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CATASYS INC (CATS) Q1 2020 Earnings Call Transcript

By Motley Fool Transcribing - May 10, 2020 at 6:30AM

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CATS earnings call for the period ending March 31, 2020.

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Q1 2020 Earnings Call
May 07, 2020, 4:30 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Greetings, and welcome to the Catasys 2020 first-quarter financial results conference call. [Operator instructions] As a reminder, this conference is being recorded. 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.

The words anticipate, believe, estimate, expect, intend, guidance, confidence, target, project, and some other expressions typically are used to identify forward-looking statements. These forward-looking statements are not guarantees of future performance but may involve and are subject to certain risks and uncertainties, other factors that may cause 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 those forward-looking statements. Catasys expressly disclaims any intent or obligation to update these forward-looking statements.

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

Terren Peizer -- Chairman and Chief Executive Officer

Thank you. And welcome, everyone. May is mental health awareness month. And as you've likely seen in recent reports, the COVID-19 pandemic has elevated anxiety and caused a negative impact to mental health across the nation.

The psychological toll in the country will be just as prolonged as the economic one. Please reach out and engage those who you know are suffering with mental health issues, including loneliness and PTSD related to so much mortality in the community. With me on today's call are Brandon LaVerne, our chief financial officer, who will review our quarterly results; and Curt Medeiros, our president and chief operating officer, who will join us for the question-and-answer portion of the call. Catasys has performed extremely well in the first quarter, delivering revenue of $12.3 million, which represents an increase of 81% from last year.

Our eligible outreach pool reached 145,000 at the end of March, up 34% from the end of 2019. At the end of Q1, we had 8,600 total enrolled members, up 23% from year-end and up 175% from Q1 2019. And recently, we had more than 10,176 total enrolled members up from 6,996 in Q4 and have crossed 25,000 members from inception to date. Our net enrollment or the change in the number of members currently being treated in OnTrak increased by 1,604 in the first quarter versus just 171 in Q1 net 2019, an increase of 838%.

And for April alone, that number was 1,339. We continue to expand our OnTrak-A footprint in the quarter, adding California in January, as well as Colorado, Washington D.C., Virginia, and Louisiana in March. Subsequent to the close of the quarter, we expanded into Indiana, Wisconsin, Kentucky, and Arkansas in April. OnTrak is now available in 30 states and our nation's capital, and we anticipate further expansion throughout 2020.

Coming out of a strong first quarter with great momentum behind us, we are confident that we're on track, pun intended, to achieve our 2020 full-year guidance of at least $90 million in revenue. Looking a bit more broadly, we have made a number of operational improvements recently to include, number one, increasing the speed at which we process data from a 2019 average of approximately 22 days of file receipt to load it in operational systems to about 10 days with a target of getting to five days by year end. Number two, working to ensure close alignment of resources with enrollment objectives as we enhance our leadership team. Three, instituting new member engagement performance and hiring standards to improve the experience and performance of our member engagement staff in driving enrollments.

Our enrollments per member engagement specialists improved from 15.6 in Q4 2019 to 17.8 Q1 2020, which equates to about a 14% with March performance at 24 enrollments per member engagement specialists or roughly 54% improvement from Q4. And number four, accelerating hiring and balancing resources across both the member engagement specialists and care coaches to ensure the capacity to enroll new members accelerated with demand. Alongside these operational improvements, COVID-19 has created some unique opportunities for Catasys. The shelter-in-place orders have led to more people in our outreach pool being at their homes which makes it easier for our team to reach them.

We had record highs of reaching over 20,000 members in March, compared to an average of approximately 13,000 members reached in January and February and 5,200 reached in the first quarter of 2019. Further, these people are currently more open to accepting help than they previously might have been. These COVID-related opportunities, combined with the operational improvements we implemented have driven our gross enrollment numbers to record highs, averaging over 360 gross newly enrolled members per week in the quarter. The momentum we saw in the first quarter continued into April in which we averaged over 500 newly new weekly enrollees.

