Marpai, Inc. (NASDAQ:MRAI) Q4 2021 Earnings Conference Call March 31, 2022 8:30 AM ET
Company Participants
Simon Li – Vice President of Marpai
Edmundo Gonzalez – Chief Executive Officer, Secretary and Director
Lutz Finger – President of Product and Development
Yoram Bibring – Chief Financial Officer
Conference Call Participants
Operator
Good morning and welcome to Marpai’s Fourth Quarter and Full Year Financial Results Conference Call. Thank you for standing by. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.
I would now like to turn the conference over to Mr. Simon Li, Vice President of Marpai. Please go ahead Mr. Li.
Simon Li
Thanks operator. Welcome everyone to our first year-end earnings call. With me on the call today are Marpai’s Chief Executive Officer Edmundo Gonzalez; Lutz Finger, President of Product and Development; and Chief Financial Officer, Yoram Bibring.
Before turning the call over to Edmundo, please note that we’ll be discussing certain non-GAAP financial measures that we believe are important when evaluating Marpai’s performance. Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and the reconciliations thereof can be found in the press release that is posted on our website.
Also please note that certain statements made during this call will be forward-looking statements as defined by the private securities litigation reform act of 1995. Such forward-looking statements are subject to risks, uncertainties and other factors that will cause the actual results for Marpai to differ materially from those expressed or implied on this call. For additional information, please refer to our cautionary statement in our press release and our filings with the SEC, all of which are available at marpaihealth.com.
And with that, I will turn the call over to Marpai’s CEO, Edmundo Gonzalez. Edmundo?
Edmundo Gonzalez
Thanks, Simon and good morning, everyone. Thank you so much for joining us this morning. It’s a pleasure to be here on our second earnings call after our IPO and our first year end call. I’d like to start by welcoming our new President of Product and Development, Lutz Finger, who recently joined us from Google. He is joining us today on the call as well. I am very excited about Lutz’s joining the team and I’ll be telling you more about him in a few minutes.
I would like to spend a moment to summarize our strategy for the benefit of those of you who may not be that familiar with Marpai. We are a technology company bringing more technology including artificial intelligence into the health plan space in the United States. We are going to market as a healthcare payer focused on clients who are self funded. That is clients who have chosen not to buy traditional health insurance, but rather who want higher flexibility to serve their employees with optimized care. Marpai partners with these employers and administers all of their healthcare benefits.
Our products and services are very differentiated when compared to other healthcare payers. We use technology to help our customers, self-insured employers reduce their overall costs of their healthcare plans without lowering quality. For example, we use AI to predict certain costly healthcare events months before they happen. Our care teams can reach out to those members and help them to find the most suitable path for their individual situations, which saves money for them, as well as our customers.
We also work with leading providers of healthcare quality metrics, to better measure and understand quality. Also, here we use a mix of AI driven prediction, and a very human intervention to accomplish our mission of improving lives, while smartly managing our clients’ health care costs.
Lastly, we have developed technology to improve the entire process of paying medical claims. My goal is to lower the cost of administering a claim to be well below the industry average. During 2021 we cut our cost of administering claims by approximately half. We’re continuing this journey in 2022 and beyond.
Moving on to the quarter and latest developments, I will let Yoram, our CFO, provide you with the details, but the good news is that in the fourth quarter, we experienced revenue growth of approximately 23% compared to 22% revenue growth we experienced in Q3 when compared to Q2. The main reason for the growth was Texas schools happened in September of 2021, which I told you about on our last call. Q3 revenues included only one month of Texas schools revenue, while Q4 included three months of revenue from this customer.
During the fourth quarter, the number of our customers’ employees covered under our company’s administered healthcare plans increase from 25,136 to 25,195. So in other words, the numbers stayed almost flat. We also told you on our Q3 call that the healthcare industry is lumpy as customers typically select their providers, of which we are one, only once per year. As I mentioned above, our Q4 growth in revenue was largely based on having higher revenue from our Texas schools for the entire quarter versus only one month in Q3.
As a reminder, our organic growth is driven by investments in sales and marketing, which develops our broker channel. We are also exploring M&A opportunities aggressively as a way to bring more employee lives into our platform.
In terms of how our sales cycle works, there are common dates during the year that are basically selection points for our clients. It means that both new customers are added and current customers churn on relatively few dates during the year. The most popular is January 1, and then comes October 1, as well as September 1 and July 1. There are of course, businesses that have different renewal dates, but these are by far the most popular. The right way to measure performance is therefore over time and we believe that when we are measured over 12 or 24 months, time span, our results will speak for themselves.
Going back to Lutz, he is joining as President of Product and Development. I believe Lutz is a transformational industry executive with a unique perspective on long-term strategy, but also on short-term execution. Lutz came to us from Google, where he left a senior position as Group Product Manager at Google Health. Lutz has the strategic vision as well as the practical know how to help us become the third party administrator or TPA of the future.
I believe that his addition to the team is not only an important validation of our strategy, it’s also a very important step to ensure that we will implement the strategy in a way that will be optimal to our customers and their employees, as well as other stakeholders, including our own employees and investors. You can read more about Lutz in the press release that we published on our website on February 17.
And now I’d like to hand it over to Lutz to say a few words, and then we’ll hear from Yoram, who will discuss our results and our guidance. Lutz?
