Marpai Inc

OTC:MRAI

Earnings Call Analysis

Marpai Q4 and FY 2023 Financials and Outlook

Marpai's Q4 2023 showed net revenues at $8.7 million, an increase of 12%, and a gross profit of $3 million, up 6.5%. Operating expenses dropped by 30.6%, leading to a 42.3% decrease in operating loss and a net loss improvement of 41.1%. Earnings per share improved by $1 over the prior year's quarter to a loss of $0.65. The full year netted $37.2 million in revenues, up 52.6%, largely thanks to the Maestro acquisition; however, net loss increased by 8.6% to $28.8 million, resulting in a $4.14 loss per share. Marpai aims to bolster efficiency and customer service via technology investments and AI, and growth is expected from a strong sales team.

Marpai's Position in the Health Benefits Industry

Marpai has established itself as a leading third-party administrator (TPA) for self-funded health plans. It operates in a growing market, providing a notable shift for employers to cost-saving benefits plans. This shift results in an average savings of 8%-10% on health plan costs. Marpai is enhancing customer experience through its partnerships with national provider networks like Aetna and Cigna, and it's focused on internal operational excellence, especially following the integration of the Maestro Health acquisition. By leveraging generative artificial intelligence, Marpai is improving quality, speed, and reducing service costs. Additionally, the company offers specialized clinical programs that address chronic conditions, thereby saving clients time, money, and potentially lives.

Progress on Strategic Actions and Financial Performance

In recent months, Marpai has completed strategic actions, such as the sale of its non-core FSA and HSA business, and secured valuable capital funding. The appointment of John Powers as President has already yielded a new client contract. Financially, the fourth quarter showed improvements with a 12% increase in net revenues and a significant reduction in operating loss and net loss, indicating a positive trend from the previous year. The full year revealed substantial growth due to the Maestro acquisition, with revenues up by over 50% and gross profit by 79.2%. However, the company still experienced a net loss, albeit with improved earnings per share. Marpai's balance sheet reflects an increased focus on managing its capital, evident from its cash balance management and successful negotiation of payment terms and discounts on acquisitions-related liabilities.

Looking Ahead: Marpai's Strategy for Growth and Efficiency

Marpai's roadmap includes a continued focus on cost reduction and profitability. The completion of technology projects is expected to drive efficiencies in claims processing and customer service. An experienced sales team is poised to enhance revenue growth, and efforts in utilizing artificial intelligence will evolve risk reduction and proactive disease models. The overall strategy highlights Marpai's commitment to positioning itself for sustainable growth while pushing to be one of the largest independent TPAs and reducing healthcare costs for clients and members.

Earnings Call Transcript 2023-Q4

[Operator]

Good morning, and welcome to the Marpai Fourth Quarter and Fiscal Year 2023 Earnings Conference Call. [Operator Instructions]Please note, this event is being recorded. I would now like to turn the conference over to Steve Johnson, Chief Financial Officer. Please go ahead.

[Steve Johnson, executive]

Thank you, and good morning, and welcome to Marpai's fourth quarter and fiscal year 2023 earnings release webcast. With me today is Damien Lamendola, CEO and Director of Marpai. This morning, we will review the state of the industry and cover some of the key trends that are relevant to Marpai.Damien will also highlight our strategic priorities and we will walk through some specific actions that the team has completed. Then I will take you through the financial highlights, our next steps and we will wrap up with some final thoughts.As the conference operator mentioned is today's webcast will be recorded and available later today. So if you miss something, you can go back and get that.Switching to the next slide just briefly, see the required safe harbor and forward-looking statement disclosure. I'm not going to read all that. All right.On Slide 3 is I'd like to turn over the call to Damien and he'll start us off with what the industry trends are.

[Damien Lamendola, executive]

Great. Thank you, Steve. Marpai is a leading national health benefit third-party administrator, sometimes called a TPA for self-funded employers. The industry is experiencing significant growth, which we expect to continue to positively impact the performance of Marpai.First is the continued shift to employers taking advantage of the benefit plan savings by moving to a self-funded plan. In fact, on average, a company switching to a self-funded plan faced 8% to 10% on the health plan cost.Second, the inflationary pressures in both health care cost and employee compensation. Employers are looking for innovative solutions to increase their base savings.Third, the TPA model allows increased flexibility and customization, which allows employers to drive toward a more value-based care model.And finally, the industry has seen significant demand from clients looking for unique solutions to mitigate high-cost chronic conditions and manage prescription costs for the employees. The TPA model that employers focus on their core business and allows the TPA to manage and monitor the various programs on their behalf.It all begins with our customer. We focus on making the customer experience as pleasant as possible. No one likes to see their doctor and it's usually only when you're sick. Marpai is one of the few independent third-party administrators that has access to 2 leading national provider networks with both Aetna and Cigna. So our members have a terrific choice of in-network care.We're also revamping our customer service department to make sure we get our members the right answers when they need them. We perform multiple internal audits and process improvement exercises to keep our team continuously improving. Our President, John Powers and I personally met with several of our key clients to listen to feedback and implement many of the great ideas they have suggested.Next, the team is engaged on operational excellence. We're still digesting the Maestro Health acquisition and integrating the best practices from both organizations. We're also utilizing our strength in generative artificial intelligence to focus internally and automate several tasks to improve quality and speed while also reducing the cost of service for members.Lastly, to help save them time, money and potentially lives, Marpai offers specialized proven clinical programs, tackle diabetes, orthopedic issues, GI problems, heart and lung conditions and many more. As I said, these programs help our clients save time, money and also lives.I'm going to turn it over to Steve. He will address some of the actions that have been completed so far since we joined back in early November.

