Ontrak Inc. (OTRK:NASDAQ), a leading AI and technology-enabled behavioral healthcare company, announced that it has signed a two-year strategic partnership with a large, northeast regional health plan focused on the plan's New York State members. This development comes as the company continues to rebuild its client base following a significant customer loss in Q1 2024.
The new client will utilize Ontrak's Whole Health+ and Engage programs, with the company expecting to launch its technology for eligible members within two months. This partnership follows another recent significant client addition, Community Care Plan in southern Florida, which Cohen believes "should be able to meaningfully help offset the loss of revenue from the large client that stopped using OTRK's services in mid-1Q24."
Ontrak's financial position remains a focus for investors. The company reported cash of US$7.3 million and debt of US$6.7 million as of Q2 2024, with the ability to draw an additional US$10.5 million from a financing facility over nine months. Q2 2024 revenue was US$2.5 million, down 8.5% QoQ and 17% YoY, primarily due to the previously announced large client loss. However, Cohen expects "QoQ revenue growth starting in 4Q24, given the increasing effective outreach pool (currently at 7,511, up QoQ from 5,057)."
Recent milestones for Ontrak include positive results from a formal evaluation of its Whole Health+ program, showing significant reductions in medical costs for a Medicaid health plan customer. The company has also enhanced its care delivery model by adopting a Comprehensive Healthcare Integration (CHI) framework, which Cohen believes "provides more direction and control of multiple measurements, as well as ensuring social determinants of health connections, among other improvements."
Regarding valuation, Cohen maintains a 12-month price target of US$3 for OTRK shares. "Our price target is based on a DCF analysis using a 10% discount rate applied to all cash flows and the terminal value, which is based on a 5x multiple of our projected 2031 operating income of $117 million," he explains. This valuation methodology takes into account Ontrak's projected future U.S. revenue from its commercial stage platform.
Cohen cautions that factors that could impede the achievement of the target price include failure to add new customers, loss of existing customers, and a smaller than projected commercial opportunity due to changes in market size, competitive landscape, and product pricing pressures.
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