OTRK.NASDAQOntrak, INC
10-Q: Ontrak Reports Q1 2025 Results Amidst Going Concern Uncertainty
Sentiment:
Quarterly Report
Ontrak's Q1 2025 results reveal a net loss and continued going concern uncertainty, despite efforts to secure additional funding.
Capital raiseThe company is seeking to raise additional capital to fund operations.The company may borrow additional funds under the Keep Well Agreement.The company may pursue an equity financing.
Worse than expectedRevenue decreased from the same period last year.Net losses increased from the same period last year.The company is not in compliance with certain financial covenants.The company has a going concern warning.
Summary
- Ontrak, Inc. reported its financial results for the first quarter of 2025.
- The company faces significant net losses and negative operating cash flows, raising substantial doubt about its ability to continue as a going concern.
- As of March 31, 2025, Ontrak's cash balance was $4.1 million, with negative working capital of approximately $3.1 million.
- The average monthly cash burn rate from operations for the quarter was $0.9 million.
- The company had $13.5 million in secured debt outstanding under the Keep Well Agreement as of March 31, 2025, which increased to $14.4 million by the filing date.
- Revenue for Q1 2025 was $2.017 million, compared to $2.680 million in Q1 2024.
- Net loss attributable to common stockholders was $9.130 million, or $1.65 per share, compared to $6.697 million, or $1.65 per share, in the same period last year.
- The company is actively pursuing its growth strategy and seeking additional capital, but there is no assurance that it will be successful.
- Ontrak is not in compliance with the consolidated liquidity or consolidated recurring revenue covenants.
- Acuitas waived any non-compliance and/or violation of each of those covenants through June 30, 2025.
Sentiment
Score: 3
Explanation: The document presents a concerning financial situation for Ontrak, with declining revenue, increasing losses, and a going concern warning. While there are some positive aspects, such as the waiver from Acuitas, the overall outlook is negative.
Positives
- Acuitas waived non-compliance with certain financial covenants through June 30, 2025, providing temporary relief.
- Cash flow from operations improved to $(2.7) million compared to $(3.3) million in the same period last year.
- The callable outreach pool for the WholeHealth+ program increased to 7,319 at March 31, 2025, compared to 5,057 at March 31, 2024.
- The company is actively pursuing its growth strategy and seeking additional capital.
Negatives
- Ontrak reported a net loss attributable to common stockholders of $9.130 million, or $1.65 per share.
- Revenue decreased to $2.017 million from $2.680 million in the same period last year.
- The company has negative working capital of approximately $3.1 million.
- Ontrak is not in compliance with the consolidated liquidity or consolidated recurring revenue covenants.
- The company faces substantial doubt about its ability to continue as a going concern.
Risks
- The company's ability to continue as a going concern is uncertain.
- Failure to comply with covenants under the Keep Well Agreement could result in acceleration of debt repayment.
- Raising additional capital may be dilutive to existing stockholders.
- If the company cannot continue as a going concern, Acuitas would have the rights of a secured creditor.
- The company is subject to various legal proceedings, including securities class actions and stockholder derivative complaints.
- The company is subject to an SEC investigation.
Future Outlook
The company will require additional capital to fund its operations through the next 12 months and is actively seeking to raise capital. There is no assurance that the company will be successful in these endeavors.
Industry Context
The behavioral healthcare industry is growing, but Ontrak faces challenges in maintaining customer contracts and achieving profitability. The company's focus on integrating technology and human engagement aligns with industry trends, but its financial instability poses a significant risk.
Comparison to Industry Standards
- Given the limited information, a direct comparison to industry standards is challenging.
- However, similar companies in the digital health space, such as Teladoc Health and Amwell, are facing pressure to demonstrate profitability and sustainable growth.
- Ontrak's revenue decline and net losses are concerning compared to the growth trajectories of some of its peers.
- The company's reliance on a limited number of customers also poses a risk compared to companies with more diversified revenue streams.
- The Keep Well Agreement with Acuitas is not a typical financing arrangement and may indicate limited access to traditional capital markets.
Legal Proceedings
- The company is involved in various legal proceedings, including securities class actions and stockholder derivative complaints.
- The company is subject to an SEC investigation.
Related Party Transactions
- The company has a Keep Well Agreement with Acuitas Capital LLC, an entity indirectly wholly owned and controlled by Terren S. Peizer, the Company's former Chief Executive Officer and Chairman.
Stakeholder Impact
- Shareholders face the risk of dilution from potential equity financings.
- Shareholders may lose all or part of their investment if the company cannot continue as a going concern.
