Ontrak Inc (OTRK) 2008 Q4 法說會逐字稿

Greetings and welcome to the Hythiam, Inc. fourth quarter and fiscal year 2008 earnings conference call. At this time a 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.

It is now my pleasure to introduce your host, Mr. Chris Hassan, Chief Strategic Officer for Hythiam. Thank you. You may begin.

Good afternoon, everyone, and thank you for participating in our 2008 fourth-quarter and full-year earnings conference call. My name is Chris Hassan, Chief Strategic Officer at Hythiam. In a moment I will turn the call over to our CEO, Terren Peizer, who will introduce the other participants. Before that, I would like to call your attention to the following Safe Harbor statement.

The statements which will be made during the course of this call that are not historical in facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, forecasts and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by the forward-looking statements. Similarly, statements herein that describe the Company's business strategy, prospects, opportunities, outlook, objectives, plans, intentions or goals are also forward-looking statements. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors that are detailed in the Company's SEC filings. In addition, the statements in this call are made as of March 31, 2009. The Company expects that subsequent events or developments will cause its views to change. The Company undertakes no obligation to update any of the forward-looking statements made herein, whether as a result of new information, future events, changes in expectations or otherwise. These forward-looking statements should not be relied upon as representing the Company's views as of any date subsequent to March 31, 2009.

With that, I would like to turn it over to our CEO, Terren Peizer.

Welcome, everyone, and thank you for joining Hythiam's 2008 fourth quarter and fiscal year-end conference call. Presenting with me on the call today are Maurice Hebert, our Chief Financial Officer; Greg McLane, our Senior Vice President of Marketing and Sales. Also on the call from management are Rick Anderson, President and Chief Operating Officer; Chris Hassan, who just was introduced; and Dr. Gary Ingenito, Senior Vice President and Global Head of Scientific Affairs.

Although the economy has been difficult, Hythiam still has made progress to deliver specialty behavioral products that focus on smaller but disproportionately higher-cost health plan populations. Health plans are currently facing a myriad of challenges. They are coping with rapidly-rising substance dependence rates, due in part to the prolonged economic recession. They are expecting increased medical costs from recently passed federal parity legislation for mental health and substance abuse, and they are facing tightening budget constraints.

Health plans are currently dealing with and preparing to face these issues by monitoring and controlling costs, in part by actively seeking new, cost-effective programs.

This setting is creating fortuitous timing for Catasys as we offer solutions that are focused on improving member care, creating better outcomes and reducing overall costs.

As Greg McLane will discuss shortly, agreements with payors have not concluded in the time frames we expected, but we remain focused on achieving our objectives of contracting with payors with a combined total of at least 3 million lives under management by the end of the year. We have reduced our operating budget expenses dramatically and with contract revenues expected to begin shortly, we should be in a position to deliver improved operating results. Regardless of the timing of contracts or external financing, we have developed additional cost-reduction contingency plans that we anticipate will allow us to maintain critical operating activities under new contracts throughout this year.

We have discussed -- as we discussed on prior calls, we continue to be focused on managing and reducing our operating cash expenses. In the fourth quarter we achieved our target and reduced our cash expenditure to $5.3 million from $9 million, $7.6 million and $6.9 million over the first three quarters of fiscal year 2008, respectively. And we have reduced our budgeted expenses for fiscal year 2009 by approximately $10 million from the third quarter of 2008. Given the difficult economic landscapes that we are facing and as prudent management requires, we will continue to monitor all our expenses and reduce costs as appropriate while retaining critical resources to execute on our objectives.

As part of our focus to reduce costs and streamline operations, we sold CompCare primarily because it required an immediate significant capital infusion that we decided would be better directed over time toward our Catasys offering. Also it is clear that the difficult economic environment facing consumers further validates our decision to reduce emphasis on private pay, to focus on managed care initiatives that allow us to address a much broader market where spending is less discretionary.

