Catasys, Inc. (CATS) Q4 2019 Earnings Conference Call March 12, 2020 4:30 PM ET
Terren Peizer - Chairman & Chief Executive Officer
Curt Medeiros - President & Chief Operating Officer
Christopher Shirley - Chief Financial Officer.
Conference Call Participants
Daniel Carlson - Tailwinds Research
Gene Mannheimer - Dougherty & Company
Richard Close - Canaccord Genuity
Jeff Kobylarz - Diamond Bridge Capital
Greetings, and welcome to Catasys 2019 Fourth Quarter and Year-End Financial Results Conference Call. At this time, all participants are in a listen-only mode. A 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 our representative of the company. Thank you. You may begin.
Unidentified Company Representative
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 concerning forward-looking statements. All statements in this conference call other than historical facts are forward-looking statements. The words anticipate, believe, estimate, expect, intend, 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 described in the Risk Factors section of the Form 10-K and Forms 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 the forward-looking statements.
With that, I'd like to turn the call over to Terren Peizer, Chairman and CEO of Catasys, Inc. Please go ahead, Terren.
Thank you, and welcome, everyone. I know it's a very volatile time, and so I appreciate you taking the time to join us today. With me on today's call are Curt Medeiros, our President and Chief Operating Officer; and Christopher Shirley, our Chief Financial Officer.
Given the obvious environment, let me say, first and foremost, that the coronavirus, COVID-19, doesn't have a negative impact on our business. In fact, as reported in our press release today, over the last two weeks, we have had all-time record enrollment. Given that OnTrak programs target those that are both chronic disease and multiple behavioral health diseases, including anxiety, we obviously live in a very stressful and anxious times. We will discuss in a bit, how we are working with our health plan partners and their members to address the environment. Given all of these current events in the first call of the year, this will be a bit longer call than usual.
We closed out 2019 with a strong finish in the fourth quarter, achieving the $35 million in revenues we had projected for the year, as a result of the continued ramp in our outreach pool and increasing enrollments.
We had nearly 1,600 new net enrolled members in our OnTrak program in Q4, compared to 354 in the prior year's fourth quarter. This brought us to nearly 7,000 total enrolled members during the period, up 137% year-over-year and 29% from Q3, 2019. At the root of all this growth is our effective outreach pool of eligible lives, which stood at 108,000 at the end of Q4, up 6% from 102,000 in Q3. And as of today, we stand at 128,000, up already 18.5% this year.
Remember, we began 2019 with only 38,000 lives. The effective outreach pool is different from the total outreach pool of eligible lives that we have talked about in the past. We will use effective outreach pool going forward as it represents the lives that we are actively engaging to enroll entire programs. And as such, we believe that is more accurately depicts our near-term opportunity.
To put the difference in context, our total outreach pool has surpassed 150,000. The difference can be attributed to bad data, outdated contact information and certain ineligible and disregarded populations. We do believe that through the work with our health plan partners, these two numbers will converge and be virtually the same by year-end. In 2019, our effective outreach pool nearly tripled in size as a result of significant expansions with existing health plan partners and launches with new partners.
Last year alone, Catasys has expanded OnTrak to eligible members in five new states; Alabama, Mississippi, Maryland, Delaware and Ohio. Last month, we announced another expansion with Aetna, which put us in another new state, Colorado as well as Washington, D.C. We are now in 28 states and the nation's capital.
Our work in 2019 has set us up for great success in 2020. We continue to make incredible progress and our industry-leading ability to enroll, engage and treat these, generally care and treatment of avoidant members combined with constantly improving technologies has us positioned financially and operationally to execute on our initiatives.
With each new member we enroll and serve, we continue to validate the ROI and value proposition behind our groundbreaking Catasys PRE platform and OnTrak programs. Our health plan partners believe in the work we do and increasingly so as they continue to expand their relationships with us. Our effective outreach pool continues to grow and so does the opportunity before us.
Throughout 2019, we built up our engagement team of care coaches and member engagement specialists to ensure that we would be ready for the significant increases in effective outreach pool and enrollment. Having more than doubled the size of our front lines, we are ready.
To lead us in this effort, we are pleased to welcome Curt Medeiros to our leadership team in December. As President and Chief Operating Officer, Curt is the driving force behind our day-to-day operations, sales and marketing, digital technology and ensuring the company's efficient execution. As Founder and majority shareholder of Catasys, it is very comforting and satisfying to have a health care executive with Curt's ability, leadership and stewardship who previously has successfully scaled advanced data and analytics company to nearly $0.5 billion in revenue and with extraordinary profitability.
We also made every effort to continually bolster our Board of Directors and leadership in 2019, which we believe is critical as we look to achieve the exponential growth we discussed over the past few months. In November, Gus Giraldo, who recently served as President of Behavioral and Specialty Health at industry leader, Magellan Health, and who currently is Centene's Managing Director of International, joined our Board. He brings an impressive track record of leading and growing businesses, a deep understanding of the dynamics of various health care systems around the world and extensive industry relationships developed over his 20-plus years of leadership in health care. Gus' leadership and contribution have already paid dividends with our customers.
Just this month, we announced the appointment of Brian Kelly to the newly created role of Senior Executive Vice President, Product Portfolio. As we look to continue on an increasingly rapid trajectory in 2020, scaling our program to broader population, Brian's leadership experience at Ascend Learning, Optum, Merck and DuPont will prove valuable in advancing the analytic capabilities and value of Catasys PRE so that our market-leading team of frontline specialists can better serve even more members in ways that closely integrate with the programs of our health plan customers, which will improve member health and save more lives.
