Sharecare, Inc.

Good day, and thank you for standing by. Welcome to the ShareCare First Quarter 2022 Earnings 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 will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Evan Smith, Senior Vice President of Finance and Investor Relations. Please go ahead.

Thank you. Good morning and welcome to ShareCare's first quarter fiscal 2022 earnings conference call and webcast. All participants will be in a listen-only mode. This is Evan Smith, SVP of Finance and Investor Relations. After today's presentation, there will be an opportunity to ask questions. Leading today's call are Mr. Jeff Arnold, Chairman and CEO, and Mr. Justin Ferraro, President and Chief Financial Officer. Today's call is being recorded, and an archive of the recording will be available later today on the Investor Relations section of our website. Before we begin, we would like to remind you that certain statements made during this call will be forward-looking statements with the meaning of The safe harbor provision of the private securities litigation reform act of 1995, which includes our second quarter and full year 2022 guidance. These forward looking statements are subject to various risks and uncertainties and reflect our current expectations based on our beliefs, assumptions and information currently available to us. Although we believe these expectations are reasonable, we are to take no obligation to revise any statement to reflect changes that will occur after this call. Descriptions of some of the factors that could cause actual results to differ materially from these forward-looking statements are discussed in more detail in our filings with the SEC, including the risk factors section of our Form 10-K for the year ended December 31, 2021. In addition, please note that the company will be discussing certain non-GAAP financial measures that we believe are important to evaluating performance. Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliation of historical non-GAAP financial measures can be found in a press release that is posted on the company's website. I would now like to hand the conference call to Mr. Jeff Ronald. Jeff, please go ahead.