Throughout the first quarter, we also saw a decrease in disenrollments month-to-month with March hitting lows of 9.4% and then April coming in even lower at 8.9%. Both March and April were below our trailing 12-month number of about 10.8% monthly. We believe our multimodal engagement approach plays a crucial role in lowering disenrollment, and we are pleased to report at 64% of our members, about twice as many as in Q4 2019 are now using our free texting services to stay in touch with our care coaches. We've also continued to focus on member experience throughout this complicated time.

Record call volumes have plagued many telehealth companies brought on by increased usage of telemedicine during the COVID-19 crisis. These companies are seeing their member experience scores fall in the face of multi-hour weights for medical professional attention. We are pleased that our member engagement scores have actually increased this quarter with OnTrak members rating their Catasys care coaches with a Net Promoter Score of 79, which is up from 75 last year and compares to Apple's 72, Amazon at 62, Starbucks at 77. On our last call, I introduced you to a number of new team members.

Over the past few months, we've continued to strengthen our executive leadership team, and I'm pleased to say we've made great progress in coming together as a cohesive and aligned team and continue to execute operational improvements and deliver the highest possible service to members. I believe we have a very strong team in place to navigate and capitalize on the tremendous growth opportunities ahead of us. Looking forward, our pipeline continues to build, including several meaningful opportunities with leading managed care providers. One national Medicare Advantage plan that was previously delayed looks to be on track to launch at the start of the third quarter, and we are in dialogue for significant expansion with an existing partner.

We are continuing the design of new OnTrak disease area pilots for congestive heart failure and COPD, with the objective of launching two new pilots in the second half of the year. These pilots, if successful, will afford us the privilege of serving more members within both existing and new payer customers in 2021 and beyond. At Catasys, we have built a platform for growth. Not only are we confident in our 2020 results, but given our outreach pool visibility, planned expansions, and new customer launches, we are shaping up to extend our 2020 growth rate into 2021.

I'll now turn the call over to Brandon to review our first-quarter results in more detail. Brandon?

Brandon LaVerne -- Chief Financial Officer

Thank you, Terren, and thank you to everyone for joining us this afternoon. One of the things that excited me most about Catasys is our highly unique position in the market and the tremendous opportunity ahead of us. I'm happy to be on board and look forward to being part of this exciting story. Turning to the first-quarter financials.

Revenue of $12.3 million increased by 81% compared to the first quarter of 2019. The growth was driven by our continued expansion of the OnTrak program with our existing health plan customers and accelerate enrollment of members from existing and new health plan expansions. As Terren mentioned, our net enrollment increased by 1,604 in the first quarter versus just 171 in the first quarter of 2019, an increase of 838%. The net enrollment increases were achieved despite updating eligibility data in January, which enabled us to disenroll 1,245 members in Q1 who lost their health plan eligibility, a natural phenomenon that occurs each year.

As a reminder, when a member loses health plan eligibility, Catasys will not be paid for the OnTrak program by the health plan. Quickly dealing with this uncontrollable disenrollment enabled our member engagement specialists and care coaches to focus on the enrollment of new members and minimize any negative effects on our revenue. In addition to the normal eligibility decreases in Q1 that come from updated health plan coverage data, we're also experiencing a potential impact stemming from COVID-19 as it relates to declines in medical utilization. While we believe it will be temporary in nature, we do anticipate some near-term effect on the size of our outreach pool as lower medical utilization will cause some members to lose eligibility to our OnTrak program.

To offset this potential headwind, we're in discussions with our health plan partners in regards to lowering the utilization threshold as medical utilization could spike significantly later in the year. Our gross margin for the first quarter of 41.4% was flat sequentially, and compared to 55.6% in the first quarter of last year. The year-over-year decrease in gross margin was due to continued investment in member-facing headcounts, such as care coaches and member enrollment specialists to support current and anticipated growth in our outreach pool and enrolled members. We expect our gross margin to increase over time as we optimize our operational efficiencies and launch new health plans.

Our operating expense of $11.1 million represents 90% of total revenue, compared to 92.5% in the first quarter last year. Our GAAP net loss of $7.6 million or a loss of $0.45 per share, compared to a loss of $2.9 million or a loss of $0.18 per share last year. On an adjusted or non-GAAP basis, net loss for the first quarter was $5.3 million or $0.32 per share, compared to a loss of $1.9 million or $0.12 per share last year. Adjusted EBITDA in the quarter came in at a loss of $3.6 million, and compared to a loss of $1.5 million a year ago.

