Catasys' (CATS) CEO Terren Peizer on Q4 2017 Results - Earnings Call Transcript

Catasys Inc. (CATS) Q4 2017 Earnings Conference Call March 7, 2018 4:30 PM ET

Executives

Adam Prior – The Equity Group

Terren Peizer – Chairman and Chief Executive Officer

Rick Anderson – President and Chief Operating Officer

Christopher Shirley – Chief Financial Officer

Analysts

Daniel Carlson – Tailwinds Research

John Nobile – Taglich Brothers

Fred Ore – Private Investor

Robert Cohen – Private Investor

Operator

Ladies and gentlemen, greetings, and welcome to the 2017 Catasys Fourth Quarter and Year End Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

At this time, I would like to turn the program over to a representative of the company. Thank you. You may begin.

Adam Prior

Thank you, good afternoon everyone, and thank you for joining us. Before I turn the call over to management, I would like to make the following remarks regarding forward-looking statements. All statements in this conference call, other than historical facts, are forward-looking statements. The words anticipate, believe, estimate, expect, intent, guidance, confidence, target, project, and some other expressions typically are used to identify forward-looking statements.

These forward-looking statements are not guarantees of future performances, but may involve and are subject to certain risks and uncertainties and other factors that may affect Catasys’ business, financial condition and other operating results, which include, but are not limited to the risk factors described in the risk factor section of Form 10-K and Form 10-Q as filed with the SEC. Therefore, actual outcomes and results may differ materially from those expressed or implied by these forward-looking statements. Catasys expressly disclaims any intent or obligation to update these forward-looking statements.

During this call, we may also present certain non-GAAP financial measures. Our press release with the financial tables issued today, which is located on our website at www.catasys.com, include the definition of these non-GAAP financial measures, a reconciliation of these non-GAAP financial measures with the closest GAAP financial measures, as well as a discussion of why we think these non-GAAP financial measures are relevant to our results. These financial measures are included for the benefit of investors, and should be considered in addition to GAAP measures.

With that, I’d now like to turn the call over to Mr. Terren Peizer, Chairman and CEO of Catasys. Please go ahead, Terren.

Terren Peizer

Thank you, Adam, and welcome everyone, particularly our friends weathering the storm on the east coast. Joining me on the call today are, Rick Anderson, our President and Chief Operating Officer; as well as Christopher Shirley, our Chief Financial Officer. As this is our usual format, I’ll begin with an overview, Rick and Christopher will discuss the operating and financial results and then I’ll return to discuss Catasys’ favorable outlook for the remainder of 2018. We will then take any questions you may have.

To begin we are seeing favorable trends throughout our business heading into 2018 in all the areas that impact Catasys’ growth. New contracts of major health plans, new launches of our OnTrak program and increasing outreach pool of eligible members and subsequently increased enrollments and billings, which improved 33% in 2017 year-over-year and we're up approximately 40% sequentially in the fourth quarter from Q3.

Having increased our outreach pool of approximately 25,000 members in the 2017 third quarter, we continued to grow enrollments in the fourth quarter achieving increasing enrollments with each passing month. We have seen this trend continue into the first quarter of 2018 and expect our recently announced program expansions and launches to further accelerate this growth.

As our outreach pool have continued to ramp entering 2018, now 20% higher from the end of 2017 at over 30,000 members, we believe we have set the stage for accelerated enrollment and corresponding billing growth this year. Our company's goal is to improve the health of individuals faced with behavioral health disorders including alcoholism and other types of substance use disorders as well as depression and anxiety. The vast majority of those suffering from these diseases do not seek treatment or care for co-morbid chronic medical conditions.

There are a variety of reasons for this stigma, shame, self-denial, a belief that treatment alternatives are unavailable at a reasonable costs and a perception that treatment is too time consuming and too ineffective. Catasys addresses this population with our integrated 52-week OnTrak program, which is designed to identify, engage and treat behavioral health and resulting co-morbid medical conditions. Successfully addressing these conditions is our mission and the underlying foundation of our business model.

