1life Healthcare Inc (ONEM) Q2 2021 Earnings Call Transcript

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1life Healthcare Inc (ONEM)
Q2 2021 Earnings Call
Aug 4, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the One Medical Second Quarter 2021 Earnings Conference Call. At this time, all lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to your speaker for today, Ivy Tseng, Senior Corporate Counsel at One Medical. You may begin.

Ivy Tseng -- Senior Corporate Counsel

Thank you, operator. Hello everyone and welcome to One Medical Fiscal 2021 Second Quarter Earnings Call. I am joined today by Amir Rubin, Chair and CEO of One Medical and Bjorn Thaler, Chief Financial Officer of One Medical. A complete disclosure of our results can be found in our press release issued earlier today, as well as in our related Form 8-K, all of which are available on our website at investor.onemedical.com. As a reminder, today's call is being recorded and a replay will be available on our website.

As part of our comments today, we will make forward-looking statements. These statements include statements regarding our pending acquisition Iora Health and are based on management's current views, expectations and assumptions and are subject to multiple risks and uncertainties. Actual results may differ materially and we disclaim any obligation to update any forward-looking statements or outlook. Please refer to the risk factors in our most recent annual report as updated from time to time by our other reports and filings with the SEC, including our quarterly reports. We believe that the COVID-19 pandemic creates particular complexity when it comes to providing a forward-looking view of the business. And we are providing our guidance on a good state basis per recent SEC recommendations. We would like to specifically caution investors that our future performance will be harder to predict for the foreseeable future. Our forward-looking statements are based on assumptions that we believe to be reasonable as of today's date, August 4, 2021. Information contained in today's statements should not be relied upon as representing our estimates as of any subsequent date.

Of note, it is One Medical's policy to neither reiterate nor adjust the financial guidance provided on today's call unless it is also done through a public disclosure, such as a press release or through the filing of a Form 8-K. Today, we will discuss certain non-GAAP metrics that we believe aid in the understanding of our financial results. A historical reconciliation to comparable GAAP metrics can be found in today's earnings release. Finally, during the call, we may offer incremental metrics to provide greater insight into the dynamic of our business. These details may be onetime in nature and we may or may not provide updates in the future.

And with that, I shall turn the call over to Amir and Bjorn for their prepared remarks and to take your questions.

Amir Rubin -- Chairman, Chief Executive Officer & President

Thank you, Ivy. Welcome everyone. And today we are pleased to share results from our second quarter and update you on how we continue to perform innovate and grow.

In Q2, we delivered strong results as our human-centered and technology-powered model is resonating with a growing number of employers and consumers. Our membership count surpassed the high end of our guidance of 620,000 members for the quarter, nicely highlighting our momentum when considering we surpassed 500,000 members only a few quarters ago. Similarly, our revenue also exceeded the high end of our guidance. We achieved all this by delivering compassionate and impactful care through fabulous team members and our technology, delighting our growing membership base. We also continued our focus on clinical innovation. For example, earlier in Q2 we highlighted the results of a peer reviewed study showcasing how our model delivered outsized impacts in controlling diabetes, thereby enabling improved member health outcomes.

We also continued advancing the power of our technology. For example, through further machine learning approaches that make navigating healthcare easier for our members and team. We also continued our strong growth this quarter, leveraging the multipronged approach that we laid out during our IPO, including growing across markets in our product portfolio and with our partners. Additionally, building upon our advancements, we are excited for the proposed acquisition of Iora Health and the opportunities it presents to extend our model to serve more individuals across every stage of life from children to adults to seniors.

Turning to our Q2 performance, we had a strong quarter. We ended Q2 with 621,000 members growing our membership base 31% year-over-year. We added 23,000 members during the quarter, and it added more than 145,000 members over the past 12 months. We delivered $120 million in Q2 net revenue, which was up 54% year-over-year. We delivered a Q2 care margin of $53 million, or 44% of net revenue, which represents our highest quarterly care margin ever reported even with our ongoing entry into new markets. We also delivered Q2 adjusted EBITDA of positive $7 million. Both our care margin and adjusted EBITDA results showcased the leverage inherent in our model.

On the heels of four back to back strong quarters with positive adjusted EBITDA, we are pleased to announce today that we expect our full year 2021 stand-alone adjusted EBITDA to be approximately breakeven. And while we are not providing 2022 guidance at this point, we are pleased to update our long-term goal for One Medical stand-alone of achieving sustained positive adjusted EBITDA from year-end 2022, to year-end 2021, a full year ahead of the schedule we laid out as part of our IPO. In addition to our strong financial performance, our team continued to serve our members in our communities with a powerful technology and operating platform that combines nationwide on demand as well as scheduled telemedicine, proactive outbound digital population health services, convenient in person care, testing and vaccination services, and longitudinal chronic care and virtual behavioral health integrated into primary care.

Our team also continued to deliver pediatric services for whole family care, workplace screening and testing services through our healthy together program, vaccination services, including for COVID-19, mindset behavioral health services, One Medical Now national digital health services, and coordination of specialty care through connectivity with our health network partners. We see that our technology powered multimodal care model, coupled with our breadth and depth of services continues to be a strong differentiator in the market.

During Q2, we also continue to innovate with a technology powered clinical care model. We were pleased to share results of a peer reviewed publication, highlighting how One Medical members in our diabetes management program saw significant improvements in both glucose control and cholesterol level levels. Notably in the study, average hemoglobin A1C levels decreased by approximately two point. This two point reduction is a significant improvement when compared to similar studies highlighting virtual wellness solutions that did not include primary care to manage chronic care and reported improvements of only up to one point compared to our two points.

For context, previous studies have found that a one point reduction in hemoglobin a A1C is linked to a reduction in risk of death by 21%, heart attacks by 14% and microvascular complications by 37%. Building on our previously published study last year in JAMA Network Open that showed a 45% reduction in total cost of care, this is yet another proof point that our members centered and technology powered primary care model can generate superior outcomes. We also continue to innovate with our technology platform. We furthered our data interoperability with more health network partners and information exchanges, allowing for more sharing of information across a continuum of setting and advancing our role in owning the complexity of navigating care on behalf of our members.

