One Medical losses double expectations in Q1 as chain preps for Baylor Scott & White partnership

Dive Brief:

  • One Medical’s earnings per share loss was about double what analysts expected in the first quarter, sending its stock plummeting and continuing a downward trend started earlier this year after the Google-backed chain of medical clinics faced criticism for inappropriate coronavirus vaccination practices.
  • The San Francisco-based company reported a loss of $39.3 million, or 29 cents a share, on revenue of $121.4 million. Analysts on consensus expected One Medical to report a loss of 14 cents a share on sales of $116.2 million.
  • Despite the heavier loss, One Medical remains bullish on growth. The provider said Wednesday it plans to enter the Dallas-Fort Worth market through a partnership with Baylor Scott & White, the biggest nonprofit health system in Texas.

Dive Insight:

Like many other tech- and consumer-focused companies, One Medical, which went public in January last year, has seen accelerated growth during the pandemic. But it hasn’t been entirely smooth sailing: One Medical stock hit a peak in mid-February but has fluctuated since, falling 35% over the past three months though still up 49% since its IPO.

One Medical shares have fallen more than 14% since it released its first quarter results aftermarket Wednesday.

Rebecca Pifer/Healthcare Dive, NYSE data

That decline is not unique to One Medical, however — numerous digital health companies have seen their stock contract in the past few months amid investor concerns about the sustainability of digitally delivered or augmented care post-COVID-19.

But the chain’s stock has suffered following accusations of coronavirus vaccine favoritism and lax distribution oversight late February. Reports found the chain allowed family and friends of company leadership, along with younger, healthier people, to receive the shot at a time when supplies were scarce and most states guided providers to prioritize elderly and high-risk individuals.

Numerous state departments of health cut ties with One Medical following the allegations, which also sparked a congressional investigation. CEO Amir Dan Rubin has strongly refuted the claims, calling them “gross mischaracterizations” in early March.

One Medical offers concierge healthcare direct-to-consumer and also has about 8,000 employer clients, including large corporations like Google, which is a major investor in the business and made up about a 10% of One Medical’s revenue at the time of its IPO.

In the first quarter, One Medical’s revenue exceeded analyst expectations and was up 54% year over year.

Membership revenue was $20.2 million, growing 33% year over year, and net patient service revenue was $44.5 million, up 30% year over year. Its topline also included a $1.8 million income grant from the provider fund set up by the Coronavirus Aid, Relief, and Economic Security Act.

However, its loss was significantly greater than Wall Street expected, growing 16% compared to the same time last year.

Management didn’t address the wide loss miss on the call, instead highlighting One Medical’s membership and market growth. The chain notched record net new membership addition in the first quarter: Membership jumped 31% year over year to 598,000 members.

The new partnership with system Baylor Scott & White represents One Medical’s 19th planned market entry and third in Texas. The chain launched in Austin at the end of last year and has plans to expand to Houston. Other previously announced market entries include Raleigh-Durham, North Carolina; Columbus, Ohio; Milwaukee; and Miami.

One Medical is on track to expand its network from just nine in-person markets at the time of its IPO to 22 markets representing almost 40% of the commercially insured population in the U.S., Rubin said on a Wednesday call with investors.

The medical network also recently inked a partnership with employee benefits solutions company ParetoHealth, which has about 1,400 small and mid-size employer clients in the U.S. As part of the deal, One Medical will expand its network in the Midwest and Southeast to reach ParetoHealth clients in Alabama and Kansas City, Rubin said.

Jefferies analyst Stephanie Wissink called the partnership with the payer “highly intriguing,” as it opens the door for down-market expansion. Management said One Medical is open to partnerships with larger payers, but in the near-term remains focused on expanding its footprint among employers and health systems.

The company maintained its full-year guidance following the results, forecasting sales of $465 million to $485 million in 2021, with between $111 million and $118 million in the second quarter.

The guidance “suggests a deceleration in both revenue and membership growth,” SVB Leerink analyst Stephanie Davis said in a note on the results. Davis noted the “severe” slowdown could be due to management conservatism, but “anything short of perfection is not enough for a high multiple name in this market.”

A potential headwind for the medical network is a drop in COVID-19 testing, though the ongoing need for coronavirus vaccines and potential booster shots later in the year, along with routine flu vaccines, could bolster finances throughout 2021.

On the call, CFO Bjorn Thaler said the company saw a “meaningful drop” in diagnostic testing starting in April, earlier than One Medical predicted.

“We had initially expected COVID-19 testing volumes to decline meaningfully in the second half of 2021,” Thaler said. ”At this point, we do not expect testing volumes to return to prior levels.”