Catasys' (CATS) CEO Terren Peizer on Q1 2019 Results - Earnings Call Transcript

About: Catasys, Inc. (CATS)
by: SA Transcripts
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Earning Call Audio

Catasys, Inc. (NASDAQ:CATS) Q1 2019 Earnings Conference Call May 9, 2019 4:30 PM ET

Company Participants

Adam Prior – Senior Vice President, The Equity Group

Terren Peizer – Chairman and Chief Executive Officer

Rick Anderson – President and Chief Operating Officer

Christopher Shirley – Chief Financial Officer

Conference Call Participants

Mohan Naidu – Oppenheimer

Richard Close – Canaccord Genuity

Daniel Carlson – Tailwinds Research


Greetings, and welcome to Catasys, Inc. First Quarter 2019 Earnings 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.

I will now pass the floor over to a representative of the company. Thank you. Please begin.

Adam Prior

Thank you, and good afternoon, everyone. Thank you for joining us. Before I turn it over to management, I would like to make the following remarks concerning 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 performance, 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 detailed in the Risk Factors section of the 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.

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. With me on today’s call are Rick Anderson, President and Chief Operating Officer; and Christopher Shirley, our Chief Financial Officer. I’d like to point out that it’s Mental Health Awareness Month. Please take the opportunity to reach out to a friend or a family member that could be struggling with behavioral health disease and see if you can help brighten their day and tell them that you care.

We are pleased with the continued favorable trends and momentum we reported in the first quarter of 2019, which I will let Rick and Christopher detail shortly. First, I would like to highlight a few of our recent milestones and reiterate our belief that Catasys is only beginning to exhibit the tremendous growth potential ahead. Over the past few weeks, we’ve announced a number of expansions with existing national health plan partners.

These health plans choose to work with Catasys because we have the unique capability of identifying, enrolling and, ultimately, treating a vast population of treatment and care-avoidant members that have behavioral health disorders such as substance use disorder, depression and anxiety. These patients also are afflicted with comorbid chronic conditions such as cardiovascular disease, diabetes and pulmonary disease.

Our health plan partners expand their existing agreements with Catasys to new regions and insurance lines of business because they are realizing firsthand the cost savings our system provides. These savings go straight to their bottom line. They recognize a direct return on their investment and improve their members’ health in the process. We currently offer OnTrak in 24 states, and our expansion within these plans is directly leading to an increase in the number of individuals to whom we can begin outreach and subsequent enrollment.

Catasys’ outreach pool of eligible members continued its rapid ramp due to significant expansion within existing contracts increasing to a current level of 92,000 from approximately 41,000 at December 31, 2018, and approximately 31,000 at the end of the first quarter of 2018. I’ll reiterate that new customer launches continue to take approximately 12 months to rise at an approximate 20% yearly enrollment rate. One year after launch, the company generally enrolls greater than 20% of its outreach pool over a 12-month period.

We began 2019 with an illegible outreach pool of 41,000 in January. This accelerated to 50,000 over the following few weeks. By the middle of March, our outreach pool had increased to 75,000 members as a result of the significant expansion within existing plans, and we are fast approaching the 100,000 mark. We are a year ahead of our own expectations with this reliable revenue-leading indicator. If we had no more lots to the pool for the remainder of the year and maintain our 20% enrollment rate, we will be at a revenue run rate in 12 months of $130 million in revenue or 20,000 enrollments at approximately 6,500 net revenue per enrollee.

This assumes that all 100,000 lives started at the same point in time. However, we know that they have actually been staggered over the last six months. In the last call, we could see the steep trajectory, but we consistently have taken a conservative approach, only reporting what we know, not what we expect. I should also point out that it’s highly probable that we will continue to add lives over the next year.

Most companies tell you what they expect in the future, not what they know today about their future and base their guidance accordingly. Our eligible lives outreach pool is something we know at any given point in time. Having treated over 11,000 members, our future enrollment assumptions mirror our vast past experience. In providing guidance, we don’t include expansions or new health plan contracts or new products that we will sell in the coming year, only those that have actually launched. We believe that this is the most appropriate way to plan for our growth, and we are committed to delivering this transparency to our investors.