Like Curt, Brian has scaled businesses with hundreds of millions in revenue. With established health care executives like Curt and Brian, we will soon be positioned to similarly scale our business to hundreds of millions of revenue and beyond.
All that being said, our effective outreach pool continues to grow, and we anticipate it continuing to grow to at least 200,000 in 2020 as a result of ongoing expansions and new partnerships. We have the best of the best leading us on our growth path. We accomplished $35 million of revenue for 2019 as projected, and this, in spite of several headwinds encountered through the course of the year. We took the appropriate steps in 2019 and continue to do so in 2020 to ensure that we'll be able to handle the exponential growth expected this year, and at this time are reiterating our guidance of $90 million in revenue for 2020.
As a reminder, our guidance takes into account only what we know, not what we expect. Thus, we do our best to take into account the fact that our client base consists of some of the largest companies in America. These are very large, very complex organizations which can mean long lead-times, senior management turnover, corporate restructurings, and other unforeseen customer complications.
However, as we have done repeatedly in the past, we will endeavor to successfully navigate these challenges. Speaking of large companies with complications, you may recall from recent quarterly calls, we were set to launch in several states for a national health plan a year ago, which would have had us significantly surpassing last year's $35 million in revenues.
Right before our launch, they froze us and advised that they would be doing a nationwide RFP for behavioral health solutions. We spent several months preparing the RFP proposal. We then were advised that we won the RFP. We were preparing with the national plan for a January 1st launch with OnTrak 2.0.
Then in November, the plan informed us it was changing its management structure from a market-driven, decentralized structure to a centralized corporate one with the CEO being the final sign-off, given the size of the contract on this corporate vetting process.
As you oftenly surmised, this introduced risk to the whole contract. Thankfully, I can report today, we are told that the contract is not at risk and we will, in fact, be launching. We are working with the plan to launch April 1st.
I would be remiss if I didn't insert the cautionary words that this is still a very large and complex company and we still are awaiting the details of the statement of work and the signed contract. We are in daily contact with them and are readying for launch. Certainly, we should have clarity in the coming days and hope to be able to provide an update soon.
Switching gears, we continue to explore ways in which we can utilize our groundbreaking new platform Catasys PRE, predict, recommend, and engage, to better serve members of our health plan partners beyond its application in OnTrak 1.0 and 2.0.
As we work to integrate additional multi-condition applications and the Catasys' PRE platform, we strive to improve the functionality of our technologies that will positively impact the lives of an increasingly broader member population with effective lasting treatment while driving significant cost savings and offering an industry-leading value proposition for health plan partners.
Now, before I turn over the call to Curt to discuss our operations, I'd like to give a brief introduction since he only just joined us in December. Curt came to us from Optum's Advanced Data and Analytics, where he was President of this highly profitable division, which is one of the premier health care analytics entities in the country at one of the largest health care companies in the world, United Health.
He is tops in the industry, a seasoned leader with 20-plus years of industry experience in various operational and strategic roles where he demonstrated time and again, his ability to create and execute on growth initiatives.
We could not be more thrilled to have him on our leadership team as we look to deliver upon the explosive growth we've seen, discussed over the past several months -- we've been discussing over the past several months.
With that, I'll pass the floor over to Curt and will return later to speak on our outlook for the year. Curt?
Thank you for the kind introduction, Terren. Throughout 2019, Catasys continued to validate the effectiveness and efficiency of its technologies and methodology. We set the stage for the exponential growth expected this year, signing contracts with new health plan partners and launching several program expansions with existing partners, both by geography and modality. Because we have achieved proven results and ROI for our customers, we have continued to expand into several new states.
As Terren mentioned, Catasys has expanded OnTrak to eligible members in five new states in 2019; Alabama, Mississippi, Maryland, Delaware, and Ohio; and entered our first new geographies for 2020 by expanding into the state of Colorado and Washington, D.C.
We successfully launched OnTrak into California for eligible commercial members beginning January 31 this year. And later this month, we will be launching OnTrak for eligible commercial and Medicare Advantage members into Colorado; Washington, D.C.; Virginia and Louisiana. We are thrilled that Aetna continues to believe in the work we are doing, engaging and providing a growing population of their members with access to critical behavioral health care to help them better manage their chronic diseases.
These expansions will grow our total outreach pool significantly, as we head further into 2020 and we expect to announce additional expansions with them later this year. We remain in active discussions with several health plan partners regarding expansions into new states, new lines of business and additional populations, such as depression and anxiety. We look forward to announcing new launches this year as we emerge from the pilot phase with a number of health plans.
Our recently established national commercial team has hit the ground running. And their contributions are already yielding results for our new business pipeline. As Terren discussed earlier, our total outreach pool was at 156,000 at the end of Q4. The effective outreach pool, consisting of those whom we are currently actively working to engage, is at about 128,000 eligible members. And we anticipate outreaching to the full total outreach pool in the coming months as we correct for health plan-specific issues.
Net new enrolled members, defined as total new enrollments less graduated and disenrolled members was at 1,589 in the fourth quarter of 2019, up 349% from the prior year period and 9% from the 1,456 we reported for the third quarter of 2019. We expect to see this upward trend continue in the coming quarters, given the continued ramp in our total outreach pool. Total enrolled members in the fourth quarter of 2019 stood at 6,996, a 137% increase from 2,952 in the prior year period and up 29% from 5,407 in the third quarter of 2019.
