Garth Russell – KCSA Strategic Communications Terren Peizer – Founder, Chairman and Chief Executive Officer Rick Anderson – President and Chief Operating Officer.

George Melas – MKH Management Jeff Kobylarz – Diamond Bridge Capital Bob Cowen – Private Investor.

Good day and welcome to the Catasys’ First Quarter 2017 Conference Call. Today’s conference is being recorded. At this time I would like to turn the conference over to Garth Russell, KCSA Strategic Communications. Please go ahead, sir. .

Thank you. Before we 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, intent, guidance, confidence, target project, and other some expressions typically are used to identify forward-looking statements.

These forward-looking statements are not guarantees of future performances, 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 factor 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. During this call we may also present certain non-GAAP financial measures and certain ratios that are used with these measures.

Our press release with the financial tables issued last night, which is located on our website at catasys.com will find a definition of these non-GAAP financial measures, a reconciliation of these non-GAAP financial measures with the closest GAAP financial measures, as well as, a discussion of why we think these non-GAAP financial measures are relevant to our results.

These financial measures are included for the benefit of investors, and should be considered in addition to an set of GAAP measures. At this time, it is now my pleasure to turn the call over to Terren Peizer, Chairman and CEO, Rick Anderson, President and COO and Christopher Shirley, CFO Catasys. Terren, the floor is yours..

Thank you, Garth. Thank you all for joining us today for our first quarterly conference call. [indiscernible] due to customer demands we are in all the same room today. Although market hours, I encourage everyone to say on the call for the punch line at the end of the call.

This is an exciting time in the company's history and we plan on holding regularly quarterly calls to keep you updated on the progress of our business. We will start to call today with an overview of our progress over the last several months and then I will turn the call over to Rick to discuss the financial results for the quarter.

With that let's get started. We started 2017 with the busy agenda that included our customers programs ramping up the new stage, signing new agreements with some of the largest U.S. health insurance plan and expanding our services into new behavioral health indications.

I'm proud to say that we are off to a strong start to the year as we deliver on these directives. In the first quarter, we announced the contract with UnitedHealthcare, the largest national health insurance company in United States to implement, our OnTrak-U Solution for anxiety, depression, alcoholism and substance use disorders.

OnTrak-U is planning to launch in the third quarter across eight states where OnTrak is already available to members of other leading health plans, thereby leveraging our existing operations. This agreement structured in a way that we receive a case rate feed when members enroll plus a share of the savings with the health plan.

Well, this might be obvious to some, I am happy to say that this single agreement significantly increases the number of eligible members for OnTrak Solution.

Health Alliance Medical Plan or HAMP also co-announced a major expansion into their Illinois individual and public marketplace plan members and expanded to our OnTrak treatment programs for depression, anxiety, as well as, alcoholism and SUD.

This expansion comes on the heels of the prior success with OnTrak, which they announced has benefited their members in getting healthier and spending less time in the hospital. In March, we announced a major expansion with Centene into Texas one of the nation's leading health plans and the largest Medicaid plan in that state.

This expansion is approximately 30% of Centene’s national covered lives alone. Under OnTrak-C program, eligible Medicaid members with substance use disorders including alcoholism will be covered.

In addition to bringing on another large Medicaid population, we will also benefit from the fact that this will now be one of those three health insurance plans we will be supporting in Texas.

As just announced last month, we now have an agreement with HCSC, the country's second largest Blue Cross Blue Shield with plans in Texas, Illinois, Oklahoma, Montana and New Mexico. Like UnitedHealth and HAMP we will be launching in a portion of their population for all three disease indications.

As you can see, we've had a productive 2017 thus far and look forward to many new contracts, expansion and launches as the year unfolds. And as the health plans would acknowledge, it truly is unprecedented that a company such as Catasys has been able to sign up most of the largest health insurance plans in the country.

I hope everyone listening to the call, fully understands and appreciates the pioneering innovation of using behavioral health intervention to significantly lower medical costs, improve patient health and thereby incentivizing health insurance plans to pay fully for these patient needs.

Today the pre new launches I just mentioned, we are operating in 18 states, which enables us to leverage existing operations in those states to accelerate implementation and leverage infrastructure for our expansions and new customers.

We expect significant growth through these plants, as well as, we look to expand into new geographies and/or lines of businesses including Medicare, Medicaid, commercial, individual and hopefully soon TRICARE, which is the military and veterans as well as the opportunity to expand our depression and anxiety offerings.

As we have mentioned over the last two quarters, some of our health insurance plan customers have had certain “restrictions and limitations”, which have where are currently slowing the ramping up our programs. Well, we do not believe any of these events will have a significant long-term impact on our overall strategy to scale the business.

