Sharecare, Inc. (NASDAQ:SHCR) Q4 2023 Earnings Call Transcript March 28, 2024
Sharecare, Inc. misses on earnings expectations. Reported EPS is $-0.03 EPS, expectations were $-0.0195. SHCR isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, everyone, and welcome to the Sharecare Fourth Quarter and Full Year 2023 Earnings Call and Webcast. All participants are currently in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. 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, Mr. Justin Ferrero, President and Chief Financial Officer and Jeff Arnold, Executive Chairman, will join for the Q&A. Before we begin, we 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 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 undertake no obligation to revise any statement 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 that we believe are important in evaluating performance. Details on the relationship between these non-GAAP measures and 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’d now like to turn the floor over to Mr. Brent Layton. Brent, please go ahead.
Brent Layton: Thank you, Jamie, and good afternoon. And thank you for joining us for my first earnings call as CEO of Sharecare. We appreciate you spending time with us today to learn more about Sharecare’s fourth quarter and full year 2023 financial results, as well as the status of our strategic review and most importantly where this innovative company is headed. Since joining Sharecare’s Board of Directors over a year ago, I’ve learned a great deal about our technology and the opportunities that lie ahead. My belief in this company has only grown since I became Sharecare’s CEO on January 2nd. In many ways that is fueled by more than 75 meetings I’ve had during the last three months with dozens of organizations including our current clients and over 50 potential customers and partners.
I’ve seen firsthand their enthusiasm for the value we currently provide as well as the considerable interest in the solutions we can bring to their businesses and the populations they serve. They are impressed by our innovation. They are inspired by our creativity and they appreciate our collaborative approach to partnerships and our commitments to solution-based opportunities. The bottom-line, our pipeline, our future is strong, healthy and profitable. Before you hear from Justin, I think it’s important to highlight a few things. First, Sharecare made good on its commitment to achieve cash flow breakeven by the end of 2023. We have no debt, a strong balance sheet and made the right investments which positions us for strong growth. As I help scale this company, I will continue to prioritize one of Sharecare’s guiding business principles, the importance of profitability.
To take that a step further, we have adopted new rules of engagement. We’ll only work with committed partners and clients who are aligned with us in driving meaningful outcomes, leveraging our solutions so all parties secede, especially the people and the communities we serve. That’s why in Q4, Sharecare eliminated nonperforming disputed contracts with a client that has historically affected our forecasting. This impacted Q4 revenue by a reduction of approximately $14 million, which included a write down of eliminated contracts reduced in adjusted EBITDA by approximately $6 million. Eliminating these disputed contracts for this client enables us to focus our time and resources on productive collaborative relationships that recognize Sharecare’s commitment to innovation, creativity, solution-based technology, and profitable growth.
And it will provide our investors with more predictability and reliability in our financial forecasting and results going forward. With that context, we reported revenues of $105 million for the quarter and $445 million for 2023 and adjusted EBITDA of $3 million in the quarter and $16.5 million for the full year. Our enterprise channel performed in line for our expectations for Q4 and provider delivered an excellent quarter and had its strongest annual financial performance to date. Life Sciences growth in Q4, compared to the year prior can be attributed to longtime customers increasing their spend with us and we believe suggest a rebound from the softness in the digital advertising that the pharma industry has seen the last several quarters in 2023.
I’m sure you have questions about our strategic review discussed in our press release two weeks ago. Sharecare’s special committee of independent members of the Board of Directors supported by legal and financial advisors are continuing to actively evaluate multiple proposals for a potential sales transaction as well as developing alternative value creation opportunities. The special committee is dedicated to being methodical in their review with the goal of maximizing shareholder value. And we will communicate the board’s decision at the conclusion of the review process. As a reminder, our next earnings is in May. Additionally, we are pleased to announce we’ve appointed a new member of our Board of Directors and the Special Committee, Former Xerox Executive, Nicole Torraco further strengthened our commitment to effective governance and strategic direction.
Ms. Torraco has extensive public company experience holding key executive roles in finance, M&A and investment management over the last 25 years. With the strategic review process ongoing, among other factors, we will not be providing 2024 guidance today. When that said, when we do provide guidance, we will articulate a clear and predictable path for long-term growth and profitability. In January at JPMorgan, I said I was focused on three key principles in my first 90 days operational excellence, profitable growth, and building innovative next-generation products. Now we took an important step in driving operational excellence when we brought in a new Chief Operating Officer, Shannon Bagley. She brings 25 years of experience spanning a range of functions from Auditor to Chief Administrative Officer as well as leading M&A integration efforts for multi-billion-dollar acquisitions.
For over 20 years, Shannon and I worked together at Centene. In her first few months at Sharecare, she and the team have quickly identified opportunities for operational improvements and financial savings to make our enterprise platform more agile, efficient and effective. And most of all, her operational acumen enables me to focus on what I do best, scale in this great company. And we’ll certainly continue to add to top talent to the team. In terms of profitable growth, as I said earlier, we achieved a breakeven by the end of 2023. We have no debt and a strong balance sheet. As for innovating next generation products, I believe it is worth reminding that our Founder and Executive Chairman, Jeff Arnold, pioneered digital health and his DNA runs deep here at Sharecare.