We also continue to expand our machine learning models to support streamlined analysis and sorting of external and internal data to make it more actionable with reduced administrative burdens on our team. This past quarter, we also continue to see many diverse opportunities for growth. As we laid out during the IPO, these opportunities include growing with consumers, and with enterprise clients, growing in existing markets and in new markets, growing with existing partners, and with new partnerships, growing service offerings and growing the populations we reach. Today, we have demonstrated a track record of successfully executing across these growth avenues.

We continue to see strong membership growth across our consumer and enterprise channel with our model attracting a diverse set of enterprise clients. In Q2, we began new relationships with organizations in industries across legal, financial services, manufacturing, construction, insurance, real estate, commerce, software and consumer goods. We also continue to serve members and importers with a growing set of service offerings. With recent examples, including One Medical Now, One Medical for Kids, Healthy Together Workplace Return Services and Mindset Behavioral Health. For example, of the top 10 largest clients we signed in the quarter, 60% purchased multiple offerings, highlighting how our robust solutions that continues to attract and serve a diverse client base. We also continue to expanding our market presence and our health network partnerships, creating more opportunities for consumer and enterprise membership growth, and more coordinated care across a continuum of settings.

In addition to our nationwide digital health coverage, we are on track to expand in person coverage from nine markets at the time of our IPO to 22 markets next year before considering Iora. Our health network partnerships are advancing clinically and digitally integrated care where we can further coordinate care and help reduce avoidable cost, while also advancing seamless service by owning the complexity of navigating care for our members. This past quarter, we're also excited to open our doors in new markets such as Kansas City and Birmingham and Huntsville, Alabama, with the launch of our partnership with ParetoHealth. In total, we opened 14 new offices during Q2 across both new and existing markets, ending the quarter with 124 total offices, along with nationwide digital health coverage.

We also continue to make progress in preparation for launching our upcoming new markets, which include Columbus, Ohio, Houston, Texas, Milwaukee, Wisconsin, Raleigh, Durham, North Carolina, the Miami, South Florida region and Dallas Fort Worth Texas. Accordingly, continue to see tremendous opportunities for one more on waves for growth in the employer-based insurance market, with a total addressable market of approximately $170 billion for primary care in the commercial segment in the United States. We have demonstrated a strong track record in engaging with members to help drive better health outcomes and lower healthcare costs. Moreover, we believe we can take these core strengths and also apply them to further serve the senior population in risk bearing programs in Medicare through a proposed acquisition of Iora Health. The acquisition would meaningfully expand our potential market opportunity, adding approximately $700 billion to create a combined total addressable market of $870 billion across commercial and Medicare segments, including Medicare Advantage, and the new Medicare Direct Contracting program.

As we shared on the transaction announcement call, our vision with Iora is to create a premier national member based technology powered, primary care centered healthcare organization. We believe we will be uniquely positioned to serve people nationwide and across every stage of life, from pediatrics through the golden years. Together, we will be able to provide nationwide digital health coverage and in person care in 28 markets, which could reach more than 120 million people or nearly 40% of the entire U.S. population. We will bring together One Medical's proven capabilities to attract, delight and retain members as well as to manage ongoing chronic conditions while helping to reduce healthcare costs, with Iora's strength in delivering outstanding high service high quality value based care to seniors under global risk models. As you saw in the cohort data was shared with you in the Form S-4 filed with the SEC, Iora has been able to deliver outstanding outcomes under full risk while successfully managing third party medical costs. Together, we will be able to further serve members and their families as they age into Medicare and migrate from employer based insurance into Medicare.

We will also extend our positions as a premier place to practice medicine. By offering opportunities across a spectrum of patient populations geography and digital health model. We will also be able to further coordinate care with health network partners to deliver better health outcomes and help lower cost.

Most importantly, we plan to continue to provide our members with a modernized approach to in person and digital healthcare with advanced capabilities for population health and care management within a range of reimbursement models, including full risk models. We believe the acquisition of Iora will further One Medical's position as a leader in consumer driven technology powered high quality value-based healthcare that will support our members in living healthier lives, while simultaneously saving costs and as we helped them own the complexity of navigating healthcare across a complex ecosystem.

In closing, we delivered in an outstanding Q2 and first half of 2021 as our team and technology help us to continue to perform, innovate and grow. With our strong performance, we are now expecting our full year membership to reach 670,000 680,000 members, our full year revenue to reach $475 million to $485 million and our annual adjusted EBITDA to be approximately breakeven.

We continue to perform with impact to our more than 621,000 members, as our multimodal care model technology platform, geographic reach and breadth and depth of services remained strong and growing differentiators in the market. We continue to innovate in our care model, recently highlighting our technology powered and team based approach. Embedding Chronic Care Management into a member based primary care model delivers better results for consumers and employers. And we continue to execute across our many growth opportunities, serving more consumers and enterprise clients, expanding our footprint, aligning with premier partners and growing our service offerings.

While we have seen much success today, we believe we are just getting started in our mission to transform healthcare. We're also excited by the opportunity to grow with Iora Health to expand our model to further serve senior population, creating a significant opportunity to serve members of all ages and across every stage of life. We look forward to keeping you updated on our progress and appreciate your engagement with us.

Now, let me turn it over to our CFO, Bjorn Thaler.

Bjorn Thaler -- Chief Financial Officer

Thank you, Amir and hello to everyone on today's call. I look forward to providing you an update today on our second quarter results, which highlight the continued momentum in our business as well as an update on our Q3 and full year 2021 outlook. And just like Amir shared the strategic nature of the Iowa transaction, I will briefly highlight its financial effectiveness. We would also encourage everyone to read the Form S-4 we filed with the SEC in connection with the acquisition that further highlights the strength of Iora's model and the exciting opportunity ahead for our combined organization.

First, turning to Q2. We expanded our membership base by 31% year-over-year, ending the quarter was 621,000 members 1000 members higher than the high end of our guidance. As a reminder, our membership count continues to exclude virtual only One Medical Now users and any temporary users we care for as part of our community service during this pandemic.