We still maintain an ongoing relationship with CompCare in the form of services agreement and in support of our new specialty behavioral health products for autism and ADHD. Although we are currently focused on Catasys substance dependence opportunities, we are looking forward to engaging payors for Catasys autism and ADHD programs.

I will now turn the call over to Maurice, who will cover the quarter's financial highlights. Then Greg McLane will update everyone regarding the status of our contracting process and the sales cycle. We will then conclude with the Q&A session.

For the fourth quarter, the Company reported revenues of $8.6 million, which included $779,000 in revenues from Hythiam's health care services business and $7.8 million in revenues from CompCare's operations, compared to Hythiam's revenues of $2 million and CompCare revenues of $9.8 million in the fourth quarter of 2007. The net loss in the fourth quarter of 2008 was $19.3 million or $0.35 per share compared to a net loss of $8.6 million or $0.17 per share in the same period last year.

Included in the 2008 fourth quarter net loss was a $695,000 net loss from CompCare's operations and related purchase accounting adjustments compared to a $1.2 million net loss in CompCare for the 2007 fourth quarter. The 2008 fourth quarter net loss included non-cash charges for depreciation, amortization and stock-based compensation expense of $3.2 million compared to $1.5 million for similar expenses in the same period last year.

Also included in the 2008 fourth quarter net loss were impairment charges of $9.8 million for goodwill associated with CompCare and $1.4 million for an other-than-temporary loss on our auction rate securities, primarily offset by a non-cash gain of $1 million from the change in fair value of outstanding warrant liabilities.

The 2007 fourth quarter net loss included a non-cash charge of $741,000 for debt extinguishment and a non-cash gain of $3.5 million from the change in fair value of outstanding warrant liabilities.

At December 31, 2008, the Company had consolidated cash, cash equivalents and marketable securities of approximately $11 million, not including auction rate securities of $10.1 million. For the 2008 fiscal year, revenues were $41.2 million, which included $6.1 million in revenues from Hythiam's health care services and $35.2 million in revenues from CompCare's operations. That's compared to $44 million in total revenues in fiscal 2007, which included Hythiam's revenues of $7.7 million and $36.3 million of revenue in CompCare.

The decrease in Hythiam's health care services revenues resulted mainly from our decision to streamline operations and reduce costs to focus on managed care opportunities.

The Company reported a net loss of $50.4 million or $0.92 per share for the year ended December 31, 2008, as compared to a net loss of $45.5 million or $0.99 per share in 2007. The net loss for fiscal 2008 included a $6.1 million loss from CompCare's operations and related purchase accounting adjustments, as well as non-cash charges for depreciation, amortization and stock-based compensation expense of $13.1 million.

Additionally, our results in 2008 reflect the impairments for goodwill and other than temporary loss on auction rate securities discussed earlier, which amounted to $9.8 million and $1.4 million, respectively, as well as a $5.7 million non-cash gain from the change in fair value of outstanding warrant liabilities. Hythiam's consolidated net loss for 2007 included a $4.2 million loss from CompCare's operations, non-cash charges of $5.9 million for depreciation, amortization and stock-based compensation expense, $2.4 million for an impairment loss and the $741,000 for the debt extinguishment, all of which were partially offset by a non-cash gain of $3.5 million from the change in outstanding warrant liabilities.

There were 49 licensed locations that contributed to revenues at some level in fiscal 2008 compared to 70 locations in 2007. For the 2008 fiscal year, the Company's average revenue per [permitted] patient treated was $6455 compared to $6374 per patient in fiscal 2007.

I will now turn over the call to Greg for more details about our Catasys contracting process and status. Greg?

Thanks, Maurice. As Terren referenced earlier, we have not concluded agreements as anticipated. Although we have worked with potential clients to establish contracting pathways, time frames and expectations expressed by clients have often changed due to unexpected process complexities and because of other distractions and priorities that the clients are facing.

That said, we have opportunities in all phases of our sales pipeline, including those in the final contract negotiation phase. We are working diligently to see these potential contracts through to conclusion, and we expect a few to be closed shortly.

