Ontrak, Inc. (OTRK)·Q3 2024 Earnings Summary

Executive Summary

• Q3 revenue was $2.57M, down 31% YoY but up ~5% QoQ; gross margin compressed to 62% from 65.7% in Q2 and 72% in Q3’23 as mix shifted to newer contracts and Engage members with lower RPMM .
• Management guided Q4 revenue to $2.9–$3.2M, driven by the Northeast plan launch and Sentara Engage expansion; Q3 came in within prior guidance ($2.4–$2.8M) .
• A major customer notified OTRK it will not renew after December 2024; that customer represented ~68% of Q3 revenue YTD, elevating near-term concentration risk despite pipeline expansion .
• Non-GAAP net loss per share improved to $(1.38) vs GAAP $(1.77), reflecting add-backs (stock-based comp, restructuring, warrant liability FV and other) .
• Catalysts: execution on Q4 ramp, conversion of four late-stage opportunities ($9–$12M annual revenue potential), and mitigation of the Dec-2024 customer loss via Sentara/Northeast expansions .

What Went Well and What Went Wrong

What Went Well

• Secured two new regional health plan customers and four expansions YTD; began enrolling members for the Northeast plan and expanded Sentara with Engage to Commercial and Marketplace populations, increasing eligible members >6x at Sentara .
• CEO: “The opportunities at the bottom of our sales funnel alone represent a significant inflection in our growth… could nearly double our revenues under contract.” .
• Operational KPIs improved: Q3 gross enrollments 1,166 vs 881 in Q2; annualized enrollment rate rose to 64% from 61% in Q2; outreach success rate cited at >50% on HEDIS gap closure initiatives .

What Went Wrong

• Revenue concentration risk heightened: one health plan to discontinue services after Dec 2024; it contributed ~$1.7M in Q3 (68% of revenue) and $4.9M YTD (64%) .
• RPMM declined to ~$449 from $463 in Q2 and $552 in Q3’23 due to mix shift to newer customers and Engage members, pressuring near-term unit economics .
• Gross margin compressed to 62% (65.7% in Q2; 72% in Q3’23); management expects stability but may see slight decreases around new launches as staff is added ahead of expansions .

Financial Results

Notes: Q3 press materials indicate per-share amounts for prior periods in that release are retroactively adjusted for the 1-for-15 reverse split effective 9/23/24; Q2/Q1 per-share figures above come from their respective period 8-Ks and may not reflect the retroactive split presentation .

KPIs

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• CEO: “We have now secured two new regional health plan customers and four health plan expansions since January… The opportunities at the bottom of our sales funnel alone… could nearly double our revenues under contract.” .
• CCO: “We have 4 active prospects in the late stage… and 26 additional active prospects representing ~15 million plan lives.” .
• CFO: “Q3 revenue reached $2.6 million… RPMM averaged ~$449… decline driven by mix shift to newer customers and Engage members… Q4 revenues in the range of $2.9–$3.2 million.” .

Q&A Highlights

• The accessible Q3 transcript excerpt contains prepared remarks and guidance reiteration; management emphasized sequential revenue growth in Q4 from the Northeast plan ramp and Sentara Engage expansion, and noted gross margins should maintain current levels with minor dips around expansions .
• Pipeline conversion and revenue visibility: current customers under contract now ~$11–$13M annual revenue; four late-stage opportunities represent ~$9–$12M additional annual revenue (75–100% increase potential) .
• Capital flexibility: $7M remaining capacity on demand notes subject to approval; post-quarter warrant exercises added $1.5M cash .

Estimates Context

• Wall Street consensus (S&P Global Capital IQ) for OTRK Q3 and Q4 EPS and revenue was unavailable due to missing CIQ mapping for OTRK; therefore, estimate comparisons could not be made. We benchmarked actuals vs company guidance ranges instead [SpgiEstimatesError for OTRK mapping].

Key Takeaways for Investors

• Watch Q4 ramp: guidance $2.9–$3.2M implies 12–23% QoQ growth driven by Northeast and Sentara Engage expansions; delivery here is the near-term stock driver .
• Manage concentration risk: a major customer non-renewing after Dec-2024 contributed 68% of Q3 revenue; timely pipeline conversion is essential to offset the cliff .
• Unit economics: RPMM trending lower ($449 in Q3) with Engage mix and pricing; margin stability depends on operational efficiency and launch cadence .
• Margin watch: gross margin at 62% (down from 65.7% in Q2 and 72% YoY); expect slight dips around expansions; sustained mid-60s would signal operational resilience .
• Quality/HEDIS narrative: Ontrak Quality plus >50% outreach success rate positions OTRK for payer score improvements—a differentiator in MA/Medicaid reimbursement environments .
• Capital runway: demand notes and warrants provided liquidity, but reliance on external funding persists; monitor cash, draws, and dilution vs growth conversion .
• Strategic upside: four late-stage opportunities could add $9–$12M annual revenue, nearly doubling revenue under contract if executed; track signings and time-to-revenue .

Appendix: Additional Relevant Press Releases (Q3 context)

• Reverse Stock Split: 1-for-15 effective Sept 23, 2024 to regain Nasdaq compliance .
• Ontrak Quality Launch: HEDIS/Star Ratings gap closure solution .
• MosaicVoice AI Partnership: Real-time AI guidance and call QA to enhance patient engagement .
• ReQoL Outcomes: Significant improvements in members’ quality of life observed in early data .