Participants

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

James J. Park; 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 Ontrak's 2Q '23 Earnings Call. (Operator Instructions) Please be advised that today's conference is being recorded.
I would now like to introduce your host for today's call, Ryan Halsted. Please begin.

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 June 30, 2023. A copy of the press release is available on the company's website.
Before we begin, I would 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 for 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. We believe the current health care environment continues to be favorable in driving demand for our new portfolio of behavioral health solutions. Recent trends cited by managed care payers and behavioral health providers show a growing demand for behavioral health care services combined with commensurate need to grow and improve their behavioral health networks. With the recent proposed rule on mental health parity by the Biden Administration, the regulatory landscape also appears to be supportive of expanding access to critical behavioral health care services. The rule proposes to add enforcement measures of the Mental Health Parity and Addiction Equity Act, including requiring plans to improve their networks of metal health clinicians and evaluate the outcomes of their coverage rules to make sure people have equivalent access between their mental health and medical benefits.
These developments, along with the feedback we hear from our members keep us focused on our mission to help improve the health and save the lives of as many people as possible. We bring that mission to life every day due to the dedicated efforts of all of our employees, but particularly our frontline member enrollment specialists, member support specialists and care coaches. These specifically trained professionals engage directly with members explaining the benefits of Ontrak health programs, customizing effective care plans and guiding members to the most appropriate care and treatment pathways.
Ours is more than a self-guided app-based care program. It is a sustained, integrated, high-touch and digitally assisted, individually tailored program that tackles chronic comorbidities and the underlying behavioral health conditions that consistently drive high cost in the health care system.
As I've mentioned on previous calls, by expanding our product offering, we have created greater opportunities to serve more members in more markets and expand our footprint beyond the 2% to 4% of high-acuity members we have traditionally served through our successful Wholehealth+ program. The positive response from new business prospects has been encouraging, as Mary Lou will describe later in our call. Our modularized product portfolio now allows customers to access any number of Ontrak health solutions depending on their specific needs and member population.
Just reminder of the highly differentiated product offerings that we now offer. Number one, Ontrak Identify which uses AI-enabled predictive algorithms and imputed diagnoses to find hard-to-reach members and provide meaningful insights into their health, enabling customers to contact these members on their own or with our help. This has attracted to customers with their own well-developed existing program offerings who otherwise confront challenges in identifying needs among their members. Number two is Ontrak Outreach, which our member enrollment specialists use evidence-based outreach approaches to connect with new members identified either through Ontrak Identify or from a customer's self-generated target list and enroll them either into the customer's existing offerings or into our own coaching model. This is attractive to customers facing enrollment challenges who lack the experienced and highly refined approach of our enrollment team.
Third, our Ontrak Engage coaching model includes evidence-based techniques and consistent coaching sessions designed to affect the desired change in the 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. This is attractive to customers lacking highly skilled engagement and collaborative resources necessary to drive durable behavior change. And fourth, Ontrak Access, which enables customers to build out their behavioral health networks and improve access and availability. This is attractive to customers lacking access to well-developed provider networks or without the needed resources to keep their network on pace with their growing demand.
And to enhance Ontrak Access, I'm proud to announce Ontrak Health has achieved the prestigious NCQA certification as a credentials verification organization. This recognition reaffirms our dedication to upholding the highest standards of quality and compliance in our operations. By adhering to the rigorous NCQA standards, we ensure that our customers have access to the most reliable and trustworthy health care solutions available, allowing them to meet their access and accretion goals with confidence and ease. During last quarter's call, I summarized some of the augmented intelligence and operational enhancements we implemented during Q1 of 2023.
I'd now like to highlight some of the tangible results of those implementations. Our virtual assistant Eleanor has already helped us deliver a 12% increase in member retention rates through a cadence of automated calls that provide check-ins on health status, capture member needs and schedule calls with care coaches. Our previously reported 40% increase in care coach caseloads driven by adding AI capabilities and operational enhancements for administrative functions continues to improve after another quarter of data.
In Q2 2023, we have achieved an additional 20% increase in care coach caseloads. Outcomes like these highlight what we feel is our unique value proposition. The proven ability to combine person-centered human engagement with the latest and augmented intelligence solutions. That's the promise of our advanced engagement system, real-time AI-driven improvements to the ongoing efforts of our enrollment agents and care coaches. This adds to improved member health, measurable sustained outcomes and tangible savings for our customers.
I'd now like to turn the call over to Mary Lou Osborne.

