8-K: Ontrak Health Reports Q3 2024 Results: Revenue Declines, Expands Behavioral Health Solutions

Ontrak Health's Q3 2024 results show a revenue decrease of 31% year-over-year, alongside an operating loss increase of 26%, while the company expands its behavioral health solutions and announces a reverse stock split.

Summary

• Ontrak Health reported a revenue of $2.6 million for the third quarter of 2024, a 31% decrease compared to the same period in 2023.
• The company's operating loss for Q3 2024 was $(5.1) million, which is a 26% increase compared to the $(4.1) million loss in Q3 2023.
• Adjusted EBITDA for the quarter was $(3.3) million, a 24% decline year-over-year.
• Net loss for the quarter was $(5.6) million, or $(1.77) per diluted share, compared to a net loss of $(6.4) million, or $(26.47) per diluted share, in Q3 2023.
• The company had 2,007 enrolled members in its WholeHealth+ program at the end of Q3 2024, compared to 2,297 at the end of Q3 2023.
• Ontrak announced a 1-for-15 reverse stock split, effective September 23, 2024.
• The company estimates revenue between $2.9 million and $3.2 million for the quarter ending December 31, 2024.

Sentiment

Score: 3

Explanation: The sentiment is negative due to significant revenue decline, increased operating losses, and a decrease in adjusted EBITDA. While there are some positive developments like new partnerships and product expansions, the financial results are concerning and overshadow these positives.

Positives

• Ontrak secured two new regional health plan customers and four health plan expansions since January 2024.
• The company is expanding its behavioral health solutions with Sentara Health for Commercial and Marketplace members.
• Ontrak began enrolling new members into its WholeHealth+ solution under a new contract with a large northeast regional health plan.
• The company is expanding its services with the Ontrak Quality solution.
• The company has seen significant improvement in quality of life of members with various mental health conditions participating in Ontrak's WholeHealth+ program.
• The company achieved HITRUST Risk-based, 2-year (r2) certification of the customer data exchange elements of its Ontrak Advanced Engagement System.

Negatives

• Q3 2024 revenue decreased by 31% year-over-year.
• The operating loss for Q3 2024 increased by 26% year-over-year.
• Adjusted EBITDA for Q3 2024 declined by 24% year-over-year.
• Total enrolled members in the WholeHealth+ program decreased from 2,297 at the end of Q3 2023 to 2,007 at the end of Q3 2024.
• A health plan customer notified the company of its intent not to continue using Ontrak's services after December 2024, which accounted for 68% of the company's revenue for the three months ended September 30, 2024.

Risks

• The company faces risks related to its ability to successfully execute its strategy and business plan.
• There are risks associated with increasing revenue, managing expenses, and achieving profitability.
• The company has high customer concentration and customers can terminate contracts for convenience.
• The company's ability to raise additional capital when needed is a risk.
• There are risks related to enrolling new members and maintaining existing members in the company's programs.
• The effectiveness of the company's treatment programs is a risk.
• The company is dependent on key personnel and faces risks in recruiting and retaining them.
• The company faces risks related to maintaining its stock listing on Nasdaq.
• The company faces risks related to the federal jury's conviction of its largest stockholder and former CEO.
• The company operates in a heavily regulated healthcare industry.
• The company has a limited operating history.
• There are risks related to developing, exploiting, and protecting proprietary technologies.
• The company faces business disruption and related risks.
• General economic conditions can affect the market for the company's services.
• The company faces intense competition and competitive pressures.
• Changes in laws, regulations, or policies pose a risk.
• The company faces risks related to realizing the potential benefits of and effectively integrating acquisitions.

Future Outlook

The company estimates revenue in the range of $2.9 million to $3.2 million for the quarter ending December 31, 2024.

Management Comments

• Brandon LaVerne, Ontrak Health's CEO, stated that the company has secured two new regional health plan customers and four health plan expansions since January 2024.
• LaVerne also mentioned that the opportunities at the bottom of the sales funnel could nearly double the company's revenues under contract if executed.

Industry Context

The announcement reflects the ongoing challenges and opportunities in the behavioral healthcare sector, where companies are striving to expand their reach and improve patient outcomes while facing financial pressures. The expansion of services and new partnerships indicate a push towards integrated and personalized care solutions, which is a growing trend in the industry.

Comparison to Industry Standards

• The 31% year-over-year revenue decrease is concerning, as many digital health companies are experiencing growth in the current market. For example, companies like Teladoc Health and Amwell, while facing their own challenges, have not reported such steep revenue declines.
• The increase in operating loss by 26% year-over-year is also a negative indicator, as many companies in the digital health space are focused on improving their profitability. Companies like Livongo (now part of Teladoc) and Accolade have demonstrated better control over their operating expenses.
• The 24% decline in adjusted EBITDA is also a negative signal, as investors typically look for improvements in this metric. Companies like Oak Street Health, while not directly comparable, have shown a focus on improving their EBITDA margins.
• The loss of a major customer representing 68% of revenue is a significant setback, highlighting the risk of customer concentration, which is a common issue for smaller companies in the healthcare space. Larger players like UnitedHealth Group and CVS Health have diversified revenue streams, reducing their reliance on individual clients.

Corporate Governance

Stakeholder Impact

• Shareholders will be negatively impacted by the poor financial results and the reverse stock split.
• Employees may be concerned about the company's financial stability and future prospects.
• Customers may be concerned about the company's ability to provide services given the loss of a major customer.
• Suppliers and creditors may be concerned about the company's ability to meet its obligations.

Next Steps

• The company will continue to enroll new members into its WholeHealth+ program.
• The company will expand its services with the Ontrak Quality solution.
• The company will focus on converting its pipeline of prospects into active customers.
• The company will host a conference call to discuss the results.

Key Dates

Keywords

behavioral health, healthcare, AI-powered, technology-enabled, revenue, operating loss, EBITDA, reverse stock split, WholeHealth+, Ontrak Quality, health plan, member enrollment, HEDIS, HITRUST