Sharecare Inc (SHCR) 2024 Q1 法說會逐字稿

Good day and welcome to the Sharecare first quarter 2024 earnings call and webcast. (Operator Instructions)

Please note that today's call is being recorded and will be available on the company's website. On today's call, we have Mr. Brent Layton, Chief Executive Officer; and Mr. Justin Ferrero, President and Chief Financial Officer.

Before we begin today, I would like to remind you that certain statements made during this call will be forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, which includes statements regarding the strategic review, expected cost savings, new capabilities, pipelines, certain contractual disputes and future expectations. These forward-looking statements are subject to various risks and uncertainties and reflect our current expectations based on our beliefs, assumptions and information currently available to us.

Although we believe these expectations are reasonable, we undertake no obligation to revise any statements to reflect changes that will occur after this call. Descriptions of some of the factors that could cause actual results to differ materially from these forward-looking statements are discussed in more detail in our filings with the SEC including the Risk Factors section of our Form 10-K for the year ended December 31, 2023.

In addition, please note that the Company will be discussing certain non-GAAP financial measures, which we believe are important in evaluating performance. Details of the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliation of historical non-GAAP financial measures can be found in the press release that is posted on the company's website.

I would now like to hand the conference over to Mr. Brent Layton. Brent, please go ahead, sir.

Well, thank you, Chris. And good afternoon and thank you for joining Sharecare's first quarter 2024 earnings call. Before we go into the details, I want to address our strategic review. Under the direction of the Special Committee of the Board with the support of our Executive Chairman and Senior Management, the Company is in active discussions with multiple bidders for potential sell the Company or other strategic transactions. We are focused on a clear goal, maximizing value for our shareholders.

While we expect to bring the process to a conclusion within 30 to 45 days and we'll communicate the results at that time, there can be no assurance of the timing or if a transaction will result at all. However, I do want to take this opportunity to update you on the progress we've made in each of our three channels and on the new growth opportunities we discussed in our last earnings call.

Our Life Sciences channel is generating more than $80 million on an annual basis. Despite softness in the macro pharma spend across the industry, we have a strong track record of annual renewals from existing clients. And in Q1, the team closed deals with 35 new former brands, which creates future growth opportunities in subsequent quarters.

We also leverage the channel's unique digital targeting capabilities and assets to drive engagement benefiting both our Provider and Enterprise channels. A decade ago, we established our Provider channel through an acquisition which initially generated about $20 million in annual revenue for its release of information services. Since then, through purely organic growth, our provider channel has grown into a profitable $120 million business that works with 8,000 health systems and physician groups for whom we retrieve more than 7 million records annually. In Q1 2024, our Provider team closed 75 deals with the average deal size double what it was in the prior year.

And in our Enterprise channel, we believe there's even a bigger opportunity for long-term sustainable growth. Only four months into 2024, we have secured multi-year renewals with several of our Enterprise clients across all segments, including government, Fortune 500 companies, commercial health plans, MCOs and in large health system. We have grown our revenue pipeline threefold and have signed contracts and verbal confirmations received to date, which we currently expect to exceed $40 million in net new revenue, some of which will be recognized this year.

Based on the RFP cycle, we expect to close additional new revenue opportunities throughout the remainder of this year. Last earnings, we discussed substantial growth opportunities with MCOs specializing in Medicaid, Medicare, and the Exchange. Sharecare's navigation platform provides Medicaid members with easy access to their benefits, providers, governmental programs, and resources, in addition to enabling members to navigate their benefits through using smart chat functionality.

Our Medicaid platform also nudges people to engage in preventive actions and close gaps in care. And with CMS issuing new rules last month to ensure that patients don't have to wait too long for a doctor's appointment, our platform also includes a dynamic searchable provider directory that uses geolocation technology to help members find in-network providers and resources near them such as pharmacies or shelters. Members can easily access the hours of operation, supported languages, and whether they accept financial assistance programs like SNAP benefits.

