Participants

Brandon H. LaVerne; Interim CEO & COO; Ontrak, Inc.

James J. Park; CAO, CFO & Principal Accounting Officer; Ontrak, Inc.

Mary Louise Elizabeth Osborne; President & Chief Commercial Officer; Ontrak, Inc.

Ryan K. Halsted; MD; The Gilmartin Group

Presentation

Operator

Good day, and thank you for standing by. Welcome to the Ontrak 1Q '23 Earnings Call. (Operator Instructions) Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ryan Halsted. Please go ahead.

Ryan K. Halsted

Thank you, operator, and thank you all for participating in today's call. Joining me today are Brandon LaVerne, Chief Executive Officer and Chief Operating Officer; Mary Lou Osborne, President and Chief Commercial Officer; and James Park, Chief Financial Officer.
Earlier today, Ontrak released financial results for the quarter ending March 31, 2023. A copy of the press release is available on the company's website.
Before we begin, I'd like to make the following remarks concerning forward-looking statements. All statements in this conference call other than historical facts are forward-looking statements. The words anticipate, believes, estimates, expects, intends, guidance, confidence, targets, projects and some other expressions typically are used to identify forward-looking statements.
These forward-looking statements are not guarantees of future performance but may involve and are subject to certain risks and uncertainties. Other factors that may affect Ontrak's business, financial condition and other operating results, which include, but are not limited to, the risk factors described in the Risk Factors section of the Form 10-K and Form 10-Q as filed with the SEC.
Therefore, actual outcomes and results may differ materially from those expressed or implied by these forward-looking statements. Ontrak expressly disclaims any intent or obligation to update these forward-looking statements.
With that, I'd like to turn the call over to Brandon.

