Sharecare, Inc.

Good day and welcome to the ShareCare first quarter 2024 earnings call and webcast. Today, all participants are in a listen-only mode. Should you need assistance during today's call, please signal for a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note that today's call is being recorded and will be available on the company's website. On today's call, we have Mr. Brent Layton, Chief Executive Officer, and Mr. Justin Ferrero, President and Chief Financial Officer. Before we begin today, I 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 the strategic review, expected cost savings, new capabilities, pipelines, certain contractual disputes and future expectations. 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 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, 2023. In addition, please note that the company will be discussing certain non-GAAP financial measures, which we believe are important in evaluating performance. Details of 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 over to Mr. Brent Layton. Brent, please go ahead, sir.

Well, thank you, Chris, and good afternoon. And thank you for joining Sharecare's first quarter 2024 earnings call. Before we go into the details, I want to address our strategic review. Under the direction of the special committee of the board, with the support of our executive chairman and senior management, the company is in active discussions with multiple bidders for a potential sale of the company or other strategic transactions. We are focused on a clear goal maximizing value for our shareholders. While we expect to bring the process to a conclusion within 30 to 45 days and will communicate the result at that time, there can be no assurance of the timing or if a transaction will result at all. However, I do want to take this opportunity to update you on the progress we've made in each of our three channels and on the new growth opportunities we discussed in our last earnings call. Our life sciences channel is generating more than $80 million on an annual basis. Despite softness in the macro pharma spend across the industry, we have a strong track record of annual renewals from existing clients, and in Q1, the team closed deals with 35 new pharma brands, which creates future growth opportunities in subsequent quarters. We also leverage the channel's unique digital targeting capabilities and assets to drive engagement, benefiting both our provider and enterprise channels. A decade ago, we established our provider channel through an acquisition which initially generated about $20 million in annual revenue for its release of information services. Since then, through purely organic growth, our provider channel has grown into a profitable $120 million business that works with 8,000 health systems and physician groups for whom we retrieved more than 7 million records annually. In Q1 2024, our provider team closed 75 deals, with the average deal size double what it was in the prior year. And in our enterprise channel, we believe there's even a bigger opportunity for long-term sustainable growth. Only four months into 2024, we have secured multi-year renewals with several of our enterprise clients across all segments, including government, Fortune 500 companies, commercial health plans, MCOs, and a large health system. We have grown our revenue pipeline threefold and have signed contracts and verbal confirmations received to date, which we currently expect to exceed $40 million in net new revenue, some of which will be recognized this year. Based on the RFP cycle, we expect to close additional new revenue opportunities throughout the remainder of this year. Last earnings, we discussed the substantial growth opportunities with MCOs that specialize in Medicaid, Medicare, and the Exchange. ShareCare's navigation platform provides Medicaid members with easy access to their benefits, providers, government programs, and resources. In addition to enabling members to navigate their benefits through using smart chat functionality, our Medicaid platform also nudges people to engage in preventive actions and close gaps in care. And with CMS issuing new rules last month to ensure that patients don't have to wait too long for a doctor's appointment, our platform also includes a dynamic searchable provider directory that uses geolocation technology to help members find in-network providers and resources near them, such as pharmacies or shelters. Members can easily access the hours of operation, supported languages, and whether they accept financial assistance programs like SNAP benefits. It also includes a digital wallet for secure access for the financial assistance and rewards program. We're excited to share that this Medicaid navigation platform will go live on July 1, 2024 with our first client. Georgia's largest Medicaid managed care company, Peach State Health Plan, starting with approximately 750,000 members, which is expected to grow as redeterminations come to a conclusion and as other growth opportunities arise for Medicaid managed care in Georgia. Additionally, we've partnered with the largest independent specialized general reinsurance agency in the U.S., which will utilize ShareCare as an exclusive well-being offering in order to bend the risk curve for self-funded employers. We are in contracting phase for a significant deal with the country's largest directly contracted network of value-based oncologists with 4,500 physicians across 16 states to provide in-home support for patients undergoing chemotherapy. We are partnered with three risk-bearing entities to use our respite care capabilities to support their application for the CMS guide program focused on dementia. These applications