Thank you, Evan, and thank you all for joining us this morning. Coming off a successful build year in 2021, we believe we entered fiscal 2022 in the strongest position in the company's history across all three channels, continuing to sign new clients, renew and retain existing clients, and build a strong pipeline several times beyond where it was one year ago. The exceptional growth in our pipeline has benefited from our larger sales team and expanded integrated platform capabilities. To further support growth going forward, we are continuing to expand our sales team, as well as relationships with leading benefits consulting firms and channel partners to further extend our reach and increase our market penetration. In addition, we continue to have strong client retention of over 95% across all channels, including securing a three-year renewal with our largest client, which I mentioned on our last call. In the first quarter, we exceeded our guidance, delivering revenue of $100.7 million, 12% ahead of the prior year, and positive adjusted EBITDA while continuing to invest in sales and marketing as well as product and technology to support accelerated growth in the second half of the year and into 2023. With over $250 million in cash on our balance sheet to support growth across all three channels, we remain confident in our full year guidance and ability to be cash flow positive by the end of the year. Given the strength of our performance and balance sheet and our confidence in our outlook for fiscal 22 and fiscal 23, market volatility in our stock price has created attractive buying conditions at various times. Therefore, the Board has approved a $50 million share repurchase program. We will be strategic and opportunistic to take advantage of those situations on behalf of our shareholders. At Enterprise, we have gone to market with a single digital front door that fully and seamlessly integrates a suite of virtual care and high-touch offerings, including the introduction of ShareCare Plus, our advocacy solution, a tech-enabled home care offering with CareLinks, a library of clinically accredited digital therapeutics, and now virtual primary care as part of our solution set. Further, by integrating data from ShareCare's Community Wellbeing Index into our engagement platform, we are uniquely positioned to consider the impact of social determinants of health, which account for up to 80% of differences in health outcomes between individuals. Health equity is increasingly becoming a critical component of how clients are looking at more effectively addressing their diverse populations and the communities in which they work, live, pray, and play. So let me take a moment to refresh everyone on the value of our Community Wellbeing Index. The index is a benchmark of our nation's health that enables states and communities to understand health risk and opportunities across physical and financial resilience, social and community context, and everyday purpose. Our index is based on surveys from every community in the U.S. and brings together more than 600 proven health risk factors into a single measure, combining both individual and social factors. By leveraging a combination of social risk and clinical informatics, we can inform our enterprise clients on the best solutions to address their population's highest health risk, including those represented in their clinical profile and the social determinants of health that define their environment and surroundings. We are confident that our comprehensive data-driven platform places ShareCare in a strong position compared to those who are more narrowly focused on digital or high-touch point solutions. By delivering a seamless digital front door that addresses the needs of each member of an entire client population, we not only improve each individual's experience and health outcomes, but also reduce the administrative burden and cost associated with managing a litany of solutions. Our platform and value we are creating is driving new business wins and pipeline opportunities across the enterprise channel. We had approximately 11 million eligible lives on the platform in the first quarter, with additional growth expected as we launch new programs and onboard new clients in the second half of the year. In addition to the 70,000 eligible lives for ShareCare Plus that will go live in 2023, we discussed in the last earnings call We now have more than 10 mid-sized and large employers in late-stage contracting and additional opportunities in the pipeline. In addition, CareLynx, our tech-enabled home care solution, continued to expand during the quarter and is exceeding our initial growth targets. With an MPS score of 95, clearly demonstrating its high-quality service, CareLynx added new business with existing payer customers, won new payer clients, and expanded pipeline opportunities across its service offering. These wins and opportunities will support growth in fiscal 2022 and 2023. By expanding our reach into virtual primary care with Hydrogen Health, a joint venture with Anthem, KHealth, and Blackstone, we showcase another example of the versatility of our approach as well as our strong partnership with Anthem. ShareCare's interoperable platform enables us to quickly add new capabilities that are important to our clients whether we build, buy, or partner to achieve them, and in turn, retain our focus on enhancing engagement, navigation, and tech-enabled capabilities that drive value across the entire patient journey. This approach will also drive higher PMPM engagements and increase cross-selling and up-selling opportunities. As a result of our new wins, partnerships, and continued innovation, we remain confident in increased momentum for enterprise as we move towards the second half of fiscal 22 and into fiscal 2023. Now let's move on to the provider business. During the quarter, we delivered strong year-over-year growth, primarily reflecting increased record retrieval results, which are expected to sequentially improve as we move through the year. We remain on plan to achieve our target of 6 million medical records retrieved for the year. Growth in this area is supported by increased penetration of existing clients, solid client retention, and securing new business. During the quarter, we onboarded over 100 new client sites and continue to see upward growth trends with a significant increase in the average deal size and nearly double the opportunities in our pipeline, including those with additional large payers. The underlying market trends remain strong for record retrieval and ROI with increased demand for audits, Medicare and commercial risk adjustment, HEDIS, and demand for improved revenue cycle management to review and expedite claims or address denied claims. In addition, due to the Cures Act, recent regulation, and increased interest in fast healthcare interoperability resources, or FHIR, we are seeing an increasing number of interoperability solutions that we can apply to our offering, which will drive new use cases and expand our market opportunity. The move to digitize the release of information process in record retrieval business will reduce the manual administration oversight and make it easier to facilitate the request information quickly and compliantly for patients, providers, payers, insurance companies, and other clients. When combined with the implementation of robotic process automation, we believe we can deliver even higher performance for our customers as well as improve our margins going forward. And in Life Sciences, we continue to grow our top 10 existing client contracts as well as secure new opportunities for our digital patient engagement solutions on behalf of leading pharmaceutical brands. During the quarter, we conducted a customer feedback survey which demonstrated over 90% client satisfaction, highlighting our knowledge of each customer's subject matter, service level, and campaign performance, as well as their likelihood to recommend us. This underscores why we see solid metrics for the business, including a nearly 100% renewal rate in the quarter and new client wins. Consistent with the prior quarter, we have strong visibility into both our contracted and pipeline opportunities, with a double-digit increase in new opportunities compared with the same time last year. The strength of our content, first-person data, and our personalized omnichannel approach continues to drive program execution and competitive advantage. ShareCare Digital Platform simplifies the health journey for every person, providing one place to go for all your well-being, health care, and benefits-related needs. It empowers each individual to better understand and manage their health every day. addressing rising costs and diverse health care and wellness needs. It also empowers our payer, employer, and provider clients to provide a single digital front door to their populations, driving increased engagement while enhancing our productivity and retention, and simultaneously delivering improved costs and outcomes. In addition, as a comprehensive navigation and advocacy platform, we help uncover gaps in care across the entire patient journey, helping to drive care to optimal and lower cost settings, including virtual or in-home care. In closing, in 2021, we established a stronger foundation for success by adding DocAI to drive innovation and product development, partnering with Anthem to build a digital first pair agnostic advocacy solution, expanding our sales team and enabling us to increase our reach with existing and new clients, extending our presence into the home by acquiring CareLinks and going public, which enabled us to strengthen our balance sheet to support future growth. In 2022, we are building on this stronger foundation, focusing on selling larger engagements, creating more opportunities for cross-selling, and continuing to invest in efforts that deliver more value and product innovation to support our clients. In addition, By expanding with strategic partners and investing internally to improve automation and operational efficiency, we believe we will drive accelerated top and bottom line growth in 2023 and going forward. To this end, our objectives remain unchanged. Increase the number of covered lives on our digital platform, continue to integrate new tech-enabled capabilities, whether wholly owned or through partnerships, and drive engagements, improve access, enhance outcomes, and lower cost. Now, let me turn the call over to Justin, who will review our financial results for the quarter and the fiscal year and share our financial outlook and assumptions for fiscal 2022. Justin.

