Ontrak, Inc.

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Good day, and welcome to the on-track fourth quarter 2022 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Ryan Halstead, Investor Relations. Please go ahead.

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, OnTrack released financial results for the quarter ending December 31, 2022. A copy of the press release is available on the company's website. Before we begin, I'd 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 a future performance but may involve and are subject to certain risks and uncertainties, other factors that may affect ONTRAC'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 OnTrack expressly disclaims any intent or obligation to update these forward-looking statements. With that, I'd like to turn the call over to Brandon.

Thank you, Ryan, and welcome, everybody. I'd like to thank the OnTrack Board of Directors for the opportunity to lead our company as Chief Executive Officer. It's a responsibility I accept with enthusiasm, integrity, conviction, and confidence in the mission of our company, the dedication of our employees to our members, and the support of our customers and business partners. I also want to thank my partner, Mary Luosborn, for all her contributions and congratulate her on her appointment as president while continuing as chief commercial officer. We are supported by a first-class executive leadership team with whom we have been managing all day-to-day operations of the company since August of last year. We do not anticipate missing a beat as we continue to refine our value proposition and work to secure new customer contracts and expand existing ones. While I understand some of you listening may have questions regarding the news about Taryn Peyser, Because the legal processes are ongoing, we are limited in what we can say about it at this time. What we can say is that our customers appreciated our proactive outreach to update them and recognize our continued focus on caring for their members, delivering best-in-class service, and business as usual. I'll be sharing some updates with you on some enhancements to our go-to-market strategy in a moment, but first I'd like to turn the call over to our President and Chief Commercial Officer, Mary Lou Osborne.

Thanks, Brandon, and congratulations on your appointment as our new Chief Executive Officer. During our last earnings call, I outlined in some detail the progress in our pipeline, which has continued to evolve as we conduct meetings and refine proposals across our base of health plans, value-based providers, and self-insured employer prospects. Two health plan prospects that are furthest along in the sales process have asked us to expand our proposal to include more lives than the typical two to four percent of members and expanding our offering to include lower acuity members. While this request temporarily delays their final business decisions, it provides us an opportunity to expand our product offering to include a significantly larger member population. Their requests are consistent with feedback we have been receiving from a number of prospects and has resulted in enhancements to our product offering that we are pleased to share with you today. As we continue to move prospects through our pipeline, we are also creating momentum with our existing customers. We are pleased to announce we have just expanded our relationship with a Medicaid-based plan to include a new 18 to 20-year-old cohort of members. This is in addition to a new amendment signed in January with another long-term customer focused on their highest acuity commercial members. We are also in conversations with our current customers about opportunities to further expand our services to more of their members in 2023. As we listen closely to our customers and prospects, we are hearing some important themes that are informing the future development of our product strategy to closely align with their goals and priorities. These include identifying a broader population for care coaching, network development, and support for quality improvement. I will elaborate a bit more. First, regarding care coaching. While prospects are interested in our clinical focus on the 2% to 4% highest acuity, they are consistently asking us to expand our reach to a larger, broader population that includes our evidence-based care coaching model for lower acuity risks. Second, regarding behavioral health network development, Our prospects consistently tell us they need support with network development, including contracting net new behavioral health providers for their plan networks and enhancing their current networks in key geographic areas for timely access and availability within 7 to 10 days versus the 2 to 3 months they are currently experiencing. Finally, quality is always a top priority for health plans. Prospects are asking for assistance with closing gaps in care for HEDIS, STARS, CAPS, member experience, and member retention. I believe with our track record of successfully delivering positive outcomes for members, coupled with our latest AI-enabled program enhancements, we are uniquely positioned to support health plans, providers, and self-insured employer groups with their goals and needs to improve health outcomes, achieve high-quality measures, and reduce avoidable emergency room and inpatient utilization. We are moving quickly to provide the solutions prospects need, which Brandon will now outline. Brandon, over to you.

