Market Overview

Catasys Reports 2018 Second Quarter Financial Results

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  • Q2 2018 Record Billings of $5.2 Million, Up 152% Year over Year
  • Achieved a Record $2.4 Million in Billings in July 2018, Without
    Any Special Items
  • Enrolled 1,219 New Members in Q2 2018, Up 289% Year over Year
  • Secured Up to $10 Million in Debt Financing to Support Company's
    Accelerating Growth
  • Company Reiterates 2018 Billings Guidance of $20.0 Million
  • Outreach Pool Is Now Approximately 36,000, a 15% Increase from End
    of Q1 2018
  • Company to Host Conference Call at 4:30 pm ET Today

Catasys, Inc. (NASDAQ:CATS) ("Catasys" or the "Company"), a leading AI
and technology-enabled healthcare company, today reported its financial
results for the second quarter ended June 30, 2018. The Company provides
big data-based analytics and predictive-modeling-driven healthcare
services to health plans and their members through its OnTrak™ solution.

Second Quarter 2018 and Recent Business Highlights

  • Catasys' new enrollment for the quarter ended June 30, 2018, increased
    289% year over year.
  • Catasys' outreach pool of eligible members continued to rapidly
    increase due to new program launches with two large insurers and
    expansions with two existing health plan partners in the first half of
    2018. The Company's outreach pool has reached approximately 36,000,
    15% higher than at the end of first quarter 2018.
  • New customer launches continue to take approximately 12 months to
    reach an annual 20% enrollment rate. One year after launch, the
    Company generally enrolls in excess of 20% of its outreach pool.
    Catasys receives approximately $6,800 net per enrolled member.
  • June 2018 – Signed agreement with second largest health plan in the
    country and launched the initial OnTrak-AN solution in California,
    representing the sixth national health plan to launch OnTrak
  • The OnTrak program is currently available through seven health plans
    in 20 states.
  • June 2018 – Announced debt financing of up to $10 million to support
    Company's accelerating growth and technology and product investment.

2018 Guidance

  • Catasys reiterates its expectation to report annual billings (amount
    invoiced in a particular period net of credits, pursuant to existing
    contracts based on enrolled members) of $20.0 million based solely on
    the current outreach pool of eligible members, finishing the year at
    an approximate $25.0 million billings annual run rate.
  • Catasys maintains its guidance despite a health plan partner
    representing more than 50% of this year's outreach pool operating at
    50% of anticipated enrollment capacity due to structural billing
    issues specific to this customer. This has resulted in
    lower-than-anticipated billings and revenue as well as a smaller
    underlying outreach pool than would be expected in a similarly sized
    customer. As the Company works to resolve the structural billing
    issues in Q4, Catasys anticipates an increase in not only the outreach
    pool size but also a significant increase in 2019 billings and
    revenue. Implicit in the Company's 2018 results is the outperformance
    of its financial model by its other health plan partners.

Management Commentary

Mr. Rick Anderson, President and COO of Catasys, stated, "We were
pleased to sign a contract and launch the initial OnTrak program with
the nation's second largest health plan during the second quarter of
2018. With this partnership, Catasys is now contracted with seven of the
top eight insurers in the country. As a result of new launches like this
one and program expansions during the first half of 2018, we saw
continued growth in our outreach pool of eligible members and, by
extension, increased enrollments and higher billings in the second
quarter. We achieved a record $5.2 million in billings for the period,
including a semi-annual savings share payment."

Debt Financing, Chief Technology Officer, and Outlook for 2018

Mr. Terren Peizer, Chairman and CEO of Catasys, stated, "In June, we
announced the closing of a debt financing that should support our
continued growth without dilution to shareholders. We are pleased to
have gained this vote of confidence from our lending partners and are
using the proceeds as additional working capital to scale new contracts
and expansions and invest in new technology platforms to broaden our
footprint within our health plan partners. We believe our strengthened
financial position will enable us to achieve positive cash flow in 2019.
We are optimistic that given our capital light model, after funding
internal growth, future growth opportunities can be financed in a
similar manner, if needed, without equity dilution.