Catasys seeks to improve the health of insured members and subsequently lower costs for our insurance partners. Lowering the high costs to major health plans is the primary component of Catasys’ investment thesis. Catasys’ OnTrak program provides a proven and consistent method of reducing currently difficult to manage costs and deliver immediate savings to health plans.

In January, we announced that OnTrak delivered an average reduce costs for enrolled members by 54%. This number reflected savings data that included OnTrak members in commercial, Medicare and Medicaid lines of business over more than a two year period ending June 2017. These savings were in a large part a result of fewer emergency room visits and hospital admissions.

Why should investors care? We are a data driven company that can provide our health plan partners’ tangible data to prove our value to their businesses. The savings Catasys has generated for our customers has driven program expansion within existing customers, new customers and the addition of other major plans to the pipeline. We believe our unparalleled ability to successfully engage expensive care avoidance members improve their health and deliver significant cost savings to our health plan partners separates us from others in the space.

Building off of many years of data generation to member engagement, we better understand who to target, how do engage them and how to help them address their health issues. We uniquely combine analytics, machine learning, AI and an effective integrated outpatient treatment model. Lowering the cost of health care is the biggest value driver for our customers. To date Catasys is the only company in this space to have signed contracts with six of the largest eight health plans having begun our partnership with CIGNA in January.

Cigna joined in alphabetical order. Aetna, Sentient, Coventry, HCSE, Health Alliance Medical Plans, or HAMP, Humana and United Healthcare and we expect to sign another very soon. The Cigna program launches with eligible Medicare Advantage members in Tennessee, who suffer from anxiety, depression and substance use disorders and represents the fourth national plan that has launched Catasys’ OnTrak program.

Enrollment is expected to ramp through 2018. In January, we also announced an expansion of our agreement with the second largest Blue Cross Blue Shield plan, HCSE to the State of Illinois. Rick will discuss this in greater detail shortly. We followed HCSE with the announcement yesterday with the expansion HAMP also in Illinois adding anxiety and depression for eligible commercial and Medicare members. Prior to this expansion, HAMP covered eligible commercial and Medicare members with substance use disorders and eligible individual and public marketplace plan members with anxiety, depression and substance use disorders.

Our expansion with HAMP can be attributed to the success of the OnTrack-HA program in improving member health and lowering healthcare costs since its launch in 2016. With a strong start to 2018, we reiterate our previously provided guidance of $20 million in billings for the year and the year-end run rate of at least $25 million. While we expect GAAP revenue to increase significantly from 2017 partially resulting from our adoption of the new recognition revenue standard, billings is the metric to focus on in 2018 as it provides a better indication of how our business is growing.

This guidance is based exclusively on what Catasys has achieved to date and that any of the upside potential that we may generate throughout our business. Clearly, the long waited revenue ramp of our business is finally occurring this year and we anticipated accelerating for years to come.

With that I'll turn the call over to Rick to discuss our operations. Rick?

Rick Anderson

Thanks, Terren. Since the end of 2017, our eligible member pool has grown 20% to over 30,000 as of March 2018. We expect to see the impact of this growing outreach pool in the form of increased in enrollies and billings in our Q1 results and beyond. We have made steady progress in launching programs with new health insurance partners and expanding with existing customers to new states, new lines of business and new conditions. Each new launch and expansion continues to grow our outreach pool.

As Terren mentioned, in January 2018, Catasys expanded our OnTrak solution for the treatment of anxiety, depression and substance use disorders with HCSE, the nation's second largest Blue Cross Blue Shield plan into Illinois. This is the second state following Oklahoma we have launched under our agreement with HCSE and provide greater evidence that our solution is working.