As we continue to build our businesses, we have been able to find increased operating efficiencies, which Christopher will discuss shortly. We continue to grow our care teams and the underlying infrastructure to support our rapidly growing eligible member pool and enrolled members. At the beginning of 2019, our engagement team was at 122 members. We are currently at 257 and continuing to grow our front lines. Having improved our onboarding and training procedures, new staff are able to effectively engage with members much more quickly than before. And we are seeing the positive results in our enrollment numbers.
I will now turn it over to Christopher for an overview of our financial results.
Thank you, Curt. Our revenues for the fourth quarter of 2019 increased to $11.8 million compared to $5.6 million during the same period in 2018, a year-over-year increase of 109%. This was driven by an increase in the number of members enrolled in our OnTrak solution during the fourth quarter of 2019 compared with the same period in 2018. Revenues for the full year 2019 totaled $35.1 million compared to $15.2 million in 2018, a year-over-year increase of 131%. Gross margin for the fourth quarter of 2019 was 41.3% compared to 52.8% in the prior year period. Sequentially, gross margin increased from 30.8% in Q3.
Looking at the full year, gross margin improved to 41.8% in 2019, compared to 26.7% in 2018, which is particularly impressive, considering we have more than doubled the size of our engagement team of care coaches and outreach specialists over the course of the year.
We were able to achieve subtle margin expansion as we gained efficiencies through scale in our operations. Our operating expenses for Q4 2019 increased to $11.9 million compared to $4.2 million in the prior year period. Throughout 2019, we committed ourselves to investing in new technology and strengthening our Board and management team, as we continue along a path of increasingly accelerated growth. As a result, operating expenses in 2019 were $34.7 million compared to $17.7 million in 2018.
On the bottom line, our net loss for the quarter was $8.7 million or $0.52 per diluted share compared to a net loss of $1.4 million or $0.09 per diluted share in the prior year period. This was a result of increased OpEx as well as 2.3 million more stock-based compensation expenses in the prior year period, relating to options awarded to management and directors.
For 2019, net loss was $25.7 million or $1.56 per diluted share compared to $14.2 million or $0.89 per diluted share in the prior year period. Adjusting for $5.2 million in stock-based compensation expense and $1.5 million in write-off of debt issuance costs, net loss would have been $18.9 million or $1.15 per diluted share for the year.
We are pleased to have secured the debt financing commitment from Goldman Sachs in Q3 of 2019 and remain in a strong financial position as we continue to move forward on our growth strategy. Cash and restricted cash was $13.6 million at December 31, 2019, with working capital at $6.3 million. We also have $10 million left to access on the Goldman financing.
With that, I'll turn it back over to Curt for a view into 2020 priorities.
Thank you, Christopher. As we turn to 2020, the opportunity for expansion of the Catasys business remains robust. We are currently in a position with a strong team and foundation of capabilities to scale our operations rapidly as we win and execute on new contracts.
We have five key focus areas for 2020 to continue scaling our operations. First, scaling our operations to execute on planned expansions with our health plan customers. In 2020, we are planning to add close to 100,000 new members to our effective outreach pool. So for example, we have created an internal recruiting team and expanded our network of external recruiters to ensure we can staff the growth needs of our member engagement and care coaching teams. These changes have already doubled the pool of quality candidates to our teams and are keeping the pace of hiring, aligned with our demand.
Second, working to drive improvements in our engagement and enrollment processes. Leveraging external data sources and analytics, we are incorporating new metrics that help us improve information we have on members before they are ever contacted.
For example, we are working with our clients and external data providers to incorporate phone numbers and emails, when we have either not received this information for the health plan or the information is no longer accurate. This has the potential to increase our effective outreach pool by 15% to 20%.
Third, improve our visibility into OnTrak program eligibility for individual members. When individuals change health plans or employers, they may gain or lose program eligibility. This is particularly challenging when the new plan year starts in January for most members.
For example, we are working with our health plan customers to increase the timing of data feeds and reduce our internal processing times. In January, we're able to process health plan eligibility files quickly, enabling us to understand who was switching plans, so that way we can disenroll affected members and enroll new members much more quickly.
Fourth, improving integration with our health plan customers. We are working with customers to share a broader set of analytics and also serve as a trusted and influential resource with their members to refer them to additional health plan programs in disease management, case management, and social determinants of health.
And fifth, improving our provider integration. In certain geographies across the U.S., the availability of behavioral health specialists is low, not just for Catasys, but for all. We are working actively with our customers to contract new providers as well as extend telehealth capabilities so that all members will have convenient access to care, whether it be in person or virtual.
We will enable the above priorities by continuing to scale our analytic capabilities. We continue to see great opportunity in leveraging our data and analytics to improve how we identify, engage, and serve our members as well as demonstrate value to our health plan customers. Having timely, clean and reliable data not only increases our effective outreach pool, but also improves our engagement and enrollment efficiency for the OnTrak program.
PRE, our data and analytics platform, is now processing data on approximately 80% of the membership, and we'll be processing approximately 100% of existing data feeds by the end of Q2. Additionally, our data science team is also implementing new machine learning algorithms that will increase the effective outreach pool.
For example, by better identifying individuals with undiagnosed anxiety disorders. Our plan is to incorporate these new algorithms and resulting metrics into our operations beginning in Q2 and throughout all of 2020, to increase our opportunity to serve more members and do so in a more effective and efficient manner.
Now, I'll turn it back to Terren for closing remarks.
Thank you, Curt. Everyone, we're off to the races in 2020. We set the stage for phenomenal growth with the work we achieved in 2019 and continue to solidify the foundation for continually accelerating growth trajectory with additional expansions and new contracts.