"As part of our commitment to driving technological innovation at
Catasys, we were pleased to appoint industry veteran Jeremiah Stone as
our Chief Technology Officer, a newly created position within our
Company. With over 20 years of industry experience at leading firms such
as GE and SAP, Jeremiah's leadership will play an invaluable part in our
plan to leverage data analytics and new technologies to improve and
evolve the overall OnTrak program, while establishing new avenues for
growth that require more technology and digitized engagement. In doing
so, we expect to enhance our ability to identify, enroll, engage, and
modify the behavior and improve the health of our health plan partners'
eligible members, while accelerating the growth of our business.

"Billings for the second quarter of 2018 were in line with our
expectations given our strong performance in April. As a result of
robust enrollment growth, we once again exceeded our internal
projections in July, setting a new record for monthly billings. We
expect continued growth in our outreach pool of eligible members through
the remainder of 2018 given our ongoing program expansions and
enrollment launches, which will drive enrollment growth in the second
half of the year. With the recent completion of the Company's financing
and appointment of our new Chief Technology Officer, we feel we are well
positioned to enhance our platform and technologies as we work to better
serve a growing customer base."

Second Quarter and Six Month 2018 Financial Review

Billings

  • Catasys' billings increased 152% to $5.2 million for the second
    quarter of 2018, from $2.1 million in the prior-year period, driven by
    enrollment growth in new plans and expansions in existing plans.
    Billings increased approximately 75% sequentially from $3.0 million in
    the first quarter of 2018.
  • Billings for the six months ended June 30, 2018, increased 90% to $8.2
    million, compared to $4.3 million in the prior-year period.

Revenues

  • Revenues increased 97% to $3.3 million for the second quarter of 2018,
    from $1.7 million during the same period in 2017. The increase was
    driven by the launch of enrollment with three new health plans and
    continued enrollment growth from existing plans in the first half of
    2018, resulting in a net increase in the number of members enrolled in
    our OnTrak solution during the second quarter of 2018 compared with
    the same period in 2017. Newly enrolled members as of June 30, 2018,
    were 289% greater than at June 30, 2017.
  • Revenue increased 49% to $5.2 million for the six months ended June
    30, 2018, from $3.5 million during the same period in 2017.

Deferred Revenue

  • When fees are received in advance, deferred revenue is recognized over
    the period the member is enrolled. Catasys has historically been able
    to record its deferred revenue as actual revenue during the course of
    the business cycle, except for cases where members terminated from the
    program early.
  • Deferred revenue was $3.4 million at June 30, 2018, an increase of 17%
    from $2.9 million at December 31, 2017.

Operating Expenses

  • Operating expenses in the second quarter of 2018 were $7.4 million,
    compared to $4.3 million in the prior-year period. This increase was
    mainly due to increased costs of healthcare services to support the
    increasing number of enrolled members; incremental investments in data
    science, IT and software development to drive growth and efficiency;
    and approximately $0.8 million related to non-cash stock option
    expense compared to the prior-year period.
  • Operating expenses in the first half of 2018 were $13.6 million,
    compared to $8.4 million in the prior-year period due to the reasons
    mentioned above.
  • Cost of healthcare services consists primarily of salaries for
    Catasys' care coaches and outreach specialists, healthcare provider
    claims payments to Catasys' network of physicians and psychologists,
    and fees charged by third party administrators for processing these
    claims. In addition, the Company hires staff in preparation for
    anticipated future customer contracts and corresponding increases in
    members eligible for OnTrak. The costs for such staff are included in
    cost of healthcare services during training and ramp-up periods.

Net Income (Loss)

  • For the second quarter of 2018, net loss was $4.2 million, or $0.26
    per diluted share, compared to net income of $13.9 million, or $0.97
    per diluted share, in the prior-year period. The prior-year period was
    positively impacted by $7.0 million in change in fair value of warrant
    liability as well as $10.7 million in change in fair value of
    derivative liability resulting from the issuance of convertible
    debentures in July 2015, which converted into common stock in April
    2017.
  • For the first half of 2018, net loss was $8.4 million, or $0.53 per
    diluted share, compared to $7.8 million, or $0.68 per diluted share in
    the prior-year period, including the non-cash expense related to the
    issuance of management and director stock options late last year.

Conference Call – August 14, 2018 – 4:30 pm ET

The Company will host a conference call/webcast on Tuesday, August 14,
2018, 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/26031/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: 8/21/2018
 

About Catasys, Inc.

Catasys, Inc. harnesses proprietary big data predictive analytics,
artificial intelligence and telehealth, combined with human
intervention, to deliver improved member health and cost savings to
health plans through integrated technology enabled treatment solutions.
It is our mission to provide access to affordable and effective care,
thereby improving health and reducing cost of care for people who suffer
from the medical consequences of behavioral health conditions; helping
these people and their families achieve and maintain better lives.