HCSE is the country's largest non-public health insurer and fourth largest health insurer overall with health plans also in Texas, New Mexico and Montana. We have created a strong partnership with HCSE and are in discussions regarding further expansion. Terren also noted the signing of Cigna in January and the subsequent launch of our OnTrak solution to eligible Medicare Advantage members in Tennessee in February.

We have seen a notable acceleration in launches in recent months, which combined with our expanding book of business, is expected to continue to increase our total outreach pool and drive enrollment throughout 2018. Once we launch a new program, it takes approximately twelve months to get to full enrollment rate. We are working diligently to shorten that ramp and encouragingly we are seeing signs in our more recent launches that we are making progress against that goal and we generally averaged 20% or better enrollment rate subsequent to the ramp.

I will now turn it over to Christopher, who will discuss our financial results.

Christopher Shirley

Thank you, Rick. I encourage everyone to review our press release from this afternoon if you have not done so already. In addition as stated earlier, we filed our 2017 annual report on Form 10-K prior to this call, which will include details regarding our consolidated financial position and results of operations within the MD&A section of that filing.

Before we begin with a review of the financials, I would like to remind everyone that the way we booked revenues in 2017 depended on the performance guarantees and our contracts and how our health insurance partners pay us, they can vary quite a bit, some pay per month for each member enrolled, some pay our fee over a limited number of visits to one of our network providers and others pay in advance for the program. Payments in advance, as well as any fees subject to performance guarantees, results in deferred revenue. Going forward in accordance with the new accounting standard, we will book revenues subject to performance guarantees when services are delivered based on the percent of billings we expect to collect.

By that same token when customers pay a fee over a limited number of visits to our network providers, this can result in a delay of up to three months from enrollment to commencement of billing and revenue recognition due to the time it takes for the provider visits to happen. This also explains why we share numbers for billings or the total amount we invoice for our customers on a monthly basis, which we believe has historically been a better measure of the growth of our business.

Billings for the fourth quarter increased approximately 40% to $2.8 million including $0.3 million from a biannual saving share calculation relating to one of our contracts versus $2 million in the third quarter of 2017. For the year billings were up approximately 33% from $2.1 million in the prior year period driven by existing customer expansions and new customer launches in the second half of 2017.

On an annual basis, billings increased 33% to $9.1 million for 2017 compared to $6.9 million in 2016. We anticipate this kind of growth to continue and even accelerate as our outreach pool and corresponding enrollments ramp up. Revenue for the fourth quarter of 2017 was $3 million compared to $3.8 million in the prior year period due to an increase in billings subject to deferred revenue. Revenue for full year 2017 was $7.7 million, a 9% increase from $7.1 million 2016. Deferred revenue, which is recognized as revenue over the period in which each member in our program is enrolled or as savings are realized was $2.9 million at December 31, 2017. That's an increase of 91% from $1.5 million at December 31, 2016. This increase bodes well for future revenues, which we expect to have a favorable impact on our overall financial performance in 2018.

For the fourth quarter of 2017, the net loss was $2.7 million or $0.17 per basic and diluted share compared to a net loss of $1.5 million or $0.16 per basic and diluted share in the prior year period. This was primarily due to higher expenses related to hiring key personnel to support growth and efficiency as well as investments we made in AI and our technology platform. For the year ended December 31, 2017, the net loss improved to $13.6 million, or $0.99 per basic and diluted share, from $17.9 million, or $1.95 per basic and diluted share in the prior year.

Finally, we continue working to strengthen our balance sheet. At December 31, 2017, total cash and cash equivalents on hand were $4.8 million and shareholders' equity was $0.9 million. We remain confident in our ability to execute on our strategic objectives. Since our IPO, we have explained to the market that our current capital position provided sufficient runway in which to execute on our strategic objectives.

And the only rationale in which we would require additional financing would be if new customer wins and launches began to accelerate at a rapid rate or if we saw opportunities to develop and launch new products. As we are now starting to see that acceleration come to pass, we have continued to evaluate all our financing options. It is important to note that we understand our mandate as efficient stewards of our shareholders' capital and would only seek a form of debt financing that provides additional runway to achieve additional growth if necessary that would ultimately be advantageous to shareholders.