I want to provide an update to the best of our ability given the statement the company that have made both publicly and what they have told us offline.

For example, in the wake of a failed Aetna merger Humana has gone through a major announced restructuring and significantly reduced its behavioral health care management programs, as they evaluate new structures that anticipates to encompass Humana behavioral health functions.

We have been informed that our OnTrak-H program is still considered a very valuable program and we continue to provide services to our enrolled members. However, the program has been lumped into a system-wide freeze.

Senior management and regional presidents alike are working to separate our OnTrak program out from this broader system-wide freeze, which would allow us to move ahead with some ramping the program. We believe expansion discussions will resume once they finalize their internal transition.

We look forward to truly being able to ramp this program without further restrictions. I will remind some of you, that we were limited in the second half of 2016 as we exceeded Humana’s expectations on speed and breadth of enrollment and exceeded their budget for our program.

One thing is very clear, they have a major substance use disorder problem country-wide. This continues to represent a major opportunity for us. You may also recall that Humana presented a paper to the American Society of Addiction Medicine on the efficacy of OnTrak-H.

With Aetna, we have been working to expand our program, but were met with data issues on the customer’s end. That prevented us, from properly identifying members. I am pleased to say, that just in the past couple of days, this issue has been resolved.

We are still running tests with Aetna to confirm the quality of the claims data, however, it looks as though we will be able to move past this temporary issue. To give you an idea of the impact this has had on ramping of our OnTrak-A program, Aetna was only able to deliver us data last year at approximately 10% of capacity.

With this behind us, we are now in a place to follow-up on Aetna’s requests to do a major expansion of the program. For example, in the first quarter we had announced the expansion of its OnTrak-A program to eligible commercial and Medicare managed members in Texas, which is the planned largest state by membership and Massachusetts.

This represents the seventh and eighth state in which we are going to be supporting their program and now untethered. In addition, this, our second largest national health plans to partner with us in the state of Texas and as I mentioned earlier, one of three plans utilizing our services in the state.

Despite these restrictions and limitations of Humana and Aetna last year, we were still able to generate $8.5 million in total cash receipts. Obviously, this augurs very well for the coming quarters and years. The expansion of existing customer agreements in new states is playing an important role in our overall success.

Looking out beyond our existing customers, we are hopeful that in 2017 we have contracts in place with seven of the eight [indiscernible] health plans in the industry that represents the clear majority of the covered lives in the United States.

Also given the expanding footprint, we have in numerous states with a growing number of health plans, we believe the time to ramp enrollment can be reduced.

We may also be able to expand the profile of the eligible population incrementally this year and perhaps significantly in the out years, this would make our current agreements with these health plans even the more valuable. Clearly, the more covered lives we have, the bigger impact we can have on the health care system and our customers.

As a reminder Catasys exist to improve the behavioral health industry by providing an innovative proactive treatment solution with cost saving opportunities for health plan customers.

Catasys utilizes proprietary data and predictive analytics models to identify members of health plans that are suffering from behavior health disease of alcoholism, substance use disorder, anxiety and depression.

In particular, those members who otherwise do not seek care for their behavioral health conditions tend to have other comorb conditions, which result in increasing medical costs with the health plans.

After identifying, engaging and enrolling those eligible members, we provide contract solutions of patient-centric treatment that integrates evidence-based medical and psychosocial interventions, along with intensive care coach in a 52 week outpatient program.

OnTrak is revolutionary in the treatment of alcoholism, substance use disorders, anxiety and depression, as the current system in the U.S. is a passive system.

Those in need of help must actively seek out treatment, gain access to treatment, afford the cost of said treatment and then receive the appropriate care that addresses both this physiological and the psychosocial aspect of these very complex diseases.

Further, patients that we engage typically have other comorbidities such as cardiovascular disease, diabetes and pulmonary disease; the list goes on. The average amount of total costs associated with these members, averages $30,000 per year. These costs are predominately from emergency room visits and inpatient hospital stays.

We have emerged as a leading healthcare analytics and treatment company, providing proprietary value-added care for health plan members.

We are creating a nationwide scalable, replicable, efficacious, integrated outpatient treatment program for behavioral health disease by leveraging our provider networks of independent medical doctors and psychologists and our own care coaches. We are providing a uniform and universal solution to what significantly ails the healthcare industry.

Furthermore, we track all of our patient outcomes and provide member data on enrollment rates, retention rates, reduced emergency visits and hospital stays and the associated medical costs. We are a data-driven company, unlike other programs available across the country.

We have agreements with several of the leading national health insurance plans, whereby we receive their medical claims data and then process the claims to our analytics platform nearby identifying not only the eligible members, but also predicting, which ones will benefit from the OnTrak program, which enhances the return on investment for our health plan customer.