[Steve Johnson, executive]

Thanks, Damien. Let me go back. All right. Hard to believe it was just a short 4 months ago when we joined the Marpai team. In late November, Damien and I held our first investor webcast and we outlined several actions that we believe would help right the ship. It is always nice to be able to follow up and show that you did what you said you were going to do.We were successful in completing the sale of our noncore FSA and HSA business from $1.7 million last December. We were able to negotiate a payment term extension as well as a $3 million discount with AXA stemming from our sale -- our acquisition of Maestro Health in late 2022.We were able to secure nearly $2 million in nondilutive capital from Libertas Funding. And we were very fortunate to have John Powers join us as our new President and he has been working feverishly meeting with clients and he was successful in closing a 3-year contract with a new southeastern-based client that started earlier this month. Quite simply, we outline our objectives and then execute.Next, we'll start with the financial highlights of the fourth quarter. Net revenues were $8.7 million, an improvement of $1.1 million or 12% over the fourth quarter of 2022. Gross profit was $3 million, an improvement of $0.2 million or 6.5% over the fourth quarter of 2022. Operating expenses were $8.2 million, an improvement of $3.6 million or 30.6% lower than last year.Operating loss was $5.2 million, an improvement of $3.8 million or 42.3% lower than the prior quarter -- year. And the net loss was $5 million, an improvement of $3.5 million or 41.1% lower than the fourth quarter of 2022. Earnings per share was a loss of $0.65, an improvement of $1 over the fourth quarter of 2022. While we didn't have much time, we were able to make some progress financially.Now moving on to the full year highlights. For the full year, net revenues were $37.2 million. It was an improvement of $12.8 million or 52.6% higher year-over-year. And of course, much of that growth was due to the Maestro acquisition. Gross profit was $12.9 million, an improvement of $5.7 million or 79.2% higher than last year.Operating expenses were $40.9 million for the year ended. It was an increase of $6.7 million or 19.7% higher than the previous year. Operating loss was $28 million for the year, an increase of about $1 million or 3.8% higher year-over-year. Net loss was $28.8 million for the year ended, an increase of $2.3 million or 8.6% higher compared to the same period last year.Basic and diluted earnings per share was a negative $4.14, an improvement of $1.09 per share compared to the last year. And really, the story here is Marpai is starting to gain the benefits of the Maestro acquisition with much more to come.Now let's shift over to some of the balance sheet highlights. Our ending cash balance was $1.1 million, our restricted cash was $12.3 million and I wanted to highlight that for our business, for Marpai's business, restricted cash primarily represents the funds on hand to pay for member benefit claims. And then if you look at our balance sheet, there is an offset under our current liabilities called accrued fiduciary obligations, which were $11.6 million.Simply, Marpai collects the funds from our clients prior to the payment of the members' benefit claims. So I wanted to highlight that for everyone.Long-term assets, in the fourth quarter, Marpai wrote down 50% of our goodwill or approximately $3 million. Our current liabilities, the key highlight there is our accounts payable were up $3.2 million from the previous year. And our other long-term liabilities of $19.4 million are primarily related to the AXA payable from the acquisition of Maestro Health and that figure does not reflect the $3 million discount that we negotiated in February. Stockholders' equity was a negative $13.4 million.Now we'll move over to the cash flow highlights. Net cash used in operations was $15.7 million, down $19.5 million from the prior year. Net cash provided by investing was approximately $1 million, which relates to the sale of our noncore FSA business mentioned earlier.Net cash provided by financing activities was approximately $5.1 million and that was primarily from the sale of common stock earlier last year and for the payments made during the year for the acquisition of Maestro Health. Overall, the company used $9.6 million in cash.All right. Next steps. I just want to highlight some of the key success factors and one constant need is for our attention on execution. Our team needs to continue to reduce costs and achieve profitability. We must complete our ongoing technology projects to drive efficiencies in claims and customer service.We have an experienced sales team brought on by John Powers that will grow the top line and we must utilize our artificial intelligence skill to reduce risk and continue to refine our proactive disease state models. I'll turn it over to Damien for some final thoughts.

[Damien Lamendola, executive]

Thanks again, Steve. As you've seen, the team has achieved quite a bit over the past 4 months, but we have a long way to go on our journey of being one of the largest independent third-party administrators in the country while driving down the cost of health care, without the cost of health care down for our clients and members. We must and we will position the company's capital structure for profitability and growth.The industry has just gotten a small taste of what our relationship team is capable of. And we addressed early on in our presentation this morning, we have highly favorable opportunities in a growing industry with clients that meet our health. We are just starting to leverage our deep industry relationships to enhance our market position and we must use our competitive advantage with our existing talent and artificial intelligence to drive operational cost reductions to become the lowest cost third-party administrator in the country. Steve?

[Steve Johnson, executive]

Thank you, Damien. This completes Marpai's fourth quarter and fiscal year 2023 earnings call. If you have questions or require further information, please see the information on our screen or go to our Investor Relations website.Again, this webcast will be available for replay and thank you for joining us this morning.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.