We are pleased to announce the expansions into Colorado, Washington, D.C., Virginia, and Louisiana with Aetna a few weeks ago. Because of expansions like this, our outreach pool of eligible lives continues to grow, and in turn, our enrollments and revenues commensurately grow as well.
We are well-positioned financially following the debt financing deal completed in September with Goldman Sachs and we will continue to invest in building out our operational infrastructure, improving our technologies, broadening our clinical value proposition, expanding our product offerings to be able to help improve the health, and save the lives of as many members as possible for our health plan partners as possible and strengthening our management team and Board.
We at Catasys have a mantra of being member-obsessed. To be member-obsessed, we also recognize we must be frontline-obsessed and more broadly, employee-obsessed. This is a vital part of our culture. Objectively, this is elucidated by our Net Promoter Score or NPS. We have an industry-leading score of 74.
To put this in perspective, this score is higher than Apple's and higher than Amazon's. Given that our score is many multiples higher than our health plan partners, this is an asset to them as it enhances the relationship with their customer.
Another objective measure of value to our customers is at approximately 97% of our targeted members haven't had a behavioral health claim in the last 12 months nor have greater than 90% of our targeted members participated in any of the health plan programs. This speaks to the treatment and care avoidance of our members and points to the savings that are sitting there for our health plan partners to capture.
The coronavirus presents significant challenges for our members and I'd like to spend a moment discussing how our team is responding. Many of our members suffer from anxiety. Coronavirus is obviously a cause for major anxiety and Catasys care coaches are uniquely positioned to support those with anxiety because we have regular and frequent telephonic contact with all of our enrolled members. This means we can help them manage their anxiety, point them to the most trusted sources of scientific information and educate them on how to keep themselves and their communities safer.
Our members are also disproportionately impacted by the digital divide. They may never have used digital tools or telehealth, which is why our care coaches and local community care coordinators are going the extra mile in helping these members to connect to the right providers based on digital readiness.
Our telehealth network is one of the many options for our members. As I mentioned a moment ago, 97% of Catasys' members have not received behavioral health services from their health plan in the past 12 months, so we believe we are performing an important public service by engaging members who are concerned about coronavirus, but avoiding the health care system.
I'd like to thank two leaders who lead the heart and soul of our company, our frontline. My thanks to Sara Armstrong, who heads our clinical teams of care coaches and community care coordinators and Michael Wain, who heads up our member engagement specialists, they are critical to our efforts to support our members in these most challenging of times.
Over the last two years, we have made a concerted effort to upgrade our Board and our senior management team. Frankly, we just didn't have the team that could scale our business to seize the size of what we foresee an opportunity. We have an obvious opportunity to capture savings, the health plans won't capture and a compelling and unrivaled value proposition in the industry. We are getting this message out, it is resonating with our health plan partners and with our management enhanced team.
I've mentioned Curt Medeiros and Brian Kelly, but there are others that have been recently hired and/or promoted, such as Mary Hardy, who heads up our commercial area, otherwise known as sales and marketing; and Julia Wright, our Chief Medical Officer, who was previously a Chief Medical Officer at several health plans and establishes us in our general category of chronic disease.
These highly talented people augment our other senior managers to form the beginning of an all-star management team. You can guess that with all of my years of financing and building companies did I appreciate the importance of management to a company's success. While historically, our management capability has lagged our opportunity, we are now properly positioned. We will continue to position our management team to be able to scale the immediate opportunity and execute and deliver the results that our stakeholders demand.
Not only have we created a value proposition unrivaled in the industry and built a first-in-class management team, but we are innovating at the highest level. This is exemplified by the Catasys PRE Platform, which is the most advanced analytics platform in the industry. We are exploring other ways in which this platform can be used to improve the efficiency and effectiveness of populating and analyzing data at some of the largest health care organizations in the country.
Having said all that, we are reiterating our guidance of $90 million in revenue in 2020 and are confident in our ability to achieve this target. With the additional expansions just announced and with more developments to come, this is a conservative take on what we can accomplish this year.
But again, I must caution against the complications and headwinds that we typically experience with the largest companies in America and the complexities inherent in the health care industry. We anticipate an increasingly accelerated growth trajectory as we continue through 2020 and even more so in 2021. We have the leadership team needed to drive us onwards and upwards and a growing engagement team poised to deliver positive outcomes for increasingly more members and increased savings for our health plan partners. We are ready.
With that, operator, we can now open it up for Q&A.
Thank you. Ladies and gentlemen at this time, we will be conducting the question-and-answer session [Operator Instructions] Thank you. Our first question comes from the line of Daniel Carlson with Tailwinds Research. Please proceed with your question.
Thanks guys for taking my questions. Congrats on a great quarter. Just a couple of questions about guidance for this year. Kind of a two part question I guess. Since you just said that your last couple of weeks have been record weeks, I guess, can we surmise that you're on track for Q1? And then also looking at the year and the growth here, is it going to be a linear growth? Or do you expect it to be more back-end loaded?
Thank you, Daniel. Great questions. So yes, we made it a point in our press release, we don’t want to go overboard, but we made a point, coronavirus does not negatively impact our business. And to that point, we have had all-time record enrollments in the first two weeks of March. So obviously, March looks pretty good. We are reiterating our guidance of $90 million. I think we want to save some firepower and some headlines for the next quarterly call. But I think it's safe to say, we're on track with our forecast.