We then use proprietary enrollment, engagement and modification and behavior techniques to successfully provide access to care and effectively treat the patients. In order to fully support the building momentum in our business, we took several steps in the recent months to strengthen our balance sheet and management team.

This includes the recent stock offering net capital raised a $14.7 million for the company and the conversion of debt and deferred compensation to common stock, which removed approximately $6.7 million of liabilities from our balance sheet.

I am very proud to say that my support of the company continues to increase as I believe in its strategy, the progress and the opportunity ahead that is why I invested more than $900,000 in the offering and converted my portion of the company’s debt and deferred compensation into common stock.

To date, I have invested more than $20 million of my personal money into the company, most of which have occurred over the past two years.

We recognize that the rapid expansion of our customer programs will require building the team including hiring care coaches and outreach personnel, which has been under way for several months, as well as, strengthening our data scientific capability with additions to the date teams, as well as, expanding the senior management team.

I'm excited to say that recruitment is much easier now. In addition to having a stronger balance sheet everyone we have spoken to about our business is very impressed by the customer base we have already established and the trajectory of the business, making them all eager to join our company.

This morning, we announced proudly the appointment of Christopher Shirley as our new CFO. Christopher joins Catasys with approximately 20 years of finance experience including leadership roles at healthcare technology and big data companies, such as GE Healthcare, and GE intelligent platforms.

We are confident that Chris’ financial, operational and IT expertise in healthcare will help improve efficiencies in our business and expedite enrollment rates for our behavioral health services. And with that, I will turn the call over to Rick to go over our first quarter financial results. Rick, the floor is yours..

Thank you, Terren. For the first quarter of 2017, healthcare services revenues increased by 150% to $1.8 million compared with $728,000 in the same period of 2016.

The 2017 results were driven by the launch of OnTrak in several new populations, which resulted in a significant increase in the number of patients enrolled in our solutions compared with the same period in 2016. During the first quarter of 2017 enrollment during the quarter increased by more than 13% year-over-year.

Starting this quarter, we will be offering our total cash receipts as we believe the GAAP revenue figure does not capture the full picture of our growth due to the variable nature of our contracts, payment structures, savings rates, the health insurance plans products and our products.

Total cash receipts is a combination of total revenue for a period, plus the change in deferred revenue for that same period. For the first quarter of 2017, total cash receipts was $2.2 million, which is an 8% increase compared to the fourth quarter of 2016.

We will provide additional insight and discussion around this metric shortly and expand on its relevance to our story. Our cost of healthcare services in the first quarter of 2017 increased by 41% to approximately $1.4 million from $966,000 during the same period last year.

The increase is primarily attributable to the increase in members that are being treated and the addition of care coaches, outreach staff, community care coordinators and other staff to manage the increasing number of enrolled members.

In addition, we hire staff in preparation for anticipated future customer contracts and corresponding increases in members eligible for OnTrak. General administrative expenses increased by 20% in the first quarter of 2017 to $2.6 million compared to $2.2 million for the same period in 2016.

The difference is primarily to an increase in professional services during the first quarter of 2017 including cost leading up to the stock offering. Interest expense increased by $2.5 million for the three months ended March 31, 2017 compared with the same period in 2016.

The increase related to the issuance of warrants as part of our January 2017 financings, as well as, interest related to the December 2016 and January 2017 convertible debentures.

For the first quarter of 2017 we reported a basic and diluted net loss from operations per share of $2.35 per share compared with a loss of $0.47 per share during the first quarter of 2016.

The difference primarily relates to the increase in the change in fair value of warrant liability, the change in fair value of the derivative liability and the increase in interest expense for the three months ended March 31, 2017 compared to the same period in 2016.

The EPS results reflect a basic and diluted weighted number of shares outstanding of 9,246,000 in the first quarter of 2017 and 9,168,000 for the same period last year. Given our recent capital raise in our operating forecasts, we expect our current cash resources to cover expenses through at least the next 12 months.

I will now turn the call back over to Terren..

Thank you, Rick. As I mentioned earlier the first quarter was a productive quarter, and we are excited by the trajectory of our business as we look out over the remainder of 2017. For those of you that have spoken with me in the past, you may have already noticed that I haven't mentioned Equivalent Lives yet and today's call.

Well, you won't hear me today and you will no longer hear us using the Equivalent Lives metric in the future. Investors have found this metric to be too confusing, including those investors [indiscernible] during our recent meetings for the capital raise.

The entire purpose of this metric was to offer an apples-to-apples comparison for the different member populations, customer products, as well as, our own products and this purpose was being lost.

