CATASYS INC (CATS) Q2 2019 Earnings Call Transcript

CATASYS INC (OTRK -24.85%)
Q2 2019 Earnings Call
Aug 14, 2019, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Catasys 2019 second-quarter financial results. [Operator instructions] As a reminder, this conference is being recorded. I will now pass the floor over to a representative of the company. Thank you.

Please begin.

Adam Prior -- Senior Vice President of The Equity Group, Inc.

Thank you. Good afternoon, and thank you all for joining us. Before I 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.

Those words anticipate, believe, estimate, expect, intent, guidance, confidence, target, project and some other expressions are typically 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 Factors section of the Form 10-K and Form 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 these forward-looking statements.

With that, I'd now like to turn the call over to Mr. Terren Peizer, chairman and CEO of Catasys. Please go ahead, Terren.

Terren Peizer -- Chairman and Chief Executive Officer

Thank you, Adam, and welcome, everyone. With me on today's call are Rick Anderson, president and chief operating officer; and Christopher Shirley, our chief financial officer. The second quarter was an important one for us as our outreach pool surpassed the milestone of 100,000 eligible lives during that period. This achievement is the culmination of hard work by all the individuals within the Catasys organization, and on behalf of our leadership team, I'd like to acknowledge each and every one of them for their efforts.

We would not be here, where we are today, without our frontline of member engagement, the care coaches, the community care coordinators and support staff who are deeply invested in the work that we do in improving member lives. As a result of ongoing contract expansions and new program launches, Catasys' outreach pool of eligible members has continued its rapid ramp. We began 2019 with an eligible outreach pool of 41,000. As a result of significant expansion within existing plans, our outreach pool had increased over 75,000 by the end of Q1 and 112,000 today.

We are a year ahead of expectations with this revenue-leading indicator and remain extremely confident in the significant growth potential represented by Catasys' business. As a reminder, it takes about 12 months for new customer launches to reach an approximately 20% annual enrollment rate. One year after launch, the company generally enrolls more than 20% of its outreach pool over a 12-month period. During the 2019 second quarter, we continue to expand partnerships with existing customers such as Cigna and Centene and establish new relationships with health plans such as Optima Health.

This week, we announced expanding our business with Aetna into six more states, making OnTrak available now in 27 states or more than half the country. And we once again achieved strong year-over-year growth in enrollment and revenues during the period. In just the first half of 2019, we have nearly achieved the amount of revenues reported all of 2018. That being said, we are reiterating our revenue guidance of $35 million for 2019, which we fully expect to meet given our operational success in the first half of the year.

Please also keep in mind that this guidance does not include expansions or new health plan contracts or new products that we plan to introduce in the coming months. Our guidance only includes those contracts and expansions and products that have signed or launched. I've said in the past that we see 2019 as a transitional growth year. We believe the tremendous growth in our outreach pool over the course of this year sets us up for an even more significant growth in 2020 and beyond.

We have been working in earnest to set the foundation to support this growth in the first half of 2019, which Rick and Christopher will discuss later in the call. It's vitally important that we have the infrastructure in place to scale exponential growth. Catasys also continues to be at the forefront of healthcare innovation. A few weeks ago, we announced the launch of Catasys PRE.

P as in predict, R as in recommend, E as in engage. A new platform that utilizes Catasys' predictive analytics and engagement and AI capabilities to proactively deliver interventions to address care avoidant members with chronic diseases such as cardiovascular disease, diabetes and pulmonary disease. We believe this breakthrough approach gives us the ability to achieve in minutes what typically takes months of manual work by highly trained healthcare data scientists. Our health plan partners encouraged us to make Catasys PRE available as soon as possible, and the initial feedback on the platform has been quite positive.

We have also continued to establish partnerships that we believe increase our value propositions to our health plan partners to improve outcomes for members and reduce healthcare costs. In June, we announced a new strategic partnership with digital therapeutics company, Canary Health, to which Catasys is piloting Canary Health's Better Choices, Better Health series of peer-moderated online workshops. These workshops are designed to empower individuals to self-manage their chronic conditions. Major studies have shown that these types of workshops are effective in improving health outcomes and lowering healthcare utilization and costs.