That said, we are, excuse the pun, on track to exceed our guidance and, despite this year’s revenue, expected to grow 150% to 175% over last year. We see 2019 as a "transitional year." Example that I laid out, of the 100,000 eligible lives pool with $130 million run rate, if we add 0 additional lives and given we had 40% of this pool as of January 2019 and increasing throughout the year, you can extrapolate revenues significantly greater than $100 million in 2020. Hence, next year’s growth should be significantly greater than this year’s growth and just beginning to scale. We will provide next year’s guidance on our Q3 call in November and look forward very much to doing so.

Sticking with the mantra of what we know, we are choosing to remain conservative with our 2019 guidance, as we know that uncertainty is always possible with our very large health plan partners. We are maintaining revenue guidance for the year of $35 million, which represents approximately 130% growth, over $15.2 million in 2018. If and when subsequent developments occur, the company may revise its guidance. That being said, it’s pretty clear that a dramatic growth spurt is taking shape for next year and, hopefully, you can start formulating what the next 12 months to 18 months will look like.

It’s been an eventful week of news for Catasys, and I’d like to highlight two announcements we made this week, which, while not associated with any stated dollars, are very important to the company. First, we announced our partnership with Circulation and Lyft, which means that our OnTrak solution will now incorporate transportation services provided by Lyft and other specialty transportation network companies.

When the OnTrak care team identifies a transportation barrier to a member getting to psych, social or medical visits, they can activate Circulation’s transportation service, which will be provided as part of the OnTrak program at no additional cost to the member or the health plan. This partnership demonstrates our ability to be innovative, collaborating with technology companies to solve for an issue near and dear to our health plan partners.

Social determinants of health. Today, we also announced the expansion of our OnTrak solution to identify and address another major social determinant of health, loneliness. Loneliness is an epidemic spreading across the country. And as health plans are looking for answers, we are emerging as a leader in confronting this issue.

While loneliness has typically affected the elderly population, one might argue that social media has caused the problem to spread. We believe that social isolation and loneliness have risen to a level where the expansion of our OnTrak solution is both a value-add to our customers and necessary to our core goal of improving a member health.

Over time, we’ll be introducing new products like OnTrak 2.0 and loneliness interventions, which will serve to broaden our footprint with our health plan partners. We are the leader in our space, and our innovations and associated value propositions continue to gain attention and traction in the industry. We look forward to sharing more on this in the future.

With that, I’ll turn the call over to Rick to discuss our operations and return later to speak on the build-out of Catasys’ team and expand on our outlook for the year. Rick?

Rick Anderson

Thanks, Terren. As we have discussed in past calls, program expansions with our existing partners are key to our future growth. During the first quarter of 2019, we announced expansions that included new states and the expansion of existing programs to depression and anxiety. At the end of April, we announced the expansion of our OnTrak solution to eligible Medicare Advantage members in Alabama, Mississippi and Florida with Cigna. Alabama and Mississippi represent the 23rd and 24 states in which OnTrak is available to members of major health plans.

In this week, we announced the expansion of our agreement with Centene. This represents an expansion of the OnTrak program from substance use disorders to include anxiety and depression in the largest Medicaid plan in Texas. What we believe is particularly notable is that these expansions are occurring after existing health plan partners have had the experience they attained with the OnTrak program over time, which speaks to the value they see in the program.

In addition, we are growing through the addition of new customers, like Optima Health in Virginia, which we announced in April. Our agreement with Optima Health leveraged our existing infrastructure and is expected to launch in the second quarter of this year. And we are in active discussions to sign additional contracts for expansions in new customers. These expansions in new customers have contributed to an increasing outreach pool and, ultimately, higher enrollment. We enrolled more than 1,400 new members in the OnTrak program in the first quarter, up 50% from the prior year period and up 10% from the fourth quarter of 2018.

Over the past several months, we have grown our care teams and the underlying infrastructure to support our rapidly growing eligible member pool and enrolled members. We have been able to locate, hire and train the needed staff in the time frames required to support our growth. In fact, we have more than doubled our member-facing staff since the beginning of the year. During that same period, we have improved our infrastructure to support the on-boarding of staff and the overall size of the teams, which has enabled us to reduce our on-boarding time by more than 1/3 this year.

I will now turn it over to Christopher for an overview of our financial results.

Christopher Shirley

Thanks, Rick. Our revenues for the first quarter of 2019 increased to $6.8 million compared to $1.9 million during the same period in 2018, resulting in a year-over-year increase of 256%. The revenue increase was driven by an increase in the number of members enrolled in our OnTrak solution during the first quarter of 2019 compared with the same period in 2018.