Instead, Equivalent Lives was distracting many investors from seeing even our basic opportunity and growth trajectory given our existing customer agreements with several of the leading health insurance plans in United States.

Also, this metric only addressed one of the complexities we face in the business in terms of different patient populations, why we also need to clearly convey the messages around the variability of different customers and contract payment modalities, which directly impact GAAP reporting significantly in the short run.

Some plans pay us a case rate upfront with share in the savings. Some pay us monthly, some pay us over the number of visits to doctors and psychologists. Some of the others have us reserving part of our fee against actual savings rates. All of the above creates deferred revenue.

Importantly, nearly every deferred revenue dollar has become GAAP revenue with time. As you can see we are improving the way we communicate our story and the best way of doing it at this stage of our growth is by offering certain financial metrics.

For example, we will start offering our billings and total cash receipts, which we believe will allow investors to get a more complete picture of our growth trajectory than just GAAP revenue.

This is because GAAP revenue is only expected to represent approximately 50% of our billing for 2017 due to the difference in revenue recognition across the various contract payment modalities, we have with the health insurance plan customers.

This variance will change as the business continues to grow over the course of just the next couple of years at which time we project GAAP revenue will represent 90% of billings. However in the meantime, we want to offer as much transparency as possible into our results.

While it's very early in our development to be giving quarter-to-quarter guidance as we repeatedly see that these very large blue chip companies can miss their own internal deadlines for contract signings and launchers, which can significantly impact our short-term results.

That said, I will lay out for you our own internal numbers that we regard as conservative in assumptions and timelines as to which we hold ourselves accountable. We are doing this to help the Wall Street community see the vast opportunities ahead for our company and our shareholders.

We are cautiously optimistic that we'll be kicking on all cylinders in the third and fourth quarter, given the restrictions and limitations corrected with Humana and Aetna and with their major expansions resuming.

This along with the launches of UnitedHealthcare, HCSC and Centene, Texas should begin to give the street a first look at our vast opportunity. We will lay out 2017/2018/2019 expected billings, total cash received and GAAP numbers and the mix.

We believe these numbers to be realistic expectations and not, I repeat not taking into account a lot of upside to these numbers. For example, we are seeing signs that our 12 months ramps are shortening, where we use a 20% enrollment rate in our model, we are seeing enrollment rates closer to 25%, which significantly increases our numbers.

Moreover, we see opportunities to significantly increase our eligible population from which we enroll in the coming year and years. For 2017, we see billing of $19 million. Total cash receipt of $15 million and GAAP revenues of $10 million. For 2018, we see billings up $57 millions. Total cash receipts of $50 million and GAAP of $47 million dollars.

For 2019, we see billings up $145 million, total cash receipts of $142 million and GAAP revenue of $137 million. It's important to note the cross-over at this point of GAAP being greater than total cash receipts.

For those keeping score at home, our current year SG&A is expected to be approximately $9.5 million in 2017, which is expected to grow 20% a year. Remember that we embed the cost of our outreach and care coaches in our cost of services provided, not our SG&A.

Even these numbers we are still a small fraction of our customers’ overall needs and see this growth continuing for many years to come. We also expect new product offerings over time. Please put all of this in context of our tiny market cap today of about $16 million, less than three times our expected current year billings.

I hope this demonstrates our efforts to better communicate our story in order to support our existing investors, while also attracting a broader shareholder audience. To accomplish this we will also be ramping up our IR and PR activities in 2017.

The recent offering and uplistings in NASDAQ has created a new environment for shareholders following Catasys including a larger flow, which will help increase liquidity to unlock the valuation of our stock. This completes our prepared remarks and I would now like to open it up for questions. Operator, please assist..

[Operator Instructions] Our first question will come from Kane Keith with Chardon [ph]. Please go ahead..

Yes, thanks. First thanks for all the information you’re providing today. Just going back to one of the issues that you think you’ve resolved, that’s the one with Aetna.

Can you talk about what you've done either on your end or their end to resolve the problem? Have they had to change the way they dough or are you changing the way you interpret the billing?.

Rick, do you want to take that?.

Sure.

Really what it is is there has been that a process to migrate into their corporate data infrastructure and it's taken us a while for them to figure out and we've assisted them along the way in terms of the items that we're looking to pull and how those get pulled in the last challenge that we think we have resolved was one of the last issues in the query about how they just pulled the data out of their systems.

As you can imagine, health plan of that size especially that one has data across a number of different systems. And looking at the query in terms of how they pull that data and making sure that we get not only all of the data we get but quality data at each of that point has been a process to do so..