Turning to revenue. In total, we delivered $120.4 million in net revenue in Q2, up 54% year-over-year and $2 million at the high end of our guidance. This Avenue growth was driven in part by our continued strong growth in membership revenue, which was $20.8 million, up $3.2 million year-over-year and which reflects in part the higher than anticipated membership number I shared earlier. Our strong revenue performance was also driven by our second quarter net patient service revenue of $43.4 million, which was up 81% year-over-year. This growth was driven in part by our continued strong membership growth and the normalization of primary care consumption compared to the same period last year during shelter in place orders.

Finally, our Q2 partnership revenue of $56.1 million increased 65% year-over-year. This growth was driven by our strong membership growth, continued annualization of select markets moving from net patient service revenue to partnership revenue and by the continued strong results of our healthy together workplace reentry program where we partner with enterprise clients such as employers, schools and universities to help them in their COVID-19 response.

Moving down to P&L, we delivered Q2 care margin of $52.5 million or 44% of net revenue. We were pleased to deliver our highest quarterly care margin ever reported, which reflects the leverage capabilities in our model, while at the same time we opened 14 new offices during the quarter, and continue to prepare to enter six new markets over the next 12 months. All of which tend to reduce our care margin in the near term.

Moving below cost of care, our remaining Q2 operating expenses, excluding our non-GAAP adjustments drove $45.6 million. And we're up 15% year-over-year as we continue to invest in sales and marketing, technology and support functions compared to our revenue increase of 54%, this too reflects the leverage capabilities in our model. As a result of our Q2 revenue and expense performance, our Q2 adjusted EBITDA was positive $7 million was 6% of net revenue, compared to a loss of $15.2 million, or 19% of net revenue in Q2 2020.

Turning to our balance sheet, as of the end of Q2, we had $653.8 million in total cash and short term marketable securities. We continue to believe that this provides us with ample liquidity to fund our continued responsible growth, as well as the integration and operation of Iora over the next several years.

Let us now turn to guidance. We expect to finish Q3 with a total membership count in the range of 640,000 to 650,000 members. And we expect to deliver Q3 net revenue in the range of $113 million to $120 million. Please keep in mind that our Q3 revenue guidance reflects typical seasonal trends and assumes relatively modest contribution from COVID-19 testing. For the full year, we expect to finish 2021 with the total membership count in the range of 670,000 to 680,000, which continues to reflect our strong and growing value proposition in the marketplace. We also expect to deliver annual net revenue of approximately $475 million to $485 million and with care margin of approximately $185 million to $195 million and annual adjusted EBITDA to be approximately breakeven.

On the heels of four back to back strong quarters with positive adjusted EBITDA, we are therefore pleased to also update our long-term goal for One Medical stand-alone of achieving sustained positive EBITDA from year-end 2020 to two year-end 2021, a full year ahead of the schedule we laid out as part of our IPO. We are very pleased to provide this update, which demonstrates the ongoing strength of our business, our ability to deliver responsible growth at scale, as well as the attractive leverage and unit economics inherent in our model.

Before we close, let me briefly share a few thoughts on our pending acquisition of Iora. We consider the ability to derive profitable membership growth, engage with our members improve their health and lower their healthcare costs core strengths of One Medical. And we are particularly excited about doubling down on these strength with a Iora and Medicare eligibles. In combination with Iora, we will be able to serve more members with our human centered and technology enabled model and enable better health outcomes, while at the same time working to further lower the total cost of care. This can generate more savings for our members, Health Network partners, enterprise clients and payers, which will continue to make our service offering even more differentiated and attractive.

We will also expand the in person of each of our model to 28 markets from 22 markets, taking yet another step in creating a national primary care brand that delights members through exceptional care, both virtually across the nation and in a growing number of in person markets. We also believe that this transaction can provide attractive revenue growth opportunities, coupled with an increase in our adjusted EBITDA margin profile. These financial opportunities will support us in delivering great value for our shareholders as well as advance our efforts in serving all of our key stakeholders. Please note, that the guidance we provided us today does not include the impact of Iora on our business, and that we will provide you with an updated guidance when the acquisition of Iora closes, which we currently expect to happen in Q3.

In closing, we are pleased to deliver another quarter of strong financial results, including strong membership and revenue growth, coupled with the highest reported quarterly care margin in our history. We remain on track to deliver a great 2021 and are particularly pleased to guide to sustain stand-alone adjusted EBITDA break even one year early. Our value proposition continues to resonate and grow in the market, as we continue to leverage our unique strengths to improve health outcomes for members, while at the same time reducing healthcare costs. We believe the de strengths together with Iora position us to deliver impactful results to the Medicare population and will also continue to provide long-term tailwinds to our revenue and margins. And we believe that Iora acquisition will further enable us to transform healthcare at scale, allowing us to serve nearly 40% of the U.S. population in person in our combined 28 markets, and nationally through our virtual offering, helping us create a national model for exceptional high quality care.

We thank you for your time today. And we will now open up the call for questions.

Questions and Answers:

Operator

[Operator Instructions]

Our first question comes from the line of Ricky Goldwasser with Morgan Stanley.

Connor Oleferchik -- Morgan Stanley -- Analyst

Hey, thanks. This is Connor on for Ricky. Could you provide us with an update on the selling season and what you're hearing from prospective employer clients? Which pin points are prospective clients most focused on? And are there any particular solutions or service lines that are resonating more with the pipeline, thanks.

Amir Rubin -- Chairman, Chief Executive Officer & President

Thanks, Connor for the question. This is Amir. We're feeling very positive about the selling season. And really, we see that our model continues to be differentiated and standout in the marketplace. As you know, we combined a membership primary care model with bundled digital health inbound as well as outbound population health with in person care. And that in person care can be for well, woman care for chronic disease management could also be for vaccines and testing. So we're finding our combination of our model to be very strong. As we mentioned in the earnings call, as we saw in the last quarter, we saw sales across in a ray of different employers, importer segments and industry types. And as we also have mentioned in the earnings script of the top 10 accounts, we sold in the last quarter 60% of them have selected multiples of our offerings. So that could include our One Medical Now or our Mindset Behavioral Health Solution. So, we're really seeing employers find that an integrated solution, integrating chronic disease management, digital health, vaccination, COVID services continue to be very powerful. And we anticipate that continuing into the future.

