Catasys Announces 2019 Third Quarter Financial Results

  • Q3 2019 Record Revenue of $8.8 Million, Up 102% Year over Year and 15% from Q2 2019
  • Total Outreach Pool of Eligible Members of 140,000 in Q3 2019, Up 26% from 112,000 at Q2 2019
  • Net New Enrolled Members of 1,473 in Q3 2019, up 366% from 316 in the Same Period of Prior Year
  • Secured $45 Million in Debt Financing from Goldman Sachs to Support Company’s Accelerating Growth
  • Company Reiterates 2019 GAAP Revenue Guidance of $35.0 Million
  • Company Issues 2020 GAAP Revenue Guidance of $90.0 Million  
  • Company to Host Conference Call at 4:30 pm ET Today

SANTA MONICA, Calif.–(BUSINESS WIRE)–$CATS #earningsCatasys, Inc. (NASDAQ: CATS) (“Catasys” or the “Company”), a leading AI and technology-enabled healthcare company, today reported its financial results for the third quarter ended September 30, 2019. The Company provides big data-based analytics and predictive identification and engagement capabilities to health plans and their members through its OnTrakTM solution on the Catasys PRETM (Predict, Recommend, Engage) platform.

Management Commentary

Mr. Terren Peizer, the Company’s Chairman and CEO, stated, “Enrollments continued to increase at a rapid pace with nearly 1,500 net new enrolled members in the OnTrak program during the third quarter of 2019. With the continued build-out of our engagement team—care coaches, outreach personnel, and community care coordinators—and with the continued technology and infrastructure investment, we are poised to deliver on our goal of helping and saving as many lives as possible. We were particularly pleased to have closed on a debt financing with Goldman Sachs, which will support the accelerated growth we expect to see in 2020 without significant dilution to shareholders. As our outreach pool of eligible members continues to grow and drive enrollments, we believe the proceeds from this financing put Catasys in a strong position to be able to generate positive cash flow by executing on our growth initiatives, including program and platform expansions and technological advancements, as we head into next year. We expect to close out 2019 with a strong fourth quarter despite encountering a few headwinds throughout the year, including one national plan freezing our launches pending a national behavioral health RFP, the onboarding of hundreds of new care team members across the country, the integration of new digital systems and the recruitment of a national commercial team, all of which are part of our investment in supporting the tremendous growth we anticipate in 2020, a year of exponential growth as reflected by our revenue guidance indicating that business will more than double. It’s important to note that had we not been frozen by one of our national health plan partners pending their company-wide behavioral health RFP, we would have significantly outperformed our 2019 guidance. Excitingly, we were the winning proposal and are awaiting the final statement of work contracts.”

Company Reiterates 2019 GAAP Revenue Guidance

  • Catasys expects to report revenues of $35.0 million in 2019, supported by accelerating enrollment growth through the remainder of 2019.

2020 Guidance

  • Catasys expects to report revenues of at least $90.0 million in 2020, representing year-over-year growth of 157% from the guided $35.0 million in revenues for 2019. The Company anticipates that this revenue increase will be supported through accelerating enrollment growth during this coming year.
  • This guidance solely represents existing and planned enrollment launches, and program expansions with current health plan partners.
  • Annual guidance does not include new contracts and subsequent launches, initial launches of existing contracts, and new expansions within existing contracts that may increase the outreach pool throughout the year.

2019 Third Quarter and Recent Operating Highlights

  • Catasys’ outreach pool of eligible members continued its rapid ramp, increasing to approximately 140,000 at the end of the third quarter of 2019 due to significant expansion within existing contracts, an increase from approximately 112,000 at June 30, 2019, and up from 38,000 at the end of the third quarter of 2018. Catasys is currently outreaching to 113,000 eligible members and anticipates outreaching to the full pool in January 2020 when Medicare regulations allowing for telehealth engagement go into effect. While the Company has historically discussed a 20% enrollment rate at scale, some populations enroll at a higher rate and others at a lower rate depending on customer product and disease mix. As Catasys dramatically grows its engagement team, the time to optimal enrollment efficiency also increases. Net new enrolled members, defined as total new enrollments less graduated and disenrolled members, in the third quarter of 2019 increased 366% to 1,473 from 316 in the prior-year period and 78% from 828 in the second quarter of 2019.
  • In September 2019, the Company announced a debt financing commitment of up to $45 million from Goldman Sachs to support Catasys’ accelerating growth and technology and product investment.

