Ontrak, Inc.

Good day, and thank you for standing by, and welcome to the on-track third quarter 23 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would like to introduce your host for today's call, Ryan Halstead. 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 September 30, 2023. A copy of the press release is available on the company's website. Before we begin, I would like to make the following remarks concerning forward-looking statements. All statements in this conference call other than historical facts are forward-looking statements. The words anticipate, believes, estimates, expects, intends, guidance, confidence, targets, projects, and some other expressions typically are used to identify forward-looking statements. These forward-looking statements are not guarantees of future performance. but may involve and are subject to certain risks and uncertainties. Other factors that may affect ONTRAC'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. expressly disclaims any intent or obligation to update these forward-looking statements. With that, I'd like to turn the call over to Brandon.

Thanks, Ryan. Good afternoon, everybody. We're excited to share details on our recent customer signing as well as three prospects that we feel are close to a final signature. We're experiencing noticeable momentum in our sales pipeline and believe that continued improvements in our clinical outcomes and technology solutions has resulted in increased traction with prospects. I believe the enhancements we have made to our product strategy with our whole health suite of behavioral health solutions has played a major role in the business momentum we are seeing. All of us at OnTrack Health are deeply grateful to our new and existing customers for their support and shared commitment to helping improve the health and save the lives of as many members as possible. Mary Lou will share more specifics on the new sales activity in a moment. But first, let me cover highlights of some of our achievements over the past quarter. Our ongoing patient-reported outcomes study findings demonstrate that our Whole Health Plus product is resulting in improved anxiety and depressive symptom management, reinforcing our commitment to delivering durable outcomes for our members. Leveraging industry-recognized assessments such as PHQ-9 and GAD-7, we've witnessed significant reductions in anxiety and depressive symptoms among assessed members. Notably, 60% of members demonstrated a clinically significant five-point reduction in anxiety symptoms, and 53% showed the same reduction in depressive symptoms. Analysis of our Q3 data also demonstrates OnTrack's ability to identify members with unaddressed behavioral health needs and coach them into care, leveraging thousands of in-network behavioral health providers is leading to new and updated diagnoses. Across the company's book of business, 42% of members diagnosed with substance use disorder did not have the diagnosis showing in the prior year's claims prior to enrollment in OnTrack's Whole Health Plus program. Other behavioral health conditions with similar post-enrollment results include 27% for depression, 27% for bipolar disorder, 21% for anxiety, and 20% for schizophrenia. OnTrack's ability to support the identification, engagement, and documentation of high-cost High-risk members effectively aid healthcare payers and providers focused on improving the management of their chronically ill members with unaddressed behavioral health conditions as well as their documentation for risk-adjusted revenue. We recently released preliminary results from a retrospective observational study showing significant healthcare cost savings across Medicaid members over 24 months. The study results demonstrate our commitment to evidence-based solutions and data-driven insights that are leading to statistically significant savings for Medicaid members that graduated from the Whole Health Plus program. Also, in recent weeks, we announced the successful deployment of the Transcend Core EDI Gateway, a notable achievement that simplifies electronic data interchange, supports HIPAA compliance, and optimizes data transactions for our providers and health plan customers. This will enable us to process well over half a billion claims data transactions in the coming year and significantly reduce turnaround times. During the past two quarterly calls, I summarized some of the augmented intelligence and operational enhancements we implemented during the first and second quarter of 2023. I'd now like to highlight some of the tangible results of those implementations, each of which improves the efficiency of our care coaches and other frontline staff. Number one, our virtual assistant, Eleanor, continues to help deliver an increase in member retention rates through a cadence of automated calls that provide check-ins on health status, capture member needs, and schedule calls with care coaches. During Q3, we saw the efforts of that outreach continue with a 42% reduction in our no-contact disenrollment rate from the OnTrack Whole Health Plus program. Number two, the omnichannel delivery of GAD-7 and PHQ-9 assessments was launched in Q3, providing members the option to choose the method of delivery for these assessments, whether it's SMS, email, virtual assistant, or during coaching calls, in an effort to ensure we are receiving the results in the most timely and efficient way possible that works for each member. And number three, since the launch of our efforts to improve care coach caseloads in the fourth quarter of 2022, driven by adding AI capabilities and operational enhancements for administrative functions, We have now seen a collective 90% improvement in the average quarterly care coach caseloads since the launch in the fourth quarter of 2022. All of these positive developments, the new customer and sales momentum, clinical outcomes, and technology and operational enhancements, reinforced the strength of our strategy, our commitment to our customers and members, and the dedication of our employees. And now I'd like to turn it over to Mary Lou Osborne, who has more details upon our new customer and exciting developments in our pipeline. Mary Lou?