Catasys PRE and this partnership with Canary Health, as well as our previously announced initiative on loneliness are ways in which we are expanding our focus beyond behavioral health and addressing chronic disease directly. As we continue to develop new technologies and forge partnerships with leading healthcare companies, we look forward to improving the lives of members while driving significant cost savings for health plan partners. In this respect, OnTrak is a powerful application on the Catasys' PRE platform that enrolls, engages and modifies the behavior of a treatment and care avoidant population who suffers the medical consequences of untreated behavioral health. As we announced a few months ago, loneliness is an epidemic and a priority for the industry.

While we believe we are currently effectively treating loneliness with OnTrak, we hope to add this product application to the Catasys PRE platform in the not-too-distant future. With that, I will turn the call over to Rick to discuss our operations, and we'll return later to speak on the continued expansion of Catasys leadership team and expand on our outlook for the year. Rick?

Rick Anderson -- President and Chief Executive Officer

Thanks, Terren. Those of you that are familiar with Catasys are well aware that our growth is driven by program expansions with existing partners, particularly as we have agreements with the majority of the nation's largest providers. However, another key focus of Catasys is improving the efficacy and expanding the reach of our technologies. As a leader in healthcare innovation, we believe that constantly refining and improving healthcare solutions for our members is imperative.

As Terren touched on earlier, we announced yesterday the expansion of OnTrak with Aetna into six new states. OnTrak-A will serve eligible members in Ohio, Tennessee, North Carolina, South Carolina, Maryland and Delaware. Maryland, Delaware and Ohio are new states for Catasys, bringing the company's total reach to 27 states. Eligible members in Ohio, Tennessee, North Carolina and South Carolina currently are able to enroll in OnTrak-A, and enrollment is anticipated to commence in Maryland and Delaware before the end of Q3.

During the second quarter, we announced further expansions in both geography and conditions. Our OnTrak solution with Cigna for Medicare Advantage members expand into Alabama, Mississippi, and Florida, with Alabama and Mississippi representing the 23rd and 24th states in which OnTrak is available. And we announced that we had expanded OnTrak with Centene in Texas to include anxiety and depression. Centene's Texas operation is the largest Medicaid plan in the state.

In April, we announced an agreement with a new customer, Optima Health. We launched the OnTrak solution for their commercial members in Virginia in July and continue to be in discussions for additional expansions and contracts with potential new customers. These expansions and new customers are a significant driver behind our growing outreach pool which, in turn, leads to higher enrollment. We enrolled more than 2,200 new members to the OnTrak program in the second quarter, up 81% from the prior-year period and 58% for the first quarter of 2019.

Throughout 2019, we have continued to grow our care teams and the underlying infrastructure to support our rapidly growing eligible member pool and enrolled members. We have more than doubled our member-facing staff since the beginning of the year and continue to expand those teams to support our growth. With improvements to our systems, we significantly reduced the time it takes to train new staff, enabling them to engage with new members more quickly than previously. I will now turn it over to Christopher for an overview of our financial results.

Christopher Shirley -- Chief Financial Officer

Thank you, Rick. Our revenues for the second quarter of 2019 increased to $7.7 million, compared to $3.3 million during the same period in 2018, resulting in a year-over-year increase of 135%. The revenue increase was driven by an increase in the number of members enrolled in our OnTrak solution during the second quarter of 2019 compared with the same period in 2018. Revenues for the first half of 2019 totaled $14.5 million compared to $5.2 million in the prior-year period.

Notably, the revenues we achieved in the first six months of this year nearly matched that of all four quarters in 2018. I'll move now to margins which, in Catasys case, reflects revenues less the cost of healthcare services as a percentage of revenue. For the second quarter of 2019, our gross margins increased to 43.2% from 10.1% in the prior-year period. On a quarterly basis, this number does fluctuate depending on our need to invest in additional Catasys care coaches and outreach specialists in advance of revenue growth.

The healthcare provider claims payments to the network of physicians and psychologists and fees charged by third-party administrators for processing these claims. Gross margin was 49% for the six months ended June 30, 2019, compared to negative gross margin of 0.8% in the prior-year period. Our operating expenses increased in the second quarter of 2019 to $8.2 million, compared to $4.5 million in the prior-year period. As in Q1, we incurred higher expenses in the second quarter of 2019 due to investments in new technology and key personnel to support future growth and the servicing of contracts compared to the prior-year period.

Operating expenses in the first half of 2019 were $14.5 million, compared to $8.3 million in the prior-year period. On the bottom line, our net loss was $5.5 million or $0.34 per diluted share, compared to a net loss of $4.2 million or $0.26 per diluted share in the prior-year period. For the first half of 2019, our net loss was $8.4 million or $0.51 per diluted share, compared to $8.4 million or $0.53 per diluted share in the prior-year period. Touching briefly on our financial position.