Thank you, Mary Lou. I'm excited to share some important enhancements to our go-to-market strategy that leverage our core strengths while broadening our base of members whose health we can improve. We continue to market our traditional Whole Health Plus solution, which focuses on the 2% to 4% of members who are lost to care, have high cost thresholds, and chronic physical conditions with or under-addressed behavioral health needs, which our coaching and therapy model has been proven to address. But we believe we can help health plan payers, value-based providers, and self-insured employers in their support and care for their members, and they continue to ask us for this help. As a result, we will begin to segment our product portfolio to provide single or combined solutions depending on a customer's needs. We have already begun sharing these distinct solutions with prospects. First is OnTrack Identify. which provides the market with our proprietary AI-enabled predictive algorithms and imputed diagnoses to find those members who are hardest to reach for our prospect base. Whether these members remain in the OnTrack program or are referred back to our customers for their follow-up and treatment, we believe there is value in tailoring solutions to meet the particular needs of each customer. Next is OnTrack Outreach. which leverages our best-in-class member enrollment specialists and evidence-based outreach approaches to reach and enroll new members into a plan's existing offerings. OnTrack has developed superior enrollment expertise through years of successful refinement. Whether we enroll members in OnTrack's own coaching program or use our expertise to enroll members in our customers' existing non-OnTrack programs, there's value in tailoring solutions to meet the particular needs of each customer. Next, OnTrack Engage, is our cutting-edge coaching model, which includes evidence-based techniques and consistent coaching sessions that drive meaningful behavior change. We will offer this in a coaching-only solution for low to mid-acuity cohorts and in a coaching and provider network solution for mid to high-acuity populations, with flexibility to support members' specific needs. Our recently announced partnership with the leading AI natural language processing platform now enhances our coaches' effectiveness through real-time insights on how they engage with members. Whether we provide coaching alone or marry it with access to our top-notch provider network, there's value in tailoring solutions to meet the particular needs of each customer. Last is OnTrack Access, which gives customers the opportunity to build out their behavioral health networks and improve access and availability, whether or not paired with OnTrack Engage or other components of our program. We are excited that our NCQA accreditation for OnTrack providers should be complete within the next 60 days, which would further allow customers to delegate credentialing to OnTrack as needed. Each of these four segmented products builds upon our strength in each area, the whole of which forms the basis for our OnTrack Whole Health Plus comprehensive solution that is still available. I'm confident these customized solutions, each with their own pricing model, give us and our potential prospects the flexibility to design the most relevant and effective programs for their members. Based upon our initial data analysis, We believe this enhanced approach will allow us to expand the number of members we serve from the historical 2% to 4% to approximately 20% to 30%, which we believe puts us in the best position to accelerate our return to growth. As we expand our go-to-market approach, we are also implementing a series of AI-enabled solutions that create more efficient engagement, less administrative burden, and better use of resources. This allows our coaches to spend more time coaching and less time with lower value-added administrative activities. In fact, we've already seen a 40% increase in coaching caseload capacity, with the opportunity for more in 2023. Once again, I want to express my thanks to our customers and everyone at OnTrack as we embark on the next chapter, all in the service of helping to improve the health and save the lives of as many people as possible. It's a mission we continue to pursue every day. Now I'd like to turn the call over to our Chief Financial Officer, James Park.

Thanks, Brandon. During the fourth quarter, we recorded revenue of $2.5 million, a 76% year-over-year decrease due primarily to the loss of two large customers we previously discussed. At the beginning of the quarter, we had 1,365 enrolled members and ended with 1,333 at the end of the quarter, for a simple average of 1,349. That equates to revenue of about $552 per health plan enrolled member per month for the quarter, compared to $506 per health plan enrolled member per month in Q4 of 2021 and $515 per health plan enrolled member per month in Q3 of 2022. To go a bit deeper into Q4 enrollment, we enrolled a total of 754 members during the quarter compared to 1,014 in Q4 of last year and 533 in Q3 of 2022. Dividing Q4 gross enrollments by our outreach pool, which averaged 4,538 for the quarter. It annualizes to a 66% enrollment rate compared to 51% enrollment rate in Q4 of 2021 and 53% in Q3 of 2022. Our average monthly disenrollment rate was 11% in the current quarter compared to 8% in Q3 of 2022. Further, we graduated 356 enrolled members during the quarter. This equates to about 26% of the enrolled members in the program at the beginning of the quarter, which has been steadily increasing from prior quarters. The net impact was a net enrollment decrease of 32 members in the fourth quarter. Our gross margin in the fourth quarter was 61.2%, which increased sequentially from 49.5% and also increased from 60.4% in the fourth quarter of last year. The increase in our gross margin sequentially for Q4 was primarily due to the restructuring plan and operational efficiencies with our member-facing teams completed throughout the year. We ended the quarter with 30 team members included in cost of revenue, famous at the end of Q3, reflecting no material change in our net enrolled members at the end of the quarter.