- Employees face uncertainty due to the company's financial instability.
- Customers may be concerned about the company's ability to provide services in the long term.
- Creditors face the risk of non-payment if the company cannot continue as a going concern.
Next Steps
- The company will continue to pursue its growth strategy.
- The company will seek to raise additional capital.
- The company will work to comply with the Keep Well Agreement covenants.
- The company will defend itself in ongoing legal proceedings.
Key Dates
| Date | Description |
|---|---|
| 2020-08-05 | Start of purported class period in securities class action. |
| 2020-08-21 | Initial public stock offering of Series A Preferred Stock. |
| 2020-09 | Start of at market offering of Series A Preferred Stock. |
| 2020-11-05 | Date of conference call with investors mentioned in securities class action. |
| 2020-12 | End of at market offering of Series A Preferred Stock. |
| 2020-12-16 | Follow-on stock offering of Series A Preferred Stock. |
| 2021-02-26 | End of purported class period in securities class action. |
| 2021-03-03 | Purported securities class action filed in United States District Court for the Central District of California, entitled Farhar v. Ontrak, Inc. |
| 2021-03-19 | Another similar lawsuit was filed in the same court, entitled Yildrim v. Ontrak, Inc. |
| 2021-05-06 | Date of press releases, SEC filings and conference calls with investors mentioned in securities class action. |
| 2021-07-14 | The Court consolidated the two actions under the Farhar case (Consolidated Class Action), appointed Ibinabo Dick as lead plaintiff, and the Rosen Law Firm as lead counsel. |
| 2021-08-05 | Date of press releases, SEC filings and conference calls with investors mentioned in securities class action. |
| 2021-08-06 | Purported stockholder derivative complaint was filed in the United States District Court for the Central District of California, entitled Aptor v. Peizer |
| 2021-08-13 | Lead plaintiff filed a consolidated amended complaint. |
| 2021-08-19 | End of expanded purported class period to August 5, 2020 through August 19, 2021. |
| 2021-09-13 | Defendants filed a motion to dismiss the Consolidated Amended Complaint for failure to state a claim under Federal Rules of Civil Procedure 12(b)(6) and 9(b) and the Private Securities Litigation Reform Act of 1995, 15 U.S.C. 78u-4, et seq. |
| 2021-10-06 | Similar shareholder derivative action was filed in the same Court, entitled Anderson v. Peizer |
| 2021-12-01 | Similar shareholder derivative action was filed in the United States District Court for the District of Delaware, entitled Vega v. Peizer |
| 2021-12-07 | The Court in the Central District of California consolidated the two Central District of California actions under the Aptor case caption and number (the Consolidated Derivative Action), stayed the action pending a ruling on the Motion to Dismiss in the Consolidated Class Action. |
| 2022-02-14 | The parties in Consolidated Derivative Action stipulated to an extension of the stay pending a ruling on Ontraks anticipated motion to dismiss the forthcoming amended complaint filed by lead plaintiff in the Consolidated Class Action. |
| 2022-02-28 | Purported securities class action was filed in the Superior Court of California for Los Angeles County, entitled Braun v. Ontrak, Inc., et al. |
| 2022-03-21 | The Court in the District of Delaware granted plaintiffs unopposed motion to transfer the case to the United States District Court for Central District of California in the interest of judicial efficiency due to the Consolidated Class Action and Consolidated Derivative Action already pending in that district, and that same day the case was transferred into the United States District Court for Central District of California and given the new Case No. 2:22-cv-01873-CAS-AS. |
| 2022-04-08 | The parties in the Vega action did the same. |
| 2022-07-07 | The defendants filed demurrers to the complaint. |
| 2022-10-04 | The Court issued its ruling, allowing the case to proceed but with a narrowed scope. |
| 2022-10-12 | The Court issued its ruling granting plaintiff's Motion and certifying the class as to the Section 11 and Section 15 claims only. |
| 2022-11-15 | The Company received a notification from the SEC, Division of Enforcement, that it is conducting an investigation captioned In the Matter of Trading in the Securities of Ontrak, Inc. (HO-14340) and issued a preservation letter as well as a subpoena for documents relating to the investigation. |
| 2022-11-18 | Plaintiff filed his Motion for Class Certification. |
| 2023-02-17 | The Company filed its opposition and joined in the opposition of the Underwriters. |
| 2023-03-01 | The DOJ announced charges and the SEC filed a civil complaint against Terren S. Peizer, Ontrak's former Chief Executive Officer and Chairman of our board of directors, alleging unlawful insider trading in our stock. |