We saw an increase in cash on June 30, 2019, as a result of warrant and options exercises and an additional drawdown of $5 million from our financing with Horizon. We are well aware of our capital needs given the investments we are making and we'll need to make to appropriately position our company ahead of significant anticipated growth in 2020 and beyond. With that, I'll turn it back over to Terren for closing remarks.

Terren Peizer -- Chairman and Chief Executive Officer

Thank you, Christopher. We continue working to position Catasys for its future, investing in the development of new technologies and platforms as we onboard the necessary care coaches and support staff for a much larger enrolled member population. Operationally, we continue to build out our leadership team. Following the addition of Carol Murdock as our chief commercial officer to our team earlier this year, we are pleased to welcome Daniel Prewitt as senior vice president of sales with over 25 years of experience in healthcare sales and management.

We are confident that Dan's proven track record of success with health plans, as well as third-party administrator health systems and accountable care organizations will translate well to his role in leading the company's sales to health plans and self-funded employers. Michael Wain also joined our team as senior vice president of member engagement and is responsible for leading Catasys' member engagement function. He has more than 20 years of experience leading member acquisition, engagement and contact centers at companies across diverse industries, from start-ups to Fortune 500 enterprises, and we are thrilled to have him on board. We also welcome Rob Rebak, an experienced and well-respected industry veteran to Catasys' board of directors.

Rob spent 20 of his 30 years in the industry leading several high-growth digital and tech-enabled health companies. The relationships he has cultivated and prominence within the industry will serve us well as we embark on our accelerated growth trajectory. We have been adding very talented people at the senior vice president and vice president level across the company. We've also been rapidly adding talented people across the frontline of our care community.

During the second quarter and here in the third quarter, we have accelerated the build-out of this critical "engagement" piece of our business, hiring and training the care coaches, outreach personnel and community care coordinators who play a key role in the success of our programs. In fact, so far this year, we have added 200 employees and now total 371 teammates. We continue to develop OnTrak 2.0, which enhances the use of artificial intelligence so that human resources can focus on the important personal interactions that make OnTrak so effective. In doing so, Catasys will be able to address a larger population through the greater use of technology and deliver improved member health and validated outcomes and savings to health plans all at a lower cost to Catasys.

Increasingly, the effective, efficient care optimization of larger, diverse population through fingerprinting and personalized behavior modification techniques results in lower costs for us, which will, in turn, lower the cost of care to our health plan partners and, most importantly, result in better outcomes for more of their members. As I've said before, we anticipate at least a doubling in our eligible lives outreach pool with OnTrak 2.0 and a market improvement in our operating margins. Again, the current 112,000 eligible lives pool does not incorporate OnTrak 2.0 populations. We are currently marketing OnTrak 2.0 and hope to share with you contract announcements and launches in the coming months.

I very much look forward to our third-quarter call where we will provide 2020 guidance. We are highly focused on being able to scale and achieving explosive growth. On our last quarterly call, I laid out an example of what a 100,000 lives outreach pool run rate would look like 12 months out. The run rate in the example was $130 million.

It's important to note that not all 112,000 started outreach today. We started the year with 41,000, reached 75,000 in March, 92,000 in May. Hence, you will see that the run rate curve comes in a bit. Moreover, it would be folly to assume that we don't continue to add to our outreach pool of eligible lives.

We expect to significantly grow this metric in the coming months and year with new contracts, expansions with current partners and the launching of OnTrak 2.0 and adding more applications to the Catasys PRE platform. As I said in the last call, although we are guiding to 130% growth rate this year, a transitional year, we anticipate exponential growth in 2020. Please keep in mind, we tell you what we know based on the current business, not what we expect to achieve as Catasys continues to develop its industry relationships and platform. That said, we do have very high expectations for our future.

To close, I'd like to thank our senior leadership team and other senior managers throughout the company for their intensity, focus and grit, the guiding operating values of our company. A special thanks goes out to my partners in our mission, the frontline of member engagement specialists, our care coaches and community care coordinators. Team, thank you for the miracles you perform daily with our members. To our stakeholders, please take to heart, I have never been more certain and confident about our future growth.