Turning to the balance sheet and cash flow.

Our cash flow from operations in the fourth quarter was negative $1.4 million, compared to negative $15 million in the fourth quarter of last year. We ended the quarter with cash and cash equivalents of $5 million, down from $7.3 million at the end of the third quarter in 2022. Including restricted cash, total cash was $9.7 million at the end of the quarter, down from $11.9 million at the end of the third quarter this year. During the quarter, we completed an amendment of our Keep Well Agreement which extended the maturity date from September 1, 2023 to June 30, 2024, increased the remaining available amount for borrowing from $10.7 million to $14 million as of December 31, 2022, and the ability to add accrued interest into principal rather than pay cash for the interest monthly. We continue to make appropriate updates to our cost structure, including the reduction in force that we just announced and operational improvements to preserve and maximize our capital. With the initiative that we have just completed and a few other near completion, we expect our cash burn rate to be closer to $1.5 million per month with the current customer base. Regarding our outlook, we're providing revenue guidance of $12 to $14 million for revenues from our current customer base for the year. Operator, we can now open up for questions.

Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment while we compile the Q&A roster. I'm showing no questions in the queue at this time. I would now like to turn the call back over to Brandon Laverne for any closing remarks.

Thank you, Cherie.

I'd like to thank the entire OnTrack team for their dedication to our mission to help improve the health and save the lives of as many people as possible. Have a great afternoon.

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

The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 1 1. Music playing Thank you. Thank you. Amen. Thank you. you

Good day, and welcome to the OnTrack fourth quarter 2022 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Ryan Halstead, Investor Relations. Please go ahead.

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, OnTrack released financial results for the quarter ending December 31, 2022. A copy of the press release is available on the company's website. Before we begin, I'd 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 ONTRAC'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. OnTrack expressly disclaims any intent or obligation to update these forward-looking statements. With that, I'd like to turn the call over to Brandon.

Thank you, Ryan, and welcome, everybody. I'd like to thank the OnTrack Board of Directors for the opportunity to lead our company as Chief Executive Officer. It's a responsibility I accept with enthusiasm, integrity, conviction, and confidence in the mission of our company, the dedication of our employees to our members, and the support of our customers and business partners. I also want to thank my partner, Mary Luosborn, for all her contributions and congratulate her on her appointment as president while continuing as chief commercial officer. We are supported by a first-class executive leadership team with whom we have been managing all day-to-day operations of the company since August of last year. We do not anticipate missing a beat as we continue to refine our value proposition and work to secure new customer contracts and expand existing ones. While I understand some of you listening may have questions regarding the news about Taryn Peyser, Because the legal processes are ongoing, we are limited in what we can say about it at this time. What we can say is that our customers appreciated our proactive outreach to update them and recognize our continued focus on caring for their members, delivering best-in-class service, and business as usual. I'll be sharing some updates with you on some enhancements to our go-to-market strategy in a moment, but first I'd like to turn the call over to our President and Chief Commercial Officer, Mary Lou Osborne.

