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Article Excerpt
Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Greetings, ladies and gentlemen, and welcome to Hythiam Incorporated second quarter 2008 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Lisa Wilson with Insight Communications. Thank you. Ms. Wilson, you may begin.
LISA WILSON, IR (INSIGHT COMMUNICATIONS), HYTHIAM, INC.: Good afternoon, everyone. My name is Lisa Wilson, Investor Relations for Hythiam. Thank you for participating in the Q2 earnings conference call. In a moment I will turn the call over to Hythiam's 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 fact 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 or implied by the forward-looking statements. Similarly statements here in that describe the company's business strategy, prospects, opportunities, outlook, objective, 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 August 11, 2008. The company expects that subsequent events or developments will cause these 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 representative of the company's views of any date subsequent to August 11, 2008. With that, I would turn the call over to Hythiam's CEO, Terren Peizer.
TERREN PEIZER, CEO, HYTHIAM, INC.: Thank you Lisa. Welcome everyone and thank you for joining us Hythiam's 2008 second quarter conference call. Presenting with me on the call is Chuck Timpe, our Chief Financial Officer; Rick Anderson, our President and COO; Gary Ingenito, our Senior Vice President of Scientific Affairs. Also on the call for management are Chris Hassan, Chief Strategy Officer; and Ian Worden, Senior Vice President of Operations.
After I turn the call over the Chuck to provide the brief overview of the financials, Rick will provide details about our managed care offering Catasys. He will also provide a clear overview of our opportunity, objectives, and the progress we are making. Then Gary will address our ongoing research efforts and I will conclude with closing remarks and then of course open the call for questions and answers. I will now turn the call over to Chuck to provide a quick overview of the financials.
CHUCK TIMPE, CFO, HYTHIAM, INC.: Thanks. For the second quarter, we reported consolidated revenues of $11.6 million, which included $2 million in revenues from our healthcare services business and $9.6 million in revenues from CompCare's operations, compared to consolidated revenues of $11.3 million in the second quarter of 2007, which included $2.2 million in healthcare services revenues and $9.1 million from CompCare's operations. The net loss in the second quarter of 2008 was $14.1 million or $0.26 per share, compared to a net loss of $12.3 million or $0.28 per share in the same period last year. Included in the 2008 second quarter net loss was a $3.9 million net loss from CompCare's operations and related purchase accounting adjustments compared to $1.3 million for CompCare in the same period in 2007.
The consolidated net loss for the 2008 second quarter included non-cash charges for depreciation, amortization, and stock-based compensation expense of $2.8 million compared to $1.8 million for similar expenses in the year earlier period. The consolidated net loss for the 2008 second quarter also included a non-cash charge of $1.3 million from the change in fair value of our warrant liability.
Included in the consolidated loss for the 2008 second quarter were one time charges of $1.2 million in expenses relating to severance payments and other costs, including $542,000 in stock-based compensation incurred relating to actions taken in January and April to streamline the company's healthcare service operations and $625,000 of one time expenses recorded by CompCare. As of June 30, 2008, the company had consolidated cash, cash equivalents, and marketable securities of approximately $26.6 million, including $1.3 million held by CompCare.
In January 2008, we streamlined our healthcare services operations to focus on managed care opportunities, reducing cash operating expenses by 25% to 30% for the remainder of the year. In April, we took further action to streamline our operations by reducing cost additional an 20% to 25%. We achieved our goal and reduced our cash expenditures to approximately $7.7 million in the second quarter of 2008. We currently expect to spend cash of $6.6 million and $5.6 million respectively in the third and fourth quarters of 2008, compared to an average of $11.5 million per quarter in 2007 in our healthcare services operations.
Projected cash operating expenses at the end of 2008 will be at a level sustainable into 2009. For each of the first two quarters in 2008, we achieved revenue of $2 million. This revenue was entirely private pay, which comprises less than (inaudible) of the industry opportunity and even less of our business plan. Although we reduced our field resources supporting our private pay revenue base by 73% in late January, we achieved $2 million in revenues in the first quarter, largely due to the carryover effect of the 60 Minutes program covering PROMETA back in December [2007], and due to marketing initiatives that although discontinued in the first quarter of 2008, continued to have a favorable impact on our revenues into the second quarter. We have curtailed certain marketing initiatives that, although revenue generating, provided negative cash flow.
On a go forward basis and as our legacy marketing initiatives and the 60 Minutes impact fully taper, our revenue may be impacted by market conditions due to the uncertain economy and also as we maintain our commitment to reduce our net cash burn by lowering expenses in segments of private pay that are revenue generating by providing negative cash flow. Although a re allocation of these expenses may reduce revenues in the near term, we anticipate that over subsequent quarters, our enhanced ability to make claims will provide significant benefit as we invest in various marketing initiatives on which we anticipate positive cash flow and a significant return on investment.
Including only our private pay business and without considering any additional revenues from managed care opportunities, we project to reduce our net cash burn to $3.5 million in the fourth quarter of fiscal year 2008 with operating expenses at a level sustainable into 2009. We are focused on managing our cash operating expenses to allow us time to achieve our objectives into 2009, as managed care revenues begin and we move towards profitability. The resulting enhanced cash position may be augmented by additional nondilutive capital formation.
For the quarter ended June 30, 2008, there were 31 licensed locations in the US that contributed to revenues at some level, compared to 42 locations in the second quarter of 2007. As of June 30, 2008 we had 97 sites under licensing agreements with physicians and healthcare providers. For the quarter, our average revenue per PROMETA patient treated was $6,675 compared to $6,382 per patient in the second quarter of fiscal 2007. I will now turn the call over Rick for more details about Catasys and our managed care opportunity.
RICK ANDERSON, PRESIDENT & COO, HYTHIAM, INC.: Thanks, Chuck. Over the past year, everyone at Hythiam has been working diligently to develop and enable the company to offer the Catasys program to help plans, employers, and union throughout the United States. We are now beginning to see the culmination of these efforts as we achieve clear program definition and are gaining traction with payers interested in engaging our services. But before providing overview of our managed care market opportunity and our progress with Catasys in the marketplace, I will clearly define our Catasys offering.
Catasys is a substance dependence solution that integrates medical and psychosocial treatment into proprietary treatment algorithms, including the proprietary PROMETA treatment program. It is designed to provide innovative and integrated solutions comprised of medical intervention, psychosocial treatment, and care coaching via specially trained network. It focuses on identifying, educating and enrolling substance-dependent members into a treatment program. It provides substance dependent health plan members with a discreet, convenient treatment at no significant out of pocket cost. It is designed to work with other providers and programs due to the high comorbidity of this population, and it is designed as an integrated treatment solution similar to other chronic disease programs, thereby further destigmatizing substance dependence treatment.
Although many people are involved in the process of reaching out and engaging health plan members, perhaps the most critical person in the Catasys offering is the care coach -- a trained clinician who stands by and guides the member from the first phone call to the completion of their treatment, utilizing the dynamic [IT] platform and through telephonic outreach, the care coach will assist the member in developing a care plan, monitor the member's progress, and consistently follow up to help increase the member's engagement in the treatment program.
Most payors currently do not cope with substance dependent members through integrated solutions. They either engage behavioral health companies or develop similar cost management programs internally to address those members. Behavioral health companies are focused on providing existing treatment and managing their own cost. If treatments are ineffective, the payer ends up paying not only the behavioral aspect but also incurs medical cost from ER visits or increased expense from acute care visits at high cost facilities from undertreated or untreated addiction.
In addition, substance dependence complicates the treatment of other...
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