This company has always been on the cutting edge of innovation and that will not stop while I am CEO. You already know Sharecare for our deep customer relationships with large employers like Delta Airlines, Kohler, Koch Industries, Lennar and H&R Block and health plans such as CareFirst. Our focus in those areas will only continue. But given that I spent 30 years in Managed Care, 23 the nation’s largest Medicaid and Exchange Company, I immediately recognize expansion opportunities both short and long-term for Sharecare’s business. In addition to deepening our public private partnership with government. We’re also focused on MCOs that specialize in Medicaid, Medicare and the exchange. And over the last several months, we’ve made significant progress and developed a new health navigation platform to meet the specific needs of government sponsored healthcare that quite frankly we believe no one else is offering.
The initial iteration of our enterprise grade navigation platform was purpose built for Medicaid and it’s a consumer centric digital front door where members can access their benefits, providers, governmental programs and additional information and resources. Members can easily navigate and re-enroll for their benefits using chat functionality and receive personalized prompts to engage preventive actions and close gaps in care. Our Medicaid platform also includes a dynamic searchable provider directory that uses geolocation technology to help members find their providers and point of interest near them, such as pharmacies or shelters. Members can refine their search to find out hours of operation, supporting languages or whether they accept financial assistance programs like SNAP benefits.
The platform also includes a digital wallet for secure access to their financial assistance and reward programs, so they can easily check their account balances and transactions history. And I’m pleased to share that reception has been incredibly strong. In fact, we signed our first Medicaid contract of the year in an advanced discussion with several other companies for this new platform. Over the last several months, we’ve made significant progress to support risk bearing arrangements and other reinsurance and value-based care organizations. By aligning our data analytics capability with our digital therapeutics, clinical advocates and network of professional in-home caregivers, we are addressing fragmentation of care and improving patient outcomes.
This not only helps high risk members have a better quality of life, but also helps our partners proactively bend the health cost curve and improve stars and quality outcomes. I am pleased that we’re already in contract with some of the nation’s largest, including one of the largest reinsurance partners for Sharecare to support members through our digital platform, high risk maternity programs and provide transitions of care services. Additionally, we are contracting with a large value-based care specialty organization focused on oncology to help improve cost, quality metrics and diagnostic accuracy. And we’re active contracting with three risk-bearing entities to use our respite care capabilities to support the application for the CMS Guide program focused on dementia.
These initial agreements demonstrate our commitment to optimizing our existing capabilities to generate revenue in new markets while sharing both the financial risk and rewards with our partners. I’d like to close out on our innovative discussion today with one of the industry’s most followed topics, GLP-1s. By pairing these medications to our digital therapeutics, our coaches and clinical advocates and our data analytics capabilities, we’re able to affect lasting lifestyle and behavioral change in a way that’s more effective and affordable. And last Friday, I participated in a meeting with one of our longtime customers to prepare for the launch of our new holistic GLP-1 weight loss solution to their associates. Each of these examples is evidence of our ability to innovate quickly and effectively and expand the field of play while bringing long-term growth and sustainability to Sharecare’s business.
It’s important to me that you know and believe that I take organic growth seriously and that I thrive on both the challenge success of executing upon it. And with the breadth and depth of resources Sharecare has assembled over the years, we have everything we need to be successful. I also want you to know that I believe deeply in Sharecare as well as our technology, our people and where we’re headed. And I look forward to sharing more about our path ahead. Thank you for your ongoing support and confidence in this company. I’ll now hand the call over to Justin. Justin, sir?
Justin Ferrero: Thank you, Brent, and thanks to everyone for joining this afternoon. I’ll be taking you through the financial highlights for the fourth quarter and full year 2023. We reported fourth quarter revenue of $105.3 million and adjusted EBITDA of $3 million. Due to the disputed contracts with the client discussed earlier, there was a $14.2 million negative impact to what we had expected for Q4 revenue. This includes an approximate $6 million non-cash impairment, which also negatively impacted adjusted EBITDA. For the full year, our revenue grew to $445.3 million from $442.4 million year ago and adjusted EBITDA grew to $16.5 million versus $5.8 million year-over-year. Excluding the impact of the disputed contracts with the client, our full-year revenue would have achieved the high end of our guidance and the middle of our adjusted EBITDA guidance.
We ended the year in a very strong financial position with $128.2 million in cash on our balance sheet and over $182 million in available cash. We also successfully executed on our goal of achieving cash flow breakeven by the end of the year, delivering positive cash flow of a couple of hundred thousand during Q4. Relative to our primary annual operating KPIs in the enterprise and provider channels, we achieved our target of $13 million lives, which includes 700,000 eligible lives associated with the disputed contract with the client. And we processed 6.9 million records, significantly outpacing our estimate of 6.5 million records for the year. As discussed in our comments earlier, we are well on our way to diversifying with a reliable and profitable customer base.