Thanks, Brandon, and congratulations on your appointment as our new Chief Executive Officer. During our last earnings call, I outlined in some detail the progress in our pipeline, which has continued to evolve as we conduct meetings and refine proposals across our base of health plans, value-based providers, and self-insured employer prospects. Two health plan prospects that are furthest along in the sales process have asked us to expand our proposal to include more lives than the typical two to four percent of members and expanding our offering to include lower acuity members. While this request temporarily delays their final business decisions, it provides us an opportunity to expand our product offering to include a significantly larger member population. Their requests are consistent with feedback we have been receiving from a number of prospects and has resulted in enhancements to our product offering that we are pleased to share with you today. As we continue to move prospects through our pipeline, we are also creating momentum with our existing customers. We are pleased to announce we have just expanded our relationship with a Medicaid-based plan to include a new 18 to 20-year-old cohort of members. This is in addition to a new amendment signed in January with another long-term customer focused on their highest acuity commercial members. We are also in conversations with our current customers about opportunities to further expand our services to more of their members in 2023. As we listen closely to our customers and prospects, we are hearing some important themes that are informing the future development of our product strategy to closely align with their goals and priorities. These include identifying a broader population for care coaching, network development, and support for quality improvement. I will elaborate a bit more. First, regarding care coaching. While prospects are interested in our clinical focus on the 2% to 4% highest acuity, they are consistently asking us to expand our reach to a larger, broader population that includes our evidence-based care coaching model for lower acuity risks. Second, regarding behavioral health network development, Our prospects consistently tell us they need support with network development, including contracting net new behavioral health providers for their plan networks and enhancing their current networks in key geographic areas for timely access and availability within 7 to 10 days versus the 2 to 3 months they are currently experiencing. Finally, quality is always a top priority for health plans. Prospects are asking for assistance with closing gaps in care for HEDIS, STARS, TAPS, member experience, and member retention. I believe with our track record of successfully delivering positive outcomes for members, coupled with our latest AI-enabled program enhancements, we are uniquely positioned to support health plans, providers, and self-insured employer groups with their goals and needs to improve health outcomes, achieve high-quality measures, and reduce avoidable emergency room and inpatient utilization. We are moving quickly to provide the solutions prospects need, which Brandon will now outline. Brandon, over to you.

Thank you, Mary Lou. I'm excited to share some important enhancements to our go-to-market strategy that leverage our core strengths while broadening our base of members whose health we can improve. We continue to market our traditional Whole Health Plus solution, which focuses on the 2% to 4% of members who are lost to care, have high cost thresholds, and chronic physical conditions with or under-addressed behavioral health needs, which our coaching and therapy model has been proven to address. But we believe we can help health plan payers, value-based providers, and self-insured employers in their support and care for their members, and they continue to ask us for this help. As a result, we will begin to segment our product portfolio to provide single or combined solutions depending on a customer's needs. We have already begun sharing these distinct solutions with prospects. First is OnTrack Identify. which provides the market with our proprietary AI-enabled predictive algorithms and imputed diagnoses to find those members who are hardest to reach for our prospect base. Whether these members remain in the OnTrack program or are referred back to our customers for their follow-up and treatment, we believe there is value in tailoring solutions to meet the particular needs of each customer. Next is OnTrack Outreach. which leverages our best-in-class member enrollment specialists and evidence-based outreach approaches to reach and enroll new members into a plan's existing offerings. OnTrack has developed superior enrollment expertise through years of successful refinement. Whether we enroll members in OnTrack's own coaching program or use our expertise to enroll members in our customers' existing non-OnTrack programs, there's value in tailoring solutions to meet the particular needs of each customer. Next, OnTrack Engage, is our cutting-edge coaching model, which includes evidence-based techniques and consistent coaching sessions that drive meaningful behavior change. We will offer this in a coaching-only solution for low to mid-acuity cohorts and in a coaching and provider network solution for mid to high-acuity populations, with flexibility to support member-specific needs. Our recently announced partnership with the leading AI natural language processing platform now enhances our coaches' effectiveness through real-time insights on how they engage with members. Whether we provide coaching alone or marry it with access to our top-notch provider network, there's value in tailoring solutions to meet the particular needs of each customer. Last is OnTrack Access, which gives customers the opportunity to build out their behavioral health networks and improve access and availability, whether or not paired with OnTrack Engage or other components of our program. We are excited that our NCQA accreditation for OnTrack providers should be complete within the next 60 days, which would further allow customers to delegate credentialing to OnTrack as needed. Each of these four segmented products builds upon our strength in each area, the whole of which forms the basis for our OnTrack Whole Health Plus comprehensive solution that is still available. I'm confident these customized solutions, each with their own pricing model, give us and our potential prospects the flexibility to design the most relevant and effective programs for their members. Based upon our initial data analysis, We believe this enhanced approach will allow us to expand the number of members we serve from the historical 2% to 4% to approximately 20% to 30%, which we believe puts us in the best position to accelerate our return to growth. As we expand our go-to-market approach, we are also implementing a series of AI-enabled solutions that create more efficient engagement, less administrative burden, and better use of resources. This allows our coaches to spend more time coaching and less time with lower value-added administrative activities. In fact, we've already seen a 40% increase in coaching caseload capacity with the opportunity for more in 2023. Once again, I want to express my thanks to our customers and everyone at OnTrack as we embark on the next chapter, all in the service of helping to improve the health and save the lives of as many people as possible. It's a mission we continue to pursue every day. Now I'd like to turn the call over to our Chief Financial Officer, James Park.