It also includes a digital wallet for secure access to their financial assistance and rewards programs. We're excited to share that this Medicaid navigation platform will go live on July 1, 2024, with our first client: Georgia's largest Medicaid managed care company, Peach State Health Plan, starting with approximately 750,000 members, which is expected to grow as redeterminations come to a conclusion and as other growth opportunities arise for Medicaid managed care in Georgia.

Additionally, we're partnered with the largest independent specialized general reinsurance agency in the US, which will utilize Sharecare's exclusive well-being offering in order to bend the risk curve for self-funded employers. We are in contracting phase for a significant deal with the country's largest directly contracted network of value-based oncologists with 4,500 physicians across 16 states to provide in-home support for patients undergoing chemotherapy.

We are partnered with three risk-bearing entities to use our respite care capabilities to support their application for the CMS GUIDE program focused on dementia. These applications have been accepted for both the established and new program tracks, and we will participate in supporting the quality metrics that will determine performance-based adjustments.

These agreements underscore our ability to innovate by leveraging the assets we have already assembled, as well as our intent to share both the financial risk and rewards with our partners and demonstrate how we continue to unlock the value from our 2021 acquisition of tech-enabled home care solution CareLinx.

In summary, we remain focused on growing the Enterprise business and have implemented operational improvements to create best equipped processes for procurement and implementation. As you saw in this afternoon's press release, we reported Q1 2024 revenues of approximately $91 million and adjusted EBITDA of negative $2.7 million. These results reflect the negative revenue and adjusted EBITDA impact that was expected due to the dispute we discussed in our last earnings call and the 10-K filing on March 29.

As a reminder, the dispute is with a counterparty that has violated their commitments to Sharecare. We now consider this an active legal matter and our focus is on pursuing our legal rights and amounts owed, and we will not be commenting further other than to reiterate that this dispute does not involve matters applicable to any of Sharecare's other customers or relationships.

Given the current uncertainty created by this legal issue and the ongoing strategic review, we will not be providing 2024 guidance today. While I know you're eager to hear about the Board's decision on the strategic review, I want to reinforce that our team remains laser-focused on growth, profitability and delivering on our commitments to our clients and the people they serve.

Thank you for the ongoing support and interest in our company. I will now hand the call over to Justin before we open for Q&A. And please note, during the Q&A, we will not be able to address additional details on the strategic review process or the legal dispute.

Thank you, Brent. I appreciate all of you joining us this afternoon. I will be taking you through the financial highlights for the first quarter of 2024. As Brent noted, we reported first-quarter revenue of approximately $91 million and adjusted EBITDA of negative $2.7 million. Revenue was down $25.4 million over prior year, primarily impacted by certain eliminations related to the previously mentioned legal dispute.

That said, we continued to realize the benefit of our globalization efforts and tight cost controls, resulting in a decrease in adjusted EBITDA of only $3.3 million over the prior year. It is also worth noting that our adjusted EBITDA was negatively impacted by additional costs required to support the strategic review process as well as the contract dispute.

We ended the quarter with $100.3 million in cash on our balance sheet and over $154 million in available cash. We used cash of $27.9 million in the quarter, an expected burn which was similar to the first quarter of 2023's cash burn. This is based on the cyclicality of the business where Q1 revenue is typically lower for the Life Sciences and Provider channels, which generate a higher percentage of their revenue in the second half of the year.

Also from expense standpoint, Q1 has several one-time payments, including annual prepaid expenses, cash used for income tax related payments associated with RSU vesting of locked up employees, and we had an additional payroll compared to the prior quarter. Similar to 2023, we expect the business's cash burn to improve significantly over the course of the year. While the Provider channel’s revenue was flat compared to Q1 2023, it is important to note that Q1 2023 benefited from a several million dollar tailwind due to an extended CMS COVID calendar that provided more time to prepare 2022 Medicare risk adjustment submissions. This anomaly has normalized in Q1 2024. Otherwise, the Provider channel would have shown positive growth over prior year.And as Brent noted earlier, we have a positive outlook on the channel with expected overall revenue growth during the remainder of the year. For Life Sciences, there were several things that impacted growth: a discontinued product offering that generated revenue in Q1 2023; as well as a core brand customer that is going generic and, as a result, has eliminated their digital marketing spend. We remain bullish on this channel and expect revenue to significantly increase over the course of the year, similar to prior years.

