Catasys Reports 2018 Second Quarter Financial Results

LOS ANGELES--(BUSINESS WIRE)-- Catasys, Inc. (NASDAQ: CATS) (“Catasys” or the “Company”), a leading AI and technology-enabled healthcare company, today reported its financial results for the second quarter ended June 30, 2018. The Company provides big data-based analytics and predictive-modeling-driven healthcare services to health plans and their members through its OnTrak™ solution.

Second Quarter 2018 and Recent Business Highlights

• Catasys’ new enrollment for the quarter ended June 30, 2018, increased 289% year over year.
• Catasys’ outreach pool of eligible members continued to rapidly increase due to new program launches with two large insurers and expansions with two existing health plan partners in the first half of 2018. The Company’s outreach pool has reached approximately 36,000, 15% higher than at the end of first quarter 2018.
• New customer launches continue to take approximately 12 months to reach an annual 20% enrollment rate. One year after launch, the Company generally enrolls in excess of 20% of its outreach pool. Catasys receives approximately $6,800 net per enrolled member.
• June 2018 – Signed agreement with second largest health plan in the country and launched the initial OnTrak-AN solution in California, representing the sixth national health plan to launch OnTrak
• The OnTrak program is currently available through seven health plans in 20 states.
• June 2018 – Announced debt financing of up to $10 million to support Company’s accelerating growth and technology and product investment.

2018 Guidance

• Catasys reiterates its expectation to report annual billings (amount invoiced in a particular period net of credits, pursuant to existing contracts based on enrolled members) of $20.0 million based solely on the current outreach pool of eligible members, finishing the year at an approximate $25.0 million billings annual run rate.
• Catasys maintains its guidance despite a health plan partner representing more than 50% of this year’s outreach pool operating at 50% of anticipated enrollment capacity due to structural billing issues specific to this customer. This has resulted in lower-than-anticipated billings and revenue as well as a smaller underlying outreach pool than would be expected in a similarly sized customer. As the Company works to resolve the structural billing issues in Q4, Catasys anticipates an increase in not only the outreach pool size but also a significant increase in 2019 billings and revenue. Implicit in the Company’s 2018 results is the outperformance of its financial model by its other health plan partners.

Management Commentary

Mr. Rick Anderson, President and COO of Catasys, stated, “We were pleased to sign a contract and launch the initial OnTrak program with the nation’s second largest health plan during the second quarter of 2018. With this partnership, Catasys is now contracted with seven of the top eight insurers in the country. As a result of new launches like this one and program expansions during the first half of 2018, we saw continued growth in our outreach pool of eligible members and, by extension, increased enrollments and higher billings in the second quarter. We achieved a record $5.2 million in billings for the period, including a semi-annual savings share payment.”

Debt Financing, Chief Technology Officer, and Outlook for 2018

Mr. Terren Peizer, Chairman and CEO of Catasys, stated, “In June, we announced the closing of a debt financing that should support our continued growth without dilution to shareholders. We are pleased to have gained this vote of confidence from our lending partners and are using the proceeds as additional working capital to scale new contracts and expansions and invest in new technology platforms to broaden our footprint within our health plan partners. We believe our strengthened financial position will enable us to achieve positive cash flow in 2019. We are optimistic that given our capital light model, after funding internal growth, future growth opportunities can be financed in a similar manner, if needed, without equity dilution.

“As part of our commitment to driving technological innovation at Catasys, we were pleased to appoint industry veteran Jeremiah Stone as our Chief Technology Officer, a newly created position within our Company. With over 20 years of industry experience at leading firms such as GE and SAP, Jeremiah’s leadership will play an invaluable part in our plan to leverage data analytics and new technologies to improve and evolve the overall OnTrak program, while establishing new avenues for growth that require more technology and digitized engagement. In doing so, we expect to enhance our ability to identify, enroll, engage, and modify the behavior and improve the health of our health plan partners’ eligible members, while accelerating the growth of our business.

“Billings for the second quarter of 2018 were in line with our expectations given our strong performance in April. As a result of robust enrollment growth, we once again exceeded our internal projections in July, setting a new record for monthly billings. We expect continued growth in our outreach pool of eligible members through the remainder of 2018 given our ongoing program expansions and enrollment launches, which will drive enrollment growth in the second half of the year. With the recent completion of the Company’s financing and appointment of our new Chief Technology Officer, we feel we are well positioned to enhance our platform and technologies as we work to better serve a growing customer base.”

Second Quarter and Six Month 2018 Financial Review

Billings

• Catasys’ billings increased 152% to $5.2 million for the second quarter of 2018, from $2.1 million in the prior-year period, driven by enrollment growth in new plans and expansions in existing plans. Billings increased approximately 75% sequentially from $3.0 million in the first quarter of 2018.
• Billings for the six months ended June 30, 2018, increased 90% to $8.2 million, compared to $4.3 million in the prior-year period.

Revenues

• Revenues increased 97% to $3.3 million for the second quarter of 2018, from $1.7 million during the same period in 2017. The increase was driven by the launch of enrollment with three new health plans and continued enrollment growth from existing plans in the first half of 2018, resulting in a net increase in the number of members enrolled in our OnTrak solution during the second quarter of 2018 compared with the same period in 2017. Newly enrolled members as of June 30, 2018, were 289% greater than at June 30, 2017.
• Revenue increased 49% to $5.2 million for the six months ended June 30, 2018, from $3.5 million during the same period in 2017.

Deferred Revenue

• When fees are received in advance, deferred revenue is recognized over the period the member is enrolled. Catasys has historically been able to record its deferred revenue as actual revenue during the course of the business cycle, except for cases where members terminated from the program early.
• Deferred revenue was $3.4 million at June 30, 2018, an increase of 17% from $2.9 million at December 31, 2017.