I’ll move now to margins, which, in Catasys’ case, reflects revenues less the cost of health care services as a percentage of revenue. For the first quarter of 2019, our gross margins increased to 55.6% compared to negative 19.7% in the prior year period. On a quarterly basis, this number does fluctuate depending on amounts paid for Catasys’ care coaches and outreach specialists, the health care provider claims payments to the network of physicians and psychologists, and fees charged by third-party administrators for processing these claims.

We’re in a phase where we are placing an emphasis on hiring and training more team members. Margins will be impacted by the recruitment of staff in preparation for anticipated future customer contracts and corresponding increases in members eligible for OnTrak. Despite this, we were able to achieve gross margin expansion in Q1 to 55.6% from 52.8% in Q4 of 2018.

Our operating expenses increased in the first quarter of 2019 to $6.3 million compared to $3.9 million in the prior year period. This increase was mainly due to higher expenses in the first quarter of 2019 related to investments in new technology, servicing contracts and investments in key personnel to support future growth compared to the prior year period. On the bottom line, our net loss was $2.9 million or $0.18 per diluted share compared to a net loss of $4.2 million or $0.27 per diluted share in the prior year period.

And briefly, on our financial position. As a result of the recent expansion of our debt financing agreement with Horizon Technology Finance Corporation to $15 million and our $2.5 million receivable facility with Heritage Bank of Commerce, we’re currently in a good position to implement our growth strategy.

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

Terren Peizer

Thank you, Christopher. I’ve often said that we are more excited about where we are going than where we are. We’ve diligently worked to apply digital technology to enable us to serve more members at a significantly lower cost. We also continue to expand our executive team with talented individuals who have deep experience in scaling businesses for sustained growth.

Operationally, we continued to build out our first rate team. Since our last call, we’ve created a new Chief Commercial Officer role, which is being filled by Carol Murdock, who has more than 30 years of health care experience. She will serve as a crucial member of our senior management team. As we continue to expand and penetrate new markets with our OnTrak solution, we welcome Carol and are happy to have her on board.

From a human capital side, during the period, we continued to hire and train care coaches and outreach personnel to handle our current growth plans. The market remains robust here largely because of the flexible nature of the employment that we offer. We can utilize our IT and telemedicine infrastructure to create a highly collaborative environment where these individuals, largely registered nurses, can work from home and still be completely integrated with our operating system.

The interconnectivity between the patients, our outreach specialists, community care coordinators, care coaches and our broader platform is a key component of Catasys’ growth strategy. We are an integrated AI learning company. Every conversation is recorded and analyzed and that data is incorporated to train our system, more enrollees, more care coaches, more data, better operating models.

Our value proposition is getting stronger with every interaction. This is how we win in engagement, our secret sauce. This build-out has allowed the company to pursue OnTrak 2.0 in an accelerated manner. I have discussed this initiative at length at conferences and at meetings as it allows Catasys to address a larger population through the greater use of technology while continuing to harness proprietary, big data predictive analytics, artificial intelligence and telehealth to deliver improved member health and validated outcomes and savings to the health plans.

It remains wholly consistent with our mission: to help improve the health of our members and save the lives of as many people as possible. It’s important to note that the numbers I outlined at the beginning of this call do not include 2.0 contracts, though currently we are exclusively marketing OnTrak 2.0, not 1.0.

OnTrak 1.0 is AI euphemism for technology plus HI, human interaction. OnTrak 2.0 substitutes AI for some HI permitting our human resources to focus on the important personal interactions that make OnTrak so effective. OnTrak 3.0 and 4.0 will follow a similar trend of increasing AI to enhance and focus HI. We will also be optimizing our fingerprinting of our members and optimizing the appropriate programs for successful outcomes. This translates into a more effective and efficient program, which results in lower costs for us, which will in turn lower the price to our health plan partners, giving them an attractive ROI and enabling them to address a much larger member population.

We believe that OnTrak 2.0 represents a tremendous value proposition and could be a major industry game changer. We anticipate an approximate doubling in our eligible lives outreach pool with OnTrak 2.0 and a market improvement in our operating margins. Again, our 100,000 eligible lives pool does not incorporate OnTrak 2.0 populations.

In conclusion, we are well positioned to execute on our growth strategy as we head into mid-2019 and look forward to exceeding expectations this coming year.

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

Question-and-Answer Session


Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Mohan Naidu with Oppenheimer. Please proceed.