Connor Oleferchik -- Morgan Stanley -- Analyst

Great, thanks. And as a follow up maybe for Bjorn, could you maybe walk us through and give some more color around some of the puts and takes and second half guidance? Especially maybe thinking about the fourth quarter, what kind of assumptions does One Medical have around flu activity and vaccination campaigns and testing in Q4. Thanks.

Bjorn Thaler -- Chief Financial Officer

Yes, absolutely. Thank you. So look, we're obviously very proud of our performance in the first half, coming in $2 million of off the high end of our guidance just for Q2. And when we look sort of at the quarter-over-quarter progression here, the first thing to just keep in mind is that about 64% of our Q2 revenue was generated either through membership fees or partnership fees. And as you know, these tend to be sort of less valuable than the net patient service revenue line. So, when I then sort of look at the volumes of services only, when you look at the quarters, certainly Q1 clearly still had a lot of the tailwinds that we talked about in the past, including high COVID testing volumes, including pent up demand for healthcare services, such as annual physicals, deferred chronic care and those sort of things.

Going into Q2, we said that we were expecting those tailwinds to abate and they did. Looking back, they abated a little slower than what we had anticipated causing us to outperform on the revenue side, but they certainly did abate. And now as we sort of look forward into Q3, I think the question is, whether some of these tailwinds reemerge or not. And certainly, what's baked into our guidance, both for Q3 and Q4 is thankfully, largely assumed to return to sort of more normal demand patterns with a modest amount of COVID testing for example. Also no particular sort of third booster shot for vaccines is baked in just as well early-just as much as we do not bake into shelter in place. And we don't bake into the guidance, any sort of pent up demand for deferred care as well.

So really, if we think about Q3 and Q4, it's in many ways a return to more normal patterns. And to the extent that, that we see differences here relative to the Delta valiant, or what have you. That could be one of two things extra stuff before the quarter ended remainder of the year.

Operator

Thank you. Our next question comes from the line of Lisa Gill with JPMorgan.

Lisa Gill -- JPMorgan -- Analyst

Great. Thanks very much. Good afternoon, Amir and Bjorn. Congratulations on the EBITDA and the quarter and the go forward guidance. Bjorn, I just want to start with the care margin, which was great in the quarter, and you talked about leverage. How much of that leverage is coming from virtual care would be my first question? And then a bigger question for you. Amir would be you talked about the peer review, you talked about chronic conditions, diabetes, cholesterol, etcetera. Do you think that there's an opportunity to work with enterprises and employers around different programs and perhaps pay some level of capitation on some of these?

Bjorn Thaler -- Chief Financial Officer

Yes, absolutely. I'll start on your first part, and then Amir can add on the second question here. Certainly, when we look at the care margin, the first thing to point out is sort of the leverage that we built into our model. The outperformance on the revenue side does flow, what does tend to flow through the remainder of the P&L as well. And I think you'll see this in Q2 for both the key margin and also the, the EBITDA line here. Yes, just on a side note here, I think as we look at the rest of the year, we do expect that to moderate here a little bit as we continue to open new offices. If I exclude the Pareto offices, we've opened 12 new offices in the first six months of the year. And if you recall, we said we're going to open about 30 to 40 new offices for the full year. So we definitely do have a higher proportion of offices in the second year, together with the six new markets that we plan on entering in the next 12 months.

So that will moderate here a little bit. But certainly, specifically to your question on virtual. It doesn't have that much of an impact on our operations today. When you're take a step back, for like for like services, certainly to date, we are being reimbursed approximately the same whether if services being performed virtually or in person in our offices. I think in the long-term, you certainly could get to a place where you say, look, it's not just a member that can take these calls and interactions from the safety of yourself, but also our providers, which will help us in becoming more efficient or even more efficient with our assets certainly. But in the near term, that's not been a big driver in our Q2 performance.

Amir Rubin -- Chairman, Chief Executive Officer & President

And maybe Lisa, to take the second part of your question, which was could employers work with us on programs to help them save money and even take capitation? Well, certainly as we noted here today in the earnings call, we have plenty of proof points that our model delivers outsized impacts. Today we talked about the study that we released in JMIR that showed that we reduced hemoglobin A1C and took patients really from uncontrolled to control diabetes, a two-point reduction. And this was about double any other reduction seen in virtual only solution. So, I think that's a powerful proof point on the impact on kind of outcomes and quality of care. And the study that we cited last year from the Journal of the American Medical Association, JAMA Network Open where we showed a 45% reduction in healthcare costs, certainly shows that we can reduce those costs. And frankly, we'd be delighted to share the savings of those costs. What that study showed was actually about a 26% reduction in prescription costs, 33% reduction in emergency room costs, 43% reduction in surgical specialty costs and 54% reduction in specialist costs. So we're absolutely pleased and feel very confident about the impacts we make there.

Most of the employer market is not organized under a global capitated or capitated model. Many employers are in PPO models with high deductibles and or HSA is or some combination. So kind of the power of our model is we can fit into their existing insurance structure and show that we can save money. And at some level, we've created a membership model. You could argue we're taking some capitation in a fixed payment there in terms of the membership model. But kind of the power of our model is an employer doesn't have to do anything complex in terms of contracting, to get really high engagement, get really great medical outcomes and to be able to save money within their existing insurance programs.

Operator

Our next question comes from the line of Elizabeth Anderson with Evercore.

Elizabeth Anderson -- Evercore ISI -- Analyst

Hi, guys. Thanks so much for the question. And congrats on the quarter. I was wondering if you could give me-I know, the transaction still hasn't closed yet. But I was wondering as you've sort of spent more time together even pre-close and at planning, what have been your biggest changes or sort of areas that you're most excited about so far?