2019 Third Quarter Financial Review

Revenues

  • Revenue increased 102% to $8.8 million for the third quarter of 2019, from $4.4 million during the same period in 2018, as a result of the net increase in number of members enrolled in the Company’s OnTrak solution during the third quarter of 2019 compared with the same period in 2018.

Gross Margin

  • Gross margin was 30.8% for the third quarter, compared to 25.9% in the prior-year period and 43.2% in the second quarter of 2019. The sequential decrease from the prior quarter was a result of the Company’s continued ramp-up in hiring and training the necessary personnel to support the rapid and significant growth in enrolled members expected in the coming months.
  • Cost of Revenue consists primarily of salaries related to Catasys’ care coaches, outreach specialists, community care coordinators, healthcare provider claims payments to its network of physicians and psychologists, and fees charged by third party administrators for processing these claims.
  • The costs for such staff are included in Cost of Revenue during training and ramp-up periods. Margins will be impacted by the hiring of staff in preparation for anticipated future customer contracts and corresponding increases in members eligible for OnTrak.

Operating Expenses

  • Operating expenses in the third quarter of 2019 were $8.3 million, compared to $5.2 million in the prior-year period. This increase was mainly due to higher expenses related to investments in new technology, new product innovation, servicing contracts and investments in key personnel to support future growth compared to the prior-year period.

Net Income (Loss)

  • For the third quarter of 2019, net loss was $8.6 million, or $0.52 per diluted share, compared to a net loss of $4.4 million, or $0.27 per diluted share, in the prior-year period. Adjusting for one-time debt termination costs and related fees of $1.1 million and write-off of debt issuance costs of $1.5 million, net loss would be $6.0 million, or $0.36 per diluted share.

2019 Nine Months Financial Review

  • Revenue increased 144% to $23.3 million for the nine months ended September 30, 2019, from $9.6 million during the same period in 2018.
  • Gross margin was 42.1% for the nine months ended September 30, 2019, compared to 11.4% in the prior-year period.
  • Operating expenses in the first nine months of 2019 were $22.8 million, compared to $13.5 million in the prior-year period due to the reasons mentioned above.
  • For the first nine months of 2019, net loss was $17.0 million, or $1.04 per diluted share, compared to $12.8 million, or $0.80 per diluted share in the prior-year period. Adjusting for one-time debt termination costs and related fees of $1.1 million and write-off of debt issuance costs of $1.5 million, net loss would be $14.4 million, or $0.88 per diluted share.

Conference Call – Wednesday, November 13, 2019 – 4:30 pm ET

The Company will host a conference call/webcast on Wednesday, November 13, 2019, at 4:30 pm ET/1:30 pm PT.

Investors, analysts, employees and the public are invited to listen to the conference call via:

Conference Call

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

Webcast

https://78449.themediaframe.com/dataconf/productusers/cats/mediaframe/33108/indexl.html

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

Conference ID#: 13672721

Conference Call Replay: 877-660-6853 (domestic) or 201-612-7415 (international)

Expiration Date: 11/20/2019

About Catasys, Inc.

Catasys, Inc. is a leading AI and technology-enabled healthcare company whose mission is to help improve the health and save the lives of as many people as possible. Its Catasys PRETM (Predict-Recommend-Engage) platform predicts people whose chronic disease will improve with behavior change, recommends effective care pathways that people are willing to follow, and engages people who aren’t getting the care they need. By combining predictive analytics with human engagement, Catasys delivers improved member health and validated outcomes and savings to healthcare payers.