Mohan Naidu

Thanks for taking my questions. Congratulations on all the traction this quarter. Terren, maybe to begin with outreach pool, now that you are well ahead of your initial goal, two questions there. One, any reason not to expect to get to that 100,000 number in the current quarter, that is Q2? And number two, looking at the pipeline and the new programs that you are talking about, is there a next goalpost that you would like to put out?

Terren Peizer

I’m sorry, Mohan, can you please repeat the last part of your question?

Mohan Naidu

So the – what’s the next target from 100,000 once you reach that? I know it looks like your pipeline is growing, you’re adding new programs.

Terren Peizer

I’ll try to temper my enthusiasm and try to be as conservative as possible. First, let me address the first part of your question. And thank you for the question. When we say 100,000 is imminent, it’s imminent. We – if we were at 100,000 today, we would say 100,000 today. So yes, we expect 100,000 shortly. Now the second part of your question is a lot trickier. As I said, it doesn’t – we only talk about what we know, meaning, what is launched.

Do we have expectations of more contracts, more expansions within existing plans, expansions with existing – launches with existing contracts, new product sales, OnTrak 2.0? We expect all the above. We’ll – do we expect our outreach pool to grow through the rest of the year? Absolutely. Obviously, just on the 100,000 that we know, we obviously – you get a picture of what next year’s revenue will look like and given where it started this year at 40,000 and has progressed higher throughout the year.

It’s conceivable that some of our national plans are going to expand in a major way. Again, it’s something we hope and expect. Hope is a rope. You can hang yourself with it. But it’s quite conceivable that we have a significant growth in the outreach pool. And certainly, we expect that trend to continue into next year. I wish I could put a number on it, but it could be very significant number.

Mohan Naidu

Okay. I appreciate that. On OnTrak 2.0, thanks for all the color on that one as well. Should we expect to see a pilot or a deal with 2.0 this year?

Terren Peizer

Well, let’s start with the fact that it is – from our perspective, it is a major industry game changer. We are marketing to all new plans 2.0. We are discussing 2.0 with our existing plans. There’s not anyone who doesn’t want to one day have 2.0. It’s a better value proposition for them.

Now that said, I can’t tell you that it’s imminent. I believe we will have launches this year. I can’t tell you it’s imminent, again, because I only tell you what we know. Part of the trick is getting it out there first because some plans are going to want to see it out there and working. And just like OnTrak 1.0, when it first gets out there, it’s not going to be a finished product.

And I’ve said over and over and implied it today, we are one big machine learning company. So we’ll get OnTrak 2.0 out there. I do expect to get it out there this year, but we’ll see. Once it’s out there, it will keep improving as a product, and the value proposition will keep improving. I do believe that it will position us as a firm leader in the industry.

Mohan Naidu

Okay. And maybe a couple of questions on your capital needs. Do you anticipate needing more capital beyond your current balance sheet to monetize your outreach pool?

Terren Peizer

Well, what I said on the last call and that hasn’t changed – our last call actually was only a couple of months ago – we – so coming into this year, we had targeted investing $10 million above and beyond our working capital to invest in technology and our infrastructure and the build-out of our sales and account management, which is what Carol Murdock is focused on right now.

It’s interesting to note that we’ve accomplished all what we have accomplished without an extensive sales and marketing and account management. And frankly, we have not marketed the company at all as – from a branding standpoint. It’s fair to say we will be marketing the company, and we will be aggressively hiring sales and account management people. And we look forward to what that yields.

That said, we did just go through a major expansion. We essentially doubled the size of our company – more than doubled – well, imminently, more than doubled the size of our company since the beginning of the year in terms of our outreach pool, which means we have to hire, obviously, and we are and training our care coaches and outreach personnel as well, which we have been very innovative and accelerating that process.

So because we added – let’s just use a number, 50,000, to keep the numbers round, 100,000, 50,000. Because we added 50,000 outreach pool eligible lives, it is going to take more working capital to hire, train the outreach personnel and the care coaches. We calculate that it takes $5 million in cost of services provided per 50,000 increase in outreach pool.

Another $2 million – particularly now because we’re also investing a lot in our technological infrastructure and also invested part of the prior $10 million and part of additional capital in the development of OnTrak 2.0. It would take roughly $7 million as a formula today. We hope to improve on these. As a formula today, $7 million for every increase in 50,000 lives. We will need – because we’re still investing in our technology and infrastructure that we just discussed.