On the balance sheet, we ended the quarter with cash balance of $12 million and long-term debt of $33.3 million. Our cash flow used for operations in the first quarter was $4.6 million. To echo Terren's sentiment, we feel very confident in our ability to achieve our previously stated revenue guidance of at least $90 million in 2020. I'll now turn the call back over to Terren for his closing remarks.


Terren Peizer -- Chairman and Chief Executive Officer

Thanks, Brandon. And we're happy to have you on the team. This was a very strong quarter, both operationally and financially, and we made progress on our growth priorities for the year. This first-quarter momentum puts us in a great position to achieve our full-year goals, and I look forward to updating you on our progress along the way.

Curt, Brandon, and I will now open up the call to your questions. Operator?

Questions & Answers:


[Operator instructions] Our first question comes from the line of Daniel Carlson of Tailwinds Research.

Daniel Carlson -- Tailwinds Research -- Analyst

Hey, guys. Congrats on a great quarter.

Terren Peizer -- Chairman and Chief Executive Officer


Daniel Carlson -- Tailwinds Research -- Analyst

Thanks for taking the questions. And I guess the first one on my mind is probably on a lot of people's minds, just about that report that came out yesterday with some assertions in there. I'm just wondering what you can speak to about that.

Terren Peizer -- Chairman and Chief Executive Officer

Well, we're not going to really dignify it too much. I'll just say something blanketly on it. It's a nameless author at a nameless site that's nine months old, quoting anonymous sources. And he's recommended four or whoever, four companies in the last year.

One is up 58% from the initiation, the other is up 136%, and hopefully, ours will be up more. He had roughly 40 contentions, all are either factually wrong, latently misrepresentations, significant omissions, and doctored documents. I think our numbers and growth speak for themselves, particularly when you look at how many members are in the program today. And look at the net enrollment and look at April compared to all of the first quarter, I think the numbers just speak for themselves and not necessary to address anything about it.

Daniel Carlson -- Tailwinds Research -- Analyst

Yes. OK. I appreciate that. Moving on to some more relevant stuff then.

Question about your technology spend. In the past, you referenced an increase in that. And I'm wondering if you can speak to your current level in technology spending?

Terren Peizer -- Chairman and Chief Executive Officer

Well, we don't break out the actual numbers. But to put it in a perspective, in our digital technology group, led by Jeremiah Stone, we have 60 people, data scientists, AI engineers, software engineers, product, user experience, technology, operations and support, cybersecurity. And we will continue to add to that group. We will continue to invest in our AI platform and our Catasys PRE platform.

But it's a significant portion of our overall spend, and we expense as incurred, and it shows up in our SG&A. We're an asset-light company, thankfully, by design. So as an asset-light company, we invest in our people, and we have some of the top people in the country.

Daniel Carlson -- Tailwinds Research -- Analyst

So I'm guessing that the investment in that is what's driving a lot of this success in the new member growth. You gave guidance of $90 million way back in November. It looks like you're beating that guidance pretty -- you're beating your internal forecast pretty handily. Any reason why you're not increasing guidance at this time?

Terren Peizer -- Chairman and Chief Executive Officer

That's an excellent question. As you would point out, we gave guidance back in November. At the time, we were anticipating the national Medicare Advantage plan to launch. And that's a significant part of our numbers.

Now given that it's going to launch -- and we believe it will launch in the beginning of the third quarter, and given how everything is always sloping, the numbers will contribute a lot more next year. Now to put it in perspective how conservative we thought at the time was that was $90 million of guidance discounted off a much bigger number, something close to 25% discounted. Things are still, obviously, as you point out, we're ahead of our numbers. But we always point out given that we're dealing with some of the largest companies in America and just the natural drag and time to actually even just execute a contract.

Although right now I can say with respect to that national plan, we are in the final week or two of getting that deal signed and announced. So that will be back-end loaded. So that impacted our numbers. So there's no -- given we're comfortably ahead of our guidance, we expect to beat our guidance, but we always want to add that caveat.

But what's interesting to me is the growth that we're seeing this year, I don't see that flowing next year either. And as I pointed out on the call, we have tremendous visibility based on the outreach pool based on where we think it ends the year at.