Thanks, Jeff, and thanks to everyone on the call for your interest in ShareCare. As Jeff indicated, we delivered strong results for the first quarter of 2022 for both revenue and adjusted EBITDA. Our first quarter revenue grew 12% to $100.7 million from $90.2 million a year ago, exceeding the top end of our guidance. Growth in the quarter was positively impacted by year-over-year increases in eligible lives on the platform and an increased number of records retrieved. Year-over-year growth also was impacted by our previously disclosed decision to sunset certain businesses which had revenue of approximately $11 million in the prior year period. Adjusted EBITDA for the quarter was $150,000 positive from $7.1 million for the prior year. slightly ahead of our break-even guidance. Adjusted EBITDA was driven by the same factors as revenue, as well as incremental public company expenses and increased investments in product and technology and Salesforce expansion to support growth. We expect these investments to support our long-term growth and drive additional operating leverage in the second half of the year as we gain greater traction for the ShareCare digital platform, expand our record retrieval, and execute in our life sciences channel with existing and new customers. Our free cash flow, which included $7.5 million of non-recurring items related to transaction and integration costs, came in better than expected, placing us in a good position to be free cash flow break-even by year end. We remain in a strong financial position, ending the quarter with $253 million in cash on our balance sheet. I'll now turn to our guidance for the second quarter and full year 2022. To reiterate what we disclosed last quarter, guidance reflects the actions we disclosed for our health security portfolio and our patient-centered medical home business. Our Q2 guidance for revenue is $101 million to $103 million, an increase of approximately 4% over fiscal 21 using the midpoint of the range. Note, the businesses that were sunset represented approximately $13 million in revenue in the prior year period. When combined with our first quarter performance, revenue for the first half of the year is expected to be slightly better than the assumption we provided on our year-end call, in which we stated that 40% of our revenue would occur in the first half of the year. In addition, adjusted EBITDA is expected to be approximately between $1 and $2 million positive. Our full year guidance remains unchanged. For the full year, revenue guidance is $470 million to $500 million, an increase of approximately 15% to 20% over fiscal 2021, and adjusted EBITDA is expected to be $30 million to $36 million, or 22% year-over-year growth at the midpoint. While we continue to invest in the platform, expand our sales force, and support the rollout of ShareCare Plus, We anticipate adjusted EBITDA margins in line with or better than 2021 because of the inherent operating leverage. Please refer to our press release for our full-year guidance assumptions, which also remain unchanged. We remain confident in 2022, delivering strong year-over-year revenue growth and solid adjusted EBITDA performance while building a strong runway for fiscal 23. With that, we will move to Q&A.

Thank you. As a reminder to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Richard Close with Canaccord. Your line is open.