I’d like to add something to that. Coventry, which is a subsidiary of Aetna, data feed flows flawlessly to us. So, it's really obviously frustrating and also as you well, in case you don’t know, Aetna purchased Coventry and they're still trying to mesh their systems together..

Okay. Moving on to the UnitedHealthcare rollout, can you talk a little bit more about the details of who's going to have the first or are they all going to be at the same time.

And in which areas of treatment are you going to be launching?.

It will roll out to all of the states at the same time. And it will cover depression, anxiety and substance use disorders including alcoholism..

Okay. Very good. And just a final question and I’ll get back in queue. As we think about the SG&A, I know you gave us the guidance of 20% per year.

What additional infrastructure this year as you're planning for this rapid growth are you going to need maybe more immediately in terms of IT or anything else? I know you can certainly scale up what you currently have, but that's official to meet the demands that you're expecting?.

Yes, most of the increases that we're looking at in SG&A are really related to some of our digital initiatives. And related to just increasing the overall capabilities and capacity of our data analytics and data science area. So, we anticipate that we have the pieces in place that we need to scale up the business that we're talking about today..

Okay. Very good. I’ll get back in queue..

Thank you. Our next question will come from Kuon Mae [ph] with First New York. Please go ahead..

Yeah, so I mean, again thank you for providing the revenue outlook and again congrats on the new CFO as well. As you layout all you said that is based on conservative assumptions. I think it will helpful if you give people some of those positive or negatives that could deviate from the outlook.

So, we get a better higher confidence in the forecast?.

I’ll start with that and Rick can chime in at the end if you want to add some things. One of the things, well, I mentioned a few things that significantly impact the upward trajectory, which are enrollment rates, which are almost correlated one-to-one. So, obviously if we go from 20% to 25%, its significant to those numbers.

And recent quarters we've been at 25% and we have reason to believe our new enrollment techniques are working. We also expect more efficiencies in enrollment, faster enrollment, greater enrollment due to our data scientists. And also I think Christopher will be very helpful in that regard as well.

So, we’re not incorporating even our recent results into that; number one. Number two, the ability to increase our eligible population over time and they'll be done incrementally this year. But clearly in fact double the opportunity. Again these are the upward trajectories that will not including in our model.

We are also basing these numbers on what our existing customer rollout plans those that have announced contract signings and those that are in process. We have a fairly good idea of what the rollout plans are. So, we are including those and not what I believe one day will occur is if we look at 2019 and we’re only at 5% of their customer needs.

I believe these health plans will put pressure on us to roll out faster and at greater magnitude, so we're not including that. We're also not including many customers that we also are in process that are not going to be announced this year, but will probably be announced next year. We are not including that.

I think those are some of the assumptions that I provide we also were very conservative this year with Aetna coming on and Humana coming on. And also the launches of UnitedHealth and HCSC, we’d stretch those out what we believe conservatively beyond the actual launch date that are possible.

But of course, as I pointed out earlier, there can be tremendous variability with the blue chip companies in the short run.

Rick, do you want to add anything?.

No, not really. I think you covered the variability in it, which is primarily relates to the timing of exactly when health plans launch because of the fact that we're talking about the populations that come in at any given time..

And I also when iterate, the health plans we're interacting I have said this to a lot of people one-on-one. We're acting with as many as 10 parts of the health plans. We as Rick likes to say we’re Planypus [ph] to the health. It never seem one company like this integrate with their whole system.

So, that has created complexities on their end as they've never gone through this process before, which I would say is about 90% of the delay on their end. That said, there's no risk in the launches. The launches are occurring and they’re eagerly occurring, but that said these are very large companies with a very expensive processes..

Yeah. And based on the revenue number and the expense guidance you gave, I mean, if my math is right, it seems like you could be cash flow positive.

Maybe at the end of this year or even on early 2018, like could you, is that something you're shooting for? Or hold yourself accountable to?.

That's the better term, we hold ourselves accountable to becoming cash flow positive by the end of this year or beginning next year..

And with that by the way ….

I want to point out. What’s so unique about our model, which is not appreciated is that a company such as ours with the growth trajectories and you can see the numbers that we're trajecting that a company with our growth, with our expansions normally run negative cash flows for years. We see that in a lot of other technology companies.

We see it in healthcare companies, years of losses after launches of their product. We on the other hand I think are very attractive in the sense that our time to cash flow is very short..

So, assuming that is a rightful cash by end of 2018, it seems to me like you could be generating significant amount of cash. I mean at least relative to current market cap.

So, can you discuss some of your, I mean, priority in terms of deploying that cash even when it materialize?.

Well, I think about that in my dreams, I'm not going to let it get into my consciousness yet. Obviously, we are expanding, we are preeminent in our analytic and predictive modeling capability of integrating a value-added treatment program, providing value and a return on investment not seen by these healthcare companies.

