Ontrak, Inc.

Thank you for standing by, and welcome to OnTrack Health's fourth quarter. And you're in 2023 earnings conference 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. To remove yourself from the queue, you may press star 1-1 again. I would now like to hand the call over to Ryan Halstead, Investor Relations. Please.

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, 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 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. We're excited to provide updates on the momentum in our pipeline and how OnTrack's continued innovation with the advanced engagement system is addressing the needs of our customers and building demand with prospective customers. Mary Lou will go into details with respect to prospects shortly. We also recognize our Medicare Advantage health plan customers are facing a challenging macro environment at the moment, which represent opportunities for OnTrack and our value proposition to help our health plan partners better serve their members in a cost-efficient manner. But first, allow me to cover highlights from the recent quarter. Aside from new business development opportunities that Mary Lou will discuss, we focus this quarter on continued innovation and technology focus. As we continue to develop our AI-infused technology we are able to offer increased efficiencies and higher ROI to our customers and pipeline while maintaining our patient-centered focus. We recently introduced OnTrack's Advanced Engagement System to maximize more efficient and effective engagement by integrating AI throughout the member experience. The OnTrack Advanced Engagement System enables member engagement at greater scale and with greater efficiency than ever before. We have achieved a member outreach success rate of 54% across all lines of business, which is more than double what we believe is the industry standard. The advanced engagement system is made up of multiple components, starting with a risk-based analytics engine, which uses AI algorithms to identify members and prioritize outreach based on factors like risk, readiness, acuity, claims, prescriptions, and enrollment history. Our engine can find hard-to-reach, high-risk members, for example, members with high predicted probability of substance use disorder or depression, but no associated diagnosis in existing health records. As a result, 20% to 30% of our members obtain new behavioral health diagnoses after enrollment in the OnTrack Whole Health Plus program, improving risk scores for these members. The next component of the advanced engagement system is our AI-driven coach notes, which converts spoken interactions into text, significantly reducing the time care coaches spend recording engagement notes, resulting in increased care coach capacity of up to 20%. while our care signals engine flags and facilitates timely and relevant care interventions. The care signals indicate important events like new diagnoses, new medications, work stress, and key factors that influence wellness, enabling care coaches to proactively engage with members in advance of additional medical issues by setting revised goals and providing targeted coaching support. Our next best action engine then offers immediate data-driven recommendations to optimize care coaching interactions leading to a 25% reduction in time spent organizing schedules and tasks across caseloads, while ensuring that resources are prioritized where they're needed most. In certain cases, the next best action engine will trigger the built-in AI virtual assistant, which offers members an opportunity to engage with their on-track care team in more ways than ever before. To ensure on-track care coaches adhere to best practices, AI-powered tools monitor for quality and fidelity. These technologies evaluate care delivery and offer care coaches real-time feedback into how well their interactions are serving members. The infrastructure that supports certainly these dynamic capabilities is comprised of advanced data management systems, which have generated savings of 80% in the pipeline maintenance cost and delivered nearly 90% shorter turnaround times. Our data exchange platform efficiently simplifies management of electronic data interchange while effectively complying with federal requirements and best practices in the industry. Our infrastructure enables provider interoperability, or the ability to exchange and use health information, through HITRUST-certified industry standard frameworks. This creates a closed-loop, bidirectional data-sharing ecosystem, seamlessly connecting providers, specialists, and on-track care coaches. Finally, through our proprietary provider matching engine, we match members with the right provider, reducing the stress of members on their own attempting to select the most suitable provider. Our technology taps into OnTrack's 45-state behavioral health network to evaluate more than a dozen specialties and 30 subspecialties, performance and outcomes, as well as mode of delivery, diversity, and demographics. Optimized provider matching helps drive remarkable clinical outcomes when members and providers are aligned in care. We've seen a greater than 50% clinically significant reduction in anxiety and depression symptoms evidenced by their GAD-7 and PHQ-9 scores for members in our Whole Health Plus program. In addition to announcing the rollout of our Advanced Engagement System, we're integrating the Recovering Quality of Life Assessment, or REQUAL, into our Whole Health Plus suite of products and services. Originally developed by the Oxford University Innovation Lab, the integration of REQUAL aligns perfectly with our focus on providing person-centered, measurement-based care for individuals dealing with mental health and substance use conditions. REQUAL assessments are utilized to assess how mental health conditions, psychological interventions, and healthcare treatments affect patients' lives. These assessments prioritize understanding the individual beyond diagnosis, aligning with recovery-oriented approaches. As we adopt these assessments into OnTrack Whole Health Plus, I'm proud to share that we secured official recognition from the Oxford University Innovation Lab as an authorized licensee, serving as a testament to our focus on continued innovation and to improving outcomes through measured feedback. We recognize our Medicare Advantage health plan customers are facing a challenging macro environment, including funding pressures, declining star ratings, elevated utilization trends, and narrowing benefits packages. We believe this macro environment presents an opportunity for OnTrack's product offerings. We're well positioned to help our health plan partners better identify and engage their respective memberships to best utilize critical behavioral health benefits. Our technology, care coaches, and human-centered approach integrate behavioral and physical health, and can better identify and engage patients across the acuity spectrum. OnTrack's Whole Health Plus program drives lower hospitalization and inpatient utilization for Medicare Advantage Plan Partners membership. Our program of continuous mental health assessments is also proven to improve health outcomes of OnTrack Health members and increase engagement, which can contribute to the improvement in quality scores of health plan partners. These quality scores are critical to maintaining or increasing a plan star rating, which is a key driver of membership growth. OnTrack's Whole Health Plus program is more important than ever and very well aligned to help solve for these macro issues that Medicare Advantage plans are facing today by delivering proven health outcomes and reducing costs while also increasing engagement, leading to increased quality scores. We are confident in our value proposition to health plan partners and are seeing continued demand in our recent customer expansions and further progress in our pipeline as a result. Finally, we are pleased to have successfully completed our latest round of structured financing that James will highlight in a few minutes. This funding provides us with additional runway to finance and execute our growth initiatives and reflects underlying confidence among our largest investors in our pipeline and prospects. These encouraging developments, including new signature, sales momentum, clinical outcomes, and technological enhancements, underscores the strength of our strategy, the power of our product, our dedication to our customers and members, and the hard work of all of our employees. Now I'll pass it over to Mary Lou Osborne, who will provide further insight into our new customer and other exciting developments in our pipeline. Mary Lou?

