Sharecare, Inc.

Good day and welcome to the ShareCare third quarter 2023 earnings conference call and webcast. All participants are in listen only mode. And after today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch tone phone. To remove a question, please press star then two. 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. 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 Security Litigation Reform Act of 1995, which includes statements regarding strategic initiatives, expected 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 statements to reflect changes that will occur after the 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 factor 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.

Thank you, and good morning, everyone. We appreciate you joining us today as we mark a significant and exciting moment for all of us at ShareCare. In addition to continuing to execute our near-term business objectives, as represented in our strong third quarter results. We're also positioning the business for operational excellence and sustained growth with the appointment of Centene's Corporation's former president and chief operating officer, Brett Layton, as the next CEO of ShareCare. This evolution is multiple years in the making, and I'm looking forward to working closely with him as I remain engaged in our day-to-day business activities in my new role as executive chairman. Tenth inception, We have been building an end-to-end digital platform focused on improving health outcomes for people, no matter where they are in their personal well-being journeys. As we sit here today, we have done just that. We have built a platform of choice for some of the country's most notable employers and health plans. We also believe there are significant opportunities ahead, which is why now is the right time for me to focus my expertise on our strategic direction to create new solutions, leveraging our data, platform, and technology to and have Brent step into the CE role to accelerate growth and continue to ensure operational excellence. Before I discuss Brent's appointment in detail, I'd like to start with an overview of our third quarter results. For the quarter, we reported revenues of $113.3 million and adjusted EBITDA of $9.6 million. Revenue exceeded our guidance forecast and adjusted EBITDA was at the high end of the guidance range. This was driven by the strong execution of our teams, record revenues in our provider segment, and realizing the benefits of our expense reduction program. In fact, our adjusted EBITDA was an improvement of over $4 million versus the prior year quarter, and year-to-date it is triple what it was in the first three quarters of last year. I would like to affirm our full-year guidance of revenues between $452.5 million and $460 million and adjusted EBITDA of $21 million to $26 million. Justin will discuss our latest guidance estimates and his update later on the call. Importantly, we remain on track to deliver our year-end commitments to be cash flow break-even, as well as service 12.9 million eligible lives through our high-tech, high-touch platform that delivers personalized and proven health and well-being solutions to our clients, members' populations, including large employers, health systems, payers, TPAs, and government customers. In all, it was a strong quarter, and we expect that momentum to carry forward. I also want to spend a moment highlighting what sets ShareCare apart within the digital health space and why we are well-positioned to benefit from the industry's transition from fee-for-service to value-based care. Our platform has proven successful in engaging with our users, whether people simply require routine preventative care or are managing high-risk and chronic conditions by delivering personalized recommendations and interventions, resulting in better health outcomes and lowering costs for both our members and our customers. Our continued investments in generative AI technology, leveraging our expansive and ever-growing data sets, continue to enhance efficiencies and improve our capabilities. We are supplementing our high-touch clinical advocacy and coaching services with AI to improve the quality and efficiency of member interactions. Bolstered with AI, our digital resources, call center specialists, and clinical resources can quickly pull relevant information from across dozens of plan types and files seamlessly delivered to the user in multimodal optionality. Data is critical for value-based care to work, and our AI capabilities ensure that we are unlocking the full power of that data on behalf of both our customers and the people using our platform to navigate their benefits and manage their health. Our integrated and tech-enabled home care solution, CareLinks, continues to be another key differentiator in our ability to improve outcomes and lower cost. Our vetting and training process is among the most rigorous in the industry, and our net promoter score of 90 underscores our commitment to ensure the highest level of quality, professionalism, and importantly, safety. Our health plan customers use our home care solution as a supplemental benefit Our employers is a benefit to help their employers better care for themselves and their loved ones when they are not able to do so. And our provider clients is an extension of their care management teams. We have a growing pipeline for 2024 and beyond, 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 or third-party referral programs. As outlined above, we continue to deliver solutions that drive ROI for our customers across the healthcare ecosystem, leveraging our unique assets and data-centric approach. We've made significant progress in our globalization and cost improvement efforts as planned without sacrificing customer service and with our margin improvements on track. Overall, we have the proprietary technology, data, and interoperable platform to deliver a seamless digital experience and be the partner of choice for our customers, regardless of the populations they serve. As we look ahead and we continue our focus on unlocking shareholder value, I believe there are two areas of significant opportunity. The first is in government-funded programs, including Medicare, Medicaid, and the health insurance marketplace. We currently have a number of customers in this sector, including several state health benefit plans where we provide health and well-being resources to hundreds of thousands of state employees. In addition, we are contracted with multiple Medicare Advantage programs, both using our technology platform to engage with their members, as well as offering our home care service care links as a supplemental benefit for millions of their MA members. We are poised to go even deeper with existing state and local government contracts. The second is in offering value-based contracts to share in both the risk and cost savings with our customers. With innovation in our DNA, we are leveraging our assets and capabilities to develop new solutions to address many of the challenges our customers are facing. And as I mentioned earlier, be their strategic partner of choice. To that end, we are actively exploring value-based care models in addition to our new risk adjustment solution we announced in Q2 that we will roll out in 2024. It is against this backdrop and from this strong foundation that I'm excited that Brent Layton has agreed to become our next CEO, effective January 2nd, 2024. His appointment comes following a deliberate and well-planned transition done together with the board, focused on positioning ShareCare to capitalize on the opportunities ahead. I'm sure many of you are familiar with Brent, but those of you who are not, he has been a member of the ShareCare Board of Directors since early 2023 and and brings more than 30 years of healthcare and public policy experience in a variety of growth-oriented executive roles, including more than two decades at Centene Corporation. Brent held many roles and capacities while at Centene, including serving as Chief Business Development Officer, during which time the company scaled from three health plans to 31 health plans, becoming the nation's largest Medicaid managed share company. He oversaw many of the divisions and products in his time at Centene, including provider contracting, where he led the company into value-based care. As president and COO of Centene, he oversaw Ambetter, the nation's largest health insurance exchange provider, and WellCare, the nation's sixth largest Medicare Advantage company. Brent announced his retirement from Centene in late 2022 and stayed with Centene as senior advisor to the CEO. Centene grew annual revenues from $300 million to $144 billion during Brent's tenure. I am confident that with the combination of Brent's expertise in driving growth at scale with large value-based contracts and my extensive experience in digital health, M&A, and product innovation, we are well-positioned to continue to execute our strategy for growth and profitability and deliver enhanced value for our users, customers, and shareholders. We look forward to sharing more detail in 2024 once Brent officially assumes the role. Before I hand the call over to Justin, who will provide additional financial details, I want to comment on the previously disclosed unsolicited preliminary non-binding proposal that we received from Claritas Capital. Claritas, which is a large shareholder of the company, is led by John Chadwick, who also serves on Sharecare's board with me and Brent. Consistent with its fiduciary duties, our board of directors is carefully reviewing the proposal, and we will pursue the course of action it determines to be in the best interest of the company and all of its shareholders. We have a strong path ahead, and our distinct advantages set us apart from the rest of the industry. And with Brent on the team, we are accelerating our evolution as a go-to digital health partner. And with that, I'll turn it over to Justin.