Brandon H. LaVerne

Thanks, Ryan, and welcome, everyone. As we all know, the COVID-19 pandemic has had a profound impact on individual's mental health and has underscored the critical need for access to quality behavior of health services. Despite increased attention and focus on the importance of mental health, our health system faces ongoing challenges with access to a sufficient number of qualified providers.
Despite increases in the quality and quantity of available telehealth options, there remains a significant shortage of quality behavioral health services, particularly for underserved populations. At this critical juncture, our recently launched Ontrak Wholehealth product suite is more important than ever. With its flexible and tailored solutions, we can help fill this shortage by helping Ontrak customers identify members with undiagnosed behavioral health issues and through our effective engagement and outreach services provide these members with care coaching across all acuity levels as well as access to an expanded provider network in 45 states from mid- to high acuity populations.
Further, as the public health emergency is ending, many Medicaid recipients may find themselves no longer enrolled over the next year, and plans may use our solutions to help find and engage these members. Our go-to-market strategy leverages our core strengths within identification, outreach, engagement and network access to expand the number of members whose health we can improve by tailoring our services to our customers' particular needs.
Ontrak no longer provides solely a one-size-fits-all solution. While we continue to market our traditional Wholehealth+ solution, which targets the 2% to 4% of members who have high cost thresholds and chronic physical conditions with un- or under-addressed behavioral health needs, we have also modularized our product suite to increase our relevance to health plan payers, value-based providers and self-insured employers by supporting and caring for upwards of 20% to 30% of their membership. This is particularly important as customers are suffering vendor fatigue and are looking to deepen rather than broaden their vendor relationships to serve their members.
Here's a reminder of our distinct product offerings that we announced last quarter. First is Ontrak Identify, which uses AI-enabled predictive algorithms and imputed diagnosis to find hard-to-reach members that customers can then contact on their own or with our help.
Next, Ontrak Outreach, which is our member enrollment specialists using evidence-based outreach approaches to connect new members identified either through Ontrak Identify or from a customer self-generated target list and enroll them either into a customer's existing offerings or into our own coaching model.
Our Ontrak Engage coaching model includes evidence-based techniques and consistent coaching sessions designed to affect the desired change in members' behavior. This can be used as a coaching-only solution for low to mid-acuity cohorts and a coaching and provider network solution from mid- to high acuity populations.
Fourth is Ontrak Access, which enables customers to build out their behavioral health network and improve access and availability. Ontrak's pending NCQA accreditation, which we anticipate in the coming weeks, will soon allow customers to delegate credential into Ontrak.
The experience Ontrak has developed over a dozen years of interacting with members and analyzing millions of data points has enabled us to better tailor solutions to our particular members' needs and has significantly increased the value we can add to a customer's business. Our resulting new modular product offering is available in any of its component parts, can be mixed and matched to meet a customer's unique needs and is intended to shorten our historical 18-month sales cycle by reducing for a number of our modular offerings, the number of internal sign-ups necessary for contracting.
It further enables customers to focus on their immediate needs such as expanding their provider network or applying our data analytics or outreach services to particular pressing business imperatives, while providing an opportunity to develop a trusted relationship that can evolve into a broader implementation of the full Wholehealth+ platform in the future.
Importantly, all of this is supported by continued innovations in our AI-enabled technology platforms. For example, we have continued to build our AI capabilities over the past quarter, including launching an AI virtual assistant to engage with members and address immediate or longer-term behavioral, medical or social care needs.
We have also implemented an AI solution that provides care coaches with near real-time analysis and feedback on the fidelity of motivational interviewing during coaching calls with members. Motivational interviewing is a therapeutic approach that involves helping individuals explore and resolve ambivalence to change, intended to increase engagement and length of participation in our program. We are now excited to begin automating the initial drafting of coaching session notes in an effort to continue improving operational efficiencies of our frontline staff.
This allows our coaches to spend more time coaching and less time with lower value-added administrative tasks. In fact, we've already seen nearly a 50% increase in coaching caseload capacity since we launched these automation efforts.
Last, we are working on launching a new patient-reported outcome measure that is designed to assess member quality of life for members with different mental health conditions. This is intended as another patient-reported data point to show the value of the Ontrak program on members' lives over time.
Along with these enhancements to our program, we have also expanded our active outreach pool with existing customers for enrollment in our Wholehealth+ program to over 9,000, representing approximately a doubling of size compared to last quarter. This increased outreach pool will allow us to reach more individuals who can benefit from our proven coaching and therapy model, improving their overall health outcomes and we expect will contribute incrementally to revenue from existing customers in the second half of the year.
Now Mary Lou Osborne will provide an update on our sales pipeline progress and customer activity. Mary Lou?

Mary Louise Elizabeth Osborne

Thanks, Brandon. During our last earnings call, I outlined the progress in our pipeline, which has accelerated with our new go-to-market strategy. Our sales team is doing a great job of securing new prospect meetings. And we're pleased with the positive reaction we've been receiving in response to our new product portfolio.
We're confident that we're on the right track, and we're looking forward to continuing this momentum as we move forward. Here are some key highlights. We are progressing closer to a master service agreement following a successful pricing meeting with a large multistate value-based provider group. We are actively working towards the execution of a BAA and letter of intent for our comprehensive Wholehealth+ program as well as our Ontrak Engage, Outreach and network access solutions.
For our comprehensive Wholehealth+ engagement with a large Medicare Advantage plan, we are very close to securing their signature on a BAA, which is encouraging news. But that's not all. They have also expressed a strong interest in our expanded Ontrak Engage coaching program for their members with mild to moderate behavioral health conditions. This is a tremendous opportunity for us to provide even more value to our clients, helping them to achieve improved health outcomes for their membership.
We have had continued conversations with another regional health plan prospect, who has asked us to expand our proposal to include up to 25% to 30% of their members with low, mid- and high acuity conditions. We have renewed interest from a large health plan in the Mid-Atlantic region who is evaluating our pricing proposal for Ontrak Access, our provider network offering. This proposal includes our specialty behavior health network and credentialing services as a wraparound network solution, improving prompt and reliable behavioral health access availability to their commercial members.
Over the past few weeks, we've participated in a West Coast Medicaid health plan RFP seeking solutions to improve their outreach and engagement initiatives to improve member health outcomes. Our new product portfolio and flexibility is a perfect fit for their specific goals.
We also responded to 2 RFIs from national consulting firms. Those clients are seeking behavioral health solutions. Both consulting firms are interested in our Wholehealth+ program, in addition to the expansion of care coaching for all acuities using our Ontrak Engage solution. These proposals are a clear indication of the potential of our go-to-market strategy, and we are delighted to see such a strong interest from potential clients.
As we continue to move prospects through our pipeline, we are also creating significant momentum with our existing customers. These developments include an expanded relationship with a prominent regional Medicaid-based plan to include a new 18- to 20-year-old cohort of members. A new amendment was assigned in January with another long-term regional health plan customer to focus on their highest acuity commercial members.
Also, we are in several early discussions with existing customers about potential expansion opportunities for new populations and new lines of business. Overall, we are thrilled to receive such positive customer feedback on our new go-to-market strategy.
With our proven track record of delivering durable member outcomes plus the latest tech-enabled program enhancements, we are uniquely positioned to support health plans, value-based providers and self-insured employer groups. Our track record of supporting customers in achieving their goals, improving member health outcomes and reducing avoidable emergency room and inpatient utilization delivers significant planned savings and ROI.
And now I'd like to turn the call over to our Chief Financial Officer, James Park.