Amir Rubin -- Chairman, Chief Executive Officer & President

Well, great. Thank you, Elizabeth for the question. I think as we mentioned in our S-4 this is really an exciting opportunity to bring together two human centered technology powered primary care platforms and to be able to transform healthcare across every stage of life. And really what you had here in One Medical and Iora Health is two companies with very similar DNA, salaried model provider, built for purpose technology, of focus on a great member experience and a focus on delivering value-based care. So that continues to excite us. And certainly nothing has changed in our enthusiasm from what we've described in the S-form. And, as we mentioned in our remarks today, we really believe this allows us to create a premier national member based technology powered primary care organization. And each of us has shown, as we just talked about, we can deliver better health and better care outcomes with lower costs. And to be able to do that from pediatrics to adults into the golden years, we think is very powerful.

Also, as described in the S-4 this gives us an opportunity, really to serve a whole range of people across the family and potentially add dependents in all directions, children, adults, grandparents and be able to serve them. Together, we will be in 28 markets reaching close to 40% of the United States. So we find that very powerful. So that continues to excite us across the enterprise. And we think that positions us to really be a premier national brand and healthcare organization.

Elizabeth Anderson -- Evercore ISI -- Analyst

That's helpful. And just as to sort of think through that and sort of the focus on chronic care and seniors and things like that. Are there any areas, does that change your view on whether you should get more involved in any areas of specialty care?

Amir Rubin -- Chairman, Chief Executive Officer & President

Well, I think both of our models have really been primary care centered. But one of the things that we've done extremely well that we've talked about is these health network partnerships. And that really allows us to develop very tight relationships in coordination with specialists, and to be able to avoid duplicate of testing, to share digital information, to share clinical communications, to coordinate care across the continuum. And we've developed these interfaces and also have leveraged machine learning and other approaches to streamline the sharing of data and risk stratify populations. So we feel this positions us really strongly to advance highly coordinated care, as we move into kind of more complex and ageing populations. So I think building on what we've built with our health network partnerships, that coordination of care capabilities is really, I think, where we shine in better managing coordinated specialty care.

Operator

Our next question comes from the line of George Hill with Deutsche Bank.

George Hill -- Deutsche Bank -- Analyst

Good evening, guys. And thanks for taking the questions. I guess I have one for Bjorn, and one for Amir. I guess Bjorn, on the adjusted EBITDA guidance as it relates to the back half of the year. I guess, given that you've put together four quarters consecutively positive adjusted EBITDA, what would have been the assumptions that might have driven it negative such that the guidance is now kind of positive or up modestly for the year? And Amir, My question is, it seems like coming out of COVID, everybody's talking about all things behavioral these days? Do you see an opportunity to take the business anywhere as it relates to behavioral as a growth opportunity? Or is it just not how you fit about the-does it just not fit in how you feel about the primary care model right now?

Bjorn Thaler -- Chief Financial Officer

Thank you, George. So question about the EBITDA. Yes, there are really a couple of different things, Bjorn here. One, and you heard me earlier in the Q&A actually talked a little bit about the expectation that our peer margin is going to moderate in the second half in parts driven by sort of the additional investments into our expansion and office footprint, etcetera. The other thing that I would just mention here is, that will really continue to invest in our growth on the G&A line and also on the sales and marketing line, whether that is continuing to build our technology our brand presence, whether that is continuing to build our service offering for the members working at our health network partners, enterprise customers providers. So yes, we really want to make sure that we continue to grow in a responsible way. And it also means that we continue to invest in our operations. So that's a little bit of what you're going to see in the second half. And Amir if you want to talk a little bit about the other question.

Amir Rubin -- Chairman, Chief Executive Officer & President

Yes. Thanks, George. Yes, in terms of behavioral, I'd say one of the powerful things about One Medical is we truly do coordinate and integrate care and not just think about it as different pieces. So, for example, some patients may have diabetes issues, behavioral health issues, need help coordinating a mammogram or a pap smear or an IUD insertion, may need a vaccine and also a COVID test. Well, we can do all of that. So our mindset behavioral health program certainly delivers Behavioral Health Solutions to our members. But powerfully it's integrated into primary care. It's our team members in a salary-based model coordinating with primary care providers. And as I mentioned in the prepared remarks, of the top 10 largest sales that we had in the prior quarters, 60% of them had multiple offerings including our mindset behavioral health. So we continue to see that as something that will continue to resonate will continue to be powerful, but particularly powerful because it's integrated into primary care.

Just as we saw with the diabetes solution, we can get outsized or double the performance published performance and diabetes case when things are integrated in a chronic care longitudinal model as product primary care.

Operator

Our next question comes from the line of Steph Wissink with Jefferies.

Steph Wissink -- Jefferies -- Analyst

Thank you. Good afternoon, everyone. Bjorn, this question is for you. I want to just take one more shot at the EBITDA guidance, maybe coming at it from a slightly different direction. If we look at your care margin guidance for the year, it does embed that step back. And if you were to decompartmentalize the preopening burden of some of your centers that you have planned for the back half from your underlying organic care margin? Are you still seeing directional improvement in that underlying rate?

Bjorn Thaler -- Chief Financial Officer

Yes, thank you for that. Yes. I mean, to some extent, it is how to decouple those. Because we're really looking at this as what do we need to do to keep investing in our production and making it even more attractive. And certainly, whether that is investing in technology, whether that is investing into brand, you heard me earlier today talking about sort of building a brand with truly national reach, certainly on the virtual side, but also soon to be able to deliver in person care in 28 markets. So we'll continue to build that. We'll continue to also build an ecosystem of additional services around that. We just talked about behavioral health. We talked in the past about One Medical for Kids, our pediatric service offerings. So, when I think about what is one of the things that makes One Medical special, it's sort of that that interconnected ecosystem of products that we are building. Some you're putting back into the membership to make the membership itself more effective, some allow us to charge additional fees for additional services etcetera, like on the behavioral side. And those are some of the investments that we are going to do particularly in the second half here. Frankly, looking to continue to reinvest in the business and make sure that the growth that we've shown over the last couple of years continues to drive the business forward.