As previously discussed, we have generated positive momentum in the Enterprise channel in the first four months of the year with signed contracts, finalist opportunities, and verbal confirmations, which we expect to yield more than $40 million in net new revenue, some of which will be recognized in 2024 and should also position us for a great 2025.

It has been a busy start to the year, and we remain confident in our business. We are expanding into new markets, leveraging our assets, continuing to drive meaningful cost savings while delivering high quality services, and carefully managing our balance sheet, specifically our cash position. All while supporting the strategic review process to maximize shareholder value. As Brent said, we are grateful for your ongoing support and confidence in Sharecare.

Thank you all for joining us today. We'll now open the call to your questions.

Thank you. We will now begin the question-and-answer session. (Operator Instructions)

David Larsen, BTIG.

Hi, this is Jenny Shen on for Dave Larsen. Thanks for taking my question. Congrats on the new Medicaid platform launch. Can you just provide some more color around the financials of the platform and the opportunity. Can you talk about the margins and PMPM there? And I think you noted that it will be launching in July. Should we expect to see any revenue lift from that this year? If so, how much? Or is it a longer-term opportunity? Thanks.

Well, thank you for asking about our WeCare navigation tool, and we are very excited about it, and we're very excited to begin this summer in July from that standpoint. In regards to the margin, in regards to the revenue, I am not going to convey that right now. As we said, we're not going to do anything in regards to talking about earnings for 2024, but I will talk about what we created. What we have created is a very unique tool that provides navigation so that a Medicaid member is easily able to find a provider that is nearest to them, that's in network that they are able to see that when they open, when they close, are they taking new patients. Where they're able to openly see the nearest grocery store that takes SNAP benefits. They'd be able to access social determinants of health programs. And ultimately, be able to really be a chassis, a development tool that Medicaid MCOs can use to really connect doctor and patient together. So we're very excited about it and we believe we can build upon it.

At the same time, we think that it has a great opportunity to move into the Exchange and hopefully into Medicare Advantage. So we were able to do this using existing assets and a lot of great brainpower around here for being creative and innovative.

And maybe I'll just add one thing since we commented that this will start in Q3. We do expect revenue this year, and we're excited about the margin profile. And we'll leave it at that.

Got it. That's helpful. And then for follow-up, one thing that we've been kind of looking at is utilization for different platforms across the board. Do you have a utilization number you can share? And do you have like an executive dashboard where you can track data on things like how many people log into your platform, how often, and also data around the total cost savings that you can impact and that you can then show your clients? Thanks.

We are on par with the best of the market, but as far as metrics that we will be seeing on this navigation platform, we will be learning this together as we roll this out on July 1. This is a brand new approach in engagement and helping people access services, benefits, and ultimately providers is what we are going to initially be judged by. But as people are able to access their benefits, their providers, and their services then the ROI will begin, and we will be conveying this, and we'll be creating new KPIs that will be discussing with you over the coming quarters.

Okay, great. And if I can sneak a last one in here. So GLP-1s and weight management programs have still been really relevant in our space. So I know you've mentioned before your Eat Right Now program. Can you just talk about the traction there and what progress you've been seeing? Thank you.

Oh, absolutely, and traction is probably a very good word to use there from that standpoint. Ultimately with Eat Right Now and leveraging the therapeutics as a preauthorization, we've been able to do this with multiple clients and we believe that is having a positive contribution.