We will need $10 million of additional capital to get to a significant cash flow positive state, which we expect next year. We expect to be significantly cash flow positive next year. So will we need additional capital? Yes. How much? $10 million. How much will we seek to raise? $10 million. How will we raise it? We’re actively engaged with lenders to expand upon the existing facility that we have.

Mohan Naidu

All right. That covers a lot of my follow-up questions as well. Maybe I’ll give one last one. You said...

Terren Peizer

And you probably have taken many other people’s questions, but go on.

Mohan Naidu

Last one for me. So I think – I’m trying to make sure I got this right. You mentioned 150% to 170% revenue growth in your comments and yet you’re keeping the guidance to $35 million. And I want to make sure I got those numbers that because $35 million is less than the 150% to 170% range.

Terren Peizer

Yes. That’s true. Good point. Good observation. I was wondering if someone was going to catch that. We are not going to raise guidance. Look, we want to continue this trend that we’re on of under-promising and over-delivering. And we do know, and we know from past experience, we’ve had past issues with different health plans, not our issues, but just things that come up in the context of dealing with the largest health plans in the country – largest companies in the country.

We’ve had data problems. We’ve had M&A activity. We’ve had a lot of things that have stalled our growth over – in our past. We learned by our past mistakes – well, not mistakes, I should say past experiences. But we know not to – we know to be very conservative with our guidance until we see the whites of the eyes as more of the year passes. Importantly, because we’ve gone through data – we go through data issues with every company.

It’s the norm. We – the good news is because we go through data issues with the companies, we’re prepared when – if and when they occur again to act quickly and to smoothe it out so it’s not interrupting our business. That said, we’re dealing with these large companies. Anything is possible. We want to exceed our guidance. We expect to exceed our guidance significantly, but we don’t know what could happen. So we’re going to keep it at $35 million till more of the year proceeds.

Mohan Naidu

All right. Thanks a lot for taking my questions.

Terren Peizer

Thank you for your questions. You’ve probably taken everyone else’s questions.


Thank you. Our next question comes from the line of Richard Close of Canaccord Genuity. Please proceed.

Richard Close

Great, thanks. Congratulations. We can come up with some additional questions here for you. So Christopher, I was wondering if you could just appreciate comments on the margins, gross margin and hiring and whatnot. But how should we think about gross margins as we progress through the remaining quarters of 2019? Obviously, you outperformed us significantly there.

Christopher Shirley

Sure. Thanks, Richard, for the question. The way I’ve been thinking about it is, we just talked about how we’re more than doubling our capacity of outreach specialists and care coaches, and that’s primarily going to resonate in the gross margin in the coming quarters. So we just really started to ramp in March, and you’re going to start to see the impact of that on the margins in Q2 and Q3. And then in Q4, we’ll start to head back north towards the ranges that you’ve seen in the last few quarters.

Richard Close

Okay. There was a comment in there that you guys have been able to, I think, it was reduce the on-boarding time or the cost by 1/3? Yes, it was the on-boarding time by 1/3 this year. Can you talk in and around that in terms of what’s driving that?

Rick Anderson

Sure, Richard. This is Rick Anderson. What we’ve been primarily doing is, as we’ve talked about it, we have a significantly higher outreach pool, and we’re anticipating a significant amount of growth from here, both in terms of eligible members and enrolled members, and that requires looking at some things differently and investing in the infrastructure and technology around that.

So we’ve refactored our training program based on our past learnings to be able to cut back on that time, and that will always be a goal of ours to look to see how fast we can get new staff up to full productivity, so getting them through the training process more quickly. But it was really a matter of taking our past learnings and refactoring that into a better process.

Richard Close

Okay. That’s helpful. Question, I guess, Terren or Rick, you can answer this, is you talked about expansions. You also highlighted being conservative with your 2019 guidance, although those were big years. Those growth figures are above the $35 million. If you’re expanding with existing customers, I assume you have all the data issues potentially solved, correct? Is there the ability maybe to, I guess, enroll at a higher rate than the 20%, considering you have these existing customers already in place?

Rick Anderson

That’s an excellent question. The answer in the short-term is what will enhance our enrollment rates is our ability to push into new technologies and new ways of reaching members more so than having where we are. So we’ve been experimenting with some things that we think have promise. We’re not really ready to put numbers on those yet, but I think we will see the ability to push the enrollment rates up some associated with that. As we do that, there’s – as you can imagine, there’s some cannibalization, but the net impact should be higher.

