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Article Excerpt
OPERATOR: Greetings, ladies and gentlemen, and welcome to the Hythiam Inc. third quarter 2008 earnings conference call. At this time, all 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. Thank you. You may begin.
CHRIS HASSAN, CHIEF STRATEGIC OFFICER, HYTHIAM, INC.: Good afternoon. Thank you, operator. My name is Chris Hassan, Chief Strategy Officer for Hythiam. Thank you for participating in the third quarter earnings conference call. In a moment, I'll turn the call over to Hythiam's CEO, Terren Peizer, who will introduce the other participants. Before that, I'd like to call your attention to the following Safe Harbor statement.
Statements which will be made during the course of this call that are not historical 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 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 November 6, 2008. The Company expects that subsequent events or developments will cause these events 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 as of any date subsequent to November 6, 2008.
With that, I would like to turn the call over to Hythiam's CEO, Terren Peizer.
TERREN PEIZER, CHAIRMAN, CEO, HYTHIAM, INC.: Thank you, Chris. Welcome, everyone, and thank you for joining Hythiam's 2008 third quarter conference call. Presenting with me on the call today is Chuck Timpe, our Chief Financial Officer; Rick Anderson, President and Chief Operating Officer; and Dr. Gary Ingenito, Senior Vice President and Global Head of Scientific Affairs. Also in the call from management are Chris Hassan and Ian Worden, Senior Vice President of Operations.
As we discussed in our last call, we were ahead of the curve in responding to the changing financial landscape, and we're reducing our operating cash expenses accordingly and significantly. As you will hear from Chuck Timpe, in the third quarter we reduced our cash expenditures to $6.9 million from $9 million and $7.6 million in the first and second quarters of this year. And we've committed a target $5.3 million cash expenditures in the coming quarter. I can assure you that our management team is not stopping there, and we continue to cut operating expenses significantly.
To enhance our ability to achieve profitability with our existing capital, thereby avoiding the need to raise capital in the equity market, we are implementing a program to cut our expenses further by $10 million in the coming year from the current levels, but importantly still growing our existing revenues. This process has been initiated and is a priority of our team.
This past quarter, our organization achieved a number of important milestones regarding our Catasys business and CompCare. You'll hear the details of these results from the management team shortly.
I will pass the call now to Chuck Timpe for the financial details for the quarter. Given that the level of the Catasys business that we believe that you will see this quarter, the fourth quarter, and subsequently in the first quarter, it'll be constructive for Rick Anderson to elucidate the product and its value proposition again as well as take you through the sales cycle process. Rick, will further review the progress made this quarter with Catasys. Next, Dr. Gary Ingenito will cover our data pathway, and then we will conclude and answer any questions. Chuck?
CHUCK TIMPE, CFO, HYTHIAM, INC.: Thanks, Terren. For the third quarter, we reported revenues of $9.7 million, which included $8.4 million in revenues from CompCare's operations and $1.3 million in revenues from our Healthcare Services business compared to consolidated revenues of $12 million in the third quarter of 2007, which included $9.8 million in revenues from CompCare's operations and $2.2 million in Healthcare Services revenues.
The net loss in the third quarter of 2008 was $7.3 million or $0.13 per share compared to a net loss of $13.8 million or $0.31 per share in the same period last year. Included in the 2008 third quarter net loss was a $141,000 net profit from CompCare's operations compared to a $1.1 million net loss for CompCare in the same period in 2007.
The consolidated net loss for the 2008 third quarter included non-cash charges for depreciation, amortization and stock-based compensation expenses of $3.7 million compared to $1.5 million for similar expenses in the same period in 2007. The consolidated net loss for the 2008 third quarter also reflected a non-cash gain of $2.4 million from the change in fair value of our warrant liabilities, while the consolidated net loss for the 2007 third quarter included a non-cash charge of $2.4 million for an impairment loss.
As of September 30, 2008, the Company had consolidated cash, cash equivalents and marketable securities of approximately $15.5 million, not including auction rate securities.
In January this year, we streamlined our Healthcare Services operations to focus on our Managed Care opportunities, reducing cash operating expenses by 25% to 30% for the reminder of the year. In April, we took further action to streamline our operations by reducing operating costs an additional 20% to 25%. We reduced our cash operating expenses to $6.9 million in the third quarter of 2008, and we expect to further reduce our cash operating expenditures to $5.3 million in the fourth quarter compared to an average of $11.5 million per quarter in 2007 in our Healthcare Services operations.
We are committing to further reduce our cash operating expenses by $10 million in 2009 from current levels, resulting in total budgeted cash operating expenses of $17 million in 2009, as we are focused on cost reductions and new Managed Care contracts, evidencing the probability of achieving profitability with existing capital resources.
For the quarter ended September 30, 2008, there were 36 licensed sites that contributed to revenues at some level compared to 52 locations in the third quarter of 2007, reflecting our decision to streamline operations by reducing operating costs to focus on Managed Care opportunities. For the quarter, the Company's average revenue per PROMETA patient treated was $6,609 compared to $6,355 per patient in the third quarter of fiscal 2007.
As I mentioned earlier, CompCare achieved net income of $141,000 in the third quarter of 2008 compared to a $1.1 million loss in the third quarter last year. This improvement reflects the progress CompCare has made in managing its claims expenses despite a decrease in revenues. CompCare's major contract in Indiana, the primary cause for its significant claims cost and operating losses since January 2007, will end at the end of December. CompCare is working on methods to minimize and manage the exposure to the remainder of the claims that will be presented for payment in the first half of next year with several parties.
CompCare has broadened its pipeline of new business over the past two quarters and is increasingly focusing on the more profitable business and non-risk bearing services revenue streams. CompCare has also been awarded new contracts that begin later this year and at the beginning of next year.
For the nine months ended September 30, 2008, revenues were $32.6 million, which included $27.3 million in revenues from CompCare's operations and $5.3 million from the Company's Healthcare Services business, compared to consolidated revenues of $32.2 million in 2007, which included $26.5 million in revenues from CompCare's operations and $5.7 million in Healthcare Services revenues.
Net loss for the nine months ended September 30, 2008 was $32.1 million or $0.59 per share compared to a net loss of $36.8 million or $0.83 per share for the nine months ended September 30, 2007. The net loss for the nine months ended September 30, 2008 included $5.4 million of net loss from CompCare's operations and related purchase accounting adjustments compared to a $3.0 million net loss for CompCare in the same period in 2007.
Consolidated non-cash charges for depreciation, amortization and stock-based compensation expenses were $9.6 million compared to $4.4 million for similar expenses in the year-earlier period. The consolidated net loss for the nine months ended September 30, 2008 also included a non-cash gain of $3.4 million from the change in fair value of the Company's warrant liabilities, while the consolidated net loss for the same period in 2007 included a non-cash charge of $2.4 million for an impairment loss.
I will now turn the call over to Rick for more details about Catasys and our Managed Care operations.
RICK ANDERSON, PRESIDENT AND COO, HYTHIAM, INC.: Thanks, Chuck. The recent financial and economic developments have caused all businesses to become focused on cost containment and reduction. This will be particularly true for health plans and other healthcare payers, as healthcare costs are expected to grow 9.6% in 2009.
In the recent financial recovery legislation, an important element was included in the bill that will serve to further increase payers' cost and thus have a positive impact on our business. The Mental Health Parity & Addiction Equity Act of 2008 mandates that addiction treatment coverage be no more restrictive than coverage and payment for medical conditions. This single piece of legislation will have a significant impact on patients seeking treatment...
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