James J. Park

Thanks, Mary Lou. During the first quarter, we recorded revenue of $2.5 million, a 52% year-over-year decrease due primarily to a decrease in total average enrolled members during the first quarter of 2023 compared to the same period in 2022. At the beginning of the quarter, we had 1,333 enrolled members and ended with 1,526 at the end of the quarter or a simple average of 1,430. That equates to revenue of about $528 per health plan enrolled member per month for the quarter compared to $501 per health plan enrolled member per month in Q1 of 2022 and $552 per health plan enrolled member per month in Q4 of 2022.
To go a bit deeper into Q1 enrollments, we enrolled a total of 825 members during the quarter compared to 446 in Q1 of last year and 754 in Q4 of 2022. Divided Q1 gross enrollment by our outreach pool which averaged 5,360 for the quarter, it annualized to a 62% enrollment rate compared to 38% enrollment rate in Q1 of 2022 and 66% in Q4 of 2022. Our average monthly disenrollment rate was 11% in the current quarter, which was the same in Q4 of 2022.
Further, we graduated 149 enrolled members during the quarter. This equates to about 11% of the enrolled members in the program at the beginning of the quarter. The net impact was a net enrollment increase of 193 members in the first quarter.
Our gross margin for the first quarter was 66.5%, which increased sequentially from 61.3% and also increased from 45.9% in the first quarter of last year. The increase in our gross margin sequentially in Q1 was primarily due to the restructuring plan discussed previously and continued operational efficiencies with our member-facing teams.
As Brandon mentioned, regarding the increase in care coaching caseload capacity, that was possible with the automation of noncoaching activities, which resulted in higher percentage of time in coaching with members for each care coach. As a result, we ended the quarter with 22 team members included in cost of revenue, down from 30 at the end of Q4, all while our net enrolled members increased during Q1 this year.
Now turning to the balance sheet and cash flow. Our cash flow from operations in the first quarter was negative $5 million compared to negative $10.5 million in the first quarter of last year. We ended the quarter with cash and cash equivalents of $7.4 million, up from $5 million at the end of the fourth quarter in 2022. Including restricted cash, our total cash was $12.1 million at the end of the quarter, up from $9.7 million at the end of the fourth quarter last year. Regarding our outlook, we are reaffirming revenue guidance of $12 million to $14 million for revenues from our current customer base for the year.
Thank you, everyone. Now I'd like to open up for questions.

Question and Answer Session

Operator

(Operator Instructions) I would now like to turn it back to Brandon LaVerne for closing remarks.

Brandon H. LaVerne

Thank you, and I thank everyone in the Ontrak team who works incredibly hard every day to continue our mission to help improve the health and save the lives of as many people as possible. Have a great afternoon.

Operator

Thank you for your participation in today's conference. This does conclude the program. You now may disconnect.