Organization

9 Months Ended

Sep. 30, 2024

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization

Organization

Company Overview

Ontrak, Inc. (“Ontrak,” “Company,” “we,” “us” or “our”) is an AI-powered and technology-enabled behavioral healthcare company, whose mission is to help improve the health and save the lives of as many people as possible. The Company's technology-enabled platform utilizes claim-based analytics and predictive modeling to provide analytic insights throughout the delivery of its personalized care program. The Company's program predicts people whose chronic disease will improve with behavior change, recommends effective care pathways that people are willing to follow, and engages and guides them to and through the care and treatment they need. By combining predictive analytics with human engagement, we deliver improved member health and validated outcomes and savings to healthcare payors.

The Company's integrated, technology-enabled solutions are designed to provide healthcare solutions to members with behavioral conditions that cause or exacerbate chronic medical conditions such as diabetes, hypertension, coronary artery disease, chronic obstructive pulmonary disease, and congestive heart failure, which result in high medical costs. Ontrak has a unique ability to engage these members, who may not otherwise seek behavioral healthcare, leveraging proprietary enrollment capabilities built on deep insights into the drivers of care avoidance. Ontrak integrates evidence-based psychosocial and medical interventions delivered either in-person or via telehealth, along with care coaches who address the social and environmental determinants of health. The Ontrak programs seek to improve member health and deliver validated cost savings to healthcare payors.

The Company generates revenues from the services it provides to populations insured by private health insurance programs, including employer funded programs (which the Company refers to as commercial revenue) and by government-funded health insurance programs, such as managed Medicare Advantage, managed Medicaid and dual eligible (Medicare and Medicaid) populations. The Company aims to increase the number of members that are eligible for our solutions by signing new contracts and identifying more eligible members within customers with whom the Company has existing contracts.

Basis of Presentation

The accompanying condensed consolidated financial statements include Ontrak, Inc., its wholly-owned subsidiaries and its variable interest entities. The accompanying condensed consolidated financial statements for Ontrak, Inc. have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and instructions to Form 10-Q and Article 8 of Regulation S-X. All intercompany balances and transactions have been eliminated in consolidation. Certain information and note disclosures normally included in the annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying condensed financial statements includes all adjustments (consisting of normal recurring adjustments) necessary for the fair presentation of the interim periods presented. Interim results are not necessarily indicative of the results that may be expected for any other interim period or for the entire fiscal year. The accompanying unaudited financial information should be read in conjunction with the audited financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year-ended December 31, 2023 (the “2023 10-K”), filed with the Securities and Exchange Commission (“SEC”), from which the consolidated balance sheet as of December 31, 2023 has been derived. The Company operates as one segment.

Going Concern

We have incurred significant net losses and negative operating cash flows since our inception, and we expect to continue to incur net losses and negative operating cash flow, in part due to the negative impact on our operations by customer terminations. As of September 30, 2024, our total cash was $8.0 million and we had working capital of approximately $1.5 million. For the nine months ended September 30, 2024, our average monthly cash burn rate from operations was $1.0 million.

On August 13, 2024, the Company entered into an agreement with Acuitas Capital LLC (“Acuitas Capital” and together with its affiliates, “Acuitas”) pursuant to which Acuitas agreed to purchase Committed Demand Notes (as defined in Note 10 below) in the original principal amount of $5.0 million in accordance with a schedule specified therein, subject to a limited offset right, and not to exercise its right to require that any amounts due under any Demand Note (as defined in Note 10 below) be paid until after August 30, 2025, subject to a limited exception. As of September 30, 2024, Committed Demand Notes with an aggregate principal amount of $2.5 million have been issued by the Company and purchased by Acuitas. In October 2024, Acuitas

purchased a Committed Demand Note with a principal amount of $1.0 million. See Note 14 below. As of the filing date of this report, Acuitas has not purchased the remaining $1.5 million in principal amount that was to be purchased no later than November 1, 2024. In addition, Acuitas may, in its sole discretion, elect to purchase up to an additional $5.5 million in principal amount of Demand Notes under the Keep Well Agreement (as defined in Note 10 below). Management is in active discussion with Acuitas with respect to the purchase of the remaining $1.5 million in principal amount of Committed Demand Notes and some or all of the additional $5.5 million in principal amount of Demand Notes. The Company cannot predict if or when Acuitas will purchase the remaining $1.5 million in principal amount of Committed Demand Notes or will elect to purchase some or all of the additional $5.5 million in principal amount of Demand Notes.

As of September 30, 2024, $9.8 million of secured debt, including accrued paid-in-kind interest, issued under the Keep Well Agreement was outstanding. As of the filing date of this report, approximately $11.1 million of secured debt, including accrued paid-in-kind interest, issued under the Keep Well Agreement was outstanding, $8.6 million of which is represented by Demand Notes (including Committed Demand Notes) payable at any time after August 30, 2025 upon demand of the holder (see Note 10 below for more information) and the balance of which matures on May 14, 2026, unless it becomes due and payable in full earlier, whether by acceleration or otherwise.