That said, we will use excess cash flow to continually stay ahead of the curve using all available technology, all advanced healthcare analytics treatment modalities to stay preeminent. That said, that's not a lot of capital requirement. We are a asset deficient business. We are a huge cash flow business.

One day we will obviously be focused on over probably the next year and two years with our additional products. We have many products in development. Obviously, that also was not included in our forecast. And we think we have opportunities as big as our current opportunity, although our current opportunity is quite tremendous.

So that said, if we have excess cash after staying our preeminent position. And the rollout of new products, which again we’re just using efficient delivery system being the lowest cost provider of behavioral health services and soon general healthcare services.

With the cash flow after that, which we will have, we will obviously not look to acquire someone’s inefficient delivery system, we are not going to be that acquisitive, we will add tools as they come available, which we can partner, license et cetera.

But I wouldn’t look for us to make significant acquisitions, I think our own model is quite superb and I wouldn't trade it for someone else’s less efficient model. So, we will then look to return capital to shareholders..

Okay. Thank you. I’ll get in the queue..

[Operator Instructions] We’ll hear next from George Melas with MKH Management. Please go ahead..

Hi, good morning gentlemen. Could you give us some color on member and member panel. I mean, how many members you have enrolled at the end of the last year, first quarter? And maybe how many you expect to enroll by – at the end of 2017.

I think that’s an important metric?.

Yeah, we've given a lot of thought and I'll defer to Rick on this specific answer. But I will tell you in preparation for this call we look at every metric possible. Given all the variability in all of our populations and contracts in our products, it is almost impossible to correlate any metric including the enrollment rates.

As we saw with enrollment, our enrollment rates could vary 40% from our actual cash revenue. So, we chose not to present those metrics because we found that it'll raise more questions than providing guidance and is not a very useful metric. But Rick if you want to add, please do..

No. I think that’s a good answer..

Well, let me try to ask it in a somewhat different way, but I’ll probably just [indiscernible]. It looks like member enrollment is key for your success and it’s the measure of the level of service you provide to your customers.

So, what else did you say about the enrollment for the - I don't know quite exactly how to say that, but sort of the amount of services that your customers are getting from you?.

Rick, you could take a stab at it..

Yeah, I mean, I think that the, and this kind of adds a little bit to what Terren just said. I mean, from what we've looked at and the way that the business rules out.

I think the best indicator of what is that we are providing to our customers are the level of service, if you will, relates to the total cash receipts number that we're talking about or if you want to think about it differently, its equivalent to something like billings that we’re making to the customers because we do that when we have members enrolled.

We don't charge for members that are prior to enrollment or members that we lose, we retained about 80% of our members, but that 20% we lose, we don't build for those. So, I think that's the best indication for growth in terms of what we're doing with our customers..

Okay. And in 2017 you expect all your plans or your programs to grow or have some of them not growing or maybe shedding members. Just trying to get a sense of all your partners sort of copy with the service and list to our delays [ph] on sort of bottleneck sort of go away.

Do they all sort of adopt your services more?.

I’ll take the first stab and Rick, you follow-on please. All of our customers are very pleased with the OnTrak program. Like I said earlier, we provide and they get savings data real-time. So, and the savings rates have been 50% on average, which again affords them their three to one return on investment that they don't get in their basic business.

All of our customers are going to continually expand, while we have those kind of savings rates. The other thing that's interesting and we see, which Humana, for example, is that there's a lot of tension within these plans because they have various divisions, various products and they compete for the place of expansion.

We see that right now with the regional presidents at Humana and some of the senior management team that are screaming bloody murder because they want the savings and they want to unleash us from this company-wide freeze and all programs, which they I mean, this might be too much information.

But they hired a consulting group, Boston Consulting Group, who’s preeminent in healthcare to come in and help them structure their company efficiently. Obviously, in the wake of the Aetna failed merger, they are looking to recoup efficiencies that they thought they'd get in the Aetna merger.

But to answer your question, all of our customers are very enthusiastic about OnTrak, all of them want the savings, and all them once they see the savings, I want to expand further, it's just these are very big companies.

Rick, do you want to add anything?.

I don’t have anything to add to that..

Okay. Thank you very much..

We’ll take our next question from Jeff Kobylarz with Diamond Bridge Capital. Please go ahead..

Hi guys, thanks very much for taking my call. I was curious about the retention. Congrats on the recruitment that is near 25% or so and as you’ve said in your model and path, the retention as some of that initiates the OnTrak Solution that retention is 80%.

Can you update that number?.

