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Ontrak Loses Largest Customer

Shares of Santa Monica-based behavioral health and telehealth company Ontrak Inc. plunged 44% on Aug. 19 after the company announced the loss of its second major customer this year.

Ontrak’s announcement, which came in a filing with the Securities and Exchange Commission, said that an unidentified customer informed the company that it would terminate its participation in Ontrak’s program at the end of the year, nearly halfway through a three-year contract worth $90 million. 

Ontrak said it has billed this customer $42 million, leaving $48 million unfulfilled.

Ontrak, which changed its name last year from Catasys, has developed a telehealth platform that predicts for health plan providers the members whose chronic disease will improve with behavior change.

The platform also recommends effective care guidelines that plan members are willing to follow, and engages members who are not getting the care they need. The goal is to deliver improved patient health outcomes and cost savings to health plan payers who are Ontrak’s customers.

On March 1, Ontrak announced that its largest customer, ultimately identified as managed care insurance giant Aetna Inc. – a subsidiary of CVS Health – would terminate its contract with Ontrak on June 26. 

As a result, Ontrak slashed its revenue guidance for 2021 by $60 million, to roughly $100 million. Ontrak shares plunged 46% on that announcement.

Two weeks later, Ontrak announced a leadership change, naming CVS Health executive Jonathan Mayhew as its new chief executive, replacing founder Terren Peizer.

Ontrak's Aug. 19 announcement represents an annual revenue loss of $30 million, not nearly as much as the Aetna contract, but still significant. T he company said in the announcement that this loss has been offset by revenue boosts from existing contracts.

“We do not expect this decision to have a material negative impact on our previously stated revenue and margin expectations for FY 2021,” the company said in a statement.

“We currently expect our diversified portfolio of remaining customers under existing contracts to contribute nearly $50 million of revenue in 2022, an increase of 62% from their expected 2021 contributions. We believe our fast-growing pipeline of national and regional health plans, providers, health care systems and employers will materially contribute to 2022 revenue,” the company added.

That statement did little to reassure investors, who sent shares down 35% in the hours immediately after the news broke. Share prices kept falling throughout the trading day.

Howard Fine
Howard Fine
Howard Fine is a 23-year veteran of the Los Angeles Business Journal. He covers stories pertaining to healthcare, biomedicine, energy, engineering, construction, and infrastructure. He has won several awards, including Best Body of Work for a single reporter from the Alliance of Area Business Publishers and Distinguished Journalist of the Year from the Society of Professional Journalists.
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