| 2023-03-29 | Lead plaintiff filed a Second Amended Complaint. |
| 2023-05-15 | The Company filed its motion to dismiss the Second Amended Complaint. |
| 2023-10-12 | The Court issued its ruling granting plaintiff's Motion and certifying the class as to the Section 11 and Section 15 claims only. |
| 2023-11-03 | The United States Attorneys' Office filed an application for leave to intervene and stay discovery pending resolution of a federal criminal case. |
| 2023-11-14 | The Company completed a public offering (the Public Offering), in which the Company issued (a) 306,138 shares of its common stock and 650,896 warrants to purchase up to 650,896 shares of its common stock (after giving effect to the 2024 Reverse Stock Split) at a combined public offering price of $9.00 per share of common stock and accompanying warrants (after giving effect to the 2024 Reverse Stock Split), and (b) 418,706 pre-funded warrants (after giving effect to the 2024 Reverse Stock Split) to purchase up to 418,706 shares of its common stock (after giving effect to the 2024 Reverse Stock Split) (the Public Offering Pre-Funded Warrants) and 837,411 warrants (after giving effect to the 2024 Reverse Stock Split) to purchase up to 837,411 shares of its common stock (after giving effect to the 2024 Reverse Stock Split) at a combined public offering price of $8.4646 per Public Offering Pre-Funded Warrant and accompanying warrants (after giving effect to the 2024 Reverse Stock Split), which represents the per share public offering price for the common stock and accompanying warrants less the $0.0014 per share exercise price (after giving effect to the 2024 Reverse Stock Split) for each Public Offering Pre-Funded Warrant. |
| 2023-12-14 | The Court granted the application for leave to intervene and stay discovery, staying discovery until June 25, 2024, or until the criminal case reached its conclusion at the trial level. |
| 2024-01-25 | Another purported stockholder derivative complaint was filed in the Court of Chancery of the State of Delaware, entitled Dutkiewicz v. Acuitas Group Holdings LLC (Acuitas), Case No. 2024-0068 |
| 2024-02-02 | The Court issued an order granting the Companys motion to dismiss in its entirety and providing lead plaintiff leave to amend. |
| 2024-02 | The Company implemented restructuring plans as part of management's continued cost saving measures in order to reduce its operating costs, optimize its business model and help align with its previously stated strategic initiatives. |
| 2024-03-05 | Lead plaintiff filed its Third Amended Complaint, which asserted the same claims, against the same defendants for the same purported class period. |
| 2024-03-19 | The Company filed its motion to dismiss the Third Amended Complaint. |
| 2024-03-28 | The Company and each holder of a Public Offering Warrant entered into a waiver and consent agreement (collectively, the Public Offering Investor Waivers), pursuant to which such holder agreed to waive, with respect to the transactions contemplated by the Sixth Amendment (as defined and described in Note 7 below), certain limitations and prohibitions in the securities purchase agreement pursuant to which the Public Offering Warrants were issued that otherwise would have prohibited the Company from entering into Sixth Amendment and consummating the transactions contemplated thereby. |
| 2024-04-08 | The parties in the Vega action did the same. |
| 2024-06-21 | A federal jury convicted Mr. Peizer of one count of securities fraud and two counts of insider trading. |
| 2024-06-25 | The Court lifted the stay on discovery and ordered (a) a further status conference to be held August 29, 2024, at 9:00 a.m., (b) the parties to meet and confer in advance of that status conference regarding a new case schedule and (c) the parties to submit a joint status report in advance thereof. |
| 2024-07-11 | The parties also stipulated to stay the matter pending a ruling on Ontraks motion to dismiss in the Consolidated Class Action. |
| 2024-08-26 | The parties submitted a joint status report and proposed case schedule tying remaining dates to the resolution of certain document production issues, which the Court entered on August 27, 2024. |
| 2024-09-03 | The Court granted the Company's motion to dismiss the Third Amended Complaint and dismissed the Third Amended Complaint with prejudice. |
| 2024-09-10 | Following stockholder approval of a proposal obtained at the annual meeting of the Company's stockholders held on September 10, 2024, o n September 23, 2024, the Company effected a 1-for-15 reverse stock split (the 2024 Reverse Stock Split). |
| 2024-09-23 | The Companys common stock began trading on The Nasdaq Capital Market on a post-split basis at the open of trading on September 23, 2024. |
| 2024-09-30 | Lead plaintiff filed his Notice of Appeal. |