With that I'll turn it back over to Terren for closing remarks.

Terren Peizer

Thank you, Christopher. We are seeing the growth trajectory ahead and are more enthusiastic than ever. We have provided quantifiable metrics to the market or $20 million billing guidance. We could imagine distinct upside to the $20 million guidance for 2018 and sees a potential of exiting the year at a $25 million run rate. We are in discussions with current and potential partners for more contracts, launches and expansions. We also have plans for new product launches, which would provide further upsides to these numbers. Products, we are quite confident that our health plan partners will value.

Catasys has treated a total solution that we believe is so far ahead of anyone else in the space. We uniquely solve the pervasive challenge of targeting, enrolling and treating a population that does not seek treatment. We are a machine learning technology driven company and we combine it with great management and employees. I will continue to remind people that the most sophisticated health insurance companies in America are entrusting Catasys with their two most valuable assets: their membership customers and their claims data.

Think of the value of having these assets from potentially seven of the largest eight health plans in the country. Furthermore, think of the value of having such a proprietary position within the industry. Over the years, our machine learning company has become quite good and we strive to continually get better. The market has been slow to recognize the promise of Catasys. However, we could only focus on what we can control. We are signing more cataracts, launching more programs, increasing enrollment, growing billings by approximately 40% sequentially and everything is continuing to move in the right direction.

As I mentioned in the last call, I've also made it a priority to get out on the road to tell our story and Catasys has continued to be a thought leader in our marketplace and in the media. Our Chief Medical Officer, Mr. Omar Manejwala, has been quoted in several publications and has written numerous white papers on the topic of addiction and the opioid epidemic. In last week, I appeared on FOX Business News and discussed the challenge of untreated mental illness in light of the prevailing discussion around gun violence in the United States. I encourage all of you to check out the work we're doing here to address this problem.

With that operator, we can now open it up to Q&A.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Daniel Carlson from Tailwinds Research. Please go ahead.

Daniel Carlson

Hey guys, congrats on the quarter.

Terren Peizer

Thank you.

Daniel Carlson

The question I have for you first here is I thought one of the most important things you've announced recently was the 54% savings to the health plan. So I'm curious it seems like they're doing sort of a slow structured rollout. Is there any point where are these plans decided that what you're doing is working so well, they're going to just flowing out of the massive scale? Is they’re tipping point or inflection point with these plans?

Terren Peizer

Well different plans were launched at different times. Some of our earlier plans I think you will see and we have alluded to on the last call and we have alluded today, I think you will see significant expansions. I mean we’ll obviously announce them as they come, but the newer launches it takes about six to nine months before they have the data internally to be able to then expand according to their expansion plans. I think it's fair to say all of them expect to plan – expect to expand throughout the country over time.

Daniel Carlson

Yeah, I see, okay. Then the next question you’ve mentioned a couple of times the big data and artificial intelligence, can you sort of talk about what’s you’re doing there and what sort of advantages you as a company get from the data you’re collecting and what you are doing with it?

Rick Anderson

Sure, this is Rick Anderson. So we're utilizing the data in terms of AI and analytics around understanding who were the right members to enroll, which members have, what kind of conditions even if those are not diagnosed conditions and then how to apply the fingerprint of the treatment against the members based on the data that we have generated. And we've generated quite a bit of data from our treated members over a long period of time and that data which is proprietary to us we utilized to help create these engines that help us to understand how to move somebody through that pathway and when to engage them in what way.

Daniel Carlson

As so – my opinion I would think that all this data would allow you to sort of build a wall around your business versus the competition and also to offer additional products. Am I right in that line of thinking about?

Rick Anderson

Generally, speaking, yes. I mean it's the data that we can utilize that nobody else has in terms of – and we have more of it than anybody else would have to be able to understand how to best engage in and treat these members, yes.

