Roth MKM analyst Jonathan Aschoff, in a research report published on August 9, 2024, provided an update on Ontrak Inc. (OTRK:NASDAQ) following the company's second quarter 2024 financial results and announcement of a new strategic partnership. The analyst maintained a Buy rating with a target price of US$3 per share.
Ontrak reported Q2 2024 revenue of US$2.5 million, down 8.5% quarter-over-quarter and 17% year-over-year, primarily due to the previously announced loss of a large client in Q1 2024. The company provided Q3 2024 revenue guidance of US$2.4 million to US$2.8 million.
Aschoff noted, "We expect QoQ revenue growth starting in 4Q24, given the increasing effective outreach pool (currently at 7,511, up QoQ from 5,057) and that large new Florida client Community Care Plan received a substantial Medicaid award."
A key development highlighted by Aschoff is Ontrak's new two-year strategic partnership with a large, northeast regional health plan. "OTRK expects its current outreach pool of eligible members to roughly double with the initial addition of this health plan's eligible New York members in multiple lines of business, including Medicaid, HARP, and Commercial HMO," the analyst stated.
Ontrak's strategic focus includes expanding its client base and enhancing its care delivery model. The company recently adopted a Comprehensive Healthcare Integration (CHI) framework into its care model, integrating physical health, behavioral health, and social determinants of health within its care delivery.
Aschoff highlighted recent positive data from Ontrak's Whole Health+ program, noting, "The three-year retrospective observational study delivered statistically significant difference-in-differences savings of gross all-cause medical costs over 24 months of US$721 per member per month (p<0.001) among Whole Health+ program graduates versus matched controls."
Regarding Ontrak's financial position, Aschoff reported, "OTRK had cash of US$7.3M (debt of US$6.7M), but can draw US$10.5M more from a financing facility over nine months."
Roth MKM's valuation methodology for Ontrak is based on a discounted cash flow (DCF) analysis. "Our 12-month price target of US$3 is based on a DCF analysis using a 10% discount rate that is applied to all cash flows and the terminal value, which is based on a 5x multiple of our projected 2031 operating income of US$117 million," Aschoff explained.
With a Buy rating and an adjusted price target of US$3, representing a potential return of approximately 253% from the current price of US$0.85, Roth MKM sees significant upside potential for Ontrak. However, Aschoff notes that factors such as failure to add new customers, loss of existing customers, and smaller-than-projected commercial opportunities could impede the achievement of the target price.
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Disclosures for Roth MKM, Ontrak Inc., August 9, 2024:
Within the last 12 months, ROTH Capital Partners, or an affiliate to ROTH Capital Partners, has received compensation for investment banking services from Ontrak, Inc. ROTH and/or its employees, officers, directors and owners own options, rights or warrants to purchase shares of Ontrak, Inc. stock. Shares of Ontrak, Inc. may be subject to the Securities and Exchange Commission's Penny Stock Rules, which may set forth sales practice requirements for certain low-priced securities. Roth or its affiliates beneficially own(s) 1% or more of an equity security of Ontrak, Inc.
ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business relationships with the covered companies mentioned in this report in the next three months. The material, information and facts discussed in this report other than the information regarding ROTH Capital Partners, LLC and its affiliates, are from sources believed to be reliable, but are in no way guaranteed to be complete or accurate. This report should not be used as a complete analysis of the company, industry or security discussed in the report. Additional information is available upon request. This is not, however, an offer or solicitation of the securities discussed. Any opinions or estimates in this report are subject to change without notice. An investment in the stock may involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Additionally, an investment in the stock may involve a high degree of risk and may not be suitable for all investors. No part of this report may be reproduced in any form without the express written permission of ROTH. Copyright 2024. Member: FINRA/SIPC.