Steph Wissink -- Jefferies -- Analyst

Okay, that's great. My second question is just related to the comments on leverage. So it looks like that $120 million run rate is about the level you would need to kind of get into the low single digit EBITDA contribution level. Is that something we should think about going forward? And you're going to see some incremental margins as we look out into '22, and even into '23 as the business scales both from a membership and a revenue perspective?

Bjorn Thaler -- Chief Financial Officer

Yes, so we obviously provided some financial numbers as well as part of our Form S-4 that also gives you a little bit of a sense of sort of how we are thinking about the ramp here. And again, if we will to focus purely on EBITDA, I think we would ultimately do ourselves to disfavor. Because we do think that there is a lot more growth to ahead. You heard us in the past say that, even our largest market, we are just about 3% market share. So, we'll continue to really invest into that growth. And then, the other thing I would just say, is that obviously, with the addition of Iora, you'll have an additional dynamic here where the more members we sign up, the more near term drag you have on demotion profile. Because, many sort of new members on the Medicare side are not well managed as they sort of come to us in the beginning and over time will improve their health and the outcomes. So that's another dynamic going forward that you might want to think about here.

Operator

Our next question comes from the line of Richard Close with Canaccord.

Richard Close -- Canaccord Genuity -- Analyst

Great, thanks. Congratulations on the quarter. Bjorn, maybe just on that last comment. I know we talked in June, about this a little bit with you guys. But on the adjusted EBITDA, I mean, the care margin losses for Iora, or you just hit on it in terms of new cohorts and whatnot. But we still get this question a lot. Does Iora-do you feel confident or do they have a track record of the older cohorts actually having positive care margin? Any demonstration or any details that you can provide on that would be helpful.

Bjorn Thaler -- Chief Financial Officer

Thank you, Richard. And the short answer is yes. As you can imagine, we've really dug into that as part of our diligence. And I think we gave you some data points there, both at the announcement and then also in the Form S-4 where we show, for example 27 percentage point improvement in the medical expense ratio over five years. So, for example, if you look at the member cohort that they signed up in 2017, in the first year that they came in, they had about 150% medical claims expense ratio that one over the next four years, they use to 76%. So that's the 27 percentage point increase or improvement, I should say over four years. If you look at the 2018 cohort, you've got a similar dynamic here, where they start off very high. And then as they become managed better as their health improves, you see a corresponding decrease in the medical claims expense ratio. The same with the 2019 cohort. So we do feel quite positive obviously about their ability to do that.

And then on top of that, you then layer in, thankfully, what One Medical has been able to do by itself over time. You heard me talk today about the two point reduction in hemoglobin A1C for diabetics, which is more than a virtual only product for example, tends to deliver. You've heard us talk about the 45% cost savings that be published in peer reviewed studies. You've heard us about some of the other cost savings in studies as well. So, when you add those two companies, together with our various coaches, I think we feel very good about our ability to positively impact the health of those Medicare Advantage members and all that flows from that.

Richard Close -- Canaccord Genuity -- Analyst

Okay, that's very helpful. And Amir, I was wondering if you could just talk a little bit about the labor market for you guys. Obviously, you're opening up a decent number of new markets. And just curious your thoughts with respect to any challenges out there that you're seeing?

Amir Rubin -- Chairman, Chief Executive Officer & President

Yes, thanks, Richard. Well, we think this is one of the differentiated advantages of our model. We often talked about how we serve multiple key stakeholders. So of course, we want to delight the consumer, the member and serve employers and payers. We want to integrate across the healthcare ecosystem, but we also want to be the best place to be a team member and the best place to practice medicine. And we've done a number of things here that we believe position ourselves powerfully. So first of all, we've built our own technology. And we've shown with our technology that we can reduce electronic health record tasks. We've spent about 40% less tasks than other providers we've seen. We've ever just salary based model rather than a fee for service compensation model, which the fee for service system kind of encourages short transactional visits, and we try to have relationship based care. We bundled digital health as part of that that provides that coverage that wraparound coverage TUR in person team members. So, we think we're very well positioned to continue to grow and to continue to attract staff differentially and becoming the premier place to practice medicine.

Operator

Our next question comes from the line of Daniel Grosslight with Citi.

Daniel Grosslight -- Citigroup -- Analyst

Thanks for taking the question, guys. And congrats on the strong quarter. I wanted to go back to the Iora acquisition for a bit. You know, on the revenue synergies assumed in the acquisition, you noted in the proxy that you expect new incremental members growing from around 5000 in 2022 to round 22,000 in 2030. I was hoping you could put a finer point on the split of those incremental members between One Medical aging into Iora, how are being referred by One Medical members increased awareness, etcetera?

Amir Rubin -- Chairman, Chief Executive Officer & President

Yes, happy to. I think when you take a step back on Iora to your point, we see a couple of different opportunities for those members to show up here. One, we now have 621,000 members, they all have parents; they all have grandparents. And keep in mind that with a 90 MPs and certainly historically as renewing more than nine out of 10 consumer members, we feel that thankfully those 621,000 members that we have would be great brand ambassadors at the kitchen table when they talk to their parents and grandparents about what's the right health plan to sign up or what's the right to care model to sign up. And we are hoping is that they're going to say it doesn't-the key thing is sign up with somebody who can provide you with One Medical and Iora. That's why use and that's where I'm really, really happy with. That's what we are hoping they will say. In addition to that, you've got the expansion on the markets that you mentioned briefly. The seamless agings of members that are currently One Medical members, and that over time will age into Medicare. And just to give you an example, we have about 2000 to 3000 One Medical members age into Medicare per year on average obviously fluctuates. But that's probably not a bad number to think about.

And, suppose you sign up or suppose you have 2,500 members aging into Medicare, and you can keep half of them either under M&A plan or under the DC Direct contracting model where you take risk, that's 1250 people per year, assuming $100,000 per member per month in revenue. That alone is sort of $15 million of annualized revenue right there. And obviously that is to some extent cumulative as next year, you've got additional people aged into Medicare as well. So that's obviously a hypothetical example, but hopefully, it shows you how quickly the numbers can add up from something that we think thankfully is relatively low hanging fruit.