And in terms of the back-end loaded, let me -- I'm sorry. In terms of the back-end loading, yes, that is going to be consistent in our model, hopefully, for many, many years to come. As you know, as we just announced, new state launches, it takes -- and particularly in Aetna's commercial -- mostly commercial, some Medicare population, it takes some time to get to a steady enrollment rate. So that has the effect of pushing revenue out into the back half of the year.
So yes, and as seen last year again, in the first half of the year some people are questioning whether or not we can achieve our guidance and it was right on schedule despite the headwind that we had with that national plan that could have added somewhere in the neighborhood of, say, $10 million to the $35 million for somewhere in the neighborhood of $45 million, depending on what they launched and when they launched it.
Got you. So speaking of growth then, so looking at -- looking out, I mean, you're going to exit this year with accelerating growth and being probably, I'm guessing, hundreds of millions to 2021. So I'm just wondering if you can sort of give us without guidance, but sort of a preview in your mind of what we can look for out a year or so?
I find that very interesting. Last year, when we were talking about $35 million, and obviously, no one has even focused on the $90 million in guidance we gave mid-November, so we might examine that going forward not to give guidance until the fourth quarter call, because people didn't even think we do $35 million, given the back-end loaded of last year.
So we go from $35 million to $90 million, which is quite a significant growth rate. And as we said on today's call, we hope to end the year with approximately 200,000 in outreach pool. And we know that we want to get through a steady enrollment rate and a run rate of 20% times that. So you could start creating a ramp for next year's revenue number that's certainly going to go well. I can't spare to say, we plan on doubling our revenue for years to come. If that gives you some idea how we view 2021 at this time.
That's helpful. Thank you. So then just to sort of follow-up with the market all over the place and tough to figure out the value stocks. With 100% growth rate, what would you say comparables are? And how do you think we should look at Catasys for relative value.
Well, as CEO, I probably shouldn't talk about what I think about value, or I guess, I could talk a little bit about comparables. I know a little bit about the industry. I might know a little bit about investing. But since I invested well in excess of $22 million of my personal money to buy the stock and most of it in the most recent years,
I will give you some perspective. The company that -- the leader in the healthcare IT segment, which is our segment is Livongo. And Livongo went public last year and roughly -- a very high valuation, and it went public based on a run rate by the end of the fourth quarter and a full year 2019 revenue number of roughly $165 million. And I think this year, there -- the estimates are for like $230 million to $250 million, roughly. And it trades at a $2.5 billion market cap.
Now looking at the $165 million-ish of last year, I don't have the exact reporting number in front of me. But looking at $165 million of last year, I think it's fair to assume we will be at/or north of those numbers next year. So it gives you an idea of what we believe is the opportunity ahead of us.
And as I -- it's interesting. As you know, we're small today, but we're -- there are some screens that investors use that really don't get people's attention, so you're north of $100 million in revenue, which we'll be flirting with that screen soon enough. And I think at that point, we -- because today for the first time, because it’s somewhat topical, we point out the virtualized care that we provide to the member -- the health plan members. And we mentioned, for the first time that, yes, we are a telehealth company. Obviously, it's been happening with Teladoc. It's a different model, but in our segment of the industry, it's a valid model.
We have virtual, scalable, reputable throughout the country, which obviously, we're not -- our operations were not disturbed by everyone working from at home because everyone works from home in our company, except at our corporate headquarters here in Los Angeles.
So we were well-prepared for the disturbance and we are uniquely working with the health plan members to be a telehealth company. So I'm very excited about our revenue growth, the crossing that CASM of $100 million in revenues. And someday, getting the attention that a Livongo gets and I think we'll get there. And incidentally, Livongo's growth rate, I think, if they're talking about $165 million to $230 million, their growth rate is, we'll call it, 50 -- say $250 million this year, $260 million, $270 million, whatever, their growth rate is about 50%. We expect to grow at 100%. So I expect, at some point, the market will recognize us having a greater multiple.
Got you. Thank you. That's very detailed. Appreciate the answer. And then one last question then I’ll jump out. But -- for Curt, based on your comments about issues relating to eligibility, and the new enrollment periods for national health plans, seeing at the end of the year. Are you seeing seasonality related to this or any issues around that?
So I wouldn't refer to them as issues, because we expect and plan them. I think what we were able to do this year is minimize the impact and contain it in the disenrollment associated in January. Rather than having those disenrollments bleed into February and March.
I think, Curt, I think it's fair to say that next year, we'll catch it even earlier than we did this year.
Absolutely. So a combination of continuing to improve the rapidity and timeliness of the data we receive, as well as screening protocols that we're going to be putting in place with our frontline to understand if people have switched health plans. We should be able to, as Terren pointed out, not only catch it earlier, but also decreased the disenrollment impact.
Got you. Thank you. That’s it for me. Thank you very much and have a safe trip. Welcome aboard. Great to have you here.
Thank you. [Operator Instructions] Our next question comes from the line of Gene Mannheimer with Dougherty & Company. Please proceed with your question.
Thank you. Good afternoon and congrats on the great finish to 2019. Terren, I guess, I wanted to ask, with respect to the $90 million revenue guidance, how do you have a comfort level with that, given that you don't have tremendous visibility into the national launch that you talked about for April 1. If that -- for example, if that were to get delayed, what does that do to your visibility into 2020 revenues?
That's a great question. We obviously emphasized quite often, the caveat that -- I mean, if you had told me a year ago, when we were frozen, pending a national RFP, and we win the RFP, and we're offset to launch with the plan January 1, and then a curve ball comes in that they're changing the management structure from decentralized to centralized and then we have to go through a whole vetting process again, I just wouldn't have believed it. But that's our life. That's life in the big city, as they say. The good news is we have these big national plans as our customer.