Operating Expenses

• Operating expenses in the second quarter of 2018 were $7.4 million, compared to $4.3 million in the prior-year period. This increase was mainly due to increased costs of healthcare services to support the increasing number of enrolled members; incremental investments in data science, IT and software development to drive growth and efficiency; and approximately $0.8 million related to non-cash stock option expense compared to the prior-year period.
• Operating expenses in the first half of 2018 were $13.6 million, compared to $8.4 million in the prior-year period due to the reasons mentioned above.
• Cost of healthcare services consists primarily of salaries for Catasys’ care coaches and outreach specialists, healthcare provider claims payments to Catasys’ network of physicians and psychologists, and fees charged by third party administrators for processing these claims. In addition, the Company hires staff in preparation for anticipated future customer contracts and corresponding increases in members eligible for OnTrak. The costs for such staff are included in cost of healthcare services during training and ramp-up periods.

Net Income (Loss)

• For the second quarter of 2018, net loss was $4.2 million, or $0.26 per diluted share, compared to net income of $13.9 million, or $0.97 per diluted share, in the prior-year period. The prior-year period was positively impacted by $7.0 million in change in fair value of warrant liability as well as $10.7 million in change in fair value of derivative liability resulting from the issuance of convertible debentures in July 2015, which converted into common stock in April 2017.
• For the first half of 2018, net loss was $8.4 million, or $0.53 per diluted share, compared to $7.8 million, or $0.68 per diluted share in the prior-year period, including the non-cash expense related to the issuance of management and director stock options late last year.

Conference Call – August 14, 2018 – 4:30 pm ET

The Company will host a conference call/webcast on Tuesday, August 14, 2018, at 4:30 pm ET/1:30 pm PT. Investors, analysts, employees and the public are invited to listen to the conference call via:

Conference Call
877-705-2969 (domestic) or 201-689-8868 (international)

Webcast
https://78449.themediaframe.com/dataconf/productusers/cats/mediaframe/26031/indexl.html

Those who are unable to attend the conference call live can use the following information to hear a replay version:

About Catasys, Inc.

Catasys, Inc. harnesses proprietary big data predictive analytics, artificial intelligence and telehealth, combined with human intervention, to deliver improved member health and cost savings to health plans through integrated technology enabled treatment solutions. It is our mission to provide access to affordable and effective care, thereby improving health and reducing cost of care for people who suffer from the medical consequences of behavioral health conditions; helping these people and their families achieve and maintain better lives.

Catasys’ OnTrak solution--contracted with a growing number of national and regional health plans--is designed to treat members with behavioral conditions that cause or exacerbate co-existing medical conditions such as diabetes, hypertension, coronary artery disease, COPD, and congestive heart failure, which result in high medical costs.

Catasys has a unique ability to engage these members, who do not otherwise seek behavioral healthcare, leveraging proprietary enrollment capabilities built on deep insights into the drivers of care avoidance matched with data driven engagement technologies.

OnTrak integrates evidence-based medical and psychosocial interventions along with care coaching in a 52-week outpatient solution. The program is currently improving member health and, at the same time, is demonstrating reduced inpatient and emergency room utilization, driving a more than 50 percent reduction in total health insurers’ costs for enrolled members. OnTrak is available to members of several leading health plans in California, Connecticut, Florida, Georgia, Illinois, Kansas, Kentucky, Louisiana, Massachusetts, Missouri, New Jersey, North Carolina, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, West Virginia and Wisconsin.

Forward-Looking Statements

Except for statements of historical fact, the matters discussed in this press release are forward-looking and made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect numerous assumptions and involve a variety of risks and uncertainties, many of which are beyond our control, which may cause actual results to differ materially from stated expectations. These risk factors include, among others, changes in regulations or issuance of new regulations or interpretations, limited operating history, our inability to execute our business plan, increase our revenue and achieve profitability, lower than anticipated eligible members under our contracts, our inability to recognize revenue, lack of outcomes and statistically significant formal research studies, difficulty enrolling new members and maintaining existing members in our programs, the risk that treatment programs might not be effective, difficulty in developing, exploiting and protecting proprietary technologies, intense competition and substantial regulation in the health care industry, the risks associated with the adequacy of our existing cash resources and our ability to continue as a going concern, our ability to raise additional capital when needed and our liquidity. You are urged to consider statements that include the words “may,” “will,” “would,” “could,” “should,” “believes,” “estimates,” “projects,” “potential,” “expects,” “plan,” “anticipates,” “intends,” “continues,” “forecast,” “designed,” “goal,” or the negative of those words or other comparable words to be uncertain and forward-looking. For a further list and description of the risks and uncertainties we face, please refer to our most recent Securities and Exchange Commission filings which are available on its website at http://www.sec.gov. Such forward-looking statements are current only as of the date they are made, and we assume no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Non-GAAP Financial Measures

The Company makes reference in this press release to billings, a non-GAAP financial measure, as a supplemental measure to review and assess our operating performance. The presentation of this non-GAAP financial measure is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with US GAAP. We define billings as the amount invoiced in a particular period pursuant to existing contracts based on enrolled members. We use billings as a measure of operating performance to assist in comparing performance from period to period on a consistent basis.

We believe that the use of this non-GAAP financial measures facilitates investors’ assessment of our operating performance from period to period and from company to company by backing out potential differences caused by variations in the applicable performance requirements contained in the relevant contracts, which may be different from other companies in our industry.

Billings is not defined under GAAP and is not presented in accordance with GAAP. This non-GAAP financial measure has limitations as an analytical tool, and when assessing our operating performance, investors should not consider it in isolation, or as a substitute for revenue prepared in accordance with GAAP. A reconciliation from this non-GAAP financial measure to the GAAP financial measure is included at the end of this release.

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