Daniel Carlson

All right, thanks, guys. Great quarter. I appreciate it.

Operator

Thank you. Our next question comes from the line of John Nobile from Taglich Brothers. Please go ahead.

John Nobile

Hello, good afternoon. Thanks for taking my questions. And yes on the East Coast here in New York the weather is not exactly pretty right now with a lot of snow, a lot of ice and everything else, but hopefully you guys are nice and toasty over there. But I just want to start off my first question OnTrak, it's currently offered in 19 states. I know you're looking to expand. I'm just curious if you could just provide some specifics on how you plan to expand into additional states over the next few months.

Terren Peizer

We have already been announced expansion plans into other states. And that’s – as they come, but over time I wouldn’t be surprised of our most major states over the following year.

John Nobile

Over this year in most, okay. And your agreement with Cigna, large healthcare provider Cigna, I'm just curious I know it takes time I think you said six to nine months, but when do you believe we can actually see revenue from that agreement with Cigna? And how many eligible members do you anticipate that that might add?

Terren Peizer

We don’t break out by plan, by locations, how many eligible there are and we are already enrolling and receiving revenue.

John Nobile

Already receiving revenue, okay, because I thought it took a little bit of time before you might actually see…

Terren Peizer

See we have already launched. It takes time once, you see a – we use specific wording on launch in the press release. Some contracts you see announced and that becomes our eligible population that we used the word internally and once we’re actually launched then they become our outreach personal if it’s launched outreach people that is – that we’re targeting for enrollment that we earn revenue off of. So, Cigna, we announced the launch of – and launch means we're already enrolling.

John Nobile

Beautiful, okay. So, obviously, in this current quarter, it’s going to contribute to Q1. And I'm just curious I know you used 20% to model after as far as enrollment rates about a year after and I think it's higher than that? The actual enrollment rate in 2017, do you have those numbers what it was if indeed it was over 20%?

Terren Peizer

Well, let me just say, we have – what we say in our model is when we first launched a population, it takes and it's a little bit quicker with depression and anxiety than it is in substance use disorder, but in our model the cause for in the first year to get take twelve months to ramp up to that steady enrollment rate of 20%. What we're seeing as well is that in year two we improve upon the 20% to as high as 25%.

John Nobile

Okay, so 25% in year two.

Terren Peizer

But again we’re launching, enrolling different plans at different points in time, so we have kind of like a deposit enrollment rate.

John Nobile

Yeah, a moving target in a way. And I wanted to ask one question looking at the fourth quarter breakout of your general and administrative expenses almost $3.7 million. It’s a significant bump up from actually sequentially and actually from last year too. So that level $3.7 million, is that a level that you believe is going to be sustained that that expense rate going forward? Or do you anticipate that might actually increase or decrease from that level in the coming quarters?

Christopher Shirley

This is Christopher. So what we did last year is we invested in key personnel and also in our AI and technology platform capabilities, which are all found in that number. So we don't were going to make some additional investments in 2018, but we don't expect that sort of growth to occur again in 2018.

John Nobile

All right, so – but this level here is going to be kind of sustained. I mean you have the – obviously well the staffing is really in the cost of healthcare services I believe.

Christopher Shirley

That’s right.

John Nobile

But remember…

Christopher Shirley

Well…

John Nobile

I am sorry.

Christopher Shirley

I am sorry. No go on.

John Nobile

You know it’s safe to say that in this level here $3.7 million in something that we’re going to see going forward? It’s not like there was any one-time cost that might have been into this particular quarter.

Terren Peizer

Well, I also remember that the launches you’re seeing and the announcement you’re seeing are those that as we said back in the third quarter call, when we gave the $20 million guidance, we said specifically, it did not include three national plan launches as well as two significant expansions. But we said we're being indicated that that could occur and we typically try to stay ahead of the curve and we end up – we try to hire, train our care coaches and our outreach personnel in anticipation of those launches.