Catasys’ integrated, technology-enabled OnTrak solution, a critical component of the Catasys PRE platform, is designed to treat members with behavioral conditions that cause or exacerbate chronic medical conditions such as diabetes, hypertension, coronary artery disease, COPD, and congestive heart failure, which result in high medical costs.

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

OnTrak integrates evidence-based psychosocial and medical interventions delivered either in-person or via telehealth, along with care coaching and in-market Community Care Coordinators who address the social and environmental determinants of health, including loneliness. The program improves member health and delivers validated cost savings to healthcare payers of more than 50 percent for enrolled members. OnTrak is available to members of leading national and regional health plans in 27 states.

Learn more at www.catasys.com.

Forward-Looking Statements

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

Non-GAAP Financial Measures

To supplement its condensed consolidated financial statements, which are prepared and presented in accordance with U.S. generally accepted accounting principles, or GAAP, the Company has provided in this press release and the quarterly conference call held on the date hereof certain non-GAAP financial measures. The non-GAAP financial measure include non-GAAP net loss and non-GAAP net loss per share, which exclude, for the periods in which they are presented, one-time debt termination costs and write-off of debt issuance costs.

The Company’s management uses these non-GAAP financial measures and other key metrics internally in analyzing its financial results and believes they are useful to investors, as a supplement to the corresponding GAAP measures, in evaluating the Company’s ongoing operational performance and trends. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

CATASYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

For the Three Months Ended

September 30,

 

For the Nine Months Ended

September 30,

 

2019

 

 

 

2018

 

 

 

2019

 

 

 

2018

 

Revenue

$

8,845

 

$

4,369

 

$

23,337

 

$

9,553

 

Cost of revenue

 

6,119

 

 

3,237

 

 

13,511

 

 

8,465

 

Gross profit

 

2,726

 

 

1,132

 

 

9,826

 

 

1,088

 

 
Operating expenses

 

8,322

 

 

5,179

 

 

22,844

 

 

13,527

 

Operating loss

 

(5,596

)

 

(4,047

)

 

(13,018

)

 

(12,439

)

 
Other income / (expense)

 

(2,550

)

 

 

 

(2,536

)

 

40

 

Interest expense

 

(590

)

 

(241

)

 

(1,382

)

 

(278

)

Change in fair value of warrant liability

 

173

 

 

(65

)

 

(38

)

 

(94

)

Net loss

$

(8,563

)

$

(4,353

)

$

(16,974

)

$

(12,771

)

 
Net loss per share, basic and diluted from operations:

$

(0.52

)

$

(0.27

)

$

(1.04

)

$

(0.80

)

 
Weighted-average shares used to compute basic and diluted net loss per share

 

16,562

 

 

15,917

 

 

16,360

 

 

15,909

 

 

CATASYS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

September 30,

2019

December 31,

2018

 
Assets
Current assets:
Cash and restricted cash

$

15,900

 

$

3,162

 

Receivables, net

 

2,272

 

 

1,382

 

Unbilled receivables

 

2,090

 

 

 

Prepaid expenses and other current assets

 

791

 

 

1,108

 

Total current assets

 

21,053

 

 

5,652

 

Long-term assets:
Property and equipment, net

 

175

 

 

263

 

Restricted cash, long-term

 

408

 

 

408

 

Right-of-use assets

 

2,814

 

 

 

Total assets

$

24,450

 

$

6,323

 

 
Liabilities and stockholders’ deficit
Current liabilities:
Accounts payable

$

1,111

 

$

497

 

Accrued compensation and benefits

 

1,784

 

 

1,537

 

Deferred revenue

 

3,708

 

 

4,195

 

Current portion of lease liabilities

 

359

 

 

 

Other accrued liabilities

 

2,551

 

 

1,501

 