Now, to your question, depending -- and we are -- in our numbers, because, remember, everything is always on a slope, on a curve. Commercial lives, when we launch in a commercial population, the curve will be elongated, and the ramp is elongated. But when we talk about our Medicare population, it's still a ramp, it's still a curve, but it's closer, tighter in.
That said, without saying too much about this population. That said, we do provide from -- for our slippage -- while we provide for slippage from our -- from January 1 launch, we're providing slippage, we're ready for April 1 launch. We are providing for some slippage because -- remember, given that we tell you what we know, not what we expect.
And to your other part of the question, we have -- the reason we've hit guidance, 2017, 2018, 2019 is because we have a great history and visibility of what our outreach pool translates into a year out. So, we have great visibility into next year. Now, what are the upsides? So, if the contract slips from April 1, that's okay, we have room for that in our numbers.
But again, since we tell you what we know, not what we expect, there are a lot of levers that can happen that increase our numbers. We just don't include them until they're done. There's one opportunity that just occurred today. Do we have a contract on it? No, we wouldn't talk about it. But are we excited about it? Absolutely. Does it help address any slippage in anything? Absolutely. And we have a revitalized commercial team in the sales and marketing area, which I referenced, Mary Hardy heading up.
And of course, in conjunction with Julia Wright who -- as you -- as we keep talking painlessly, we are continuing to expand our product offerings outside of the target market, target member populations today, including into chronic disease generally that fit the same type of profile as our members today and in conjunction with the Catasys PRE platform.
So Gene thanks for your question. The short answer is, we provide for slippage. We have other levers to push, to make up any further slippage and -- but that said, we know to expect a curve ball from time to time and we do the best to manage through it. Historically, we've done very well. And we have pretty great visibility into even next year outside of whether -- even the back half of this year.
Great. Thanks a lot, Terren.
Thank you. We do have an additional question from the line of Daniel Carlson with Tailwinds Research. Please proceed with your question.
Hey guy. Thanks for letting me have a follow-up here. Just want to talk about the cash situation and what sort of breakeven revenues do you -- or what sort of revenues do you need for breakeven? And with the $10 million left on the revolver, do you think you have enough to get you through to that?
I've been waiting -- I figure someone would ask that question. I should have known it would have been you. Let's break it down. Cash on hand, do we have enough cash to get to cash flow positive state or cash flow breakeven to cash flow positive? The short answer is, yes. Part two, when will we become cash flow breakeven? Our model says fourth quarter. My brain says, let's say, first quarter.
And by the way, you asked about a revenue breakeven number? That's more difficult to say, because as we grow quickly, the expenses are front-loaded because we're hiring and training our managed member engagement specialists and our care coaches and the six weeks so that they're being hired and trained, and they don't even start out at peak efficiency, obviously, it takes several months to get to peak efficiency.
That negative working capital is going to be a drag on EBITDA and cash flow. So the faster we grow, it could have the result of pushing out that breakeven, which is why I kind of say, optimistically, I hope it's the first quarter. So we don't put a revenue breakeven, but our model calls for breakeven in the fourth quarter. But let's hope we have so much growth that it has to get pushed out.
Right. I mean, I think you really answered my question, I say, you have enough cash, which in the current market environment is really the important thing. So that's good. So, thank you, guys. Appreciate it.
Pleasure. Thank you.
Thank you. [Operator Instructions] Our next question comes from the line of Richard Close of Canaccord Genuity. Please proceed with your question.
Great. Thanks. Congratulations on all the new hires and finishing the year strong. As a follow-up to one of the questions earlier about the -- how we should think about 2020 rolling out, just looking at the consensus number for the first quarter, it's $15.4 million in revenue. There's an estimate at 13.7 million and an estimate at $17 million. So just curious, I know you're not giving quarterly guidance, but with those numbers laid out there, what do you feel more comfortable with?
Well, I think, with all due respect to the great people that cover us, such as yourself, I don't think a lot of thought went into -- and I understand why. When you look at it, last year was our first year of -- of course, it was more than 100% greater revenue than the prior year, and this year will be even greater than that.
So it's hard to get a feel for how our numbers unfolds on a quarterly basis. So when I look at what the analyst year numbers -- yearly numbers are, entirely comfortable with that. As I think the first quarter numbers, frankly, do not take into account that the enrollment irregularities we see in the January-February time frame.
Now Curt points out, that we got a lot better this year than last year and the coming year will be even better, because we're working with the health plans to get the better data in our hands as quickly as possible. We don't do quarterly guidance, but I would say that if you take our guidance for the year and you follow a similar type ramp of last year, my guess is, you're going to get -- be much more accurate on a quarterly basis.
Because last year's revenues ramp, which I'm not saying this year is the same as last, because then I'll be giving guidance. But, obviously, it's a better indication now, and there is this back-end loading to our model. And we do anticipate obviously, with the new -- obviously, the good news is, as I pointed out in my opening remarks, is this national RFP that we won. There's no more risk in that occurring. It's occurring. It's launching. Now, obviously, when it launches, whether it's April 1st or July 1st, whenever it launches that -- again, we get very little in the front end of that launch in revenue, and it's going to be more back-end loaded. And whatever -- the more it gets back-end loaded, whatever doesn't happen this year, we'll certainly go into next year. Although, like I said, I expect 100% growth rate in our revenues more than 100% this year. And certainly, 100% next year is in the cards.