I am very excited about Catasys' future. As we head into the last few months of 2019, we will continue working to execute on our growth strategy, and we remain confident that we will exceed expectations this coming year. With that, operator, we can now open up for Q&A.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from the line of Richard Close with Canaccord Genuity. Please proceed.

Richard Close -- Canaccord Genuity -- Analyst

Great. Thanks for the questions. Congratulations on the outreach pool metrics, the expansion in new clients. I did want to walk through the eligible pool in the 20% enrollment ramp within a year.

And just if we look at the first quarter of '18 pool, it was 31,000. And if you multiply that by like the net revenue number of 6,500, it sort of gives you a quarterly revenue rate of about $10 million. And then if you look at fourth quarter '17, it was like 25,000, and that would imply $8.1 million. And so we came in here 135% growth but below that $8.1 million coming in at $7.7 million.

So I just want to make sure I'm understanding the pool, the 20% ramp, and whether we need to tweak down some assumptions at all.

Terren Peizer -- Chairman and Chief Executive Officer

Well, let me generally address it without going through specifics. Generally speaking, you might want to ask, why does outreach pool keep expanding? We announced new expansions and contracts, etc., but yet we're not raising our guidance. The reason is is we are going through a -- while we think we'll achieve our guidance and hopefully outperform it, we are going through a rapid transformation of our whole infrastructure from everything you could imagine that goes into delivering our product from enrolling and engaging the members and modifying their behavior. The reality is is we have slowed intentionally a lot of our business to be able to still maintain the numbers that we promise, still provide the expansion and growth but to be sure that we could handle what we see is the avalanche coming next year.

So it's -- that's the easiest explanation I could give you. I will tell you that as far as the metrics that you use and the assumptions in our business, the changes that we're going -- and the transformation that we're going through this year will enable us to hopefully overachieve those metrics that you use. And it stems, again, from the outreach enrollment and engagement techniques that we're employing. That's the general answer.

Richard Close -- Canaccord Genuity -- Analyst

Yeah. So is what you're saying though, Terren, is that 20%, you still feel good about the year after launch that you'll get 20%, but right now, you might be trending a little bit below that as you add people to the frontline, so to speak? Is that the general sense?

Terren Peizer -- Chairman and Chief Executive Officer

It's more than -- OK. So number one, as you know, as I said, we added 200 employees. So obviously, most of that are care coaches, outreach specialists and community care coordinators. That's part of the process.

But we expect to be doing that in full throttle over the next year, anyway. But the ability to train quickly and effectively and get them out in the field associated with enrollment and revenue is speeding up. So those numbers are going to improve. I am confident that the metrics you're using will be -- we will outperform those metrics next year.

That's -- I'm very confident of that because of all the transformation changes we're doing now. And imagine, we're -- although we grew -- are growing more than 130% hopefully this year and we're maintaining that growth and delivering on that promise, I can't understate how radically we are changing our -- all of our infrastructure to accommodate next year's growth.

Richard Close -- Canaccord Genuity -- Analyst

OK. I think I got that. And then so as we think about the $35 million revenue guide and understand that you hope to exceed that this year, you had $7.7 million in revenue in the second quarter, sort of implies $10 million in each of the next quarters. How should we think about the ramp second quarter to third quarter to fourth quarter? Or should it really be more back-end-loaded to the fourth quarter?

Terren Peizer -- Chairman and Chief Executive Officer

Well, the fourth quarter is going to be bigger than the third quarter, for sure. And because -- a lot of the implementations that we're doing, most of it will be completed hopefully by the end of the third quarter. And of course, well, the fourth quarter, we always have December. But I think -- we're already seeing right now our enrollment rates rapidly rising.

And due part -- I'll give you an example. Part due to some of the new technology we're deploying, but a lot of that new technology really kicks in in October, November. So again, it constantly builds -- as I mentioned in the beginning of the year, we are investing $10 million outside of our working capital into technology and new products and also developing out our infrastructure, whether that be the sales and marketing and account management staff, but really invested heavily in technology, which the technology investment has borne the fruit of OnTrak 2.0 and the Catasys PRE, and I cannot understate how that is going to propel our business. Our customers are really excited about those two, both the platform of Catasys PRE and all of the applications we're going to build on it, like OnTrak 2.0, like loneliness and hopefully some others we'll be able to share with you.

Richard Close -- Canaccord Genuity -- Analyst

OK. So think of the back half as sort of stair stepping up from the second quarter, it sounds like?

