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OI

Ontrak, Inc. (OTRK)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 revenue was $2.45M, down 17% YoY and down sequentially from Q1; operating loss improved YoY to $(4.05)M; non-GAAP net loss per share improved YoY to $(0.09); gross margin held mid-60s as operations scaled (expected results subject to debt classification finalization) .
  • Management signed a two-year contract with a large Northeast regional health plan; initial eligibility is expected to approximately double the current outreach pool, with launch targeted within ~60 days, setting up contribution to begin ramping in Q4 and more meaningfully in 2025 .
  • Q3 revenue guidance was initiated at $2.4–$2.8M; Q2 revenue landed within the $2.4–$2.8M range guided in May, but PMPM fell given later-quarter enrollments and mix shift toward lower-revenue Engage solution .
  • Liquidity: $7.29M cash at 6/30; drew $4.5M under demand notes in Q2 with $10.5M remaining subject to approval; $2.0M of warrants exercised in Q2; management highlighted an additional $15.9M potential from warrants if exercised .

What Went Well and What Went Wrong

  • What Went Well

    • New customer win: two-year agreement with a leading Northeast regional plan using WholeHealth+ and Engage, expected to roughly double Ontrak’s outreach pool and launch within ~60 days . “Our initial analysis… suggests an outreach pool… that will approximately double our current outreach pool once launched” .
    • Evidence of ROI: finalized Medicaid study showed statistically significant gross medical cost savings of $721 PMPM for graduates over 24 months and $508 PMPM for non-graduates enrolled ≥5 months, reinforcing value proposition for payors .
    • Operational leverage: gross margin stayed mid-60s (65.7% in Q2 vs 63.6% in Q1) as AI-enabled Advanced Engagement System and process improvements scale; management expects margins at current levels with potential near-term launch-related dips .

  • What Went Wrong

    • Top-line pressure: Q2 revenue declined 17% YoY to $2.45M driven by 7% lower average enrolled members YoY and lower PMPM ($463 vs $528 in Q2’23) due to later-quarter enrollments and a higher mix of Engage .
    • Member churn dynamics: Q2 average monthly disenrollment improved vs Q1 but remains a watch item; management cited lingering Medicaid redetermination and a customer non-renewal that spiked Q1 churn (22% vs 10% in Q2) .
    • Net loss widened YoY on GAAP due largely to debt issuance and related warrant costs tied to demand notes; Q2 net loss $(10.29)M vs $(6.76)M in Q2’23 despite improved operating loss .

Financial Results

MetricQ4 2023Q1 2024Q2 2024
Revenue ($M)$3.54 $2.68 $2.45
Gross Margin %64.6% 63.6% 65.7%
Operating Loss ($M)$(5.21) $(4.27) $(4.05)
Net Loss per Share ($)$(0.29) $(0.11) $(0.19)
Non-GAAP Net Loss per Share ($)$(0.27) $(0.10) $(0.09)
Adjusted EBITDA ($M)$(3.56) $(3.37) $(3.33)
Cash from Operations ($M)$(3.6) $(3.26) $(4.5)

KPIs

KPIQ4 2023Q1 2024Q2 2024
Enrolled Members (EoP)1,758 1,521 1,752
Callable Outreach Pool – WholeHealth+ (EoP)2,161 5,057 7,511
Callable Outreach Pool – Engage (EoP)N/AN/A589
Gross Enrollments (Quarter)654 925 881
Annualized Enrollment Rate63% 108% 61%
Avg Monthly Disenrollment Rate16% 22% 10%
Graduated Members (Quarter)194 194 178
Revenue per Enrolled Member per Month ($)$546 $504 $463
Cash Balance ($M, end-period)$9.70 (12/31/23) $6.40 (3/31/24) $7.29 (6/30/24)
Demand Notes Available ($M)N/AN/A$10.5 available (subject to approval)

Notes:

  • Q2 press release framed as “expected” results pending debt classification analysis; final 8-K includes detailed statements .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ2 2024$2.4–$2.8M (issued 5/14/24) N/A – Actual $2.451M N/A (actual reported)
RevenueQ3 2024N/A$2.4–$2.8M Initiated