However, I would like to reiterate that these are very complex sales, and as such the sales cycle can generally range from nine to 18 months, and it's unpredictable. For reference, in other companies with similar sales processes, about 80% of these sales take between 13 to 16 months to close because of the evaluation and vetting process by the payor is a rigorous process that involves significant time and resources from both the payor and the vendor.

Nearly every payor has a unique process, and a great deal of information is typically exchanged. In addition, larger payors often have very detailed, structured procurement processes that simply take time to resolve. It's encouraging to note that most payors view Catasys and our substance dependence solutions to be first to market. As such, we have strong traction with the early adopters and are also maintaining open discussions with many other prospects who want to see the in-market results of these early adopters.

In addition to the near-term opportunities that we have been working on, we have continued to focus on developing a robust sales pipeline and are primarily focused on engaging health plans with more than 100,000 members. We feel that this refined strategy of focusing on mid-sized to large health plans generally offers us greater economies of scale and allows us to better leverage our existing resources.

Our solutions are being well-received by a number of plans, and we're moving our opportunities through all phases of the pipeline. From our experience in meetings with payors, health care consultants and industry experts, our Catasys offering is perceived as unique, credible and value-added. Payors understand that if they are facing rising substance dependence rates, parity and budget constraints and have made it clear that they are seeking solutions that provide lower-cost through different approaches to care, approaches by Catasys.

This provides us a significant opportunity to develop solutions with payors that manage addiction as a chronic disease across multiple substances. Recognizing that different patients will benefit from different approaches, Catasys is not tied to any individual approach. We remain focused on enhancing care for patients and improving outcomes and reducing costs for payors.

We look forward to concluding some of our current opportunities while continuing to develop and expand our existing sales pipeline.

Also, now that Dr. Anton and Dr. Volpicelli's studies are concluded, it's important to note that we have a more complete picture of how PROMETA is best utilized for substance-dependent patients. These studies continue to support the consistency results and data from all the PROMETA studies, and we have also completed numerous in-market pilots that have demonstrated positive outcomes and the impact of PROMETA on substance-dependent patients. We are consistently seeing a reduction in cravings, and in one initial pilot in particular, one demonstrated a reduction in behavioral health costs. Reduced cravings and cost reductions are meaningful for those interested in engaging our Catasys offering, and we hope to continue developing this type of experience from our outcomes and data. Catasys will also benefit from the accumulation of study data on PROMETA, and when patients are able to experience a rapid reduction in cravings, they can achieve a full benefit of the Catasys integrated substance dependence program that combines medical and psychosocial components in an outpatient setting and includes long-term care coaching. Substance dependence is a chronic disease, and we must address both the early treatment issues as well as improved long-term compliance to prevent relapse.

Now I will turn the call over to Terren.

As you have heard, we continue to press forward in an effort to achieve our objectives. Today payors are seeking solutions for substance dependence challenges that are driven by rising incident rates, the parity law and tighter budgets. We're engaging payors and are gaining traction. We remain dedicated to achieving contracts with payors for at least 3 million covered members. We are working diligently through several opportunities with payors and are close to finalizing contracts.

We have developed a clear picture from our studies of the impact of PROMETA in substance-dependent patients and how that benefits Catasys. We're focusing on managing our costs and have planned scenarios to allow us to maintain critical operations even without access to additional capital this year.

We're taking steps to solidify and strengthen our management team, in particular, with the addition of Kelly Elston, who has been brought on to lead our overall operations and implementations of expected contracts. We are on the cusp of success and have every intention of making a difference in the lives of those suffering from substance dependence.

We appreciate everyone's time on the call, and we'll now take a few minutes to answer some questions.

(OPERATOR INSTRUCTIONS). We have no questions in the queue at this time.

Thank you, operator. Again, to summarize, we believe we will be signing contracts soon and have plans to meet our capital needs over the coming year. Once again, thank you for your continued support and patience. Thank you.

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.