Terren Peizer -- Chairman and Chief Executive Officer

Yeah. Again, a lot of -- hopefully, all -- most of all the technology enhancements and transformations will be consummated around October, November. I mean it could be earlier, but I wouldn't count on it. And the reason, we continually -- I think it's fair to say, the numbers that we're guiding to still represent, for the most part, pilot revenues, but we're merging from the pilot phase with most of our planned partners.

So a lot of it -- the reason we still keep guidance where it is is because there are still some things like, although, again, we tell you what we know, not what we expect, I do expect some national implementations, how big of a scope, how many lines of businesses, how many plans in come October, November, but most probably January or February. We don't know yet, so we're keeping the guidance where it is. We hopefully will achieve it and outperform it. I think next year, and I can't emphasize this enough, this has been a transitional year, both in terms of the growth percentage, 130%, but also in terms of building out this infrastructure to handle many multiples of the revenues we are talking about.

Richard Close -- Canaccord Genuity -- Analyst

OK. So my final question is, and you hit on this a little bit, investing the $10 million in technology and the new products. So I'm just curious, maybe this is for Christopher or whoever, but where does that show up? I mean I don't see on the cash flow statement like anything capex or software development, capitalized software development. Where is this hitting in terms of the financial statements if you can just -- are you expensing all these investments at the get-go or --

Terren Peizer -- Chairman and Chief Executive Officer

That's correct, Richard. We're expensing everything. To a large extent, we're utilizing services, etc. We're not investing in a lot of equipment to do this.

So it's really the people costs and the cost of their tools to deliver the technology.

Richard Close -- Canaccord Genuity -- Analyst

And then that is in the cost of services if it's with the care coaches and outreach and all that?

Terren Peizer -- Chairman and Chief Executive Officer

No, that's -- it's done in the operating expense line.

Richard Close -- Canaccord Genuity -- Analyst

OK. OK, great. Thank you.

Terren Peizer -- Chairman and Chief Executive Officer

Thank you, Richard.

Operator

Thank you. [Operator instructions] Thank you. Our next question comes from the line of Mohan Naidu with Oppenheimer. Please proceed.

Mohan Naidu -- Oppenheimer and Company -- Analyst

Thanks for taking my questions. Congrats on surpassing the 100,000 target on outreach pool. A couple of questions from me. First on Catasys PRE.

This is clearly a deviation from your behavioral health focus. Do you need additional data or clinical data focus from health plans to make this work? And any additional color in your discussions with the health plans for contracting or pilots or anything that would be useful?

Terren Peizer -- Chairman and Chief Executive Officer

We are talking about Catasys PRE at a very senior level within some of our health plan partners, and it's gotten the attention of senior executives. And when I say senior executives, the most senior executives at these very large blue-chip companies. What we're able to do is groundbreaking in a simple word. So if you believe that we can -- and I think we've established, but if you believe that we can identify members that don't present themselves as a behavioral health, mental behavioral health and a chronic disease patient, and if you believe we can identify, enroll and engage and modify their behavior of this treatment and care avoidant patient population, which I think as we're emerging from the pilot phase and getting into the national rollout phase, the health plans believe it because they do a lot of analyses, actuarial analyses, that prove our ROI and our value proposition.

If you believe that, which everyone does, from us to our partners, and then you could apply it to all chronic diseases, where 50% of the people in this country do not engage and are care and avoidant with their chronic disease, if you could take the same capability as we do today and apply it generally to chronic diseases, you're starting to impact something that no one else in the country could impact. And it produces savings that are beyond your belief. And of course, we share in those savings. So this is, I can't emphasize enough, is a major transformation of our company.

It's something that we're excited about, and we're even more excited to see our partners excited about it.

Mohan Naidu -- Oppenheimer and Company -- Analyst

Thanks for that color, Terren. But when you think about how you guys are doing the current behavioral health programs, how much of your deviation needs this PRE program from your current work? I mean [Inaudible] significantly need to change to accommodate this.

Terren Peizer -- Chairman and Chief Executive Officer

Think of it more -- think of it this way. OnTrak 2.0 is a kind of the birth out of PRE and as an application on the PRE platform. The whole general platform, we didn't have this platform before. We just had OnTrak 1.0.