have been accepted for both the established and new program tracks, and we will participate in supporting the quality metrics that will determine performance-based adjustments. These agreements underscore our ability to innovate by leveraging the assets we have already assembled, as well as our intent to share both the financial risk and rewards with our partners, and demonstrate how we continue to unlock the value from our 2021 acquisition of tech-enabled home care solution care links. In summary, we remain focused on growing the enterprise business and have implemented operational improvements to create best-in-class processes for procurement and implementation. As you saw in this afternoon's press release, we reported Q1 2024 revenues of approximately $91 million and adjusted EBITDA of negative $2.7 million. These results reflect the negative revenue and adjusted EBITDA impact that was expected from the dispute we discussed in our last earnings call and the 10-K filing on March 29th. As a reminder, the dispute is with a counterparty that has violated their commitments to ShareCare. We now consider this an active legal matter and are focused on pursuing our legal rights and amounts owed, and we will not be commenting further other than to reiterate that this dispute does not involve matters applicable to any of ShareCare's other customers or relationships. Given the current uncertainty created by this legal issue and the ongoing strategic review, we will not be providing 2024 guidance today. While I know you're eager to hear about the Board's decision on the strategic review, I want to reinforce that our team remains laser-focused on growth, profitability, and delivering our commitments to our clients and the people they serve. Thank you for the ongoing support and interest in our company. I will now hand the call over to Justin before we open for Q&A. And please note, during the Q&A, we will not be able to address additional details in the strategic review process or the legal dispute. Thank you, Brent, and I appreciate all of you joining us this afternoon. I will be taking you through the financial highlights for the first quarter of 2024. As Brent noted, We reported first quarter revenue of approximately $91 million and adjusted EBITDA of negative $2.7 million. Revenue was down $25.4 million over prior year, primarily impacted by certain eliminations related to the previously mentioned legal dispute. That said, we continue to realize the benefit of our globalization efforts and tight cost controls resulting in a decrease in adjusted EBITDA of only $3.3 million over the prior year. It is also worth noting that our adjusted EBITDA was negatively impacted by additional costs required to support the strategic review process as well as the contract dispute. We ended the quarter with $100.3 million in cash on our balance sheet and over $154 million in available cash. We used cash of $27.9 million in the quarter and expected burn, which was similar to the first quarter of 2023's cash burn. This is based on the cyclicality of the business, where Q1 revenue is typically lower for the life sciences and provider channels, which generate a higher percentage of their revenue in the second half of the year. Also, from an expense standpoint, Q1 has several one-time payments, including annual prepaid expenses cash used for income tax-related payments associated with RSU vesting of locked-up employees, and we had an additional payroll compared to the prior quarter. Similar to 2023, we expect the business's cash burn to improve significantly over the course of the year. While the provider channel's revenue was flat compared to Q1 2023, It is important to note that Q1 2023 benefited from a several million dollar tailwind due to an extended CMS COVID calendar that provided more time to prepare 2022 Medicare risk adjustment submissions. This anomaly has normalized in Q1 2024. Otherwise, the provider channel would have shown positive growth over prior year. And as Brent noted earlier, we have a positive outlook on the channel with expected overall revenue growth during the remainder of the year. For Life Sciences, there were several things that impacted growth. A discontinued product offering that generated revenue in Q1 2023, as well as a core brand customer that is going generic and as a result has eliminated their digital marketing spend. We remain bullish on this channel and expect revenue to significantly increase over the course of the year, similar to prior years. As previously discussed, we have generated positive momentum in the enterprise channel in the first four months of the year, with signed contracts, finalist opportunities, and verbal confirmations, which we expect to yield more than $40 million in net new revenue, some of which will be recognized in 2024 and should also position us for a great 2025. It has been a busy start to the year, and we remain confident in our business. We are expanding into new markets, leveraging our assets, continuing to drive meaningful cost savings while delivering high-quality services and carefully managing our balance sheet, specifically our cash position, all while supporting the strategic review process to maximize shareholder value. As Brent said, we are grateful for your ongoing support and confidence in ShareCare. Thank you all for joining us today. We'll now open the call to your questions.

Thank you. We will now begin the question and answer session. As a reminder, to ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If you would like to withdraw your question, please press star then 2. We will now pause momentarily to assemble our roster. And today's first question is from David Larson with BTIG. Please proceed.