Daniel Carlson -- Tailwinds Research -- Analyst

Gotcha. And then the last question for me. A lot of times, I'm hearing investors comparing you with Livongo, and you guys are two of the leaders in telehealth right now in the market. How do you see Catasys relative to Livongo though?

Terren Peizer -- Chairman and Chief Executive Officer

Well, we're different companies. Obviously, their main business is diabetes space. It's a SaaS model. Most of their customers are employees.

We're the only pure behavioral health, telehealth play. And of course, we're at the intersection of our members have multiple chronic diseases and multiple behavioral health diseases. But as such, our member community is care and treatment-avoidant. The other telehealth and a company like Livongo are dealing with the treatment-seeking.

And we're just structurally different. Theirs definitely a more capital-intensive model than ours as well. I think if you look at our margins at scale, they all have a higher gross margin because we embed the cost of our care community and the cost of services provided. But if you look at our EBITDA margin because we have significantly less marketing expense and they're marketing straight to consumers, if you will.

Our EBITDA margin should be slightly higher. But the only comparison I think you can make is we're both in the telehealth industry. Their multiple is a lot higher than ours. But it's interesting.

If you look at their year, they reported last night. But in 2019, they did $169 million of revenue. I think if you redo the math, and based on what I think our growth rate continues into next year, you could easily see that we could surpass that number. I'm not giving guidance yet for 2021.

But you could see how we could be ahead of their 2019 number. And all last year, they traded around a $3.5 billion-plus or minus market cap. This year, and last night, they reported, they should do somewhere around $296 million. And right now they have over a $5.2 billion market cap.

So I believe we're only about a year or so behind Livongo. So I look forward to being compared on a multiple basis, which I think we'll get there.

Daniel Carlson -- Tailwinds Research -- Analyst

OK. Well, I'm looking for that multiple expansion too. Thank you very much. I'll jump in the queue.


Your next question comes from the line of Richard Close with Canaccord.

Richard Close -- Canaccord Genuity -- Analyst

Great. Thanks for taking the questions. Congratulations on the good quarter. Brandon, welcome.

I was wondering if we could maybe start off with you. You've been here at the company for a little bit now. Why don't you just walk us through maybe your background coming into the company, what have you experienced so far? Are you comfortable with the accounting and whatnot?

Brandon LaVerne -- Chief Financial Officer

Sure. So thank you. So yes, I've been in the business for a long, long time. I'm a USC graduate, University of Southern Cal.

Started my career at Deloitte and made my way into a company called PCM and spent about 20 years there, the last 12 of which as CFO. They are about $2.2 billion in revenue and help lead that growth through lots of transactions, M&A events, organic opportunities changing our model, etc. So a very dynamic organization and something I was looking forward to bring here. When I came here, really excited to be part of a great healthcare-focused really member-led organization.

There's so much internal dialogue and folks that really seem to enjoy working with each other. And so from a team perspective, even in this crazy time where everyone's remote, we have great tools in place so that everyone can communicate and collaborate. And then from the point on the accounting, very comfortable with accounting. As you know, we hired a leader in the space as our chief accounting officer, James Park.

And he's got a great handle on that team. And see no issues with the accounting from anything I've seen, very consistent, normal. And our model is not terribly complicated.

Richard Close -- Canaccord Genuity -- Analyst

OK. Great. And welcome. Terren or Curt, I was wondering if you can maybe talk a little bit about the cherrypicking comment from the report that was referenced and then maybe tie that into your comments here today.

And then when we had our webcast a couple of weeks ago, thoughts in and around the lower medical utilization and the discussions you mentioned that you're having with your clients.

Curt Medeiros -- President and Chief Operating Officer

So I can start. Thanks, Richard. In terms of the cherrypicking comments, our algorithms in just medical and pharmacy claims from our customers and look at utilization patterns very broadly. We don't purposely include or exclude any specific types of utilization.

In fact, one of the most common questions we get from clients in the cherrypicking is around individual surgeries. And there is specific pieces of the algorithm that exclude any individuals that have had a surgery where that represents more than 50% of their impactable cost. So we're actually screening those individuals out. Similarly, when we actually look at the results of our program, we actually don't exclude the cost of those surgeries.