Lutz Finger
Thank you, Edmundo and good morning everybody. Edmundo asked me to say a few words on why I decided to join Marpai. Let me say this. Healthcare costs are rising, quality care is highly variable. Care is not always equitable and we see barriers of getting care. Coming from Google, I know that technology has the potential to help with many of those challenges. Technology can help us reaching the quadruple aim; patient care, cost effectiveness, population health, and provider satisfaction.
Any technology solution is only as good as it can be applied, it needs to be actionable. I joined the Corps Norte CommBank, a great technology and development team with the ability to support members of self-insured plans. Healthcare is complex and the self-insured market needs better ways to build a healthcare plan. I see a lot of opportunities to integrate all parts of a healthcare plan in a seemingly — seamless way.
We know from research that technology can help identify unplanned events or unwanted deterioration of health situation, be with our members at the right time to reduce their risk, lower their costs and ensure high quality outcomes is a great opportunity. And I believe that Marpai is uniquely positioned to execute on this combination by using advanced technology to promote the quadruple aim that I mentioned before. And I’m humbled that I can help to fulfill this vision here at Marpai.
With that I will hand over to Yoram. Yoram?
Yoram Bibring
Thank you, Lutz and good morning everyone. First, I want to remind us all that prior to the April 1, 2021 acquisition of Continental Benefits, Marpai did not have any revenues, which means that our annual revenues do not reflect any revenues for the first quarter of 2021 and that in addition, $400,000 of our second quarter revenues are also not reflected in our GAAP revenues because of acquisition accounting adjustments as these Q2 revenues were collected prior to the April 1 acquisition.
Our revenues for the fourth quarter were approximately $5.9 million, compared to $4.8 million in the third quarter of 2021 and pro forma revenues of $3.9 million for the second quarter of 2021. This $3.9 million revenue number is pro forma because it included adding back the $400,000 of revenue that I just mentioned. Most of the increase in revenue from Q3 to Q4 as Edmundo told you, as well as the increase from Q2 to Q3 is due to the Texas school win which we told you about in our last call, which brought us approximately 4500 new employee lives. These employee lives joined effective September 1, and therefore Q3 revenues reflected one month of revenues from the Texas schools, while the fourth quarter reflected the full quarter revenues from these schools.
For the year our revenues were $14.2 million. This number reflects only nine months of revenues since the April 1 acquisition of Continental Benefits and does not include the $400,000 adjustments, which I mentioned before.
Moving on to expenses, I will be comparing the fourth quarter expenses to the third quarter expenses 2020 fourth quarter and full year expenses do not include the Continental Benefits expenses and are therefore not comparable to our 2021 expenses. Cost of revenues which include our cost of processing and adjudicating claims, our customer service costs and the amounts charged by third party vendors for their services that we resell to our customers.
Our cost of revenue excluding depreciation and amortization were approximately $4.2 million, or 72% of revenues, versus $3.3 million or 70% of revenues for the third quarter. The reason for the 2% increase was that the Texas school revenues included more revenue related to third party services, which are lower margin revenues for us.
Gross profits not including the impact of depreciation and amortization expenses was approximately $1.7 million, compared to $1.5 million in the third quarter. Our other fourth quarter operating expenses increased by approximately $1.2 million compared to the third quarter.
Approximately $350,000 of the increase were due to increased sales and marketing expenses and approximately $400,000 of the increase was in connection with the D&O [ph] insurance costs, legal and other public company expenses, which we did not have in the third quarter prior to our IPO. Additional $200,000 increase was due to increased IT spent and the rest of the increase was in connection with various [indiscernible] rules. We expect our first quarter 2022 operating expenses, excluding cost of revenues to stay approximately flat compared to Q4 2021.
Operating loss for the fourth quarter was $5.7 million compared to $4.7 billion operating loss for the third quarter. Our net loss for the fourth quarter was approximately $5.7 million or $0.34 per share compared to a net loss of $4.8 million, or $0.47 per share for the third quarter. Excluding net interest expense of $21,000 stock based compensation expenses of $269,000 and depreciation and amortization expenses of $739,000, adjusted EBITDA for the fourth quarter was a negative of approximately $4.7 million, compared to a negative of $3.7 million in the third quarter.
Moving on to our financing activities and cash position, as you know, we completed our IPO in late October. To recap the IPO we issued approximately 7.2 million shares of common stock at $4 per share. Gross proceeds were close to $29 million, and net that proceeds after deducting the underwriters commission and offering expenses were $24.8 million. In addition, after the IPO all of our outstanding debt was either converted or was paid off. We used the proceeds of the IPO to pay off approximately $3.8 million of debt of which $1 million was received after the September 30, balance sheet, and we issued approximately 1.7 million shares of common stock, converting approximately $5.1 million of convertible debt and accrued interest. All the debt converted or was repaid based on the original terms of respective notes. Our free cash balance on December 31, was approximately $19.2 million.
Moving on to our Q1 2022 revenue guidance, we expect first quarter 2022 revenues to be in the range of $6 million to $6.2 million.
And with that we will open the call for questions. Operator?
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] If there appears to be no questions, I would now like to turn the conference back over to Edmundo for any closing remarks.
Edmundo Gonzalez
Thank you so much, operator. Look, thank you so much for taking the time today. We are as a team, we are heads down focused on execution every day. Our business, you know continues. We’re obviously very, very excited about what we’re doing here. So thanks so much for your support and please keep us on your screen. Thank you so much.
Operator
This conference has now concluded thank you for attending today’s presentation. You may now disconnect.
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