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2023, Q1 2024)Current Period (Q2 2024)Trend
AI/Technology (Advanced Engagement System, AI coach notes)Rolled out Advanced Engagement System; 54% outreach success; AI coach notes, next-best-action, virtual assistant; efficiency and capacity gains Continued AI integration across platform; introduced Mental Health Digital Twin to fuse human empathy with data-driven insights Strengthening
Product/Clinical FrameworkReQoL integration; strong member outcomes (GAD-7/PHQ-9 improvements) Adopted CHI framework to integrate PH/BH/SDOH; emphasizing measurable outcomes Advancing
Customer Wins & PipelineSentara expansions; AHCA approval for Community Care Plan; ~26 prospects/15M lives New Northeast regional plan signed (launch ~60 days); western health system (80k MA lives) near final contracting; pipeline ~26 prospects Improving conversion
Medicaid Redeterminations/UtilizationElevated Q4 disenrollment from Medicaid redeterminations Q1 churn elevated due to a non-renewal; Q2 average monthly disenrollment improved to 10% Easing
Revenue/Unit EconomicsQ4 PMPM $546; Q1 $504 as mix evolved Q2 PMPM $463 with later enrollments and Engage mix; management expects lower PMPM YoY through year on pricing/mix Near-term headwind
Liquidity/CapitalKeep Well amended; access to demand notes; warrants activity Drew $4.5M; $10.5M available; $2.0M warrant proceeds; potential $15.9M if remaining warrants exercised Stable runway (subject to approvals)

Management Commentary

  • “Our initial analysis… suggests an outreach pool… that will approximately double our current outreach pool once launched… We have incorporated AI components… throughout our entire platform… [and] the Mental Health Digital Twin technology… seamlessly fuses human empathy with data-driven insights” – Brandon LaVerne, CEO .
  • “We remain in the final contracting phase with another prominent health system in the West, representing approximately 80,000 Medicare Advantage lives… intent is to expand… to a larger membership cohort across multiple lines of business” – Mary Lou Osborne, President & CCO .
  • “Revenue… $2.5 million, a 17% year-over-year decrease… about $463 per health plan enrolled member per month… decrease… due to [late-quarter] new members and addition of Engage members… We expect PMPM revenue to be lower on a year-over-year basis as we integrate new pricing strategies and increase mix of Engage” – James Park, CFO .
  • “For Q3 2024, we anticipate revenues in the range of $2.4 million and $2.8 million” – CFO .

Q&A Highlights

  • Revenue trajectory: Management expects revenue contribution from the new Northeast health plan to begin in Q4, with more meaningful ramp early next year .
  • Liquidity detail: $4.5M drawn under Keep Well demand notes in Q2 with ~$10.5M left; pro forma debt around $6.5M plus accrued interest; ~250M warrants outstanding; management highlighted potential warrant exercises as additional capital source .
  • Pipeline status: Active prospects remain at ~26 representing ~15M lives; CCP implementation launched with members enrolling, and CCP will be live in 5 Florida regions from Jan 1, 2025 per award .

Estimates Context

  • S&P Global consensus estimates for OTRK were unavailable via our tool at the time of analysis (missing CIQ mapping). As a result, we cannot provide a quantitative beat/miss vs Street for revenue or EPS this quarter. We will update when S&P Global coverage mapping is available [SpgiEstimatesError in tool output].

Key Takeaways for Investors

  • New-customer execution is the key catalyst: the Northeast plan should roughly double the outreach pool upon launch; management guided initial contribution in Q4 with a fuller ramp in 2025, which can re-accelerate enrollments and revenue .
  • Mix/pricing headwinds bear watching: PMPM stepped down to $463 in Q2 given late-quarter enrollments and higher Engage mix; management expects PMPM to run lower YoY through year as pricing/mix evolves .
  • Margins are resilient: gross margin held 65.7% as AI-enabled workflows scale; near-term launch staffing could modestly pressure margins, but structural efficiency remains intact .
  • Liquidity is adequate but contingent: $7.29M cash at 6/30, $10.5M of demand notes available subject to approvals, and potential $15.9M from warrants; monitor timing/availability of capital and related costs .
  • Pipeline conversion is improving: another health system (80k MA lives) is near final contracting with potential expansion to >1M lives; sustained traction could reduce customer concentration risk over time .
  • Evidence of ROI can accelerate adoption: Medicaid study indicating $721/$508 PMPM savings for graduates/non-graduates strengthens the sales narrative amid payor budget pressures .
  • Risk factors remain: customer concentration, going-concern/liquidity, Nasdaq listing compliance, and macro headwinds at MA/Medicaid plans, as flagged in forward-looking statements, should be actively monitored .

Additional Relevant Q2 2024 Press Releases

  • CHI framework adoption to deepen integrated care (PH/BH/SDOH) .
  • HITRUST CSF r2 certification underscoring data security and compliance of engagement systems .
  • New Northeast regional health plan customer contract announcement .

Segment disclosure: Ontrak does not report segment revenues; solutions discussed include WholeHealth+ and Engage .

All figures are sourced from company filings and transcripts as cited.