So we're treating it equal, both on the input side, as well as on the output side. But there are no specific parts of the algorithm that cherrypick at all.

Richard Close -- Canaccord Genuity -- Analyst

OK. And the medical utilization discussions.

Curt Medeiros -- President and Chief Operating Officer

Yes. In our data so far, we haven't seen anything in the client data that we received, we haven't seen anything drastic out of the norm. We're processing the files for our May runs now. And they'll be uploaded in the next few weeks.

So we're eagerly awaiting to see what happens there. We're cautious because of the general reporting of decreased medical utilization, and we expect to see some impact, but we don't know how much at this point. So we are working up analytics and working with our customers to see if we can temporarily lower the threshold to make sure that from a clinical standpoint, we can address individuals who were previously eligible. But because they haven't been able to access medical care have fallen below the threshold.

And we've gotten some good responses to the concept so far.

Richard Close -- Canaccord Genuity -- Analyst

OK. And then, Terren, I know you and I have talked about this, and you spent time on this item in various meetings and maybe on calls previously. Obviously, you potentially had some business with UnitedHealth at one point. Maybe you can just revisit what happened there.

And then a second follow-on there since we're on the talk of payers and clients, maybe address the Anthem commentary from yesterday.

Terren Peizer -- Chairman and Chief Executive Officer

Gosh, I don't remember too much specifically. That report kind of dismissed it pretty quickly. As far as UnitedHealth, we had a master service agreement with UnitedHealth which is the medical insurance arm. And we had a statement of work contract with Optum.

This was about a year and half process. And then on the eve of launch, we were told that the Optum and UnitedHealth have to enter into an intercompany agreement and how to divide our savings. That process that was -- first, we were told it was going to take a month, then after nine months, again, on the eve of allegedly launching, Optum notified us -- and to put it in perspective, Optum was essentially bringing our service to United and kind of as an intermediary, if you will. And Optum notified us and said that they cannot come to an agreement on how they're going to divide our savings.

And that they won't be able to contract with us going forward and that we should talk to United directly. Now fast forward, we are currently engaged with both Optum. But most importantly, for us, United. And we're cautiously optimistic that something will result from that in the not-too-distant future.

And to start with Anthem, we've had launched in a very small way with Anthem in California, it was in Southern California, in fact. California, as most of these plans are divided state into different entities by state or multiple states, California was very happy with the program. very excited about the program. The National Headquarter Behavioral Health CMO wanted to freeze our program and then when he told us that they, at this time, they weren't going to go forward.

The next week, they announced the acquisition of Beacon Health. Now we believe that considering now, actually, we have more data, more support, greater value proposition, clinical value proposition greater as the industry knows, Matched-Pair Analysis that prove the efficacy of the programs. We believe we can get every national plan ultimately. What we also know is that 97% of the members that we're targeting have not had a behavioral health visit in the last year.

We also know that greater than 90% of these people are not touched by another program in the plan. So it says that to the plan, and again, everything takes forever in this industry. So that's just the issue. And we've stated that many times in the past.

But that hunk of savings and that member engagement and that improving the health of these members is just sitting right there for the plan and obviously, we think that most rational, reasonable plans will take advantage of it.

Richard Close -- Canaccord Genuity -- Analyst

OK. That's very helpful. And then as we think about -- my last question here is maybe the comments on the expansions. I guess are there any signed expansions that maybe are not included in the 145,000 outreach pool? Or how should we think about that? And are the expansions just with the OnTrak-A client? Or are there expansions with other clients as well?

Terren Peizer -- Chairman and Chief Executive Officer

I'll let Curt answer that. But let me say before I turn it over to Curt again, relative to UnitedHealth and Optum, I don't want to put him on the spot, but Curt was President of Data Science and Analytics at Optum, which is a very important division there. He has very deep relationships at both Optum and UnitedHealth. And obviously, after doing his own due diligence, extensive due diligence, also, obviously, made a decision to become our President and Chief Operating Officer, and I'm sure, glad he did.

And also, I'd like to point out his insider purchases are quite significant. The biggest insider purchases we've seen outside of me, in our company history, and he's spent quite a considerable amount of money. I don't want to embarrass him. But not only did he buy stock, but also some of our directors have also been purchasing stock in the open market.

