increase yet. And so given the kind of the expected increase in utilization and the claims lag that comes naturally in the industry, you know, we would expect to see an increase in utilization in the coming quarters, you know, Delta variant nonetheless at this point, but from what we're hearing from third parties at this point utilization, the hope is that it does return and that should have, you know, a decent impact on the pool from everything we can gather.
spk04: Okay. And so, you know, I guess there's been some big moving parts in the model recently. We've got Aetna still winding out, Sentara coming in, increasing utilization just around the corner. Maybe, can you start to help frame how you feel about your growth trajectory heading into 2022? You know, I guess if we distill all this down around the run rate of the current client base, the new ads, the opportunity of your pipeline, how should we start to think about the direction of revenue in becoming here?
spk01: I mean, I'll let Brandon go a little deeper on this one if he wants to. But, you know, we're not guiding towards, you know, 22 at this particular time. What I would say is our pipeline is growing. The quality of the pipeline is very good, and it's very balanced. We've got major national companies in conversation. We've got multiple lines of business in conversation across Medicaid, Medicare, and some large commercial populations. As I mentioned, we're in some very early stage conversations with provider groups that are at risk, value-based, capitated groups with large Medicare dual eligible populations, and we've got some employers that want to activate the enhanced digital platform with coaching and therapy support. I mean, early stage conversations, but, you know, from a quality of the carrier and the quality of the provider and sort of the earnestness with which they're engaging on some of the roadmap stuff that we mentioned, I got to imagine, right, that, you know, our ability to bring some of that forward is real. And some of it's early still, but it's real. Yeah.
spk04: Okay, that's great. Thank you again.
spk03: There are no further questions at this time. I would now like to turn the conference back to Ms. Jonathan Miu.
spk01: Well, thank you very much, everyone, for your time this afternoon. We really appreciate you joining us, and we look forward to continuing to provide you with updates. So thank you. Be safe and be well.
spk03: Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may disconnect.
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