Then through this Catasys PRE platform, we created an application called OnTrak 2.0. OnTrak 2.0 does many things that OnTrak 1.0 doesn't do, and it optimizes care for a population. It can actually identify, as we refer to it, a fingerprint or a phenotype of a patient population that based on 10 years of data, billions of data points, we know what patient would do well in our program, we know what medical expenses we could impact on that patient, and we know what savings rate we could titrate to the health plan to give them the ROI that they need for a much broader population. Before OnTrak 1.0 was the high utilizers.

This combines both high utilizers and low utilizers and combined, gives them a ROI that they're not even getting in the low utilizing population. So think of it, we're delivering a whole population, optimizing the care knowing uniquely who in the high utilizing population needs maybe less intensity of care, who in the low utilizing population might need greater intensity of care, because the industry thinks linearly, we think multi-dimensionally in a matrix and Catasys PRE fingerprints and matches the patient with the right programs based on the many variations and modulations of our OnTrak solution. So think of it as we're not doing anything different, we just enhanced our capability through this platform. And -- but now we're enhancing our capability to go into chronic disease generally.

We're not -- I want to be very clear, we're not going to go out and immediately just focus on chronic disease. Unfortunately, I can't share with you what we think we're going to be doing in OnTrak 2.0 because we only tell you what we know, not what we expect. But I hope soon, I will be able to share with you the OnTrak 2.0 contracts, launches, implementations. And then it will become a little bit more clear how important Catasys PRE is driving development.

Mohan Naidu -- Oppenheimer and Company -- Analyst

That's very helpful. Maybe a couple more follow-up questions from Richard, I guess. On the 20% conversion, you're talking about -- you seem to be extremely confident on that one. Can you help us understand the resources you need to be able to support that or achieve that? And you talked about adding 200 more employees now.

Any guidance on like how much time it takes for a typical employee to be productive for you? And how fast do you need to ramp those guys up to achieve the 20% conversion into next year?

Rick Anderson -- President and Chief Executive Officer

So this is Rick. What we're seeing in terms of our care coaches is about somewhere between four to six weeks in terms of them beginning to be productive and then that ramp -- that productivity ramps up over a period of time. The faster we're growing, the faster that productivity ramps up. And our member engagement specialists are usually productive inside of about four weeks.

Mohan Naidu -- Oppenheimer and Company -- Analyst

Thanks, Rick. I guess if you look at the 100,000, 112,000 now and you're going to add more the rest of the year, approximately, how many more resources do you need to add? And do you have the working capital now to support that? Or any views on your cash burn rate? So I know there are a bunch of questions in there. Maybe it's for Chris as well. How should we think about your cash flow and cash needs going forward?

Terren Peizer -- Chairman and Chief Executive Officer

As I said on the previous call, if you recall, I said we will need more cash. We said so today. How much more, I would put it -- right now, to get to cash flow positive state with a comfortable margin, our incremental amount of capital need would be about $15 million.

Mohan Naidu -- Oppenheimer and Company -- Analyst

On top of what you've got right now in the balance sheet?

Terren Peizer -- Chairman and Chief Executive Officer

Correct. Now if you'll ask me how we're going to get that -- if you want, you could ask that, but -- if that's what you're wanting to ask.

Mohan Naidu -- Oppenheimer and Company -- Analyst

Yes, please. Go ahead.

Terren Peizer -- Chairman and Chief Executive Officer

As I've said in the past, and I will continue to say, we have significant access to debt capital. And please keep in mind, when we are talking with potential lenders, what they are seeing is they are doing deep, deep dives into our business. They are seeing confidential information. They are seeing the -- they are going through every contract, every customer, every number in our past and our future.

Our cash flows and revenues are very predictable, transparent. The growth is apparent. They are very excited about partnering with us, not only on what we need now, but also what our needs may be in the future given the growth that we seek. I am confident that maybe sometime in early September, after Labor Day, when everyone is back from vacation, we'll be able to share with you specifically who will be our partner.

But my hunch is you're going to be quite proud on who it is.

Mohan Naidu -- Oppenheimer and Company -- Analyst

That's great. We're looking forward to that. Congratulations again.

Terren Peizer -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. [Operator instructions] Thank you. Our next question comes from the line of Fred Orr, private investor. Please proceed.

Unknown speaker

Hi, guys. Welcome to analytic hell. Really, pretty nice quarter, very happy to see your enrollment pool metric come to life like it did. Could you answer one question for me?

Terren Peizer -- Chairman and Chief Executive Officer

Sure.

Unknown speaker

You have relationships with virtually all the major health insurance companies in the country with one notable exception out on the West Coast. Do you know how many insurers are covered by the insurance companies that you're currently doing business with?