Two or three of our directors have actually. So Curt, I'll turn it over to you about Richard's question.

Curt Medeiros -- President and Chief Operating Officer

Thanks again, Richard. So in terms of expansions signed versus not, there are some additional signed expansions that will be coming out with some of our largest customers throughout the rest of the year. But there are also some opportunities with those customers that are in process and not yet signed. And none of these are included in the 145,000 that you referenced to this point, and we will update the outreach pool, obviously, as we go forward.

In terms of the second part of the question around beyond the first couple of customers, we're actively pursuing expansions and particular in the Medicare and Medicaid space because the people that fit our target profile of high-cost individuals with multiple chronic diseases and multiple behavioral health diseases, have much higher prevalence rates in both the Medicare and Medicaid books. And so we are aggressively pursuing conversations with target expansions with a handful of other customers in the second half of this year and potentially early in 2021.

Richard Close -- Canaccord Genuity -- Analyst

OK. I actually do have one additional question, if that's OK. Terren, since you brought up the diligence with respect to Curt coming in, can you talk a little bit about the diligence that was done by Goldman Sachs Specialty Lending when they invested in the debt component last September, maybe how extensive it was or whatnot?

Terren Peizer -- Chairman and Chief Executive Officer

It was painful. I've been involved -- look, I've been doing this. I started at Goldman Sachs when I was 20 years old, back in 1980, '81 era. I've seen a lot of transactions.

I've been involved with some of the largest deals throughout many decades. I have never seen such exhaustive due diligence on any transaction I have ever been a part of directly or indirectly. It was exhaustive. I joked that they certainly know the ins and outs every I and T in this company probably better than I do.

Richard Close -- Canaccord Genuity -- Analyst

Thank you.


Your next question comes from the line of Sean Dodge with RBC Capital Markets.

Sean Dodge -- RBC Capital Markets -- Analyst

Maybe starting on the enrollment trend. Terren, the 1,339 net number you gave for April, it's a big acceleration from the pace over the first quarter. How sustainable do you think that pace is over the coming months? I guess how much of that do you think is COVID-related? As you said, it's a bit easier to get people on the phone or you get to hold of them now that everyone's sheltering in place?

Terren Peizer -- Chairman and Chief Executive Officer

Sure. Excellent question. I'll take a stab at it and then I'll turn it over to Curt to give his perspective. So are people at home more? Yes.

Is there a tremendous backdrop of heightened anxiety? I mean, anxiety prescriptions are up 35%. 45% of all of those adults are talking about how fear and concern are creating mental, behavioral health issues. I could go on and on about the statistics. So the backdrop, mental behavioral health is exacerbated in the country.

It's elevated, and it will probably stay at a high level for a very long time, particularly as states go to shelter at home, less than the restrictions. People are worried about going back into a work environment. People are worried about going into restaurants. People are worried about everything.

If they're going to have a job, if the company is going to be in existence, there were several bankruptcies today. In terms of the April enrollment, I personally don't believe, and Curt has his own view. We haven't really seen a significant impact yet. Now from the backdrop I described, we would expect that, as we said over and over, and Curt just referenced going into Medicare Advantage populations.

As you get older, mental behavioral health issues worsen, and they don't get better with time. And chronic diseases worsen. They don't get better with time. And the two together double whammy.

So I believe that the heightened anxiety will start impacting claims. Remember, they get into our radar once their utilization is higher and elevated. So I don't believe we're going to see that effect till late in this year or maybe next year. I also have a perspective that since our members are care and treatment-avoidant, that just because they're at home, and easier to reach, doesn't mean that they're still seeking care, they're not.

And there's no one we call in the first month, whether it'd be March, April -- February, March, and April, particularly in April. I don't believe that we know factually that our members don't volunteer to join OnTrak on the first call or the first month or the first 2 months. So I don't believe it's had a dramatic effect. Frankly, we just don't have enough and nothing showing up that significantly, but Curt has a much better hand on the internal numbers than I do.

Curt Medeiros -- President and Chief Operating Officer

Yes. Thanks, Sean. So this is Curt. I agree with what Terren's saying, part of the challenge in understanding the COVID-specific effect is we've made a series of operational improvements starting in January at the same time.