| 2024-10-02 | The Company was notified by a health plan customer of its intent not to continue using the Companys services after December 2024. |
| 2024-12-13 | Pursuant to a stipulation of the parties entered by the Court, the defendants in the Consolidated Derivative Action filed their Motion to Dismiss the complaint for failure to sufficiently plead demand futility (to which the Company thereafter joined) and to state a claim under Federal Rules of Civil Procedure 12(b)(6) and 23.1 and in the alternative stay the action pending the appeal in the Consolidated Class Action. |
| 2024-12-18 | After the stay entered on July 11, 2024 expired of its own accord and pursuant to a stipulation of the parties entered by the Court, the defendants in the Dutkiewicz action filed their Motion to Dismiss the complaint for failure to sufficiently plead demand futility (in which the Company joined) and to state a claim under Federal Rules of Civil Procedure 12(b)(6) and 23.1 and in the alternative stay the action pending the appeal in the Consolidated Class Action. |
| 2024-12-31 | All members related to this health plan customer who had not otherwise graduated from the Ontrak program were disenrolled as of December 31, 2024. |
| 2025-01-31 | Lead plaintiff filed his Opening Brief; the Company filed its Answering Brief on April 2, 2025. |
| 2025-02-05 | The Court set a trial date of June 8, 2026, and attendant discovery and other case dates. |
| 2025-02-10 | Plaintiff responded by filing an Amended Complaint. |
| 2025-02-18 | We extended the contract with this customer for an additional three years through December 31, 2027, and extended the minimum guarantee of aggregate invoice contractual period end date from December 31, 2024 to June 30, 2025. |
| 2025-02-19 | The parties stipulated to stay defendants response until 21 days after sentencing in the Peizer action. |
| 2025-04-08 | The Company, Acuitas and Mr. Peizer entered into an agreement under which (i) Acuitas waived (a) any non-compliance and/or violation of each of the recurring revenue and liquidity covenants in the Keep Well Agreement through and including June 30, 2025, and (b) solely with respect to the Companys consolidated financial statements for the year ended December 31, 2024, any non-compliance and/or violation of the covenant in the Keep Well Agreement requiring that such financial statements and the report of the Companys auditor thereon be unqualified as to going concern; and (ii) the Company agreed that the foregoing waivers are in satisfaction of the Companys claim to, and that the Company will not seek, restitution under the Mandatory Victim Restitution Act, 18 U.S.C. 3663A and the Victim and Witness Protection Act, 18 U.S.C. 3663 with respect to the matters adjudicated in United States v. Terren S. Peizer, Court Docket 2:23-CR-89. |
| 2025-04-29 | The Court found that Mr. Peizers insider trading had resulted in avoided losses of $12,711,324 and ordered Mr. Peizer to forfeit that amount. |
| 2025-05-09 | The Company issued a Demand Note to Acuitas in the original principal amount of $0.5 million, and in connection therewith, the Company issued to Acuitas a Demand Warrant to purchase approximately 609,756 shares of the Companys common stock with an exercise price of $1.64. |
| 2025-05-14 | As of May 14, 2025, there were 4,217,848 shares of the registrant's common stock, $0.0001 par value per share, outstanding. |
| 2025-05-19 | The Company and Acuitas entered into an agreement (the May 2025 Agreement) relating to Keep Well Agreement. Under the May 2025 Agreement, Acuitas committed to purchase from the Company (i) up to $5.0 million in principal amount of Demand Notes (as defined in Note 7 of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report) and (ii) up to $5.0 million in principal amount of senior secured non-convertible promissory notes payable upon demand of the holder. |
| 2025-05-23 | Plaintiff's optional responsive brief is due May 23, 2025. |
| 2025-06-23 | Mr. Peizer is set to be sentenced on June 23, 2025. |
| 2025-06-30 | Acuitas waived any non-compliance and/or violation of each of those covenants through June 30, 2025. |
| 2025-06-30 | If all $1.1 million is not invoiced to this customer by June 30, 2025, the shortfall will be invoiced to the customer on June 30, 2025, at which time revenue will be evaluated for recognition. |
| 2025-11-04 | The Court set a status conference for November 4, 2025. |
| 2026-06-08 | The Court set a trial date of June 8, 2026, and attendant discovery and other case dates. |
| 2027-12-31 | We extended the contract with this customer for an additional three years through December 31, 2027, and extended the minimum guarantee of aggregate invoice contractual period end date from December 31, 2024 to June 30, 2025. |
Keywords
financial results, going concern, Keep Well Agreement, revenue, net loss, Ontrak, liquidity, debt, covenants, Acuitas
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