Daniel Grosslight -- Citigroup -- Analyst

Got it. Okay, that's helpful. And Bjorn, it sounds like from your commentary, you're not really changing your view on the general cadence of the business due to the Delta variant. Is that right? And I just wanted to check to see if you've incorporated Delta at all into your assumptions for the back half of this year and next year?

Bjorn Thaler -- Chief Financial Officer

Yes. So that is generally right, that we haven't really changed our guidance. We think that given some of the uncertainties that we see that is still there. I think to do-so maybe just to reiterate, what we are assuming for Q3 and Q4 is a sort of a return to through normal demand patterns, that have less impacted by COVID and what we've seen in the past. We assume a relatively moderate amount of COVID testing. We certainly also don't expect any shelter in place in fairness, or any sort of pent up demand for deferred care that will be necessarily seeing over the next six months. So hopefully, that gives you some guidance as to how we are thinking about this. And, again, there are various ways to sort of get to the high end of the guidance. And as usual, I think it's not just an optimal model that will get us there. But there are different ways to get us to various results within the guidance range.

Operator

Our next question comes from the line of Jessica Tassan with Piper Sandler.

Jessica Tassan -- Piper Sandler -- Analyst

Hi, thank you for taking the question and congrats on the quarter. So, one on the fourth quarter guidance, is the reacceleration in membership growth that you're forecasting this year and has historically reported mostly coming from the DTC channel or the enterprise market? And just how should we think about drivers underlying that fourth quarter reacceleration?

Bjorn Thaler -- Chief Financial Officer

Yes, we continue to see strong demand both on the enterprise and consumer side. If you look at sort of the quarterly patterns, obviously while companies can end up at any time during their benefit year, a lot of them do make decisions effective sort of one to one. And once we are sort of over that hurdle, oftentimes they say OK, now we've gotten to make the purchasing decision, we'll adjust all you out sooner. So that's one of the reasons why you see sort of Q4 and Q1 tends to have more membership signups, particularly on the enterprise side. But, just to reiterate, we see strong demand-continuing strong demand, both on the consumer side and the enterprise side.

Jessica Tassan -- Piper Sandler -- Analyst

Thank you. That's helpful. So then as a follow up, you'll be in 22 markets next year, are you able to sell enterprise memberships in those new markets this year for Gen 1 starts, or do you anticipate that membership growth is primarily going to come from the DTC channel in the first few quarters post-launch?

Amir Rubin -- Chairman, Chief Executive Officer & President

Yes, part of the power of our model and of adding One Medical Now allows us to go to enterprise accounts, and serve them in markets across the country where we have physical presence, but maybe where we just might turn on our digital only One Medical Now solution. So that that is part of the reason why One Medical Now has been powerful. So that allows us to sell nationally, and we kind of have this network effect and more markets that we go into, the more we attract the larger and larger employers, which then pulls us into additional markets.

Operator

Our next question comes from the line of Ryan Daniels with William Blair.

Ryan Daniels -- William Blair & Company -- Analyst

Yes, thanks for taking my question. Apologize if you've answered this, I've been hopping among multiple calls. But the one I wanted to ask, it seems like your service offerings are really broadening. I noticed that you're doing some urgent care services in some markets like New York and San Francisco. So I was hoping you could talk a little bit about the expansion there, if that's kind of driven by health system partnerships and the longer term opportunity to roll that out more broadly. And then, maybe just some of the other stuff that you're offering that appears to be novel, like the nutrition and weight loss counseling. And you mentioned, I think Amir, the mindset for corporations in the mental health, I think you've also got the Shift program for group therapy. So just a little bit about how the service offerings that One Medical had been broadened over the last few years and where you're seeing the most success. Thanks.

Amir Rubin -- Chairman, Chief Executive Officer & President

Yes, thanks, Ryan. Well, I would say we're still in the longitudinal primary care model, and membership model. But certainly patients can come to us with urgent issues in office or on demand, but that we are a longitudinal primary care model. But as we've been describing, we can handle an array of things on our primary care model, whether that's diabetes management. And we spoke to the outsize performance we have there, whether it's behavioral health, whether it's leveraging health coaches or therapists or group visits, whether it's nutrition, whether it's well women care, LGBTQ+ care, expertise in managing chronic diseases and chronic conditions like HIV. These are the things that we can do when we have longitudinal member relationships. And the relationships are really sticky. So we've shown that we can offer that range of services, as we noted on our earnings call of our 10 largest sales in the quarter, 60% of them have multiple offerings. And we think that shows the power of having a primary care based model where you can manage the whole person's health and care. Thanks so much.

Operator

Our next question comes from the line of Donald Hooker with KeyBanc.

Donald Hooker -- KeyBanc Capital Markets -- Analyst

Great, good afternoon. Real quick, I didn't think you mentioned anything about free cash flow. So it's exciting to see you're adjusted EBITDA positive at this point. But any kind of update in terms of maybe getting closer than expected to a free cash flow? Hello?

Amir Rubin -- Chairman, Chief Executive Officer & President

Sorry, Bjorn. I think you're on mute.

Bjorn Thaler -- Chief Financial Officer

Hello.

Amir Rubin -- Chairman, Chief Executive Officer & President

Yes, we can hear you.

Bjorn Thaler -- Chief Financial Officer

Okay. So sorry, for the technical issues here. Obviously, the EBITDA performance will flow through to get us a better starting point on the cash flow as well. We are going to continue to invest in our offices. So you're going to continue to sort of see the additional cash flow drag from us opening up new geographies, opening up new offices. But certainly the EBITDA outperformance and the ability to now have pulled forward the time for being EBITDA positive certainly will flow through wonder cash flow statement as well, I would imagine.

Operator

Our next question comes from the man of David Larsen with BTIG.