And we did see positive performance improvements in our rates in January and February before we got into March, which is really where you see COVID-19 becoming the hourly newscast. And so it's a little bit too early to tell. But operationally, we are set up to sustain it. We've accelerated hiring to make sure that we keep up with demand.

And we have seen that performance sustain into April and early May. But there's obviously a lot of moving factors that we're watching. The medical spend and medical utilization is one of them. The overall impact on employment and people eventually losing their health benefits is another.

But as Terren said, this has actually created a increased awareness of substance use disorder, anxiety, and depression and has actually created more comfort for individuals to actually address these issues more directly. So we may also be seeing a new normal. But right now only time will tell.

Terren Peizer -- Chairman and Chief Executive Officer

Yes. That's an excellent point. I think we are beginning to see the destigmatization of this disease.

Sean Dodge -- RBC Capital Markets -- Analyst

OK. That's helpful. Then so there are a lot of moving pieces as far as different types of revenue recognition policies by contract and fluctuations in disenrollment rates and then graduation. Do you need to maintain this April pace to hit your $90 million revenue target for the year? Or what kind of net enrollment pace do you need to achieve to be able to get to that $90 million?

Terren Peizer -- Chairman and Chief Executive Officer

Well, I'll let anyone else chime in, but I'll just say on a blanket level, when we said we're ahead of our expectations, our expectations are the guidance, the $90 million. And again, we try to tell you everything based on what we know, although I use the word expectation, not what we expect. A lot of things that we could see as the year plays on, won't have this much impact this year because of where we are in the year, but will have a significant impact next year. And that's why, like I referenced in the past, this year, like the Crocodile Dundee movie, this year is not night, next year is the night.

And I think when we say we're ahead of expectations, we're ahead of our numbers.

Sean Dodge -- RBC Capital Markets -- Analyst

Got it. OK. If we think about costs, and Curt, you touched on this just a second ago a little bit. Given you've already done a lot of the hiring of care coaches, is enrollment ramps and utilization of those coaches increased? Where do you exit the year from a gross margin standpoint? Or just maybe frame it different.

Do you have the coaches in place now to handle $90 million of revenue? Or is there still some hiring, how much hiring is left to happen?

Terren Peizer -- Chairman and Chief Executive Officer


Curt Medeiros -- President and Chief Operating Officer

So I'll take the hiring part of that, and then I'll let Brandon follow up with the gross margin part. We've been ramping, and like I said, we pull forward some hiring because of the opportunity that we've seen in front of us. We've probably done about 65%, 70% of the hiring we need to do to support the number for the entire year. Remember, Terren referenced the large international plan that we expect to go live early in Q3.

Not all of that hiring has been put in place. We did accelerate some of what we planned because of that expansion, given the short-term demand and the increase that we're seeing in the enrollment numbers. But the expectations in terms of the workforce and what we need to bring on are well within sort of the monthly hiring rates that we've experienced in the past from this point forward. So in April and May will be our biggest increases.

In fact, we had, in late April, the largest training class that we've had in the history -- the largest single training class we've had in the history of the company. And if we see demand continue, we will be able to handle that at a consistent rate going forward. But we're probably at 65% to 70% of what we need right now. Brandon, you want to take the gross margin part?

Brandon LaVerne -- Chief Financial Officer

Yes. So based upon that, you can elicit that we would expect our gross margin to improve throughout the year. Considering that most of that hiring is there, we will be hiring more. And especially when we see or expect to see with the new national plan coming on board in the second half.

And so without giving specifics, I would say that we do anticipate continued sequential growth in our gross margins as a result of that.

Sean Dodge -- RBC Capital Markets -- Analyst

OK. And then just a quick last one for me. Just to clarify one of the earlier point. For the July 1 contract, Terren, you said the Medicare Advantage population, you're going to be launching and those historically ramp quickly.

Is there any of that July 1 contract assumed in your $90 million revenue target? Or I guess if there, how much?

Terren Peizer -- Chairman and Chief Executive Officer

Well, we don't break it out. Yes. It is in the guidance. I mean, it's the porter is more on what we know, not what we expect.