Mary Louise Elizabeth Osborne

Thanks so much, Brandon. I'm thrilled to announce we have signed a new customer contract with a respected Medicaid health plan. This new agreement covers all adult members and includes each of our product solutions for members with high, moderate and mild acuities. I will briefly summarize each of our solutions being offered to this new customer.
Our Ontrak Wholehealth+ solution has identified the planned high cost, high acuity members with chronic comorbidities and underlying but unaddressed behavioral health conditions. This comprehensive solution will provide member outreach, engagement, care coaching and a behavioral health provider treatment program. Our Ontrak Engage solution will operate care coaching solution that supports members and provides ongoing coaching to help members address physical and behavioral health challenges without the immediate need for provider intervention. In addition, we have collaborated with our new health plan customer to expand our services and further support their medical management efforts through a proactive outreach approach to their most impacted members with serious mental illness.
Our new Ontrak member portal will feature curated health information delivered through our member-facing stayontrack.com website to provide educational and timely contest for all the health plans adult members on how to improve overall well-being. In addition, we will be supporting this health plan on quality HEDIS measures, closing critical gaps in care, participating in clinical collaborations and improving member health outcomes. We anticipate this contract to be effective in Q4 pending state regulatory approval.
We believe this new contract represents an exciting new blueprint for the types of engagements we expect in the future. Ontrak can survey health plan's entire adult membership with multiple solutions across acuities, including a coaching-only solution, a coaching program tailored to meet the needs of members with serious mental illness, a collaborative clinical approach to closing [critical] gaps in care and providing additional well-being content for all members.
This contract highlights Ontrak's ability to provide an array of products to meet multiple customer and member needs, along with our experience to customized solutions in meeting specific customer goals, without placing undue start-up costs on Ontrak. As we further refine our new flexible product offering, we believe it will be a crucial method of enhancing revenue with each customer as well as expanding the number of potential customers Ontrak can effectively impact.
Next, we recently secured a signed business associate agreement with a major Western healthcare system and have just received their Medicare Advantage member data, which we are currently analyzing to identify solutions for this impacted population. Our data analytics process will unfold over the next few months, as we work toward developing and delivering a pricing proposal in early Q4. We also have a new nonbinding letter of intent in place with a prominent value-based provider group that is interested in our solutions across multiple states and varying member acuity levels. This group is now reviewing their patient data to determine which populations are their highest priority and best suited for our solutions.
We expect this customer's needs to be well served by our Wholehealth+ Ontrak Outreach, Ontrak Engage and Ontrak Access solutions, which would further prove the viability of Ontrak's new product portfolio. We also continue to market to various industry segments and have NDAs in place with 3 different premier consulting firms where we are collaborating to determine which of our product solutions can be integrated into their health care service offerings to their clients.
So overall, we have significant recent success and are building momentum in our pipeline across many segments as we present our new go-to-market strategy and customized compelling proposal to prospects. We remain optimistic about our progress and look forward to more successful engagements soon.
Now I'd like to turn this call over to James Park, our Chief Financial Officer.

James J. Park

Thanks, Mary Lou. During the second quarter, we recorded revenues of $3 million, a 24% year-over-year decrease due primarily to a decrease in total average enrolled members during the second quarter of 2023 compared to the same period in 2022, but an increase of 17% from Q1 of 2023. At the beginning of the quarter, we had 1,526 enrolled members and ended with 1,889 at the end of the quarter or a simple average of 1,708. That equates to a revenue of about $528 per health plan enrolled member per month for the quarter, same as a member per month in Q1 of 2023 and an increase from $490 per health plan enrolled member per month in Q2 of 2022.
Regarding our Q2 member metrics, we enrolled a total of 1,091 members during the quarter compared to 825 in Q1 this year, and 364 in Q2 of 2022. This is 4 consecutive quarters in a row that we have been able to steadily increase our gross enrollments. While the increases are modest, it is a result of our strong relationship with the existing customers that we continue to enhance.
Dividing Q2 growth enrollments by our outreach pool, which averaged 10,121 for the quarter, it annualizes to a 43% enrollment rate compared to 62% enrollment rate in Q1 of 2023 and 39% in Q2 of 2022. Our average monthly disenrollment rate was 11% in the current quarter, which was the same in Q1 of 2023 and 12% in Q2 of 2022. Further, we graduated 128 members enrolled -- members in the program during the quarter. This equates to about 8% of the enrolled members in the program at the beginning of the quarter. The impact of all this was a net enrollment increase of 363 members in the current quarter.
Our gross margin for the second quarter was 72.8%, which increased sequentially from 66.5% and an increase from 43.5% in the second quarter of last year. The increase in our gross margin sequentially for Q2 was primarily due to the continued operational efficiencies in our member-facing teams with the utilization of various AI and other systems and process improvements we discussed in prior quarters. Our coaching capacity has now improved by more than 60% since late last year when we began to implement these initiatives, all while continuing to provide the quality of care our members and customers expect.
Turning to the balance sheet and cash flow. Our cash flow from operations in the second quarter was negative $5.1 million compared to negative $3.7 million in the second quarter of last year and negative $5 million in Q1 of 2023. This resulted in our average monthly cash burn to be around $1.7 million per month this year so far, which is in line with our expectations. As we continue to increase our growth enrollment, enrolled members and go live with a new customer discussed, we expect our cash burn rate to continue to decrease.
We ended the quarter with cash and cash equivalents of $6.1 million, down from $7.4 million at the end of last quarter. Including restricted cash, our total cash was $10.1 million at the end of the quarter, down from $12.1 million at the end of last quarter.
Regarding our outlook. We're reaffirming revenue guidance of $12 million to $14 million for revenues from our current customer base for the year. We have not increased our revenue guidance with the signing of the new customer discussed as a go-live date is expected to be in early Q4 2023 and the primary impact on revenues will be in 2024.
Now we will open it up for questions. Thank you.

Operator

(Operator Instructions) This concludes today's conference call. Thank you for participating. You may now disconnect.