Thanks, Brandon. I'm thrilled to provide more details about our new customer agreement. Our new health plan customer will leverage our entire product suite for its 25,000 Medicaid members. We are awaiting on imminent state approval to begin the engagement this quarter with the following OnTrack solutions. I will touch on each solution. OnTrack Whole Health Plus, which includes the identification of high cost, high acuity members with chronic comorbidities and underlying but unaddressed behavioral health conditions. This program includes specialized care coaching and provider treatment for eligible members and delivers improved clinical outcomes and significant cost savings. OnTrack Engage, which is our coaching specific solution that identifies members who would benefit from ongoing coaching to help them address physical and behavioral health challenges without a clear need for provider intervention. In addition to OnTrack Engage being available to all adult members, OnTrack Health will further outreach to the health plan's most impacted members with serious mental illness to help them address their unique health care needs. OnTrack Access will provide additional behavioral health providers for Whole Health Plus members with prompt access and availability to care, leveraging our NCQA certification as a credentials verification organization. OnTRAC quality support for the members served, jointly collaborating with the health plan on HEDIS measures, closing critical gaps in care and improving health outcomes. And finally, the new OnTRAC member portal that features specialized and tailored information delivered through our stayontrack.com website to provide educational and timely content for all the customers' adult members on how to improve their overall well-being. In addition, we are in the final phase of contracting with three other prospects. I will provide a brief update on each prospect. One, we are completing a statement of work with a prominent value-based provider group that will be leveraging our on-track outreach, engage, and access solutions for their patients. We're particularly excited about the seamless connection we will be making between their primary care clinics and our care coaches who will provide virtual support and who may also be onsite based in the clinics. This initial engagement will cover their members in three major metropolitan markets. We anticipate that with successful outcomes, this engagement will lead to an additional opportunities for their 200,000 patients across 15 states. Two, we are finalizing a proposal for a large health systems Western Medicare Advantage plan and expect to reach agreement later this quarter to serve members with our Whole Health Plus and OnTrack Engage solutions. We expect this new contract will go into effect in Q1 2024. With successful outcomes, we expect an opportunity to expand to additional members within Medicare Advantage and other lines of business. And three, we are working on final approvals of our statement of work from a major Northeastern health plan. In addition, the health plan is refreshing its data in order to finalize expectations around a pilot for their Medicaid, HARP and commercial members in Q1 2024. With successful outcomes, we believe the plan's 1 million members will be a future opportunity for the OnTrack Whole Health Plus program. In addition, we are in discussions with our existing customers to expand our solutions to additional populations as well as new lines of business. And our pipeline continues to build momentum We have 27 active prospects representing 20 million total lives. We are extremely grateful to our existing customers for the partnerships we have developed together, serving members in need of behavioral health support. And we welcome our new customers with great excitement as we build these relationships serving new populations across multiple business lines. And now, I'd like to turn the call over to our Chief Financial Officer, James Park.

Thanks, Mary Lou. During the third quarter, we recorded revenue of $3.7 million, a 31% year-over-year increase, primarily to a 21% increase in total average annual numbers during the third quarter of 2023 compared to the same period in 2022. and also represented a sequential increase of revenue of 23% from Q2 of 2023. At the beginning of the quarter, we had 1,889 enrolled members and ended with 2,297 at the end of the quarter, or a simple average of 2,093. That equates to revenue of about $552 per health plan enrolled member per month for the quarter, an increase from $528 per health plan enrolled member month in Q2 of 2023 and an increase on $515 per health plan enrolled member per month in Q3 of 2022. Regarding our Q3 member metrics, we enrolled a total of 1,272 members during the quarter compared to 1,091 in Q2 this year and 533 in Q3 of 2022. This is five consecutive quarters that we have been able to steadily increase our gross enrollment. Dividing Q3 growth enrollments by our outreach pool, which averaged 10,180 for the quarter, it annualizes to a 50% enrollment rate, compared to 43% enrollment rate in Q2 of 2023 and 53% in Q3 of 2022. Our average monthly disenrollment rate was 11% in the current quarter, same as in Q2 of 2023, and slight increase from 8% in Q3 of 2022. Further, we graduated 187 enrollment members during the quarter. This equates to about 10% of the enrollment members in the program at the beginning of the quarter. The impact of all this was a net enrollment increase of 408 members in the third quarter. Our gross margin for the third quarter was 72%, which remained consistent from 72.8% in Q2 of 2023, an increase from 49.5% in the third quarter of last year. The increase in our gross margin compared to prior year was primarily due to the continued operational efficiency in our member-facing teams, with the utilization of various AI and other systems and process improvements we discussed earlier and in prior quarters. Our coaching capacity has now improved by over 90% since last year when we began to implement these initiatives, all while continuing to provide the quality of care our members and customers expect. Turning to the balance sheet and cash flow. Our cash flow from operations in the third quarter was negative $1.8 million compared to negative $8.3 million in the third quarter of last year and negative $5.1 million in Q2 of 2023. This resulted in our average monthly cash burn to be around $1.3 million per month this year so far and $0.6 million per month for the current quarter. We believe our operational efficiency and increasing revenues have us approaching positive cash flow in the near future with anticipated revenues from the process that Mary Lou mentioned. We ended the quarter with cash and cash equivalents of $3.2 million, down from $6.1 million at the end of last quarter. Including restricted cash, total cash was $9.2 million at the end of the quarter, down from $10.1 million at the end of last quarter. We also just announced the public offering of $6.3 million before offering related fees concurrent with a private placement converting all except $2 million of our key fall note into common equity. This provides us with additional capital to execute on our pipeline while significantly reducing our debt obligation and improving our balance sheet. Regarding our outlook. We're reaffirming revenue guidance of $12 to $14 million for revenues from our current customer base for the year. Now, we will open up for questions. Thank you.

And thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. And we ask that you limit yourself to one question and one follow-up.

One moment for questions. And again, if you would like to ask a question, that is star 11. Again, if you would like to ask a question, it was star 11.

And I am showing no further questions. I will now turn the call back over to Brandon Laverne for closing remarks.

Thank you. On behalf of the entire OnTrack team, I'd like to thank you for joining with us today. Have a great day. Thank you.

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