Shares of Ontrak (OTRK) are under pressure on Monday after the company pre-announced fourth quarter results and said it was notified that its participation status with its largest customer "will be terminated effective June 26, 2021." Following the news, RBC Capital analyst Sean Dodge downgraded the stock to Sector Perform as he believes the loss of CVS' (CVS) Aetna represents "not only a significant headwind to revenue, but also to the growth outlook."
RESULTS, CLIENT LOSS: Ontrak reported fourth quarter losses per share of (7c), with consensus at (30c), and fourth quarter revenue of $29.25M, which was slightly better than the expected $29.2M. The company also said that total enrolled members increased to 15,702 at the end of the fourth quarter of 2020 and currently stands at 15,822.
The company also offered an update on the Ontrak-A contract status. "After a long process with our largest customer where we believed we were working towards an extended and expanded contract, we were notified after market close on February 26, 2021 that our participation status with this customer will be terminated effective June 26, 2021. We were advised to stop enrollment of new members for this customer and await guidance from the customer on transition plans for the 8,400 members who are currently benefiting from the Ontrak program. We remain fully committed to the health plan and to its members, and will ensure that every member receives quality care through the transition, so that pandemic-related anxiety is not heightened by the change in the member’s care team," said Terren Peizer, Ontrak chairman and CEO.
"The relationship with our Ontrak-A customer was unique, because they evaluated Ontrak on a provider basis, not as a vendor as do all of our other health plan partners. […] We have a strategy in place to regain the Ontrak-A business and are currently in late-stage discussions with other customers whose metrics align with our value proposition of an integrated approach to whole health that delivers an average ROI of 3.7, average cost savings of 40% to 50%, and durable clinical outcomes with exceptionally high program retention and member experience scores. Collectively, we have a market opportunity of over $30 billion. […] Despite the upcoming loss of this customer, we are proud of the fourth quarter expansions we have made with our other existing health plans and recently signed contract renewals with current customers, which resulted in strong enrollment growth in the fourth quarter."
Ontrak said it sees fiscal year 2021 revenue of $100M, with consensus at $165.05M. "In light of Ontrak-A, we hopefully are being conservative with our $100 million revenue guidance. Of that number, approximately $88 million is either already under contract or in the signature phase and those health plan partners are already contemplating further expansions. Moreover, we see tremendous upside with large plans in our pipeline. Given the strength of our pipeline, we anticipate returning to a 100% revenue growth rate in 2022," the company added.
MOVING TO THE SIDELINES: RBC Capital analyst Sean Dodge downgraded Ontrak to Sector Perform from Outperform with a price target of $32, down from $82. While the analyst still thinks the opportunities across the behavioral health space remain large and very much at the top of payer priority lists, he believes the loss of Aetna, which is the company's largest client, represents "not only a significant headwind to revenue, but also to the growth outlook." As a result of the loss of its contract with CVS' Aetna unit means management is now targeting 2021 revenue of $100M, or about 21% growth, down from the 100% growth it was preliminarily targeting, Dodge noted. The implementation of its newer contracts appears to be progressing well, and could prove to be significant opportunities over time, but those expansions are "still likely a ways off," he contended.
PRICE ACTION: In morning trading, shares of Ontrak have plunged about 48% to $30.67.
Ontrak
-28.48 (-48.17%)
CVS Health
+1.06 (+1.56%)