Richard Close

Okay. I guess what I’m trying to get at is you increased the outreach pool significantly, 75,000 in March, now it’s 92,000. I assume a good portion of that is with existing customers that you already have the data feeds and all that. So is there an opportunity there where, like, those lives that you’re adding with existing customers, you have everything turned on already so it maybe becomes a little bit more quicker than an existing – I mean a new customer, like, someone like Optima?

Terren Peizer

Quicker to launch outreach, if that’s what you mean with those because, generally speaking, a lot of our existing customers, we get data nationwide, even if we’re not necessarily outreaching in those states, for example. So when we add states, we already have those processes in place where we have the data in-house. So yes, we can – if the question is can we move those new outreach lives with existing customers into production faster, the answer is yes.

Richard Close

Okay. My final question, Terren, may be, you guys obviously have a bunch of national providers. Is there anyone thinking about turning on in 50 states across the U.S.?

Terren Peizer

Again, I’ll try to temper my enthusiasm. We do know of several national plans that seem inclined to expand throughout their entire line of business. Time will tell. It’s not in our outreach pool numbers. It could be quite – and I don’t think – by the way, if they press "the national plan" button, I don’t think they’d just give it all to us at one fell swoop because it’s a really big number.

They would phase it in over a year’s time probably, quarterly – divided quarterly perhaps. Now that would cause – I mean it’s a high-class problem. It’s – I do get asked from time to time, Terren, what is the trade-off between your growth? And if we don’t add any more lives, we won’t need any more capital to become very cash flow positive next year. If we add a lot of lives, we’re going to have to really ramp up very quickly as well. Again, depending on how they’re phased in, may require more capital or not.

But the revenues just – it’s staggering. Like I said, you could figure it out, every 50,000 is going to be roughly $65 million in revenue. And I think – I mean when you’re talking about these national expansions, you’re talking about adding hundreds of thousands of lives. So it’s a high-class problem. I rather – we rather opt – because we’re getting better at hiring and training and on-boarding of our care team and our outreach specialists, we would opt for growing as fast as possible because it is a relatively – the payback is so quick. It is a relatively – it’s an asset-light, capital-light model.

And we want to blanket the country as quickly as we can and as – obviously, as we talk about, once we’re in a health plan, we keep adding and growing within the health plan not only states, not only new lines of business for them, but also our products. Remember, we started with substance use disorder, we added depression, we added anxiety, we’ll add loneliness, we’ll add OnTrak 2.0 and then 3.0, 4.0, et cetera. So the greater our footprint in the country when we roll out product, the greater the impact it’s going to be. But we’re talking about very large numbers that I won’t even venture to tell you on this call.

Richard Close

All right. I’ll jump back in the queue. Thank you.

Terren Peizer

Thank you. Thank you for your questions.


Thank you. [Operator Instructions] Thank you. Our next question comes from the line of Daniel Carlson with Tailwinds Research. Please proceed.

Daniel Carlson

Hey guys, great quarter. Thanks for taking my questions. I’ve got two for you here. The first one is just given the changes in accounting revenue recognition, and you guys are only giving GAAP numbers, and given that you guarantee some of the plan savings in the past, I’m just wondering what the circumstances that any part of your fee is at risk and would be refunded. And along those lines, if you ever had a refund or come close to having to issue a refund.

Terren Peizer

Well, that’s a really good question. Thanks for it. No, we’ve never had a refund, never close to a refund. Yes, in the past, we’ve been – we deferred revenue relating to those "guarantees" that you’re – guarantees of savings that you’re talking about. It’s highly unlikely we’re going to ever have a refund. Given our model right now, we’ve been consistently, again, having treated over 11,000 members and soon we’ll be in the tens of thousands of members, and given how the company keeps improving in every aspect of the enrollment, engagement and the modification of behavior, it’s – our savings rate has been consistently north of 50%.

The savings rate would have to go down to somewhere in the mid-teens for it to even begin to impact us. And then the impact is and most of the guarantees – and mind you, we did – the guarantees, when we first started rolling out, were essentially pilots at the time. And the industry likes the idea of having skin in the game, risk sharing, that’s a model going up across the country, right? Value-based pricing.