David Larsen -- BTIG -- Analyst

Hi, can you talk a little bit more about potential revenue synergies with Iora and the Medicare space in particular? Is there any possible way to supplement the revenue you might get for those Medicare members or MA members? Is it possible to collect partnership revenue for some of those members in some way from various hospitals? And then can you maybe talk a little bit about in-fill potentials into those MA plans for the commercial products? Thank you.

Amir Rubin -- Chairman, Chief Executive Officer & President

Yes, thanks, David. We really think about these in different models, the seniors in the Medicare Advantage, and direct contracting are really in these full risk models. Whereas in the commercial world, as we talked before on the call, most employers are kind of in PPO plans. And so the models are different there in the industry. So I would think about those revenue models in that way. But as Bjorn previously described, there is tremendous revenue synergies here and being able to sell and market across a range of ages and across every stage of life, from pediatrics to adults to the golden years as we like to say. And so we do anticipate having folks who are in one medical today, some of them may age into Medicare and we could look at direct contracting or Medicare Advantage models and put them in those models. We may have folks who have parents or grandparents, as Bjorn previously described who'd like to join this combined model, and we can find their way into models there.

And we may have folks in Iora who are aging adults that might have younger family members who can sign up as well. So we really see the cross marketing and growth and sales opportunities as being significant.

David Larsen -- BTIG -- Analyst

Great, thanks very much. And then one of the things I've always liked about One Medical is your earnings profile on the business itself. I mean, congratulations on good EBITDA for the quarter. With Iora obviously, there's a bit lower EBITDA margin there. Any color or initial thoughts on in your view, when you would like to see Iora EBITDA breakeven? I think that might be one of the things weighing on the stock. Any color or just sort of high level thoughts around that would be great, I think. Thank you.

Bjorn Thaler -- Chief Financial Officer

Yes. We obviously provided in the Form S-4 projections, forecasts and extrapolations there to get a list of view on synergies. So I think that probably is where I'll have to point you to here given that we haven't closed the two companies yet and everything else. Maybe just taking a step back, I think what One Medical has shown over the last several years certainly is that we are very focused on our operations. We are very focused on responsible growth and balancing sort of the various stakeholders. And I think what you'll see as sort of a combined company, is you'll see us continuing to do that. And certainly while the percentage of EBITDA margin we are guiding toward that of a 17% plus combined EBITDA margin compared to our 20% plus stand-alone. So that percentage is obviously on a much higher dollar number. So the way we think about it thankfully is that it is going to be accretive to our EBITDA margin in terms of dollars.

Operator

Our next question comes from the line of Jailendra Singh with Credit Suisse.

Jailendra Singh -- Credit Suisse -- Analyst

Yes, this is actually Jailendra Singh from Credit Suisse. I actually want to go back to some of the disclosures in S-4 proxy, primary around revenue synergies of $377 million in 2025. Two questions there. First, looks like the EBITDA impact is pretty minimal in next three, four years, actually negative. Help us understand some of the investments required drive those synergies over the next three to four years. And another data point which was referenced on the call earlier, 15,000 incremental members by 2025. If I look at PMPM $377 million revenue and 15,000 looks PMPM pretty high. Are there-this synergy number include anything beyond additional members? Just trying to reconcile that 15,000 member count versus your revenue synergy target?

Amir Rubin -- Chairman, Chief Executive Officer & President

So, that obviously a lot in here. I think what I would point you back toward is what I mentioned earlier about the dynamics that you have in the Medicare program. If you sign up a new member unfortunately, many of those members, most of those members they tend not to be particularly well managed. Their health conditions are not in checks. They have different chronic care etcetera. So early on, those members do tend to have higher medical costs associated with them. And then over time you manage their health. They become the healthier relative to where they can be and you do the right thing by those members. And as a result, the associated costs with those members ought to go down as their health improves. And, I think when you look at the synergies in the Form S-4, you've got to keep in mind that there is sort of this cohort effects that again, we already talked about where over time, you have this decline in total medical costs. But every year as you sign up new members every year as you sign up an increasing number of members, obviously that relatives makes shift and that's a little bit what you see in terms of the overall synergies here that were disclosed in the Form S-4 which really, thankfully testament to the growth that we believe we can generate here together with Iora going forward.

Jailendra Singh -- Credit Suisse -- Analyst

Okay. Just one follow up. Since you announced our Iora health deal, have you guys had any conversation with your health system partners in your markets, or even health systems in even Iora markets in terms of some potential synergies you guys can generate there? Any feedback you can share from those conversations or is it too early?

Amir Rubin -- Chairman, Chief Executive Officer & President

Yes, as I previously mentioned, I think one of the power-thank you Jailendra. One of the power of our model is we have done this clinical and digital integration across primary and specialty care. So that absolutely is something that we can bring to Medicare space and Medicare Advantage space and collaborate with our health network partners is as well. So we're very excited about those opportunities. I think that's another strong differentiator in our model of care.

Operator

Thank you. I'm not showing any further questions in the queue. I will now like to turn the call back over to Amir for closing remarks.

Amir Rubin -- Chairman, Chief Executive Officer & President

Well, thank you so much everybody. Thanks for the interest and the great discussion and questions today. And we look forward to seeing you next time. Have a great evening. Thanks so much, everyone.

Operator

[Operator Closing Remarks]

Duration: 74 minutes

Call participants:

Ivy Tseng -- Senior Corporate Counsel

Amir Rubin -- Chairman, Chief Executive Officer & President

Bjorn Thaler -- Chief Financial Officer

Connor Oleferchik -- Morgan Stanley -- Analyst

Lisa Gill -- JPMorgan -- Analyst

Elizabeth Anderson -- Evercore ISI -- Analyst

George Hill -- Deutsche Bank -- Analyst

Steph Wissink -- Jefferies -- Analyst

Richard Close -- Canaccord Genuity -- Analyst

Daniel Grosslight -- Citigroup -- Analyst

Jessica Tassan -- Piper Sandler -- Analyst

Ryan Daniels -- William Blair & Company -- Analyst

Donald Hooker -- KeyBanc Capital Markets -- Analyst

David Larsen -- BTIG -- Analyst

Jailendra Singh -- Credit Suisse -- Analyst

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