Okay. So, with respect to the 128,000 number, I think you guys talked about effective outreach pool currently, is the national account that's still to launch, hopefully, April 1st, is that in the 128,000 number? Or once that launches, it goes into the pool number?
Correct. We -- again, since we don't have the signed contract back yet because it's pending some odds and ends maybe, which are more operational odds and ends, not contractual odds and -- I mean, in terms of economic odds and ends maybe, we do not -- we only talk about that, which is contracted and ready to launch, or at least scheduled to launch. We've never put that plan numbers in our outreach pool. And obviously, we're expecting it to help spike our outreach pool this year and spike it even more next year.
Okay. And just a housekeeping. I mean obviously, this effective number metric that you're given is somewhat new -- or maybe you started at last quarter, I think you're -- in today's release, you said the third quarter effective pool was 102,000 if I go back to the third quarter release, I think you said it was 113,000. So, just from a housekeeping perspective, what's the difference in those two numbers?
Well, keep in mind that in any given period, debt outreach pool number is going to jump up and down. A health plan loses an account, the number goes down. Health plan gains an account, the number goes up.
Yes, but isn't it a historical number?
Right. But I'm saying there's a lot of movement from -- when we report a number, it's not always a straight line up. It moves around quite a bit, both and down within a period.
Okay. And then from a net new enrollments, I guess they increase third quarter to fourth quarter, if I'm not mistaken, 7% sequentially. Obviously, it sounds like that number is going to accelerate, but on a quarterly basis, it's going to be back-end loaded. Is there anything that you see in terms of maybe impacting that acceleration other than just, obviously, new enrollments, but is there anything to comment in terms of retention, improvements and things along those lines that you can call out that might drive up the sequential growth?
That's an excellent question. I'm so happy you asked it. I'm going to let Curt answer it more specifically. But let me say generally, we, as a company, are operating almost with our hands tied behind our back. We are operating as an analog, figuratively -- as an analog company versus a digital company. A manual company versus an automatic company.
And we are spending a great deal of effort, with Curt, Brian, and company, to get us to that high-performance capability as quickly as possible because that has the most dramatic impact on our revenue growth, besides the outreach pool, obviously. And to that, we – the metrics that we use when we give guidance, for example, over the last months, say, whatever, we're ahead of – those metrics are ahead of what we have in our plan.
Is it sustainable? Well, we hope to find out that it is. But our metrics are going to keep improving, which is going to improve both our revenues and our profitability. And I'm excited that next year we'll be talking about profitability. But with that, Curt, you could add specifically what we're doing in that regard?
Sure. So thanks, Richard. A few different pieces. So I'll reiterate a bit of what I talked about earlier. The first step in the foundation is having timely, clean and accurate data. And so being able to provide that not just in the initial enrollment, but to make sure that we're updating that information as people are going through the program and allow us to continue to customize the OnTrak program to that member's individual needs is absolutely critical to your point around improving retention in the program.
Second, on that foundation, we have been investing and have rolled out a series of different convenience-related tools that are member facing. Part of it is continuing to grow our capabilities in the telehealth space, which, at this point, about 80% of the overall membership has access to telehealth capabilities to not only engage with us, which is 100% of the membership, but our network of proprietary behavioral providers can be accessed through that telehealth capability as well.
Another thing that we've seen starting to move the metrics, and as Terren said, we're hoping these trends continue, is we've rolled out broadly, secured communications, either through our portal or an SMS, texting. And I think all of us on the call have cellphones now that ring with a bunch of numbers that we don't know. We found that when people are getting a text message from a care coach that they have relationship with, the opportunity to engage, schedule the coaching session and get those members to show up and spend the time with the coaches, has increased tremendously.
Again, it's a little bit too early to report what the long-term effect is, but we're seeing a lot of encouraging signs of how that's affecting positively our disenrollment rates. I hope that helps.
Yes. Yes. And maybe an add-on to that, I think we spent time with you recently, you talked about people finishing the program before the 12 months and maybe opportunities there to change maybe the – I don't know if it's contract terms or whatnot because once someone finishes, I guess, and exits, you're not generating revenue or maybe the full amount of revenue. Is there opportunities to do that where you ultimately capture some potentially lost revenue? Maybe talk about that a little bit.
Sure. So as we're moving forward with new contracts and as we expand with existing clients, we're moving over to a variable graduation model. To your point, it has a couple of positive effects, One, when we contract that in our pricing, we account for revenue for the average duration of the program. Some members will need more time in the program. Some members will need less. We see an average of around six to seven months. Is the time that people need to appropriately hit the graduation milestones? And that's when we have an opportunity to, rather than disenroll them and cause any type of potential payback to our health plan partner, it actually is a graduation and being able to switch and track the variable graduation in that way, not only has a positive effect on revenue, as you alluded to, but also allows us to allocate our resources internally, more efficiently across the active people in the program. So it has a dual effect. So thank you for the question.
Okay. And a question for Christopher. You had two callouts there. One was the stock comp. I'm not sure what that number was, $2.3 million or something, $2.3 million in stock comp, incremental stock comp, I guess, in the quarter for new hires, management and directors. I think you said $1.4 million in debt issuance. Was the $1.4 million debt issuance; was that in the third quarter? Or was that fourth quarter expense?
That was a fourth quarter expense.
Okay. So you essentially had, what, $3.7 million in expenses that maybe you could classify as one-time in nature. That definitely -- would it be fair to…
Sorry, Richard, one clarification. The debt issuance -- sorry, the write-off expenses occurred in Q3. There were some other expenses in Q4 that were one-time in nature relating to some of these management transitions that we had.