Yeah, we use that, by the way I want to correct something. We used 80% as a round number. The actual number consistently has been 78% and that number, I want to point out that these numbers whether it’d be enrollment, retention, savings rate, its eligible population. This has endured over the last five years.

I believe we've enrolled something in the neighborhood of 3,400 patients. So, we are quite, definite thing that gives us so much confidence in our numbers holding up and actually growing at the trajectory you said is because our metrics have held the test of time over thousands of patients. What we're seeing now is that we're getting better over time.

We're trying new enrollment techniques that are taking hold. We are providing – our analytics have improved dramatically and we will continue to expand our eligible population. This is what augurs so well and getting back to an earlier question, why we think that will have these numbers achievable, but I think they will prove to be conservative.

Rick, do you want to add to that?.

No..

All right. Then, I had a question about, you said that for 2017, cash receipts, $15 million and the first quarter was $2 million. So you're seeing, it's going to be a huge ramp, obviously in the balance of this year. I'm sorry, go ahead..

As we pointed out, just the launch of UnitedHealth, remember well UnitedHealth is a major revenue generated for us. HCSC is a major revenue generator for us. Aetna if you really think back, this is another thing that people have to start making the connection. If you did $8.5 million last year and we're only a 10% of Aetna's.

Now eight states where we think - and we believe at least, according to Aetna, we're confirming that that the data issue is resolved. Those numbers are going to kick in very significantly. Humana we believe might think 30 days they might think 60 days, we're not sure. We are working with Humana on a work around right now.

Obviously they’re very eager to get the program expanding this year as well. Centene, Texas again was 30% of Centene. It's a Medicaid population with a higher incidence in prevalence rate. It contributes significantly to our numbers. And once I – all that that I mentioned is occurring in the short immediate term.

So, it really isn't hard to see how these numbers are going to start growing dramatically.

Rick, do you want to add?.

I think you’re doing great..

Thank you..

Okay, fine and then the – I just want to make sure that I understand that this projection here of billings cash receipts to 2019, this all just assuming the current covered lives here, even allocated by the insurance companies as of today, unit?.

Correct. This is based on very near term roll-out that’s already scheduled..

Right. So, you're not factoring an additional states, our geographic states through 2019.

There’s just 18 states you’re currently operating in?.

Correct. Well, no we will get into new states. But all of our customers we know specifically what they're launch populations are. Those have been predetermined. There are some wild cards that Aetna and Humana have been threatening to grow dramatically our expansions. I hope they make our day. We do not include any of that in our numbers..

Right. Okay.

And then just lastly, so, can you consider disclosing the number of covered lives that you are serving or have the opportunity to serve or reach out to at any quarter end?.

Well. again that's a metric we looked at. Again I hate to give them Michael Jackson moonwalk, but the problem is we tried to solve all those issues with given this Equivalent Lives contract. And what’s even worse is giving covered lives, because there’s no way you can tell from covered lives what the revenues will be.

Because of all the variability of the contract modalities, their patient populations, Medicare, Medicaid versus commercial, substance use disorder versus substance use disorder, depression and anxiety together.

So, it's again we really in preparation for this call, we looked at every possible metric and try to find some metric that would be of value to the community. And literally at the end of the day, the only metric that holds up is billings , total cash receipts and GAAP revenue.

And GAAP revenue plus the change in deferred equals the total cash receipts approximately..

Right. Okay. That’s fair enough, right. Good luck with everything. Thanks guys..

Thank you..

Moving to our next session from Michael Solwin [ph] with Maxim. Please go ahead..

Hey guys congratulations on the our recent developments. I was just curious, if this last capital raise, do you that as enough to - for the near term.

Are you going to need more to fund your growth?.

As we said in the call and I think now in our financials and from our orders [ph] we do not need any more capital based on everything we know today over the next year. And given that we expected the cash flow positive and start becoming significantly. So, we do not anticipate any additional capital raises at this time.

The reality is is we raised more capital, almost twice the capital we needed. The raise, then calls for our business plan and that was principally to achieve the NASDAQ uplisting..

Got it. Okay. Thank you..

Welcome..

Our next question will comes from Bob Cowen, private investor. Please go ahead, sir..

Yeah, hi guys. I know you don't want to talk about covered lives, but you have been doing it for years. Just for simplicity and I don't think we’re going to hold you through the covered lives.

But you announced then you stated that you’re in seven of the eight gorgeous states in terms of covered lives, that’s what you said on your opening call, correct?.

No. Seven of the – we hope, so we announced five major health plans. Humana, Aetna, Centene, UnitedHealth and HCSC. Those are five of the eight largest, we expect to announce this year two more of the national plans in the country. So, that would give us seven of the eight largest health plans in the country..

