Sharecare, Inc.

Good day and welcome to the ShareCare second quarter 2023 earnings call-in webcast. All participants are in listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Today's call is being recorded and will be available on the company's website. On today's call, we have Mr. Jeff Arnold, Chairman and CEO, and Mr. Justin Ferrero, President and Chief Financial Officer, as well as Mr. Jaffrey Muhammad, Chief Operating Officer, who will join for the question and answer session. Before we begin, we would like to remind you that certain statements made during this call will be forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. which includes statements regarding strategic initiatives, cost savings, new capabilities, pipelines, and our 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 undertake 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, 2022. In addition, please note that the company will be discussing certain non-GAAP financial measures that we believe are important in 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 the press release that is posted on the company's website. I would now like to hand the conference call over to Mr. Jeff Arnold. Jeff, please go ahead.

Good morning, and thank you for joining us today as we discuss ShareCare's Q2 2023 results. First, I want to briefly discuss the conclusion of our strategic review, which we announced on May 31st. The board came to the unanimous decision that our three business channels, enterprise provider and life sciences, complement one another with a depth and breadth of capabilities that together create a unique platform driven ecosystem built for scale. The strategic alignment of these businesses allows us to seize new growth opportunities and serve our expanding customer base and their needs more effectively which I will highlight during today's comments. We continue to make significant progress this quarter, coming in at the high end of revenue guidance and exceeding the high end of our adjusted EBITDA guidance, with a revenue of $110.4 million and adjusted EBITDA of $3.8 million. Our strong financial results and expansion of our adjusted EBITDA margins this quarter have us on track to reach our goal of cash flow break-even by year's end. We also continue to make progress with Carillon, to integrate our respective complementary capabilities to bring efficiency, flexibility, and efficacy to our tech-enabled advocacy solution to scale to current and new health plan customers. The robustness of our high-tech, high-touch platform that delivers comprehensive care solutions was instrumental in our performance in the quarter, yielding 7% revenue growth for the enterprise channel compared to Q2 2022, and marking continued progress toward our full-year target of 12.9 million eligible lives across large employers, health systems, payers, TPAs, and government customers. Our integrated approach to care has proven successful in enhancing user experiences, reducing costs, and measurably improving clinical outcomes across populations, whether people simply require routine preventative care or are managing high risk and chronic conditions. In fact, in a third party, evaluation of the effectiveness of ShareCare's disease management program for one of our leading health plan clients, we decreased annual costs for engaged members by 8%, primarily by lowering inpatient admission costs. We're also driving associated cost savings as measured by our value on investment approach by helping members reduce their risk across more than 40 lifestyle, biometric, and prevention measures. As an example, based on research conducted with the UNC Center for the Business of Health, we know that increasing movement among people who largely spend their day sitting carries with it a cost savings of approximately $475 per member per year, as it reduces the risk of associated conditions that can show up later in claims cost. While we significantly impact risk reduction associated with sedentary lifestyle across our entire book of business, through our digital platform, digital therapeutics, and lifestyle management coaching programs, we also continue to explore innovative and accessible ways to help employers encourage exercise among their workforces. A recent example, which launched earlier this year and uses the immersive power of virtual reality, is our Get Active program. In a customer pilot completed in the quarter, participants, all of whom classified as sedentary, increased weekly moderate intensity activity from a baseline of 21 minutes to more than 181 minutes by the end of the program, with 61% of respondents reporting having either more or much more energy than they did before Get Active. Our continued investments in generative AI technology, capitalizing on our DocAI acquisition, and building digital connectivity to ingest clinical data are enhancing our offerings and improving our capabilities in creating longitudinal member records. We're able to generate personalized health insights derived from individual longitudinal and aggregated data, delivering more tailored engaging care solutions. Additionally, we were able to quickly identify health risks within customer populations and close care gaps such as cancer screenings, medication adherence, and cardiovascular and MSK related issues at scale, a win-win for their organizations and their members. Within one of our large employer groups, we've identified hundreds of thousands of care gaps since the beginning of the year, and we continue to improve processes to enable our clinical advocates to quickly and efficiently close the most complicated and costly care gaps. We also have a unique advantage in being able to train our AI models with proprietary content from our award-winning digital therapeutics. For example, our unwinding anxiety program has yielded a 67% reduction in