As Jeff noted, we reported positive third quarter results with revenue of $113.3 million, exceeding guidance, and adjusted EBITDA of $9.6 million, which is at the high end of our guide. Since going public, our Q3 adjusted EBITDA margin of 8.4% represents the highest single quarter adjusted EBITDA margin for share care and is a very significant increase over our Q2 adjusted EBITDA margin of approximately 3%. Additionally, we are on track to meet our primary annual operating KPIs in both enterprise and provider channels, which are 12.9 million eligible lives and 6.5 million records processed for the year. The enterprise channel performed in line with our expectations, with our advocacy solutions driving outstanding results in both care gap closures as well as avoidable readmission rates. yielding millions of dollars in potential savings and leading to member satisfaction of over 90% and client satisfaction rates of over 99%. And our clinical advocacy net promoter score is at nearly 100. I'm pleased to report that the provider channel once again set a quarterly revenue record in Q3 driven by increases in Medicare Advantage risk adjustment related chart volumes. The channel is also realizing meaningful reductions in expenses resulting from the ongoing globalization and cost mitigation efforts. Life Sciences Q3 revenue was in line with expectations and with the prior year period, despite softness in macro pharma spend across the industry, as we anticipated and have seen throughout the year. We are pleased with the resilience of this channel and are benefiting from the value of our high quality targeting with our proprietary zero party database of over 100 million people. Our financial health remains strong. We ended the third quarter with a cash balance of 128 million and approximately 182 million in available liquidity. As we continue to advance toward our target of achieving cash flow break even, we reduced cash burn in Q3 to approximately 6.9 million excluding the impact of stock buybacks and other one-time non-operating payments on the quarter, which compares to $8 million burning Q2, which had one fewer payroll period. We are continuing to execute against our globalization, automation, and other business optimization initiatives to be cash flow break-even. As an update on our previously announced stock repurchase program, we have bought back 9.2 million worth of shares to date, leaving 40.8 million remaining under the current authorization through next May. As noted previously, we continue to evaluate our capital allocation strategy and strongly believe our current stock price does not represent the full underlying value of our business. Looking forward to Q4, we are guiding to revenue within the range of $111 million to 113 million and adjusted EBITDA between 9.5 million and 11.5 million. This represents another expected lift in adjusted EBITDA margin driven by the myriad of operational improvement initiatives underway across the business, amounting to 30 million in annualized expense reduction as discussed on earnings calls earlier in the year. It is important to note that we have taken a conservative approach to our revenue guide in Q4 due to the aforementioned softness in pharma marketing spend. Revenue guidance for fiscal year 2023 is reiterated at $452.5 million to $460 million. But I'd like to add one note on our adjusted EBITDA reporting. In conformance with the SEC's clarified guidance around and recent focus on non-GAAP financial measures, our adjusted EBITDA now includes costs related to an exited contract, abandoned leases, and certain staff reorganization expenses, all of which were previously disclosed but excluded from our historical adjusted EBITDA calculations and guidance. The earnings release contains a reconciliation of adjusted EBITDA to GAAP net income, inclusive of these changes. And all current and historical financials presented reflect this update to our non-GAAP measures. In Q3 2023 and Q3 year-to-date 2023, these costs totaled $1.1 million and $3.1 million, respectively. To put that into context, adjusted EBITDA margins delivered in Q3 would have been even higher than the record margins reported. Additionally, we have updated our adjusted EBITDA guidance to $21 million to $26 million for the fiscal year 2023 to reflect this change. It is important to highlight there are no new expenses and no impact on the balance sheet or cash flow. This is simply moving previously discussed below the line expenses back into our adjusted EBITDA guidance. I will also note that these expenses are not expected to recur in 2024. In closing, we are pleased to report the positive third quarter performance included record adjusted EBITDA margins, execution against our core KPIs, successful implementation of our comprehensive cost savings program, and continued advancements towards cash flow breakeven. Thank you for your continued support and commitment to the ShareCare vision. We're now ready to take your questions.