Yeah, thanks for the questions. Congratulations on the quarter. Justin, maybe just walk us through the guidance a little bit more in terms of the confidence. Obviously, there's a big ramp in the second half of the year, but maybe go over some of the building blocks to get there.

Yeah. Thanks for the question, Richard. So it's in line with expectations, as we pointed out in the first or the year-end call, that we would do 40% in the first half and 60% in the second half, and that comes from a number of areas. Number one is on the provider business, we have strong sequential growth over the course of the year. On the consumer business, I think you'll remember that we have seasonality in that business. In the second half, especially fourth quarter, is always the highest quarter of the year, typically 35%, give or take, for the entire year. And then on the enterprise side, we have a robust pipeline, and we're onboarding new customers that begin in Q3 and feel very confident in the growth there as well. So it's really a similar cadence to last year.

Okay, thanks. That's helpful. Jeff, maybe talk a little bit about the pipeline and moving customers from pipeline to actually sign contracts. Some other companies have talked about strong pipelines, but maybe delays in getting deals completed. Can you just talk a little bit about what you're seeing in the marketplace, please?

Sure. Well, I think, first of all, we have really robust capabilities and a platform. So we have lots of products to sell to enterprise, which is helping us retain our clients and win new logos. And we're starting to really see the benefits of the investment that we've made with the sales team. So we brought on a new sales leader last year from Salesforce. We've added 15 more salespeople since the last time we spoke. And the pipeline is 5X, you know, what it was at this time last year. And so, yeah, that's what gives us confidence in this year and next year. And, you know, obviously it's a competitive space, but we feel like we have a differentiated offering, and we're seeing it with our renewals, and we're seeing it in our pipeline growth. And it doesn't feel to me like anything has slowed down.

Okay, that's helpful. And my final question is on the Hydrogen Health. How do you guys play in that virtual primary care? Are you an actual part owner of that? That was new to me.

Yeah, so you might be familiar that Hydrogen Health is a joint venture between K-Health, Anthem, and Blackstone. And as part of us building out our differentiated ShareCare Plus advocacy solution, we wanted to add a virtual primary care solution. And so we've added that to ShareCare Plus as a partner, you know, similar to some of our other digital therapeutics that we have. So think of us as distribution for K-Health.

Okay. That's helpful. Thank you. I'll jump back in the queue.

Thank you. Thank you. Our next question comes from David Larson with BTIG. Your line is open.

Hi. Can you please talk about the selling momentum on the enterprise side? How are things progressing with the advocacy business itself, and what broadly is driving that? Do plans want to engage members more aggressively in any color on the relationship with Anthem as well as CareLinks? Thank you.

Sure. So we're going to market with ShareCare Plus in multiple ways. So one is we have a large current book of business. So as you know, we have many health plans and many employers that utilize ShareCare. We've now added ShareCare Plus. And so through our account management team, we're aggressively selling ShareCare Plus as an add-on to what they've already bought from ShareCare. So that's number one. And as we announced on the last quarter, they have already signed up 70,000 lives through that channel direct. In addition to that, we signed a national collaboration agreement with Anthem for their national accounts team. And so Anthem has, in many of their large RFPs, has written ShareCare Plus in as part of that RFP. And so we've been pitching clients in conjunction with them and has brought us into a lot of opportunities that we haven't had before. And then lastly, we've got just a much bigger sales team than we did a year ago, and we've invested a lot of time in having heavy presences at the conferences. Like we were at the Blues Conference last week. We were at Conference Board yesterday. And so we're getting a lot more RFPs and a lot more at-bats. And then lastly, we've invested a lot more time with the brokers, maybe something that we were underinvested in in the past. And so working with the large consultants, they've started to bring us into new RFPs as well. So it's a combination of take all those clients that we have on ShareCare currently and upsell them ShareCare Plus, work with Anthem where it's multi-payer, big national accounts, and embed us into the RFP, and then get our sales force trained and get us as many at-bats as possible. And we're finding that, you know, when we get to the finalist stage, that we've got a really good closing hit rate.

Okay, that's very helpful. Thank you. And then for the patient-centered medical home business and advocacy business, are those costs off your books, or will they roll off your books soon, or will they convert to more variable-cost businesses?