Thank you, Brandon. I am thrilled to provide a few updates on our new Medicaid health plan customer. that we discussed in our last earnings call. It is our privilege to be working with Community Care Plan, a provider service network plan located in South Florida, owned by Large Respected Hospitals, Memorial Healthcare System, and Broward Health. We are happy to share that OnTrack Health has received Florida state approval from the Florida Agency for Healthcare Administration to partner with Community Care Plan, providing behavioral health solutions for adult members ages 18 years and above. The OnTrack Health and Community Care teams are diligently working on the Joint Implementation Plan. We anticipate a go-live date within the next 30 days. As we have reported in our last earnings call, OnTrack will be offering several of our behavioral health solutions to Community Care Plan's adult membership, including Whole Health Plus, OnTrack Engage, OnTrack Access, in addition to quality support for HEDIS measures as well as a member portal. In addition to this exciting contract win, we are in the final contracting phase with two other prominent health plans representing over 2 million lives across all lines of business. Both health plans are interested in beginning a pilot partnership, one for Medicare Advantage members and the other for Medicaid members. Both health plans have stated when clinical and financial outcomes are proven, there is an intent to expand to a larger membership cohort and across other lines of business. Also, I'm delighted to share that we have expanded our behavioral health product offerings to one of our longstanding health plan partners, Gentara Health. The expanded partnership recently signed includes offering Whole Health Plus to a broader commercial population as well as to self-insured groups. Together, the commercial and self-insured group expansions represent more than a 6.5X increase in the number of Centara Health Plan members eligible for the OnTrack Whole Health Plus program. We have already begun to outreach and engage individuals identified in the expansions with unaddressed anxiety, depression, substance use disorder, and underlying chronic diseases for personalized care coaching and prompt access to behavioral health providers when needed. In addition, we are in discussions with Centaur to further expand Whole Health Plus and OnTrack Engage to a new line of business. These expansions and strong partnerships illustrate the trust that Centaur has placed in OnTrack. and serves as a testament to the five-year relationship we have built together, achieving clinical and financial outcomes and effectively serving members with behavioral health conditions. Finally, the sales pipeline remains strong and growing, with approximately 26 active prospects representing 15 million members across all lines of business. We are happy with our progress of executing a new logo with a prominent Medicaid health plan, community care plan, as well as our multiple executed expansions with Centara Health. We look forward to welcoming our new customers with great excitement as we build these relationships, serving new populations across multiple lines of business, serving members in need of behavioral health support, care, and treatment. Now I'd like to turn the call over to our Chief Financial Officer, James Park.