So yes, it is in our guidance. But remember, like I said earlier, when I gave guidance back in November, it was planned that it was going to launch January 1. So that's unfortunate, but as we say on past calls, it could be expected. And of course, this coming year, I look forward to giving guidance in February, not in November.

Sean Dodge -- RBC Capital Markets -- Analyst

All right. Thanks again for the time.


Your next question comes from the line of Gene Mannheimer with Dougherty & Company.

Gene Mannheimer -- Dougherty & Company LLC -- Analyst

Nice quarter, guys. The hires you're discussing, what roles are they? I mean, care coaches, obviously outreach specialists or both? And if you could remind us how many care coaches you have presently and what their caseload is at capacity before you have to hire more?

Terren Peizer -- Chairman and Chief Executive Officer

Well, I'll let Curt answer most of it. I'll tell you, right now, in the care community, we have about 210 care coaches which includes also some community care coordinators. And then in our member engagement specialists, that's about another 90. I think as a company, as a whole, so we call it as our care community, it's about 300.

And the company as a whole is about 476. And then, of course, I referenced 60. So basically, you have 60 of the 276 is our digital technology group. And I'll let Curt handle the harder part of the question.

Curt Medeiros -- President and Chief Operating Officer

So Gene, as we go forward, given the rates that we've seen in terms of our ability to reach individuals and get them engaged. About 75% of the ramp is on the care community side and only about 25% is an additional member engagement specialists.

Gene Mannheimer -- Dougherty & Company LLC -- Analyst

OK. That's very helpful. I understand that split. And Terren, with respect to the guidance, you indicated or implied that you're running maybe ahead of plan, which is too great.

You did $12 million in Q1, the expectation is $90 million for the full year. So if you can guide us a little bit, what percent of that of your full-year revenue would you expect to hit in the fourth quarter?

Curt Medeiros -- President and Chief Operating Officer

Well, first of all, it was $12.3 million, don't sort changes.

Gene Mannheimer -- Dougherty & Company LLC -- Analyst


Terren Peizer -- Chairman and Chief Executive Officer

And I'll let Brandon chime in on the fourth-quarter numbers.

Brandon LaVerne -- Chief Financial Officer

So thanks, it's a good one. So Gene, as far as the way we look at this, clearly, there's a ramp that we expect. We've got expansions that you've seen us report on in the first quarter, and those expansions start to really take hold shortly thereafter. And so you'll see those expansions hit in Q2 as far as revenue is concerned.

And then when we launched the new national plan in the beginning of the third quarter, assuming that goes as planned, that takes a little bit the ramp as well. And so it just keeps -- there's a layering effect, I think, as you know. And so each month, you're getting new cohorts in and it continues to ramp. And so what that does is it does backload the year.

We see in our numbers, we look at the outreach pool, as Terren had indicated, and we can see how these numbers work themselves out and how we convert folks from the outreach pool into enrolled members. And so I'm trying not to do an official quantification, a quarterly guide. But I can tell you that a large chunk is in the fourth quarter. But it's not going to be -- it's a slower ramp in the second quarter.

It will start accelerating in the third quarter and then seriously accelerated in the fourth quarter. It's probably the best I can say.

Gene Mannheimer -- Dougherty & Company LLC -- Analyst

All right. Now that's very helpful. Understood. Thanks.


And there are no further questions at this time. I will turn the call back over to Mr. Peizer for closing remarks.

Terren Peizer -- Chairman and Chief Executive Officer

Well, thanks, everyone, for joining us today, and we look forward to updating you soon. And everyone be safe, be well. And again, reach out to everyone that might be experiencing loneliness or mental behavioral health issues. It is mental awareness month.

And everyone, have a great night. Thanks for joining us.


[Operator signoff]

Duration: 53 minutes

Call participants:

Terren Peizer -- Chairman and Chief Executive Officer

Brandon LaVerne -- Chief Financial Officer

Daniel Carlson -- Tailwinds Research -- Analyst

Richard Close -- Canaccord Genuity -- Analyst

Curt Medeiros -- President and Chief Operating Officer

Sean Dodge -- RBC Capital Markets -- Analyst

Gene Mannheimer -- Dougherty & Company LLC -- Analyst

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