We're also exploring partnerships with PBMs to resell our relevant digital therapeutics. And we're really leveraging our advocates for education on the benefits and drugs. So we're really pulling all this together, as we're really on the front end of what these weight loss drugs can do.

Great, thank you so much.

Thank you, Jenny.

Craig Hettenbach, Morgan Stanley.

Yes, thanks. You had noted just in terms of the revenue reduction in the quarter, there was some impact of lower margin business kind of moving away. I'm just curious if that's, Q1's a good run rate here? Or are there still some mixed things as you kind of manage the business going forward?

I think Q1 -- Hey, Craig, it's Justin. I think it's how I laid it out in the opening remarks, which is we expect to improve over the course of the year. So on the Enterprise side, we just talked about the WeCare Medicaid product and that will be coming online in Q3. So we expect growth over the course of the year in the Enterprise channel.

When it comes to Life Sciences, just historically, you've seen last year, Q1 was $17 million, Q4 was $27 million. So our campaigns perform very well. And as a result, we get the second half of the year buy-ups and our revenue increases typically quarter over quarter. We expect to see that again this year.

And then on the Provider side, Provider has been performing extremely well. This Q1 is an anomaly for the reasons I laid out. The highest quarter is typically Q3, but they are definitely generating more revenue in the second half of the year than they do in the first half of the year; that's really where those risk adjustment audits kick in and so we expect to see growth over the course of the year.

Got it. And then just a follow-up question for Brent. I know you've been busy kind of on the road and meeting with customers and various governments. First, what the feedback's been and just what are some of the things that are maybe resonating on the platform that you feel like are actionable from a growth perspective looking out next 12 - 18 months?

I believe that we really have a solid base of current customers. And what I'm finding from them is that they are looking for innovation. A moment ago, I was asked a question about GLP-1 drugs and what all can you do. And we're excited what we've been able to do about how we can really be on the front end of authorizations and leading people to ultimately get care as they need from that standpoint.

And just yesterday, we were with a Fortune 500 company, a current client of ours, and we spent several hours with them, and we did a very long review about what we're providing to them. And we were excited how they saw how we were progressing with them. But more importantly, we like the discussions about innovation, what more can you do? So in my time on the road, that is really what I'm hearing. Is that we find customers that are ultimately partners with us and those partners are looking for creativity.

And at the same time, I mentioned a moment ago, really the return on investment and ROIs. And as we continue to evolve as an industry and evolve as a company, we're going to continue to show outcomes, health outcomes and really ultimately I look forward in coming quarters to talk to you about new KPIs because that's really ultimately what the customers and government's looking for and MCOs.

Maybe I'll add one thing, Craig, is that, all this innovation that Brent and team are driving is using current assets. So we are -- he is tweaking current assets, I think you can see our operating expenses are down significantly year over year. We expect to keep pushing on our expenses and refining and optimizing even more. And so all of this innovation is happening with existing infrastructure and existing assets. Not that we have to go buy something new or hire a lot of new people, it's all of our existing base. So they should be long term, very profitable to the bottom line.

Got it. Thanks for that.

Thank you.

Eric Percher, Nephron Research.

Thank you. I'd like to get your perspective on the revenue performance and obviously we don't have guidance, but maybe looking rearview mirror, can you tell us how you performed relative to budget? I think we're about 10% below where consensus was? And then again, revenue line, if we look at the segments, were you -- in Enterprise, did you see a similar headwind from the dispute as last quarter, I think that's what you had commented on previously.

And then in Provider assuming you knew the $4 million comparison, was that in line? Life Sciences, you knew the generic conversion was coming, was that in line? Can you walk us through how you're doing relative to internal views?

Yes, hey, Eric, we're right in line and the -- really where the consensus was up wasn't Enterprise. Like we talked about that a lot, it was really on the Provider and Life Sciences is where there was in consensus higher growth. Then you'll see this when we obviously release the Q, and that's why we commented on the few items that impacted those channels, in particular.

