Sharecare, Inc. (NASDAQ:SHCR) Q4 2022 Earnings Call Transcript

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Justin Ferrero: Yeah. So we are making significant investments to support largely bringing on 900,000 lives. If you just put that in perspective, that’s a massive lift between Q4 and Q1. And so we overinvested to make sure that our delivery for those customers was flawless and has gone extremely well. We mentioned on the last call that we think that this business can be a mid-30s gross margin business long-term and that’s what we believe. So that’s ultimately how we will model this out. In order to deliver, we had to use outsourced partners, which is why it’s showing up in the cost of sales line. But over the course of this year, we will optimize, we will start to bring more of those resources in-house and so you will see the gross margin begin to expand through the course of this year, and ultimately, our belief is that this is a 35% plus gross margin business for us as you look to 2024 and beyond. Jaffry, is anything you would like to add to that?

Jaffry Mohammed: No. You covered it pretty much.

Craig Hettenbach: Is it specific to enterprise or blended, that’s enterprise?

Justin Ferrero: No. No. No. That’s just — I thought you were referring to the advocacy of offering. So that’s just around the Sharecare+, like, what we have been talking about here with Carillon. So enterprise as a whole we believe will be back to where we were, which is in the 50% to 55% long-term.

Jaffry Mohammed: Yeah. Justin, you covered all, one thing which I would add is, the asset that we have, I mean, accumulated in terms of the analytics and precision on the clinical side, that give us some ability on the pricing side of the equation to take more shared savings for our customers. And as Jeff said, about the example of Lennar, this is where we are going in with the proposition, matching the market, beating the competition and then adding more value to our customers who some of them are running over $100 million in their employee benefits on the medical side. So there are upsides on the shared savings as we bend the cost curve through containment of an emergency room with an excessive visit for both chronic and episodic care, that’s where the margin improvements will also come apart from what Justin said.

Justin Ferrero: Yeah. So just putting a thing, just remember, last quarter, we were 47%, 48% gross margin. And so with this large customer and outsourcing, we book all of those resources that support those 900,000 new lives in the cost of sales line. As we bring those in-house, which we are planning throughout the course of this year and obviously into 2024, that will be split, right? It won’t all show up in the cost of sales line. So we see in the next 12 months returning back to our normalized enterprise gross margins, which have been running in that 50% range.

Craig Hettenbach: Got it. Thanks for that color. And then last question for Jeff. You mentioned or alluded to potential business combinations in enterprise. Can you touch on just maybe be it the importance of scale or capabilities like how do you take some of the momentum you have in enterprise and what could even elevate it further through any potential combinations?

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