Terren Peizer -- Chairman and Chief Executive Officer

It's approximately 65% of the U.S. population.

Unknown speaker

So I'm going to take that as 65% of the adult population? Or should I take that as percentage of the total?

Terren Peizer -- Chairman and Chief Executive Officer

We look at things in terms of adult because right now, we're not treating minors.

Unknown speaker

Right. So approximately 65% [Inaudible] around to $150 million or about, again, round numbers, about $100 million insured, our customers or the healthcare companies that you're currently doing business with. Correct? Roughly.

Terren Peizer -- Chairman and Chief Executive Officer

Look, the numbers -- or get very complicated how they report their numbers in terms of how they count, pharmacy benefit and all different types of things go into their numbers.

Unknown speaker

Yeah, yeah. Good point. Good point.

Terren Peizer -- Chairman and Chief Executive Officer

I'm just giving macro numbers that are tossed around in the industry. Suffice it to say, we have a tremendous opportunity in front of us, and we think that both the OnTrak 2.0 application and the Catasys PRE platform will keep us very busy for the next 10, 20, 30 years.

Unknown speaker

OK. And can you give us an update about your conversations with the large healthcare insurer on the West Coast? Or anything you can is fine.

Terren Peizer -- Chairman and Chief Executive Officer

Nothing new to report. Nothing new to report. We don't need to get everyone, but ultimately, we think we will.

Unknown speaker

OK. Thank you. And I don't think given the deliverables that you guys have managed, that anybody will shy away from you doing an equity offering at some point. I don't think anybody wants to see you finance all your growth strictly with debt.

And --

Terren Peizer -- Chairman and Chief Executive Officer

Let me just -- let me say this about financing with debt. I have a rule of thumb about -- first of all, I obviously believe -- the market tends to value our equity at roughly -- and it did it all last year and it's doing it this year, roughly 10 times the current year's guidance on a fully diluted treasury stock method basis. I don't know how it does it, why it does it, it just does it. I obviously believe that our equity is not discounting anything next year.

It just has no clue -- the market doesn't seem to have any clue what our numbers will look like next year. That said, I believe we're trading at a very low price relative to what I think or what we believe will happen next year. That said, I have a rule of thumb. I'm very comfortable issuing 10% to 15% of our market value of equity in debt.

Because what that means is at any point in time, I can churn that 10% to 15% of market value of equity into equity without really disrupting the market, which I believe if we went out and did a 10% of our market value of equity, say, it's, whatever, $35 million, we could raise $35 million of equity without too much of a problem. And I think though, we're going to see that that 10% is going to be a very small -- a much smaller percentage of next year's revenue.

Unknown speaker

Excellent answer. Thank you very much and best of luck going forward. I remain a stalwart shareholder. And by the way, I'm very happy that management was able to exercise some stock options at a price that was over double the offering price of one of your past equity offerings.

Terren Peizer -- Chairman and Chief Executive Officer

No one in management, I don't believe, has exercised stock options, by the way.

Unknown speaker

You're in the money, and that's -- and I'm very happy to see that. Just reward for a lot of work. Thank you.

Terren Peizer -- Chairman and Chief Executive Officer

Thank you, sir.

Operator

Thank you. Our next question comes from the line of Jeff Kobylarz with Diamond Bridge Capital. Please proceed.

Jeff Kobylarz -- Diamond Bridge Capital -- Analyst

Hi, guys. Just curious about a couple of things on Catasys PRE. Terren, you said at a conference last week that the OnTrak 2.0, the -- it was -- it allowed for a 25% increase in the addressable market. And so is that all of what the PRE --

Terren Peizer -- Chairman and Chief Executive Officer

No, no, no, no. Jeff, let me correct you. It's roughly -- if I understand what you're saying, OnTrak 2.0 roughly is a 100% increase to 1.0.

Jeff Kobylarz -- Diamond Bridge Capital -- Analyst

All right. OK. And so the 2.0, does that capture all of PRE or what?

Terren Peizer -- Chairman and Chief Executive Officer

No, no, no. PRE, it's just an application on the PRE platform. We're going to do a lot of things with PRE. Just think -- I don't know how better to explain it, but clearly, I got to work on a better explanation.

So it shifts -- think of it as OnTrak 2.0 is powered by Catasys PRE. Catasys PRE is going to power everything we do going forward. It's transformational in its application. It takes our AI predictive analytics, predictive engagement levels to new heights.