Okay, so with five, just, out of just simplicity, given the states that you’re at, how many covered lives or how many are in these plans of total behavioral health for whatever you do. How many total lives who are actually in there. I’m not asking how many you're covering, but how many are potentially in those plans.

Are we talking, can you give us an idea …?.

I don't know the number off the top of my. Rick may or may not, I don't know, it’s not something that we look for. I will tell you what we do is we get in that particular state, we get all the medical claims for that plan in that state. Those are all their covered lives. Then it goes through the filters and that's how we end up with the eligible lives.

So, covered lives isn’t really meaningful, I mean, in a broad sense, in a macro sense its meaningful because the eligible lives come from the covered lives. But I personally don't track covered lives. We track eligible population. For this call, I don’t know the number off the top of my head. Rick may know, I don't know..

I don't know the number off top of my head..

Again, we don't look at that number. We get all the medical claims from the health plan for all their covered lives, but it goes to our analytics and we identify those members that will benefit from our program and who we can impact cost that is the number we look at..

Okay. So, the number of those covered lives, that you guys are working with right now.

What would you say, how many percentage wise are you actually touching? How many of those have you penetrated, 5%, 10%, can you give us that number?.

We do. Of the eligible lives we used to roll, when we first started 10%. Then we got up to enrollment rate of 15%, then we got up to 20% last year and now we’re closer to 25%. That is what we get paid on enrollment, so that is the amount of the eligible lives that we’re impacting..

And as time goes on for those plans, what does the percentage wise, does it increase by?.

Well health plan populations are always changing. They lose plans and the gain plans which if you're covering all – most of the country, hopefully when you lose a plan like a state or a particular Medicaid population or Medicare population, hopefully it goes to one of your other customers. So, it's always changing.

Their populations turn over every few years..

Okay.

And of the five plans that you have right now, how many of those plans have actually expanded from their original contract?.

Every health plan has expanded beyond their original geography, let’s call it the original geography, although, we don't use the term, but let’s call it a pilot. Each one has expanded geographically because of the success in that geography and the meeting of the metrics we laid out to them.

Each customer has expanded across all of their products or other products that they have. So, the expansion is organic and its continuous and we expect all - like I said earlier, as long as we provide these type of savings rates and this type of return on investment, I see expansion across the whole country and I don't see it stopping for years..

So, the fact that you’re good in expansion, clearly then tells you, that whatever you’re doing is correct, otherwise these clients would not be expanding. Is that a first [indiscernible]..

That is the great validation of what we’re doing. I wish they were smaller companies and expanded faster. I mean, they want to expand even faster. But they just have a lot of inertia at these companies..

So, when you got a deal with UnitedHealth, this is a two part question, when you got your deal with UnitedHealth how many states - what was your initial contract? They were doing how many states, was it seven or eight?.

They’re starting with eight states and all three diseases..

And would this be the first contract that you've gotten of this magnitude where they actually started in eight states and all three [indiscernible]..

Yeah, it is the biggest initial launch by far..

And how far would you say, you’re along and starting to bring that up?.

Right now we're working right very close with UnitedHealth on the launch. Daily we're working with them to launch and launch is imminent. Does that mean 30 days or does it mean 60 days, I'm not sure, but it’s imminent..

So, are you seeing similar problems that you've seen in some of these other players before just getting systems to cohabitate together?.

Yeah, let me be very clear. We only have problem with one health plan that was the Aetna situation of which again is corrected hopefully. At least that’s what Aetna represents and we're confirming it. We should know the answer in the next couple of days that our data confirms near data.

Now, but it is a very, all signs point to us being that it has been corrected. Aetna is the only one we’ve had, we’ll call it infrastructure issues. I want to remind people, Humana we outperformed their expectations. It is a company issue, not our program issue and again that will be resolved shortly. We don't have any other problems.

In fact, a lot of these – look it's no secret in the industry. Some companies are more efficient than others, like every industry. We don't anticipate any other problems that could come. But generally speaking, nothing is going to hold back our growth trajectory. These are just short-term issues.

Aetna was a longer issue than we could have expected, but then again gladly it seems to be resolved. Bob, why don’t you let other people ask some questions and jump back if no one asks anymore..

Thank you..

And with that being our final question on our conference today. I would like to turn the call back over to Mr. Peizer for any closing remarks..

Well, obviously we’re very excited about the opportunity. I hope people recognize today that the existing market value of the company doesn't bear any someone to our reality. And I hope everyone takes advantage of this opportunity. I don't think it will prevail over the coming year.

With that, thanks everyone for joining us during market hours and we'll see you next quarter..

Thank you. That will conclude today’s conference. Thank you all for joining..