Yeah. So, Dave, thank you for the question. Those costs are still on our books. The quarter would have been about a million and a half higher on EBITDA, and we expect those to roll off through the year. So, yeah.

Okay, great. That's very helpful. And just one last one. How high can your PMPM get? And then I'll hop back in the queue. Thank you.

Well, I mean, we've seen a pretty dramatic increase, you know, over the 70,000 lives that we've contracted for. I'd say on average it's gone up five times RPM, PM. But, you know, I think there's still a much higher ceiling for it as we add virtual primary care and other services like that. So I've seen some recent RFPs gone out that, you know, is in the $18 PM, PM range. You know, this time last year, you know, it was around $2. So we've increased it pretty dramatically by, you know, adding advocacy, adding care links, now adding virtual primary care.

Okay, great. Thanks very much. Congrats on a good quarter.

Thanks, David.

Thank you. Our next question comes from Cindy Motz with Goldman Sachs. Your line is open.

Hi. Thanks. Yeah, I have a couple of questions. So can you provide the breakout between the businesses? I think you usually do that, the enterprise, the provider group. you know, than consumer or just sort of rough. And then just on that PM PM question in terms of the overall average, um, is it still around $2 or, um, I mean, because again, I know that maybe potentially it could be $18, but that's obviously not the average. And then I had a question also on, um, the ad back to the EBITDA of about 7.3 million. Um, That's obviously some transaction cost of $2 million, but then there's like reorg and other non-operating. Is that something we're going to see throughout the year? I'm just curious if that's in your guidance. Thanks.

Okay, yeah. So I'll take the first one. Cindy, thank you for the question. It's Justin. So on the first question, it was breaking out the revenue. And, yeah, so the consumer business came in around $16 million. The provider business came in almost at $25 million, and our enterprise business was almost $60 million. So for $100.7 million total.

And then on the PMPM answer is I think our average is around $2. But every deal that we're pitching now is $8-plus dollars.

Yeah, so I think where there's been a lot of conversations around pricing pressure on the PMPM, you know, we kind of have seen that for a while, which is why our strategy has always been a platform, you know, where we bring more diversified products to the market and we can bundle. And we're actually moving up the food chain on PMPMs from just straight digital and engagement to, to now benefits navigation to home health. So we see our PMPMs expanding over time.

Yeah, I guess when I calculate it, like when I look at last quarter, if you went to 11 million, but I guess it depends on the cadence of how that came in, it looked like it was less than last, the fourth quarter. Like maybe there was a little pressure, but maybe it's how the people came in because you were at 9, 7 million lives. at the end of the fourth quarter, and so you're 11 million. But maybe they came in late in the quarter, I'm just guessing.

Yeah, it just, yeah, it depends on also which lives, what type of lives come in. And so ultimately, if it's benefits navigation lives, more heavily weighted, then it'll be higher PMPM. We had a significant onboarding around our home health area, which is a slightly lower PMPM. So it's really just mixed. But, you know, we expect our – over the course of the year to be in that $2 PMPM range.

Yeah, and what I was referring to on the ShareCare Plus is all for 2023 sales.

Oh, okay. And that does include care links, though, as well, like around – I'm going to guess around $7.5 million or so. Whatever, we can follow up offline on the specifics. But then just the EBITDA question would be good as well. Thanks.

Okay. What was the EBITDA question again? I apologize.

Sorry. So you had an ad back of about 7.4 million to get to the, you know, the 0.15 in adjusted EBITDA. And, you know, I know part of its transaction costs, I would assume from care links, but there's another non-recurring 3.2 million, you know, and then 2.2 million of reorg costs. I'm just curious, those are cash costs and are they going to continue into the like the rest of the year, or we're not going to see that anymore? It is a one-time thing.

And is it in your guide? Yeah, we've built in to have some of these costs in for the rest of the year when we've talked about our – when we've got it to our cash burn. But, you know, this is systems integration, you know, as we integrate the care links and other areas. This is – reorg, integration costs, right? Some of that is severance. And then there's acquisition-related costs, which is earnouts. You know, we're active in the M&A market. So there will be some of these costs in there, but it won't be we don't believe at this level and that will start to come down.