anxiety, corresponding to a 64% remission rate in randomized controlled trials compared to clinical care alone. This content can now be integrated and delivered through our generative AI model to seamlessly meet people where they are in their mental health journey. CareLynx, ShareCare's home care solution with a net promoter score of over 90, has also been a vital addition given no other advocacy provider has its own nationwide network of caregivers to offer a physical presence in the home. In fact, the convergence of our payer-agnostic advocacy solution, ShareCare Plus, and CareLynx creates the opportunity to go deeper with all our members as our highly credentialed in-home caregivers bring the advantage of physical proximity and established trust, as well as deeper knowledge about the patient's needs and the ability to recommend the programs available to them across our ecosystem. Early feedback from one of our marquee employer clients who recently implemented CareLinks for their associates identified that their efforts to ease caregiver burden are resulting in more productive and satisfied employees. At this employer, our professional caregivers have provided care to associates across a number of real-world use cases, including people who require post-discharge and surgical transitional care, those who need extra in-home nonclinical support, and employees who also are caregivers for a chronically ill adult. We have a growing pipeline for 2024 and 2025. And we not only assist with members' unmet functional needs in the home, which drives trust and engagement, but also identify clinical complexity and social risk factors that can help address, through our clinical advocacy services, our third-party referral programs. In the case of one of our large health plan clients that leveraged our caregivers to drive engagement in the home, they saw a 30% increase in completion of annual wellness visits and a 30% increase in completion of in-home clinical visits for risk adjustments. Capitalizing on these patient engagement capabilities and our in-home clinical expertise, we are poised to seize the opportunity to address a full set of healthcare quality metrics and standards by leveraging assets in our provider channel to create new and better risk adjustment and care gap closure models for the home care market. These new models, which we plan to roll out in 2024, stand to greatly benefit Medicare Advantage plans by providing accurate and complete code capture of and increasing their quality scores while driving improved outcomes for patients through prevention, screening, better chronic disease management, and addressing social determinants of health. Speaking of our provider channel, which is now delivering health insight and data solutions, and it's coming off a great first quarter, it performed better than ever in Q2, yielding 11% revenue growth compared to Q2 2022 and setting us up to meet our core KPI target for the full year. The demand for medical records and clinical content from health plans continues to be a major driver for our growth, and our provider pipeline shows significant promise. While maintaining a focus on historically strong markets, such as provider practices and specialties, we're branching out into larger strategic health systems through RFPs and proactive targeting. To date this year, we've already surpassed total RFP participation compared to all of 2022. Additionally, we're advancing our channel strategy through partnerships with several SOs and new agreements with revenue cycle management groups. The robustness of our audit business, the maturity of our new services, and the ARR closed in Q2 bolster our confidence in achieving our 2023 provider goals. ShareCare's Life Science Channel, which is continuing to evolve to offer broader, more robust customer activation and management solutions across the healthcare industry, was approximately flat for the quarter year over year, as anticipated. While it was our slowest growing channel this quarter, it's important to note that this occurred during an industry-wide decline of 27% in digital ad spending by pharmaceutical companies, according to Nielsen data. Recently, the channel launched its 2024 go-to-market offerings, featuring four unique and high-impact digital solutions for clients, and expanded its reach through new collaborations to sell point-of-care inventory across lab cores, on-site testing, and diagnostic facilities. As we continue to maximize the integrated assets across our channels, we are working on several new opportunities, including leveraging LifeScience's proven activation capabilities and a 100-million-person, zero-party database to market the direct-to-consumer offerings of CareLinks for non-medical-supported homes and a new solution that's in development, the RealAge Longevity Programs. Given the momentum and efficacy around the GLP-1 drugs, the Real Age Longevity Program leverages our assets, reach, and expertise to provide a comprehensive framework for managing GLP-1 medication costs through utilization management, ensuring treatment adherence, and balancing financial efficiencies with improved health outcomes. A key component of this offering is our weight loss program, Eat Right Now. which is scientifically proven to reduce craving-related eating by 40% and take a mindfulness-based, whole-human approach to foster sustainable, positive eating habits that stick over time. Our strategic direction, unique ecosystem, which creates valuable cross-sell opportunities and proven commitment to manage cost, coupled with our strong financial performance in Q2, signal a promising future for ShareCare. We extend our gratitude to our shareholders, partners, and the dedicated ShareCare team for their support. And at this time, I'd like to hand the call over to our CFO, Justin Ferraro, who will delve deeper into the financial details.