John Nobile

All right…

Terren Peizer

Even though we didn’t account them in our $20 million guidance.

John Nobile

Okay, great. I understand. And actually if I could just ask one more now…

Terren Peizer

If I could said one more…

John Nobile

Yeah, I am sorry just one more. I apologize. $3 million for the fourth quarter revenue, how much of that was actually recognized of deferred revenue in that?

Christopher Shirley

Sure, so, annually we do a performance obligation catch up. And so about half of that number in the fourth quarter was related that. As we enter 2018, we’re going to see – as I have mentioned in the commentary, we’re going to see GAAP revenues increase significantly as a result of our adoption of the new standard.

John Nobile

Okay, great. That’s all I have. Thank you very much.

Terren Peizer

Thank you.

Operator

Thank you. Our next question comes from the line of Fred Ore, a Private Investor. Please go ahead. Mr. Ore, your line is now live.

Fred Ore

Thank you very much. I am sorry. My wife just called me. I apologize.

Terren Peizer

Are you okay?

Fred Ore

Yes.

Terren Peizer

Okay.

Fred Ore

Gentleman, I'm not going to give you congratulations on the quarter. I think that's not sufficient. This is a quarter that has been anticipated by some of you at the company for the last fifteen years validating well over a decade of effort and Cathleen [ph] does maybe time and energy, an uncounted hours. And I just think he’s really turned the corner here and I think it's fantastic for the company and the shareholders and your patients and your customers. So a very hearty congratulations to you.

Terren Peizer

Well, thank you. On behalf of all Catasys thanks.

Fred Ore

Yeah, with that said and I am referring back to the prior analysts questions. I am looking at a straight line ramp in your billings from now until year end to get to your targeted numbers. And I don't see any likelihood of positive cash flow in any of those upcoming quarters based on the current level of operating expense and the anticipated healthcare costs? I'm not too worried about the cash because I know you can do a debt financing if need, David. Am I missing something and not anticipating or being positive cash flow through the first three and possibly all four quarters of this year?

Christopher Shirley

Well, let’s put it in perspective, what we’ve said in the third quarter call because I’d like to show continuity from one called the other. What we said in the third quarter call? When we – again, the $20 million is based on what we were outreaching to back in October, the 25,000 people. And what I said on that call was assuming that everything the health plans tell us doesn't come to fruition because we've seen that over and over again that the health plans commitment is three, six, nine, twelve months and they don't – it's not going to change your life.

Now, what I said was if we don’t get the additional contracts and launches that were being indicated and we just stick with the 25,000 outreach that we would not need any additional capital, but we did announce one national plan will – and I do expect to announce two national – more national plan launches and to – we announced one expansion and another is significant expansion.

Now to put that in perspective, so again the $20 million doesn't include those three national plan launches and two significant expansions. To put that in perspective, what we said was if we don't get additional, we will not need any additional capital. Now to put it further in perspective to launch all everything I just said, I would tell you candidly, we will be $2 million short to get to cash flow positive state.

Fred Ore

Okay, that’s fine. Thank you. That you don’t have to be anymore precise on that…

Christopher Shirley

But I would tell you sir…

Fred Ore

And…

Christopher Shirley

I will tell you happily that we do anticipate significant cash flow generation next year.

Fred Ore

Okay. Next year mean in 2019.

Christopher Shirley

Correct.

Fred Ore

Yes. That’s a manageable number to finance that kind of growth. So I am perfectly happy with that. I just wanted to make sure I wasn’t…

Christopher Shirley

Okay, I will take the – I will take the $2 billion investment for all those additional launches and expansions any – in fact I would take it everyday.

Fred Ore

Absolutely, and one other follow up question and that really related. But you've had a lot of disruptions in your enrollment path from company’s customers that have been involved in the acquisitions. Would you characterize the current level of enrollment activity as having recovered completely or partially from those acquisitions related disruptions or what color would…

Terren Peizer

A good question…

Fred Ore

You provide as well?