Okay, all right. So let's make it easy then. If we were to take your 11 and change number for operating expenses in the quarter and ex those one-time numbers, bad guys, I guess, what would your run rate go forward as we think about the first quarter in terms of level of OpEx be?
I think -- look, we…
I think maybe just...
We didn't provide bottom line guidance, Richard, so we did -- we're really not going to comment on investments that we're making in the quarter.
Okay. But your operating expenses should be less than the $11 million that occurred in the fourth quarter. I'm just trying to get a feel where do we start the year off of here?
Put it this way, let me just say, because more -- well, the relevant takeaway is that our cash burn is going down.
Okay, all right. Thanks a lot. I appreciate it. Congratulations and good luck to starting the year.
Well, we still have two weeks to go, but we're off to a good start.
Thank you. Our next question comes from the line of Jeff Kobylarz with Diamond Bridge Capital. Please proceed with your question.
Hi, guys. Terren, I heard you say that the virus has, as you said in the press release, too, that the virus have no impact on your business. And I'm just curious if…
Well, let me say it more succinctly. It hasn't had any impact on our business. We don't expect it to have an impact on our business. But if it does, we'll tell you when it happens.
Right. Okay. Yeah, I was just wondering if you have…
And the takeaway was really the backdrop of what's happening in the country is no different what's have been happening for many years in this country, depression, anxiety and substance use disorder and companioned with chronic diseases is worsening in the country every year. This is making -- we don't know yet, right? It's early. But this is making, I believe, it’s just a belief, we still believe, is exacerbating that, which is a backdrop, unfortunately that’s positive for our business.
Sure. Okay. I am assuming if any quarantined that maybe in fact could deter a patient from going to steps that you have albeit you’re seeing a physiatrist or a doctor and I was just wondering if could say what percentage of OnTrak is done face to face versus over the phone roughly?
The vast majority of it is over the phone.
And again as we said is a member, the same member is quarantined. If a member is quarantined, number one, they will be in constant communication with our care coach. They will be – and if they still have provider visits remaining, they will be doing those via our telehealth applications.
Right. Okay. And then also, I think I heard Curt say that the company is using an external recruiting staff. And I think, would that be kind of new now? And can you elaborate on how you're coordinating external recruiting efforts with the internal people?
Sure. Thanks. So we've done a couple of things differently this year. Historically, when it came to our member engagement, specialist and care coaches, we predominantly were using individual external recruiting firms. So we've done two different things. One is we've set up an internal recruiting team, and they have two functions. One is to manage across the external firms as well as to focus on high value, more senior management positions that are supervisors or management in the overall member engagement specialists or care coaching teams.
Secondly, we added additional external firms that specialize in these areas, so that way, we can have, so to speak, multiple lines in the water. And that's what I referred to earlier as we've more than doubled our access to high-quality candidates.
One of the things that was identified even before I came here. But as we went through the numbers and the ramps, being able to make sure that we can stay on track, no pun intended with our hiring plans, was going to be absolutely critical to the successful customer launches and our ability to drive revenue, especially in the back half of the year with the ramp that's been referenced.
Okay. And then, Curt, you also said something about the benefit to the outreach pool by 15% to 20%, and it wasn't clear on that entire point you're making. Do you remember what you're going to do with...
Yes. Yes. So we're doing multiple things, but the example I gave is we've been – we have worked historically with and are exploring additional external data sources, so there are companies that provide data around contact information. This is just one example but health plans, depending on which health plan, in terms of the number of accurate phone numbers or emails that they will provide can have missing-ness in the data sets that could be 30%, 40%, 50%.
It's not a direct overlap with our effective outreach pool because when we apply our analytics, we're focusing in on people with multiple chronic conditions and multiple behavioral health conditions. Those are people that the health plans tend to track a little bit more closely as best as they can.
So what we're doing is, again, in partnership with our health plan customers, we're working to identify where there are gaps in the information or when we put information forward into our operations and realize that the phone numbers or the emails are no longer valid.
We feed that back. And we're leveraging the opportunity to bring in third-party data to have accurate contact information. And that piece alone, we're seeing early results that are in the 15% to 20% uptick by filling in those data gaps. Does that make sense?
Yes, it does. So that's why you're saying the effective average pool will equal the total average pool by the end of this year using this external data?
That is our sincere hope. And with the 15% to 20%, we're starting to get pretty close. We need to operationalize that across as many plans. But as Terren has referenced before in terms of working with these large customers, any type of change even like this in terms of being able to integrate additional data requires approval processes and time.
Perfect. Okay. All right. Great. Thanks for your help. Good luck.
Okay. Well, thanks to all of you in this difficult environment for your time. Please feel free to reach out to us with any additional questions. And I continue to be very much on the move and making myself available to existing and potential investors. Unfortunately, the Roth Capital Conference, which I was going to attend next week has been canceled in Laguna. And unfortunately, the Oppenheimer Healthcare Conference, which I was scheduled to speak at next week in New York has also been postponed to September. But I plan to participate in other investor conferences throughout the year.
And as you may know, I do travel quite a bit, may not travel as much going forward. But certainly, we are doing Zoom calls. We did a variety of Zoom calls yesterday with some very large institutions. And we'll do Zoom calls anytime that you want to welcome us into your home. But I hope to sit down with many of you during my travels. We look forward to speaking to you again during the Q1 financial results call in May. Good night, everyone and be safe.
Ladies and gentlemen, this concludes [ph] today's teleconference. We thank you for your participation, and you may disconnect your lines at this time.