The future is bright for our enterprise channel and Brent has already made a significant impact in his short tenure as CEO. To close out my comments, we are confident that our 2023 investments in new product innovation and our cost optimization and globalization efforts, enabling $30 million in annualized cost savings, positions us to deliver strong long-term bottom-line results. I also think it’s important to note that as the special committee continues to focus on maximizing shareholder value and as we’ve indicated in the past, we continue to believe that each of our business channels are worth substantially more than our market capitalization today. In addition, the strength of our balance sheet and specifically our cash position are significant assets to our business.
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.
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Q&A Session
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Operator: [Operator Instructions]. Our first question today comes from David Larsen from BTIG.
David Larsen: Can you just talk a little bit about this contract dispute? Are you able to disclose the name of the client? How is your relationship with Elevance Health? And what is the nature of the dispute, please? Thank you.
Brent Layton: Absolutely. Thank you, David, for the question. Jeff?
Jeff Arnold: Hi, David. So, this particular client, we have discussed in the past and we’ve been advised not to get into contractual disputes. But it represents several hundred thousand of our lives under Sharecare Plus. And this particular contract from this client has given us challenges in the past in which some of the commitments weren’t honored, which made it difficult for us to forecast. And working with Brent made the decision that certainty is important going forward and that we should focus on higher-margin business. And so, we’re transitioning away from that contract.
David Larsen: Okay. Can you maybe talk a little bit more about sort of the evolution of the data management capabilities of Sharecare and your ability to bear risk? And I guess what I’m getting at is, do you have like a dashboard, an executive dashboard you can share with our health place customer saying okay this is the number of lags, this is the number of lives that I’ve used the solution, these are the clinical interventions that have been made this quarter. This is your claims trend on a per member per month basis. This is the improvement in trend based on those interventions. Can you talk about your ability to deliver that kind of data, which I think may have proactively prevented any kind of dispute that might have occurred with a health plan client? I imagine they want to sort of see the improved trend in value that’s being delivered. Just any thoughts or color there would be very helpful, please.
Jeff Arnold: Well, I guess, I would kind of answer that in two ways. One is, we very much have advanced analytics and an interoperable platform and we’re able to deliver in real-time measurement of all our programs. And this particular dispute has nothing to do with that, of our ability to deliver those capabilities. That’s not what’s under dispute.
David Larsen: So, they were showing improved claims trend, good utilization, but there is a separate dispute that’s occurring?
Jeff Arnold: There’s a contractual dispute that we believe needs to be resolved. And because of that, we’re transitioning for now away from that relationship. But we’re not disputing any of the things that you talked about.
David Larsen: And then just, I guess, Brent, just what are your thoughts on the business going forward? Like what sort of things would you like to see implemented? What are the greatest capabilities of shared care going forward that you want to bring to managed care plans? And just thoughts on how to grow enterprise would be very helpful. Thank you.
Brent Layton: Absolutely, very good question David. First of all, my enthusiasm is sky high for the company. And I really have gone from coast to coast to meeting with potential customers and our current customers. And in my old role at my other company, I used to have all types of companies come to me and say we have this solution or that solution, but nobody ever asked me what I needed and how to have such an impact. I have had the opportunity to do that now many times over. And when I have the opportunity to talk about our platform, our technology, our flexibility, our ability to scale, and most of all our innovation, I am finding great receptibility. And that is both from MCOs, that is from entities that are leading the efforts in value-based care, that is actually from employers as well.
So, my enthusiasm has grown. When I had the opportunity to come as CEO last fall when the board came to me, I believed in our technology because I had the opportunity to be on the Board for several months. But now having 90 days to be able to visit with so many customers and to be able to sit down and talk to them about what we do, what we can do, and what they’re looking for, I believe the future is very bright. I’m as excited as I can be. When I started with Centene many, many years ago, we did about $300 million in revenue. When I walked out the door, we were doing more than $130 billion. And I was able to be very much a part of scaling that great company. And I have every belief that I can scale this company because we actually have scalable, innovative, creative technology and we also have other assets.
Our life sciences, I’ve got to admit, life science was something new for me when I came to Sharecare. And I’ve had the opportunity to visit with our team and our staff in New York and had a lot of time to be able to learn about it. And I’m amazed by the data they have and what they do on a daily basis. And then I’m going to work with Tim Husted and our team on provider and all the things that they are doing both on release of information and then of course CareLinx. That literally allows me to have opportunity with so many unique value-based companies and you’re going to hear more and more about that and I gave you a little bit of flavor in my comments. But the future is very bright for Sharecare and the one thing I’m going to do is I make sure that we’re going to have a diversity and a variety of clients.
My old boss used to say that we are not going to basically look to one client to be it. We’re not going to look to one state for that or one customer. We’re going to go out from coast to coast and have multiple clients and have multiple impact. And that’s exactly where I’m going to take Sharecare.
Operator: Our next question comes from Richard Close from Canaccord Genuity.
Richard Close: Yes. Just to be clear on the non-performing contract, is that completely off the books at this point? There will be no additional noise going forward on that. And then are there any other contracts like this, that could be an issue?