And frankly, we use it as a marketing tool. We – but more than that, let me just get to the fact that the guarantee on most of these contracts is against 20% of our fee, which is $1,300 per enrolled member, roughly, which obviously, if it were to ever come about, that would eat into our profitability, but it wouldn’t be that significant of an event. It’s only – I think something like 27% of our overall revenue is associated with the guarantee. So – and we like it because we use it as a way of also getting premium pricing.

If we’re going to take risk, we want a premium price and – which is something that – again, there’s a conflict between helping us paying more, but wanting us to have skin in the game and share risk. From my standpoint, I’d like to be more at risk. So I would think that given our historical savings rates and the premium pricing, I don’t see that ever coming into being whatsoever.

Daniel Carlson

Okay. That’s helpful. And then one other question. Just some of the diseases that you’re working on, thinking particularly about addiction here or diseases where there’s really no cure, you’re just getting them to use your pun on track, I’m wondering if there’s a potential for you to have the patients that you’re treating enter into like a maintenance program or become on a multi-year sort of ongoing basis where you work with them beyond one year.

Terren Peizer

I’m sorry, I missed part of that question. Can you please repeat it?

Daniel Carlson

Yes. Sure. So I’m just wondering with the patients that you treat for something like an addiction issue that never really goes away for them, is there an opportunity for you to deal with that patient or, like, loneliness is a good one. That’s an ongoing issue. Would it be possible for you to maintain a relationship with the patient beyond just one year of OnTrak?

Rick Anderson

So, Dan, this is Rick. I mean the short answer to your question is, yes, there are opportunities to do that. For the vast majority of the members that are rolling through our current products, the members that we’re actually selecting upfront are people that we can impact over the period of the program and render them in a way that enables them to extend the gains from a behavior perspective and from a self-management perspective that they’ve had in the longer-term.

We do get request from time to time for sort of a lighter touch ongoing support model that would be for people that came out of that program or potentially even, as you just mentioned, which I think is a good one, if you start talking about different things that we’re looking at from a product perspective, like loneliness, there’s an opportunity for a different type of products that would have multi-year implications potentially because of the interventions that you’d want to do are not really related entirely to behavioral aspects, but are actually related to support.

So we definitely have the ability to put things like that in the future. But I would say, that’s primarily coming through new products that we’ve got in the product line.

Daniel Carlson

That’s okay. Thanks. Appreciate guys, great quarter.

Terren Peizer

Thank you.


Thank you. [Operator Instructions] And thank you. Our next question comes from the line of Daniel Carlson with Tailwinds Research. Please proceed.

Daniel Carlson

Hey guys, I didn’t want to take up all your time, but I guess it’s just me so I could ask one more question. I was particularly excited about this press release today about loneliness. So I’m just wondering if you can talk about how that is going to – I mean that’s a significant issue, especially, with social media, in my opinion. So how is that going to affect your outreach pool over time? If you could kind of quantify that one.

Terren Peizer

Well, I think – that’s a great question. It is a serious issue throughout the country. The health plans are very focused on it. The social determinants of health and particularly loneliness is one of the top priorities in the industry. We currently treat loneliness. That said, we have to gather a lot more data this year to have a full capability that’s on par with the rest of OnTrak 1.0 and 2.0, where we can identify loneliness through our analytics and can treat many more people that suffer from loneliness.

Anxiety, depression and substance use disorder are drivers of loneliness. There’s going to be some intersection with those because, as we said, we’re currently treating loneliness. However, what I really think the impact is, and we don’t know yet until we get it out there in the full capacity what the addition to the outreach pool is. Would it increase the outreach pool? Yes. How much? We’ll know over the coming months. That said, what I really think it’ll do is, it will make our marketing to these health plans much more robust. They, like I said, are trying to solve for this problem.

And there have not been too many elegant solutions besides having people in your home 24/7. It’s a difficult thing to attack. So I believe it will be a driver for more contracts, more expansions and an increase in our outreach pool.

Daniel Carlson

Got you. Okay, great. Thanks.


Thank you. We have reached the end of our question-and-answer session. Allow me to hand the floor back over for closing remarks.

Terren Peizer

Thanks all of you for your time. Please feel free to reach out to us with any additional questions. Finally, I will continue to be proactive in speaking with our existing and potential investors. I’m scheduled to present at two investor conferences soon, along with planned roadshows to discuss our story in the coming weeks. Again, please reach out to any friends and loved ones that may be struggling with metal health issues and show them that you care. Everyone, have a great night. Thank you.


Thank you. This concludes today’s conference. You may disconnect your lines at this time, and thank you for your participation.