Thank you, Jeff. We reported strong second quarter results with revenue of $110.4 million, which is the high end of our guidance and represents year-over-year growth of 6.3% and adjusted EBITDA of $3.8 million, which exceeded the high end of our guidance. Notably, our adjusted EBITDA margin of 3.5% is a 90% improvement over the previous quarter, as well as an approximate 70% improvement over the same period last year. Our growth was driven by an increase in eligible lives on our platform and our enterprise channel, as well as an increase in records process in the provider channel. We are on track to achieve our core year-end KPIs in both channels, which are 12.9 million eligible lives and 6.5 million records processed. As Jeff mentioned earlier, our provider channel set another quarterly revenue record in Q2. And despite ongoing market pressure, Life Sciences Q2 revenue was approximately flat year over year, which was consistent with our expectations. Our financial health remained strong. We ended the second quarter with a cash balance of 144 million and approximately 200 million in available liquidity. Our commitment to efficient financial management is further evidenced by our cash flow, which showed significant improvement from the last quarter, reporting a $7.7 million burn this quarter, excluding the impact of the stock buyback, compared to $28 million burn in Q1. Our dedication to achieving cash flow breakeven by the end of the year remains a core focus, and this quarter's results underpin that commitment. Regarding our previously announced stock repurchase program, to date, we have bought back 2.5 million worth of shares in the open market, leaving us with 47.5 million remaining under the current authorization. We will continue to evaluate our capital allocation strategy, but strongly believe our stock price currently does not represent the intrinsic value of our business. As we look to Q3, we expect to generate revenue within the range of $111 million to $113 million. Our adjusted EBITDA guidance for Q3 is $8 million to $10 million, which represents over a 100% increase in adjusted EBITDA over Q2 of this year. And there are several key drivers behind our expected adjusted EBITDA improvement. First, in the enterprise channel, we continue to automate several back office functional areas that are driving improved margins. Additionally, we have non-technology related costs that have been strategically reduced without impacting customer facing operations. And our provider channel, which continues to deliver record top line results, the third quarter is historically the strongest quarter of the year as we process a large volume of Medicare Advantage risk adjustment audit related charts. Additionally, our previously discussed globalization efforts continue to progress, resulting in improved margins. In life sciences, Q3 is a historically stronger quarter relative to Q2, and our current campaign activity anticipates similar growth this year. More broadly speaking, while our business will continue to have some channel-level seasonality going forward, Q3's expected adjusted EBITDA is indicative of the emerging underlying earnings power of ShareCare. driven in part by our $30 million annualized cost savings initiative, which we are on track to achieve by the end of 2023. In summary, I am pleased with our strong second quarter, expanding adjusted EBITDA margins, improved cash burn, and the strength of our balance sheet. We want to reiterate our full-year revenue guidance of between $452.5 and $460 million and full-year adjusted EBITDA guidance of $25 million to $30 million. Your continued support is greatly appreciated. We're now ready to take your questions.