Terren Peizer

I think that's a great question, but not that all the others aren’t, but that’s a good question. I would say this that one of the people might ask. Well, Terren, with all of these significant expansions and new launches, three national new launches and two significant expansions, why aren’t you increasing your guidance? A fair question. One of the reasons would be, a) it’s only the first quarter and I don't want to do this every quarter, but it's only the first quarter. We do have in our numbers, where we have room for things that are unforeseen.

We could lose members – whenever our health plan customers can lose a membership in a particular state that happens. We adjust for that. We had a disruption as you alluded to with Humana. We've had disruption within enrollment with Aetna. And in fact that we’re still working through issues with Aetna and we're very cautiously optimistic that through due to some efforts on our end and cooperation with Aetna, our partner, that we might be able to show bigger numbers than we project for Aetna and billings.

Now but those disruption as you referred to have occurred. So we try to be very cautious and conservative in that $20 million number. We’ll there come a time where we bump that number, well, I guess, if we get closer to the end of the year, at least let’s get to the second half, it's quite possible we might increase guidance. But I think we're looking pretty darn good against that guidance number.

Fred Ore

Excellent. Thank you very much, a very comprehensive response. Appreciate it.

Terren Peizer

Thank you.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Robert Cohen, a Private Investor. Please go ahead.

Robert Cohen

Hi guys. I believe you guys just announced a second rollout in Illinois, is that not correct?

Terren Peizer

Yes, yesterday.

Robert Cohen

Okay. If you have the second launch of Illinois, would that launch be able to come online much quicker, because you already are setup in Illinois with your care coaches and things like that. Would you be able to come online much quicker where if you're launching in Illinois, a second time?

Rick Anderson

Hi Bob, it’s Rick.

Robert Cohen

Especially, where you've got a customer like this where they're rolling out additional lives in an existing program all side, yes. We can roll it out pretty quickly as matter of fact it's already live.

Robert Cohen

Okay.

Rick Anderson

[Indiscernible] matter of the network than it’s the care coaches.

Robert Cohen

Got you. And I got two other quick questions. Are you guys finding it easier now in nailing down some of these contracts because you guys are getting expansions from previous health plans? Are you finding that easier to get contracts at this point?

Rick Anderson

Well, I think that the increasing amount of data that we have and what we can show our partners does have an increasing impact on those partners in terms of what they're doing. But health plans are large organizations with many parts and they will always be complex in terms of navigating and sales process is associated with them. So I guess net- net, yes, we're seen some improvement as it relates to that, but it still is a significantly complex problem and data driven.

Robert Cohen

Great. And then last question is for Terren. In regard to the person before this, I believe, asked about possible needing to raise more money. As you know there's always rumors and whatever and to when those out there that you guys are eventually going to need to raise more money. And I guess the question would be would you even have to do at this point another equity offering if you had to or would you be able to go to the bank to get more conventional lines of credit like most companies do against contracts?

Terren Peizer

I don't want to say never or 100%, but it's pretty close to it. We will not be raising equity, issuing shares. If we did, I would gladly buy them all. The reality is if you remember I don't believe as much as I'd love to increase my equity position and if the stock was still here and I was cleared to buy in the market, you bet I would be buying in the market today. However, I’m not able to buy today, but I would love to. But similarly I would think it would not be right for shareholders if I bought directly from the company at this point considering number one availability of debt financing.

But number two, if you recall management set their stock options at $7.50 a share. The reason we did it we thought for a variety of reasons again I alluded to another company that's in the integrated behavioral medical space they're not in our space, they're not doing what we do, but they're a private company who just did a financing and approximately it's a little conjecture but based on a lot of knowledge. Raised 45 million are a 400 million pre-money valuation they have no national health plan customers. They get a fraction of our revenue, they are projecting 20 million next this year, projecting private company projecting not a public company giving guidance that expects to obviously surpass it.