Thanks, Brandon. During the fourth quarter, we recorded revenue of $2.5 million, a 76% year-over-year decrease due primarily to the loss of two large customers we previously discussed. At the beginning of the quarter, we had 1,365 enrolled members and ended with 1,333 at the end of the quarter, for a simple average of 1,349. That equates to revenue of about $552 per health plan enrolled member per month for the quarter, compared to $506 per health plan enrolled member per month in Q4 of 2021 and $515 per health plan enrolled member per month in Q3 of 2022. To go a bit deeper into Q4 enrollment, we enrolled a total of 754 members during the quarter compared to 1,014 in Q4 of last year and 533 in Q3 of 2022. Dividing Q4 gross enrollments by our outreach pool, which averaged 4,538 for the quarter. It annualizes to a 66% enrollment rate compared to 51% enrollment rate in Q4 of 2021 and 53% in Q3 of 2022. Our average monthly disenrollment rate was 11% in the current quarter compared to 8% in Q3 of 2022. Further, we graduated 356 enrolled members during the quarter. This equates to about 26% of the enrolled members in the program at the beginning of the quarter, which has been steadily increasing from prior quarters. The net impact was a net enrollment decrease of 32 members in the fourth quarter. Our gross margin in the fourth quarter was 61.2%, which increased sequentially from 49.5% and also increased from 60.4% in the fourth quarter of last year. The increase in our gross margin sequentially for Q4 was primarily due to the restructuring plan and operational efficiencies with our member-facing teams completed throughout the year. We ended the quarter with 30 team members included in cost of revenue, famous at the end of Q3, reflecting no material change in our net enrolled members at the end of the quarter.

Turning to the balance sheet and cash flow.

Our cash flow from operations in the fourth quarter was negative $1.4 million compared to negative $15 million in the fourth quarter of last year. We ended the quarter with cash and cash equivalents of $5 million, down from $7.3 million at the end of the third quarter in 2022. Including restricted cash, total cash was $9.7 million at the end of the quarter, down from $11.9 million at the end of the third quarter this year. During the quarter, we completed an amendment of our Keep Well Agreement which extended the maturity date from September 1, 2023 to June 30, 2024, increased the remaining available amount for borrowing from $10.7 million to $14 million as of December 31, 2022, and the ability to add accrued interest into principal rather than pay cash for the interest monthly. We continue to make appropriate updates to our cost structure, including the reduction in force that we just announced and operational improvements to preserve and maximize our capital. With the initiative that we have just completed and a few other near completion, we expect our cash burn rate to be closer to $1.5 million per month with the current customer base. Regarding our outlook, we're providing revenue guidance of $12 to $14 million for revenues from our current customer base for the year. Operator, we can now open up for questions.

Thank you. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. One moment while we compile the Q&A roster. I'm showing no questions in the queue at this time. I would now like to turn the call back over to Brandon Laverne for any closing remarks.

Thank you, Cherie.

I'd like to thank the entire OnTrack team for their dedication to our mission to help improve the health and save the lives of as many people as possible. Have a great afternoon.

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