Thanks, Mary Lou. During the fourth quarter, we recorded revenue of $3.5 million, a 41% year-over-year increase due primarily to a 50% increase in total average enrolled members during the fourth quarter of 2023 compared to the same period in 2022. At the beginning of the quarter, we had 2,297 enrolled members and ended with 1,758 at the end of the quarter, or a simple average of 2,028. That equates to revenue of about $546 per health plan enrolled member per month for the quarter, a small decrease from $552 for health plan enrolled member per month in Q3 of 2023, and an increase from $539 in Q4 of 2022. Regarding our Q4 member metrics, we enrolled a total of 654 members during the quarter compared to 1,272 in Q3 of this year. and 754 in Q4 of 2022. Dividing Q4 gross enrollments by our outreach pool, which averaged 4,131 for the quarter, it annualizes to a 63% enrollment rate compared to 50% enrollment rate in Q3 of 2023 and 66% in Q4 of 2022. Our average monthly disenrollment rate was 16% in the current quarter compared to 11% in both Q3 of 2023 and Q4 of 2022. The disenrollment rate was higher in the current quarter due to a significant number of members losing coverage due to Medicaid redetermination. Without the impact of these members, our disenrollment rate for the quarter would have been slightly lower than historical disenrollment rates. Further, we graduated 194 enrolled members during the quarter. This equates to about 8% of the enrolled members in the program at the beginning of the quarter, which is consistent with prior periods. The impact of all this was a net enrollment decrease of 539 members in the fourth quarter. Our gross margin for the fourth quarter was 64.6%, which decreased from 72% in Q3 of 2023 and increased from 61.2% in the fourth quarter of last year. The decrease in our gross margin in Q4 of 2023 compared to Q3 of 2023 was due to an increase in our cost of revenue, primarily relating to the increase in member-facing departments at the end of Q3. The increase in our growth margin compared to prior year was primarily due to the continued operational efficiencies 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 fourth quarter was negative $3.6 million compared to negative $1.4 million in the fourth quarter last year and negative $1.8 million in Q3 of 2023. This resulted in our average monthly cash burn to be about $1.3 million per month for the full year 2023. We believe our operational efficiencies and anticipated revenues from the process that Mary Lou mentioned has us approaching cash flow positivity in the near future. We ended the quarter with cash and cash equivalents of $9.7 million, up from $3.2 million at the end of last quarter. There was no restricted cash as of December 31st, 2023, however, including restricted cash at the end of Q3, 2023, the total cash was $9.2 million at the end of the quarter. As previously announced, in December of 2023, We completed a public offering of $6.3 million before offering related fees concurrent with a private placement converting all except 2 million of our keep well noted to common equity. Additionally, in March 2024, we completed an amendment to the keep well agreement that gives us access to a $15 million senior secure demand note, which is set up as monthly drawdowns over the next year and subject to approval at the time of the draw. These financing transactions have provided us with the additional capital needed to execute upon our pipeline while significantly reducing our debt obligation and improving our balance sheet. They serve as a testament to our ability to execute and validation of OnTrack's evolving business. Also, in addition to the $1.5 million we have already drawn down in April on the new T4L amendment, we also received cash proceeds of $1.9 million from the exercise of warrants during March and April, which continue to build our capital to execute on a pipeline. While we can't predict if and when the remaining warrants will be exercised, the total amount of warrants at their exercise price would equate to an additional $16 million in cash once the newly issued warrants with the current reset provisions have been registered. We will not be providing annual guidance at this point. For Q1 2024, we anticipate revenue in the range of $2.5 million and $2.9 million. Now, we will open up for questions.