Yet they have a $400 million market cap, why because this space is the future and we obviously recognizes earlier than any one and build our company accordingly. But we believe our equity is mispriced plain and simple. And furthermore, if you recall not only the fact as we north 15 for me to have – for my actions add value. So in reality we think it would be highly hurtful to shareholders to issue equity at these levels. Even though selfishly as an investor I would love to buy equity here

Robert Cohen

So I understand that. So talk about the long-term picture here, your stock is five in change which is terrific to finally see that it's getting – it's going up somewhat and it's going up on volume which is nice to see. Sure as you guys are getting more people involved at the price of the stock is right now based of the amount of contracts you guys have, what percentage are you at capacity at this point in the overall picture I mean we're still obviously in any one -- I think you understand the question Terren.

Terren Peizer

Yes. Let me -- I said this today to someone that actually someone who produced a term sheet in a debt financing to us. I said we are in to put in perspective we're in the first inning of our company's journey Unfortunately the first two batters took 14 years but, now we're still in the first inning the bottom, the top half of the first inning and this is just going to go on for many years in our opinion. The numbers are going to start getting quite large quickly that's our opinion.

Robert Cohen

Have you had a customer yet, that hasn't been able to see the savings or is everything been pretty much as you predicted?

Terren Peizer

Well as you know as everyone probably knows, we had historically a large deferred revenue piece, and because we'd have reconciliations based on achieving the savings bogging. Again we just reported a 54% savings rate and all numbers enrolled through June of 2017 that’s as of the date of 2017.

So and to put it in perspective, we've treated now, we're getting closer to 6000 patients that we have treated. And I get as this quite often, how do you know that you're going to achieve $20 million in billings or whatever you want to call it, how do you know it's going to be x multiples of that going a year after. Again when you treat 6000 – we’ll use 6000 patients. When you treat 6,000 patients and you report a savings rate you know what the savings rate is. We titrate our enrollment to hit that savings bogi. Remember we identify the patients that we believe have an issue that are causing the help plan on average $30,000 a year. Now we believe will respond to our program and whose medical costs we can impact to provide a 50 – we’ll say 54% savings right now, so that will plan now plan and an estimate of quarter one return on investment over the first two years as the savings go straight to their bottom line.

So what we know our business model it's titrated, its data driven and we know the ramps, we know the enrollment rates. We know the savings rates. We know that's how we have such and I think that's going to pay off down the road when we get analyst coverage because we have transparency, visibility and predictability and a tremendous growth rate.

Robert Cohen

Can you go a little bit then into, when you think you'll start getting some of these A rated analysts starting the sniff around and saying, hey, these guys are performing now, when do you think you get to that tipping point where they start really looking at the company?

Terren Peizer

First of all there's some that are already looking at the company, number one, healthcare analysts. Number two, the biggest impediment to getting larger analyst – larger meaning from larger firms, analyst coverage is our market cap. And I think well over time this year, I think that will change typically speaking a lot of the analysts want to see at least a $200 million market cap because their investor – their clients invest in the market caps that’s either $200 million or even $500 million in that. So depending I think we will see conventional healthcare analyst coverage in the not too distant future.

Robert Cohen

All right, thank you. Great job guys.

Terren Peizer

Thank you.

Operator

Thank you. Ladies and gentlemen, we have no further questions in queue at this time. I'd like to turn the floor back over to management for closing comments.

Terren Peizer

Well, thanks everyone for joining us today particularly again our friends at our weathering the storm and the East Coast. Please feel free to reach out to us with any additional questions. We're very open and communicative and accessible. We’re excited to see what else is in store for 2018 and look forward to speaking with you again in the coming weeks. Have a great night everyone.

Operator

Thank you ladies and gentlemen, this does conclude a teleconference for today. You may now disconnect your lines at this time and log off your computer Thank you for your participation and have a wonderful day.