Jeff Kobylarz -- Diamond Bridge Capital -- Analyst

OK. Just about the PRE patients here, I understand about 1.0, you have a lot of data, the experience of the insurers that they -- you run up a lot of emergency room bills, etc. But the care avoidant prepotential patients, they may not have as much of an insurance bill experience for you to be able to filter and do your magic of -- you can identify them. So aren't you working with less data with these care avoidant cardiovascular, pulmonary, diabetic?

Terren Peizer -- Chairman and Chief Executive Officer

OK. We are not currently in the market with any product in chronic disease. We have the ability and capability to go into the market of chronic disease. Again, right now, we are focused on our immediate launches and contracts and expansions that we have with OnTrak 2.0.

Jeff Kobylarz -- Diamond Bridge Capital -- Analyst

OK. All right.

Rick Anderson -- President and Chief Executive Officer

Just one other thing to add to what Terren said is remember that almost all -- virtually all of the members that we are treating in our legacy products, if you will, have chronic conditions. And you don't get members better and able to deliver the kinds of results that we're delivering without being able to deal with and manage the entire patient. So while we are targeting across behavioral health conditions, we already are making [Inaudible] these chronic [Inaudible] to some extent and in coordination with health plans and other partners and have data from our treatment of those as well. So just something else to keep in mind as you think about that.

Jeff Kobylarz -- Diamond Bridge Capital -- Analyst

OK. All right. Thanks for the help there. And then just lastly about OnTrak-A.

And you said that you're looking forward to your customers going forward with the national rollout. And how far away is OnTrak -- is Aetna from a national rollout? It's something [Inaudible] in many states that you're --

Terren Peizer -- Chairman and Chief Executive Officer

That's a good question. I think it's fair to say that Aetna is rolling out across the country in SUV, but we are meeting at a very high level with senior executives about a very big expansion, and I'll leave it at that.

Jeff Kobylarz -- Diamond Bridge Capital -- Analyst

All right. Thanks for your help. Good luck.

Terren Peizer -- Chairman and Chief Executive Officer

Thanks, Jeff.

Operator

Thank you. Our next question comes from the line of Ted Ketterer with TK Associates. Please proceed.

Ted Ketterer -- TK Associates -- Analyst

Hey, Terren, just a question on your relationship with Canary Health, because as I went to their website, they seem to be doing -- taking a different approach than you do, and yet they list Kaiser as a key client. You have mentioned this thing twice. What do you guys do for them? And what kind of potential is in that relationship?

Terren Peizer -- Chairman and Chief Executive Officer

The relationship with Canary or relationship with Kaiser?

Ted Ketterer -- TK Associates -- Analyst

With Canary. They have Kaiser on their website. What's your relationship with Canary? And what's the potential?

Terren Peizer -- Chairman and Chief Executive Officer

We have a close relationship with Canary. We're just piloting it. We're learning about it. There are things about Canary that we really like.

There are things that we think we could incorporate. And we're here to help Canary as well. It's -- I wouldn't read or build too much into it.

Ted Ketterer -- TK Associates -- Analyst

OK. That's it. Thank you.

Terren Peizer -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. We have reached the end of our question-and-answer session. Allow me to hand the floor back over for closing remarks.

Terren Peizer -- Chairman and Chief Executive Officer

Thanks to all of you for your time. Please feel free to reach out to us with any additional questions. Finally, I will continue to be proactive in speaking with our existing and potential investors. I'm scheduled to present at investor conferences over the next couple of months and have plans to be in various cities across the U.S.

to visit with investors in the coming weeks. We look forward to speaking with you again during our third-quarter financial results call in November and sharing with you our 2020 guidance, and hopefully, you will see that this is, in fact, a transitional year. Good night, everyone.

Operator

[Operator signoff]

Duration: 61 minutes

Call participants:

Adam Prior -- Senior Vice President of The Equity Group, Inc.

Terren Peizer -- Chairman and Chief Executive Officer

Rick Anderson -- President and Chief Executive Officer

Christopher Shirley -- Chief Financial Officer

Richard Close -- Canaccord Genuity -- Analyst

Mohan Naidu -- Oppenheimer and Company -- Analyst

Unknown speaker

Jeff Kobylarz -- Diamond Bridge Capital -- Analyst

Ted Ketterer -- TK Associates -- Analyst

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