Total current liabilities

 

9,513

 

 

7,730

 

Long-term liabilities:
Long-term debt, net

 

29,868

 

 

7,472

 

Long-term lease liabilities

 

2,120

 

 

 

Warrant liabilities

 

670

 

 

86

 

Total liabilities

 

42,171

 

 

15,288

 

 
Stockholders’ deficit:
Preferred stock, $0.0001 par value; 50,000,000 shares authorized; no shares issued and outstanding

 

 

 

 

Common stock, $0.0001 par value; 500,000,000 shares authorized; 16,585,199 and 16,185,146 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively

 

2

 

 

2

 

Additional paid-in capital

 

304,906

 

 

296,688

 

Accumulated deficit

 

(322,629

)

 

(305,655

)

Total stockholders’ deficit

 

(17,721

)

 

(8,965

)

Total liabilities and stockholders’ deficit

$

24,450

 

$

6,323

 

 

CATASYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(in thousands)

(unaudited)

For the Nine Months Ended September
30,
 

 

2019

 

 

2018

 

Cash flows used in operating activities
Net loss

$

(16,974

)

$

(12,771

)

Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense

 

2,947

 

 

2,024

 

Write off of debt issuance costs

 

1,505

 

 

 

Depreciation

 

108

 

 

229

 

Amortization

 

449

 

 

95

 

Warrants issued for services

 

43

 

 

86

 

Change in fair value of warrants

 

38

 

 

94

 

Common stock issued for consulting services

 

 

 

112

 

Loss on disposal of fixed assets

 

 

 

69

 

Deferred rent

 

(26

)

 

(67

)

Changes in operating assets and liabilities:
Accounts payable

 

614

 

 

539

 

Leases liabilities

 

575

 

 

 

Other accrued liabilities

 

1,164

 

 

410

 

Prepaids and other current assets

 

149

 

 

3

 

Deferred revenue

 

(487

)

 

3,994

 

Receivables

 

(890

)

 

(1,880

)

Unbilled receivables

 

(2,090

)

 

 

Net cash used in operating activities

 

(12,875

)

 

(7,063

)

 
Cash flows provided by financing activities
Proceeds from secured promissory note

 

 

 

7,500

 

Proceeds from revolving loan

 

7,500

 

 

 

Repayment of revolving loan

 

(15,000

)

 

 

Proceeds from A/R facility

 

1,938

 

 

 

Repayment of A/R facility

 

(1,938

)

 

 

Proceeds from GS loan

 

35,025

 

 

 

Debt issuance costs

 

(2,813

)

 

(336

)

Debt termination related fees

 

(1,956

)

 

 

Proceeds from warrant exercise

 

1,128

 

 

 

Proceeds from options exercise

 

1,660

 

 

 

Capital lease obligations

 

69

 

 

(25

)

Net cash provided by financing activities

 

25,613

 

 

7,139

 

 
Net increase in cash and restricted cash

 

12,738

 

 

76

 

 
Cash and restricted cash at beginning of period

 

3,570

 

 

4,779

 

Cash and restricted cash at end of period

$

16,308

 

$

4,855

 

 
Supplemental disclosure of cash flow information:
Right of use asset obtained in exchange for lease obligation

$

2,574

 

$

 

Interest paid

 

967

 

 

 

Non cash financing and investing activities:
Warrant issued in connection with A/R facility

$

 

$

64

 

Warrant issued in connection with GS facility

 

2,354

 

 

 

Reclassification of warrant liability to equity upon amendment of the loan agreement

 

86

 

 

 

Warrants issued in connection with revolving loan

 

 

 

 

Property and equipment acquired through capital leases

 

250

 

 

 

Contacts

For Investors:
Catasys, Inc.

Ariel Davis

Phone: 310-444-4346

Email:ariel@catasys.com

For Media:
Catasys, Inc.

Cathy Finley

Phone: 310-444-4308

Email: cfinley@catasys.com

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