So with the Provider business, there was a tailwind last Q1, like there would have been nice growth in Provider this Q1 if that COVID calendar extended into 2024. It didn't, it's a little bit -- we expected that. And so that's why it's flat year over year versus growth, which is really in the models.

And then in the second piece is on Life Sciences, and we talked about we're very bullish on that channel. We're still very bullish on that channel. There was two items that impacted Q1, primarily which we talked about. That is a one of our brand customers, a big brand customers going generic so they cut all their spend. And then the second was we discontinued a noncore product that wasn't a pharma product, and it just wasn't worth continuing to invest in. But our team performs -- our campaigns performed very well. And just like I mentioned before, grew from $17 million in Life Sciences to $27 million in Q4 of last year. We expect that a similar trajectory this year and expect that to drive, both of those divisions to drive growth for us this year. So we were in line, we weren't able to guide, unfortunately, when the models came out or we would have we would have told you.

But I would like to talk a little bit about the Enterprise pipeline. I mentioned in my remarks that ultimately we -- first thing I want to make sure we have a healthy pipeline, and we have worked hard, this team has, growing the pipeline threefold since the beginning of this calendar year. And also the innovation that we've done, and as Justin has reiterated many times, this is used in existing assets, really just looking at things a little bit differently. With slight tweaks of new segments with MCOs and reinsurance and value-based care.

And really the new approaches: higher deal sizes, higher acuity contracts. And we put together a new team. We have a new head of sales. We have a new head of operations. And we are using true business development to help us grow. And as I mentioned in the coming quarters, we'll talk about new KPIs and one of them is going to be around sales. And a lot of people have asked me about, you know, our RFPs, how many RFPs are we getting in. And there's been plenty, but I would say I'm focused more on the close rate and the success rate, and that is how we're looking at things.

Okay. And then at the EBITDA line, I think we got some guidance last quarter on the impact, if there's any difference there this quarter versus the prior. And you mentioned that there is cost for the review and dispute. Are you primarily seeing elevated legal expense? And was that greater than you had expected?

Yeah, for the dispute, there's legal. There's always accounting. There's -- so yes, legal accounting professionals, it's across the board that we’re spending money on, across the strategic review as well as the dispute. So, they would have been much closer. I guess the point of that is that the gap, even at --, we knew this reduction in revenue was coming year over year, but we manage cost and the gap was only $3 million on a $25 million top line, and we think it would have been much closer without those other one-time expenses that are related to those two items. If that makes sense, that's the point we're trying to make. There is additional expense that we're incurring to support their strategic review and the disputed contract that wasn't in last Q1.

And so if we look at last quarter, I think you called out $6.3 million of EBITDA impact. Is it that plus [$3 million] that gets us to the impact that you're facing?

No, that's really apples and oranges. But -- we're talking about two different items. That was a balance sheet item that impacted Q4. Yeah.

So, is there any (multiple speakers)

Is there any (technical difficulty) guidance you can give on the impact at the EBITDA line.

We're not guiding for the year. But what I will say is that we expect EBITDA to improve for all the reasons that we've talked about before. You know, just Q1 is a seasonally low quarter from a revenue standpoint. It's also high from an expense standpoint with prepaids and others, and we expect two things to happen. I mean, as you know, our EBITDA is historically back half of the year loaded. And that's how we expect it to play out this year. We expect in Q3 to have our best quarter for the Provider channel, we expect Q4 to be our best quarter for Life Sciences, and we expect our Enterprise business to add this momentum that Brent has taken you through starting in Q3 as well. So EBITDA will improve.

Thank you.

And at this time, we are showing no further questionnaires in the queue. And this does conclude our question-and-answer session. I would now like to turn the conference back over to Mr. Brent Layton for any closing remarks.

Yes. Thank you, Chris. I want to reiterate we will be transparent, and we will convey when the special committee and our Board of Directors concludes the strategic review. Thank you for your time today and support of Sharecare.