Company Overview
Ontrak Health, formerly known as Ontrak, Inc., has undergone a remarkable transformation over the years, evolving from a telehealth-focused organization to a diversified provider of innovative behavioral healthcare solutions. With a strong emphasis on leveraging advanced analytics and technology, Ontrak has positioned itself as a leader in the rapidly growing behavioral health market.
Founded in 2003, Ontrak was established as an AI-powered and technology-enabled behavioral healthcare company with a passion for engaging with and helping improve the health and save the lives of anyone impacted by behavioral health conditions. The company's mission from the beginning has been to help improve the health and save the lives of as many people as possible. Ontrak's technology-enabled platform utilizes claim-based analytics and predictive modeling to provide analytic insights throughout the delivery of its personalized care program. The company's program predicts people whose chronic disease will improve with behavior change, recommends effective care pathways that people are willing to follow, and engages and guides them to and through the care and treatment they need.
Historical Challenges
Over the years, Ontrak has faced several challenges. In 2021, the company received notices from each of its then-largest customers of their intent not to continue the Ontrak program, which significantly impacted the company's business and financial results. In 2022, Ontrak encountered issues with its largest customer, Aetna, which shut off its data feed to Ontrak and required the company to complete a Corrective Action Plan. These events led to investigations by the SEC and DOJ, with the former filing a civil complaint and the latter announcing charges against Ontrak's former CEO and Chairman for insider trading.
Despite these setbacks, Ontrak has continued to operate as an AI-powered and technology-enabled behavioral healthcare company, providing integrated solutions designed to address behavioral conditions that cause or exacerbate chronic medical conditions. The company has contracts with leading national and regional health plans and other at-risk payors to make its solutions available to eligible members across the United States.
Strategic Shift and Service Offerings
In 2020, Ontrak completed a strategic shift, broadening its service offerings to address the growing demand for comprehensive behavioral healthcare solutions. The company now provides a suite of programs, including its flagship WholeHealth+ offering, which integrates evidence-based psychosocial and medical interventions to address the unique needs of its members. Additionally, Ontrak has introduced its Engage solution, a coaching-specific alternative for members who may not qualify for the more intensive WholeHealth+ program but still require proactive care management.
Ontrak's integrated, technology-enabled solutions are designed to provide healthcare solutions to members with behavioral conditions that cause or exacerbate chronic medical conditions such as diabetes, hypertension, coronary artery disease, chronic obstructive pulmonary disease, and congestive heart failure, which result in high medical costs. The company has a unique ability to engage these members, who may not otherwise seek behavioral healthcare, leveraging proprietary enrollment capabilities built on deep insights into the drivers of care avoidance.
Financials
Ontrak's financial performance has been marked by both successes and challenges in recent years. In the most recent fiscal year (2023), the company reported revenue of $12.74 million, a decrease of 12% from the previous year. The net income for 2023 was -$27.92 million, with operating cash flow (OCF) at -$15.50 million and free cash flow (FCF) at -$15.78 million.
As of the most recent quarter ended September 30, 2024, Ontrak reported revenue of $2.57 million, a 31% decrease compared to $3.71 million in the same period in the prior year. This decline was primarily attributable to the loss of a significant customer, which informed Ontrak in October 2023 of its intent not to continue using the company's services after February 2024. The net income for Q3 2024 was -$5.58 million, with OCF at -$1.41 million and FCF at -$1.44 million.
Ontrak's quarterly revenue per health plan enrolled member per month decreased from $462 in Q2 2024 to $449 in Q3 2024, and from $552 in Q3 2023. The gross margin also saw a decline, decreasing from 72% in Q3 2023 to 65.6% in Q2 2024 and further to 62% in Q3 2024.
Liquidity
As of Q3 2024, Ontrak reported a cash position of $8.0 million. The company's debt-to-equity ratio stood at 0.12, with a current ratio and quick ratio both at 1.17. Ontrak has a Master Note Purchase Agreement with Acuitas Capital LLC that allows it to borrow up to $15 million, of which $7 million was available as of Q3 2024.
Key Strengths and Competitive Advantages
One of Ontrak's key strengths is its focus on leveraging advanced analytics to identify and engage individuals with untreated behavioral health conditions. The company's proprietary predictive modeling and AI-driven outreach have enabled it to achieve enrollment rates that are significantly higher than industry standards. This, in turn, has contributed to improved member engagement and better clinical outcomes for Ontrak's clients.
Moreover, Ontrak's solutions have become increasingly valuable to healthcare payors as they navigate the complexities of managing rising medical costs and the ongoing fallout from the COVID-19 pandemic. The company's ability to optimize HEDIS (Healthcare Effectiveness Data and Information Set) scores for its customers has emerged as a crucial differentiator, with Ontrak achieving a greater than 50% outreach success rate, more than double the industry average.
Recent Developments and Future Outlook
The company's strategic initiatives and diversification efforts have positioned Ontrak for continued growth. In the third quarter of 2024, the company announced the expansion of its partnership with Sentara Health Plans, a prominent healthcare system in the Mid-Atlantic and Southeast regions, to offer its Engage solution to approximately 20,000 planned members. Additionally, Ontrak secured a new contract with a large regional health plan in the Northeast, further expanding its geographic footprint and service offerings.
Looking ahead, Ontrak's pipeline remains robust, with four active prospects in the late-stage of the sales cycle, including two new customer opportunities and two existing customer expansions. These prospects represent a significant potential expansion of Ontrak's member base, with the opportunity to engage over 1 million lives across multiple lines of business, including Medicaid, Medicare Advantage, and Commercial.
For Q4 2024, Ontrak expects revenue in the range of $2.9 million to $3.2 million, which represents a 12% to 23% sequential increase. The company states that its current customers under contract now account for approximately $11 million to $13 million of annual revenue, which includes an approximate 20% increase from the recently announced expansion. Furthermore, the opportunities at the bottom of Ontrak's sales funnel represent approximately $9 million to $12 million of additional annual revenue, which would be a 75% to 100% increase from their current customers under contract.
While Ontrak has faced its share of challenges, including the loss of significant customers and the need for workforce reductions, the company's commitment to innovation, diversification, and strategic partnerships has enabled it to navigate the evolving behavioral health landscape. In March 2023 and February 2024, Ontrak implemented restructuring plans that resulted in reductions of approximately 19% and 21% of its workforce, respectively, in order to reduce operating costs.
Ontrak's callable outreach pool for its WholeHealth program was 6.69K at September 30, 2024, compared to 9.38K at September 30, 2023. The decrease was primarily related to the health plan customer informing Ontrak in October 2023 of its intent not to continue using Ontrak's services after February 2024, partially offset by an increase in the callable outreach pool related to the expansion of Ontrak's program to a larger commercial population with another health plan customer.
As the demand for comprehensive, technology-driven behavioral healthcare solutions continues to grow, Ontrak is working to capitalize on this market opportunity and deliver sustainable value for its shareholders. The company's unique ability to engage members who may not otherwise seek behavioral healthcare, combined with its integrated approach to addressing both psychosocial and medical interventions, positions Ontrak well in the competitive landscape of behavioral health solutions providers.