Okay, thanks.

Our next question comes from Eric Percher with Nefron Research. Your line is open.

Thank you. I'd like to start with the share repurchase authorization or maybe capital deployment more broadly. It seems like you're indicating here what you think of the stock price and the cash flow positive goal. I'd be interested to hear about that, but also your thoughts on the M&A environment and whether you're seeing a decline in valuations or whether it's taking time for valuations to react to the marketplace?

Well, maybe I'll start on the buyback. You know, we're going to be judicious with it, but clearly, you know, we believe we have a unique company. We're going to grow 15% to 20% this year. We're adjusted EBITDA positive. We're on a path to be cash flow break-even by the end of the year. We have a strong balance sheet, no debt. We have a diversified business model. And trading at these levels, we just believe we're undervalued and we're going to be opportunistic if this is what continues.

And as it relates to your second question on the M&A front, obviously we've seen a big pullback on public companies in our space. I think on the private side, that pullback hasn't caught up yet as much as on the public companies, but we expect it to. And we're constantly evaluating opportunities and we'll look for tuck-ins that we think are a good value for the company and our shareholders.

Okay. And maybe tangential to that on the digital therapeutic side, the hydrogen addition is offering is interesting. I'd love to hear about how you think that plugs into the total offering. And also, does that enable potentially other digital therapeutics that need to have a virtual component? Or do you think of these each as individual and they stay individual?

Well, we see, because we have a platform approach, we have this idea of what do we build, what do we partner for, and what do we buy. And on the virtual primary care side, we wanted to add that to ShareCare Plus. And so as we were selling our advocacy solution, virtual primary care would be an add-on. And, you know, Anthem having the relationship with K-Health was kind of the logical choice for us, and so we've integrated that. An example of building is we operate Dean Orange's program for reversing heart disease and other chronic conditions. You know, that's reimbursed at $9,000 a patient from Medicare. We're virtualizing that program right now. During COVID, CMS came out and said they would now reimburse for virtual sessions. And so we're building like our virtual version of that in-house right now as an example of one that a capability that we're building out. And then we're looking at all these other various chronic conditions and doing a similar analysis. We have that whole portfolio of products that we own with Mind Sciences, where we have our weight loss programs and our smoking programs and our anxiety programs. We're green-lighting the development of many more, ranging from hypertension to addiction. All those will have a virtual component.

Got you. And last question, you commented on the various channels for ShareCare Plus, and I think it was 10 incremental clients. Could you speak to the timing when it comes to closing sales, where you think you have the earliest opportunities versus later? And when you talk to 10 clients, would that also include clients that are accessed via Anthem, or do you consider Anthem one client?

I consider Anthem as one client, but I know how many RFPs we're in, and it's greater than 10, but I consider them as one client. And then those 10 that I was referring to were direct sales. And we are hopeful that some of those will start in January of 2023. But we're still selling for 23 in all of them. It's just when do they start? I mean, we haven't started the 24 sales cycle yet.

I'm in more of those channels, 423. Which are the ones where you expect the quickest return or generation of new clients?

I think it's going to be a healthy mix of both. We expect to have wins through our partnership with Anthem, and we expect to close sales ourselves. And so I think it will be a healthy mix of both.

All right. Thank you.

Sure.

Thank you. As a reminder, to ask a question at this time, please press star then 1. Our next question comes from Richard Close with Canaccord. Your line is open.

Thanks. My question was answered. It was the share repurchase and cash flow. Thank you.

Thank you. And I'm currently showing no further questions at this time. I'd like to turn the call back over to Jeff Arnold for closing remarks.

Okay, great. Well, thank you, everybody, for your time this morning and your interest in ShareCare. We know the market has been very volatile, but we believe in our plan. We're reaffirming guidance for the year. We're launching a $50 million stock repurchase program. We're going to continue to be active on the M&A front. We're going to continue to invest in sales, and we're committed to get cash flow positive in 2022. So have a great day, and thanks again for your interest.

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