Thank you. Please stand by while we compile the Q&A roster. Our first question comes from the line of Jonathan Ashoff of Roth MKM. Your question, please. Jonathan. Thank you.

You know, guys, what does the new Florida Agency for Healthcare Administration Award, you know, mean for your new customer? And, you know, what might be the timeline for it to translate into increased revenue for OnTrack?

Mary Lou, do you want to take that?

So, the Florida agency, approved, that's ACCA, and that agency approves all health plan vendors that health plans want to work with in Florida. So it's terrific news that we've been approved. That also means any additional Florida customers we would bring forward have already been through the Florida agency approval process. Does that answer your question?

uh yes uh yeah next one is how much more financial impact is you know negative financial impact is expected from any additional medicaid disenrollment i think from what what we've seen so far is the the bulk of the impact is as has already been there uh we definitely saw an impact in the fourth quarter as james had indicated in our disenrollments um It's not entirely done yet, but from everything we've seen, it's definitely slowed. And so don't expect a significant portion going forward.

Okay. Could you please explain a bit clearer than the March 21 press release about the advanced engagement system? What does it allow you to do that you could not do before implementation?

It's really putting together a lot of components that are bringing AI in and around the entire journey of our members. And so, you know, when we think a couple years ago, our members were, you know, predominantly talking to us on the phone, our coaches, we would be, you know, serving members into treatment, communicating, you know, offline necessarily with providers. And now we have the ability to We've had the upfront ability to identify members. We've expanded that capability. We've expanded the timeline and the processing speed at which we can process that information. We're serving up a lot more information to our coaches so that they have an understanding of what those next best actions are for the members that before was read through a bunch of notes. These notes now are also being driven you know, through the AI. And so the coach, rather than, you know, following up a meeting and having to spend 15, 20, 30 minutes to document what happened, that process is happening, you know, contemporaneously with the AI, which frees up these coaches to serve more members. And so that's not only an efficiency, but it's also in support of, you know, incremental membership work. And so then just expanding, you know, with, you know, more assessments or virtual assistants can now, engage with our members and create interactions in between coaching visits and in between provider visits. They can help follow up and work on timing and reminders, which helps keep people in care and in treatment, and which in turn helps keep the members engaged. And engagement is really, you know, most important at this point to make sure that these members can stay on their journey, stay maintaining their treatment plans and within the on-site program, and then ultimately serving and reducing their costs and improving their health.

Okay. And lastly, is the winding down of using your services by the customer that left in February of 2024 the overwhelming reason why the revenue in the fourth quarter dropped quarter over quarter?

Yes, that's correct. The slight larger impact is going to be the redetermination, but that was also part of it.

Okay. Thank you very much.

Thank you. I would now like to turn the conference back to Brandon Laverne for closing remarks.

Sir?

All right. Thank you, Lateef.

I would like to thank everyone for participating on our call today, and I wish you all a great afternoon.

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