In October 2024, the Company received a total of $1.5 million of cash proceeds from the exercise of warrants the Company issued in its public offering consummated in November 2023. See Note 14 below. Assuming the exercise in full of the warrants the Company issued in such public offering at their current exercise price and that the exercise price is paid in cash, the Company would receive gross proceeds of approximately $13.7 million. There can be no assurance that all or any portion of such warrants will be exercised.

Management is actively pursuing execution of the Company’s growth strategy and has been engaged in discussions with prospects in its sales pipeline, two of which are in or near the final proposal and approval phase, as well as in discussions with existing customers to expand their business relationship with the Company. There can be no assurance that the Company will be successful in any of these endeavors.

Management plans to continue executing its strategy to increase liquidity by continuing to (i) explore other sources of capital for future liquidity needs; (ii) manage operating costs by strategically pursuing cost optimization initiatives; and (iii) pursue executing our growth strategy by: (a) expanding sales and marketing resources to acquire new and diverse customers across major health plans, value based provider groups and self-insurance employers; (b) executing on our better market penetration strategy by providing full scale customized behavioral health solutions, addressing customer needs across all member acuity levels while mitigating vendor fatigue by becoming a principal customer partner; (c) leveraging our AI technology and new predictive algorithms to improve identification and outreach, create more efficiencies, enhance coaching solutions and create more proof points; and (d) opportunistically pursuing partnerships that we believe will accelerate growth.

We will need additional capital to successfully execute our growth strategy. In addition to revenue from business operations, since April 2022, the Company's primary source of working capital has been borrowings under the Keep Well Agreement and raising capital in equity offerings. We may seek to raise additional capital through equity or debt financings, however, when we can affect such financings and how much capital we can raise depends on a variety of factors, including, among others, market conditions, the trading price of our common stock and our determination as to the appropriate sources of funding for our operations. There can be no assurance that other capital will be available when needed or that, if available, it will be obtained on terms favorable to us and our stockholders, that we will be successful in implementing cost optimization initiatives, or that we will be successful in executing our growth strategy. In addition, the Keep Well Agreement contains various financial and other covenants, and any non-compliance with those covenants could result in an acceleration of the repayment of the amounts outstanding thereunder. Furthermore, equity or debt financings may have a dilutive effect on the holdings of our existing stockholders, and debt financings may subject us to restrictive covenants, operational restrictions and security interests in our assets.

Based on the Company's current analysis of the conditions described above and the Company's forecast of its future operating results, the Company does not believe that its cash on hand and other sources of capital will be sufficient to allow the Company to meet its obligations as they come due and to continue its operating activities for at least the next 12 months from the date the financial statements in this report are released. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Reverse Stock Split

At the annual meeting of the Company's stockholders held on September 10, 2024 (the “2024 Meeting”), the Company’s stockholders approved a proposal to give the Company’s board of directors the authority, at its discretion, to file a certificate of amendment to the Company’s amended and restated certificate of incorporation to effect a reverse split of the Company's issued common stock at a ratio that is not less than 1-for-2 and not greater than 1-for-15, without reducing the authorized number of shares of the Company’s common stock, with the final ratio to be selected by the Company’s board of directors in its discretion, and to be effected, if at all, in the sole discretion of the Company’s board of directors at any time within one year of the date of the 2024 Meeting without further approval or authorization of the Company’s stockholders. Subsequently, the Company's board of directors determined to effect a reverse split at a ratio of 1-for-15, which was effective at 12:01 a.m. Eastern Time on September 23, 2024 (the “2024 Reverse Stock Split”). Fractional shares of the Company’s common stock resulting from the reverse split were automatically rounded up to the nearest whole share. The Company’s common stock began trading on The Nasdaq Capital Market on a post-split basis at the open of trading on September 23, 2024. The Company’s common stock continues to trade under the symbol “OTRK,” but was assigned a new CUSIP number (683373401).

All restricted stock units, stock options and warrants to purchase shares of the Company’s common stock and securities convertible or exchangeable for shares of the Company’s common stock (including the Series A Preferred Stock) outstanding immediately prior to the 2024 Reverse Stock Split, and the shares of the Company’s common stock reserved for issuance under the Company’s equity incentive plans immediately prior to the 2024 Reverse Stock Split, were proportionally adjusted.

All common share and common stock per share amounts presented herein for all periods have been retroactively adjusted to reflect the impact of the 2024 Reverse Stock Split.

Recently Adopted Accounting Standards and Recently Issued Accounting Pronouncements

Since the date on which the Company filed the 2023 10-K, there were no recently adopted account standards or new accounting standards issued, but not yet adopted by the Company, which are expected to materially affect the Company's condensed consolidated financial statements.