Catasys' OnTrak solution--contracted with a growing number of national
and regional health plans--is designed to treat members with behavioral
conditions that cause or exacerbate co-existing 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
matched with data driven engagement technologies.

OnTrak integrates evidence-based medical and psychosocial interventions
along with care coaching in a 52-week outpatient solution. The program
is currently improving member health and, at the same time, is
demonstrating reduced inpatient and emergency room utilization, driving
a more than 50 percent reduction in total health insurers' costs for
enrolled members. OnTrak is available to members of several leading
health plans in California, Connecticut, Florida, Georgia, Illinois,
Kansas, Kentucky, Louisiana, Massachusetts, Missouri, New Jersey, North
Carolina, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas,
Virginia, West Virginia and Wisconsin.

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

The Company makes reference in this press release to billings, a
non-GAAP financial measure, as a supplemental measure to review and
assess our operating performance. The presentation of this non-GAAP
financial measure is not intended to be considered in isolation or as a
substitute for the financial information prepared and presented in
accordance with US GAAP. We define billings as the amount invoiced in a
particular period pursuant to existing contracts based on enrolled
members. We use billings as a measure of operating performance to assist
in comparing performance from period to period on a consistent basis.

We believe that the use of this non-GAAP financial measures facilitates
investors' assessment of our operating performance from period to period
and from company to company by backing out potential differences caused
by variations in the applicable performance requirements contained in
the relevant contracts, which may be different from other companies in
our industry.

Billings is not defined under GAAP and is not presented in accordance
with GAAP. This non-GAAP financial measure has limitations as an
analytical tool, and when assessing our operating performance, investors
should not consider it in isolation, or as a substitute for revenue
prepared in accordance with GAAP. A reconciliation from this non-GAAP
financial measure to the GAAP financial measure is included at the end
of this release.

 
CATASYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
               
Three Months Ended Six Months Ended
(In thousands, except per share amounts) June 30, June 30,
2018 2017 2018 2017
Revenues
Healthcare services revenues $ 3,273   $ 1,665   $ 5,184   $ 3,487  
 
Operating expenses
Cost of healthcare services 2,941 1,332 5,228 2,697
General and administrative 4,392 2,940 8,178 5,569
Depreciation and amortization   85     45     170     84  
Total operating expenses 7,418 4,317 13,576 8,350
 
Loss from operations (4,145 ) (2,652 ) (8,392 ) (4,863 )
 
Other income - 14 40 28
Interest expense (36 ) (539 ) (37 ) (3,406 )
Loss on conversion of note - (430 ) - (1,356 )
Loss on issuance of common stock - (145 ) - (145 )
Change in fair value of warrant liability (19 ) 6,950 (29 ) 1,769
Change in fair value of derivative liability   -     10,728     -     132  
Income/(Loss) from operations before provision for income taxes (4,200 ) 13,926 (8,418 ) (7,841 )
Provision for income taxes   -     1     -     2  
Net Income/(Loss) $ (4,200 ) $ 13,925   $ (8,418 ) $ (7,843 )
 
 
Basic net income (loss) from operations per share: ($0.26 ) $ 1.00 ($0.53 ) ($0.68 )
 
Basic weighted number of shares outstanding   15,913     13,885     15,906     11,578  
 
Diluted net income (loss) from operations per share: ($0.26 ) $ 0.97 ($0.53 ) ($0.68 )
 
Diluted weighted number of shares outstanding   15,913     14,299     15,906     11,578  
 
 
CATASYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
           
(unaudited)
(In thousands, except for number of shares) June 30, December 31,
2018 2017
ASSETS
Current assets
Cash and cash equivalents $ 5,603 $ 4,779
Receivables, net of allowance for doubtful accounts
of $0 and $476, respectively 1,140 511
Prepaids and other current assets   201     366  
Total current assets 6,944 5,656
Long-term assets
Property and equipment, net of accumulated depreciation
of $1,688 and $1,542, respectively 374 612
Deposits and other assets   578     336  
Total Assets $ 7,896   $ 6,604  
 
LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
Current liabilities
Accounts payable $ 1,215 $ 980
Accrued compensation and benefits 1,403 1,177
Deferred revenue 3,416 2,914
Other accrued liabilities   1,567     578  
Total current liabilities 7,601 5,649
Long-term liabilities
Long term debt, net of discount of $433 and $0, respectively 4,865 -
Deferred rent and other long-term liabilities - 25
Capital leases - 2
Warrant liabilities   59     30  
Total Liabilities 12,525 5,706
 
Stockholders' (deficit)/equity
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;
15,913,171 and 15,889,171 shares issued and outstanding
at June 30, 2018 and December 31, 2017, respectively 2 2
Additional paid-in-capital 295,234 294,220
Accumulated deficit   (299,865 )   (293,324 )
Total Stockholders' (Deficit)/Equity   (4,629 )   898  
Total Liabilities and Stockholders' (Deficit)/Equity $ 7,896   $ 6,604  
 
 
CATASYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
           
Six Months Ended
(In thousands) June 30,
2018 2017
Operating activities:
Net loss $ (8,418 ) $ (7,843 )
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 170 84
Amortization of debt discount included in interest expense 10 3,335
Warrants issued for services 86 -
Loss on disposal of fixed asset 68 -
Provision for doubtful accounts - 234
Deferred rent (45 ) (39 )
Share-based compensation expense 753 159
Fair value adjustment on derivative liability - (132 )
Fair value adjustment on warrant liability 29 (1,769 )
Shares issued for services 112 181
Loss on conversion of note - 1,356
Loss on issuance of common stock - 145
Changes in current assets and liabilities:
Receivables (629 ) (169 )
Prepaids and other current assets 165 242
Deferred revenue 2,379 843
Accounts payable and other accrued liabilities   1,486     164  
Net cash used in operating activities $ (3,834 ) $ (3,209 )
 
Investing activities:
Purchases of property and equipment $ -   $ (127 )
Net cash used in investing activities $ - $ (127 )
 
Financing activities:
Proceeds of issuance of common stock $ - $ 16,458
Proceeds from bridge loan - 1,300
Payment of convertible debentures - (4,363 )
Transaction costs - (1,667 )
Proceeds from secured promissory note 5,000 -
Debt issuance costs (324 ) -
Capital lease obligations   (18 )   (21 )
Net cash provided by financing activities $ 4,658 $ 11,707
 
Net increase in cash and cash equivalents $ 824 $ 8,371
Cash and cash equivalents at beginning of period   4,779     851  
Cash and cash equivalents at end of period $ 5,603   $ 9,222  
 
Supplemental disclosure of cash paid
Income taxes $ - $ 40
Supplemental disclosure of non-cash activity
Common stock issued for conversion of debt and accrued interest $ - $ 7,163
Common stock issued upon settlement of deferred compensation to
officer
$ - $ 1,122
Warrants issued in connection with A/R Facility $ 63 $ -
 
 
CATASYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT)/EQUITY
               
Additional
(Amounts in thousands, except for number of shares) Common Stock Paid-In Accumulated
Shares Amount Capital Deficit Total
 
Balance at December 31, 2017 15,889,171 $ 2 $ 294,220 $ (293,324 ) $ 898
Adoption of accounting standard - $ - $ - $ 1,877   $ 1,877  
Balance at January 1, 2018 15,889,171 2 294,220 (291,447 ) 2,775
 
Common stock issued for outside services 24,000 - 112 - 112
Warrants issued for services - - 86 - 86
Warrants issued in connection with A/R facility - - 63 63
Share-based compensation expense - - 753 - 753
Net loss -   -   -   (8,418 )   (8,418 )
Balance at June 30, 2018 15,913,171 $ 2 $ 295,234 $ (299,865 ) $ (4,629 )
 
 
CATASYS, INC. AND SUBSIDIARIES
GAAP TO NON-GAAP RECONCILIATION
(unaudited)
       
For the Three Months Ended For the Six Months Ended
June 30, June 30,
(in thousands) 2018 2017 2018 2017
 
Revenues $ 3,273 $ 1,665 $ 5,184 $ 3,487
Add:
Estimate of Uncollectable Billings* $ 222 $ - $ 474 $ -
Net Change in Deferred Revenue**   1,730   408   2,559   840
Billings, non-GAAP $ 5,225 $ 2,073 $ 8,217 $ 4,327
 
* Represents one customer who we bill over a limited number of
provider visits
** Net change in deferred revenue associated with Q1 billings
 

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